ZILA Announces Fourth Quarter and Year-end Results; Company Resolves Remaining Accounting Issues

PHOENIX--(BUSINESS WIRE)--November 14, 2002--Zila, Inc. (Nasdaq:ZILA), announced that it has resolved all remaining accounting issues related to its prior financial statements and filed its Form 10-K for fiscal year 2002. Zila said on October 24 that it had agreed to restate certain aspects of its previously issued financial results to reflect generally accepted accounting principles and that certain discussions were ongoing with the Securities and Exchange Commission. These discussions have now been concluded without significant additional adjustments and with no adjustments for the valuation of certain purchased technology rights for Tolonium Chloride, the active ingredient in the Company's OraTest(R) oral cancer detection product. All results discussed in this press release reflect the agreed-upon restatements.
Zila reported revenues for the fourth quarter of fiscal year 2002 (ended July 31, 2002) of $8.8 million, as compared with revenues of $8.9 million; and a net loss from continuing operations of $1.4 million, compared with net income from continuing operations of $623,000 in the year-ago quarter. The Company reported a net loss for the quarter of $1.9 million, or $0.04 per share diluted, compared with net income of $673,000, or $0.02 per share diluted. Cash flow from operating activities for the fourth quarter of fiscal 2002 was positive.

Revenues for fiscal 2002 were $34.9 million, compared with $30.7 million in 2001. Net loss for fiscal 2002 was $12.1 million, or $0.27 per share diluted, compared with a net loss of $6.4 million or $0.15 per share diluted for fiscal 2001. Related to continuing operations, Zila reported a net loss of $11.3 million in fiscal 2002, compared with a loss of $6.3 million in fiscal 2001. Included in fiscal 2002 is approximately $4.0 million of tax expense compared to $379,000 of tax benefit in 2001.

The restatements referenced above also affected Zila's results for fiscal 2000. As restated, Zila reported net income of $3.3 million, or $0.08 per share diluted, on revenues of $36.6 million. Zila's net income from continuing operations for fiscal 2000 was $3.2 million.

Douglas D. Burkett, Ph.D., Chairman, Chief Executive Officer and President, said, "We accomplished a $1.1 million EBITDA turn-around from the third quarter to the fourth, and achieved positive cash flow from operating activities, even as we increased emphasis in our core competency areas. We began fiscal year 2003 with a new management team, an untapped line of credit, profitable pharmaceutical and nutraceutical product lines, and promising research in our biotechnology unit."

Dr. Burkett continued, "We have now completed the restatement process. With considerable progress already made in streamlining the Company and refocusing on our core strengths, we are aggressively pursuing our goal of producing break-even-to-positive EBITDA and revenue growth in fiscal 2003, with maximum transparency and credibility."

Fourth Quarter Fiscal 2002 Highlights:

Dr. Burkett, who was elected president and chief executive officer in June 2002 and chairman in September 2002, has implemented a new strategy for the Company, focusing on its core competency in pharmaceuticals, nutraceuticals and biotechnology.

Fourth quarter accomplishments included:

-- Cost reductions throughout the Company and elimination of
unprofitable products and endeavors;

-- Generating growth through allocation of greater resources to
core competency areas, including increased marketing for
Zilactin(R) oral care and Ester-C(R) vitamin products, and

-- An investment of over $700,000 in the OraTest Phase III
clinical trial -- an increase of approximately $400,000 over
the same quarter a year ago;

-- Innovative Swab Technologies' receipt of a large contract that
is expected to double that business unit's sales in fiscal
2003; and

-- Hiring of new operating management for Zila's nutraceutical
and pharmaceutical businesses and substantial organizational
restructuring throughout the Company.
During the third quarter of fiscal 2002, management determined that completion of the OraTest Phase III clinical trial will require a substantial number of additional patients. The requirement for the larger number of patients is related to the tumor formation rate within the study population and not to the efficacy of the OraTest product. In order to support the larger number of patients needed to complete the trial, management intends to increase the rate of funding for the trial and the number of clinical sites.

In recent months, management began efforts to transition the clinical trial from ILEX(TM) Oncology Services, Inc., to a new, larger, more experienced global contract research organization (CRO). Zila requested proposals from several of the largest, highest quality and most prominent CRO's with worldwide capabilities, and received fee quotations from each. Management is in the process of finalizing the selection of a new global CRO with access to clinical sites in high-density oral cancer regions around the world. Each CRO agreed that the trial could be transitioned successfully without compromising any of our current research data. After its selection and retention, the new CRO will work to optimize the study protocol and provide estimates for total patients, costs and milestone dates for the trial.

Zila believes that it will have sufficient funds for the clinical trial for the next fiscal year. The Company will, however, require additional financing to support the OraTest clinical trial, regulatory, manufacturing and marketing costs extending beyond fiscal 2003. Management is currently considering possible financing sources such as strategic partners and is pursuing funding strategies that, if completed, would provide significant funding for the clinical trial. Management is also considering the possible liquidation of certain Zila assets outside the Company's areas of core competency as part of Zila's new focus on core strengths and objectives. These assets could also provide significant funding for the clinical trial. There is no assurance that such funds will be available on terms acceptable to the Company.

Fourth Quarter Fiscal 2002 vs. Fourth Quarter Fiscal 2001

The Company had a negative EBITDA from continuing operations of $86,000 in the fourth quarter of fiscal 2002, compared to a positive $1,580,000 in the year-ago quarter. Cash flow from operating activities for the fourth quarter of fiscal 2002 was positive.

The principal reasons for the fourth quarter loss compared with the year-ago quarter were:

-- An approximate $400,000 increase in OraTest clinical trial

-- Increased expenses of approximately $400,000 related to the
launch of the new ViziLite(TM) product;

-- An approximate $300,000 decrease in the value of Zila
Nutraceuticals' saw palmetto inventory after discovery of some
spoilage following the close of the quarter; and

-- A decrease in net income at Zila Nutraceuticals of $800,000,
due primarily to proceeds received from a litigation
settlement in the fourth quarter of last year.

Fiscal 2002 vs. Fiscal 2001
Net loss from continuing operations for fiscal year 2002 was a negative $11.3 million compared with a negative $6.3 million for fiscal year 2001. The reduction in profitability is due primarily to tax expenses (discussed below), product launch expense in fiscal 2002 for the ViziLite(TM) product, saw palmetto inventory spoilage and reduced profitability in the Zilactin product line, partially offset by improved profitability for Ester-C products and reduced expenses at Zila Europe.

As a result of its net losses for fiscal 2002 and 2001, the Company determined that it is more likely than not that certain future tax benefits will not be realized. As a result, the Company reported income tax expense of $4.0 million due to the increase in its tax valuation allowance.

Conference call

The Company will hold a conference call on Monday, November 18, 2002 at 11:00 a.m. Eastern time (9:00 a.m. Phoenix time), to discuss its fourth quarter and year end financial results for fiscal 2002. For access to the conference call, please dial 1-800-289-0528 (code 527111). A replay of the conference call will be available from 2:00 p.m. (ET) on November 18, 2002, through November 20, 2002, at 1-888-203-1112 (code 527111). In addition, the call will be broadcast over the Internet and can be accessed by entering ZILA at http://www.opencompany.info. Investors should go to the website prior to the call to download any necessary audio software.

The Company has also set November 22, 2002, as its record date for the Annual Shareholders Meeting, which will be held on Tuesday, January 14, 2003, at 9:00 am local time at the Marriott Camelback Inn, 5402 East Lincoln Drive, Scottsdale, Arizona.

As part of management's program to raise its profile with the investment community, Dr. Burkett will make a presentation at the November 23 Red Chip Partners(TM) Phoenix Investors Conference.

About Zila

Zila, Inc., headquartered in Phoenix, is an international provider of healthcare and biotechnology products for dental/medical professionals and consumers. Zila has three business units: Zila Pharmaceuticals, marketer of Zilactin(R) oral healthcare products, Peridex(R) prescription mouth rinse and ViziLite(TM) oral examination kits, and manufacturer of patented swabs at Innovative Swab Technologies; Zila Nutraceuticals (Inter-Cal Nutraceuticals), manufacturer of patented Ester-C(R) branded products and Palmettx(R) Saw Palmetto; and Zila BioTechnology, developer of OraTest(R) oral cancer detection products and Zila(R) Tolonium Chloride technologies for cancer and pre-cancer detection and treatment. For more information, visit www.zila.com.

This press release 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. These forward-looking statements are based largely on Zila's expectations or forecasts of future events, can be affected by inaccurate assumptions and are subject to various business risks and known and unknown uncertainties, a number of which are beyond the Company's control. Therefore, actual results could differ materially from the forward-looking statements contained herein. A wide variety of factors could cause or contribute to such differences and could adversely impact revenues, profitability, cash flows and capital needs. There can be no assurance that the forward-looking statements contained in this press release will, in fact, transpire or prove to be accurate. For a more detailed description of these and other cautionary factors that may affect Zila's future results, please refer to Zila's Form 10-K for its fiscal year ended July 31, 2002, filed with the Securities and Exchange Commission.

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