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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
/ x / ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended: May 31, 1995
Commission file number 0-12395
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _____________________to______________
Commission file number 0-12395
ALCIDE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 22-2445061
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8561 154th Avenue NE, Redmond, Washington 98052
(Address of principal executive offices)
Registrant's telephone number, including Area Code (206) 882-2555
Securities Registered Pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
- ------------------- ------------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock - $.01 par value
(Title of Class)
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ( x )
---
The aggregate market value of voting stock held by non-affiliates of the
Registrant on May 31, 1995 was approximately $19,101,890. On that date, there
were 2,787,838 shares of common stock outstanding.
Certain sections of Registrant's definitive Proxy Statement for its 1995
Annual Meeting of Shareholders are incorporated by reference into Items 11, 12
and 13 of Part III hereof.
Page 1 of 36 pages
Exhibit Index on Page 22
TABLE OF CONTENTS
PAGE
PART I Item 1. Business 3
A. Introduction 3
B. Sales Development 3
C. Research and Product Development 4
D. Patents and Trademarks 6
E. Raw Materials 8
F. Competition 8
G. Government Regulation 9
H. Employees 10
I. Advertising and Promotion 10
Item 2. Properties 10
Item 3. Legal Proceedings 11
Item 4. Submission of Matters to a Vote of Security Holders 11
PART II Item 5. Market for the Registrant's Common Stock
and Related Stockholder Matters 11
Item 6. Selected Financial Data 13
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 14
Item 8. Financial Statements and Supplementary Data 17
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosures 17
PART III Item 10. Directors and Executive Officers 18
Item 11. Executive Compensation 20
Item 12. Security Ownership of Certain Beneficial
Owners and Management 20
Item 13. Certain Relationships and Related Transactions 20
PART IV Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 20
2
PART I
ITEM 1. BUSINESS
A. INTRODUCTION
Alcide* Corporation 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.
B. SALES DEVELOPMENT
The Company presently sells products to the dairy, health care and
automotive industries. Its products include: UDDERgold-Registered Trademark-
Plus and UDDERgold-Registered Trademark- Germicidal Barrier Teat Dips, Pre-Gold-
Registered Trademark- Germicidal Pre-Milking Teat Dip, silverQUICK-Registered
Trademark- Udder Wash and 4XLA-Registered Trademark- Pre- and Post-Milking Teat
Dip to the dairy industry; Exspor-Registered Trademark- Sterilant-Disinfectant
and LD-Registered Trademark- Disinfectant to the health care industry; and
RenNew-A/C-Registered Trademark- Air Conditioning System Disinfectant to the
automotive industry. The Company's sales to date have primarily been derived
from UDDERgold Plus, UDDERgold and 4XLA teat dips.
Total Company's product sales for the fiscal year ended May 31, 1995
were $9,153,104, with direct export sales representing approximately 30% of
total sales. All such direct export sales were for distribution in Europe.
1. DAIRY INDUSTRY
The Company sells its dairy line products in North and South America
through an exclusive distribution arrangement with ABS Global ("ABS"). Sales of
dairy line products by ABS accounted for approximately 65% of the Company's net
product sales in fiscal year 1995.
North and South American sales of the Company's animal health
products, which include UDDERgold Plus and UDDERgold Teat Dip, Pre-Gold Teat
Dip, silverQUICK Udder Wash and 4XLA Teat Dip, increased 18% to $5,936,821 from
fiscal year 1994 sales of $5,032,437.
Direct export sales of the Company's animal health products increased
30% to $2,784,474 from fiscal year 1994 sales of $2,132,747.
Worldwide sales of dairy line products during fiscal year 1995
accounted for approximately 95% of the Company's total sales. Should there be a
loss of the sales generated by dairy line products, it would have a material
adverse effect on the Company's business.
3
2. HEALTH CARE INDUSTRY
The Company markets a line of hard surface sterilants and
disinfectants which kill harmful microorganisms and help reduce the potential
for disease transmission via contaminated surfaces. The Company's LD
Disinfectant and Exspor Sterilant-Disinfectant offer users a combination of
broad spectrum efficacy, speed and relative safety.
Fiscal year 1995 sales of hard surface sterilants and disinfectants
were $399,714 or 4% of total sales, as compared with $325,034 in fiscal year
1994.
3. AUTOMOTIVE INDUSTRY
Fiscal year 1995 sales of RenNew-A/C Air Conditioning System
Disinfectant were $32,095 as compared with $155,132 in fiscal year 1994.
All RenNew-A/C Air Conditioning System Disinfectant sales in both
fiscal year 1995 and fiscal year 1994 were to the General Motors Corporation.
4. INDUSTRY PRACTICES AND BACKLOG ORDERS
The Company's invoice terms conform to those in the chemical industry
in general, which are: domestic-30 days, export-60 days. In January 1995, the
Company extended 90 day terms to ABS in consideration for a 2% finance fee. The
Company had $2,710,950 of firm orders for future delivery at May 31, 1995, as
compared to orders for future delivery at May 31, 1994 of $866,897. The
Company's distributors typically place orders one to four months in advance.
C. RESEARCH AND PRODUCT DEVELOPMENT
In fiscal year 1995 the Company's efforts continued to focus
development activities on products for which its technology provides clear
advantages in the marketplace and for which weaknesses pose minimal impediment
or competitive disadvantage. Major strengths of the Company's patented
technology are broad spectrum of antimicrobial activity, rapidity of cidal
activity, safe residues and minimal or nonexistent resistant strains. Primary
weaknesses are the inconvenience of a two-part system and potential for
corrosive oxidation.
Additions and improvements to existing business units are expected to
be funded primarily by the Company. Programs for new business areas may require
initial Company investment followed by major financial support from corporate
partners who would ultimately introduce the products into the marketplace.
While many of the research and development programs undertaken by the
Company, and described hereafter, give evidence of possible success, the nature
of research, coupled with the necessity for regulatory approval, is such that
there can be no assurance of ultimate program success or that any resulting
product will be commercially successful.
Significant highlights of programs active during fiscal year 1995 are
described below:
4
PRESURGICAL SKIN DISINFECTANT
The Company has developed and optimized a presurgical skin
disinfecting formulation and a prototype delivery system culminating in
submissions to the Food and Drug Administration (FDA) of a New Drug Application
(NDA) in September of 1994 and a request for use in non-food producing animals
in May of 1995. While the FDA review process for these potential new use areas
continues uneventfully, there can be no assurances with respect to the
likelihood of successful approvals.
Further testing of the presurgical skin disinfecting product continues
to evaluate the use of this same formulation as a disinfectant for injection
sites or in-dwelling catheter sites. An addendum to the original NDA to cover
this expanded use is scheduled for submission in September of 1995. Pilot
testing has also commenced on the evaluation of a modified presurgical skin
disinfectant for use as a surgeon's hand scrub as well as for potential use as a
health care worker's hand rinse. In-house development of the same formulation
for possible use as a wound treatment as well as for therapeutic uses in the
treatment of certain fungal and bacterial infections of the skin will commence
in fiscal 1996.
Wherever possible, it is the Company's strategy to further the
development of new use areas for the skin disinfectant range by the development
and submission of Addenda to the original NDA.
UDDERGOLD-PLUS
UDDERgold Plus teat dip, the improved version of the Company's
original UDDERgold product was successfully introduced to the United States (US)
market during fiscal 1995. Initial uptake and acceptance of the new product has
been excellent and by the third quarter of the fiscal year, the US market had
been completely switched to the use of this major new product. The lengthy
process of product registration in the international markets is proceeding on
schedule with the first major launches into the European area targeted for late
calendar year 1996.
ANTI-INFECTIVE ORAL RINSE
Efforts to optimize the current formulation targeted at obtaining
improvements in efficacy against gingivitis and periodontitis continued through
fiscal 1995. Tests have demonstrated that Alcide formulations are effective in
human clinical trials against plaque and gingivitis, and laboratory tests have
further demonstrated that the formulation is effective IN-VITRO against Candida.
A pre-Investigational New Drug (IND) submission was made to the Antiviral
Division of FDA in May 1993 for use of an Alcide formulation in treating oral
candidiasis (a yeast infection) in AIDS patients. A second area of potential
use is for the treatment of HIV-associated gingivitis and periodontitis.
Upon the successful completion of current optimization activities, the
final formulation is planned to be included in a human clinical evaluating
efficacy against gingivitis compared with the predicate product Peridex.
Approval for the conduct of this study in the United Kingdom via a Certificate
of Test Exemption (CTX) was obtained during 1995.
5
POULTRY DISINFECTANT
The Company has completed the development of a formulation for use in
poultry-processing plants for direct application to birds for the purpose of
eliminating or substantially reducing food borne microorganisms harmful to
humans. A Food Additive Petition (FAP) requesting approval for this use was
submitted to the FDA in September of 1994.
Testing of a related formulation will begin early in fiscal 1996 to
evaluate the effects of the Company's chemistry in the beef slaughter industry
for the similar reduction of food borne microorganisms harmful to humans on beef
carcasses. If successful in this area, additional studies are planned to be
initiated to provide supportive evidence for a second FAP to be submitted during
fiscal 1996 and to establish the potential for expansion into the pork and fish
(shrimp and shellfish) areas.
INTRAMAMMARY INFUSION
The objective of this program is to provide safe and effective
treatment and control of bovine clinical and/or subclinical mastitis in
lactating dairy cattle with no milk-withholding requirements. The majority of
products presently marketed are antibiotics, the use of which requires
discarding milk for up to three days following treatment. As part of a research
agreement with a major animal health company, experiments continued through
fiscal 1995 to evaluate Alcide formulations for their potential utility in this
area. While initial evidence of efficacy continues to look encouraging, an
unacceptable degree of tissue intolerance from current formulations remains the
single greatest hurdle to be overcome in the 1996 program.
OTHER RESEARCH AND DEVELOPMENT
On an ongoing basis the Company continues to examine the potential for
new, more effective formulations to protect and possibly enhance its market
position in the surface area sterilant/disinfectant field and in the bovine
mastitis treatment/prevention field.
D. PATENTS AND TRADEMARKS
PATENTS -- During fiscal 1995, the Company further expanded it's
patent holdings to a total of eleven U.S. patents covering various compositions
and applications of its proprietary technology. Comparable protection has
either been obtained or is being sought in other selected foreign patent
offices. One new U.S. patent application was submitted during fiscal year 1995
while five U.S. additional patent applications from prior years remain pending.
While the original "Lactic Acid Patent" (RE. 31,779) expired during fiscal 1995,
the Company believes that its current and new filings will result in additional
and broader protection of the various products currently being marketed or under
development.
The Company's patents are as follows:
1) Original Alcide Discovery - U.S. Patent No. Re. 31,779; expired
4/18/95; patent coverage in 13 other countries continuing future
protection.
6
2) Chemistry patent - U.S. Patent No. 4,986,990; expires 1/22/08;
technology excluded by the original Alcide discovery. Covers
chlorous acid generated by protic acids other than lactic.
3) Gel - U.S. Patent No. 4,330,531; expires 5/18/99; patent coverage
in 16 other countries.
4) Polysulfonic Acid Gel - U.S. Patent No. 4,891,216; expires
1/02/07; patent pending in Europe and 10 other countries; patent
coverage in 6 other countries.
5) Genital Herpes - U.S. Patent No. 4,956,184; expires 9/11/07;
patent pending in Europe, Canada and Japan.
6) Genital Herpes application combining other skin disease and
anti-inflammatory applications (ex-herpes) - U.S. Patent No.
5,384,134; expires 1/24/12; patent pending in Europe, Canada and
Japan.
7) Chlorous Acid Compositions - U.S. Patent No. 5,185,161 (covers
chlorous acid technology not anticipated by the original Alcide
Discovery patent and broadens the scope beyond the 4,986,990
patent); expires 2/9/10. Original version of patent 4,986,990
pending in 5 countries; patent coverage in 20 other countries.
Reissue of patent 5,185,161 is pending in the U.S.
8) Disinfecting Blood Components - U.S. Patent No. 5,019,402;
expires 5/28/08.
9) Oral Hygiene - U.S. Patent No. 5,100,652; expires 1/22/08;
application pending or co-pending with polysulfonic acid gel in
Europe and 10 other countries; patent coverage in 8 other
countries.
10) Intramammary Mastitis Infusion - U.S. Patent No. 5,252,343;
expires 10/12/08; application pending in Europe and other
countries.
11) Carcass disinfection - U.S. Patent No. 5,389,390; expires
2/14/12; application pending in Europe and other countries.
The Company considers protection of its patents both in the United
States and abroad an important aspect of its business viability. No assurance
can be given, however, as to the validity, efficacy or scope of its patent
protection. Should the patents become invalid, become ineffective against
competition or expire prior to the Company's successful development of a market
for its products, there may be a material adverse impact on the Company's
business. The Company believes that it has taken appropriate steps to protect
its patent rights; however, the possibility of patent infringement by third
parties cannot be entirely eliminated. In the event of such infringement by
third parties, if the Company is not successful in terminating such
infringement, the viability of the Company could be severely and adversely
affected.
Conversely, no assurances can be given that the manufacture, use or
sale of the Company's products will not infringe the patent rights of others.
In the event of infringement or alleged infringement, the Company's ability to
market its products could be adversely affected and the viability of the Company
could be severely and adversely affected.
7
TRADEMARKS -- The Company considers its trademarks a valuable
component of its ability to market and sell its products and takes steps in
commercial undertakings to assure that the goodwill of its trademarks is
protected. The Company has aggressively sought to acquire trademark protection,
primarily by the filing of applications for registration of its marks in a large
number of countries. There can be no assurances that a filed application will
result in a registration, that the issuance of a trademark registration to the
Company or the acquisition of rights through use will provide the Company with
adequate protection against infringement in a selected territory, that the
Company will be able to expand its product line under a registered mark in some
territories or that the Company's trademark rights cannot be terminated in some
territories, such as by petition by others claiming superior rights.
No assurances can be given that the Company's use of the marks and
business name will not infringe the rights of others in some territories
resulting in the exposure of the Company to liability to the holder of the
rights and a possible obligation to terminate use in such territory.
If rights to trademarks selected by the Company were unavailable in a
territory, if a Company trademark registration were to become invalid or if the
Company's business name or trademarks were to infringe the rights of another in
a territory, there would be an adverse impact on the Company.
In addition to the Company's name Alcide-Registered Trademark-, the
other Company marks registered in the U.S. are ABQ-Registered Trademark-,
Exspor-Registered Trademark-, LD-Registered Trademark-, FPD-Registered
Trademark-, UDDERgold-Registered Trademark-, 4XLA-Registered Trademark-, Pre-
GoldTM, silverQUICK-Registered Trademark- and RenNew-A/C-Registered Trademark-.
These apply, respectively, to products for (1) disinfection of animal breeding
quarters, (2) hard surface sterilization, (3) hard surface disinfection, (4)
food product disinfection, (5, 6 & 7) teat disinfection, (8) teat washing and
(9) automobile air-conditioning system disinfection.
These same marks have been registered outside of the U.S. in markets
where the Company has determined that there is a commercial opportunity for the
appropriate product area. For translation reasons the mark DIPPINgold-Registered
Trademark- has been determined to be more appropriate than UDDERgold and has
therefore been registered in a number of foreign countries. The spelling
variant DIPPINguld-Registered Trademark- has been filed in Denmark, Norway,
Finland and Sweden. The mark Allay-Registered Trademark- is registered in the
U.K. and France for topical herpes treatment.
E. RAW MATERIALS
Various Alcide products include in their formulations chemical
components available from few and in some cases only one supplier. Formulation
alternatives exist for each single-sourced material; however, changing
formulations could result in higher raw material costs and/or the necessity to
obtain regulatory clearance for the modified formulation.
F. COMPETITION
The Company competes in substantially all of its markets on the basis
of quality and technical innovation. A number of companies have announced their
intention or are believed to be in the process of developing a variety of
products designed to perform some of the functions of Alcide products.
Additionally, there exist in the marketplace products that are known to be
competitive with the Company's products.
8
The dairy hygiene market into which UDDERgold Plus, UDDERgold, Pre-
Gold and 4XLA teat dips are sold is a highly fragmented worldwide market in
which major specialty chemical companies compete. The major classes of products
sold in this market are iodophors and chlorhexidines. The Company's chlorous
acid/chlorine dioxide chemistry represents a novel chemical class. It,
accordingly, necessitates obtaining regulatory approval or registration in most
countries in which it is commercialized. The Company sells its teat dips in
each country via either an animal health or an artificial insemination company.
In the automotive air-conditioning disinfection marketplace, the
Company knows of no efficacious and EPA-registered alternative to RenNew-A/C Air
Conditioning System Disinfectant.
G. GOVERNMENT REGULATION
In addition to Federal registration, state registration of pesticides
is required in 48 states and Puerto Rico. California, in addition to
Environmental Protection Agency (EPA) approval, requires a thorough pesticide
safety and efficacy review process in order to verify that a product provides
both a consumer benefit and is safe. LD Disinfectant was granted registration
as a hard surface disinfectant by the state of California on December 28, 1989.
On December 21, 1989 the EPA requested certain safety, disposal and
revised label information for RenNew-A/C Air Conditioning System Disinfectant.
This information was filed on June 8, 1990. Additional data, requested by the
EPA in September 1991, was provided by the Company in December 1991.
The Company's line of hard surface sterilants and disinfectants are
regulated in the U.S. by the EPA. Appropriate EPA approvals for sale and
manufacturing have been obtained.
On February 26, 1993 the Company was notified by the U.S. Department
of Health and Human Services that, to the degree its products are sold to
disinfect regulated medical devices, such products require FDA premarket
approval and that, since the necessary premarket approval had not been obtained,
the products were "adulterated" and "misbranded." In July and August of 1994
Alcide submitted 510(k) requests for market approval to the FDA. The requests
were modified to conform with new FDA guidelines in May and July 1995. Sales of
the Company's products covered by the required premarket approval applications
in fiscal year 1995 were approximately $300,000 or 3% of Alcide's total sales.
Future sales of such products are at risk until the applications are approved.
On November 2, 1993, the Company was notified by the U.S.
Environmental Protection Agency that three lots of its ABQ-Registered Trademark-
and Exspor-Registered Trademark- product lines failed to meet their label claims
with regard to sporicidal activity in tests conducted by EPA. Subsequently, the
Company met with EPA officials and agreed to a series of remedial steps
including label changes with respect to sporicidal activity. Agreements reached
with EPA allowed for uninterrupted marketing of these products during EPA's
review process. In May 1994, Alcide submitted to EPA supportive sporicidal test
data conducted by an outside laboratory and revised Exspor-Registered Trademark-
and ABQ-Registered Trademark- labeling, which tests and labeling were approved
by EPA on April 10, 1995. On February 14, 1995, the Company was notified by EPA
that EPA was seeking penalties against the Company in the amount of $205,000 for
events related to this labeling dispute. On July 27, 1995, the Company and EPA
agreed to an 80% reduction in EPA's claim and to settle the claim for $41,000.
9
The Company's line of teat dips requires registration for sale in a
number of international markets. UDDERgold Teat Dip has been registered in
Canada, the United Kingdom, Denmark, the Netherlands, Italy, Spain, Portugal,
Belgium and New Zealand. The product is legally sold without formal
registration in the United States, Greece, France, Hungary and Mexico. Pending
registrations are:
(1) In West Germany a New Drug Application for UDDERgold Teat Dip was
filed in February 1989. The Company's distributor is selling product in Germany
under "cosmetic" labeling (without making therapeutic claims).
(2) In the Republic of Ireland a registration dossier for UDDERgold
Teat Dip was filed in May 1992. Government review and approval is expected in
1995.
(3) In Brazil a registration dossier for UDDERgold Teat Dip was filed
in March 1995. Approval is expected in 1995.
Alcide Corporation's 4XLA Teat Dip has been registered in New Zealand,
Canada and Denmark.
In the event the Company employs distributors in other countries,
registration documents will be filed either directly by the Company or by the
specific distributor.
H. EMPLOYEES
The corporate office and laboratory staff of 11 employees occupy a
5,461 square foot facility in Redmond, Washington.
The Company has relationships with and from time to time engages the
services of university professors and other qualified consultants to assist it
in technological research and development.
The Company is not a party to any collective bargaining agreement and
considers its employee relations to be excellent.
I. ADVERTISING AND PROMOTION
The Company's advertising and promotion activities include cooperative
advertising of dairy line products with its distributors and the publication of
product, financial and corporate literature.
ITEM 2. PROPERTIES
In July, 1994, upon the expiration of its Norwalk, Connecticut lease,
the Company relocated its headquarters and laboratory facilities from Norwalk,
Connecticut to a leased 5,461 square-foot facility in Redmond, Washington. The
relocation was prompted by a desire to reduce the amount of state income taxes
the Company will pay in the future and to reduce operating and manufacturing
costs. The five-year lease for the Redmond facility provides for a monthly rent
of $4,915 through May 1997 and a monthly rent of $5,188 from June 1997 through
May 1999. Management believes the space will adequately support the Company's
needs for at least the next two years. The lease provides an option to expand
into adjacent space if necessary.
10
MANUFACTURING. All manufacturing of the Company's products is
performed by contract manufacturers having appropriate FDA registration approval
for such manufacturing. Product released for sale is dependent on quality
control testing by Alcide. The Company is not dependent on any one
manufacturer. Many qualified manufacturers regularly compete in the contract-
packaging marketplace.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The Company's common stock ("Common Stock") has been publicly traded
since May 26, 1983 in the over-the-counter market on the National Association of
Securities Dealers Automated Quotation System ("NASDAQ") under the symbol ALCD.
The following table sets forth the range of the Common Stock and
Series 1 Stock on NASDAQ for the fiscal quarters indicated, as reported by
NASDAQ.
11
HIGH LOW
---- ---
COMMON STOCK
------------
YEAR ENDED MAY 31, 1994
First quarter 10 3/4 8 3/4
Second quarter 15 3/4 9 1/2
Third quarter 12 3/4 10 1/4
Fourth quarter 11 1/4 8
YEAR ENDED MAY 31, 1995
First quarter 9 3/8 7 1/2
Second quarter 8 1/2 7 1/4
Third quarter 8 1/4 6 3/4
Fourth quarter 11 1/4 7 1/2
SERIES 1 STOCK
--------------
YEAR ENDED MAY 31, 1994
First quarter 2 3/4 2
Second quarter 4 2 5/8
Third quarter 3 1/4 2 1/2
Fourth quarter 2 7/8 2
YEAR ENDED MAY 31, 1995
First quarter 2 1/2 --
Second quarter 2 1/4 --
Third quarter -- --
Fourth quarter -- --
No dividends were declared or paid for these periods.
Prices represent final daily transactions between dealers without retail mark-
up, mark-down or commissions, and may not represent actual transactions.
On May 31, 1995, there were approximately 2,582 Common stockholders of record.
Series 1 stock was converted to Common on September 30, 1994.
12
ITEM 6. SELECTED FINANCIAL DATA
FISCAL YEARS ENDED
------------------
MAY 31, 1991 MAY 31, 1992 MAY 31, 1993 MAY 31, 1994 MAY 31, 1995
Net product sales $3,764,529 $4,632,548 $6,471,407 $7,645,350 $9,153,104
Net income (Loss) (92,275) 210,566** 810,191** 1,066,124 1,663,213
Net income (Loss)
per Common Share (.04)*,** .08*,** .29** .40 .60
Total assets 9,560,899** 9,570,625** 10,305,486 10,347,770 11,910,992
Long term debt 492,478 --- --- --- ---
Redeemable
Preferred Stock 3,625,328 3,713,663 3,771,682 272,736 261,022
* Restated to reflect the 1-for-10 stock split on October 9, 1992.
** Restated to reflect adoption of SFAS 109 on a retroactive basis to May 31,
1991.
SELECTED QUARTERLY FINANCIAL DATA FOR THE YEARS ENDED MAY 31,1994 AND MAY 31,1995
---------------------------------------------------------------------------------
Net Sales Gross Profit Net Income Net Income per Share
Year Ended
May 31, 1995
1st Quarter $1,398,931 $953,788 $208,493 $.07
2nd Quarter 2,033,647 1,356,625 394,798 .15
3rd Quarter 2,703,717 1,814,151 532,633 .20
4th Quarter 3,016,809 1,901,011 527,289 .19
---------- ----------- ----------- ----
Total for Year $9,153,104 $6,025,575 $1,663,213 $.60
---------- ----------- ----------- ----
---------- ----------- ----------- ----
Year Ended
May 31, 1994
1st Quarter $1,692,068 $1,122,383 $308,085 $.11
2nd Quarter 2,032,115 1,432,724 316,993 .12
3rd Quarter 2,048,911 1,402,680 289,313 .11
4th Quarter 1,872,256 1,211,130 151,733 .06
Total for Year ---------- ----------- ----------- ----
$7,645,350 $5,168,917 $1,066,124 $.40
---------- ----------- ----------- ----
---------- ----------- ----------- ----
13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
FISCAL YEAR 1995 AS COMPARED WITH 1994
The Company's net product sales in fiscal year 1995 were $ 9,153,104,
an increase of 20% from the previous fiscal year's $7,645,350. The increase in
fiscal year 1995 was due primarily to a 22% increase in dairy line product
sales, which products include UDDERgold Plus and UDDERgold Germicidal Barrier
Teat Dip, silverQUICK Udder Wash, 4XLA Pre- and Post-Milking Teat Dip and Pre-
Gold Germicidal Pre-Milking Teat Dip. Exports accounted for 30% or $2,784,474
of net sales, as compared with 28 in fiscal year 1994.
Interest and nonoperating income for fiscal year 1995 was $274,180, an
increase of 52% from the prior year's $180,047. The increase reflects both
the impact of higher interest rates and higher investible liquid assets.
Cost of goods sold was $3,127,529 in fiscal year 1995, or 34% of
sales, as compared to $2,476,433 in fiscal year 1994 or 32% of sales. The
increase in Cost of Goods as a percentage of sales is primarily the result of a
change in product mix associated with the introduction of UDDERgold Plus in
January, 1995.
RESEARCH AND DEVELOPMENT
Research and development expenses in fiscal year 1995 were $959,158,
as compared to $827,633 in fiscal year 1994, an increase of 16%. The increase
resulted primarily from fees paid to third parties for clinical testing and
outside laboratory testing related to the Company's new product development
program. All research and development expenditures were funded by the Company
in both fiscal years 1994 and 1995.
The Company is currently the holder of eleven U.S. patents covering
various compositions and applications of its proprietary technology. Comparable
protection exists or is being sought in selected foreign patent offices. Two
additional U.S. patent applications were filed during fiscal year 1995. The
Company believes that these filings will result in additional and broader
protection of the various products currently being marketed or under
development.
The Company considers protection of its patents both in the United
States and abroad an important aspect of its business viability. No assurance
can be given, however, as to the validity, efficacy or scope of its patent
protection. Should the patents become invalid, become ineffective against
competition or expire prior to the Company's successful development of a market
for its products, there may be a material adverse impact on the Company's
business. The Company believes that it has taken appropriate steps to protect
its patent rights; however, the possibility of patent infringement by third
parties cannot be entirely eliminated. In the event of such infringement by
third parties, if the Company is not successful in terminating such
infringement, the viability of the Company could be severely and adversely
affected.
14
SELLING AND ADMINISTRATIVE EXPENSE
Selling and administrative expenses were $1,935,760, in fiscal year
1995, as compared with $1,699,064 in fiscal year 1994, an increase of 14%. The
1994 expense was reduced by $203,000 through reversal of a previous year's bad
debt reserve. Excluding the impact of the bad debt reserve, 1995 Selling and
Administrative Expenses were 2% higher than 1994 expenses.
ROYALTY OBLIGATIONS
The Company has an ongoing obligation pursuant to certain royalty and
consolidation agreements to pay patent holders, some of whom were early
investors in the Company, a royalty of 50% of its license revenues and 8% of its
net cash sales of products subject to such agreements. In fiscal 1995, net
sales of $6,493,618 were covered by the royalty and consolidation agreements.
The Company anticipates paying a royalty of 8% of the net cash sales
of its products to the extent they are subject to royalty payments, which
payments will increase the Company's costs by such amount. The Company believes
that it has the ability to provide for these payments in the selling prices of
its products.
During fiscal 1995, one royalty rights holder raised questions
regarding the basis on which royalties are calculated and disagreed with Alcide
management on products subject to royalty payment. Alcide management believes
that the Company has properly paid royalties on products subject to such
payment, and has established a reserve of $352,800 for the purpose of defending
its position in the event there is a legal dispute. (See Notes to Financial
Statements.)
INCOME TAXES
The Company has available carry forward losses aggregating
approximately $9,277,000 at May 31, 1995 and which expire during the years 2000
to 2008.
Statement of Financial Accounting Standard No. 109 - Accounting for
Income Taxes, which establishes accounting and reporting standards for the
effects of income taxes that result from an enterprise's activities during the
current and preceding years was adopted in the first quarter of 1993 on a
retroactive basis.
NET INCOME
Net income for fiscal 1995 was $1,663,213, an increase of $597,089 or
56% over the previous fiscal year. The increase was achieved by expanded
domestic and international distribution of the Company's products and by
continued control of overhead expenses, somewhat offset by increased research
and development investment.
15
LIQUIDITY
The Company's cash, cash equivalents and short-term investments and
U.S. Government securities totaled $4,868,678 at May 31, 1995, an increase of
$378,183 over the previous fiscal year. The increase was generated from
operations, primarily offset by a $438,741 investment in the repurchase of
Alcide Common Stock and a $1,588,883 investment in Accounts Receivable.
The Company anticipates that income during fiscal year 1996 will be
adequate to sustain the Company and that its cash resources will enable it to
meet its operating requirements and support capital expenditures in the ensuing
fiscal year.
ACCOUNTS RECEIVABLE
The Company sells its products to customers and distributors on terms
typical of the industry. Sales to U.S. customers are 30-day terms. Sales to
international distributors are 60-day terms. On January 1, 1995, 90 day terms
were offered to ABS, the Company's largest distributor, in exchange for a
finance charge equal to 2% of invoice amounts. For the period January through
May, 1995, ABS paid Alcide $68,508 in finance fees. The incremental 60 day
terms accounted for $1.4 million accounts receivable at May 31, 1995.
LEASES AND CAPITAL EXPENDITURES
The Company's office and laboratory space is leased under operating
leases from unaffiliated lessors. During fiscal 1995, the Company spent
$211,104 on purchases of fixed assets. Planned capital expenditures for fiscal
year 1996 are expected to be less than $100,000.
FISCAL YEAR 1994 AS COMPARED WITH 1993
The Company's net product sales in fiscal year 1994 were $7,645,350,
an increase of 18% from the previous fiscal year's $6,471,407. The increase in
fiscal year 1994 was due primarily to a 20% increase in dairy line product
sales, which products include UDDERgold Germicidal Barrier Teat Dip, silverQUICK
Udder Wash, 4XLA Pre- and Post-Milking Teat Dip and Pre-Gold Germicidal Pre-
Milking Teat Dip. Exports accounted for 28% or $2,132,747 of net sales, as
compared with 21% in fiscal year 1993. Of the $1,173,943 sales increase,
approximately $72,000 is due to selling price increases.
Interest and nonoperating income for fiscal year 1994 was $180,047, an
increase of 44% from the prior year's $124,738. Of the fiscal year 1994 amount,
$35,000 was due to gains on the sale of fully depreciated fixed assets.
Cost of goods sold was $2,476,433 in fiscal year 1994 or 32% of sales,
as compared to $2,064,302 in fiscal year 1993 or 32% of sales.
16
RESEARCH AND DEVELOPMENT
Research and development expenses in fiscal year 1994 were $827,633,
as compared to $743,035 in fiscal year 1993, an increase of 11%. The increase
resulted primarily from fees paid to third parties for clinical testing and
outside laboratory testing related to the Company's new product development
program. All research and development expenditures were funded by the Company
in both fiscal years 1993 and 1994.
SELLING AND ADMINISTRATIVE EXPENSE
Selling and administrative expenses were $1,699,064 in fiscal year
1994, as compared with $1,805,216 in fiscal year 1993, a decrease of 6%. This
decrease is primarily the result of a decrease in bad debt expense.
RELOCATION PROVISION
In July, 1994, the Company relocated its offices and laboratories from
Norwalk, Connecticut, to Redmond, Washington. The full $263,030 cost of
relocation estimated on May 31, 1994, was charged against Fiscal 1994 earnings.
NET INCOME
Net income for fiscal 1994 was $1,066,124, an increase of $255,933 or
32% over the previous fiscal year. The increase was achieved by expanded
domestic and international distribution of the Company's products and by
continued control of overhead expenses, somewhat offset by increased research
and development investment and the $263,030 provision for relocation costs.
Before relocation costs net income increased 50% over the previous year.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to pages 25 through 35 of Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
There have been no disagreements on accounting and financial
disclosures with Arthur Andersen LLP with regard to the financial statements for
fiscal 1995 or with Deloitte & Touche LLP with regard to fiscal 1994 and 1993.
The principal accountants' reports on financial statements of the Company for
the past year did not contain an adverse opinion or a disclaimer of opinion nor
were they qualified or modified as to uncertainty of audit scope or accounting
principles.
17
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
Pursuant to the Company's by-laws, Directors are elected to a one-year
term of office by the shareholders of the Company at its annual meeting.
Information regarding the Directors and Executive Officers of the
Company as of May 31, 1995 is listed in the following table:
POSITIONS WITH THE COMPANY AND DIRECTOR AND EXECUTIVE
PRINCIPAL OCCUPATION OR EMPLOYMENT OFFICER SINCE
NAME AGE DURING THE PAST FIVE YEARS
Don Chaifetz 62 Director of the Company; President 1984
of Meldon Company, Inc., whose
business is importing. This
position has been held for more
than the past five years.
Presently serves on the Board of
Directors of The Nova Group, Inc.
Thomas L. 68 Director and Chairman of the Board 1983
Kempner of the Company; Chairman and Chief
Executive Officer of Loeb Partners
Corporation, a private investment
banking firm, since 1979.
Presently serves on the Boards of
Directors of The Arlen
Corporation; Energy Research
Corporation; IGENE BioTechnology,
Inc.; Roper Starch Worldwide,
Inc.; Intermagnetics General;
Silent Radio, Inc.; and Northwest
Airlines, Inc.
Norman N. Mintz 60 Director of the Company; Managing 1990
Director of Loeb Partners
Corporation, a private investment
banking firm since 1989; Executive
Vice President for Academic
Affairs, Columbia University from
1982 to 1989.
Gerson Pakula 64 Director of the Company; Retired; 1980
Managing Director of Park Lane
Capital Ltd., a private investment
banking firm from 1988 to 1993.
John P. Richards 53 Vice President, Chief Financial 1991
Officer of the Company; President
of Tartan Marine Company from June
1983 to November 1990. Previously
held various financial and
operational management positions
at Abbott Laboratories from 1968
to 1983.
18
Joseph A. Sasenick 55 Director of the Company; President 1991
and Chief Executive Officer of the
Company since February 1992;
President and Chief Operating
Officer of the Company from
February 1991 to February 1992.
Presently serves on the Board of
Directors of the Washington
Biotechnology and Biomedical
Association. Managing
Director/Partner of Vista Resource
Group from 1988 to February 1991.
Previously held top management
positions at Abbott Laboratories
and The Gillette Company.
Elliott J. Siff 64 Director of the Company; Chairman 1980
of the Board and Chief Executive
Officer of Cedeta Dental
International, Inc., an advanced
technology company in the dental
electronic anesthesia field;
Chairman of Siff Partners, an
investment banking and strategic
advisory firm specializing in the
commercialization of technology;
Chairman of the Board and
President of Belmar Corporation, a
private corporation with holdings
in real estate and other business
interests. Consultant to the
Company from June 1990 to November
1990; Chairman of the Board of the
Company from 1989 to 1990; Chief
Executive Officer, Chief Financial
Officer, and Treasurer of the
Company from 1983 to 1990.
William G. Spears 57 Director of the Company; Chairman 1989
of the Board of Spears, Benzak,
Salomon & Farrell, an investment
advisory subsidiary of KeyCorp
since 1972. Presently serves on
the Boards of Directors of United
HealthCare Corp., Osborn
Communications Corp. and
Recognition International, Inc.
Aaron Stern 70 Director of the Company; Chairman 1989
of the Board and Chief Executive
Officer of Dr. Aaron Stern, M.D.,
Ph.D., P.C., a professional
corporation; practicing
psychoanalyst; corporate
consultant; corporate director;
and Adjunct Professor of
Psychology and Psychoanalysis at
Columbia University, all of which
positions have been held for more
than the past five years.
19
ITEM 11. EXECUTIVE COMPENSATION
This information is incorporated by reference from the Section
captioned "Executive Compensation" contained in the Company's definitive Proxy
Statement for its 1995 Annual Meeting of Shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
This information is incorporated by reference from the Sections
captioned "Share Ownership by Directors, Executive Officers and Key Employees"
and "Principal Shareholders" contained in the Company's definitive Proxy
Statement for its 1995 Annual Meeting of Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
This information is incorporated by reference from the Section
captioned "Certain Transactions" contained in the Company's definitive Proxy
Statement for its 1995 Annual Meeting of Shareholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed with Report:
1. FINANCIAL STATEMENTS
Independent Auditors' Reports.
Balance Sheets as of May 31, 1994 and May 31, 1995.
Statements of Operations for each of the years ended May 31,
1993, May 31, 1994 and May 31, 1995.
Statements of Changes in Shareholders' Equity (Deficit) for
each of the years ended May 31, 1993, May 31, 1994 and May
31, 1995.
Statements of Cash Flows for each of the years ended May 31,
1993, May 31, 1994 and May 31, 1995.
2. FINANCIAL STATEMENT SCHEDULE
Notes to Financial Statements
Selected Quarterly Financial Data for the Years Ended May
31, 1994 and May 31, 1995, on Page 13.
3. EXHIBITS
See Index to Exhibits on Page 22.
(b) Reports on Form 8-K.
No reports on Form 8-K have been filed by Registrant during
the quarter ending May 31, 1995.
20
SIGNATURES
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
(Registrant)
By /s/Joseph A. Sasenick
----------------------------
Joseph A. Sasenick, President
Chief Executive Officer
By /s/John P. Richards
----------------------------
John P. Richards, Vice President
Chief Financial Officer
(Principal Accounting Officer)
Date: August 14, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated:
/s/Don Chaifetz Director August 14, 1995
- ------------------------
Don Chaifetz
/s/Thomas L. Kempner Director August 14, 1995
- ------------------------
Thomas L. Kempner
/s/Norman N. Mintz Director August 14, 1995
- ------------------------
Norman N. Mintz
/s/Gerson Pakula Director August 14, 1995
- ------------------------
Gerson Pakula
/s/Joseph A. Sasenick Director, President, August 14, 1995
- ------------------------ Chief Executive Officer
Joseph A. Sasenick
/s/Elliott J. Siff Director August 14, 1995
- ------------------------
Elliott J. Siff
/s/William G. Spears Director August 14, 1995
- ------------------------
William G. Spears
/s/Aaron Stern Director August 14, 1995
- ------------------------
Aaron Stern
21
INDEX TO EXHIBITS
- -----------------
EXHIBIT NO.
- -----------
3.1 Certificate of Incorporation (previously filed as an exhibit to
Registration Statement No. 2-79954 on Form S-1 filed October 22, 1982,
and incorporated herein by reference).
3.2 By-Laws (previously filed as an exhibit to Form 10-K of the Registrant
for the fiscal year ended May 31, 1984, and incorporated herein by
reference).
10.2 Indenture of Sub-lease dated August 1, 1989 by and between the Company
and K & L Marketing, Inc. (previously filed as an exhibit to Amendment
No. 1 to Registration Statement No. 33-28628 on Form S-3 filed July
21, 1989, and incorporated herein by reference).
10.3 1983 Incentive Stock Option Plan as amended (previously filed as an
exhibit to Form 10-K of the Registrant for the fiscal year ended May
31, 1984, and incorporated herein by reference).
10.5 Agreement by and between the Company and American Breeders Service
(ABS) a division of W.R. Grace & Co. dated September 25, 1986
(previously filed as an exhibit to Form 10-Q of the Registrant for the
quarter ended August 29, 1986, and incorporated herein by reference).
10.9 Agreement by and between the Company and The Procter & Gamble Company
dated January 4, 1988 (previously filed as an exhibit to Form 10-K for
the fiscal year ended May 28, 1988 as amended on Form 8, and
incorporated herein by reference).
10.11 Agreement by and between the Company and Handelsonderneming E.
Heemskerk dated December 31, 1991 (previously filed as an exhibit to
Form 10-K of the Registrant for the fiscal year ended May 31, 1992,
and incorporated herein by reference).
10.12 Agreement by and between the Company and OHF Sante Animale dated
January 30, 1992 (previously filed as an exhibit to Form 10-K of the
Registrant for the fiscal year ended May 31, 1992, and incorporated
herein by reference).
10.14 Agreement by and between the Company and Holstein Genetika KFT dated
May 1, 1992 (previously filed as an exhibit to Form 10-K of the
Registrant for the fiscal year ended May 31,1992, and incorporated
herein by reference).
10.15 Agreement by and between the Company and Handelsonderneming E.
Heemskerk dated May 31, 1992 (previously filed as an exhibit to Form
10-K of the Registrant for the fiscal year ended May 31, 1992, and
incorporated herein by reference).
10.16 Second amendment dated April 8, 1993 to employment agreement for
Joseph A. Sasenick dated February 11, 1991 and first amendment to
employment agreement dated February 4, 1992 (previously filed as
exhibits to Form 10-K of the Registrant for the fiscal years ended May
31, 1991 and 1992, respectively and incorporated herein by reference).
10.17 Agreement by and between the Company and Universal Marketing Services
dated May 3, 1993 (previously filed as an exhibit to Form 10-K of the
Registrant for the fiscal year ended May 31, 1993, and incorporated
herein by reference).
10.18 Agreement by and between the Company and American Breeders Service
dated June 15, 1993.
10.19 1993 Incentive Stock Option Plan (previously filed as an Exhibit to
Proxy Statement for meeting held December 7, 1993, and incorporated
herein by reference).
11.1 Computation of Earnings Per Share of Common Stock of the Company.
22
ARTHUR ANDERSEN LLP
Report of Independent Public Accountants
To the Board of Directors and Shareholders of
Alcide Corporation:
We have audited the accompanying balance sheet of Alcide Corporation (a Delaware
corporation) as of May 31, 1995, and the related statement of operations,
shareholders' equity and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit. The financial statements of Alcide Corporation as of May 31, 1994
and 1993 were audited by other auditors whose reports dated June 21, 1994,
expressed an unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Alcide Corporation as of May
31, 1995, and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.
/s/Arthur Andersen LLP
Seattle, Washington
June 23, 1995
23
DELOITTE &
TOUCHE LLP
Stamford Harbor Park Telephone: (203) 351-4600
333 Ludlow Street Facsimile: (203) 351-4797
P.O. Box 10098
Stamford, CT 06904
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Alcide Corporation
Redmond, Washington
We have audited the accompanying balance sheet of Alcide Corporation as of
May 31, 1994, and the statements of operations, changes in shareholders' equity
(deficit), and cash flows for the years ended May 31, 1994 and 1993. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company at May 31, 1994, and the results
of its operations and its cash flows for the years ended May 31, 1994 and 1993
in conformity with generally accepted accounting principles.
We also audited the adjustment described in Note 9 that was applied to the 1992
financial statements to give retroactive effect to the change in the method of
accounting for income taxes. In our opinion, such adjustment is appropriate and
has been properly applied.
As discussed in Note 9 to the financial statements, in 1994 the Company changed
its method of accounting for income taxes to conform with Statement of Financial
Accounting Standards No. 109 and, retroactively, restated the 1993 and 1992
financial statements for the change.
/s/Deloitte & Touche LLP
June 21, 1994
24
ALCIDE CORPORATION BALANCE SHEETS
May 31,
---------------------------------------
1994 1995
---- ----
ASSETS:
Current assets:
Cash and cash equivalents $ 3,385,932 $ 2,770,157
Short term investments 1,000,000 983,889
Accounts receivable - trade 995,022 2,583,905
Inventory 280,213 562,197
Prepaid expenses and other current assets 195,751 161,710
----------- ------------
Total Current Assets 5,856,918 7,061,858
----------- ------------
Equipment and leasehold improvements:
Office equipment 26,686 80,864
Laboratory and manufacturing equipment --- 99,774
Leasehold improvements 163,784 56,152
Less: Accumulated depreciation and amortization (167,418) (37,128)
----------- ------------
Total equipment and leasehold improvements, net 23,052 199,662
----------- ------------
Deferred income tax asset 4,347,349 3,524,409
----------- ------------
Other assets 120,451 1,125,063
----------- ------------
TOTAL ASSETS $10,347,770 $11,910,992
----------- ------------
----------- ------------
LIABILITIES, AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $231,612 $379,198
Accrued expenses and taxables payable 610,331 807,217
----------- ------------
Total liabilities 841,943 1,186,415
----------- ------------
COMMITMENTS AND CONTINGENCIES (Note 6):
Redeemable Class B Preferred Stock -
noncumulative convertible $.01 par value:
authorized 1,664,581 shares
issued and outstanding:
May 31, 1994 - 103,963 272,736 261,022
------- -------
May 31, 1995 - 99,437
Shareholders' equity:
Class "A" Preferred Stock - no par value
authorized 1,000 shares; issued and 135,307 135,307
outstanding 1,000 shares
Common Stock $.01 par value;
authorized 100,000,000 shares;
issued and outstanding:
May 31, 1994 - 2,766,721 27,667 27,878
May 31, 1995 - 2,787,838 (1,002,391) (1,441,132)
Treasury stock at cost 18,158,618 18,164,399
Additional paid-in capital (8,086,110) (6,422,897)
----------- ------------
Accumulated Deficit 9,233,091 10,463,555
----------- ------------
Total Shareholders' Equity
TOTAL LIABILITIES, AND SHAREHOLDERS' EQUITY $10,347,770 $11,910,992
----------- ------------
----------- ------------
See notes to financial statements.
25
ALCIDE CORPORATION
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MAY 31,
---------------------------
1993 1994 1995
---- ---- ----
(restated)
NET SALES
$6,471,407 $7,645,350 $9,153,104
---------- ---------- ----------
EXPENDITURES:
Cost of goods sold 2,064,302 2,476,433 3,127,529
Research and development expense 743,035 827,633 959,158
Depreciation and amortization 34,303 28,651 30,390
Consulting expense to related parties 90,000 60,000 60,000
Royalty expense 433,060 593,068 697,531
Other selling, general/administrative 1,805,216 1,699,064 1,935,760
Relocation expense --- 263,030 73,355
---------- ---------- ----------
5,169,916 5,947,879 6,883,723
---------- ---------- ----------
Operating income 1,301,491 1,697,471 2,269,381
Interest income 124,738 180,047 227,841
Other Income (Expense) (2,344) (7,128) 46,339
---------- ---------- ----------
Income before provision for income taxes 1,423,885 1,870,390 2,543,561
Provision for income taxes 613,694 804,266 880,348
---------- ---------- ----------
Net income $ 810,191 $ 1,066,124 $ 1,663,213
---------- ---------- ----------
---------- ---------- ----------
Net income per common share $ 0.29 $ 0.40 $ 0.60
---------- ---------- ----------
---------- ---------- ----------
Weighted average common shares & common share equivalents 2,747,312 2,654,424 2,765,962
---------- ---------- ----------
---------- ---------- ----------
See notes to financial statements.
26
ALCIDE CORPORATION
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Class "A" Additional
Preferred Stock Common Stock Paid In
Capital
- ---------------------------------------------------------------------------------------------------------------
Shares Amount Shares Amount
Balance - May 31, 1992 (restated) 1,000 $135,307 23,804,871 $238,049 $14,598,761
Conversion of Series 1 Preferred Stock 480 4 23,981
Sales of Common Stock to consultants
(Notes 8 and 11) 44,034 441 44,559
Reverse Stock Split (1 for 10) (21,461,765) (214,618) 214,618
Purchase Treasury Stock
Accretion of Series 1 Preferred Stock
Redemption Value (142,709)
Net Income
- ---------------------------------------------------------------------------------------------------------------
Balance - May 31, 1993 (restated) 1,000 135,307 2,387,620 23,876 14,739,210
Purchase of Treasury Stock
ESOP Stock Granted
Conversion of Series 1 Preferred Stock 379,101 3,791 3,559,986
Accretion of Series 1 Preferred
Redemption Value (140,578)
Net Income
- ---------------------------------------------------------------------------------------------------------------
Balance May 31, 1994 1,000 135,307 2,766,721 27,667 18,158,618
Accretion of Series 1 Redemption Value (167)
Exercise of Stock Options 412 4 (4)
Purchase Treasury Stock
Exchange of Series 1 for Common Stock 20,705 207 5,952
and Series 2 Stock
Net Income
- ---------------------------------------------------------------------------------------------------------------
Balance May 31, 1995 1,000 $135,307 2,787,838 $ 27,878 $18,164,399
----- -------- --------- -------- -----------
----- -------- --------- -------- -----------
Total
Common Treasury Stock Accumulated Shareholders'
Deficit Equity
- -------------------------------------------------------------------------------------------------------
Shares Amount
Balance - May 31, 1992 (restated) ($9,962,425) $5,009,692
Conversion of Series 1 Preferred Stock 23,985
Sales of Common Stock to consultants
(Notes 8 and 11) 45,000
Reverse Stock Split (1 for 10) ----
Purchase Treasury Stock (5,000) ($43,344) (43,344)
Accretion of Series 1 Preferred Stock
Redemption Value (142,709)
Net Income 810,191 810,191
- -----------------------------------------------------------------------------------------------------
Balance - May 31, 1993 (restated) (5,000) (43,344) (9,152,234) 5,702,815
Purchase of Treasury Stock (98,780) (1,019,047) (1,019,047)
ESOP Stock Granted 6,500 60,000 60,000
Conversion of Series 1 Preferred Stock 3,563,777
Accretion of Series 1 Preferred
Redemption Value (140,578)
Net Income 1,066,124 1,066,124
- -----------------------------------------------------------------------------------------------------
Balance May 31, 1994 (97,280) (1,002,391) (8,086,110) 9,233,091
Accretion of Series 1 Redemption Value (167)
Exercise of Stock Options ----
Purchase Treasury Stock (56,100) (438,741) (438,741)
Exchange of Series 1 for Common Stock 6,159
and Series 2 Stock
Net Income 1,663,213 1,663,213
- -----------------------------------------------------------------------------------------------------
Balance May 31, 1995 (153,380) ($1,441,132) ($6,422,897) $10,463,555
--------- ------------ ------------ -----------
--------- ------------ ------------ -----------
See notes to financial statements.
27
ALCIDE CORPORATION STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MAY 31
1993 1994 1995
---- ---- ----
(restated)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 810,191 $1,066,124 $1,663,213
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 34,303 28,651 30,390
Common Stock issued to directors, consultant and
the employee stock ownership plan 45,000 60,000 ---
(Gain) Loss on sales of equipment --- (35,000) 5,265
Provision for doubtful accounts 102,000 (102,000) ---
Deferred income tax 562,439 752,651 822,940
---------- ---------- ----------
1,553,933 1,770,426 2,521,808
---------- ---------- ----------
Decrease (increase) in assets:
Inventory (51,595) (66,600) (281,984)
Accounts receivable - trade (545,915) (55,542) (1,588,883)
Prepaid expenses 97,949 (61,585) 34,042
Other noncurrent assets --- --- 5,456
Increase (decrease) in liabilities:
Accounts payable (79,117) 114,710 147,586
Accrued expenses and taxes payable 284,759 (103,756) 196,886
---------- ---------- ----------
Net cash provided by operating activities 1,260,014 1,597,653 1,034,911
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of investments --- (1,000,000) (1,993,958)
Redemption of investments --- --- 1,000,000
Acquisition of equipment (18,094) (8,214) (212,265)
Decrease (Increase) in other assets (600) (103,563) ---
Sale of equipment --- 35,000 ---
---------- ---------- ----------
Net cash provided by (used in) investing activities (18,694) (1,076,777) (1,206,223)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of Alcide Common and Series 1 Stock (104,053) (1,094,793) (444,463)
Advance from customer (repayment) (401,923) --- ---
---------- ---------- ----------
Net cash (used in) financing activities (505,976) (1,094,793) (444,463)
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents 735,344 (573,917) (615,775)
Cash and cash equivalents at beginning of year 3,224,505 3,959,849 3,385,932
---------- ---------- ----------
Cash and cash equivalents at end of year $3,959,849 $3,385,932 $2,770,157
---------- ---------- ----------
---------- ---------- ----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for interest $ 2,344 $ 7,128 ---
Cash paid during the year for income taxes $ 41,700 $ 59,000 $ 29,000
SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Accretion of Series 1 redemption value $ 142,709 $ 140,578 $ 167
See notes to financial statements.
28
ALCIDE CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. GENERAL:
Alcide Corporation (the "Company") 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.
All of the products presently sold by the Company are surface area
disinfectants; therefore, financial information by business segment is not
provided.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(a) Revenue Recognition: All sales are recorded at the time of shipment.
One distributor accounted for $4,625,343 or 71% of net sales and
$5,032,437 or 66% of net sales and $5,936,821 or 65% of net sales in
the years ended May 31, 1993, May 31, 1994 and May 31, 1995,
respectively. Export sales were $1,349,399 or 21% of net sales in
1993 and $2,150,606 or 28% of net sales in 1994 and $2,784,474 or 30%
of net sales in 1995. All such direct export sales were for
distribution in Europe.
(b) Cash and cash equivalents consist of short-term interest-bearing
instruments, primarily money market accounts with maturities of three
months or less. These investments are carried at cost which
approximates market.
(c) Royalties: Provisions in royalty agreements provide for the payment
of 8% of net cash sales of applicable products.
(d) Depreciation and Amortization: Office, laboratory and manufacturing
equipment is being depreciated over the five-year estimated useful
life of the assets by the straight-line method.
Leasehold improvements are being amortized over the lives of leases by
the straight-line method.
(e) Statement of Financial Accounting Standard No. 109 - Accounting for
income taxes, which establishes accounting and reporting standards for
the effects of income taxes that result from an enterprise's
activities during the current and preceding years, became effective
for the Company for its fiscal year ending May 31, 1994. SFAS 109
was adopted on a retroactive basis and the fiscal year ended May 31,
1993 was restated accordingly.
3. INVESTMENTS:
The Company adopted Statement of Financial Accounting Standards No. 115
("SFAS 115"), "Accounting for Certain Investments in Debt and Equity
Securities," effective June 1, 1994. Under SFAS 115, debt securities that
the Company has both the intent and ability to hold to maturity are carried
at amortized cost. All of the Company's debt securities have been
classified as "held-to-maturity." The adoption of SFAS 115 did not have a
material effect on the financial statements. Information regarding
securities held at May 31, 1995, is as follows:
29
INVESTMENT CLASSIFICATION AMORTIZED COST FAIR VALUE
- ------------------------- -------------- ----------
Held-to-maturity:
Current $ 983,889 $ 974,930
Long Term 1,106,160 1,154,466
----------- -----------
$ 2,090,049 $ 2,129,396
INVESTMENT CLASSIFICATION GROSS UNREALIZED MATURITY
- ------------------------- --------------- --------
Gains Losses
Held-to-maturity $39,834 $487 1-4 years
4. INVENTORY:
Inventory is recorded at the lower of cost or market on a first-in, first-
out basis, as follows:
FINISHED RAW
TOTAL PRODUCTS MATERIALS
----- -------- ---------
May 31, 1994 $280,213 $72,868 $207,345
May 31, 1995 $562,197 $75,861 $486,336
5. ACCRUED EXPENSES:
At May 31, accrued expenses were comprised of the following:
1994 1995
---- ----
Accrued relocation $209,229 ---
Accrued royalties 98,912 $75,531
Accrued employee salaries, incentive and benefits 172,589 282,356
Accrued new product clinical testing 69,601 ---
Reserve for potential royalty claim 60,000 352,800
Other accrued expenses --- 96,530
-------- -------
$610,331 $807,217
-------- -------
-------- -------
6. COMMITMENTS AND CONTINGENCIES:
a. Leases:
Effective July, 1994, the Company occupied office and laboratory space in
Redmond, Washington under a five-year noncancellable lease expiring May 31,
1999. Insurance, utilities and maintenance expenses are borne by the
Company.
There are no contingent rentals or sublease rentals.
The annual lease commitments for the Redmond, Washington facility are
$58,980 in fiscal year 1996 and fiscal year 1997; and $62,256 in fiscal
year 1998 and fiscal year 1999.
b. Employment Agreements:
Two officers have employment agreements, which combined obligate the
Company to salaries of $297,000 per year. Bonus compensation of 100% of
base pay can be earned.
30
c. Royalty Agreement:
The Company has an ongoing obligation pursuant to certain royalty and
consolidation agreements to pay patent holders a royalty of 50% of license
revenues and 8% of net cash sales of its covered products subject to such
agreements.
During fiscal 1995, one royalty rights holder raised questions regarding
the basis on which royalties are calculated and disagreed with Alcide
management on products subject to royalty payments. The Company asserts
that it has properly paid royalties on products subject to such payment.
Royalty expenses recorded for FY 1995 include expenses related to a reserve
of approximately $293,000 for potential royalty claims.
Royalty payments to patent holders for the fiscal years ended May 31, 1993,
1994, and 1995 were $483,060, $593,068 and $369,208, respectively.
7. INCOME TAXES:
In the first quarter of 1993, the Company adopted Statement of Financial
Accounting Standards (SFAS) No 109, "Accounting for Income Taxes," the
effects of which have been applied retroactively to May 31, 1991. SFAS 109
requires the Company to compute deferred income taxes based on the
difference between the financial statement and tax basis of assets and
liabilities using enacted tax rates in effect in the years in which the
differences are expected to reverse.
A summary of the provision for income taxes follows:
FY 1993 FY 1994 FY 1995
------- ------- -------
Current
Federal $25,420 $31,493 $51,998
State and local 27,346 23,254 1,068
------- ------- -------
$52,766 $54,747 $53,066
Deferred
Federal $393,682 $534,136 $827,282
State and local 167,746 215,383 ---
-------- -------- --------
$618,694 $804,266 $880,348
The effect of adopting SFAS 109 was to decrease earnings as follows:
FY 1993
Net Income ($562,439)
Earnings Per Share ($.21)
The adoption also resulted in a $ 5.8 million decrease in May 31, 1991
Accumulated Deficit.
A reconciliation between the statutory federal income tax rate and the
effective income tax rate is as follows:
FY 1993 FY 1994 FY 1995
------- ------- -------
Statutory federal income tax rate 34.0% 34.0% 34.0%
State and local income taxes net of
federal tax benefit 9.0% 8.4% ---
Other 0.1% 0.5% 0.6%
---- ---- -----
Effective income tax rate 43.1% 42.9% 34.6%
31
At May 31, 1995 deferred tax assets under SFAS 109 were comprised of the
following:
Operating loss carry forward $3,154,337
Temporary Differences 150,63
Credits carry forward 110,136
Alt. Minimum tax carry forward 109,303
----------
Total deferred tax asset $3,524,409
The Company has available carry forward losses aggregating approximately
$9,277,000 at May 31, 1995 and which expire during the years 2000 to 2008.
8. SHAREHOLDERS' EQUITY AND REDEEMABLE PREFERRED STOCK:
a. Authorized Capital
The authorized capital of the Company is 100,000,000 shares of $.01 par
value Common Stock, 1,000 shares of no par value Class A Preferred Stock
and 10,000,000 shares of $.01 par value Class B Preferred Stock.
The Company has not declared dividends on any of its classes of stock.
b. Common Stock
Sales of Common Shares, other than those sold to the public, were to
directors, who agreed to receive their fees in Common Stock at the
prevailing market price.
On October 8, 1992 Alcide shareholders approved a one-for-ten reverse split
of the Company's Common Stock. The split became effective October 9, 1992.
c. Class A Preferred Stock
The nonvoting Class A Preferred Stock has preference in liquidation for
$135,307, its stated value. Holders have the right to receive an annual
noncumulative dividend of 6% of the stated value amount, if a dividend is
declared and paid on Common Stock. The stock is redeemable at any time by
the Company.
d. Redeemable Class B Preferred Stock - Series 1 and 2.
On December 28, 1993 the stockholders approved an offer to exchange
outstanding shares of Series 1 Stock for Common Stock. The Company's
stockholders also approved an amendment to the Certificate of Designations,
Preferences and Rights of the Series 2 Preferred Stock of the Company with
respect to sinking fund amounts. The Company commenced an offering on
January 10, 1994 to exchange stock at a rate of 0.2757 share of Common
Stock for each share of Series 1 Stock. The offer expired on May 31, 1994
with the exchange of 1,375,049 shares, 93% of the total outstanding Series
1 Stock into 379,101 shares of Common Stock.
On September 30, 1994 the Company issued to holders of any outstanding
Series 1 Stock, in a recapitalization, one share of Class B Stock to be
designated as Series 2 Redeemable Preferred Stock ("Series 2 Stock") and
0.2 share of Common Stock. Commencing on September 30, 1994, the Company
created a sinking fund to be funded, on that day and on the 30th day of
September of each year thereafter, at a rate equal to 0.7% of the Company's
prior fiscal year's net income, if any, at $2.625 per share plus declared
and unpaid dividends in any amount equal to the sinking fund payment. The
Company was required to redeem 2,538 shares of Series 2 Stock on September
30, 1994, for $6,662. Based on fiscal 1995 net income, the Company will
redeem 4,435 shares of Series 2 stock for $11,641 on September 30, 1995.
The Company may redeem any or all of the issued and outstanding Series 2
Stock at its option, at any time, at the redemption price of $2.625 per
share.
32
10. STOCK OPTIONS:
The Company had an Incentive Stock Option Plan, which expired in May 1993,
and a nonstatutory stock option plan under which options may be granted to
employees, directors, officers and consultants. A new stock option plan
was approved by the shareholders at the Company's December 7, 1993 Annual
Meeting. The option exercise price for incentive stock options may not be
less than the fair market value of the Common Stock on the date of the
grant of the option. Nonqualified stock options are granted with an
exercise price equal to 100% or greater of the fair market value of the
Common Stock on the date of grant.
Options are exercisable within 10 years from the date the option was
granted. Options outstanding were granted at the market price or higher on
the date of grant and will expire during the period August 1994 through
December 2003. The status of the plan is as follows:
AGGREGATE
OPTIONS EXERCISE PRICE EXERCISE PRICE
------- -------------- --------------
Fiscal Year Ended May 31, 1994
Outstanding at May 31, 1993 249,710 $4.10 to $.63.80 $1,787,667
Granted 31,500 11,625 366,188
Terminated --- --- ---
Exercised --- --- ---
----- -------
Outstanding at May 31, 1994 281,210 $4.10 to $63.80 $2,153,855
------- ----------
------- ----------
Exercisable 187,529 $4.10 to $63.80 $1,329,992
------- ----------
------- ----------
Fiscal Year Ended May 31, 1995
Outstanding at May 31, 1994 281,210 $4.10 to $63.80 $2,153,855
Granted 30,000 $7.75 to $8.625 258,750
Terminated 7,454 $5.00 to $80.00 122,201
Exercised 1,000 5.00 5,000
------- ------ ---------
Outstanding at May 31, 1995 302,756 $4.10 to $63.80 $2,285,404
------- --------------- ----------
------- --------------- ----------
Exercisable 254,925 $4.10 to $63.80 $1,903,504
------- --------------- ----------
------- --------------- ----------
11. EARNINGS PER SHARE:
Earnings per share for the 1993, 1994 and 1995 fiscal years were based upon
the weighted average number of shares outstanding during each of the
periods, plus the effect of Common Stock equivalents from stock options and
convertible securities.
12. RELATED PARTY TRANSACTIONS:
Thomas L. Kempner, Chairman and Chief Executive Officer of Loeb Partners
Corporation, serves as Chairman of the Board of Directors of the Company.
During the fiscal years ended May 31, 1994 and 1995, the Company paid Loeb
Partners Corporation $60,000 per annum in cash for executive and management
services provided by Messrs. Thomas L. Kempner and Norman N. Mintz.
33
The Company is obligated to make ongoing royalty payments to certain patent
holders, some of whom serve on the Board of Directors of the Company or are
entities whose principals are members of the Board. During fiscal year
1995 and 1994 respectively, the amounts indicated below were paid to the
following individuals and entities, certain of whose principals are members
of the Board: Old Hill Associates, $80,506 and $114,764; Loeb Investors
Co. V, $24,629 and $35,110; Loeb Investors Co. VIII, $973 and $1,387; and
Don Chaifetz, $7,033 and $10,026.
Thomas L. Kempner, a director, is the managing partner of Loeb Investors
Co. V and Loeb Investors Co. VIII.
Loeb Investors Co. V, Loeb Investors Co. VIII and Elliott J. Siff, Gerson
Pakula and Don Chaifetz (directors) are partners with others in Old Hill
Associates.
34
EXHIBIT XI
ALCIDE CORPORATION
COMPUTATION OF EARNINGS (LOSS) PER COMMON SHARE
For the Years Ended May 31,
1993 1994 1995
Weighted average number of common shares
outstanding 2,381,056 2,296,478 2,662,357
Assuming conversion of Series 1 preferred stock 301,906 291,345 ---
Assuming exercise of options reduced by the
number of shares which could have been
purchased with the proceeds from exercise
of such options 64,352 66,601 103,605
Weighted average common shares outstanding --------- --------- ---------
and common share equivalents 2,747,314 2,654,424 2,765,962
--------- --------- ---------
--------- --------- ---------
Net income per share $.29 $.40 $.60
--------- --------- ---------
--------- --------- ---------
35
CORPORATE OFFICE
8561 154th Avenue NE
Redmond, Washington 98052
Phone: (206) 882-2555
Fax: (206) 861-0173
AUDITORS
Arthur Andersen LLP
801 Second Avenue, Suite 800
Seattle, WA 98104
COMMON STOCK LISTING
NASDAQ
(Symbol - ALCD)
TRANSFER AGENT AND REGISTRAR
American Securities Transfer, Incorporated
938 Quail Street, Suite 101
Lakewood, Colorado 80515
36