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 February 29, 1996
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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
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Delaware 22-2445061
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State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization
8561 154th Avenue North East, Redmond WA 98052
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code . . . . . . (206) 882-2555
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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
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of February 29, 1996: 2,790,338
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ALCIDE CORPORATION
INDEX
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements. . . . . . . . . . . . . . . . . . . . . . . PAGE
----
Condensed Balance Sheets - February 29, 1996
(Unaudited) and May 31, 1995. . . . . . . . . . . . . . . . . . . . . . 3
Unaudited Condensed Statements of Operations - For the three months
and nine months ended February 29, 1996 and February 28, 1995 . . . . . 4
Unaudited Condensed Statements of Cash Flows - For the nine months
ended February 29, 1996 and February 28, 1995 . . . . . . . . . . . . . 5
Notes to the Condensed Financial Statements. . . . . . . . . . . . . . . 6
Statements of Changes in Shareholders' Equity. . . . . . . . . . . . . . 8
Legal Proceeding . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . 10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . . 11
SIGNATURE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2
ALCIDE CORPORATION CONDENSED BALANCE SHEETS
FEBRUARY 29, 1996 MAY 31, 1995
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(UNAUDITED)
ASSETS: ----------
Current assets:
Cash and cash equivalents $4,041,101 $2,770,157
Short term investments 1,019,943 983,889
Accounts receivable - trade 3,192,035 2,583,905
Inventory 844,853 562,197
Prepaid expenses and other current assets 73,941 161,710
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Total Current Assets 9,171,873 7,061,858
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Equipment and leasehold improvements:
Office equipment 80,864 80,864
Laboratory and manufacturing equipment 132,404 99,774
Leasehold improvements 56,152 56,152
Less: Accumulated depreciation and amortization (76,837) (37,128)
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Total equipment and leasehold improvements, net 192,583 199,662
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Deferred income tax asset 2,624,126 3,524,409
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Other assets 1,121,520 1,125,063
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TOTAL ASSETS $13,110,102 $11,910,992
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $172,632 $379,198
Accrued expenses and taxes payable 1,222,450 807,217
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TOTAL LIABILITIES 1,395,082 1,186,415
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COMMITMENTS AND CONTINGENCIES:
Redeemable Class B Preferred Stock -
$.01 par value: authorized 1,664,581 shares;
issued and outstanding:
May 31, 1995 - 99,437
February 29, 1996 - 95,002 249,380 261,022
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Shareholders' equity:
Class A Preferred Stock - no par value authorized 1,000 shares;
issued and outstanding 1,000 shares 135,307 135,307
Common Stock $.01 par value; authorized 100,000,000 shares;
issued and outstanding:
May 31, 1995 - 2,787,838
February 29, 1996 - 2,790,338 27,903 27,878
Treasury stock at cost; shares owned (2,213,845) (1,441,132)
May 31, 1995 - 153,380
February 29, 1996 - 192,337
Additional paid-in capital 18,181,124 18,164,399
Accumulated Deficit (4,664,849) (6,422,897)
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Total Shareholders' Equity 11,465,640 10,463,555
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TOTAL LIABILITIES, AND SHAREHOLDERS' EQUITY $13,110,102 $11,910,992
----------- -----------
----------- -----------
See notes to Unaudited Condensed Financial Statements.
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ALCIDE CORPORATION UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
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February 29, February 28, February 29, February 28,
------------ ------------ ------------ ------------
1996 1995 1996 1995
---- ---- ---- ----
Net Sales $3,044,506 $2,703,717 $8,633,460 $6,136,295
----------- ---------- ---------- ----------
Expenditures
Cost of goods sold 1,069,052 889,565 2,935,126 2,011,730
Research and Development Expense 248,148 272,239 931,674 628,988
Depreciation and amortization 11,841 8,674 39,709 20,612
Consulting expense to the related parties 15,000 15,000 45,000 45,000
Royalty expense 243,325 211,255 670,995 428,822
Other selling, general and administrative expense 535,226 540,113 1,547,607 1,432,727
----------- ---------- ---------- ----------
Total Expenditures 2,122,592 1,936,846 6,170,111 4,567,879
----------- ---------- ---------- ----------
Operating income 921,914 766,871 2,463,349 1,568,416
Royalty and other income 6,123 5,042 17,165 46,281
Interest income 71,786 65,845 207,432 183,545
Interest expense --- (5,517) --- (7,629)
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Total Non-Operating Income 77,909 65,370 224,597 222,197
Income before provision for income tax 999,823 832,241 2,687,946 1,790,613
Provision for income taxes 345,872 299,608 929,898 654,688
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Net income $ 653,951 $ 532,633 $1,758,048 $1,135,925
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----------- ---------- ---------- ----------
Net income per share $ .23 $ .20 $ .63 $ .42
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Weighted average Common Shares outstanding and
Common Share equivalents 2,797,696 2,675,079 2,810,750 2,678,592
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See Notes to Unaudited Condensed Financial Statements.
4
ALCIDE CORPORATION UNAUDITED C0NDENSED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED
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February 29,1996 February 28,1995
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OPERATING ACTIVITIES:
Net income $1,758,048 $1,135,925
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 39,709 20,612
Deferred income tax benefit 900,283 630,914
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2,698,040 1,787,451
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Decrease (increase) in assets:
Inventory (282,656) (261,251)
Accounts receivable - trade (608,130) (910,984)
Prepaid expenses and other assets and security deposits 87,768 (79,984)
Increase (decrease) in liabilities:
Accounts payable (206,566) (56,700)
Accrued expenses and taxes payable 415,233 (253,955)
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Total adjustments (594,351) (1,562,874)
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Net cash generated by (used in) operating activities 2,103,689 224,577
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INVESTING ACTIVITIES:
Proceeds from sale of U.S. Treasury Note 1,000,000 ---
Acquisition of U.S. Treasury Note (1,032,510) (1,000,000)
Acquisition of fixed and other assets (32,630) (155,540)
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Net cash used in investing activities (65,140) (1,155,540)
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FINANCING ACTIVITIES:
Exercise of Stock Options 16,750 5,000
Redemption of Class B Preferred Stock (11,642) (6,962)
Purchase of Alcide Common Stock (772,713) (438,741)
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Net cash used in financing activities (767,605) (440,703)
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Net increase (decrease) in cash and cash equivalents 1,270,944 (1,371,666)
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Cash and cash equivalents at beginning of period 2,770,157 4,385,932
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Cash and cash equivalents at end of period $4,041,101 $3,014,266
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest --- 7,629
Cash paid for income taxes 58,500 11,407
See notes to Unaudited Condensed Financial Statements.
5
ALCIDE CORPORATION
NOTES TO UNAUDITED 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 and nine month periods
ended February 29, 1996 and February 28, 1995 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, 1995. 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 three month or nine month periods are not
necessarily indicative of the results to be expected for the full year.
2. Inventories
Inventory consisted of the following:
FEBRUARY 29, 1996 MAY 31, 1995
Finished products $117,416 $75,861
Raw materials $727,437 $486,336
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Total $844,853 $562,197
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3. Taxes
In the first quarter of 1994 the Company adopted SFAS 109, "Accounting for
Income Taxes," the effects of which have been applied retroactively. SFAS 109
requires the Company to compute deferred income taxes based on the difference
between the financial statement and tax basis of assets and liabilities using
enacted tax rates in effect in the years in which the differences are expected
to reverse.
The income tax provision for the three month period ended February 29, 1996
consists of:
TAXES PAYABLE DURING REDUCTION OF DEFERRED TOTAL TAX PROVISION
FISCAL YEAR TAX ASSET
Federal Income Taxes $29,615 $900,283 $929,898
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4. Orders for Future Delivery
At February 29, 1996 and February 28, 1995 the Company had orders for future
delivery of $3,031,479 and $2,904,798 respectively, of which $1,642,839 is from
one distributor on February 29, 1996. The $3,031,479 orders are scheduled for
shipment during the period March, 1996 through December, 1996.
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5. Marketable Securities
On November 2, 1995 the Company redeemed the $1,000,000 U.S. Treasury Bills
which it had purchased on May 4, 1995 for $970,500.
Also on November 2, 1995 the Company invested $996,610 to purchase U.S. Treasury
Bills having a redemption value of $1,050,000 at October 17, 1996 maturity,
yielding 5.51%.
6. Class B Series 2 Redeemable Preferred Stock
On September 30, 1995 the Company redeemed 4,435 shares of Class B Series 2
stock for $11,642 in cash out of a sinking fund equal to 0.7% of the Company's
FY 1995 net income as required by the terms of the stock issue.
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ALCIDE CORPORATION
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
CLASS A PREFERRED COMMON STOCK ADDITIONAL PAID COMMON TREASURY ACCUMULATED TOTAL
STOCK IN CAPITAL STOCK DEFICIT SHAREHOLDERS'
EQUITY
- -----------------------------------------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
BALANCE MAY 31, 1995 1,000 $135,307 2,787,838 $27,878 $18,164,399 (153,380) ($1,441,132) ($6,422,897) $10,463,555
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PURCHASE TREASURY STOCK (4,000) (70,400) (70,400)
NET INCOME 504,139 504,139
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BALANCE AUGUST 31, 1995 1,000 $135,307 2,787,838 $27,878 $18,164,399 (157,380) ($1,511,532) ($5,918,758) $10,897,294
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PURCHASE TREASURY STOCK (34,957) (702,313) (702,313)
NET INCOME 599,958 599,958
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BALANCE NOVEMBER 30, 1995 1,000 $135,307 2,787,838 $27,878 $18,164,399 (192,337) ($2,213,845) ($5,318,800) $10,794,939
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STOCK OPTION EXERCISE 2,500 25 16,725 16,750
NET INCOME 653,951 653,951
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BALANCE FEBRUARY 29, 1996 1,000 $135,307 2,790,338 $27,903 $18,181,124 (192,337) ($2,213,845) ($4,664,849) $11,465,640
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ITEM 1. LEGAL PROCEEDING
On February 20, 1996, the Company was named as a defendant in a lawsuit filed in
United States District Court for the Southern District of New York by some of
the individuals who have rights to receive royalties with respect to certain
patents assigned to the Company. The complaint alleges that the Company has not
paid the required amount of royalties due the plaintiffs pursuant to Royalty and
Consolidation Agreements. The complaint seeks damages for unpaid royalties and
unjust enrichment, injunctions and other relief.
The Company has denied any wrongdoing in connection with the matters that have
been alleged and intends to defend the lawsuit vigorously. (There can be no
assurance, however, that the Company's defense will be successful, or that the
lawsuit, or any settlement or trial with regard thereto, will not have an
adverse effect on the Company or its financial condition.)
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PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Net sales for the first nine months of fiscal 1996 were $8,633,460, an increase
of 41% over the corresponding period in fiscal 1995. Sales to ABS Global, which
represents Alcide in North and South America and in several other key markets,
totaled $5,871,425 for the nine month period, a 47% increase compared to the
first nine months last year. Sales to ABS Global represented 68% of total
Alcide sales for the first nine months of fiscal 1996. Sales to international
distributors were $2,379,531, a 31% increase over the same period last year.
Sales prospects for the immediate future are positive. The Company enters its
fourth quarter with orders for future delivery of $3,031,479. The backlog
relates primarily to the animal health product line with firm orders specifying
delivery between March, 1996 and December, 1996.
Cost of goods as a percentage of net sales increased to 34% of sales for the
first nine months of fiscal 1996 vs. 33% of net sales for the first nine months
of fiscal 1995. The increase results primarily from the introduction of
UDDERgold Plus which carries a slightly lower percentage margin than UDDERgold,
the product it has replaced in the U.S. market.
Operating expenses other than cost of goods decreased significantly to 37% of
net sales for the first nine months of fiscal 1996 vs. 42% of net sales for the
first nine months of fiscal 1995.
Research and development expenses increased to $931,674 this year vs. $628,988
for the first nine months last year. The increase was caused primarily by an
increase in the number of research personnel ($63,392); user fees paid to the
Food and Drug Administration to support the New Drug Application for the
Company's presurgical skin antiseptic ($81,000); and outside laboratory testing
charges primarily associated with vendor qualification and raw materials
specifications development to support international registration of the
Company's products ($141,176).
Royalty expenses increased proportionate to the net sales increase. Of the
$670,995 FY 96 first nine months expense, $431,262 has been utilized to increase
the reserve established in FY 95 for the purpose of defending the Company's
position in a dispute with royalty rights holders. The reserve balance on
February 29, 1996 was $784,062.
Other selling, general and administrative expenses were $1,632,316, an increase
of $133,977 vs. first nine months of FY 95. The increase is due to a $104,814
increase in advertising/marketing expenses and to normal inflationary
increases.
LIQUIDITY
The Company's cash, cash equivalents, short term investments and U.S. Treasury
Instruments totaled $6,172,133 on February 29, 1996, an amount $1,303,455 higher
than at the end of the fiscal year ended May 31, 1995. The Company's income for
the nine month period on a cash flow basis was $2,698,040. This was offset by a
$594,351 increase in working capital and a $772,713 investment in the
acquisition of Treasury Stock. The working capital increase was caused by a
$282,656 increase in inventory (predominantly for mandelic acid to support the
Company's growing UDDERgold Plus business). Accounts receivable increased
$608,130 caused by a 30 day extension of selling terms to ABS Global. ABS
Global and all other major Alcide distributors are meeting their payment
obligations to Alcide within agreed to credit terms.
The Company's cash position remained strong relative to its anticipated needs.
Cash generated from operations is expected to be greater than operating cash
needs during the remainder of the present fiscal year.
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PART II.
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBIT 11
(a) Computation of Earnings Per Common Share
Three Months Ended Nine Months Ended
------------------ -----------------
February 29, February 28, February 29, February 28,
------------ ------------ ------------ ------------
1996 1995 1996 1995
---- ---- ---- ----
Weighted average number of Common Shares outstanding 2,596,751 2,634,457 2,609,805 2,637,970
Assuming exercise of options reduced by the number of
shares which could have been purchased with the
proceeds from exercise of such options 200,945 40,622 200,945 40,622
--------- --------- --------- ---------
Weighted average Common Shares outstanding and
Common Share equivalents 2,797,696 2,675,079 2,810,750 2,678,592
--------- --------- --------- ---------
--------- --------- --------- ---------
Net Income per share $.23 $.20 $.63 $.42
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REPORTS ON FORM 8-K
None.
11
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: April 2, 1996 By s/
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John P. Richards
Executive Vice President
Chief Financial Officer
12