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, 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 _____________ to
______________________.
Commission File Number: 0-12395
ALCIDE CORPORATION
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 . . . . . (425) 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
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of August 31, 1997: 2,599,595, net of Treasury Stock.
ALCIDE CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
PAGE
----
Item 1. Financial Statements . . . . . . . . . . . . . . . . . . . . . .
Condensed Balance Sheets - August 31, 1997 (Unaudited) and
May 31, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Unaudited Condensed Statements of Operations - For the three
months ended August 31, 1997 and August 31, 1996 . . . . . . . . 4
Unaudited Condensed Statements of Cash Flows - For the three
months ended August 31, 1997 and August 31, 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 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . 10
Item 5. Other Information. . . . . . . . . . . . . . . . . . . . . . . . 10
Item 6. Exhibits and Reports on Form 8 - K . . . . . . . . . . . . . . . 10
SIGNATURE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2
ALCIDE CORPORATION CONDENSED BALANCE SHEETS
AUGUST 31, 1997 MAY 31, 1997
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(UNAUDITED)
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ASSETS:
Current assets:
Cash and cash equivalents $7,370,825 $6,723,154
Short term investments 2,100,561 2,086,900
Accounts receivable - trade 2,586,298 2,498,981
Inventory 1,439,701 1,115,627
Prepaid expenses and other current assets 191,649 285,971
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Total Current Assets 13,689,034 12,710,633
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Equipment and leasehold improvements:
Office equipment 104,501 100,010
Laboratory and manufacturing equipment 135,533 132,404
Leasehold improvements 56,152 56,152
Less: Accumulated depreciation and amortization (158,442) (143,604)
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Total equipment and leasehold improvements, net 137,744 144,962
Deferred income tax asset 1,055,690 1,090,229
Other assets 1,142,912 1,167,848
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TOTAL ASSETS $16,025,380 $15,113,672
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LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable $301,726 $329,808
Accrued expenses and taxes payable 216,618 493,046
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Total Liabilities 518,344 822,854
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COMMITMENTS AND CONTINGENCIES:
Redeemable Class B Preferred Stock - noncumulative convertible
$.01 par value: authorized 1,664,581 shares;
issued and outstanding:
May 31, 1997 - 88,802
August 31, 1997 - 88,802 233,105 233,105
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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, 1997 - 2,799,408
August 31, 1997- 2,840,314 28,403 27,994
Treasury stock at cost (3,191,425) (3,191,425)
Additional paid-in capital 18,795,136 18,302,377
Accumulated Deficit (493,490) (1,216,540)
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Total Shareholders' Equity 15,273,931 14,057,713
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TOTAL LIABILITIES, AND SHAREHOLDERS' EQUITY $16,025,380 $15,113,672
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See notes to Unaudited Condensed Financial Statements.
3
ALCIDE CORPORATION UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
For the Three Months Ended
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August 31,
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1997 1996
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NET SALES $3,192,396 $2,042,222
Expenditures
Cost of goods sold 1,103,001 622,425
Royalty expense 79,812 73,146
Research and development expense 496,807 436,181
Depreciation and amortization 14,838 14,061
Consulting expense to the related parties 33,012 33,014
Other selling, general/administrative 517,842 393,466
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Total Expenditures 2,245,312 1,572,293
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Operating income 947,084 469,929
Royalty and other income 6,741 6,759
Interest income 141,705 94,323
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Total Non-Operating Income 148,446 101,082
Income before provision for income tax 1,095,530 571,011
Provision for income taxes 372,480 194,715
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Net income $723,050 $376,296
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Net income per share $.26 $.13
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Weighted average Common Shares outstanding and
Common Share equivalents 2,832,499 2,803,276
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See Notes to Unaudited Condensed Financial Statements.
4
ALCIDE CORPORATION UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
For the Three Months Ended August 31,
-------------------------------------
1997 1996
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OPERATING ACTIVITIES:
Net income $723,050 $376,296
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 14,838 14,061
Deferred income tax benefit 348,379 178,726
Decrease (increase) in assets:
Inventory (324,074) 74,818
Accounts receivable - trade (87,317) 252,940
Prepaid expenses, other assets and
security deposits 119,322 27,600
Increase (decrease) in liabilities:
Accounts payable (28,082) (146,093)
Accrued expenses and taxes payable (276,428) (486,424)
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Total adjustments (233,362) (84,372)
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Net cash generated by (used in) operating activities 489,688 291,924
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INVESTING ACTIVITIES:
Acquisition of fixed and other assets (21,344) (7,298)
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Net cash used in investing activities (21,344) (7,298)
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FINANCING ACTIVITIES:
Exercise of Stock Options 179,327 51,000
Purchase of Alcide Common Stock --- (66,182)
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Net cash generated by (used in) financing activities 179,327 (15,182)
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Net increase (decrease) in cash and cash equivalents 647,671 269,444
Cash and cash equivalents at beginning of period 6,723,154 5,365,895
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Cash and cash equivalents at end of period $7,370,825 $5,635,339
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest --- ---
Cash paid for income taxes $13,374 ---
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 periods ended
August 31, 1997 and 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, 1997. 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 periods are
not necessarily indicative of the results to be expected for the full year.
2. Inventory consisted of the following:
AUGUST 31, 1997 MAY 31, 1997
Finished products $ 281,623 $ 141,720
Raw materials 1,158,078 973,907
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Total $1,439,701 $1,115,627
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3. Accounts Receivable - Trade consisted of the following:
AUGUST 31, 1997 MAY 31, 1997
ABS Global, Inc. $1,399,139 $1,660,489
International Distributors 495,628 672,983
Novus International, Inc. 524,517 ---
Other Receivables 167,014 165,509
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Total Accounts Receivable $2,586,298 $2,498,981
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4. Taxes
The income tax provision for the three-month period ended August 31, 1997
consists of:
TAXES PAYABLE REDUCTION OF TOTAL TAX
DURING FISCAL YEAR DEFERRED TAX ASSET PROVISION
Federal Income Taxes $24,101 $348,379 $372,480
The Company's deferred tax asset increased $313,841 due to the exercise of
non-qualified stock options. The exercise of these options by option holders
allows the Company to recognize a deduction on its federal tax return equal
to the difference between the exercise price and the market value of the
stock on the day exercised.
6
5. Orders for Future Delivery
At August 31, 1997 and 1996 the Company had orders for future delivery of
$2,604,685 and $1,431,297, respectively, of which $1,730,529 is from one
distributor at August 31, 1997. The $2,604,685 orders for future delivery are
scheduled for shipment during the period September, 1997 through March, 1998.
7
ALCIDE CORPORATION
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Class "A" Common Stock Additional Common Treasury Stock Accumulated Total
Preferred Stock Paid in Capital Deficit Shareholders'
Equity
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Shares Amount Shares Amount Shares Amount
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Balance May
31, 1997 1,000 $135,307 2,799,408 $27,994 $18,302,377 (240,719) ($3,191,425) ($1,216,540) $14,057,713
Exercise of Stock
Options 40,906 409 178,918 179,327
Tax Benefit from
Exercise of
Non-Qualified
Stock Options 313,841 313,841
Net Income 723,050 723,050
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Balance August
31, 1997 1,000 $135,307 2,840,314 $28,403 $18,795,136 (240,719) ($3,191,425) ($493,490) $15,273,931
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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 three month period ended August 31, 1997 were $3,192,396, an
increase of 56% over the equivalent period one year ago. Alcide's established
udder care and surface disinfectant business recorded sales of $2,457,213, an
increase of $414,991 or 20% over the first quarter last year. In addition, the
Company sold $735,183 of Sanova-TM-, its new antimicrobial for poultry
processing plants, to Novus International, Inc. for use by Novus to support
commercial plant testing necessary for United States Department of Agriculture
(USDA) approval.
Cost of goods as a percentage of net sales increased to 34.5% during the three
month period ended August 31, 1997 from 30.5% for the same three month period
last year. Approximately two-thirds of the increase is due to a change in
product mix and a reduction in finance fees charged to distributors for extended
payment terms. The balance of the increase is due primarily to warehousing and
materials handling charges related to storage of critical/long lead time
inventories and to increases in manufacturing costs from contract manufacturers.
Research and development expenses of $496,807 for the quarter ended August 31,
1997 were 14%, $60,626 higher than the corresponding quarter last year, entirely
as a result of commercial plant testing related to Sanova.
Other selling general and administrative expenses of $517,842 for the three
months ended August 31, 1997 were $124,376, 32% higher than for the first
quarter last year. The increase primarily reflects the impact of higher
salaries and executive bonuses consistent with improved sales performance.
Interest income of $141,705 for the three months ended August 31, 1997 was
$47,382, 50% higher than interest income for the equivalent period last year.
The increase is attributable to the Company's improved cash and marketable
securities position.
LIQUIDITY
The Company's cash, cash equivalents, short term investments and U.S. Treasury
instruments totalled $10,572,070 on August 31, 1997, an amount $661,396 higher
than at the end of the fiscal year ended May 31, 1997. The Company's net income
for the quarter on a cash flow basis was $1,086,267. This was offset by an
$596,579 increase in net working capital. Management believes that the Company
will continue to operate profitably in fiscal 1998 and that this coupled with
the Company's cash, cash equivalents, short term investments and U.S. Treasury
instruments will be sufficient to meet its anticipated operating needs.
NEW ACCOUNTING PRONOUNCEMENTS
In February, 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings Per Share (SFAS 128), which is
effective for periods beginning after December 15, 1997. SFAS 128 establishes
new standards for computing and presenting earnings per share (ESP). Companies
will report basic EPS and diluted EPS compared to primary and fully diluted EPS,
which are currently reported. Under the new standard, the Company's basic EPS
for the quarter ended August 31, 1997, would be $.28, and the diluted EPS would
be $.26.
9
PART II.
OTHER INFORMATION
ITEM 1. Legal Proceedings
On August 19, 1996, Alcide filed suit against Babson Brothers Company because it
believed that Babson Brothers' InterSept-TM- product, which was launched that
month, infringed the claims of Alcide's United States Patent No. 4,330,531.
Alcide moved for a preliminary injunction. On September 19, 1996, the court
granted Alcide's motion for a preliminary injunction, and on June 3, 1997, the
court granted Alcide's motion for summary judgement of infringement. The case
settled on June 30, 1997, with a cash payment to Alcide and a Consent Agreement
whereby Babson Brothers was permanently enjoined for the remaining term of the
patent from making and selling the InterSept product.
ITEM 5. Other Information
On July 9, 1997, the Company notified Universal Marketing Services (UMS), its
exclusive distributor for the United Kingdom and Republic of Ireland, that UMS
had fallen short of its sales goals and that effective January 9, 1998, the
agreement relating to distribution in the UK and Republic of Ireland would be
cancelled. Subsequently, Alcide has been notified by UMS management and owners
that UMS has improved its ability to distribute Alcide products and that a new
contract will be proposed by UMS.
ITEM 6. Exhibits and Reports on Form 8-K
EXHIBIT 11
(a) Computation of Earnings Per Common Share
Three Months Ended August 31,
1997 1996
---- ----
Weighted average number of Common Shares
outstanding 2,579,142 2,600,251
Assuming exercise of options reduced by the number
of shares which could have been purchased with the
proceeds from exercise of such options 253,357 203,025
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Weighted average Common Shares outstanding and
Common Share equivalents 2,832,499 2,803,276
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Net Income per share $.26 $.13
REPORTS ON FORM 8-K
NONE.
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: October 7, 1997 By s/
--------------------------------
John P. Richards
Executive Vice President
Chief Financial Officer
11