Zila (ZILA) 8-K/A Index to Financial Statements

Exhibit 99.2

Professional Dental Technologies, Inc.

October 31, 2006 and 2005
and the years ended October 31,
2006, 2005 and 2004

INDEX TO FINANCIAL STATEMENTS

	Page
Financial Statements
Independent Accountant’s Report		2
Consolidated Balance Sheets as of October 31, 2006 and 2005		3
Consolidated Statements of Operations for the years ended October 31, 2006, 2005 and 2004		4
Consolidated Statements of Stockholders’ Equity for the years ended October 31, 2006, 2005, and 2004		5
Consolidated Statements of Cash Flows for the years ended October 31, 2006, 2005 and 2004		6
Notes to Consolidated Financials		7

1

Independent Accountants’ Report

Board of Directors
Professional Dental Technologies, Inc.
Batesville, Arkansas

We have audited the accompanying consolidated balance sheets of Professional Dental Technologies, Inc., as of October 31, 2006 and 2005, and the related consolidated statements of income, stockholders’ equity and cash flows for each of the three years in the period ended October 31, 2006. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Professional Dental Technologies, Inc., as of October 31, 2006 and 2005, and the results of its operations and its cash flows for each of the three years in the period ended October 31, 2006, in conformity with accounting principles generally accepted in the United States of America.

/s/BKD, LLP

Little Rock, Arkansas
December 19, 2006

2

Professional Dental Technologies, Inc.

Consolidated Balance Sheets

(In Thousands Except Share Amounts)

October 31, 2006 and 2005

	2006		2005
Assets
Current Assets
Cash and cash equivalents	$	5,901	$	4,836
Certificates of deposit		—		2,118
Accounts receivable
Trade, net of allowance; 2006 - $243, 2005 - $196		3,078		3,204
Affiliates		—		455
Inventory		2,308		4,744
Prepaid expenses		276		588
Deferred income taxes		162		430
Other current assets		26		486
Total current assets		11,751		16,861
Property and Equipment, Net		3,009		4,119
Other Assets		67		398
Total	$	14,827	$	21,378
Liabilities and Stockholders’ Equity
Current Liabilities
Accounts payable
Trade, including bonuses payable	$	1,160	$	1,840
Affiliates		67		—
Advance payments		604		616
Accrued payroll		528		858
Accrued warranty		167		176
Accrued property tax		49		51
Accrued expenses		143		46
Current portion of long-term debt		984		1,181
Total current liabilities		3,702		4,768
Long-term Debt		213		854
Stockholders’ Equity
Common stock; par value $100; 3,000 shares authorized; 1,260 shares issued and outstanding as of October 31, 2006 and 2005		126		126
Additional paid-in capital		317		317
Retained earnings		10,469		15,313
Total stockholders’ equity		10,912		15,756
Total	$	14,827	$	21,378

See Notes to Consolidated Financial Statements

3

Professional Dental Technologies, Inc.

Consolidated Statements of Income

(In Thousands Except Per Share Amounts)

Years Ended October 31, 2006, 2005 and 2004

	2006			2005			2004
Sales	$	34,932		$	34,750		$	33,627
Costs of Goods Sold		15,128			14,898			14,386
Gross Profit		19,804			19,852			19,241
Operating Expenses		16,565			16,544			16,998
Operating Income		3,239			3,308			2,243
Other Income (Expense)		431			160			(207	)
Income Before Income Taxes		3,670			3,468			2,036
Provision for Income Taxes		1,530			1,334			821
Income from Continuing Operations		2,140			2,134			1,215
Discontinued Operations
Income (loss) from discontinued operations (including loss on disposal in 2006 of $471), net of income taxes (credit) of $(59), $(367) and $157 for 2006, 2005 and 2004, respectively		(462	)		(376	)		391
Net Income	$	1,678		$	1,758		$	1,606
Earnings Per Share	$	1,332		$	1,370		$	1,235

See Notes to Consolidated Financial Statements

4

Professional Dental Technologies, Inc.

Consolidated Statements of Stockholders’ Equity

(In Thousands Except Share Amounts)

Years Ended October 31, 2006, 2005 and 2004

	Common Stock						Additional
				Par			Paid-in		Retained
	Shares			Value			Capital		Earnings			Total
Balance, November 1, 2003		1,301		$	130		$	317	$	12,271		$	12,718
Acquisition and retirement of company stock		(1	)		—			—		(66	)		(66	)
Net income		—			—			—		1,606			1,606
Balance, October 31, 2004		1,300			130			317		13,811			14,258
Acquisition and retirement of company stock		(40	)		(4	)		—		(256	)		(260	)
Net income		—			—			—		1,758			1,758
Balance, October 31, 2005		1,260			126			317		15,313			15,756
Dividends on common stock; $5,175 per share		—			—			—		(6,522	)		(6,522	)
Net income		—			—			—		1,678			1,678
Balance, October 31, 2006		1,260		$	126		$	317	$	10,469		$	10,912

See Notes to Consolidated Financial Statements

5

Professional Dental Technologies, Inc.

Consolidated Statements of Cash Flows

(In Thousands)

Years Ended October 31, 2006, 2005 and 2004

	2006			2005			2004
Operating Activities
Net income	$	1,678		$	1,758		$	1,606
Items not requiring (providing) cash
Depreciation and amortization		600			846			957
Gain on disposal of property and equipment		(204	)		(18	)		(10	)
Deferred income taxes		61			(43	)		301
Changes in
Accounts receivable – trade		126			184			13
Accounts receivable – affiliates		522			(247	)		549
Notes receivable		71			(71	)		—
Inventory		2,436			(837	)		(546	)
Other assets		1,239			237			151
Accounts payable – trade including bonuses payable		(680	)		225			(341	)
Accrued and other liabilities		(256	)		(477	)		499
Net cash provided by operating activities		5,593			1,557			3,179
Investing Activities
Purchase of property and equipment		(422	)		(688	)		(635	)
Proceeds from the sale of property and equipment		1,136			35			22
Maturity (purchase) of certificate of deposit		2,118			(2,003	)		381
Net cash provided by (used in) investing activities		2,832			(2,656	)		(232	)
Financing Activities
Issuance of long-term debt		—			—			395
Payment of long-term debt		(838	)		(657	)		(645	)
Payment of capital lease obligations		—			(31	)		(69	)
Acquisition of common stock		—			(260	)		(66	)
Dividends paid		(6,522	)		—			—
Net cash used in financing activities		(7,360	)		(948	)		(385	)
Increase (Decrease) in Cash and Cash Equivalents		1,065			(2,047	)		2,562
Cash and Cash Equivalents, Beginning of Year		4,836			6,883			4,321
Cash and Cash Equivalents, End of Year	$	5,901		$	4,836		$	6,883
Supplemental Schedule of Cash Flow Information
Interest	$	122		$	178		$	220
Income taxes	$	1,019		$	883		$	598

See Notes to Consolidated Financial Statements

6

Professional Dental Technologies, Inc.

Notes to Consolidated Financial Statements

October 31, 2006, 2005 and 2004

Note 1: Summary of Significant Accounting Policies

     Nature of Organization

Professional Dental Technologies, Inc. (the “Company”) is a group of companies headquartered in Batesville, Arkansas, engaged primarily in the business of designing, manufacturing, and marketing products and services for dental professionals to be used in the diagnosis, treatment, and prevention of periodontal and other dental diseases and through May 31, 2006, in the manufacture and sale of nutritional supplements.

     Principles of Consolidation

The consolidated financial statements include the accounts of Professional Dental Technologies, Inc. and its wholly-owned subsidiaries: Dark Red Oak Limited (company dissolved April 20, 2004); Distinctive Marketing, Inc. (company dissolved May 31, 2006); Four Seasons Travel, Inc. (company dissolved July 31, 2006); General Practice Publishers, Inc. (company dissolved May 31, 2006); PDT Image, Inc.; LPI New Zealand Limited (company dissolved May 31, 2006); Professional Dental Manufacturing, Inc.; Management Services International, Inc.; Prodentec Europe Limited (company dissolved October 31, 2004); ProHealth, Inc. (company dissolved May 31, 2006); Prodentec Restoratives, Inc. (company dissolved October 31, 2005) (formerly known as Professional Marketing Systems, Inc.); and Professional Dental Technologies Therapeutics, Inc. All significant intercompany accounts and transactions have been eliminated in consolidation.

     Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the 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.

     Bank Balances

The Company routinely has cash balances in individual financial institutions in excess of FDIC insurance limits. Management believes these institutions are financially stable and that the credit risk related to these deposits is minimal.

     Cash and Cash Equivalents

For the purpose of presentation in the consolidated statements, the Company considers all cash on hand and on deposit with depository institutions, with maturity at date of purchase of three months or less, to be cash and cash equivalents.

     Certificates of Deposit

Certificates of deposit consist of time deposits at financial institutions with maturities at date of purchase between three months and one year.

7

Professional Dental Technologies, Inc.

Notes to Consolidated Financial Statements

October 31, 2006, 2005 and 2004

     Accounts Receivable

Accounts receivable are stated at the amount billed to customers. The Company provides an allowance for doubtful accounts, which is based upon a review of outstanding receivables, historical collection information and existing economic conditions. Accounts receivable are ordinarily due 30 days after the issuance of the invoice.

     Inventory

Inventory is carried at the lower of cost (determined on a first-in, first-out basis) or market.

     Property and Equipment

Property and equipment is stated at cost less accumulated depreciation. Depreciation is calculated using accelerated methods and is expensed based on the estimated useful lives of the assets.

     Revenue Recognition

Revenue is recognized at the time that product ownership transfers to the customer, which is at the time of shipment.

     Accrued Warranty Costs

The Company estimates the amount it will need to meet future warranty obligations for products sold based on its warranty experience.

     Concentration of Credit Risk

Accounts receivable arise from the sale of dental products to dental professionals located throughout the world, but principally in the United States. The Company extends credit to its customers in the normal course of business. The Company generally requires no collateral from its customers. The Company’s credit losses are affected by general economic conditions of the dental and health industries, among other factors.

     Income Taxes

Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes, if any. Deferred taxes represent the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A deferred tax asset is reduced by a valuation allowance, if, based on the weight of available evidence, it is more likely than not that a portion or all of the deferred tax asset will not be realized.

8

Professional Dental Technologies, Inc.

Notes to Consolidated Financial Statements

October 31, 2006, 2005 and 2004

     Incentive Stock Option Plan

The Company has an incentive stock option plan (the “Plan”) for the benefit of its key personnel. The maximum number of shares of common stock reserved for issuance under the Plan is 500 shares, provided that in no event shall more than 10% of the Company’s then outstanding stock be optioned under the Plan in any single year.

The Board of Directors may grant options to key individuals at any time. The purchase price for stock under the Plan shall be 100% of the fair market value of the stock at the time the option is granted, but in no event less than par value of the stock. Options granted expire 10 years from the date they are granted. As of October 31, 2006, options to purchase an aggregate of 57.85 shares of stock were outstanding at prices ranging from $5,625 to $8,750. The options are generally subject to the option holder’s continued employment or services to the Company. Certain options contain vesting requirements.

A summary of the status of the Plan as of October 31, 2006, and changes during the year then ended is as follows:

						Weighted
	Number of			Option Price Per		Average Option
	Shares			Share		Price Per Share
Options outstanding at October 31, 2005		61.55		$	5,625 - $30,000	$	6,252
Forfeited		(3.70	)	$	5,730 - $30,000	$	9,730
Options outstanding at October 31, 2006		57.85		$	5,625 - $8,750	$	5,760

The following table summarizes information about stock options at October 31, 2006:

					Weighted
			Weighted		Average				Weighted
	Number		Average		Exercise		Number		Average
	Outstanding at		Remaining		Price of		Exercisable at		Exercise Price
	October 31,		Contractual		Outstanding		October 31,		of Exercisable
Exercise Price	2006		Life		Options		2006		Options
$5,625		55.35		1	$	5,625		55.35	$	5,625
$8,750		2.50		3	$	8,750		2.50	$	8,750
		57.85						57.85

9

Professional Dental Technologies, Inc.

Notes to Consolidated Financial Statements

October 31, 2006, 2005 and 2004

The Company applies APB 25 in accounting for its stock option and award plan. Under the terms of the plan, the exercise price for each option is equal to the market value of the Company’s stock on the date of the grant. Accordingly, no compensation expense has been recognized under this plan. Net income and earnings per share on a pro forma basis, as if the Company had utilized the accounting methodology prescribed by SFAS 123 would have been as follows (in thousands, except per share data):

	2006		2005		2004
Net income
As reported	$	1,678	$	1,758	$	1,606
Pro forma		1,678		1,758		1,606

No options were granted during the year ended October 31, 2006.

     Reclassifications

Certain reclassifications have been made to the 2005 and 2004 financial statements to conform to the 2006 financial statement presentation. The reclassifications had no effect on net earnings.

Note 2: Related Party Transactions

During the years ended October 31, 2006 and 2005, the Company advanced funds to certain officers, directors and employees. The advances are due on demand. The advances were as follows at October 31:

	2006		2005
Employees	$	8,000	$	60,000
Officers and directors		—		173,000
Total	$	8,000	$	233,000

During the years ended October 31, 2006, 2005 and 2004, the Company provided goods and services aggregating approximately $5,412,000, $8,297,000 and $6,351,000, respectively to companies controlled by the majority stockholders of the Company. These amounts are included in sales in the consolidated statements of income. As of October 31, 2006, the Company owes these affiliated companies $66,000, and as of October 31, 2005, these affiliated companies owed the Company $455,000, respectively. These amounts are reflected as accounts receivable-affiliates and accounts payable-affiliates in the consolidated balance sheets.

10

Professional Dental Technologies, Inc.

Notes to Consolidated Financial Statements

October 31, 2006, 2005 and 2004

Note 3: Inventory

Inventory consisted of the following:

	October 31,
	2006		2005
Finished goods	$	560,000	$	1,265,000
Work in process		30,000		58,000
Raw materials		1,718,000		3,421,000
Total	$	2,308,000	$	4,744,000

Note 4: Property and Equipment

Property and equipment consisted of the following:

	October 31,
	2006		2005
Land	$	527,000	$	714,000
Buildings and improvements		2,563,000		2,744,000
Manufacturing equipment		3,186,000		4,244,000
Vehicles		159,000		373,000
Furniture and equipment		916,000		1,418,000
Construction in progress		19,000		205,000
Total property and equipment		7,370,000		9,698,000
Less accumulated depreciation		4,361,000		5,579,000
Property and equipment, net	$	3,009,000	$	4,119,000

Note 5: Line of Credit

At October 31, 2006, the Company had an available bank credit line of $3,000,000 against which it had no borrowings. The line of credit is subject to certain restrictive covenants and the loan amount, up to $3,000,000, is not to exceed 75% of eligible receivables and 50% of eligible inventory excluding work in process. The line of credit automatically renews annually unless terminated under the provisions of the agreement. The term of this line of credit began in May 2003.

11

Professional Dental Technologies, Inc.

Notes to Consolidated Financial Statements

October 31, 2006, 2005 and 2004

Note 6: Long-term Debt

Long-term debt consisted of the following:

	October 31,
	2006		2005
Mortgage payable- collatera lized by land and building with a carrying value at October 31, 2005, of $236,000; interest at 5%; monthly payments of principal and interest aggregating $3,695, maturing on March 2006	$	—	$	15,000
Mortgage payable- collatera lized by land and building with a carrying value at October 31, 2005, of $157,000; interest at 5%; monthly payments of principal and interest aggregating $3,917 maturing on December 2006		—		53,000
Mortgage payable- collatera lized by land and building with a carrying value at October 31, 2005, of $117,000; interest at 5%; monthly payments of principal and interest aggregating $2,161 maturing on May 2008		—		61,000
Mortgage payable- collatera lized by land with a carrying value at October 31, 2005, of $155,000; interest at 5%; monthly payments of principal and interest aggregating $2,923 maturing on May 2008		—		85,000
Mortgage payable- collatera lized by land and building with a carrying value at October 31, 2006, of $1,193,00 0, interest at 7.95%, via interest rate swap; monthly payments of principal and interest aggregating $8,068 monthly, with a balloon payment at maturity, April 2007		610,000		655,000
Mortgage payable- collatera lized by land and building with a carrying value at October 31, 2006, of $657,000; interest at 4.85%, via interest rate swap, monthly payments of principal and interest aggregating $11,925, maturing April 2009		339,000		459,000

12

Professional Dental Technologies, Inc.

Notes to Consolidated Financial Statements

October 31, 2006, 2005 and 2004

	October 31,
	2006		2005
Notes payable — collateralized by equipment with a carrying value at October 31, 2006, of $19,000; interest at 5.4%, via interest rate swap; monthly payments of interest aggregating $19,035 of principal plus interest maturing on March 2008		180,000		517,000
Notes payable — collateralized by equipment with a carrying value at October 31, 2006, of $36,000; interest at 4.55%, monthly payments of principal and interest aggregating $7,000, maturing May 2007		68,000		190,000
		1,197,000		2,035,000
Less current portion		984,000		1,181,000
Long-term debt, net of current portion	$	213,000	$	854,000

The debt matures as follows for the years ending October 31:

2007	$	984,000
2008		133,000
2009		80,000
Total	$	1,197,000

Note 7: Derivative Financial Instruments

As a strategy to maintain acceptable levels of exposure to the risk of changes in future cash flows due to interest rate fluctuations, the Company entered into interest rate swap agreements for a portion of its floating rate debt. These agreements provide for the Company to receive interest from the counterparty at LIBOR and to pay interest to the counterparty at fixed rates on notional amounts. Under the agreement, the Company pays or receives the net interest amount monthly, with the monthly settlements included in interest expense.

Note 8: Income Taxes

The provision for income taxes on continuing operations for the years ended October 31, 2006, 2005 and 2004, consist of the following:

					��
	2006		2005			2004
Current expense	$	1,469,000	$	1,288,000		$	486,000
Deferred income taxes		61,000		46,000			335,000
Total	$	1,530,000	$	1,334,000		$	821,000

13

Professional Dental Technologies, Inc.

Notes to Consolidated Financial Statements

October 31, 2006, 2005 and 2004

A reconciliation of the federal statutory income tax rate to the Company’s effective tax rate is as follows:

	2006			2005			2004
Tax expense at maximum statutory rate of 34%	$	1,248,000		$	1,179,000		$	692,000
Nondeductible expenses		43,000			27,000			24,000
State income taxes net of federal benefit		182,000			147,000			104,000
Extraterritorial income exclusion		(12,000	)		(13,000	)		(24,000	)
Other		69,000			(6,000	)		25,000
	$	1,530,000		$	1,334,000		$	821,000

The above income tax provisions are presented on the statements of income as follows:

	2006			2005			2004
As a component of income from continuing operations	$	1,530,000		$	1,334,000		$	821,000
As a component of income (loss) from discontinued operations		(59,000	)		(367,000	)		157,000
Income tax provision	$	1,471,000		$	967,000		$	978,000

The net deferred tax asset consisted of the following at:

	October 31,
	2006			2005
Deferred tax assets (liabilities)
Allowance for doubtful accounts	$	41,000		$	130,000
Compensation		82,000			174,000
Intangibles		—			278,000
Prepaid expenses		(105,000	)		(172,000	)
Property, plant and equipment		(14,000	)		(31,000	)
Warranties		64,000			67,000
Other		159,000			308,000
Net deferred tax assets		227,000			754,000
Net deferred tax asset – current		162,000			430,000
Net deferred tax asset – noncurrent	$	65,000		$	324,000

14

Professional Dental Technologies, Inc.

Notes to Consolidated Financial Statements

October 31, 2006, 2005 and 2004

Note 9: Commitments and Contingencies

     Operating Leases

The Company leases warehouse space and various equipment under non-cancelable operating leases. Future minimum lease payments are as follows:

Year ending October 31:
2007	$	230,000
2008		36,000
	$	266,000

The total rent expense was $544,000, $531,000 and $458,000 for the years ended October 31, 2006, 2005 and 2004, respectively.

     Licensing Agreement

The Company has a licensing agreement with a foreign company which owns the manufacturing and distribution rights to a rotary dental hygiene device, known as Rota-dent. The agreement contains the following major provisions:

1)	The Company holds the worldwide rights to manufacture and distribute the Rota-dent in perpetuity except for the right to distribute the Rota-dent in Sweden, which was granted back to the foreign company (subject to cancellation by either party on 90 days notice).
2)	The Company was assigned all patents and trademarks of the Rota-dent.
3)	The Company is to pay a royalty of $1.50 to the foreign company for each Rota-dent sold until an aggregate of $8,000,000 in royalties has been paid. During the years ended October 31, 2006, 2005 and 2004, the Company incurred royalties of $268,000, $364,000 and $341,000, respectively, and through October 31, 2006, has incurred aggregate royalties of approximately $8,000,000.

In addition, the Company has certain other licensing agreements related to its distribution of various other products. During the years ended October 31, 2006, 2005 and 2004, the Company incurred royalties under these licensing agreements totaling $72,000, $116,000 and $140,000, respectively.

     Business Venture Agreements

The Company has entered into a rolling five year term agreement commencing on December 5, 1995, with Aztec Developments, Ltd. (“Aztec”), an unrelated company, to manufacture and distribute certain proprietary periodontal dental products for Aztec. As of October 31, 2006, the Company has purchased approximately $60,000 in equipment, that will be used to manufacture the products, which is included in property, plant, and equipment in the consolidated balance sheet. Aztec has agreed to contribute to the Company the completed design of the products and a license to manufacture the products under the patents now in force.

15

Professional Dental Technologies, Inc.

Notes to Consolidated Financial Statements

October 31, 2006, 2005 and 2004

The agreement stipulates fixed royalty amounts payable to the Company and Aztec for items sold, after which, all profits, as defined in the agreement, are to be allocated equally between the Company and Aztec. During the year ended October 31, 2006, 2005 and 2004, $525,000, $498,000 and $411,000 in royalties were paid, respectively.

     Product Sales Concentration

Sales of the Company’s Rota-dent and accessory products represented approximately 77% and 43% of total revenues for the years ended October 31, 2006, 2005 and 2004, respectively.

     Litigation

The Company is engaged in various legal proceedings in the ordinary course of business. The resolution of these matters is not expected to have a material adverse effect on the Company’s financial position, cash flows or results of operations. However, these estimates could change materially in the near term.

Note 10: 401(k) Retirement Savings Plan

The Company has a 401(k) plan available to all employees meeting certain service requirements. Eligible employees may contribute up to the lesser of 60% of their annual salary or $13,000 to the 401(k) plan, subject to certain limitations. Employees become fully vested in the Company contributions after five years of service. The Company may provide profit-sharing contributions at the discretion of its Board of Directors. The Company adopted a matching provision effective January 1, 2006. This provision allows for a dollar for dollar match up to 3% of the employee’s pay. The Company contributed $208,000 for the year ended October 31, 2006. There were no Company contributions for the years ended October 31, 2005 and 2004.

Note 11: Disclosures About Fair Value of Financial Instruments

The following methods were used to estimate the fair value of financial instruments.

The fair values of certain of these instruments were calculated by discounting expected cash flows, which method involves significant judgments by management and uncertainties. Fair value is the estimated amount at which financial assets or liabilities could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Because no market exists for certain of these financial instruments and because management does not intend to sell these financial instruments, the Company does not know whether the fair values shown below represent values at which the respective financial instruments could be sold individually or in the aggregate.

     Other Temporary Investments

For these short-term instruments, the carrying amount is a reasonable estimate of fair value.

16

Professional Dental Technologies, Inc.

Notes to Consolidated Financial Statements

October 31, 2006, 2005 and 2004

     Notes Payable and Long-term Debt

Fair value is estimated based on the borrowing rates currently available to the Company for bank loans with similar terms and maturities.

The following table presents estimated fair values of the Company’s financial instruments at October 31, 2006 and 2005.

	2006				2005
	Carrying				Carrying
	Amount		Fair Value		Amount		Fair Value
Financial assets
Cash and cash equivalents	$	5,901,000	$	5,901,000	$	4,836,000	$	4,836,000
Other temporary investments		—		—		2,118,000		2,118,000
Financial liabilities
Long-term debt		1,197,000		1,197,000		2,035,000		2,035,000

Note 12: Discontinued Operations

On May 31, 2006, the Company sold the assets and liabilities of its Life Plus division in anticipation of a merger with a subsidiary of Zila, Inc. (SeeNote 13). Division sales were $9,016,000 in 2006, $15,795,000 in 2005 and $15,091,000 in 2004. A loss of $471,000 has been recognized for 2006 and is included in 2006 loss from discontinued operations. Operations during 2005 and 2004 have been reclassified to include all revenues and expenses of the Division in discontinued operations.

Note 13: Subsequent Events

On November 10, 2006, the Company paid a dividend of $3,484,000, $2,765 per share. On November 28, 2006, 44.5 shares under the stock option agreement were exercised, and the Company paid a dividend of $616,000, $473 per share. Also, on November 28, 2006, Zila Merger, Inc., a wholly-owned subsidiary of Zila, Inc., merged with and into the Company, resulting in the Company becoming a wholly-owned subsidiary of Zila, Inc.

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Professional Dental Technologies, Inc.

Notes to Consolidated Financial Statements

October 31, 2006, 2005 and 2004

Note 14: New Accounting Standards

SFAS No. 123,Share-Based Payment(Revised 2004), establishes standards for the accounting for transactions in which an entity (i) exchanges its equity instruments for goods or services, or (ii) incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of the equity instruments. SFAS 123R eliminates the ability to account for stock-based compensation using APB 25 and requires that such transactions be recognized as compensation cost in the income statement based on their fair values on the measurement date, which is generally the date of the grant. SFAS 123R is to be effective for the Company on November 1, 2006. Subsequent to the end of the year, (SeeNote 13) all outstanding options at October 31, 2006, were exercised or expired. Any future effect of this new standard cannot be determined at this time.

FIN 48,Uncertainty in Income Taxes, requires disclosure of management’s estimate of the probability of income tax positions being upheld in an income tax audit. It requires the Company to disclose tabular reconciliation of unrecognized tax benefits and management opinions of the probability of tax positions be upheld. Benefits will be recognized if it is more-likely-than-not the position will be substantiated. FIN 48 will be effective beginning November 1, 2007. Management does not expect it to have a material effect on the financial statements of the Company.

Presently, the Company is not aware of any other changes from the Financial Accounting Standards Board that will have a material impact on the Company’s present or future financial statements.

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