<PAGE>
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, 1999
-----------------
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
- ------------------------------ ----------------------------------
State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization
8561 154th Avenue North East, Redmond WA 98052
- ---------------------------------------- --------
(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
------- -------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of February 28, 1999: 2,553,730, net of Treasury Stock.
1
<PAGE>
ALCIDE CORPORATION
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements..............................................................................PAGE
----
Condensed Balance Sheets - February 28, 1999 (Unaudited) and May 31, 1998...................3
Unaudited Condensed Statements of Operations - For the three and nine months ended
February 28, 1999 and February 28, 1998.....................................................4
Statements of Changes in Shareholders' Equity...............................................5
Unaudited Condensed Statements of Cash Flows - For the nine months ended
February 28, 1999 and February 28, 1998.....................................................6
Notes to Unaudited Condensed Financial Statements...........................................7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations..................................................................................9
Item 3. Legal Proceedings...................................................................................13
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8 - K..................................................................14
SIGNATURE....................................................................................................15
</TABLE>
2
<PAGE>
ALCIDE CORPORATION CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
FEBRUARY 28, 1999 MAY 31, 1998
----------------- ------------
(UNAUDITED)
-----------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 9,132,133 $ 7,844,217
Short term investments 100,376 3,782,752
Accounts receivable - trade 2,731,736 2,268,264
Inventory 2,973,383 1,353,870
Deferred and prepaid income taxes 935,403 ---
Prepaid expenses and other current assets 158,634 213,269
------------- -------------
Total current assets 16,031,665 15,462,372
------------- -------------
Equipment and leasehold improvements:
Sanova plant assets 1,179,578 ---
Office equipment 152,596 112,280
Laboratory and manufacturing equipment 166,313 145,292
Leasehold improvements 70,520 56,152
Less: Accumulated depreciation and amortization (297,132) (202,318)
------------- -------------
Total equipment and leasehold improvements, net 1,271,875 111,406
Deferred income tax asset 304,985 285,618
Long term investments and other assets 631,346 509,941
------------- -------------
TOTAL ASSETS $18,239,871 $16,369,337
------------- -------------
------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 367,134 $ 269,801
Accrued expenses 631,455 157,812
Royalty settlement accrual 2,262,044 ---
Income taxes payable 125,000
---
------------- -------------
TOTAL LIABILITIES 3,260,633 552,613
------------- -------------
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
February 28, 1999 - 72,525 190,377 212,936
------------- -------------
Shareholders' equity:
Class "A" Preferred Stock - no par value authorized 1,000 shares;
issued and outstanding 594 shares 80,437 135,307
Common Stock $.01 par value; authorized 100,000,000 shares;
issued and outstanding:
May 31, 1998 - 2,872,313
February 28, 1999 - 2,888,968 28,889 28,723
Treasury stock at cost (6,570,183) (6,125,794)
Additional paid-in capital 19,702,230 19,559,369
Retained earnings 1,547,488 2,006,183
------------- -------------
Total Shareholders' Equity 14,788,861 15,603,788
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $18,239,871 $16,369,337
------------- -------------
------------- -------------
</TABLE>
See notes to Unaudited Condensed Financial Statements.
3
<PAGE>
ALCIDE CORPORATION UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
-------------------------- -------------------------
February 28, February 28,
------------ ------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales $ 2,280,135 $ 3,189,789 $ 8,730,283 $ 9,613,461
Expenditures
Cost of goods sold 1,068,460 1,040,386 3,361,459 3,167,841
Royalty expense 2,262,046 62,160 2,412,994 219,225
Research and development expense 460,533 287,625 1,619,583 1,313,439
Depreciation 16,052 14,225 47,414 43,901
Consulting expense to the related parties 21,000 21,000 75,000 75,012
Other selling, general/administrative 804,245 583,364 2,200,063 1,621,851
------------ ----------- ----------- -----------
Total expenditures 4,632,336 2,008,760 9,716,513 6,441,269
------------ ----------- ----------- -----------
Operating income (2,352,201) 1,181,029 (986,230) 3,172,192
Interest income 123,916 160,936 444,129 454,320
Other income --- 8,073 --- 23,836
------------ ----------- ----------- -----------
Income before provision for income taxes (2,228,285) 1,350,038 (542,101) 3,650,348
Provision for income taxes (697,177) 459,013 (83,406) 1,241,118
------------ ----------- ----------- -----------
Net income $(1,531,108) $ 891,025 $ (458,695) $ 2,409,230
------------ ----------- ----------- -----------
------------ ----------- ----------- -----------
Basic earnings per common share $ (.60) $ .34 $ (.18) $ .93
------------ ----------- ----------- -----------
------------ ----------- ----------- -----------
Diluted earnings per common share and
equivalents $ (.60) $ .31 $ (.18) $ .85
------------ ----------- ----------- -----------
------------ ----------- ----------- -----------
Weighted average common shares outstanding 2,555,461 2,620,950 2,554,282 2,602,633
Weighted average common shares & common share
equivalents 2,555,461 2,842,135 2,554,282 2,823,818
</TABLE>
See Notes to Unaudited Condensed Financial Statements.
4
<PAGE>
ALCIDE CORPORATION
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Class "A" Preferred Common Stock Additional
Stock Paid in
Capital
- ----------------------------------------------------------------------------------------------------
Shares Amount Shares Amount
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance May 31, 1998 1,000 $135,307 2,872,313 $28,723 $19,559,369
Purchase Treasury Stock
Net Income
- ----------------------------------------------------------------------------------------------------
Balance August 31, 1998 1,000 $135,307 2,872,313 $28,723 $19,559,369
Redeem Class "A" Preferred
Stock (406) (54,870) 13,913
Exercise of Stock Options 3,310 33 17,967
Purchase Treasury Stock
Net Income
- ----------------------------------------------------------------------------------------------------
Balance November 30, 1998 594 $80,437 2,875,623 $28,756 $19,591,249
Exercise of Stock Options 13,345 133 91,614
Purchase Treasury Stock
Tax Benefit from Exercise of
19,367
Non-Qualified Stock Options
Net Income
- ----------------------------------------------------------------------------------------------------
Balance February 28, 1999 594 $80,437 2,888,968 $28,889 $19,702,230
--- ------- --------- ------- -----------
--- ------- --------- ------- -----------
<CAPTION>
Common Treasury Stock Retained Total
Earnings Shareholders'
Equity
- -----------------------------------------------------------------------------------------------
Shares Amount
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance May 31, 1998 (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
- -----------------------------------------------------------------------------------------------
Balance August 31, 1998 (314,165) ($6,213,471) $3,039,921 $16,549,849
Redeem Class "A" Preferred
Stock (40,957)
Exercise of Stock Options 18,000
Purchase Treasury Stock (18,000) (308,459) (308,459)
Net Income 38,675 38,675
- -----------------------------------------------------------------------------------------------
Balance November 30, 1998 (332,165) ($6,521,930) $3,078,596 $16,257,108
Exercise of Stock Options 91,747
Purchase Treasury Stock (3,073) (48,253) (48,253)
Tax Benefit from Exercise of
19,367
Non-Qualified Stock Options
Net Income (1,531,108) (1,531,108)
- -----------------------------------------------------------------------------------------------
Balance February 28, 1999 (335,238) ($6,570,183) $1,547,488 $14,788,861
--------- ------------ ---------- -----------
--------- ------------ ---------- -----------
</TABLE>
5
<PAGE>
ALCIDE CORPORATION UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Nine Months Ended February 28,
--------------------------------------
1999 1998
---- ----
OPERATING ACTIVITIES:
<S> <C> <C>
Net income ($458,695) $2,409,230
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation 94,814 43,901
Amortization of premiums and discounts (76,873) (47,284)
Common Stock issued to employee stock ownership plan 70,998 55,081
Deferred income tax --- 1,160,811
Decrease (increase) in assets:
Inventory (1,619,513) (173,277)
Accounts receivable - trade (463,472) (320,935)
Deferred and prepaid income taxes (935,403) ---
Prepaid expenses and other current assets 54,635 100,884
Other assets (122,156) 25,000
Increase (decrease) in liabilities:
Accounts payable 97,333 95,799
Accrued expenses and taxes payable 2,610,687 (220,804)
------------ -----------
Net cash provided by operating activities (747,645) 3,128,406
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Redemption (acquisition) of U.S. Treasury Instruments 3,760,000 (1,016,980)
Acquisition of equipment (1,255,283) (17,675)
------------ -----------
Net cash generated by (used in) investing activities 2,504,717 (1,034,655)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of Alcide Common Stock (515,387) (316,059)
Redemption of Class A Preferred Stock (40,957) ---
Redemption of Class B Preferred Stock (22,559) (20,169)
Stock Options exercised 109,747 387,620
------------ -----------
Net cash provided by (used in) financing activities (469,156) 51,392
------------ -----------
Net increase in cash and cash equivalents 1,287,916 2,145,143
------------ -----------
Cash and cash equivalents at beginning of period 7,844,217 6,723,154
------------ -----------
Cash and cash equivalents at end of period $ 9,132,133 $8,868,297
------------ -----------
------------ -----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest --- ---
Cash paid during the period for income taxes $ 976,997 $ 71,625
</TABLE>
See notes to Unaudited Condensed Financial Statements.
6
<PAGE>
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") as of and for the three and nine month
periods ended February 28, 1999 and 1998 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 or nine month periods are not
necessarily indicative of the results to be expected for the full year.
2. Inventory consisted of the following:
<TABLE>
<CAPTION>
FEBRUARY 28, 1999 MAY 31, 1998
<S> <C> <C>
Finished products $1,158,223 $ 406,627
Raw materials 1,331,825 947,243
Sanova inventory at customer sites 119,895 ---
Sanova construction in progress 259,823 ---
Sanova spare parts 103,617 ---
------- ----------
Total $2,973,383 $1,353,870
---------- ----------
---------- ----------
</TABLE>
3. Accounts Receivable - Trade consisted of the following:
<TABLE>
<CAPTION>
FEBRUARY 28, 1999 MAY 31, 1998
<S> <C> <C>
ABS Global, Inc. $ 657,639 $ 337,286
IBA, Inc. 191,390 147,843
UMS, Inc. 1,128,868 163,548
International Distributors 546,918 948,202
Novus International, Inc. --- 594,404
Other Receivables 206,921 76,981
---------- ----------
Total Accounts Receivable $2,731,736 $2,268,264
---------- ----------
---------- ----------
</TABLE>
4. Taxes
The income tax provision for the nine month period ended February 28, 1999
consists of:
<TABLE>
<CAPTION>
<S> <C>
Federal Income Taxes ($236,297)
State Income Taxes 152,891
----------
Total ($ 83,406)
----------
----------
</TABLE>
7
<PAGE>
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
number of common shares outstanding during the period. 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 period. Common
stock equivalents of the Company include the dilutive effect of outstanding
stock options.
Basic and Diluted earnings per share were calculated as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
February 28, February 28,
------------ ------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Income ($1,531,108) $ 891,025 ($458,695) $ 2,409,230
Weighted average number of Common Shares outstanding 2,555,461 2,620,950 2,554,282 2,602,633
Basic EPS $ (.60) $ .34 $ (.18) $ .93
Assuming exercise of options reduced by the
number of shares which could have been
purchased with the proceeds from exercise of
such options (0 if antidilutive) --- 221,185 --- 221,185
--------- --------- --------- ---------
Weighted average Common Shares outstanding and Common
Share equivalents 2,555,461 2,842,135 2,554,282 2,823,818
--------- --------- --------- ---------
--------- --------- --------- ---------
Diluted EPS $ (.60) $ .31 $ (.18) $ .85
</TABLE>
6. Orders for Future Delivery
At February 28, 1999 and 1998 the Company had orders for future delivery of
$1,138,821 and $2,679,916, respectively. The $1,138,821 orders for future
delivery are scheduled for shipment during the period March, 1999 through May,
1999. The reduction in orders for future delivery at February 28, 1999, as
compared to February 28, 1998, is due primarily to the Company's decision not to
extend its distribution agreements with ABS Global, Inc., which agreements
required orders 90 days in advance of shipping date; coupled with the
appointment and territory expansion of two other distributors, IBA and UMS, as a
replacement for ABS and whose order patterns are 45 days in advance of expected
shipment date.
8
<PAGE>
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 ended February 28, 1999 were $2,280,135,
$909,654 lower than the equivalent three month period last year, which included
revenue from Novus International, Inc. of $585,507 related to a contractual
minimum payment.
Net sales for the nine month period ended February 28, 1999 were $8,730,283,
$883,178 lower than for the equivalent nine month period last year. The nine
month period this year included contractual minimum revenue from Novus totaling
$1,136,703 as compared to $1,850,702 for the same period last year.
The net loss of $458,695 is a reversal from the net income of $2,409,230 for the
nine month period ended February 28, 1998, reflecting the negative impact of
several unusual events which occurred during the nine month period, including:
- - Alcide's decision not to ship product ordered by its former distributor,
ABS Global, Inc. for the month of October. The order had a sales value of
$718,031 and a gross margin value of $466,720.
- - Agreement in principle with royalty rights holders to settle their suit
filed in February, 1996. The Company has accrued $2,262,044 to reflect the
potential settlement costs. (See Item 3. Legal Proceedings, page 13).
9
<PAGE>
- - Negotiated settlement costs of $354,000 relating to the termination of the
distribution agreement with Novus International, Inc. Of this amount
$317,000 is characterized as research and development expense and $37,000
as trademark expense, which is included in other selling, general and
administrative expense.
- - Operating expenses, testing and development costs totaling $505,000
related to support for expansion of the Sanova business.
Cost of goods as a percentage of net sales was 39% for the nine month period
ended February 28, 1999, an increase of 6 points over the 33% of net sales for
the same period last year. Sanova cost of goods during the second and third
quarters with no corresponding minimum profit as occurred in the prior year
account for one-half of the difference. The balance is due primarily to
increased warehousing, freight and handling costs incurred in building inventory
to support the transition to two new distributors for the Company's mastitis
prevention products.
Royalty expenses for the three month period ended February 28, 1999 include the
establishment of an accrued liability in the amount of $2,262,044 to settle the
royalty rights holders lawsuit filed against the Company in February, 1996. (See
Item 3. Legal Proceedings, page 13).
Research and development expenses of $1,619,583 for the nine month period ended
February 28, 1999 were $306,144 higher than for the first nine months last year.
This increase is primarily due to recognition of $317,000 in costs associated
with the settlement negotiated at the termination of the Novus contract.
Other selling, general and administrative expenses of $2,200,063 for the nine
months ended February 28, 1999 were $578,212 higher than for the equivalent
period last year. The increase reflects costs incurred to manage the Sanova
projects following termination of the Novus agreement of approximately $175,000,
$78,000 of expenses incurred in connection with the debt collection and patent
infringement lawsuits against ABS Global, Inc. and $261,000 for employee related
expenses.
Interest income of $123,916 for the three month period ended February 28, 1999
was $37,020 lower than the equivalent three month period last year primarily
because the Company's investable cash resources were roughly 20% lower during
the most recent quarter as compared to the equivalent period a year ago.
Interest income of $444,129 for the nine month period ended February 28, 1999
was $10,191 lower than the equivalent nine month period last year, reflecting
marginally lower prevailing interest rates earned on approximately equivalent
average investable cash resources during the two nine month periods.
LIQUIDITY
The Company's cash, cash equivalents, short term investments and U.S. Treasury
investments totaled $9,736,017 on February 28, 1999, an amount $989,976 lower
than at the end of the previous fiscal year. The reduction is due primarily to:
- - Inventory increases of $1,619,513 to support the Sanova
expansion/transition from Novus International, Inc., and to support the
transition from ABS to two new U.S. animal health distributors. (See Note
#2, page 7).
- - Accounts receivable increases of $463,472 reflecting primarily past due
amounts from Alcide's former distributor ABS Global, Inc., totaling
$657,639, which amount was substantially repaid following the end of the
quarter. (See Note #3, page 7 and Item 3.
10
<PAGE>
Legal Proceedings, page 13). The Company believes that its resources are
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 identified a need to upgrade computer software which
controls certain laboratory analytical instruments. The upgrade was completed
during the Company's fiscal third quarter at a cost of $12,297.
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, however, there can be no assurance of this. 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 October 8, 1998, the Company and Novus International, Inc. announced
the termination of their May 21, 1997 agreement to market the Sanova Food
Quality System. As a result of this decision Alcide is now selling and
distributing Sanova directly to the poultry processing industry. At the
end of the fiscal third quarter three commercial poultry processing plants
were utilizing the Sanova System. Subsequently, contracts have been signed
for installation of the Sanova System in four additional processing
plants. Additional contracts are being negotiated and it is expected that
these will result in further expansion of the use of the Sanova System.
The Company expects to invest capital of between $300,000 to $400,000 to
equip each new plant.
- - Udder care product distribution
The Company's distribution agreements with ABS Global, Inc. expired on
October 31, 1998 and were not renewed. Effective November 1, 1998 Alcide
entered into a new four year agreement with IBA, Inc. to expand IBA's
territory to cover the entire United States. In addition, the present
Universal Marketing Services, Inc. contract has been amended to include
the additional territories of Canada, Italy, Portugal and the Czech
Republic as exclusive UMS territories and the United States as a
non-exclusive territory.
11
<PAGE>
Management believes that the combined distribution coverage provided by
IBA and UMS has the potential to equal or surpass that previously provided
by ABS for the territories of the United States, Canada, Italy, Portugal
and the Czech Republic.
In November, 1998, ABS Global, Inc. began distributing an udder care
product which competes with Alcide's udder care products. Management
believes that the ABS product infringes an Alcide patent and,
consequently, on December 18, 1998, Alcide filed a patent infringement
suit against ABS in the U.S. District Court for the Western District of
Wisconsin, seeking treble damages for their willful infringement.
The transition from ABS to the two new/expanded distributors, IBA and UMS,
coupled with ABS's infringement, has had an impact on Alcide's third
quarter financial performance and is expected to have an impact on
Alcide's fiscal fourth quarter, although the magnitude of such cannot be
determined at this time.
12
<PAGE>
ITEM 3. LEGAL PROCEEDINGS:
ALCIDE DEBT COLLECTION LAWSUIT AGAINST ABS GLOBAL, INC.:
On March 24, 1999 the Company and ABS Global, Inc. reached agreement on the debt
collection lawsuit filed by Alcide against ABS in October, 1998, and ABS's
counterclaims in connection with the suit. Under the agreement, ABS agreed to
pay all but $23,000 of the amount claimed by Alcide, and also agreed to dismiss
its counterclaims against Alcide.
ALCIDE PATENT INFRINGEMENT LAWSUIT AGAINST ABS GLOBAL, INC.:
ABS has introduced a new family of teat dips developed by Ecolab which Alcide
asserts infringes one of Alcide's patents and, as a result, on December 18, 1998
the Company filed a patent infringement suit against ABS in U.S. District Court
for the Western District of Wisconsin seeking a preliminary injunction and
treble damages for ABS's willful infringement. This lawsuit is expected to go to
trial in November, 1999.
In March, 1999 Alcide submitted a motion to amend its complaint to add Ecolab
and certain ABS independent representatives as additional defendants in the
suit. No action has yet been taken by the Court with respect to Alcide's motion.
ROYALTY RIGHTS HOLDERS LAWSUIT FILED AGAINST ALCIDE IN FEBRUARY, 1996:
Alcide has reached an agreement in principle to settle a lawsuit brought against
it by certain persons who are parties to royalty agreements with the Company.
The settlement agreement, which is conditioned on parties reaching agreement on
certain specific terms, provides for Alcide to make a one time payment of
$2,079,076 to plaintiffs in satisfaction of all past and future obligations to
them under the royalty agreements. A proportionate payment to royalty holders
who are not plaintiffs in the case would bring the amount of the settlement to
$2,262,044. This amount has been recorded as an expense in the Company's
financial statements for its fiscal third quarter. Under the terms of the
agreement in principle no further royalty payments will be made by Alcide.
13
<PAGE>
PART II.
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None.
14
<PAGE>
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 14, 1999 By /s/ John P. Richards
----------------------------------------
John P. Richards
Executive Vice President
Chief Financial Officer
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-START> DEC-01-1998
<PERIOD-END> FEB-28-1999
<CASH> 9,132,133
<SECURITIES> 0
<RECEIVABLES> 2,731,736
<ALLOWANCES> 0
<INVENTORY> 2,973,383
<CURRENT-ASSETS> 16,031,665
<PP&E> 1,569,007
<DEPRECIATION> 297,132
<TOTAL-ASSETS> 18,239,871
<CURRENT-LIABILITIES> 3,260,633
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0
190,377
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<CGS> 1,068,460
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<INCOME-PRETAX> (2,228,285)
<INCOME-TAX> (697,177)
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<NET-INCOME> (1,531,108)
<EPS-PRIMARY> (.60)
<EPS-DILUTED> (.60)
</TABLE>
