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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) November 6, 1997
ZILA, INC.
(Exact name of registrant as specified in its charter)
Delaware 0-17521 86-0619668
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
5227 North 7th Street Phoenix, Arizona 85014
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (602) 266-6700
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The undersigned registrant hereby amends its Current Report on Form 8-K dated
November 6, 1997 which was filed on November 21, 1997, solely to add the
financial information and pro forma financial information required by Item 7 of
Form 8-K.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Business to Be Acquired
The financial statements for The Peridex Brand of The Procter &
Gamble Company are set forth below:
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INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Management of
The Procter & Gamble Company:
We have audited the accompanying statements of North American direct revenues
and direct expenses of the Peridex Brand of The Procter & Gamble Company
("Procter & Gamble") for the years ended June 30, 1997 and 1996 (collectively,
the "statements"). These statements are the responsibility of Procter & Gamble's
management. Our responsibility is to express an opinion on these statements
based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statements referred to above are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statements referred to above. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall presentation of the statements
referred to above. We believe that our audit provides a reasonable basis for our
opinion.
The operations covered by the statements referred to above are a part of The
Procter & Gamble Company and have no separate legal status or existence. As
described in Notes 1 and 2 to the statements, the statements referred to above
have been prepared from Procter & Gamble's consolidated financial records and
allocations of certain costs and expenses have been made. These allocations are
not necessarily indicative of the costs and expenses that would have been
incurred by the Peridex Brand on a stand-alone basis.
In our opinion, the statements referred to above present fairly, in all material
respects, the North American direct revenues and direct expenses of the Peridex
Brand of The Procter & Gamble Company for the years ended June 30, 1997 and 1996
in conformity with generally accepted accounting principles.
December 19, 1997
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THE PERIDEX BRAND OF
THE PROCTER & GAMBLE COMPANY
STATEMENTS OF NORTH AMERICAN DIRECT REVENUES AND DIRECT
EXPENSES FOR THE YEARS ENDED JUNE 30, 1997 AND 1996 AND FOR
THE THREE-MONTH PERIOD ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
(AMOUNTS IN THOUSANDS) THREE-MONTH THREE-MONTH
PERIOD ENDED PERIOD ENDED
SEPT. 30, SEPT. 30, YEAR ENDED JUNE 30,
1997 1996 1997 1996
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
DIRECT REVENUES $ 2,354 $3,696 $ 12,597 $ 20,690
COSTS OF PRODUCTS SOLD:
Product Costs 486 691 1,935 3,026
Delivery Costs 128 175 489 897
----------- ------ ----------- -----------
Total Costs of Products Sold 614 866 2,424 3,923
GROSS MARGIN 1,740 2,830 10,173 16,767
DIRECT BRAND SUPPORT 208 207 591 1,962
DIRECT ADMINISTRATIVE & OTHER 38 37 150 150
------------ ------ ----------- ------------
EXCESS OF DIRECT REVENUES OVER DIRECT EXPENSES
$ 1,494 $2,586 $ 9,432 $ 14,655
========= ====== ========= =========
</TABLE>
See accompanying notes.
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THE PERIDEX BRAND OF
THE PROCTER & GAMBLE COMPANY
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
On November 5, 1997, The Procter & Gamble Company ("Procter & Gamble") sold
certain assets and the related business of the Peridex Brand ("Peridex
Brand"). The Peridex Brand consists of an oral rinse which is manufactured
at Procter & Gamble's Greenville, NC. Plant, which also produces other
health care products for Procter & Gamble that are unrelated to the Peridex
Brand. The accompanying statements present North American direct revenues,
costs of products sold, direct brand support and direct administrative and
other expenses for the years ended June 30, 1997 and 1996 and the
three-month period ended September 30, 1997 for the Peridex Brand. Results
of operations for interim periods are not necessarily indicative of results
to be expected for an entire year.
Procter & Gamble does not account for the Peridex Brand as a separate
entity. Accordingly, the information included in the accompanying
statements of North American direct revenues and direct expenses has been
obtained from Procter & Gamble's consolidated financial records. The
statements of North American direct revenues and direct expenses include
allocations of certain Procter & Gamble brand support, administrative and
other expenses, as discussed in Note 2. Procter & Gamble management
believes the allocations are reasonable; however, these allocated expenses
are not necessarily indicative of expenses that would have been incurred by
the Peridex Brand on a stand-alone basis, since certain other brand
support, administrative, and other expenses are provided to the Peridex
Brand that are not included in the accompanying statements as discussed in
Note 2.
In addition, the statements of North American direct revenue and direct
expenses include allocations of certain Greenville Plant costs, as
discussed in Note 2. Procter & Gamble management believes these allocations
are reasonable; however, these allocated costs may not necessarily be
indicative of costs that would have been incurred by the Peridex Brand on a
stand-alone basis, since these allocated costs are based on the structure
of the Greenville Plant operations and related activities, as managed and
operated by Procter & Gamble.
North American direct revenues and direct expenses are presented in the
accompanying statements in accordance with generally accepted accounting
principles. The unaudited information for the three-month periods ended
September 30, 1997 and 1996 contains all adjustments, consisting only of
normal recurring accruals, necessary for a consistent presentation of the
direct revenues and direct expenses for the three-month period.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION - Revenue from the sale of products is recognized at
the time the products are shipped. Direct revenues are recorded net of
deductions, including cash discounts, returns, adjustments for damaged
products, and medicaid rebates and chargebacks.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying disclosures. Although these estimates are based
on management's best knowledge of current events and actions Procter &
Gamble may undertake in the future, actual results ultimately may differ
from the estimates.
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COSTS OF PRODUCTS SOLD - Inventories are valued at cost, which is not in
excess of current market. Cost is primarily determined by the average cost
method. The cost of products sold include allocations of costs to the
Peridex Brand activities, including warehousing, utilities, depreciation,
and employee costs. These plant costs are allocated between the Peridex
Brand and other health care products that are produced at the Greenville
Plant based primarily on number of employees, usage, and square footage.
DIRECT BRAND SUPPORT - Direct brand support represents specifically
identified promotional, advertising, and other marketing expenses related
to the Peridex Brand.
DIRECT ADMINISTRATIVE & OTHER - Certain administrative expenses are
specifically identifiable and others are allocated to the Peridex Brand
based primarily on an estimate of actual time and effort spent and number
of employees. Such allocated expenses represent those charges that are
attributable to the Peridex Brand and include Procter & Gamble's Greenville
Plant administration and other expenses. Certain other administrative and
other expenses are provided to the Peridex Brand by Procter & Gamble that
are not directly attributable or specifically identifiable to the brand
and, therefore, are excluded from direct administrative and other expenses
in the accompanying statements. Such expenses primarily include Procter &
Gamble's Corporate, North American Region, Sector and Category related
expenses such as selling, human resources, executive compensation,
management systems, finance and accounting, research and development,
public affairs, and other general administrative expenses.
* * * * * *
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(b) Pro Forma Financial Information
The required pro forma financial information is set forth below:
Zila, Inc. (the "Company" or "Zila"), through its wholly owned subsidiary Zila
Pharmaceuticals, Inc., completed its acquisition of the Peridex (R) product line
("Peridex") from The Procter & Gamble Company ("P&G") pursuant to the terms of
that Asset Sale and Purchase Agreement dated November 5, 1997 (the "Agreement")
between P&G, The Procter & Gamble Distributing Company and Zila Pharmaceuticals,
Inc. Peridex is a prescription anti-bacterial oral rinse.
Under the terms of the Agreement, the Company also acquired certain inventory,
technology, contract rights, trademarks and other intellectual property
associated with Peridex. The purchase price of the Peridex product line, which
was determined in arms-length negotiations, was $12 million plus the value of
the inventory acquired at the closing. Under the terms of the Agreement, the
purchase price is to be delivered to P&G as follows: $6 million was paid at
closing, $4 million is payable within 180 days after closing, $1 million is
payable within 12 months after closing and $1 million is payable within 24
months after closing. The initial $6 million payment of the purchase price was
drawn from the funds available pursuant to the terms of that certain Private
Equity Line of Credit Agreement dated as of April 30, 1997 (the "Equity
Financing") between Deere Park Capital Management and the Company.
The unaudited pro forma condensed combined balance sheet data at October 31,
1997 combines historical financial information as if the acquisition of Peridex
occurred on October 31, 1997. The unaudited pro forma condensed combined
statement of operations data for the year ended July 31, 1997 and the three
months ended October 31, 1997 combine historical statements of operations data
for the Company and Peridex, as if the acquisition had occurred on August 1,
1996.
The unaudited pro forma condensed combined balance sheet data at October 31,
1997 combines historical financial information of the Company at October 31,
1997 and inventory of Peridex at September 30, 1997. The unaudited pro forma
condensed combined statement of operations data for the three months ended
October 31, 1997 combines historical financial information of the Company for
the three months ended October 31, 1997 and Peridex for the three months ended
September 30, 1997. The unaudited pro forma condensed combined statement of
operations data for the year ended July 31, 1997 combines historical financial
information of the Company for the year ended July 31, 1997 and Peridex for the
year ended June 30, 1997. As the most recent fiscal year end of Peridex differs
from the Company's fiscal year end by less than 93 days, no adjustment was made
to Peridex's statement of operations data for the purpose of the pro forma
presentation.
The detailed assumptions used to prepare the unaudited pro forma condensed
combined financial information are contained herein. The unaudited pro forma
condensed combined financial information reflects the use of the purchase method
of accounting for
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the acquisition. The purchase price allocation used in the preparation of the
pro forma financial information is preliminary and subject to change based upon
final evaluations being performed.
The unaudited pro forma combined financial information assumes the initial $6
million payment of the purchase price for Peridex was drawn from the funds
available pursuant to the Equity Financing. The remaining amount of purchase
price is reflected in current and long-term contractual obligations.
The pro forma data are not necessarily indicative of the financial position or
results of operations which would actually have been reported had the
transaction been consummated at the date mentioned above or which may be
reported in the future.
The pro forma data should be read in conjunction with the notes to unaudited pro
forma condensed combined financial information and the historical financial
statements and notes thereto of Zila (incorporated by reference herein) and
Peridex (contained elsewhere herein).
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ZILA, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET DATA
OCTOBER 31, 1997
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<TABLE>
<CAPTION>
HISTORICAL PRO FORMA PRO FORMA
ASSETS ZILA ADJUSTMENTS COMBINED
----------------- ----------------- -----------------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 7,818,599 $ (6,220,000) (a) $ 1,598,599
Cash in escrow 1,000,000 1,000,000
Trade receivables - net 3,215,329 3,215,329
Other receivables 218,439 218,439
Income tax receivable 310,379 310,379
Inventories 4,767,583 220,000 (a) 4,987,583
Prepaid expenses and other assets 651,187 651,187
Deferred income taxes 245,928 245,928
----------------- ----------------- -----------------
Total current assets 18,227,444 (6,000,000) 12,227,444
----------------- ----------------- -----------------
PROPERTY AND EQUIPMENT - Net 1,951,363 1,951,363
OTHER ASSETS 137,617 137,617
INTANGIBLE ASSETS - Net 10,761,466 11,570,000 (b) 22,331,466
----------------- ----------------- -----------------
TOTAL $ 31,077,890 $ 5,570,000 $ 36,647,890
================= ================= =================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,620,864 $ 2,620,864
Accrued liabilities 2,376,189 2,376,189
Deferred revenue 394,728 394,728
Contractual obligation - net of $250,000 discount $ 4,750,000 (b)(c) 4,750,000
Short-term borrowing 70,769 70,769
Current portion of long-term debt 39,895 39,895
----------------- ----------------- -----------------
Total current liabilities 5,502,445 4,750,000 10,252,445
LONG-TERM LIABILITIES:
Long-term debt - net of current portion 368,962 368,962
Contractual obligation - net of $180,000 discount 820,000 (c) 820,000
----------------- ----------------- -----------------
Total liabilities 5,871,407 5,570,000 11,441,407
----------------- ----------------- -----------------
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 33,886 33,886
Capital in excess of par value 38,572,001 38,572,001
Deficit (13,398,979) (13,398,979)
----------------- ----------------- -----------------
25,206,908 25,206,908
Less 42,546 common shares held by wholly-owned
subsidiary (at cost) (425) (425)
----------------- ----------------- -----------------
Total shareholders' equity 25,206,483 25,206,483
----------------- ----------------- -----------------
TOTAL $ 31,077,890 $ 5,570,000 $ 36,647,890
================= ================= =================
</TABLE>
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NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENT OF OPERATIONS DATA
FOR THE YEAR ENDED JULY 31, 1997
(a) Represents the amortization of excess of assets acquired over liabilities
assumed of Peridex. While the Company has yet to complete the final
allocation of the excess of cost over net assets acquired to the specific
assets acquired, based on its preliminary estimate, the Company believes
that the excess will be allocated principally to trademark and goodwill,
which is estimated to be amortized over 15 years.
(b) The historical financial statements of Peridex reflect only direct
revenues and direct expenses of the Peridex brand of P&G and do not reflect
a provision for income taxes. It is assumed that net operating loss
carryfowards of the Company would be utilized to offset income from
Peridex. Therefore, no (provision) benefit for income taxes is reflected in
the pro forma adjustments column.
(c) Includes 982,000 shares issued in connection with the Equity Financing, as
if such shares were issued on August 1, 1996.
(d) Represents amortization of discount on contractual obligation.
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ZILA, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS DATA
YEAR ENDED JULY 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
----------HISTORICAL---------- ----------PRO FORMA---------
ZILA PERIDEX ADJUSTMENTS COMBINED
----------------- ------------------ ----------------- ------------------
<S> <C> <C> <C> <C>
REVENUES $ 38,664,892 $ 12,597,000 $ 51,261,892
----------------- ------------------ ------------------
OPERATING COSTS AND EXPENSES
Cost of products sold 23,542,342 2,424,000 25,966,342
Selling, general and administrative 20,161,319 741,000 $ 800,000 (a) 21,702,319
Merger related expenses 371,865 371,865
Impairment charges 587,659 587,659
Litigation expenses 1,147,363 1,147,363
----------------- ------------------ ----------------- ------------------
45,810,548 3,165,000 800,000 49,775,548
----------------- ------------------ ----------------- ------------------
INCOME (LOSS) FROM OPERATIONS (7,145,656) 9,432,000 (800,000) 1,486,344
----------------- ------------------ ----------------- ------------------
OTHER INCOME (EXPENSES)
Interest income 201,630 201,630
Interest expense (79,450) (340,000) (d) (419,450)
Realized loss on short-term
investments (24,832) (24,832)
----------------- ------------------ ----------------- ------------------
97,348 (340,000) (242,652)
----------------- ------------------ ----------------- ------------------
INCOME (LOSS) BEFORE BENEFIT
FOR INCOME TAXES (7,048,308) 9,432,000 (1,140,000) 1,243,692
BENEFIT FOR INCOME TAXES 589,931 (b) (b) 589,931
----------------- ------------------ ----------------- ------------------
NET INCOME (LOSS) $ (6,458,377) $ 9,432,000 $ (1,140,000) $ 1,833,623
================= ================= ================= ==================
INCOME (LOSS) PER SHARE $ (0.20) $ 0.06
================= ==================
WEIGHTED AVERAGE NUMBER
OF COMMON AND COMMON
EQUIVALENT SHARES
OUTSTANDING 31,530,096 32,512,096 (c)
================= ==================
</TABLE>
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NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET DATA
OCTOBER 31, 1997
(a) Represents both the initial $6 million payment of the purchase price for
Peridex which was drawn from the Equity Financing in October 1997 and the
purchase of inventory. The purchase price for the inventory is subject to
adjustment based on the actual value of inventory purchased. Based on
information received from P&G, the amount of such adjustment may result in
an increase in the purchase price of approximately $100,000.
(b) Represents a pro forma adjustment to allocate the purchase price as
follows:
<TABLE>
<CAPTION>
<S> <C>
Gross purchase price...................................................... $ 12,000,000
Discount on contractual obligation........................................ (430,000)
Intangible assets (primarily trademark and goodwill)...................... (11,570,000)
----------
$ -
==========
</TABLE>
While the Company has yet to complete the final allocation of the
excess cost over net assets acquired to the specific assets acquired,
based on its preliminary estimate, the Company believes that the excess
will be allocated principally to trademark and goodwill, which is
estimated to be amortized over 15 years.
(c) Represents pro forma adjustment for contractual obligation to pay
remaining purchase price as follows: $4 million is payable within 180 days
after closing, $1 million is payable within 12 months after closing and $1
million is payable within 24 months after closing. The contractual
obligation does not have a stated interest rate and, therefore, has been
discounted using an imputed interest rate that approximates the rate the
Company would have negotiated in a similar transaction.
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ZILA, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS DATA
THREE MONTHS ENDED OCTOBER 31, 1997
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<TABLE>
<CAPTION>
----------HISTORICAL---------- ----------PRO FORMA---------
ZILA PERIDEX ADJUSTMENTS COMBINED
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
REVENUES $ 10,800,182 $ 2,354,000 $ 13,154,182
----------------- ----------------- -----------------
OPERATING COSTS AND EXPENSES
Cost of products sold 6,577,258 614,000 7,191,258
Selling, general and administrative 4,612,925 246,000 $ 200,000 (a) 5,058,925
Merger related expenses 72,215 72,215
----------------- ----------------- ----------------- -----------------
11,262,398 860,000 200,000 12,322,398
----------------- ----------------- ----------------- -----------------
INCOME (LOSS) FROM OPERATIONS (462,216) 1,494,000 (200,000) 831,784
----------------- ----------------- ----------------- -----------------
OTHER INCOME (EXPENSES)
Interest income 51,133 51,133
Interest expense (11,619) (25,000) (d) (36,619)
Other expense (7,088) (7,088)
----------------- ----------------- ----------------- -----------------
32,426 (25,000) 7,426
----------------- ----------------- ----------------- -----------------
INCOME (LOSS) BEFORE INCOME TAXES (429,790) 1,494,000 (225,000) 839,210
INCOME TAXES (b) (b)
----------------- ----------------- ----------------- -----------------
NET INCOME (LOSS) $ (429,790) $ 1,494,000 $ (225,000) $ 839,210
================= ================= ================= =================
INCOME (LOSS) PER SHARE $ (0.01) $ 0.02
================= =================
WEIGHTED AVERAGE NUMBER
OF COMMON AND COMMON
EQUIVALENT SHARES
OUTSTANDING 32,699,119 33,681,119 (c)
================= =================
</TABLE>
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NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENT OF OPERATIONS DATA
FOR THE THREE MONTHS ENDED OCTOBER 31, 1997
(a) Represents the amortization of excess of assets acquired over liabilities
assumed of Peridex. While the Company has yet to complete the final
allocation of the excess of cost over net assets acquired to the specific
assets acquired, based on its preliminary estimate, the Company believes
that the excess will be allocated principally to trademark and goodwill,
which is estimated to be amortized over 15 years.
(b) The historical financial statements of Peridex reflect only direct
revenues and direct expenses of the Peridex brand of P&G and do not reflect
a provision for income taxes. It is assumed that net operating loss
carryfowards of the Company would be utilized to offset income from
Peridex. Therefore, no (provision) benefit for income taxes is reflected in
the pro forma adjustments column.
(c) Includes 982,000 shares issued in connection with the Equity Financing, as
if such shares were issued on August 1, 1997.
(d) Represents amortization of discount on contractual obligation.
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(c) Exhibits
Exhibit No. Description
10 Form of Asset Purchase and Sale Agreement dated as of November 5, 1997
*
between Procter & Gamble Company and Zila Pharmaceuticals
23 Consent of Deloitte and Touche LLP +
99 Press Release dated as of November 7, 1997*
* Previously filed
+ Filed Herewith
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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 hereunto duly authorized.
ZILA, INC.
Date: January 13, 1998 By /s/ Joseph Hines
----------------------
Joseph Hines
President
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Exhibit 23
INDEPENDENT AUDITOR'S CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
33-32805, 33-32970, and 333-42769 of Zila, Inc. on Form S-8 and in Registration
Statement Nos. 33-46239, 333-06019, 333-00645 and 333-31651 of Zila, Inc. on
Form S-3 of our report dated December 19, 1997 relating to the Statements of
North American Direct Revenues and Direct Expenses of The Peridex Brand of The
Procter & Gamble Company, appearing in this Form 8-K/A of Zila, Inc.
/s/ Deloitte & Touche LLP
- ----------------------------------------
DELOITTE & TOUCHE LLP
Cincinnati, Ohio
January 14, 1998
