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 28, 1997
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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
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to
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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)
incorporation or organization Identification No.)
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 28, 1997: 2,577,539, net of Treasury Stock.
ALCIDE CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements..............................................PAGE
----
Condensed Balance Sheets - February 28, 1997 (Unaudited) and May 31, 1996.3
Unaudited Condensed Statements of Operations - For the three months
and nine months ended February 28, 1997 and February 29, 1996.............4
Unaudited Condensed Statements of Cash Flows - For the nine months
ended February 28, 1997 and February 29, 1996.............................5
Notes to the Unaudited Condensed Financial Statements.....................6
Statements of Changes in Shareholders' Equity.............................8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.....................................................9
PART II. OTHER INFORMATION
Item 5. Other Information...................................................10
Item 6. Exhibits and Reports on Form 8-K....................................10
SIGNATURE.....................................................................11
2
ALCIDE CORPORATION CONDENSED BALANCE SHEETS
FEBRUARY 28, 1997 MAY 31, 1996
(UNAUDITED)
ASSETS:
Current Assets:
Cash and Cash Equivalents $6,019,782 $ 5,365,895
Short Term Investments 2,073,238 1,032,634
Accounts Receivable - Trade 2,811,809 2,585,427
Inventory 1,105,446 928,500
Prepaid Expenses and
Other Current Assets 105,720 125,547
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Total Current Assets 12,115,995 10,038,003
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Equipment and Leasehold Improvements:
Office Equipment 97,033 92,656
Laboratory and Manufacturing
Equipment 132,404 132,404
Leasehold Improvements 56,152 56,152
Less: Accumulated Depreciation
and Amortization (129,130) (86,582)
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Total Equipment and Leasehold
Improvements, Net 156,459 194,630
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Deferred Income Tax Asset 1,620,613 2,421,191
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Other Assets 171,218 1,114,790
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TOTAL ASSETS $14,064,285 $13,768,614
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LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable $377,372 $374,440
Accrued expenses and taxes payable 223,352 1,083,840
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TOTAL LIABILITIES 600,724 1,458,280
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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, 1996 - 95,002
February 28, 1997 - 88,802 233,105 249,380
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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, 1996 - 2,791,538
February 28, 1997 - 2,799,408 27,994 27,915
Treasury stock at cost (2,799,951) (2,213,845)
Additional paid-in capital 18,279,377 18,209,412
Accumulated Deficit (2,412,271) (4,097,835)
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Total Shareholders' Equity 13,230,456 12,060,954
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TOTAL LIABILITIES, AND SHAREHOLDERS' EQUITY $14,064,285 $13,768,614
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See notes to Unaudited Condensed Financial Statements.
3
ALCIDE CORPORATION UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
--------------------------- --------------------------
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 29,
------------ ------------ ------------ ------------
1997 1996 1997 1996
---- ---- ---- ----
NET SALES $2,963,436 $3,044,506 $7,750,532 $8,633,460
---------- ---------- ---------- ----------
Expenditures
Cost of goods sold 1,107,109 1,069,052 2,623,447 2,935,126
Research and development expense 375,499 248,148 1,246,057 931,674
Depreciation and amortization 14,280 11,841 42,548 39,709
Consulting expense to related parties 21,000 15,000 75,014 45,000
Royalty expense 67,188 243,325 243,830 670,995
Other selling, general and administrative expense 523,279 535,226 1,390,983 1,547,607
---------- ---------- ---------- ----------
Total Expenditures 2,108,355 2,122,592 5,621,879 6,170,111
---------- ---------- ---------- ----------
Operating income 855,081 921,914 2,128,653 2,463,349
Royalty and other income 106,452 6,123 119,286 17,165
Interest income 112,129 71,786 309,820 207,432
---------- ---------- ---------- ----------
Total Non-Operating Income 218,581 77,909 429,106 224,597
---------- ---------- ---------- ----------
Income before provision for income tax 1,073,662 999,823 2,557,759 2,687,946
Provision for income taxes 366,118 345,872 872,196 929,898
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Net income $ 707,544 $ 653,951 $1,685,563 $1,758,048
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Net income per share $ .25 $ .23 $ .60 $ .63
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Weighted average Common Shares outstanding and 2,790,716 2,797,696 2,798,325 2,810,750
Common Share equivalents ---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
See Notes to Unaudited Condensed Financial Statements.
4
ALCIDE CORPORATION UNAUDITED C0NDENSED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED
FEBRUARY 28,1997 FEBRUARY 29,1996
OPERATING ACTIVITIES:
Net income $1,685,563 $1,758,048
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 42,548 39,709
Deferred income tax benefit 800,578 900,283
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2,528,689 2,698,040
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Decrease (increase) in assets:
Inventory (176,946) (282,656)
Accounts receivable - trade (226,382) (608,130)
Prepaid expenses and other assets
and security deposits (42,519) 87,768
Increase (decrease) in liabilities:
Accounts payable 2,932 (206,566)
Accrued expenses and taxes payable (860,488) 415,233
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Total adjustments (1,303,403) (594,351)
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Net cash generated by (used in)
operating activities 1,225,286 2,103,689
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INVESTING ACTIVITIES:
Proceeds from sale of U.S. Treasury Bill 1,050,000 1,000,000
Acquisition of U.S. Treasury Bill (1,049,436) (1,032,510)
Acquisition of fixed and other assets (39,626) (32,630)
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Net cash used in investing activities (39,062) (65,140)
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FINANCING ACTIVITIES:
Exercise of Stock Options 70,044 16,750
Redemption of Class B Preferred Stock (16,275) (11,642)
Purchase of Alcide Common Stock (586,106) (772,713)
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Net cash used in financing activities (532,337) (767,605)
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Net increase (decrease) in cash and
cash equivalents 653,887 1,270,944
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Cash and cash equivalents at
beginning of period 5,365,895 2,770,157
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Cash and cash equivalents at
end of period $6,019,782 $4,041,101
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for interest --- ---
Cash paid for income taxes 41,000 58,500
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 28, 1997 and February 29, 1996 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, 1996. 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 28, 1997 MAY 31, 1996
Finished products $198,828 $120,155
Raw materials $906,618 $808,345
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Total $1,105,446 $928,500
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3. Accounts Receivable - Trade consisted of the following:
FEBRUARY 28, 1997 MAY 31, 1996
ABS Global, Inc. $1,922,400 $1,879,670
International Distributors $759,065 $611,286
Other Receivables $130,344 $94,471
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Total Accounts Receivable $2,811,809 $2,585,427
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4. Taxes
The income tax provision for the nine month period ended February 28, 1997
consists of:
TAXES PAYABLE DURING REDUCTION OF DEFERRED TOTAL TAX PROVISION
FISCAL YEAR TAX ASSET
Federal Income Taxes $71,618 $800,578 $872,196
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5. Orders for Future Delivery
At February 28, 1997 and February 29, 1996 the Company had orders for future
delivery of $2,960,674 and $3,031,479 respectively, of which $1,808,000 is from
ABS Global, Inc., and $856,000 from Heemskerk B.V. at February 28, 1997. The
$2,960,674 orders are scheduled for shipment during the period March, 1997
through December, 1997.
6
6. Marketable Securities
On October 17, 1996 the Company redeemed the $1,050,000 U.S. Treasury Bills
which it had purchased on November 2, 1995 for $996,610.
On October 18, 1996 the Company invested $1,049,436 to purchase U.S. Treasury
Bills having a redemption value of $1,107,000 at October 16, 1997 maturity,
yielding 5.49%.
7. Series 2 Redeemable Class B Preferred Stock
On September 16, 1996 the Company redeemed 6,200 shares of Series 2 stock for
$16,275 in cash out of a sinking fund equal to 0.7% of the Company's FY 1996 net
income as required by the terms of the stock issue.
7
ALCIDE CORPORATION
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
CLASS "A" PREFERRED STOCK COMMON STOCK ADDITIONAL PAID COMMON TREASURY STOCK ACCUMULATED TOTAL
IN CAPITAL DEFICIT SHAREHOLDERS'
EQUITY
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SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
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BALANCE MAY 31, 1996 1,000 $135,307 2,791,538 $27,915 $18,209,412 (192,337) ($2,213,845) ($4,097,835) $12,060,954
STOCK OPTION EXERCISE 5,100 51 50,949 51,000
PURCHASE TREASURY STOCK (3,000) (66,182) (66,182)
NET INCOME 376,296 376,296
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BALANCE AUGUST 31, 1996 1,000 $135,307 2,796,638 $27,966 $18,260,361 (195,337) ($2,280,027) ($3,721,539) $12,422,068
STOCK OPTION EXERCISE 2,770 28 19,016 19,044
PURCHASE TREASURY STOCK (3,000) (56,934) (56,934)
NET INCOME 601,724 601,724
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BALANCE NOVEMBER 30,1996 1,000 $135,307 2,799,408 $27,994 $18,279,377 (198,337) ($2,336,961) ($3,119,815) $12,985,902
PURCHASE TREASURY STOCK (23,532) (462,990) (462,990)
NET INCOME 707,544 707,544
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BALANCE FEBRUARY 28, 1997 1,000 $135,307 2,799,408 $27,994 $18,279,377 (221,869) ($2,799,951) ($2,412,271) $13,230,456
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8
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 nine month period ended February 28, 1997 were $7,750,532, a
decrease of 10% from the equivalent period one year ago. The sales reduction is
primarily the result of a 19%, $1,104,922 sales reduction of uddercare products
to ABS Global, Inc., Alcide's distributor in North and South America. During
the first quarter ABS Global reduced its inventories of Alcide product by
approximately $700,000. Sales performance was also adversely affected by a new
competitive teat dip by Babson Brothers Company. Alcide believes the Babson
Brothers InterSept product infringes Alcide's patent and consequently Alcide
filed a patent infringement lawsuit against Babson Brothers and moved for a
preliminary injunction against further sales of InterSept. The injunction was
issued against Babson Brothers on September 19, 1996.
Neither the Babson Brothers infringement nor ABS inventory reduction continued
in Alcide's second quarter or third quarter and, consequently, sales performance
for the second quarter improved by $702,652 vs. the first quarter results, and
sales in the third quarter continued to grow to a level $218,562 greater than
second quarter results.
Cost of goods as a percentage of net sales decreased slightly to 33.8% during
the nine month period ended February 28, 1997 from 34.0% for the nine month
period last year.
Research and development expenses of $1,246,057 for the first nine months of
fiscal 1997 increased $314,383, 34% as compared to the first nine months last
year. The increase reflects expenditures associated with pre-clinical and
clinical testing as part of the Company's response to FDA requirements for
additional data to support Alcide's preoperative skin antiseptic New Drug
Application. Other significant expenditures incurred during the quarter related
to USDA mandated commercial plant evaluations of the Company's poultry
antimicrobial and to clinical testing of Alcide's anti-infective oral medication
in the United Kingdom.
Royalty expense of $243,830 for the nine month period ended February 28, 1997
reflects actual royalties earned for the nine month period, while the $670,995
royalty expense for the first nine months last year included $431,260 for the
purpose of establishing a reserve for litigation.
Other selling, general and administrative expenses of $1,390,983 for the FY '97
first nine months were $156,624, 10% lower than the first half last year. The
expense reduction reflects a $209,000 reduction in the provision for executive
bonuses consistent with lower nine month sales performance and a $97,000
reduction in shared promotional support for ABS, consistent with the ABS sales
short fall; offset by a $166,123 increase in legal expenses primarily related to
the Company's suit against Babson Brothers.
Other income for the quarter ended February 28, 1997 includes a $100,000
non-refundable payment to Alcide by a potential distributor of the Company's
poultry antimicrobial to secure a three month exclusive negotiating right for a
distribution agreement.
LIQUIDITY
The Company's cash, cash equivalents, short term investments and U.S. Treasury
instruments totaled $8,197,009 on February 28, 1997, an amount $688,572 higher
than at the end of the fiscal year ended May 31, 1996. Management believes that
the Company's cash, cash equivalents and short term investments are sufficient
to meet its anticipated operating needs.
LITIGATION COST
During the nine month period ended February 28, 1997, the Company incurred legal
fees and other costs totaling $593,480 in connection with a suit brought by some
of the individuals who have rights to receive royalties relating to certain
patents assigned to the Company. The entire $593,480 was charged to a reserve
previously established for this purpose. On February 28, 1997 the unutilized
reserve balance was $65,521. The Company has denied any wrongdoing in
connection with the matters that have been alleged and intends to continue to
vigorously defend its position.
9
PART II.
OTHER INFORMATION
ITEM 5. OTHER INFORMATION
ADDITIONAL U.S. DISTRIBUTOR FOR THE COMPANY'S BOVINE UDDERCARE PRODUCTS
On February 7, 1997 the Company entered into an agreement with IBA Inc. of
Millbury, Massachusetts, in which Alcide granted non-exclusive distribution
rights for the Company's uddercare products, including UDDERgold-Registered
Trademark- Plus, 4XLA-Registered Trademark-, and Pre-Gold-Registered
Trademark- germicidal teat dips. The territory granted to IBA Inc. includes
the Northeastern, Great Lakes and Plains states, covering approximately 68%
of U.S. dairy cows. The Company's intent in entering into the agreement is
to increase the sale and distribution of its products in the territory.
ANTIMICROBIAL INTERVENTION FOR DECONTAMINATION OF POULTRY CARCASSES
On February 5, 1997 the Company received approval from the United States
Department of Agriculture to conduct an extended commercial trial in
several plants to validate the efficacy of the Company's acidified sodium
chlorite product for the control of pathogens on poultry carcasses.
Successful completion of such trial is a prerequisite to commercial
introduction of the Company's product to the poultry industry.
Concurrent with this development Alcide commenced negotiations with a
company which expressed an interest in distributing the Alcide
antimicrobial product to the poultry industry. The discussion is on-going
and has not, as of the date of this report, resulted in a definitive
agreement. Alcide believes that it is unlikely that such an agreement will
be finalized until after Alcide demonstrates success in control of food
borne pathogens in the above mentioned commercial trial.
Alcide would prefer to enter the market through an established distributor
presently serving the industry, though such an arrangement is not believed
to be essential to the Company's ultimate success in this field.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBIT 10.22*
Distributor agreement by and between the Company and IBA Inc., dated
February 7, 1997, covering territories in the United States.
EXHIBIT 11
(a) Computation of Earnings Per Common Share
THREE MONTHS ENDED NINE MONTHS ENDED
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FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 29,
------------ ------------ ------------ ------------
1997 1996 1997 1996
---- ---- ---- ----
Weighted average number of Common Shares outstanding 2,589,305 2,596,751 2,596,914 2,609,805
Assuming exercise of options reduced by the number of 201,411 200,945 201,411 200,945
shares which could have been purchased with the --------- --------- --------- ---------
proceeds from exercise of such options
Weighted average Common Shares outstanding and 2,790,716 2,797,696 2,798,325 2,810,750
Common Share equivalents --------- --------- --------- ---------
--------- --------- --------- ---------
Net Income per share $ .25 $.23 $ .60 $.63
--------- --------- --------- ---------
--------- --------- --------- ---------
REPORTS ON FORM 8-K
None.
* Confidential treatment has been requested for this Exhibit.
10
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 8, 1997 By s/
--------------------------------
John P. Richards
Executive Vice President
Chief Financial Officer
11