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, 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
(Exact name of registrant as specified in its charter)
| 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 November 30, 2001: 2,646,610, net of Treasury Stock.
| | Page | ||
|---|---|---|---|
| PART I. FINANCIAL INFORMATION | |||
Item 1. Financial Statements | |||
Consolidated Condensed Balance Sheets—November 30, 2001 (Unaudited) and May 31, 2001 | 3 | ||
Unaudited Consolidated Condensed Statements of Operations—for the three and six months ended November 30, 2001 and November 30, 2000 | 4 | ||
Unaudited Consolidated Condensed Statements of Changes in Shareholders' Equity | 5 | ||
Unaudited Consolidated Condensed Statements of Cash Flows—for the six months ended November 30, 2001 and November 30, 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 | ||
Item 4. Submission of Matters to a Vote of Security Holders | 13 | ||
PART II. OTHER INFORMATION | |||
Item 6. Exhibits and Reports on Form 8-K | 14 | ||
SIGNATURE | 15 | ||
2
CONSOLIDATED CONDENSED BALANCE SHEETS
| | November 30, 2001 | May 31, 2001 | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| | (Unaudited) | | ||||||||
| Assets: | ||||||||||
| Current assets: | ||||||||||
| Cash and cash equivalents | $ | 528,679 | $ | 839,103 | ||||||
| Short term investments | 1,018,410 | 992,426 | ||||||||
| Accounts receivable—trade | 4,010,128 | 2,627,810 | ||||||||
| Inventory | 2,072,395 | 2,034,348 | ||||||||
| Deferred and prepaid income taxes | 684,904 | 851,231 | ||||||||
| Spare parts | 594,759 | 458,203 | ||||||||
| Prepaid expenses and other current assets | 149,011 | 357,481 | ||||||||
| Total current assets | 9,058,286 | 8,160,602 | ||||||||
| Equipment and leasehold improvements: | ||||||||||
| SANOVA plant assets | 12,916,277 | 10,953,012 | ||||||||
| Construction in progress | 2,711,187 | 1,330,900 | ||||||||
| Office equipment | 500,265 | 463,848 | ||||||||
| Laboratory, manufacturing equipment and vehicles | 426,317 | 285,024 | ||||||||
| Leasehold improvements | 73,483 | 73,483 | ||||||||
| Less: Accumulated depreciation and amortization | (4,656,639 | ) | (3,376,710 | ) | ||||||
| Total equipment and leasehold improvements, net | 11,970,890 | 9,729,557 | ||||||||
| Deferred income tax asset | — | 55,305 | ||||||||
| Goodwill and other intangibles, net | 478,807 | 478,807 | ||||||||
| Long term investments and other assets | 63,122 | 578,329 | ||||||||
| Total Assets | $ | 21,571,105 | $ | 19,002,600 | ||||||
| Liabilities and Shareholders' Equity: | ||||||||||
| Current liabilities: | ||||||||||
| Accounts payable | $ | 1,580,811 | $ | 1,166,819 | ||||||
| Accrued expenses | 538,869 | 635,506 | ||||||||
| Line of credit payable | 2,000,000 | 1,000,000 | ||||||||
| Total current liabilities | 4,119,680 | 2,802,325 | ||||||||
| Deferred tax liability | 209,756 | — | ||||||||
| Total Liabilities | 4,329,436 | 2,802,325 | ||||||||
| Commitments and Contingencies | ||||||||||
| Redeemable Class "B" Preferred Stock—noncumulative convertible $.01 par value: authorized 10,000,000 shares; issued and outstanding: May 31, 2001—72,525 shares; Nov. 30, 2001—68,425 shares | 179,614 | 190,377 | ||||||||
| Shareholders' equity: | ||||||||||
| Class "A" Preferred Stock—no par value, authorized 1,000 shares; issued and outstanding: May 31, 2001—138 shares; Nov. 30, 2001—138 shares | 18,636 | 18,636 | ||||||||
| Common Stock—$.01 par value; authorized 100,000,000 shares; issued: May 31, 2001—3,007,819 shares; Nov. 30, 2001—3,022,569 shares | 30,226 | 30,078 | ||||||||
| Common treasury stock at cost—May 31, 2001—380,959 shares; Nov. 30, 2001—375,959 shares | (7,144,721 | ) | (7,283,165 | ) | ||||||
| Additional paid-in capital | 21,276,073 | 21,122,177 | ||||||||
| Retained earnings | 2,881,841 | 2,122,172 | ||||||||
| Total shareholders' equity | 17,062,055 | 16,009,898 | ||||||||
| Total Liabilities and Shareholders' Equity | $ | 21,571,105 | $ | 19,002,600 | ||||||
See notes to Unaudited Consolidated Condensed Financial Statements.
3
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
| | For the Three Months Ended November 30, | For the Six Months Ended November 30 | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2001 | 2000 | 2001 | 2000 | ||||||||||
| NET SALES | $ | 5,731,980 | $ | 4,692,638 | $ | 11,131,810 | $ | 8,939,208 | ||||||
| Expenditures | ||||||||||||||
| Cost of goods sold | 2,959,125 | 2,141,622 | 5,729,825 | 4,160,882 | ||||||||||
| Research and development expense | 659,182 | 457,934 | 1,023,187 | 794,531 | ||||||||||
| Consulting expense to related parties | 19,000 | 24,000 | 44,000 | 48,000 | ||||||||||
| Selling, general/administrative expense | 1,444,107 | 1,151,629 | 3,200,192 | 2,464,981 | ||||||||||
| Total Expenditures | 5,081,414 | 3,775,185 | 9,997,204 | 7,468,394 | ||||||||||
| Operating income | 650,566 | 917,453 | 1,134,606 | 1,470,814 | ||||||||||
| Interest income, net | 2,463 | 34,638 | 5,175 | 71,307 | ||||||||||
| Other income | 21,689 | — | 28,939 | 8,764 | ||||||||||
| Income before provision for income taxes | 674,718 | 952,091 | 1,168,720 | 1,550,885 | ||||||||||
| Provision for income taxes | 236,150 | 345,610 | 409,051 | 562,973 | ||||||||||
| Net income | $ | 438,568 | $ | 606,481 | $ | 759,669 | $ | 987,912 | ||||||
| Basic earnings per common share | $ | .17 | $ | .24 | $ | .29 | $ | .39 | ||||||
| Diluted earnings per common share and equivalents | $ | .16 | $ | .23 | $ | .28 | $ | .37 | ||||||
| Weighted average common shares outstanding | 2,642,535 | 2,552,887 | 2,636,298 | 2,538,457 | ||||||||||
| Weighted average common shares and common share equivalents | 2,717,691 | 2,676,327 | 2,727,872 | 2,639,125 | ||||||||||
See notes to Unaudited Consolidated Condensed Financial Statements.
4
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
| | Class "A" Preferred Stock | Common Stock | Additional Paid-in Capital | Common Treasury Stock | 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 | |||||||
| Exercise of stock options | 3,256 | 33 | 40,773 | 40,806 | ||||||||||||||||||||
| Transferred stock to ESOP | 5,000 | 138,444 | 138,444 | |||||||||||||||||||||
| Tax benefit from exercise of stock options | 13,386 | 13,386 | ||||||||||||||||||||||
| Net Income | 438,568 | 438,568 | ||||||||||||||||||||||
| Balance November 30, 2001 | 138 | $ | 18,636 | 3,022,569 | $ | 30,226 | $ | 21,276,073 | (375,959 | ) | $ | (7,144,721 | ) | $ | 2,881,841 | $ | 17,062,055 | |||||||
See notes to Unaudited Consolidated Condensed Financial Statements.
5
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
| | For the Six Months Ended November 30, | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| | 2001 | 2000 | ||||||||
| Cash Flows from Operating Activities: | ||||||||||
| Net income | $ | 759,669 | $ | 987,912 | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||
| Depreciation | 1,279,929 | 852,136 | ||||||||
| Amortization of investment premiums | 483 | 501 | ||||||||
| Stock bonus to officers | — | 225,400 | ||||||||
| Common stock issued to employee stock ownership plan | 138,444 | — | ||||||||
| Tax benefit from exercise of stock options | 73,262 | 152,454 | ||||||||
| Deferred income taxes | 359,008 | 410,519 | ||||||||
| Decrease (increase) in assets: | ||||||||||
| Accounts receivable—trade | (1,382,318 | ) | (275,352 | ) | ||||||
| Inventory | (38,047 | ) | 58,954 | |||||||
| Prepaid income taxes | 72,380 | (90,800 | ) | |||||||
| Prepaid expenses and other current assets | 45,930 | (35,603 | ) | |||||||
| Long term investments and other assets | 13,954 | 9,320 | ||||||||
| Increase (decrease) in liabilities: | ||||||||||
| Accounts payable | 413,992 | (213,806 | ) | |||||||
| Accrued expenses | (96,637 | ) | 390,040 | |||||||
| Unearned revenue | — | 344,992 | ||||||||
| Other liabilities | — | (158,000 | ) | |||||||
| Net cash provided by operating activities | 1,640,049 | 2,658,667 | ||||||||
| Cash Flows from Investing Activities: | ||||||||||
| Sale of investments | 500,770 | — | ||||||||
| Acquisition of equipment | (3,521,262 | ) | (2,573,899 | ) | ||||||
| Net cash used in investing activities | (3,020,492 | ) | (2,573,899 | ) | ||||||
| Cash Flows from Financing Activities: | ||||||||||
| Redemption of Class "B" Preferred Stock | (10,763 | ) | — | |||||||
| Borrowing on line of credit | 1,000,000 | — | ||||||||
| Exercise of stock options | 80,782 | 174,627 | ||||||||
| Net cash provided by financing activities | 1,070,019 | 174,627 | ||||||||
| Net (decrease) increase in cash and cash equivalents | (310,424 | ) | 259,395 | |||||||
| Cash and cash equivalents at beginning of period | 839,103 | 1,794,723 | ||||||||
| Cash and cash equivalents at end of period | $ | 528,679 | $ | 2,054,118 | ||||||
| Supplemental Disclosures of Cash Flow Information: | ||||||||||
| Cash paid during the period for income taxes | 10,000 | 90,800 | ||||||||
| Cash paid during the period for interest | 46,958 | — | ||||||||
See notes to Unaudited Consolidated Condensed Financial Statements.
6
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 and six month periods ended November 30, 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 six month periods are not necessarily indicative of the results to be expected for the full year.
2. Accounts Receivable—Trade consisted of the following:
| | November 30, 2001 | May 31, 2001 | ||||
|---|---|---|---|---|---|---|
| IBA, Inc. | $ | 169,101 | $ | 242,081 | ||
| Other Domestic Distributors | 431,882 | 244,924 | ||||
| International Distributors | 1,453,484 | 851,896 | ||||
| SANOVA Customers | 1,868,680 | 1,195,578 | ||||
| Other Receivables | 86,981 | 93,331 | ||||
| Total Accounts Receivable | $ | 4,010,128 | $ | 2,627,810 | ||
3. Inventory consisted of the following:
| | November 30, 2001 | May 31, 2001 | ||||
|---|---|---|---|---|---|---|
| Raw materials | $ | 434,831 | $ | 416,236 | ||
| Finished products | 779,123 | 910,245 | ||||
| SANOVA inventory at customer sites | 858,441 | 707,867 | ||||
| Total | $ | 2,072,395 | $ | 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 November, 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
7
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 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 has been allocated to maintenance of end-customer relationships. The goodwill and end-customer relationships have indefinite lives and 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. Commitments and Contingencies
As of November 30, 2001 the Company had contracts for future startups of seven poultry operations and five red meat operations. It is estimated that 70 to 80% of the assets required for such installations have already been purchased and are classified on the balance sheet as construction in progress.
7. Taxes
The income tax provision for the six month period ended November 30, 2001 consists of:
| Federal Income Taxes | $ | 391,344 | |
| State Income Taxes | 17,707 | ||
| $ | 409,051 | ||
8. 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 except where their inclusion would be antidilutive. For the three and six month periods ended November 30, 2001, common stock equivalents excluded because of their antidilutive effect were 96,790 and 94,790 shares, respectively. For the three and six month periods ended November 30, 2000, 34,290 and 54,590 shares were excluded, respectively.
8
Basic and Diluted earnings per share were calculated as follows:
| | Three Months Ended November 30, | Six Months Ended November 30, | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2001 | 2000 | 2001 | 2000 | ||||||||
| Net income | $ | 438,568 | $ | 606,481 | $ | 759,669 | $ | 987,912 | ||||
| Weighted average number of common shares outstanding | 2,642,535 | 2,552,887 | 2,636,298 | 2,538,457 | ||||||||
| Basic earnings per common share | $ | .17 | $ | .24 | $ | .29 | $ | .39 | ||||
| Assuming exercise of options reduced by the number of shares which could have been purchased with the proceeds from exercise of such options | 75,156 | 123,440 | 91,574 | 100,668 | ||||||||
| Weighted average common shares outstanding and common share equivalents | 2,717,691 | 2,676,327 | 2,727,872 | 2,639,125 | ||||||||
| Diluted earnings per common share | $ | .16 | $ | .23 | $ | .28 | $ | .37 | ||||
9. Recently Issued Accounting Pronouncements
In June, 2001, the Financial Accounting Standards Board issued SFAS No. 143, "Accounting for Asset Retirement Obligations" (effective for the Company on June 1, 2003). This Statement addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The Company is in the process of evaluating the financial statement impact of the adoption of SFAS No. 143.
In August, 2001, the Financial Accounting Standards Board issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" (effective for the Company on June 1, 2002). This Statement supersedes FASB Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" and other related accounting guidance. The Company is in the process of evaluating the financial statement impact of the adoption of SFAS No. 144.
10. Orders for Future Delivery
At November 30, 2001 and 2000 the Company had orders for future delivery of $479,564 and $886,395, respectively. The $479,564 orders for future delivery are scheduled for shipment during the period December, 2001 through January, 2002. 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.
11. 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
9
based on gross margin 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:
| | Three Months Ended November 30, | Six Months Ended November 30, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2001 | 2000 | 2001 | 2000 | |||||||||
| Animal Health and Surface Disinfectants | |||||||||||||
| Net Sales—U.S. | $ | 1,507,971 | $ | 1,359,894 | $ | 3,002,257 | $ | 2,659,372 | |||||
| Net Sales—International | $ | 1,317,174 | $ | 1,401,150 | $ | 2,535,354 | $ | 2,610,860 | |||||
| Total Net Sales | $ | 2,825,145 | $ | 2,761,044 | $ | 5,537,611 | $ | 5,270,232 | |||||
| Gross Margin | $ | 1,604,757 | $ | 1,732,063 | $ | 3,137,615 | $ | 3,362,267 | |||||
| Assets (at end of period) | $ | 3,835,877 | $ | 2,480,176 | |||||||||
| SANOVA | |||||||||||||
| Net Sales—U.S. | $ | 2,906,835 | $ | 1,931,594 | $ | 5,594,199 | $ | 3,668,976 | |||||
| Gross Margin | $ | 1,168,098 | $ | 818,953 | $ | 2,264,370 | $ | 1,416,059 | |||||
| Assets (at end of period) | $ | 15,023,760 | `$ | 10,223,433 | |||||||||
| Not Segment Related | |||||||||||||
| Assets (at end of period) | $ | 2,711,468 | $ | 3,730,331 | |||||||||
| Total | |||||||||||||
| Net Sales | $ | 5,731,980 | $ | 4,692,638 | $ | 11,131,810 | $ | 8,939,208 | |||||
| Gross Margin | $ | 2,772,855 | $ | 2,551,016 | $ | 5,401,985 | $ | 4,778,326 | |||||
| Assets (at end of period) | $ | 21,571,105 | $ | 16,433,940 | |||||||||
Assets assigned to the business segments include accounts receivable, inventories, fixed assets, spare parts, components and goodwill.
10
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 $5,731,980 for the quarter and $11,131,810 for the six month period ended November 30, 2001 were the highest for any quarter and six month period in Alcide's history, and were 22% and 25% higher than for the respective periods last year. For more detail see segment information on page 10.
Sales of SANOVA food antimicrobial to the poultry and red meat industries totaled $2,906,835 for the quarter ended November 30, 2001, an increase of $975,241 compared to the second fiscal quarter last year, as this new Alcide business continued to expand. At the end of the quarter 32 poultry plants and 3 red meat plants were utilizing the SANOVA System to improve the quality of their product. Two additional red meat plants and 2 additional poultry post-chill operations have been added since the end of the quarter, bringing the total to 39 operations as of this date. In addition, the Company has contracts for future startups of 5 poultry operations and 3 red meat operations, for a total of 47 contracted SANOVA operations. SANOVA sales for the six month period ended November 30, 2001, were $5,594,199, an increase of $1,925,223, 52% compared to the equivalent six month period last year.
The Company's animal health and surface disinfectant sales for the quarter ended November 30, 2001 were $2,825,145, 2% higher than for the second quarter last year. Six month sales of $5,537,611 were $267,379, or 5% higher than for the first half last year.
Cost of goods sold was 52% of net sales for the quarter and 51% of net sales for the six month period ended November 30, 2001 as compared to 46% and 47% of net sales for the equivalent periods a year ago. (See page 10, sales and gross margin by business segment). Cost of goods sold for the animal health and surface disinfectant segment increased from 36% of net sales during the first half of last year to 43% during the same period in fiscal 2002. The increased cost of goods sold for the
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segment was caused primarily by the sale of high valued inventory acquired as part of the UMS acquisition in February, 2001 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 decreased slightly from 61% of net sales for the first half of last year to 60% of net sales for the first half of fiscal 2002.
Research and development expenses for the quarter ended November 30, 2001 were $659,182 as compared to $457,934 for the same period last year. The first half research and development expenses were $1,023,187, 29% higher than expenses of $794,531 for the first half last year. This increase is primarily due to filling staff positions that were vacant last year, coupled with new product development work for the animal health product line and process validation studies associated with expansion of the SANOVA business segment.
Selling, general and administrative expense was $1,444,107 for the quarter ended November 30, 2001, a 25% increase from the $1,151,629 during the same period last year. Six month expenses of $3,200,192 were 30% higher than first half expense last year. Major components of the increase for the half were a $296,000, or 23% increase in engineering, selling and administrative expenses to support the 52% growth in SANOVA sales, coupled with a $301,500 increase in marketing expenses to solidify the animal health and surface disinfectant business segment and a $154,000 increase in variable compensation.
Interest income net was $2,463 for the quarter and $5,175 for the six month period ended November 30, 2001, as compared to $34,638 and $71,307 for the respective periods a year ago. The decreases are due to lower investable cash resources this year compared to last and the incursion of interest expense, $25,104 for the quarter and $46,958 for the half year, to support asset purchases for the growing SANOVA business. No interest expense was incurred during the first half of last fiscal year.
Liquidity and Capital Resources
The Company's cash, cash equivalents, short term investments and U.S. Treasury instruments (included in long term investments and other assets in fiscal year 2001) totaled $1,547,089 on November 30, 2001, an amount $1,008,783 lower than at the end of the previous fiscal year. During the first six months 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 net cash flow of $1,640,049 provided by operating activities for the six month period ended November 30, 2001, funded the investment of $3,343,552 for equipment to support expansion of the SANOVA business.
Outlook
The size of the Company's food antimicrobial business continues to expand. The 35 plants in operation on November 30, 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.
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 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
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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 $431,862 in sales during the fiscal first half.
In June, 2001, the Financial Accounting Standards Board issued SFAS No. 143, "Accounting for Asset Retirement Obligations" (effective for the Company on June 1, 2003). This Statement addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The Company is in the process of evaluating the financial statement impact of the adoption of SFAS No. 143.
In August, 2001, the Financial Accounting Standards Board issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" (effective for the Company on June 1, 2002). This Statement supersedes FASB Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" and other related accounting guidance. The Company is in the process of evaluating the financial statement impact of the adoption of SFAS No. 144.
None.
ITEM 4. Submission of Matters to a Vote of Security Holders
Shareholders voted on three proposals at the Annual Meeting of stockholders on October 16, 2001, as described in the Company's proxy statement.
| | For | Withheld Authority | ||
|---|---|---|---|---|
| Thomas L. Kempner | 2,363,665 | 74,024 | ||
| Charles A. Baker | 2,363,665 | 74,024 | ||
| Joseph A. Sasenick | 2,363,055 | 74,634 | ||
| William G. Spears | 2,363,665 | 74,024 |
| For | Against | Abstain | ||
|---|---|---|---|---|
| 1,126,036 | 246,125 | 9,374 |
| For | Against | Abstain | ||
|---|---|---|---|---|
| 2,430,044 | 5,178 | 2,467 |
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ITEM 6. Exhibits and Reports on Form 8-K
Exhibit 10.33
2001 Stock Incentive Plan
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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 14, 2002 | By | /s/ JOHN P. RICHARDS John P. Richards President Chief Financial Officer | ||
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