Alcide (ALCD) 10-Q 2001 Q2 Quarterly report

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UNITED STATES
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 November 30, 2000

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: 0-12395

ALCIDE CORPORATION

Delaware State or other jurisdiction of incorporation or organization	22-2445061 (I.R.S. Employer Identification No.)
8561 154th Avenue North East, Redmond WA (Address of principal executive offices)	98052 (Zip Code)

(425) 882-2555
Registrant's telephone number, including area code

    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 / /

    Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of November 30, 2000: 2,560,300, net of Treasury Stock.

ALCIDE CORPORATION

INDEX

PART I.  FINANCIAL INFORMATION

		Page
Item 1.	Financial Statements
	Consolidated Condensed Balance Sheets—November 30, 2000 (Unaudited)   and May 31, 2000	3
	Unaudited Consolidated Condensed Statements of Operations—   for the three and six months ended November 30, 2000   and November 30, 1999	4
	Consolidated Condensed Statements of Changes in Shareholders' Equity	5
	Unaudited Consolidated Condensed Statements of Cash Flows—for the six   months ended November 30, 2000 and November 30, 1999	6
	Notes to Unaudited Consolidated Condensed Financial Statements	7
Item 2.	Management's Discussion and Analysis of Financial Condition and   Results of Operations	10
Item 3.	Legal Proceeding	12
Item 4.	Submission of Matters to a Vote of Security Holders	12
PART II.	OTHER INFORMATION
Item 6.	Exhibits and Reports on Form 8—K	13
SIGNATURE		14

2

ALCIDE CORPORATION

CONSOLIDATED CONDENSED BALANCE SHEETS

				November 30, 2000			May 31, 2000
				(Unaudited)
Assets:
	Current assets:
		Cash and cash equivalents		$	2,054,118		$	1,794,723
		Accounts receivable—trade			2,761,398			2,486,046
		Inventory			1,345,136			1,404,090
		Deferred and prepaid income taxes			589,481			—
		Components and spare parts			595,301			449,058
		Prepaid expenses and other current assets			128,011			238,651
			Total current assets		7,473,445			6,372,568
	Equipment and leasehold improvements:
		Sanova plant assets			9,829,539			7,365,458
		Office equipment			353,875			282,673
		Laboratory and manufacturing equipment			207,752			169,136
		Leasehold improvements			73,483			73,483
		Less: Accumulated depreciation and amortization			(2,290,028	)		(1,437,892	)
			Total equipment and leasehold improvements, net		8,174,621			6,452,858
	Deferred income tax asset				193,131			1,102,331
	Long term investments and other assets				592,743			602,564
Total Assets				$	16,433,940		$	14,530,321
Liabilities and Shareholders' Equity:
	Current liabilities:
		Accounts payable		$	380,648		$	594,454
		Accrued expenses			766,787			376,747
		Unearned revenue			344,992			—
			Total current liabilities		1,492,427			971,201
	Long term payable to Novus				—			158,000
Total Liabilities					1,492,427			1,129,201
	Commitments and Contingencies:
		Redeemable Class "B" Preferred Stock— noncumulative convertible $.01 par value: authorized 10,000,000 shares; issued and outstanding:    May 31, 2000—72,525    November 30, 2000—72,525			190,377			190,377
	Shareholders' equity:
		Class "A" Preferred Stock—no par value: authorized 1,000 shares; issued and outstanding:    May 31, 2000—138    November 30, 2000—138			18,636			18,636
		Common Stock $.01 par value: authorized 100,000,000 shares; issued and outstanding:    May 31, 2000—2,904,068    November 30, 2000—2,944,725			29,447			29,040
		Treasury stock at cost			(7,254,248	)		(7,254,248	)
		Additional paid-in capital			20,384,741			19,832,668
		Retained earnings			1,572,560			584,647
			Total Shareholders' Equity		14,751,136			13,210,743
Total Liabilities and Shareholders' Equity				$	16,433,940		$	14,530,321

See notes to Unaudited Consolidated Condensed Financial Statements.

3

ALCIDE CORPORATION

UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

			For the Three Months Ended November 30,					For the Six Months Ended November 30
			2000		1999			2000		1999
NET SALES			$	4,692,638	$	2,960,821		$	8,939,208	$	5,635,219
Expenditures
	Cost of goods sold			2,141,622		1,868,785			4,160,882		3,560,493
	Research and development expense			457,934		498,204			794,531		952,642
	Consulting expense to related parties			24,000		24,000			48,000		48,000
	Other selling, general/administrative			1,151,629		944,567			2,464,981		2,123,479
		Total Expenditures		3,775,185		3,335,556			7,468,394		6,684,614
Operating income (loss)				917,453		(374,735	)		1,470,814		(1,049,395	)
Interest income				34,638		63,370			71,307		141,370
Other income				—		8,408			8,764		8,408
Income (loss) before provision (benefit) for income taxes				952,091		(302,957	)		1,550,885		(899,617	)
Provision (benefit) for income taxes				345,610		(103,006	)		562,973		(305,342	)
Net income (loss)			$	606,481	$	(199,951	)	$	987,912	$	(594,275	)
Basic earnings (loss) per common share			$	.24	$	(.08	)	$	.39	$	(.24	)
Diluted earnings (loss) per common share and equivalents			$	.23	$	(.08	)	$	.37	$	(.24	)
Weighted average common shares outstanding				2,552,887		2,509,568			2,538,457		2,517,760
Weighted average common shares & common share equivalents				2,676,327		2,509,568			2,639,125		2,517,760

See Notes to Unaudited Consolidated Condensed Financial Statements.

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ALCIDE CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

	Class "A" Preferred Stock								Common Stock Treasury
				Common Stock
							Additional Paid in Capital							Retained Earnings		Total Shareholders' Equity
	Shares	Amount		Shares	Amount				Shares		Amount
Balance May 31, 2000	138	$	18,636	2,904,068	$	29,040	$	19,832,668	(384,425	)	$	(7,254,248	)	$	584,647	$	13,210,743
Exercise of stock options				15,027		150		93,600									93,750
Stock issued for officers' bonuses				13,488		135		225,265									225,400
Tax benefit from exercise of stock options								56,406									56,406
Net Income															381,432		381,432
Balance August 31, 2000	138	$	18,636	2,932,583	$	29,325	$	20,207,939	(384,425	)	$	(7,254,248	)	$	966,079	$	13,967,731
Exercise of stock options				12,142		122		80,755									80,877
Tax benefit from exercise of stock options								96,047									96,047
Net Income															606,481		606,481
Balance November 30, 2000	138	$	18,636	2,944,725	$	29,447	$	20,384,741	(384,425	)	$	(7,254,248	)	$	1,572,560	$	14,751,136

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ALCIDE CORPORATION

UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

				For the Six Months Ended November 30,
				2000			1999
Operating Activities:
	Net income (loss)			$	987,912		$	(594,275	)
	Adjustments to reconcile net income (loss) to net cash provided by operating activities:
		Depreciation			852,136			408,186
		Amortization of investment premiums			501			501
		Stock bonus to officers			225,400			—
		Deferred income taxes			562,973			(295,090	)
		Decrease (increase) in assets:
			Inventory		58,954			453,174
			Accounts receivable—trade		(275,352	)		105,406
			Prepaid income taxes		(90,800	)		614,200
			Prepaid expenses and other current assets		(35,603	)		50,900
			Long term investments and other assets		9,320			8,167
		Increase (decrease) in liabilities:
			Accounts payable		(213,806	)		187,702
			Accrued expenses		390,040			(59,590	)
			Unearned revenue		344,992			—
			Other liabilities		(158,000	)		(158,000	)
	Net cash provided by operating activities				2,658,667			721,281
Cash Flows from Investing Activities:
		Acquisition of equipment			(2,573,899	)		(2,558,838	)
Cash Flows from Financing Activities:
		Purchase of Alcide Common Stock and redemption of Class "A" Preferred Stock			—			(314,119	)
		Stock Options exercised			174,627			—
		Net cash provided by (used) in financing activities			174,627			(314,119	)
	Net increase (decrease) in cash and cash equivalents				259,395			(2,151,676	)
	Cash and cash equivalents at beginning of period				1,794,723			6,391,868
	Cash and cash equivalents at end of period			$	2,054,118		$	4,240,192
Supplemental Disclosures of Cash Flow Information:
	Cash paid during the period for income taxes				90,800			1,600

See notes to Unaudited Consolidated Condensed Financial Statements.

6

ALCIDE CORPORATION

NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

1.  Basis of Presentation

    In the opinion of management, the accompanying unaudited financial statements of Alcide Corporation (the "Company") as of and for the three and six month periods ended November 30, 2000 and 1999 have been prepared in accordance with the instructions to Form 10-Q. Certain information and disclosures normally included in notes to financial statements have been condensed or omitted according to the rules and regulations of the Securities and Exchange Commission, although the Company believes that the disclosures are adequate to make the information presented not misleading. The accompanying unaudited condensed financial statements should be read in conjunction with the financial statements contained in the Company's Annual Report on Form 10-K for the year ended May 31, 2000. In the opinion of management, the accompanying unaudited condensed financial statements contain all adjustments (consisting of only normal recurring accruals) considered necessary for a fair presentation. The results of operations for the six month periods are not necessarily indicative of the results to be expected for the full year.

2.  Inventory consisted of the following:

	November 30, 2000		May 31, 2000
Finished products	$	242,454	$	212,047
Raw materials		529,074		681,049
Sanova inventory at customer sites		573,608		510,994
Total	$	1,345,136	$	1,404,090

3.  Accounts Receivable—Trade consisted of the following:

	November 30, 2000		May 31, 2000
IBA, Inc.	$	359,998	$	209,048
UMS, Inc.		806,369		472,403
International Distributors		476,355		641,021
Sanova Customers		1,035,128		1,092,443
Other Receivables		83,548		71,131
Total Accounts Receivable	$	2,761,398	$	2,486,046

4.  Unearned Revenue

    In November, 2000, Alcide agreed to terminate a distribution contract with its animal health distributor in France. The contract contained a take-or-pay arrangement for fiscal year 2001. In exchange for eliminating this arrangement the distributor paid Alcide $517,489. One-third of the amount was recognized as revenue in the second quarter. The balance was recorded as unearned revenue and will be recognized over the next two quarters, at which point the distribution agreement ends.

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5.  Taxes

    The income tax provision for the six month period ended November 30, 2000 consisted of:

Federal income taxes	$	508,925
State income taxes		54,048
Total taxes	$	562,973

6.  Earnings Per Share

    The Company has adopted Statement of Financial Accounting Standards 128 ("SFAS 128"), "Earnings Per Share" which replaced the calculation of primary and fully diluted earnings per share with basic and diluted earnings per share. Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income by the weighted average number of common shares and common stock equivalents outstanding during the period. Common stock equivalents of the Company include the dilutive effect of outstanding stock options.

    Basic and Diluted earnings per share were calculated as follows:

	Three Months Ended November 30,					Six Months Ended November 30,
	2000		1999			2000		1999
Net income (loss)	$	606,481	$	(199,951	)	$	987,912	$	(594,275	)
Weighted average number of Common Shares outstanding		2,552,887		2,509,568			2,538,457		2,517,760
Basic earnings (loss) per share	$	.24	$	(.08	)	$	.39	$	(.24	)
Assuming exercise of options reduced by the number of shares which could have been purchased with the proceeds from exercise of such options (Ø if antidilutive)		123,440		—			100,668		—
Weighted average Common Shares outstanding and Common Share equivalents		2,676,327		2,509,568			2,639,125		2,517,760
Diluted earnings (loss) per share	$	.23	$	(.08	)	$	.37	$	(.24	)

7.  Orders for Future Delivery

    At November 30, 2000 and 1999 the Company had orders for future delivery of $886,395 and $1,105,036. The $886,395 in orders for future delivery are scheduled for shipment during the period December, 2000 through January, 2001. Data for both years excludes expected sales of Sanova to the poultry industry because contracts with Sanova customers do not require placement of purchase orders for future delivery. Sanova sales are based on product usage reported by the customers after the fact. The 24 customers using the System on November 30, 2000 purchase roughly $735,000 per month.

8.  Segment Information

    The Company adopted Statement of Financial Accounting Standards No. 131 (SFAS 131) "Disclosures about Segments of an Enterprise and Related Information," during 1998. Following the provisions of SFAS 131, the Company is reporting segment information in the same format as reviewed by the Company's management (the "Management Approach"), which is organized around differences in products and services. During fiscal 2001, management determined that due to the growth of the

8

Company's Sanova business, the Company now has two reportable segments, Animal Health and Surface Disinfectants and Sanova Food Antimicrobial Products.

    The Company's reportable segments are strategic business units that offer distinct and different products and services. These segments are managed separately because each business requires different production, management and marketing strategies.

    The accounting policies of the segments are the same as those described in Note 2—Summary of Significant Accounting Policies, in the Company's Form 10-K. The Company evaluates performance based on profit or loss from the sale of each segment's products and does not allocate expenses beyond gross margin to the two segments.

    Segment net sales, gross margin and assets are as follows:

		Animal Health and Surface Disinfectants		Sanova Food Antimicrobial		Not Segment Related		Total Company
For three months ended 11/30/00
	Net Sales	$	2,761,044	$	1,931,594		—	$	4,692,638
	Gross Margin	$	1,732,063	$	818,953		—	$	2,551,016
For six months ended 11/30/00
	Net Sales	$	5,270,232	$	3,668,976		—	$	8,939,208
	Gross Margin	$	3,362,267	$	1,416,059		—	$	4,778,326
Total Assets as of 11/30/00		$	2,480,176	$	10,223,433	$	3,730,331	$	16,433,940

    Assets assigned to the business segments include accounts receivable, inventories, fixed assets, and spare parts and components related thereto.

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PART I.

ITEM 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations

Introduction

    Alcide Corporation (the "Company") is a Delaware Corporation organized in 1983 which has its executive offices and research laboratories at 8561 154th Avenue N.E., Redmond, Washington 98052.

    Alcide is engaged in the research, development and commercialization of unique chemical compounds having intense microbiocidal activity. The Company holds substantial worldwide rights to its discoveries through various patents, patent applications, trademarks and other intellectual property, technology, and know-how.

    This report includes forward-looking statements which involve risk and uncertainty including, without limitation, risk of dependence on patents and trademarks, third party suppliers, market acceptance of and demand for the Company's products, distribution capabilities, development of technology and regulatory approval thereof. Sentences or phrases that use the words such as "believes," "anticipates," "hopes," "plans," "may," "can," "will," "expects," and others, are often used to flag such forward-looking statements, but their absence does not mean a statement is not forward-looking. Such statements reflect management's current opinion and are designed to help readers understand management's thinking. By their very nature, however, such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. Readers are cautioned not to place undue reliance on these forward-looking statements which speak only as of the date hereof. The Company undertakes no obligation to release publicly any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof, or to reflect the occurrence of unanticipated events.

Financial Condition and Results of Operations

    Net sales for the three month and six month periods ended November 30, 2000, and November 30, 1999 are expressed in the table below:

	Three Months Ended November 30,				Six Months Ended November 30,
Net Sales	2000		1999		2000		1999
Animal Health and Surface Disinfectants	$	2,761,044	$	2,114,799	$	5,270,232	$	4,302,056
Sanova Food Antimicrobial		1,931,594		846,022		3,668,976		1,333,163
Total	$	4,692,638	$	2,960,821	$	8,939,208	$	5,635,219

    Net sales of $4,692,638 for the quarter and $8,939,208 for the six month period ending November 30, 2000 were the highest for any quarter or six month period in Alcide's history, and were 58% and 59% higher than for the respective periods last year.

    The Company's animal health and surface disinfectant sales for the quarter ended November 30, 2000 were $2,761,044, an increase of $646,245, 31%, when compared to the second quarter sales last year. Sales to U.S. distributors were up 29% for the quarter, while sales to international distributors gained 38%. Animal health and surface disinfectant sales for the six month period totaled $5,270,232, an improvement of $968,176, 23%, when compared to six month performance a year ago. It is believed that at least a portion of the increase for both the quarter and six month periods is attributable to replenishment of distributor inventories, and therefore the six month improvements vs. last year may not be projectable for the entire year.

    Two animal health distributors had sales greater than 10% of total sales for both the quarter and half year periods ended November 30, 2000. Their combined sales for the three month period were

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$1,963,509 as compared to $1,431,790 for the equivalent period last year. Combined first half sales for the two distributors were $3,681,388, a 23% increase over the $2,993,132 sales to the same distributors during the first half of last year.

    Sales of Sanova food antimicrobial to the poultry industry totaled $1,931,594 for the quarter, an increase of $1,085,572 compared to the second fiscal quarter last year, and $194,212, 11% higher than this year's first quarter sales, as this new Alcide business continued to expand rapidly. At the end of the quarter 24 plants, processing approximately 4.3 billion pounds of poultry annually and representing roughly 14% of the total U.S. poultry market, were utilizing the Sanova System to improve the quality of their product. One additional plant has started since the end of the quarter, and Alcide has contracts for future installations at four plants, bringing the total to 29 poultry plants under contract. Sanova sales for the six month period ended November 30, 2000 were $3,668,976, an increase of $2,335,813 compared to the equivalent six month period last year.

    Cost of goods sold were 46% of net sales for the quarter and 47% of net sales for the six month period ended November 30, 2000. This is a substantial reduction from the 63% of net sales during the quarter and half year last year, and reflects primarily a reduction in Sanova cost of goods.

    Research and development expenses for the quarter ended November 30, 2000 were $457,934 as compared to $498,204 for the same period last year. First half research and development expenses were $794,531, 17% lower than expenses of $952,642 for the first half last year. This decrease is primarily due to reduced testing to support Sanova validation trials in commercial slaughter plants.

    Other selling, general and administrative expenses were $1,151,629 for the quarter ended November 30, 2000, a 22% increase from the $944,567 for the first quarter last year. Six month expenses of $2,464,981 were 16% higher than first half expenses last year. The increase reflects costs incurred to establish Alcide Food Safety's operations and engineering office and to recruit staff to replace engineering, design and startup services which were previously purchased from outside consultants.

    Interest income was $34,638 for the quarter and $71,307 for the six month period ended November 30, 2000, as compared to $63,370 and $141,370 for the respective periods a year ago. The decreased amounts of interest income result essentially from lower investible cash resources as compared to the equivalent periods a year ago.

Liquidity and Capital Resources

    The Company's cash, cash equivalents and U.S. Treasury investments (included in long term investments and other assets) totaled $2,555,872 on November 30, 2000, an amount $258,893 higher than at the end of the previous fiscal year. Net cash provided by operating activities during the six month period was $2,658,667, offsetting a $2,573,899 investment in equipment to support the Company's growing food safety business. In addition, $174,627 cash was realized from the exercise of stock options.

    Alcide has negotiated a $10 million unrestricted line of credit from US Bank as a backup source of capital, if needed, to support Alcide's growing food safety business. The Company has not drawn on the credit line.

Outlook

•

Sanova Food Quality System
The size of the Company's food antimicrobial business continues to expand. At December 31, 2000, 25 plants, having an annual capacity of approximately 1.25 billion birds, which is about 14% of the U.S. market, were using the Sanova System. The 25 plants are expected to generate

11

annual sales of approximately $10 million. Four additional poultry plants and one beef plant have contracted for System installation, resulting in a total of 30 plants under contract.

•

Animal Health and Surface Disinfectant Products
The first half sales increase of 23% is not necessarily projectable for the entire year. Management believes that distributors may have increased their inventories by as much as $400,000 during the first half. In addition, the Company now faces direct competition from products similar to its products, UDDERgold and UDDERgold Plus, in key market areas. The assumption going forward is that market characteristics will result in essentially flat year to year sales.

ITEM 3.  Legal Proceeding

    On November 30, 2000 the Company was notified by the United States Court of Appeals for the Federal Circuit that the Company's appeal of the District Court decision in Alcide's patent infringement suit against ABS Global, Inc., Ecolab, Inc. and others, was decided in favor of the defendants. The original lawsuit dates back over two years and involved a patent which has since expired in May, 1999. As the patent expired during the legal review process, the Court of Appeals decision has no competitive or strategic impact on Alcide. The Company was suing for damages which occurred during a seven month period prior to patent expiration. All of the Company's legal fees in bringing this lawsuit were expensed in prior periods.

ITEM 4.  Submission of Matters to a Vote of Security Holders

    Shareholders voted on two proposals at the Annual Meeting of stockholders on October 19, 2000, as described in the Company's proxy statement.

1.

Votes for election of Directors of the Corporation for the ensuing year were as follows:

	For	Withheld Authority
Thomas L. Kempner	2,248,388	18,977
Kenneth N. May, Ph.D.	2,251,734	15,631
Joseph A. Sasenick	2,054,209	213,156
William G. Spears	2,251,314	16,051

2.

Votes for the ratification of the Board's selection of Arthur Andersen LLP as independent auditors of the Company for the fiscal year ending May 31, 2001:

For	Against	Abstain
2,149,243	7,683	110,439

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PART II.

OTHER INFORMATION

ITEM 6.  Exhibits and Reports on Form 8-K

    None.

13

SIGNATURE

    Pursuant to the requirements of Section 13 or 15(d) 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.

	ALCIDE CORPORATION The Registrant
Date: January 11, 2001	By	/s/ JOHN P. RICHARDS   John P. Richards Executive Vice President Chief Financial Officer

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QuickLinks

(Mark One)

ALCIDE CORPORATION INDEX
ALCIDE CORPORATION CONSOLIDATED CONDENSED BALANCE SHEETS
ALCIDE CORPORATION UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
ALCIDE CORPORATION UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
ALCIDE CORPORATION NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
PART I.

ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
ITEM 3. Legal Proceeding
ITEM 4. Submission of Matters to a Vote of Security Holders

PART II. OTHER INFORMATION

ITEM 6. Exhibits and Reports on Form 8-K

SIGNATURE