Alcide (ALCD) 10-Q 2002 Q1 Quarterly report

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FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

/x/
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended August 31, 2001

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)

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

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 August 31, 2001: 2,638,354, net of Treasury Stock.

ALCIDE CORPORATION

INDEX

		PAGE
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Condensed Balance Sheets—August 31, 2001 (Unaudited) and May 31, 2001	3
	Unaudited Consolidated Condensed Statements of Operations—For the three months ended August 31, 2001 and August 31, 2000	4
	Unaudited Consolidated Condensed Statements of Changes in Shareholders' Equity	5
	Unaudited Consolidated Condensed Statements of Cash Flows—For the three months ended August 31, 2001 and August 31, 2000	6
	Notes to Unaudited Consolidated Condensed Financial Statements	7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	11
Item 3.	Legal Proceedings	13
PART II.	OTHER INFORMATION
Item 6.	Exhibits and Reports on Form 8-K	14
SIGNATURE		15

2

ALCIDE CORPORATION

CONSOLIDATED CONDENSED BALANCE SHEETS

					August 31, 2001			May 31, 2001
					(Unaudited)
Assets:
	Current assets:
		Cash and cash equivalents			$	312,827		$	839,103
		Short term investments				1,506,407			992,426
		Accounts receivable—trade				3,172,387			2,627,810
		Inventory				1,919,886			2,034,348
		Deferred and prepaid income taxes				913,205			851,231
		Spare parts				507,371			458,203
		Prepaid expenses and other current assets				337,098			357,481
				Total current assets		8,669,181			8,160,602
	Equipment and leasehold improvements:
		SANOVA plant assets				12,155,199			10,953,012
		Construction in progress				2,091,676			1,330,900
		Office equipment				486,796			463,848
		Laboratory, manufacturing equipment and vehicles				376,219			285,024
		Leasehold improvements				73,483			73,483
		Less:
			Accumulated depreciation and amortization			(3,990,819	)		(3,376,710	)
				Total equipment and leasehold improvements, net		11,192,554			9,729,557
	Deferred income tax asset					—			55,305
	Goodwill and other intangibles, net					478,807			478,807
	Long term investments and other assets					70,497			578,329
Total Assets					$	20,411,039		$	19,002,600
Liabilities and Shareholders' Equity:
	Current liabilities:
		Accounts payable			$	632,403		$	1,166,819
		Accrued expenses				1,037,713			635,506
		Line of credit payable				2,000,000			1,000,000
				Total current liabilities		3,670,116			2,802,325
	Deferred tax liability					119,695			—
Total Liabilities						3,789,811			2,802,325
	Commitments and Contingencies
	Redeemable Class "B" Preferred Stock—noncumulative convertible $.01 par value: authorized 10,000,000 shares; issued and outstanding: May 31, 2001—72,525 August 31, 2001—72,525					190,377			190,377
Shareholders' equity:
	Class "A" Preferred Stock—no par value, authorized 1,000 shares; issued and outstanding: May 31, 2001—138 August 31, 2001—138					18,636			18,636
	Common Stock—$.01 par value; authorized 100,000,000 shares; issued and outstanding: May 31, 2001—3,007,819 August 31, 2001—3,019,313					30,193			30,078
	Common treasury stock at cost					(7,283,165	)		(7,283,165	)
	Additional paid-in capital					21,221,914			21,122,177
	Retained earnings					2,443,273			2,122,172
				Total shareholders' equity		16,430,851			16,009,898
Total Liabilities and Shareholders' Equity					$	20,411,039		$	19,002,600

See notes to Unaudited Consolidated Condensed Financial Statements.

3

ALCIDE CORPORATION

UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

			For the Three Months Ended August 31,
			2001		2000
NET SALES			$	5,399,830	$	4,246,569
Expenditures
	Cost of goods sold			2,770,700		2,019,259
	Research and development expense			364,006		336,597
	Consulting expense to related parties			25,000		24,000
	Selling, general/administrative expense			1,756,085		1,313,351
		Total Expenditures		4,915,791		3,693,207
Operating income				484,039		553,362
Interest income, net				2,712		36,670
Other income				7,251		8,763
Income before provision for income taxes				494,002		598,795
Provision for income taxes				172,901		217,363
Net income			$	321,101	$	381,432
Basic earnings per common share			$	.12	$	.15
Diluted earnings per common share and equivalents			$	.12	$	.15
Weighted average common shares outstanding				2,630,129		2,524,185
Weighted average common shares and common share equivalents				2,725,207		2,603,838

See notes to Unaudited Consolidated Condensed Financial Statements.

4

ALCIDE CORPORATION

UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

	Class "A" Preferred Stock			Common Stock					Common Treasury Stock
							Additional Paid-in Capital							Retained Earnings		Total Shareholders' Equity
	Shares	Amount		Shares	Amount				Shares		Amount
Balance May 31, 2001	138	$	18,636	3,007,819	$	30,078	$	21,122,177	(380,959	)	$	(7,283,165	)	$	2,122,172	$	16,009,898
Exercise of stock options				11,494		115		39,861									39,976
Tax benefit from exercise of stock options								59,876									59,876
Net Income															321,101		321,101
Balance August 31, 2001	138	$	18,636	3,019,313	$	30,193	$	21,221,914	(380,959	)	$	(7,283,165	)	$	2,443,273	$	16,430,851

See notes to Unaudited Consolidated Condensed Financial Statements.

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ALCIDE CORPORATION

UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

				For the Three Months Ended August 31,
				2001			2000
Cash Flows from Operating Activities:
Net income				$	321,101		$	381,432
	Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation			614,109			400,416
		Amortization of investment premiums			251			251
		Stock bonus to officers			—			225,400
		Tax benefit from exercise of stock options			59,876			56,407
		Deferred income taxes			113,025			160,956
		Decrease (increase) in assets:
			Accounts receivable—trade		(544,577	)		(231,281	)
			Inventory		114,462			(67,686	)
			Prepaid expenses and other current assets		(41,764	)		71,236
			Long term investments and other assets		6,580			1,188
		Increase (decrease) in liabilities:
			Accounts payable		(534,416	)		51,884
			Accrued expenses		402,207			153,947
	Net cash provided by operating activities				510,854			1,204,150
Cash Flows from Investing Activities:
		Acquisition of equipment			(2,077,106	)		(1,603,103	)
Cash Flows from Financing Activities:
		Borrowing on line of credit			1,000,000			—
		Exercise of stock options			39,976			93,750
	Net cash provided by financing activities				1,039,976			93,750
	Net decrease in cash and cash equivalents				(526,276	)		(305,203	)
	Cash and cash equivalents at beginning of period				839,103			1,794,723
	Cash and cash equivalents at end of period			$	312,827		$	1,489,520
Supplemental Disclosures of Cash Flow Information:
	Cash paid during the period for interest			$	25,104			—

See notes to Unaudited Consolidated Condensed Financial Statements.

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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") for the three month periods ended August 31, 2001 and 2000 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 consolidated 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, 2001. In the opinion of management, the accompanying unaudited consolidated condensed financial statements contain all adjustments (consisting of only normal recurring accruals) considered necessary for a fair presentation. Certain reclassifications have been made to prior year financial statements to conform to current year presentation. The results of operations for the three month periods are not necessarily indicative of the results to be expected for the full year.

2.  Accounts Receivable—Trade consisted of the following:

	August 31, 2001		May 31, 2001
IBA, Inc.	$	156,793	$	242,081
Other Domestic Distributors		121,517		244,924
International Distributors		1,250,939		851,896
SANOVA Customers		1,574,345		1,195,578
Other Receivables		68,793		93,331
Total Accounts Receivable	$	3,172,387	$	2,627,810

3.  Inventory consisted of the following:

	August 31, 2001		May 31, 2001
Raw materials	$	464,009	$	416,236
Finished products		632,261		910,245
SANOVA inventory at customer sites		823,616		707,867
Total	$	1,919,886	$	2,034,348

    On February 1, 2001 the Company purchased the assets of Universal Marketing Services, Inc. (UMS). The assets acquired included inventory sold to UMS by the Company in prior periods. The inventory purchased was recorded at its fair market value of $1,154,467, which amount was subsequently adjusted to $1,100,493 per physical audit. At the end of August, 2001, $98,598 of this inventory remained in "finished products".

4.  Goodwill and Other Intangibles

    In July, 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 141 "Business Combinations" and SFAS No. 142 "Goodwill and Other Intangible Assets". SFAS No. 141 requires business combinations initiated after June 30, 2001 to be accounted for using the purchase method of accounting and broadens the criteria for recording intangible assets separate from goodwill. Recorded goodwill and intangibles will be evaluated against this new criteria and may result in certain intangibles

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being subsumed into goodwill or, alternatively, amounts initially recorded as goodwill may be separately identified and recognized apart from goodwill. SFAS No. 142 requires the use of a nonamortization approach to account for purchased goodwill and certain intangibles. Under a nonamortization approach, goodwill and certain intangibles will not be amortized into results of operations, but instead will be reviewed for impairment and written down and charged to results of operations only in the periods in which the recorded value of goodwill and certain intangibles is more than its fair value. The provisions of each statement which apply to goodwill and intangible assets acquired prior to June 30, 2001 have been "early-adopted" by the Company on June 1, 2001. The result of this "early-adoption" is that a portion of the existing goodwill and other intangibles have been allocated to a covenant-not-to-compete and to customer relationships. The goodwill and customer relationships, both of which have indefinite lives, will be reviewed periodically for impairment.

5.  Line of Credit Payable

    In August, 2001 the Company renewed its $10,000,000 unrestricted line of credit with US Bank. The new expiration date is August 31, 2003.

    Two advances of $1,000,000 each have been taken on the line of credit, one in February, 2001 and another in June, 2001. Currently both advances are due in September, 2002. The interest rates are approximately 4.3% for the first advance and 3.9% for the second. Interest is paid monthly.

6.  Taxes

    The income tax provision for the three month period ended August 31, 2001 consists of:

Federal Income Taxes	$	165,416
State Income Taxes		7,485
	$	172,901

7.  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 and warrants. Common stock equivalents, excluded because of their antidilutive effect were 36,897 shares for the three months ended August 31, 2001 and 118,079 shares for the three months ended August 31, 2000.

8

    Basic and Diluted earnings per share were calculated as follows:

	Three Months Ended August 31,
	2001		2000
Net Income	$	321,101	$	381,432
Weighted average number of Common Shares outstanding		2,630,129		2,524,185
Basic earnings per share	$	.12	$	.15
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)		95,078		79,653
Weighted average Common Shares outstanding and Common Share equivalents		2,725,207		2,603,838
Diluted earnings per share	$	.12	$	.15

8.  Orders for Future Delivery

    At August 31, 2001 and 2000 the Company had orders for future delivery of $638,347 and $964,654, respectively. The $638,347 orders for future delivery are scheduled for shipment during the period September, 2001 through November, 2001. Data for both years excludes expected sales of SANOVA 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.

9.  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 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 similar products but to entirely different customers at substantially different selling price and cost of goods sold structure.

    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 gross margin from the sale of each segment's products and does not allocate expenses beyond gross margin to the two segments.

9

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

		Three Months Ended August 31,
		2001		2000
Animal Health and Surface Disinfectants
	Net Sales—U.S.	$	1,494,286	$	1,299,477
	Net Sales—International	$	1,218,180	$	1,209,710
	Total Net Sales	$	2,712,466	$	2,509,187
	Gross Margin	$	1,532,858	$	1,630,204
	Assets (at end of period)	$	3,195,900	$	2,538,279
SANOVA
	Net Sales—U.S.	$	2,687,364	$	1,737,382
	Gross Margin	$	1,096,272	$	597,106
	Assets (at end of period)	$	13,804,737	$	9,563,779
Not Segment Related
	Assets (at end of period)	$	3,410,402	$	3,391,082
Total
	Net Sales	$	5,399,830	$	4,246,569
	Gross Margin	$	2,629,130	$	2,227,310
	Assets (at end of period)	$	20,411,039	$	15,493,140

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

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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 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 of $5,399,830 for the quarter ended August 31, 2001 were the highest for any quarter in Alcide's history and were 27% higher than for the first quarter last year. (See net sales, gross margin and assets for the Company's two business segments on page 10 of this report).

    The Company's animal health and surface disinfectant business segment sales for the quarter ended August 31, 2001 were $2,712,466 an increase of 8%, or $203,279 as compared to first quarter sales last year. As part of the Company's acquisition of the assets of Universal Marketing Services, Inc. in February, 2001, Alcide acquired the right to distribute a number of ancillary products to the dairy industry through the Company's distributors. Sales of such products during the quarter ended August 31, 2001 amounted to $217,338.

    Sales of SANOVA food antimicrobial totaled $2,687,364 for the quarter ended August 31, 2001, an increase of $949,982, or 55% compared to the first fiscal quarter last year, as this new Alcide business continued to expand. At August 31, 2001, 31 plants, processing approximately 5.5 billion pounds of poultry annually and representing about 17% of the total U.S. poultry market, were utilizing the SANOVA System to improve the quality of their product. In addition to the 31 plants now operational, four plants have contracted for SANOVA installation in the future, resulting in a total of 35 poultry plants under contract.

    Progress was made during the current quarter with regard to expansion of SANOVA to the red meat industry. One beef slaughter operation is using SANOVA on beef carcasses and a second plant is using SANOVA on beef parts and trim sold for production of ground beef. Four additional beef processing plants and one lamb processing plant have contracted for SANOVA System installations. All

11

such installations are dependent on achieving defined levels of antimicrobial performance as well as acceptable organoleptic qualities following startup.

    Cost of goods sold were 51% of net sales for the quarter ended August 31, 2001 vs. 48% of sales for the year ago quarter. (See page 10 for business segment detail). Cost of goods sold for the Animal Health and Surface Disinfectant segment increased to 43% of net sales for the first quarter of this fiscal year as compared to 35% for the same quarter last year. The increased cost of goods sold for the segment was caused primarily by the sale of high valued inventory acquired as part of the UMS acquisition in February and by transition to a new distributor and new product launch in France.

    Cost of goods sold as a percentage of sales for the SANOVA business segment was 59% for the quarter ended August 31, 2001, a substantial reduction from the 66% of sales for the year earlier quarter, reflecting a number of cost reduction programs implemented last fiscal year.

    Research and development expenses for the quarter ended August 31, 2001 were $364,006 as compared to $336,597 for the same quarterly period last year. The 8% increase reflects the filling of staff positions that were vacant last year.

    Selling, general and administrative expenses were $1,756,085, a $442,734 increase over the first quarter last year. Major components of the increase were a $139,000 increase in marketing expenses to solidify the Animal Health and Surface Disinfectant business segment, a $110,000 increase in engineering, selling and administrative expenses to support the 55% growth in the Food Safety business segment and a $154,000 increase in variable compensation.

    Interest income net was $2,712 for the first quarter this fiscal year as compared to $36,670 for the first quarter last year. The decreased amount of interest resulted essentially from lower investable cash resources this year as compared to the equivalent period a year ago. Also, the quarter this year includes interest expense of $25,104 to support asset purchases for the growing SANOVA business, while no interest expense was incurred last fiscal year.

Liquidity and Capital Resources

    The Company's cash, cash equivalents, short-term investments and U.S. Treasury instruments ($501,253 was included in long term investments and other assets at May 31, 2001) totaled $1,819,234 on August 31, 2001 compared to $2,332,782 on May 31, 2001. During the quarter the Company took a $1,000,000 advance on its $10,000,000 line of credit, bringing the total borrowed to $2,000,000.

    This additional borrowing, plus the net cash inflow of $510,854 provided by operating activities for the three month period ended August 31, 2001, funded the investment of $2,077,106 in equipment to startup four new processing plants and to purchase other long lead time components to support future growth in the Food Safety business.

Outlook

•

SANOVA Food Quality System

The size of the Company's food antimicrobial business continues to expand. The 33 plants in operation on August 31, 2001 are expected to generate annual sales of approximately $12 million. This business segment has been growing at the rate of one to two new plants per month.

•

Animal Health and Surface Disinfectant Products

The worldwide market for teat dip products shows very little growth dynamic because the number of dairy cows decreases as the quantity of milk production per cow increases. Growth, therefore, is dependent on entering new markets and obtaining market share increases in

12

markets currently served. Despite the impact of new competition the Company has held market share for its products in key market areas. The assumption going forward is that the market for Alcide's udder care products will result in moderate growth in year-to-year sales performance as new products are introduced and more emphasis is put into marketing. As part of the UMS acquisition in February, 2001, the Company acquired additional ancillary products for sale to the dairy industry. Such products contributed $217,338 in sales during the fiscal first quarter.

ITEM 3.  Legal Proceedings

    None.

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PART II.
OTHER INFORMATION

ITEM 6  Exhibits and Reports on Form 8-K

Exhibit 10.32*

    Distributor Agreement by and between the Company and Sfan Laboratoire, effective June 1, 2001, covering the territories of France, Algeria, Morocco and Tunisia.

*

Confidential treatment has been requested for this Exhibit.

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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: October 12, 2001	By	/s/ JOHN P. RICHARDS   John P. Richards President Chief Financial Officer

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QuickLinks

ALCIDE CORPORATION INDEX
ALCIDE CORPORATION CONSOLIDATED CONDENSED BALANCE SHEETS
ALCIDE CORPORATION UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
ALCIDE CORPORATION UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
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 Proceedings
PART II. OTHER INFORMATION
ITEM 6 Exhibits and Reports on Form 8-K
SIGNATURE