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, 1998
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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
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 August 31, 1998: 2,558,148, net of Treasury Stock.
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ALCIDE CORPORATION
INDEX
PAGE
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Condensed Balance Sheets - August 31, 1998 (Unaudited) and May 31, 1998. . . . . . . . 3
Unaudited Condensed Statements of Operations - For the three months ended
August 31, 1998 and August 31, 1997. . . . . . . . . . . . . . . . . . . . . . . . . . 4
Statements of Changes in Shareholders' Equity. . . . . . . . . . . . . . . . . . . . . 5
Unaudited Condensed Statements of Cash Flows - For the three months ended
August 31, 1998 and August 31, 1997. . . . . . . . . . . . . . . . . . . . . . . . . . 6
Notes to Unaudited Condensed Financial Statements. . . . . . . . . . . . . . . . . . . 7
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SIGNATURE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
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ALCIDE CORPORATION CONDENSED BALANCE SHEETS
AUGUST 31, 1998 MAY 31, 1998
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(UNAUDITED)
ASSETS:
Current assets:
Cash and cash equivalents $ 8,304,461 $ 7,844,217
Short term investments 3,818,231 3,782,752
Accounts receivable - trade 3,307,845 2,268,264
Inventory 1,436,831 1,353,870
Prepaid expenses and other current assets 123,897 213,269
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Total current assets 16,991,265 15,462,372
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Equipment and leasehold improvements:
Office equipment 128,227 112,280
Laboratory and manufacturing equipment 145,292 145,292
Leasehold improvements 56,152 56,152
Less: Accumulated depreciation and amortization (217,924) (202,318)
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Total equipment and leasehold improvements, net 111,747 111,406
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Deferred income tax asset 285,618 285,618
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Other assets 509,690 509,941
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TOTAL ASSETS $17,898,320 $16,369,337
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LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 231,363 $ 269,801
Accrued expenses 190,537 157,812
Income taxes payable 713,635 125,000
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Total Liabilities 1,135,535 552,613
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COMMITMENTS AND CONTINGENCIES:
Redeemable Class B Preferred Stock - noncumulative convertible
$.01 par value: authorized 10,000,000 shares;
issued and outstanding:
May 31, 1998 - 81,119
August 31, 1998 - 81,119 212,936 212,936
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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, 1998 - 2,872,313
August 31, 1998 2,872,313 28,723 28,723
Treasury stock at cost (6,213,471) (6,125,794)
Additional paid-in capital 19,559,369 19,559,369
Retained Earnings 3,039,921 2,006,183
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Total Shareholders' Equity 16,549,849 15,603,788
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $17,898,320 $16,369,337
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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
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August 31,
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1998 1997
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NET SALES $3,781,279 $3,192,396
Expenditures
Cost of goods sold 1,112,007 1,103,001
Royalty expense 84,216 79,812
Research and development expense 338,081 496,807
Depreciation 15,606 14,838
Consulting expense to the related parties 33,000 33,012
Other selling, general/administrative 744,513 517,842
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Total Expenditures 2,327,423 2,245,312
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Operating income 1,453,856 947,084
Interest income 171,517 141,705
Other income -- 6,741
Income before provision for income taxes 1,625,373 1,095,530
Provision for income taxes 591,635 372,480
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Net income $1,033,738 $ 723,050
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Basic earnings per common share $ .40 $ .28
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Diluted earnings per common share and equivalents $ .38 $ .26
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Weighted average Common Shares outstanding 2,562,876 2,579,142
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Weighted average Common Shares & Common Share
equivalents 2,721,290 2,832,499
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See Notes to Unaudited Condensed Financial Statements.
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ALCIDE CORPORATION
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Total
Class "A" Additional Paid Common Treasury Retained Shareholders'
Preferred Stock Common Stock in Capital Stock Earnings Equity
---------------- ------------------ --------------- ----------------------- ---------- -------------
Shares Amount Shares Amount Shares Amount
------ -------- --------- ------- --------- -----------
Balance May 31, 1998 1,000 $135,307 2,872,313 $28,723 $19,559,369 (309,165) ($6,125,794) $2,006,183 $15,603,788
Purchase Treasury Stock (5,000) (87,677) (87,677)
Net Income 1,033,738 1,033,738
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Balance August 31, 1998 1,000 $135,307 2,872,313 $28,723 $19,559,369 (314,165) ($6,213,471) $3,039,921 $16,549,849
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ALCIDE CORPORATION UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
For the Three Months Ended August 31,
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1998 1997
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OPERATING ACTIVITIES:
Net income $1,033,738 $ 723,050
Adjustments to reconcile net income to net cash
Provided by operating activities:
Depreciation 15,606 14,838
Amortization of premiums and discounts (35,228) (13,724)
Deferred income tax -- 348,379
Decrease (increase) in assets:
Inventory (82,961) (324,074)
Accounts receivable - trade (1,039,581) (87,317)
Prepaid expenses and other current assets 89,372 94,322
Other assets -- 25,000
Increase (decrease) in liabilities:
Accounts payable (38,438) (28,082)
Accrued expenses and taxes payable 621,360 (276,428)
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Net cash provided by operating activities 563,868 475,964
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CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of equipment (15,947) (7,620)
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Net cash (used in) investing activities (15,947) (7,620)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of Alcide Common and redemption of Class B
Preferred Stock
(87,677) --
Stock Options exercised -- 179,327
Net cash provided by (used in) financing
activities 87,677 179,327
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Net increase in cash and cash equivalents 460,244 647,671
Cash and cash equivalents at beginning of period 7,844,217 6,723,154
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Cash and cash equivalents at end of period $8,304,461 $7,370,825
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest -- --
Cash paid during the period for income taxes $3,000 $13,374
See notes to Unaudited Condensed Financial Statements.
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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, 1998 and 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, 1998. 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, 1998 MAY 31, 1998
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Finished products $ 389,971 $ 406,627
Raw materials 1,046,860 947,243
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Total $1,436,831 $1,353,870
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3. Accounts Receivable - Trade consisted of the following:
AUGUST 31, 1998 MAY 31, 1998
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ABS Global, Inc. $1,023,645 $ 337,286
International Distributors 942,229 1,111,750
Novus International, Inc. 1,154,988 594,404
Other Receivables 186,983 224,824
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Total Accounts Receivable $3,307,845 $2,268,264
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4. Taxes
The income tax provision for the three-month period ended August 31, 1998
consists of:
TAXES PAYABLE
DURING FISCAL
YEAR
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Federal Income Taxes $532,532
State Income Taxes 59,103
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$591,635
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5. Earnings Per Share
The Company has adopted Statement of Financial Accounting Standards 128
("SFAS 128"), "Earnings Per Share" which replaced the calculation of primary
and fully diluted earnings per share with Basic and Diluted earnings per
share. Basic earnings per share is computed by dividing net income by the
weighted average
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number of common shares outstanding during the year. 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 year.
Common stock equivalents of the Company include the dilutive effect of
outstanding stock options.
Basic and Diluted earnings per share were calculated as follows:
Three Months Ended August 31,
-----------------------------
1998 1997
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Net Income $1,033,738 $ 723,050
Weighted average number of Common Shares outstanding 2,562,876 2,579,142
Basic EPS $.40 $.28
Assuming exercise of options reduced by the number of
shares which could have been purchased with the
proceeds from exercise of such options 158,414 253,357
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Weighted average Common Shares outstanding and Common
Share equivalents 2,721,290 2,832,499
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Diluted EPS $.38 $.26
6. Orders for Future Delivery
At August 31, 1998 and 1997 the Company had orders for future delivery of
$2,350,050 and $2,604,685, respectively, of which $1,293,229 is from one
distributor at August 31, 1998. The $2,350,050 orders for future delivery
are scheduled for shipment during the period September, 1998 through
December, 1998.
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PART I.
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 the words such as
"believes," "anticipates," "hopes," "plans," "may," "can," "will," 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 for the three month period of $3,781,279 were 18% higher than the
corresponding quarter a year ago. The first quarter sales included $1,154,988
from Novus International, Inc. for Sanova-Registered Trademark-, compared to
$735,183 Sanova sales for the quarter ended August 31, 1997. In addition,
Alcide's established udder care and surface disinfectant business recorded
sales of $2,626,291 for the quarter ended August 31, 1998, an increase of
$169,078 or 7% over the first quarter last year.
Cost of goods as a percentage of net sales decreased to 29.4% during the
three month period ended August 31, 1998 from 34.6% for the same three month
period last year. The decrease in cost of goods as a percentage of net sales
is attributed primarily to increased sales revenue for Sanova. As the
contract with Novus, the sole distributor of Sanova, is currently being
renegotiated, it is anticipated that the near term revenues from sales of
Sanova will be substantially less than in previous quarters, which likely
could also result in gross margins returning to historical levels.
Research and development expenses of $338,081 for the quarter ended August
31, 1998 were 32%, $158,726 lower than the corresponding quarter last year.
During the first quarter last year the Company incurred costs of $189,400 for
outside testing services, consulting and travel related
9
to obtaining USDA regulatory approval for Sanova. During the first quarter
this year the Company incurred costs of $54,600 for Sanova testing.
Other selling, general and administrative expenses of $758,239 for the three
months ended August 31, 1998 were $240,397, 46% higher than the first quarter
last year. The increase primarily reflects the impact of higher salaries and
executive bonuses paid in July.
Interest income of $171,517 for the three months ended August 31, 1998 was
$29,812, 21% higher than interest income for the equivalent period last year.
The increase is attributable to larger balances in the Company's cash and
marketable securities accounts.
LIQUIDITY
The Company's cash, cash equivalents, short term investments and U.S.
Treasury instruments totaled $12,626,700 on August 31, 1998, an amount
$495,472 higher than at the end of the fiscal year ended May 31, 1998.
Management believes that the Company will continue to operate profitably in
fiscal 1999 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.
YEAR 2000 ISSUES
The Company has developed and is implementing a comprehensive plan to address
issues related to Year 2000. The organizational simplicity of Alcide's
business structure, which relies heavily on third party manufacturers and a
network of third party distributors, greatly limits the direct financial
impact on the Company to become fully Year 2000 compliant.
It has been necessary to upgrade the Company's accounting software which
controls internal and external reporting, sales order and billing records,
cost accounting inventory records, accounts payable and cash management
processes. The costs incurred to accomplish the upgrade were approximately
$10,000 and were recorded as an expense during fiscal 1998.
Further, the Company has identified a need to upgrade computer software which
controls certain laboratory analytical instruments. The laboratory
instrument software upgrade is estimated to cost approximately $20,000 and is
targeted for completion during the Company's fiscal third quarter.
Lastly, the Company is in the process of surveying each of its raw material
suppliers, manufacturing resources and distributors to assure their Year 2000
readiness.
Alcide management believes that the risks facing the Company relating to Year
2000 issues are minimal. All business related computer systems are fully
Year 2000 compatible. Critical raw materials and manufacturing requirements
are available from multiple sources and the Company can serve its
distributors without reliance on computers.
OUTLOOK
SANOVA FOOD QUALITY SYSTEM DISTRIBUTION
On August 3, 1998, the Company and Novus International, Inc. agreed to
begin negotiations to restructure their agreement of May 21, 1997, to
market the Sanova Food Quality System to the poultry industry. Under the
terms of the May 21, 1997 agreement, Novus and Alcide intended to share
Sanova gross margin, subject however to a minimum $1 million per fiscal
quarter payment to Alcide by Novus for quarters starting June 1, 1998.
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Novus has agreed to pay Alcide the $1 million for the period ended August
31, 1998. Alcide has waived its right to the $1 million minimum payment
for the quarter which will end on November 30, 1998.
Subsequently, on October 8, 1998, Alcide and Novus announced the
termination of their May 21, 1997 Agreement. As a result of this decision
Alcide will now sell and distribute Sanova directly to the poultry
processing industry. As a consequence the Company expects to invest
capital of $300,000 to $400,000 to equip each new plant, and the Company
may, at its option, purchase existing equipment inventory, product
inventory, as well as equipment installed and operating in five commercial
plants, from Novus.
Alcide's management continues to believe that Sanova is an excellent
antimicrobial product for use on food. The Sanova Food Quality System is
presently being used in five commercial poultry plants and is delivering
the expected results.
UDDER CARE PRODUCT DISTRIBUTION
On October 12, 1998, the Company informed ABS Global, Inc. that it
will not renew its distributor agreements with ABS when the agreements
expire on October 31, 1998. ABS presently distributes Alcide's udder care
products in the United States, Canada, Mexico, throughout South America,
Portugal, Italy and the Czech Republic. Simultaneously, the Company
announced that effective November 1, 1998, it will enter into a new four
year agreement with IBA, Inc. to expand the IBA territory to cover the
entire United States. Subsequently, on October 13, 1998, the Company and
Universal Marketing Services, Inc. agreed to amend the present UMS
distributor agreement covering Spain, the United Kingdom and Republic of
Ireland, to add the additional territories of Canada, Italy, Portugal,
the Czech Republic, as exclusive UMS territories, and the United States
as a nonexclusive UMS territory.
Management believes that the combined distribution coverage provided by
IBA and UMS is equal to or better than the coverage provided by ABS for
the territories of the United States, Canada, Italy, Portugal and the
Czech Republic. Alcide expects to add new distribution coverage for
Mexico and South America to replace the present ABS distribution
arrangement.
Alcide's second quarter sales may be adversely affected because the
Company is refusing shipments to ABS during the month of October until
ABS pays its past due amounts of approximately $550,000. Alcide
management believes that the entire ABS receivable of approximately $1.4
million is collectable.
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PART II.
OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
EXHIBIT 10.28
Nonexclusive Distributor Agreement by and between the Company and Merial
Societe Par Actions Simplifiee, dated September 1, 1998, covering the
territory of France.
REPORTS ON FORM 8-K
None.
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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 14, 1998 By /s/ John P. Richards
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John P. Richards
Executive Vice President
Chief Financial Officer
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