<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended October 31, 1997 or
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from ____________________ to ____________________
Commission file number 0-17521
ZILA, INC.
(Exact Name of registrant as specified in its charter)
Delaware No. 86-0619668
(State or Other Jurisdiction (IRS Employer Identification number)
corporation or organization)
5227 North 7th Street, Phoenix, Arizona 85014
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (602)266-6700
(former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No.___
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
The number of shares of the Company's common stock outstanding at October
31, 1997 was 33,885,889 shares.
Exhibit 15
Total pages 15
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TABLE OF CONTENTS
Page no.
--------
Part I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of October 31,
1997 and July 31, 1997 3
Condensed Consolidated Statements of Operations for
Quarters ended October 31, 1997 and 1996 4
Condensed Consolidated Statements of Cash Flows for
Quarters ended October 31, 1997 and 1996 5
Notes to Condensed Consolidated Financial
Statements (Unaudited) 6-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-12
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 12-13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ZILA, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------------------
October July
31, 1997 31, 1997
ASSETS (Unaudited)
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 7,818,599 $ 2,071,563
Cash in escrow 1,000,000
Trade receivables, net 3,215,329 2,822,687
Other receivables 218,439 319,127
Income tax receivable 310,379 494,757
Inventories 4,767,583 4,286,627
Prepaid expenses and other assets 651,187 538,360
Deferred income taxes 245,928 245,928
------------ ------------
Total current assets 18,227,444 10,779,049
------------ ------------
PROPERTY AND EQUIPMENT - Net 1,951,363 1,865,385
PURCHASED TECHNOLOGY RIGHTS - Net 6,801,184 6,910,293
GOODWILL - Net 2,640,326 2,693,139
OTHER INTANGIBLE ASSETS - Net 1,319,956 1,228,542
OTHER ASSETS 137,617 127,624
------------ ------------
TOTAL $ 31,077,890 $ 23,604,032
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,620,864 $ 3,262,904
Accrued liabilities 2,376,189 2,106,572
Deferred revenue 394,728 395,594
Short-term borrowing 70,769
Current portion of long-term debt 39,895 39,895
------------ ------------
Total current liabilities 5,502,445 5,804,965
LONG-TERM DEBT - Net of current portion 368,962 375,908
------------ ------------
Total liabilities 5,871,407 6,180,873
------------ ------------
SHAREHOLDERS' EQUITY:
Preferred stock, $.001 par value - authorized
2,500,000 shares; none issued
Common stock, $.001 par value - authorized,
50,000,000 shares; issued 33,885,889 shares
(October 31, 1997) and 32,326,581 shares (July 31, 1997) 33,886 32,327
Capital in excess of par value 38,572,001 30,360,446
Deficit (13,398,979) (12,969,189)
------------ ------------
25,206,908 17,423,584
Less 42,546 common shares held by wholly-owned
subsidiary (at cost) (425) (425)
------------ ------------
Total shareholders' equity 25,206,483 17,423,159
------------ ------------
TOTAL $ 31,077,890 $ 23,604,032
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
3
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ZILA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
QUARTERS ENDED OCTOBER 31, 1997 AND 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Quarters ended October 31,
-------------------------------
1997 1996
------------ ------------
<S> <C> <C>
REVENUES $10,800,182 $ 9,230,522
OPERATING COSTS AND EXPENSES
Cost of products sold 6,577,258 5,785,914
Selling, general and administrative 4,612,925 4,379,295
Merger-related expenses 72,215 149,825
Impairment charges 587,659
Litigation expenses 832,751
------------ ------------
11,262,398 11,735,444
------------ ------------
LOSS FROM OPERATIONS (462,216) (2,504,922)
------------ ------------
OTHER INCOME (EXPENSES)
Interest income 51,133 63,021
Interest expense (11,619) (16,793)
Other expense (7,088) (2,045)
------------ ------------
32,426 44,183
------------ ------------
LOSS BEFORE BENEFIT FOR
INCOME TAXES (429,790) (2,460,739)
INCOME TAX BENEFIT 186,518
------------ ------------
NET LOSS $ (429,790) $ (2,274,221)
============ ============
NET LOSS PER COMMON SHARE $ (0.01) $ (0.07)
============ ============
WEIGHTED AVERAGE NUMBER
OF COMMON AND COMMON
EQUIVALENT SHARES
OUTSTANDING 32,699,119 31,135,727
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
4
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ZILA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED OCTOBER 31, 1997 AND 1996
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (429,790) $(2,274,221)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 321,276 282,201
Realized loss on sale of investments 2,045
Impairment of assets 587,659
Change in assets and liabilities:
Trade receivables (392,642) 95,314
Other receivables 100,688 60,671
Income tax receivable 184,378
Inventories (480,956) 118,756
Prepaid expenses and other assets (122,820) 197,550
Deferred income taxes 76,248
Accounts payable and accrued expenses (372,423) 960,336
Income taxes payable (1,426,506)
Deferred revenue (866) 32,661
----------- -----------
Net cash used in operating activities (1,193,155) (1,287,286)
----------- -----------
INVESTING ACTIVITIES:
Purchases of short-term investments (228,057)
Proceeds from sale of short-term investments 226,423
Funding of related party receivables (58,901)
Purchases of property and equipment (220,988) (66,442)
Purchases of intangible assets (115,758) (25,842)
----------- -----------
Net cash used in investing activities (336,746) (152,819)
----------- -----------
FINANCING ACTIVITIES:
Net proceeds from short-term borrowings 70,769 200,506
Net proceeds from borrowings on securities available-for-sale 343,627
Net proceeds from issuance of common stock 7,213,114 292,272
Principal payments on long-term debt (6,946) (6,946)
----------- -----------
Net cash provided by financing activities 7,276,937 829,459
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 5,747,036 (610,646)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD $ 2,071,563 $ 3,491,904
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 7,818,599 $ 2,881,258
=========== ===========
CASH PAID FOR INTEREST $ 11,619 $ 16,793
=========== ===========
CASH PAID FOR INCOME TAXES $ $ 1,167,369
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE> 6
ZILA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. In the opinion of management of Zila, Inc. and Subsidiaries ("Zila" or the
"Company"), all adjustments, consisting of normal recurring accruals,
considered necessary for a fair presentation have been included in the
condensed consolidated financial statements. The results of operations for
the interim period are not necessarily indicative of the results that may
be expected for the entire year. The preparation of financial statements
in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
The consolidated financial statements include the accounts of Zila,
Inc. and its wholly-owned subsidiaries, Zila Pharmaceuticals, Inc.,
Zila International Inc., Zila Ltd., Bio-Dental Technologies Corporation
("Bio-Dental"), and Cygnus Imaging, Inc. ("Cygnus"). All significant
intercompany balances and transactions are eliminated in consolidation.
2. Net loss per common share is computed based on the weighted average number
of shares outstanding during each period after giving effect to any
dilutive stock options and warrants which are considered to be common
stock equivalents. For the quarters ended October 31, 1997 and 1996,
options and warrants that would otherwise qualify as common stock
equivalents are excluded since their inclusion would have the effect of
decreasing the loss per share.
3. Inventories consist of the following:
<TABLE>
<CAPTION>
October 31, July 31,
1997 1997
----------- -----------
<S> <C> <C>
Finished goods $ 4,459,939 $ 4,381,339
Raw materials 722,060 451,563
Inventory reserves (414,416) (546,275)
----------- -----------
$ 4,767,583 $ 4,286,627
=========== ===========
</TABLE>
4. The Company has a New Drug Application pending with the Food and Drug
Administration ("FDA") for ORATEST. The initiation of the marketing of
ORATEST in the United States is dependent upon the approval of the New
Drug Application by
6
<PAGE> 7
the FDA. During 1994, the FDA approved the Company's application for an
Investigational New Drug for ORATEST, which allows the Company to
manufacture the product in the United States for clinical studies and
export to certain foreign countries. The Company believes that the FDA
will approve the New Drug Application and the production and marketing of
ORATEST.
5. In July 1995, Bio-Dental was named as a defendant, along with Bio-Dental's
transfer agent and a shareholder of Bio-Dental ("Shareholder"), in a
lawsuit. The lawsuit alleges that Bio-Dental wrongfully failed to register
200,000 Bio-Dental shares in the name of the plaintiffs which were pledged
as security by the Shareholder for a debt owed by the Shareholder to the
plaintiffs.
Bio-Dental denied all of the material allegations of the lawsuit against
it and has asserted various affirmative defenses. Bio-Dental will continue
to vigorously defend against the claims set forth in the lawsuit. In
September 1996, Bio-Dental accrued a liability of $450,000 because it
decided to attempt a settlement of this litigation. Bio-Dental's attempt
was not successful. In January 1997, a judgement by the court in favor of
Bio-Dental and against the plaintiffs was filed. In February 1997, the
plaintiffs started the process to appeal the judgement.
Upon consummation of the Company's merger with Bio-Dental in January 1997,
each of the outstanding shares of Bio-Dental common stock was converted
into .825 shares of the Company's common stock. Subsequent to the merger,
the Company's stock transfer agent was presented with a certificate
purporting to represent 220,000 shares of Bio-Dental common stock which
did not appear on the records of Bio-Dental's stock transfer agent as of
the closing date. The Company is currently investigating this matter and
has not determined whether any shares of the Company's common stock are
required to be issued in exchange for the shares purportedly represented
by this certificate.
The Company occasionally encounters minor litigation as a means to resolve
disputes, which arise in the ordinary course of business. None of these
minor lawsuits are believed to be material to the Company's ongoing
operations or operating results.
6. On October 24, 1997, the Company sold $8,000,000 of the Company's common
stock under its Equity Line Agreement with Deere Park Capital Management
(the "Investor"). $6,000,000 of the proceeds from this sale were used for
the Peridex acquisition (discussed in Note 8) and the remainder was used
for general corporate purposes. In connection with the $8,000,000 sale,
the Company issued warrants dated October 20, 1997, (the "Warrants") to
the Investor exercisable for 96,000 shares of common stock at an
exercise price of $7.625 per share. The Warrants are exercisable for a
three-year period commencing October 20, 1997. The Company has committed
to sell an additional $2,000,000 of common stock to the Investor over
the remainder of the commitment period. In the event the Company does not
sell an additional $2,000,000 over the remaining period, the Company is
required to issue a warrant to the Investor to purchase an additional
250,000 shares of
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common stock of the Company at the market price as of the end of the
commitment period.
7. On November 10, 1997, the Company acquired, by merger (the "Merger"),
Oxycal Laboratories, Incorporated ("Oxycal"). Oxycal develops,
manufactures and markets a patented, enhanced form of Vitamin C under
the trademark Ester-C(R). The Company paid $28 million for all of the
outstanding shares of Oxycal. The Company raised the funds to consummate
the Merger in a private placement of 30,000 shares of the Company's
Series A Convertible Preferred Stock (the "Series A Preferred Stock")
and warrants to purchase 360,000 shares of the Company's Common Stock
(the "Warrants") for $30,000,000 (the "Preferred Stock Proceeds"). The
shares of Series A Preferred Stock, the Warrants and the Preferred Stock
Proceeds were deposited into escrow and were released from escrow upon
the consummation of the Merger on November 10, 1997. The holders of the
Series A Preferred Stock have the right to convert such stock into shares
of the Company's Common Stock at various future dates. The formula for
converting the Series A Preferred Stock into Common Stock varies
depending on the price of the Common Stock on the date of conversion.
In addition, the terms of the securities purchase agreement
relating to the sale of the Series A Preferred Stock requires the Company
to hold a special meeting of the shareholders of the Company to ratify the
sale of the Series A Preferred Stock in the event the average market price
of the Company's Common Stock drops below $6.50 per share. In the event a
special shareholder meeting is held, the shareholders will be asked to
ratify the terms of the sale of the Series A Preferred Stock and, in the
event a majority of the Company's stockholders do not vote in favor of
such proposal, the holders of the Series A Preferred Stock could be
limited in their ability to fully convert their shares of Series A
Preferred Stock into Common Stock of the Company. The securities purchase
agreement relating to the sale of the Series A Preferred Stock provides
that if the holders of the Series A Preferred Stock are not able to fully
convert their shares of preferred stock, they have the right to require
the Company to repurchase those shares of Series A Preferred Stock that
cannot be converted. If the Company is required to repurchase a
significant percentage of the Series A Preferred Stock, such repurchase
could have a significant adverse impact on the Company depending on the
price of the Common Stock on the date of repurchase. The holders of the
Series A Preferred Stock have waived the requirement to hold a special
meeting of the shareholders of the Company, but have reserved the right to
reinstate such requirement upon 60 day notice to the Company.
8. On November 4, 1997, the Company's Zila Pharmaceuticals, Inc. subsidiary
completed its acquisition of the Peridex(R)product line, a prescription
anti-bacterial oral rinse from The Procter & Gamble Company ("P&G"). The
purchase price was $12,000,000 plus the value of acquired inventory. The
purchase price is to be delivered to P&G as follows: $6,000,000 paid at
closing, $4,000,000 paid within 180 days after closing, $1,000,000 is
payable within 12 months after closing, and $1,000,000 is payable within
24 months after closing.
9. Beginning the second quarter of fiscal 1998, the Company will be required
to implement SFAS No. 128, Earnings per Share, which requires, among other
matters, presentation of basic earnings per share, which is calculated
utilizing only weighted average common shares outstanding. SFAS No. 128 is
not expected to materially impact previously reported earnings (loss) per
share.
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive
Income, and SFAS No. 131, Disclosures about Segments of an Enterprise and
Related Information. SFAS No. 130 requires that an enterprise (a) classify
items of other comprehensive income by their nature in a financial
statement and (b) display the accumulated balance of other comprehensive
income separately from retained earnings and additional capital in the
equity section of a statement of financial position. SFAS No. 131
established standards for the way that public
8
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enterprises report information about operating segments in annual
financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports to
shareholders. It also establishes standards for disclosures about products
and services, geographic areas and major customers. Both statements are
effective for fiscal years beginning after December 15, 1997. The Company
has not completed evaluating the impact of implementing the provisions of
SFAS Nos. 130 and 131.
9
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
ZILA, INC. AND SUBSIDIARIES
RESULTS OF OPERATIONS:
For the quarter ended October 31, 1997, the Company had net loss of
$429,790 compared to a net loss of $2,274,221 for the quarter ended October 31,
1996. Revenues during the first quarter of the current fiscal year totaled
$10,800,182 compared to revenues of $9,230,522 during the first quarter of the
prior fiscal year, a 17.0% increase. The growth in revenues was attributable
mainly to the Company's Zila Pharmaceuticals and Zila Professional Products
Group divisions.
In the quarter ended October 31, 1997, cost of sales were $6,577,258 a
13.7% increase from $5,785,914 for the quarter ended October 31, 1996. Cost of
sales as a percentage of revenues decreased to 60.9% in the quarter ended
October 31, 1997 from 62.7% in the quarter ended October 31, 1996. This decrease
is primarily due to lower costs resulting from the restructuring within
Bio-Dental.
Selling, general and administrative expenses increased $233,630 from
$4,379,295 in the first quarter of fiscal year 1997 to $4,612,925 for the same
period in fiscal year 1998. This increase is attributable mainly to regulatory,
pre-marketing and clinical activities associated with the Company's OraTest oral
cancer detection system.
Merger related expenses decreased $77,610 from $149,825 in the first
quarter of the prior fiscal year to $72,215 in the first quarter of the 1998
fiscal year. Impairment charges during the first quarter of fiscal year 1997 of
$587,659 relate to an impairment loss recognized to reduce the carrying value of
certain Bio-Dental long-lived assets which included goodwill and software
rights.
Litigation costs during the first quarter of fiscal year 1997 were
$832,751. These costs include an accrual of a contingent liability based on the
Company's attempted settlement of the Wildwood suit and also legal expenses
arising out of the Company's efforts to prevent infringements on the Zilactin
patents (See "Part II - Other Information Item 1 - Legal Proceedings").
LIQUIDITY AND CAPITAL RESOURCES
At July 31, 1997, the Company had net working capital of $4,974,084, and
its current ratio (the ratio of current assets to current liabilities) was 1.9
to 1. At October 31, 1997, the Company had net working capital of $12,724,999
and its
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current ratio was 3.3 to 1. The current ratio was positively impacted by the
proceeds from the $8,000,000 sale of the Company's common stock in the quarter
ended October 31, 1997 (See Notes 6 and 8 in the Notes to Condensed Consolidated
Financial Statements).
Trade accounts receivable at October 31, 1997 were $3,215,329 compared to
trade accounts receivable at July 31, 1997 of $2,822,687. Trade accounts
receivable as a percentage of quarterly revenues of $10,800,182 were 29.8% at
October 31, 1997 as compared to 29.0% at July 31, 1997 which had quarterly
revenues of $9,727,162.
At October 31, 1997, the Company had inventories of $4,767,583, an
increase of $480,956 from inventories at July 31, 1997. The Company believes
current inventories are at levels necessary to support market expansion and to
maintain adequate liquidity.
Management believes that continued growth in the Company's sales of its
products will provide sufficient funding for the Company's current operating
divisions for the next twelve months. The Company will require additional
financing to fund potential acquisitions and to fund future OraTest
manufacturing and marketing costs. In anticipation of these potential
requirements, effective April 30, 1997, Zila entered into an investment
agreement (the "Investment Agreement") with Deere Park Capital Management (the
"Investor") which allows the Company to sell up to $25 million of the Company's
common stock with the proceeds to be used to fund OraTest marketing and general
corporate purposes. The option to sell stock to the Investor will generally
remain available until September 30, 1997. On October 24, 1997, the Company sold
$8,000,000 of the Company's common stock under the Investment Agreement to the
Investor. In connection with the $8,000,000 sale, the Company issued warrants
dated October 20, 1997, (the "Warrants") to the Investor exercisable for 96,000
shares of common stock at an exercise price of $7.625 per share. The Warrants
are exercisable for a three-year period commencing October 20, 1997. $6,000,000
of the proceeds were used for the Peridex acquisition and the remainder will be
used for general corporate purposes. The Company has committed to sell an
additional $2,000,000 of common stock to the Investor over the remainder of the
Commitment Period. In the event the Company does not sell an additional
$2,000,000 over the remaining period, the Company is required to issue a warrant
to the Investor to purchase an additional 250,000 shares of common stock of the
Company at the market price as of the end of the commitment period.
On November 10, 1997, the Company acquired, by merger (the "Merger"),
Oxycal Laboratories, Incorporated ("Oxycal"). Oxycal develops, manufactures and
markets a patented, enhanced form of Vitamin C under the trademark Ester-C(R).
The Company paid $28 million for all of the outstanding shares of Oxycal. The
Company raised the funds to consummate the Merger in a private placement of
30,000 shares of the Company's Series A Convertible Preferred Stock (the "Series
A Preferred Stock") and warrants to purchase 360,000 shares of the Company's
Common Stock (the "Warrants") for $30,000,000 (the "Preferred Stock Proceeds").
The shares of Series A Preferred Stock, the Warrants and the Preferred Stock
Proceeds were deposited into escrow and were released from escrow upon the
consummation of the Merger on November 10, 1997. The holders of the Series A
Preferred Stock have the right to convert such stock into shares of the
Company's Common Stock at various future dates. The formula for converting the
Series A Preferred Stock into Common Stock varies depending on the price of the
Common Stock on the date of conversion. In addition, the terms of the securities
purchase agreement relating to the sale of the Series A Preferred Stock requires
the Company to hold a special meeting of the shareholders of the Company to
ratify the sale of the Series A Preferred Stock in the event the average market
price of the Company's Common Stock drops below $6.50 per share. In the event a
special shareholder meeting is held, the shareholders will be asked to ratify
the terms of the sale of the Series A Preferred Stock and, in the event a
majority of the Company's stockholders do not vote in favor of such proposal,
the holders of the Series A Preferred Stock could be limited in their ability
to fully convert their shares of Series A Preferred Stock into Common Stock of
the Company. The securities purchase agreement relating to the sale of the
Series A Preferred Stock provides that if the holders of the Series A Preferred
Stock are not able to fully convert their shares of preferred stock, they have
the right to require the Company to repurchase those shares of Series A
Preferred Stock that cannot be converted. If the Company is required to
repurchase a significant percentage of the Series A Preferred Stock, such
repurchase could have a significant adverse impact on the Company depending on
the price of the Common Stock on the date of repurchase. The holders of the
Series A Preferred Stock have waived the requirement to hold a special meeting
of the shareholders of the Company, but have reserved the right to reinstate
such requirement upon 60 day notice to the Company.
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<PAGE> 12
On November 4, 1997, the Company's Zila Pharmaceuticals, Inc. subsidiary
completed its acquisition of the Peridex(R) product line, a prescription
anti-bacterial oral rinse from The Procter & Gamble Company ("P&G"). The
purchase price was $12,000,000 plus the value of acquired inventory. The
purchase price is to be delivered to P&G as follows: $6,000,000 paid at closing,
$4,000,000 paid within 180 days after closing, $1,000,000 is payable within 12
months after closing, and $1,000,000 is payable within 24 months after closing.
The sources of funding for future amounts due to P&G will be from amounts
available under the Company's Investment Agreement and cash generated from
operations.
The Company has not completed its evaluation of the impact the Year 2000
computer problem may have on its business. However, the Company does not expect
the costs to address the problem to be material and it does not expect the
consequences of incomplete or untimely resolution of the problem to materially
impact the operation of its business.
FORWARD LOOKING INFORMATION
This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. See the "Risks and Uncertainties Section" in the Company's
Annual Report on Form 10-K for the year ended July 31, 1997, which identifies
some important factors that could cause actual results to differ materially
from those contained in such forward-looking statements.
PART II - OTHER INFORMATION
Item 1.- Legal Proceedings
Wildwood. In July 1995, Bio-Dental was named as a defendant, along with
Bio-Dental's transfer agent and a shareholder of Bio-Dental ("Shareholder"), in
a lawsuit. The lawsuit alleges that Bio-Dental wrongfully failed to register
12
<PAGE> 13
200,000 Bio-Dental shares in the name of the plaintiffs which were pledged as
security by the Shareholder for a debt owed by the Shareholder to the
plaintiffs.
Bio-Dental denied all of the material allegations of the lawsuit against
it and has asserted various affirmative defenses. Bio-Dental will continue to
vigorously defend against the claims set forth in the lawsuit. In September
1996, Bio-Dental accrued a liability of $450,000 because it decided to attempt a
settlement of this litigation. Bio-Dental's attempt was not successful. In
January 1997, a judgement by the court in favor of Bio-Dental and against the
plaintiffs was filed. In February 1997, the plaintiffs started the process to
appeal the judgement.
The Company occasionally encounters minor litigation as a means to resolve
disputes, which arise in the ordinary course of business. None of these minor
lawsuits are believed to be material to the Company's ongoing operations or
operating results.
Item 5 - Other information
None
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<PAGE> 14
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Number Description
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed with the Securities and Exchange
Commission during the quarter ended October 31, 1997.
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<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: December 15, 1997 By /s/ Joseph Hines
Joseph Hines
President, Chairman of the Board
(Principal Executive Officer)
By /s/ Clarence J. Baudhuin
Clarence J. Baudhuin
Executive Vice President of
Finance & Administration
Director (Principal Financial
& Accounting Officer)
15
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-START> AUG-01-1997
<PERIOD-END> OCT-31-1997
<CASH> 8,818,599
<SECURITIES> 0
<RECEIVABLES> 3,412,437
<ALLOWANCES> (197,108)
<INVENTORY> 4,767,583
<CURRENT-ASSETS> 18,227,444
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0
0
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