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, 1998
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 incorporation (I.R.S. Employer
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 .......... (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
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of February 28, 1998: 2,625,882, net of Treasury Stock.
ALCIDE CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements . . . . . . . . . . . . . . . . . . . . . PAGE
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Condensed Balance Sheets - February 28, 1998 (Unaudited)
and May 31, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . 3
Unaudited Condensed Statements of Operations - For the three
months and nine months ended February 28, 1998 and February 28,
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Unaudited Condensed Statements of Cash Flows - For the nine
months ended February 28, 1998 and February 28, 1997 . . . . . . . 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 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . 10
SIGNATURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2
ALCIDE CORPORATION CONDENSED BALANCE SHEETS
February 28, 1998 May 31, 1997
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(Unaudited)
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ASSETS:
Current assets:
Cash and cash equivalents $ 8,868,297 $ 6,723,154
Short term investments 3,645,091 2,086,900
Accounts receivable - trade 2,819,916 2,498,981
Inventory 1,288,904 1,115,627
Prepaid expenses and other current assets 185,088 285,971
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Total Current Assets 16,807,296 12,710,633
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Equipment and leasehold improvements:
Office equipment 106,722 100,010
Laboratory and manufacturing equipment 143,367 132,404
Leasehold improvements 56,152 56,152
Less: Accumulated depreciation and amortization (187,505) (143,604)
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Total equipment and leasehold improvements, net 118,736 144,962
Deferred income tax asset 775,527 1,090,229
Other assets 648,921 1,167,848
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TOTAL ASSETS $18,350,480 $15,113,672
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LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable $425,607 $329,808
Accrued expenses and taxes payable 272,242 493,046
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TOTAL LIABILITIES 697,849 822,854
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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, 1997 - 88,802
February 28, 1998 - 81,119 212,936 233,105
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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
February 28, 1998 - 2,871,613 28,716 27,994
Treasury stock at cost (3,452,403) (3,191,425)
Additional paid-in capital 19,535,385 18,302,377
Accumulated surplus (deficit) 1,192,690 (1,216,540)
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Total Shareholders' Equity 17,439,695 14,057,713
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TOTAL LIABILITIES, AND SHAREHOLDERS' EQUITY $18,350,480 $15,113,672
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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 28 February 28
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1998 1997 1998 1997
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NET SALES $3,189,789 $2,963,436 $9,613,461 $7,750,532
Expenditures
Cost of goods sold 1,040,386 1,107,109 3,167,841 2,623,447
Royalty expense 62,160 67,188 219,225 243,830
Research and development expense 287,625 375,499 1,313,439 1,246,057
Depreciation and amortization 14,225 14,280 43,901 42,548
Consulting expense to related parties 21,000 21,000 75,012 75,014
Other selling, general and administrative expense 583,364 523,279 1,621,851 1,390,983
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Total Expenditures 2,008,760 2,108,355 6,441,269 5,621,879
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Operating income 1,181,029 855,081 3,172,192 2,128,653
Royalty and other income 8,073 106,452 23,836 119,286
Interest income 160,936 112,129 454,320 309,820
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Total Non-Operating Income 169,009 218,581 478,156 429,106
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Income before provision for income tax 1,350,038 1,073,662 3,650,348 2,557,759
Provision for income taxes 459,013 366,118 1,241,118 872,196
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Net income $ 891,025 $ 707,544 $2,409,230 $1,685,563
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Basic earnings per common share $ .34 $ .27 $ .93 $ .65
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Diluted earnings per common share $ .31 $ .25 $ .85 $ .60
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Weighted average Common Shares outstanding and Common 2,842,135 2,790,716 2,823,818 2,798,325
Share equivalents ---------- ---------- ---------- ----------
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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
FEBRUARY 28,
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1998 1997
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OPERATING ACTIVITIES:
Net income $2,409,230 $1,685,563
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 43,901 42,548
Deferred income tax benefit 1,160,811 800,578
Decrease (increase) in assets:
Inventory (173,277) (176,946)
Accounts receivable - trade (320,935) (226,382)
Prepaid expenses and other assets and security deposits 125,885 (42,519)
Increase (decrease) in liabilities:
Accounts payable 95,799 2,932
Accrued expenses and taxes payable (220,804) (860,488)
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Total adjustments 711,380 (460,277)
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Net cash generated by (used in) operating activities 3,120,610 1,225,286
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INVESTING ACTIVITIES:
Redemption (acquisition) of U.S. Treasury Instruments (1,016,980) 564
Acquisition of fixed and other assets (64,960) (39,626)
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Net cash used in investing activities (1,081,940) (39,062)
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FINANCING ACTIVITIES:
Exercise of Stock Options 387,620 70,044
Redemption of Class B Preferred Stock (20,169) (16,275)
Purchase of Alcide Common Stock (260,978) (586,106)
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Net cash generated by (used in) financing activities 106,473 (532,337)
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Net increase (decrease) in cash and cash equivalents 2,145,143 653,887
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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 $8,868,297 $6,019,782
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest --- ---
Cash paid for income taxes $ 71,625 $ 41,000
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, 1998 and February 28, 1997 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 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, 1998 MAY 31, 1997
Finished products $ 273,875 $ 141,720
Raw materials 1,015,029 973,907
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Total $1,288,904 $1,115,627
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3. Accounts Receivable - Trade consisted of the following:
FEBRUARY 28, 1998 MAY 31, 1997
ABS Global, Inc. $1,555,617 $1,660,489
International Distributors 505,138 672,983
Novus International, Inc. 585,507 ---
Other Receivables 173,654 165,509
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Total Accounts Receivable $2,819,916 $2,498,981
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4. Taxes
The income tax provision for the nine month period ended February 28, 1998
consists of:
TAXES PAYABLE REDUCTION OF TOTAL TAX
DURING FISCAL DEFERRED TAX ASSET PROVISION
YEAR
Federal Income
Taxes $80,307 $1,160,811 $1,241,118
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5. Orders for Future Delivery
At February 28, 1998 and February 28, 1997 the Company had orders for future
delivery of $2,679,916 and $2,960,674 respectively, of which $1,164,062 is from
ABS Global, Inc., and $744,840 from Heemskerk b.v. at February 28, 1998. The
$2,679,916 orders are scheduled for shipment during the period March, 1998
through June, 1998.
6. Marketable Securities
On September 19, 1997 the Company invested $504,961 to purchase a U.S. Treasury
Note having a redemption value of $500,000 at August 31, 2002 maturity, yielding
6.01%.
On October 16, 1997 the Company redeemed for cash $1,107,000 U.S. Treasury Bills
which it had purchased on October 18, 1996 for $1,049,436.
On October 16, 1997 the Company invested $1,051,751 to purchase U.S. Treasury
Bills having a redemption value of $1,110,000 at October 15, 1998 maturity,
yielding 5.48%.
On January 15, 1998 the Company redeemed for cash a $1,000,000 U.S. Treasury
Note which it had purchased on November 23, 1994.
On February 5, 1998 the Company invested $949,800 to purchase U.S. Treasury
Bills having a redemption value of $1,000,000 at February 4, 1999 maturity,
yielding 5.23%.
On February 5, 1998 the Company invested $617,468 to purchase U.S. Treasury
Bills having a redemption value of $650,000 at February 4, 1999 maturity,
yielding 5.21%.
7. Series 2 Redeemable Class B Preferred Stock
On September 15, 1997 the Company redeemed 7,683 shares of Series 2 stock for
$20,169 in cash out of a sinking fund equal to 0.7% of the Company's FY 1997 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" Common Stock Additional Common Treasury Accumulated Total
Preferred Stock Paid in Stock Surplus Shareholders'
Capital (Deficit) 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
Exercise of Stock Options 17,423 174 139,294 139,468
Purchase Treasury Stock (1,000) (55,812) (55,812)
Tax Benefit from Exercise
of Non-Qualified Stock
Options 286,193 286,193
Net Income 795,155 795,155
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Balance November 30, 1997 1,000 $135,307 2,857,737 $28,577 $19,220,623 (241,719) ($3,247,237) $301,665 $16,438,935
Exercise of Stock Options 13,876 139 68,687 68,826
Purchase Treasury Stock (4,012) (205,166) (205,166)
Tax Benefit from Exercise
of Non-Qualified Stock
Options 246,075 246,075
Net Income 891,025 891,025
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Balance February 28, 1998 1,000 $135,307 2,871,613 $28,716 $19,535,385 (245,731) ($3,452,403) $1,192,690 $17,439,695
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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 February 28, 1998 were $3,189,789, an
increase of 8% over the equivalent period one year ago. Net sales for the nine
month period ended February 28, 1998 were $9,613,461, an increase of 24% over
the equivalent period one year ago. Alcide's established udder care and surface
disinfectant business recorded sales of $7,762,759, an increase of $12,227 over
last year. In addition, the Company sold $1,850,702 of Sanova-TM-, its new
antimicrobial for poultry processing plants, to Novus International, Inc.
On January 9, 1998, the United States Department of Agriculture approved
Alcide's request for the use of Sanova in poultry processing. This approval is
the final regulatory step and has led to commercial introduction of the product
during the Company's fiscal third quarter.
Cost of goods as a percentage of net sales decreased to 33% during the nine
month period ended February 28, 1998 from 34% for the same nine month period
last year. The reduction was caused entirely by product mix. Contractually
required payments by Novus International for Sanova had the overall effect of
reducing cost of goods as a percentage of sales by 3 points.
Research and development expenses of $1,313,439 for the nine months ended
February 28, 1998 were $67,382, 5% higher than the corresponding nine months
last year, entirely as a result of commercial plant testing related to Sanova.
Other selling general and administrative expenses of $1,621,851 for the nine
months ended February 28, 1998 were $230,868, 17% higher than for the same
period last year. The increase primarily reflects the impact of higher
salaries, payroll taxes, employee benefits and bonus accruals ($288,000 higher)
offset by lower legal and travel expenses ($83,000).
Royalty and other income was $23,836 for the nine month period ended February
28, 1998, as compared to $119,286 for the same period last year. During the
third quarter last year Alcide received a one-time payment of $100,000 from
Novus International to secure the negotiating rights to Sanova.
Interest income of $454,320 for the nine months ended February 28, 1998 was
$144,500, 47% 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
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 interim periods beginning after December 15, 1997. SFAS 128
establishes new standards for computing and presenting earnings per share (EPS)
and Alcide now reports Basic earnings per share and Diluted earnings per share
as contrasted with "Fully Diluted earnings per share" which was reported in the
past. For Alcide, Fully Diluted EPS and Diluted EPS are the same.
9
PART II.
OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBIT 10.24*
Distributor agreement by and between the Company and Ingenieursbureau Ir.
P.C. Heemskerk b.v., dated June 1, 1997, covering territories of The
Netherlands, Denmark, Belgium, Germany, Luxembourg, Sweden and Finland.
EXHIBIT 10.25*
Distributor agreement by and between the Company and Ingenieursbureau Ir.
P.C. Heemskerk b.v., dated September 4, 1997, covering the territory of
France.
EXHIBIT 10.26*
Distributor agreement by and between the Company and Universal Marketing
Services, Inc., dated January 30, 1998, covering territories of The United
Kingdom, Spain, and the Republic of Ireland.
EXHIBIT 11.
Computation of Earning for Common Share.
EXHIBIT 27.
Financial Data Schedule.
* Confidential treatment has been requested for these Exhibits.
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 9, 1998 By s/
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John P. Richards
Executive Vice President
Chief Financial Officer
11