Source: MSN Money

Zila Inc.’s worsening financial situation might force the company to file for Chapter 11 bankruptcy, despite a number of cost-saving measures, according to financial statements filed March 17.

Despite cost-reduction strategies, the company’s revenue and cash continue to decline, according to its quarterly filing with the U.S. Securities and Exchange Commission.

Scottsdale-based Zila’s cash and cash equivalents dropped to $2.5 million as of Jan. 31, compared with $3.2 million on Oct. 31 and $4.5 million on July 31.

“In order to continue as a going concern and fund our current level of operations over the next 12 months, we will require additional funds and need to restructure our senior secured convertible notes,” the company stated in its filing.

Company officials question whether Zila (Nasdaq: ZILA) has sufficient cash available to pay future quarterly interest payments due under those notes. Chapter 11 would allow the company to restructure its debts while continuing operations.

For the six months ended Jan. 31, Zila reported a net loss of $28 million on $18.2 million in revenue. That compares with a $9.6 million net loss on revenue of $21 million during the same period in 2008.

The oral cancer diagnostic company’s stock closed Wednesday at 14 cents a share, close to its 52-week low of 13 cents a share. Its 52-week high is $3.57.

Last year, Nasdaq warned Zila that its stock was in danger of being delisted if it didn’t keep its price over $1 per share for 10 consecutive business days. In a last-ditch effort to prevent delisting, Zila issued a 1-for-7 reverse stock split Sept. 17, which enabled it to regain compliance under Marketplace Rule 4450(a)(5).

Zila continues to market its ViziLite Plus, which detects oral abnormalities that could lead to cancer, to dentists nationwide and in many other countries. Most recently, ViziLite sales expanded to India.

In an effort to lower Zila’s operating loss, company officials implemented salary reductions for some management personnel and eliminated 15 percent of its field sales force. It also eliminated the employee stock purchase plan and furloughed certain manufacturing production personnel.

The company recently moved its headquarters from Phoenix to Scottsdale, signing a two-year lease that costs $26,000 monthly.

Company officials continue to seek funding from financial and strategic investors as well as with the holders of the notes.

All potential investors Zila officials have talked to required as a condition of their investment that the notes be repaid from the funds provided by the investors. Investors also wanted the repayment to be at a substantial discount from the $12 million outstanding principal to reflect the current market value of those notes, according to the filing.

However, the holders of the notes have been unwilling to agree to an amount to extinguish this debt, the filing states.

Zila didn’t make its Jan. 31 interest payment, which puts the company in default of its notes.

Zila officials could not be reached for comment.

Copyright 2009