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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10K

(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, 2001 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]
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For the transition period from  to

Commission file number 0-12395

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ALCIDE CORPORATION(Exact name of registrant as specified in its charter)

Delaware(State or other jurisdiction of
incorporation or organization)

22-2445061(I.R.S. Employer
Identification No.)8561 154th Avenue NE, Redmond, Washington 98052(Address of principal executive offices)


(425) 882-2555(Registrant's telephone number, including Area Code)

Securities
Registered Pursuant to Section 12(b) of the Act:

None(Title of each class)

None(Name of each exchange on
which registered)Securities registered pursuant to Section 12(g) of the Act: Common Stock$.01 par value(Title of Class)


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Indicate
by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past
90 days. YES /x/  NO / /

Indicate
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 August 1, 2001 was approximately $68,965,000. On that date, there were
2,632,129 shares of common stock outstanding, net of Treasury Stock.

Certain
sections of Registrant's definitive Proxy Statement for its 2001 Annual Meeting of shareholders are incorporated by reference into Items 11, 12 and 13 of Part III
hereof. Certain sections of Part l of this Form 10-K Annual Report are incorporated by reference into the Registrant's definitive Proxy Statement for its 2001 Annual Meeting
of Stockholders.

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TABLE OF CONTENTS

|                                                                                               |                                     | Page
|---------------------------------------------------------------------------------------------- | ----------------------------------- | ----
|PART I                                                                                        
|Item 1. Business                                                                              
|                                                                                               | A. Introduction                     |     
|                                                                                               | B. Sales Development                |     
|                                                                                               | C. Research and Product Development |     
|                                                                                               | D. Patents and Trademarks           |     
|                                                                                               | E. Raw Materials                    |     
|                                                                                               | F. Competition                      |     
|                                                                                               | G. Government Regulation            |     
|                                                                                               | H. Employees                        |     
|                                                                                               | I. Advertising and Promotion        |     
|                                                                                               | J. Manufacturing                    |     
|Item 2.  Properties                                                                            |                                     | 10  
|Item 3.  Legal Proceeding                                                                      |                                     | 10  
|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              |                                     | 12  
|Item 6.  Selected Financial Data                                                               |                                     | 12  
|Item 7.  Management's Discussion and Analysis of Financial Condition and Results of Operations |                                     | 13  
|Item 8.  Financial Statements and Supplementary Data                                           |                                     | 16  
|Item 9.  Changes in and Disagreements with Accountants on Accounting and Financial Disclosures |                                     | 16  
|PART III                                                                                      
|Item 10.  Directors and Executive Officers                                                     |                                     | 17  
|Item 11.  Executive Compensation                                                               |                                     | 18  
|Item 12.  Security Ownership of Certain Beneficial Owners and Management                       |                                     | 18  
|Item 13.  Certain Relationships and Related Transactions                                       |                                     | 18  
|PART IV                                                                                       
|Item 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K                      |                                     | 19  

2

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PART I

ITEM 1. Business

A. Introduction

Alcide® Corporation (the "Company") is a Delaware Corporation organized in 1983 which has its executive offices and research laboratories at 8561
154th Avenue NE, 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 governmental regulatory approval thereof. Sentences or phrases that use the words
such as "believes," "anticipates," "hopes," "plans," "may," "can," "will," "expects," 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.

B. Sales Development

The Company presently sells antimicrobial products to the dairy, health care and food processing industries. Its products include: UDDERgold® Plus
and UDDERgold® Germicidal Barrier Teat Dips, Pre-Gold® Germicidal Pre-Milking Teat Dip, and 4XLA® Pre- and
Post-Milking Teat Dip to the dairy industry; Exspor® Sterilant-Disinfectant and LD® Disinfectant to the health care industry; and SANOVA® antimicrobial
intervention to the food processing industry. The Company's sales to date have primarily been derived from UDDERgold Plus, UDDERgold and 4XLA teat dips, and SANOVA food antimicrobial.

Total
product sales for the fiscal year ended May 31, 2001 were $17,957,975. Export sales to international distributors, plus product exported by U.S. distributors to
international markets accounted for $4,530,012, 25% of total sales.



Worldwide sales of dairy line products during fiscal year 2001 were $9,115,088 as compared with $8,121,376 in fiscal year 2000. In FY 2001 sales to the dairy
industry accounted for 51% 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.



In fiscal 2001, dairy industry sales in the United States were $4,585,076, 50% of total Alcide sales to the dairy industry.

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Alcide products are sold to the dairy industry in Canada, Latin American and Europe through a network of distributors. Sales to the international dairy
industry were $4,530,012 in fiscal 2001, 50% of total sales to the dairy industry.



All Alcide sales to the dairy industry are to distributors who have contracted with the Company to distribute the Company's products. In each case the
distributor purchases product from Alcide for resale to the end user. Loss of any of the Company's distributors can have a material impact on the Company's sales and earnings.

On
November 1, 1998 Alcide entered into a new four-year contract with IBA, Inc. to expand the IBA territory to cover the entire United States.
Simultaneously, the Universal Marketing Services, Inc. (UMS) contract, which had covered the territories of the United Kingdom, Republic of Ireland and Spain, was amended to include the
additional territories of Canada, Italy, Portugal and the Czech Republic as exclusive UMS territories, and the United States as nonexclusive UMS territory. Subsequently, during FY 2000, UMS began
distribution on a nonexclusive basis in Argentina, Chile, Colombia, Greece, Japan, Taiwan and South Korea.

In
February, 2001 Alcide acquired the assets of UMS and hired two key managers from UMS to manage Alcide's udder care business. The impact of this acquisition is to remove UMS as a
master distributor and to place Alcide in a direct distribution arrangement with distributors in territories formerly under UMS control.



In May, 1997 the Company entered into an agreement with Novus International, Inc. for Novus' introduction and distribution of SANOVA antimicrobial to
the poultry industry. Subsequently, effective December 1, 1998, Alcide assumed direct responsibility for distribution of SANOVA. In February, 2001 the Company began to commercialize SANOVA in
the red meat industry. During fiscal 2002 Alcide intends to continue the expansion of SANOVA in both the red meat and poultry industries and to enter the fruit and vegetable processing industries, as
well as the industry for sausage and comminuted meat.

Alcide's
fiscal 2001 sales have been predominately to the poultry industry and totaled $8,400,623, an increase of 116% over the $3,889,187 in fiscal 2000. It is expected that SANOVA
will continue to be an important and growing contributor to the Company's sales and income expansion. Should there be a loss of sales to the food processing industries, or should growth fail to
materialize, there would be a material adverse impact on the Company.

On
May 31, 2001, 28 poultry processing plants and one red meat plant were using SANOVA under contract with Alcide. In addition, Alcide has entered into contractual agreements
for startup of seven poultry plants and five red meat processing plants during fiscal 2002. Additional contracts for SANOVA expansion are anticipated.



The Company markets a line of hard surface sterilants and disinfectants which kills microorganisms and helps 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 2001 sales of hard surface sterilants and disinfectants were $442,264, or 2% of total sales, as compared with $429,886 in fiscal year 2000.

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The Company's invoice terms for the dairy and health care industries conform to those in the chemical industry in general, which are:
domestic-30 days, export-60 days.

Alcide
had $803,731 of firm orders on May 31, 2001 for future delivery to the dairy industry distributors as compared to orders for future delivery at May 31, 2000 of
$754,040. The Company's distributors typically place orders one to four months in advance.

The
Company's invoice terms, product pricing and delivery for food processing antimicrobials are based on contracts with each processor, which typically cover two to four years. Under
the terms of the agreements Alcide provides inventory to the processors. The inventory is used on demand and billing by Alcide is determined at the end of each month based on the previous month's
amount of product processed. Payment is due 15 days after billing.

C. Research and Product Development

During fiscal year 2001 the Company's efforts continued to be focused primarily on the development of new and improved formulations for the Company's
established animal health business, obtaining regulatory approval for the use of SANOVA in expanded food markets and on testing directed at the optimization of SANOVA performance in new use areas.

Substantially
all of the research and product development activities conducted by the Company during fiscal 2001 were funded by the Company. It is expected that research and
development programs during fiscal 2002 will again be funded primarily by the Company and conducted under the Company's direct supervision, either in its own laboratories, in contract laboratories or,
in the case of food antimicrobials, in commercial plant environments.

The
immediate potential for expansion of SANOVA technology in the poultry, red meat and other markets has caused the Company to direct R&D resources to this growing opportunity while
maintaining product superiority and market share stability for Alcide's established udder care products. No further effort has been expended on the development of Alcide's human preoperative skin
antiseptic and anti-infective oral care products.

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.



During fiscal 2001 the Company's primary focus has been on the optimization of a purpose designed application system for the treatment of red meat parts and
trim to ensure maximal performance under real world use conditions and production volumes. This program was successfully completed by the end of calendar year 2000, allowing the commercialization of
this system during the second half of the fiscal year. During the commercial introduction of this new system, the need for additional performance validation testing on a
plant-by-plant basis became evident, necessitating the redirection of a significant amount of effort into this activity. As a result of these efforts, a substantial body of
information has
been developed on the antimicrobial impact of SANOVA on commercial meat grinding operations and the overall acceptability of SANOVA treated comminuted meats. It is felt that all of this effort will be
directly beneficial to and have positive impact on the Company's activities in expanding SANOVA use onto other red meat products (pork and sheep meats) plus poultry parts post-chill.

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Integral to the commercial launch of the SANOVA process for red meat parts was the Company's success during FY 2001 in obtaining U.S. Department of Agriculture (USDA) approval and
recognition that "no-labeling" is required for treated product. In addition, the company successfully concluded approvals with the U.S. Food and Drug Administration (FDA) and USDA for the
use of SANOVA on post-chill poultry parts, trim and organs and for comminuted and formed ready-to-eat meat products (hotdogs, frankfurters, bologna etc.).
Significant new approvals were also obtained during FY 2001 from the U.S. Environmental Protection Agency (EPA) permitting the use of SANOVA on intact fruits and vegetables in the commercial
processing environment, as well as in the home, and on food contact surfaces as a general purpose sanitizer.

During
fiscal 2002 the SANOVA food safety R&D program will continue to focus on commercial plant optimization testing related to new use areas. Specifically, efforts will be
significantly directed towards the optimization of several major use opportunities in the fruit and vegetable markets.

The
Company will also continue to focus its regulatory activity on obtaining a new food additive approval from FDA for expanded opportunities in the processed fruits and vegetables
market. Efforts will also be focused on expanding current EPA clearances for the use of SANOVA on intact fruits and vegetables to include claims for pathogen reduction and for use on produce prior to
entry into processing plants.



The primary R&D focus during fiscal 2001 was on the continued development of new products which enhance the performance of our line of teat dips and on the
regulatory filings required to obtain launch approval for these products.

Maintenance
of the Company's regulatory filings for the udder care product range outside the United States continues as an important element of Alcide's udder care strategy. During
fiscal 2001 the majority of the product registrations previously held either in the name of ABS Global, Inc. or its sub-distributors were retrieved and returned to Alcide ownership.

D. Patents and Trademarks

The Company considers protection of its technologies by United States and foreign patents to be an important aspect of its business. No assurance can be given,
however, as to the validity, enforceability or scope of its patent protection. Should the patents be held 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. Furthermore, 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.

PatentsThe Company owns the following eighteen issued United States patents:

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Six
additional U.S. patent applications are pending. Numerous corresponding foreign applications are issued or pending.

The
Company's original patent, U.S. Patent No. Re. 31,779, expired in the United States on April 18, 1995. That patent was directed to disinfecting a substrate using a lactic
acid/sodium chlorite composition. The Company's second patent, U.S. Patent No. 4,330,531, expired in the United States on May 18, 1999, and was directed to a lactic acid/sodium chlorite
gel formulation.

TrademarksThe Company has 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.

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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 mark Alcide®, the other Company marks registered in the U.S. are SANOVA®, Exspor®. LD®,
UDDERgold®, 4XLA®, Pre-Gold®, DIPPINgold® and silverQUICK®.

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 DIPPINguld® has been determined to be more appropriate than DIPPINgold® in certain foreign countries. Therefore, the spelling variant
DIPPINguld® has been registered in Denmark, Norway, Finland and Sweden.

E. Raw Materials

Various Alcide products include in their formulations chemical components available from few (and in some cases only one) suppliers. 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
to introduce, 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.

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 expiration on May 18, 1999 of the Company's U.S. patent 4,330,531, which
covered Alcide's UDDERgold formulation, allows competing lactic acid based acidified sodium chlorite products to enter the U.S. marketplace. ABS Global, Inc., the Company's former distributor,
and at least two other U.S. distributors have introduced such products. Management believes, however, that the expired patent's technology is inferior to that represented by Alcide's more recent
patents.

The
market for disinfection of food products is dynamic and rapidly emerging as a result of consumer concern and U.S. Government regulatory activity. A number of technologies are
directed at reduction of food borne pathogens. Of these, trisodium phosphate is used within the poultry processing industry in a manner similar to the Company's product, SANOVA. Chlorine dioxide and
ozone have been tested in poultry chiller waters but have not been broadly accepted by the industry. Irradiation technology has been approved by USDA and FDA but is not broadly used by the poultry or
red meat industries and, in the limited cases where irradiation is used, the process involves a secondary treatment outside the processing plant. Steam, hot water and organic acid rinses are broadly
used in the red meat industry on carcasses prior to chilling for pathogen control. Ultra high pressure technology is being used in the fruit juice industry for pasteurization and potentially may be
utilized in the future as an antimicrobial intervention for sausage and other processed food products. Peroxi-acetic acid has been

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tested on red meat and poultry carcasses and is expected to enter the marketplace to compete in these categories. Cetylpyridinium chloride and other chemical intervention technologies may at some
point in the future compete with SANOVA. The Company is not aware of any established competing products for post-chill pathogen control application to either red meat or poultry products.
However, market conditions within the food processing industry are such that additional competition is likely.

G. Government Regulation



The Company's products sold to the dairy industry require registration for sale in a number of international markets. UDDERgold teat dip has been registered in
Canada, the United Kingdom, Republic of Ireland, Denmark, The Netherlands, Spain, Portugal, New Zealand, Brazil, France, Chile, Colombia, Argentina, South Korea and India. The product is legally sold
without formal registration in the United States, Greece, Hungary and Mexico.

4XLA
teat dip has been registered in Canada, The Netherlands, Republic of Ireland, Switzerland, New Zealand, Chile, Denmark, Brazil, Portugal, Colombia and Argentina. The product is
legally sold without formal registration in the United States, Mexico, Belgium, Italy and Spain.

UDDERgold
Plus sales have been expanded to include Japan and Taiwan in addition to the United States, without formal registrations.

Several
registration amendments have been required due to the change of distributors from ABS affiliates to UMS affiliates. This has been completed in Canada and Italy and is pending
approval in Portugal and Brazil.



The
Company's Food Additive Petition for pre-chill use of SANOVA was approved by FDA in April, 1996 and by USDA in January, 1998. Additional approval for use of the
product in Canada was received in September, 1999. The product is now actively marketed and is being utilized by a number of major poultry processing companies.

In
May, 2001 the Company's Food Additive Petition for post-chill use of SANOVA on poultry was approved by the Food and Drug Administration and by USDA.



The
Company's Food Additive Petition was approved by FDA in March, 1998 and subsequently by USDA in February, 2000. In February, 2001 the Company resolved labeling issues with USDA,
which determined that use of SANOVA as a post-chill operation on beef would not require supplemental product labeling. This event enabled the Company to begin product commercialization.

SANOVA
use on cooked, ready-to-eat sausages and comminuted meats was approved by FDA and USDA in June, 2001. Commercialization of SANOVA technology in this
field is expected to begin in fiscal 2002.



In
December, 1998 Alcide submitted a Food Additive Petition to the Food and Drug Administration for the use of SANOVA on raw agricultural commodities (fruits and vegetables). The

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petition was approved in September, 1999. The Environmental Protection Agency (EPA) concurrently stated that it intended to exert its regulatory authority over this area. Subsequently, in March, 2001
EPA granted its approval for use of SANOVA for use on intact fruits and vegetables in processing plants. The limited definition of EPA's approval prevents sale of SANOVA as an antimicrobial
intervention for the majority of the produce industry. The Company continues to work with EPA to broaden its approval and believes that it will be successful in this regard.



The Company's line of hard surface sterilants and disinfectants are regulated in the U.S. by the EPA and FDA. Appropriate EPA and FDA approvals for sale and
manufacturing have been obtained.

H. Employees

The corporate office and laboratory staff of 21 employees occupy a 6,751 square foot leased facility in Redmond, Washington. Alcide's engineering, operations
and maintenance staff of 16 employees occupy a 6,240 square foot leased office and warehouse facility in St. Louis, Missouri. In addition, the Company employees 5 field maintenance employees, 2 SANOVA
technical representatives and 2 sales management/marketing employees, all located in the midwest, southeast and northeast U.S.

The
Company also 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 consist of cooperative promotional activities with its distributors of animal health products and
participation in trade shows and exhibits sponsored by the poultry, red meat and produce industries.

J. Manufacturing

All manufacturing of the Company's animal health, sterilant and disinfectant 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.

SANOVA
is manufactured and diluted at each customer's site, utilizing raw materials supplied by Alcide and mixed, diluted and pumped in micro-processor controlled equipment provided
by Alcide.

ITEM 2. Properties

The Company's SANOVA food antimicrobial is stored, mixed and applied on site at each customer's plant by means of equipment owned by Alcide. Alcide's aggregate
cost for equipment at processing plants on May 31, 2001 was $11.9 million. Each new plant utilizing the SANOVA System will require an investment estimated at between $150,000 and
$500,000, depending on plant size.

ITEM 3. Legal Proceeding

None.

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ITEM 4. Submission of Matters to a Vote of Security Holders

On July 19, 2001 the Board of Directors of the Company unanimously approved the "2001 Stock Incentive Plan", which Plan will be submitted to
shareholders for their approval at the scheduled October 16, 2001 Annual Meeting.

The
purpose of the Alcide Corporation 2001 Stock Incentive Plan is to enhance the long term shareholder value of Alcide Corporation by offering opportunities to employees to
participate in the Company's growth and success, to encourage them to remain in the service of the Company and to acquire and maintain stock ownership in the Company.

The
Plan is summarized in the Company's definitive Proxy Statement for the 2001 Annual Meeting of shareholders and is incorporated herein by reference.

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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 on NASDAQ for the fiscal quarters indicated, as reported by NASDAQ.

Common Stock

High

LowYear ended May 31, 2000First Quarter

20

12Second Quarter

15

10
1/2Third Quarter

24
9/16
11
3/8Fourth Quarter

23
3/4
11
1/4Year ended May 31, 2001First Quarter

19
7/8
13
1/2Second Quarter

37

14
1/16Third Quarter

33

21
1/2Fourth Quarter

34
1/2
19
11/16


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
August 1, 2001, there were approximately 1,474 Common stockholders of record.

ITEM 6. Selected Financial Data

|                                                         |  | Fiscal Years Ended
|-------------------------------------------------------- |  | ------------------
|
|Net sales                                                |  | $                 
|Net income (loss)                                        |  |                   
|Diluted earnings (loss) per common share and equivalents |  |                   
|Total assets                                             |  |                   
|Long Term debt                                           |  |                   
|Redeemable Preferred Stock                               |  |                   

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Selected Quarterly Financial Data for the Years Ended May 31, 2000 and May 31, 2001

|                        |             | Net Sales |                | Gross Profit |   | Net Income (Loss) |           | Net Income (Loss)
per Share |          
|----------------------- | ----------- | --------- | -------------- | ------------ | - | ----------------- | --------- | --------------------------- | ---------
|Year Ended May 31, 2000 |             |           |                |              |   |                   |           |                             |          
|                        | 1st Quarter |           | $              | 2,674,398    |   | $                 | 982,690   |                             | $        
|                        | 2nd Quarter |           |                | 2,960,821    |   |                   | 1,092,036 |                             |          
|                        | 3rd Quarter |           |                | 2,875,063    |   |                   | 1,239,623 |                             |          
|                        | 4th Quarter |           |                | 3,930,167    |   |                   | 1,682,382 |                             |          
|                        |             |           |                |              |   |                   |           |                             |          
|                        |             |           | Total for Year |              | $ | 12,440,449        |           | $                           | 4,996,731
|                        |             |           |                |              |   |                   |           |                             |          
|Year Ended May 31, 2001 |             |           |                |              |   |                   |           |                             |          
|                        | 1st Quarter |           | $              | 4,246,569    |   | $                 | 2,227,310 |                             | $        
|                        | 2nd Quarter |           |                | 4,692,638    |   |                   | 2,551,016 |                             |          
|                        | 3rd Quarter |           |                | 4,158,786    |   |                   | 2,107,113 |                             |          
|                        | 4th Quarter |           |                | 4,859,982    |   |                   | 2,154,668 |                             |          
|                        |             |           |                |              |   |                   |           |                             |          
|                        |             |           | Total for Year |              | $ | 17,957,975        |           | $                           | 9,040,107
|                        |             |           |                |              |   |                   |           |                             |          

ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations

Fiscal Year 2001 as Compared with 2000

Net Sales

Fiscal year 2001 net sales of $17,957,975 were $5,517,526, 44% higher than fiscal year 2000 sales.

Sales
of SANOVA food antimicrobial for fiscal 2001 were $8,400,623, an increase of $4,511,436, 116% vs. SANOVA sales during the preceding fiscal year. Twenty-eight poultry plants,
processing approximately five billion pounds of poultry annually and representing roughly 16% of the total chicken market, were utilizing the SANOVA System to improve the quality of their product at
fiscal year end. One beef plant was using the SANOVA System at fiscal year end.

The
Company's animal health and surface disinfectant sales for the 12 month period ended May 31, 2001 were $9,557,352, an increase of $1,006,090, 12% over fiscal 2000.
The sales increase occurred primarily through increased sales to the Company's established distributors.

Cost of Goods Sold

Cost of goods as a percentage of sales was 50% for the 12 month period ended May 31, 2001, a decrease of ten points from the 60% of net sales for
the same period last year. Cost of goods for the animal health and surface disinfectant business segment were at 41% in both fiscal 2000 and fiscal 2001. SANOVA cost of goods as a percentage of sales
improved substantially from 102% to 59% from FY 2000 to FY 2001, and this growing business segment accounted for the entire improvement in cost of goods as a percentage of sales. (See Segment
Reporting, page 29).

Research and Development Expense

Research and development expenses of $1,792,669 for the 12 month period ended May 31, 2001 were roughly equal to fiscal 2000 R&D expenses of
$1,795,253.

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Selling, General/Administrative Expense

Other selling, general and administrative expenses of $4,938,541 for fiscal 2001 were $883,804, 22% higher than for fiscal 2000. The increase reflects the
addition of new employees to support the Company's 44% sales increase.

Interest Income, Net

Interest income, net was $121,104 for fiscal 2001, an amount $131,015 lower than in fiscal 2000. The decreased amounts of interest result essentially from
lower investable cash resources in fiscal 2001 as compared to the previous fiscal year, and also to interest expense of $18,229, while no such interest expense was incurred last fiscal year.

Income Taxes

The Company accounts for income taxes using the liability method. Under this method income taxes are recorded at the expected statutory state and Federal
rates, less permanent reductions the Company
expects will be applicable to its operations. See notes to financial statements. During fiscal 2001 the Company recorded income tax expense of $825,360 at an effective tax rate of 34.9%, as compared
to an income tax benefit recorded for fiscal 2000 in the amount of $229,510 at an estimated effective rate of 34% of the pre-tax loss incurred in fiscal 2000.

The
Company expects its effective tax rate for fiscal 2002 to be approximately 35% of pre-tax income.

Liquidity

The Company's cash, cash equivalents, short-term investments and U.S. Treasury instruments ($501,253 included in the Company's balance sheet under
long term investments and other assets) totaled $2,332,782 on May 31, 2001, an amount slightly higher than the $2,296,979 at the end of the previous fiscal year. During fiscal 2001, net cash
provided by operating activities was $4,347,025. An additional $1 million was generated through a draw on the Company's $10 million line of credit. These cash resources were used for the
acquisition of equipment and leasehold improvements totaling $5,215,517, primarily for expansion of the SANOVA business segment. In addition, the Company purchased the assets of its former
distributor, Universal Marketing Services, Inc., for a cash purchase price of $1,523,288, $422,795 of which was recorded as goodwill.

Alcide
has signed contracts with poultry and beef processing plants for SANOVA Systems to be installed in FY 2002 which will cost approximately $3.7 million. As of
May 31, 2001, the Company has already purchased $922,000 of the amount required which has been recorded as construction in progress.

Outlook



14

---



Fiscal Year 2000 as Compared with 1999



Fiscal year 2000 net sales of $12,440,449 were $1,219,921 higher than fiscal year 1999 sales which included a nonrecurring contractual minimum payment of
$1,136,703 from the Company's former SANOVA distributor, Novus International, Inc.

Sales
of SANOVA to the poultry industry were $3,889,187 for the 12 month period, as this new Alcide business expanded rapidly during the fiscal year. There were 5 poultry
processing plants utilizing Alcide's SANOVA System at the start of fiscal 2000 and 18 plants utilizing the System at fiscal year end.

The
Company's animal health and surface disinfectant sales for the 12 month period were $8,551,262 vs. $9,681,641 for the previous fiscal year.



Cost of goods as a percentage of sales was 60% for the 12 month period ended May 31, 2000, an increase of 16 points over the 44% of net sales for
the same period last year. During the previous fiscal year the contractual minimum payment of $1,136,703, against a cost of goods of $136,703 for a gross profit of $1 million, accounted for
roughly half of the year-to-year deterioration in cost of goods as a percentage of sales. The balance is attributable to cost inefficiencies associated with the startup of new
processing plants utilizing the SANOVA System and a change in product mix caused by an increase in SANOVA sales which have a lower margin.



In May, 1999 the Company reached agreement with royalty rights holders to settle their claim to all past and future royalties for a one-time
payment of $2,212,512, resulting in royalty expense for the year of $2,412,994. As a result of the settlement, no royalties were paid during fiscal 2000.



Research and development expenses of $1,795,253 for the 12-month period ended May 31, 2000 were $487,924 lower than for the
12-month period last year. Fiscal 1999 R&D expenses included $317,000 in costs associated with the negotiated termination of the Company's contract with Novus International, Inc.
The balance of the year-to-year difference results primarily from reduction in plant validation testing associated with introduction of SANOVA to the poultry industry.

15

---



Other selling, general and administrative expenses of $4,054,737 for fiscal 2000 were $681,704 higher than for fiscal 1999. The increase reflects the addition
of new employees to support the Company's expanding business ($304,277), increased engineering costs to improve the SANOVA Food Quality System ($285,542) and increased travel expenses ($183,692)
offset by decreased legal costs ($85,752).



Investable cash resources averaged $6.7 million lower during fiscal 2000 as compared to the prior fiscal year and, as a result, interest income of
$252,119 was $305,550 lower than the equivalent 12 month period last year.



The income tax benefit in fiscal 2000 was $229,510 at an estimated effective rate of 34%. During fiscal 1999 the income tax benefit was $320,316 at an
effective income tax rate of 24.7%. The difference in tax rates between fiscal 2000 and fiscal 1999 was caused by the payment of state income taxes in fiscal 1999 related to state tax liabilities for
prior years.



The Company's cash, cash equivalents and U.S. Treasury investments ($502,255 included in the accompanying balance sheet under long term investments and other
assets) totaled $2,296,979 on May 31, 2000, an amount $4,598,147 lower than at the end of the previous fiscal year. During fiscal 2000 net cash provided by operating activities was $742,438
(see Consolidated Statements of Cash Flows, page 27). This was offset by acquisition of equipment and leasehold improvements primarily related to installation of SANOVA Systems at poultry plants
totaling $4,990,842, by the repurchase of Alcide Common stock for Treasury for $397,555 and by the redemption of Class "A" Preferred stock for $46,130. The exercise of stock options contributed cash
of $94,944.

ITEM 8. Financial Statements and Supplementary Data

Reference is made to pages 12 and 24 through 37 of Form 10-K.

ITEM 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosures

None.

16

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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, 2001 is listed in the following table:

|Name               |  | Age |  | Positions with the Company and Principal Occupation or Employment during the past Five Years                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  | Director or Executive Officer Since
|------------------ |  | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------------------------------
|Thomas L. Kempner  |  | 74  |  | Director of the Company; Chairman of the Board of Directors from 1990 until April, 2001; Chairman and Chief Executive Officer of Loeb Partners Corporation, a private investment banking firm, since 1979. Presently serves
as a director on the following boards: IGENE Biotechnology, Inc.; Roper Starch Worldwide, Inc.; Intermagnetics General; Northwest Airlines, Inc. (Emeritus); CCC Information Services Group, Inc.; Evercel, Inc.; Fuel Cell Energy, and Insight
Communications Company, Inc.                                                                                                                                                                                                                    |  | 1983                               
|Joseph A. Sasenick |  | 61  |  | Director of the Company; Chairman of the Board of Directors and Chief Executive Officer since April, 2001; President and Chief Executive Officer of the Company from February, 1992 until April of 2001; President and Chief
Operating Officer of the Company from February, 1991 to February, 1992. Chief Executive Officer and Chairman of the Board of Alcide Food Safety, Inc. since January, 1999. Presently serves on the Board of Directors of the Washington Biotechnology and
Biomedical Association, Genespan Corporation and the Technology Alliance, a special program of the Greater Seattle Chamber of Commerce. Previously held senior management positions at Abbott Laboratories and The Gillette Company. |  | 1991                               
|William G. Spears  |  | 63  |  | Director of the Company. Principal of Spears Grisanti & Brown LLC since July 1, 1999. Chairman of Key Asset Management, the investment advisory subsidiary of KeyCorp 19962001. Presently serves on the Board of
Directors of United Health Group and Avatar Holdings, Inc. Also serves as Chairman, Quinnipiac University, Life Trustee, Choate Rosemary Hall and Life Trustee, HealthCare Chaplaincy.                                                                                                                                                                                                                                                                                                                    |  | 1989                               

17

---

|Kenneth N. May   |  | 70 |  | Director of the Company. Retired in August, 1989 as Chairman, Chief Executive Officer and a director of Holly Farms Foods, Inc., completing 19 years with that company. Previously held positions as Professor of Poultry
Science at Mississippi State University and the University of Georgia. Former technical advisor and consultant to the National Chicken Council on food safety matters; and serves on the Board of Directors of Embrex, Inc. Dr. May has been active in the
Poultry Science Association and the National Chicken Council, and has served on various committees for the USDA. |  | 1995
|---------------- |  | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----
|John P. Richards |  | 59 |  | President since April, 2001; Chief Financial Officer and Secretary since 1991; Executive Vice President from 1991 until 2001; President Alcide Food Safety since January, 1999. 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.                                                                                                                                                                                                                                |  | 1991
|G. Kere Kemp     |  | 51 |  | Executive Vice President, Chief Scientific Officer of the Company; previously Director, Animal Health Research and Vice President, Clinical Research. Prior to employment at Alcide, worked for Pfizer, Inc. animal health
group for sixteen years in various research and management positions.                                                                                                                                                                                                                                                                                                      |  | 1992
|James L. Winter  |  | 50 |  | Corporate Vice President and General Manager, Animal Health SBU. Prior to employment at Alcide, served as General Manager and Chief Operating Officer of Universal Marketing Services, Inc. Previously worked for ABS Global,
Inc. for 23 years in various sales, marketing and management positions.                                                                                                                                                                                                                                                                                                 |  | 2001

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
2001 Annual Meeting of Shareholders.

ITEM 12. Security Ownership of Certain Beneficial Owners and Management

This information is incorporated by reference from the Section captioned "Share Ownership by Directors, Executive Officers and Certain Beneficial Owners"
contained in the Company's definitive Proxy Statement for its 2001 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
2001 Annual Meeting of Shareholders.

18

---

PART IV

ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K







19

---





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                            
| |  | By                            

Date:
August 15, 2001

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/THOMAS L. KEMPNERThomas L. Kempner   |  | Director                                    |  | August 15, 2001
|--------------------------------------- |  | ------------------------------------------- |  | ---------------
|/s/KENNETH N. MAYKenneth N. May         |  | Director                                    |  | August 15, 2001
|/s/JOSEPH A. SASENICKJoseph A. Sasenick |  | Director, Chairman,
Chief Executive Officer |  | August 15, 2001
|/s/WILLIAM G. SPEARSWilliam G. Spears   |  | Director                                    |  | August 15, 2001

20

---



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).                                                                                                                                                                                                                
|10.3        |  | 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).                                                                                                                                                                           
|10.14       |  | 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).                                                                                                                                      
|10.16       |  | 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).                   
|10.19       |  | 1993 Incentive Stock Option Plan (previously filed as an Exhibit to Proxy Statement for meeting held December 7, 1993, and incorporated herein by reference).                                                                                                                                                                                                       
|10.31       |  | 1996 Stock Option Plan for Nonemployee Directors (previously filed as an Exhibit to Proxy Statement for meeting held October 15, 1996, and incorporated herein by reference).                                                                                                                                                                                       
|10.24       |  | Distributor Agreement by and between the Company and Ingenieursbureau Ir. P.C. Heemskerk b.v., dated June 1, 1997, covering territories of The Netherlands, Denmark, Belgium, Germany, Luxembourg, Sweden and Finland (previously filed as an exhibit
to Form 10-Q of the Registrant for the quarter ended February 28, 1998, and incorporated herein by reference).
|10.25       |  | Distributor Agreement by and between the Company and Ingenieursbureau Ir. P.C. Heemskerk b.v., dated September 4, 1997, covering the territory of France (previously filed as an exhibit to Form 10-Q of the Registrant for the quarter ended
February 28, 1998, and incorporated herein by reference).                                                             
|10.26       |  | Distributor Agreement by and between the Company and Universal Marketing Services, Inc., dated January 30, 1998, covering territories of the United Kingdom, Spain and the Republic of Ireland (previously filed as an exhibit to Form 10-Q
of the Registrant for the quarter ended February 28, 1998, and incorporated herein by reference).                       
|10.27       |  | Amendment dated August 3, 1998 to distributor Agreement by and between the Company and Novus International, Inc., dated May 21, 1997 (previously filed on Form 8-K of the Registrant on August 11, 1998, and incorporated herein
by reference).                                                                                                                     
|10.28       |  | Distributor Agreement by and between the Company and Merial Societe Par Actions Simplifiee, dated September 1, 1998, covering the territory of France (previously filed as an exhibit to Form 10-Q of the Registrant for the quarter ended
August 31, 1998, and incorporated herein by reference).                                                                  

21

---

|10.29 |  | Distributor Agreement by and between the Company and IBA, Inc., dated November 1, 1998, covering the United States (previously filed as an exhibit to Form 10-Q of the Registrant for the quarter ended November 30, 1998, and
incorporated herein by reference).              
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.30 |  | Transfer of Assets and Assignment of Contracts by and between the Company and Novus International, Inc. dated November 11, 1998 (previously filed as an exhibit to Form 10-Q of the Registrant for the quarter ended November 30, 1998,
 and incorporated herein by reference).
|23.1  |  | Consent of Independent Public Accountants.                                                                                                                                                                                                                                     

22

---

ARTHUR ANDERSEN LLP

Report of Independent Public Accountants

To
the Board of Directors and Shareholders of Alcide Corporation:

We
have audited the accompanying consolidated balance sheets of Alcide Corporation (a Delaware Corporation) and subsidiary as of May 31, 2001 and 2000, and the related consolidated statements
of operations, changes in shareholders' equity and cash flows for each of the three years in the period ended May 31, 2001. 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 auditing standards generally accepted in the United States. 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 audits
provide 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 and subsidiary as of May 31, 2001 and 2000, and
the results of their operations and their cash flows for each of the three years in the period ended May 31, 2001 in conformity with accounting principles generally accepted in the United
States.

/s/
Arthur Andersen LLP

Seattle,
Washington
June 29, 2001

23

---



Alcide Corporation

Consolidated Balance Sheets

|                                           |                                                                                                                                      | May 31,                                          |                           
|------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------------ | --------------------------
|
|Assets:                                    |                                                                                                                                      |                                                  |                           
|                                           | Current assets:                                                                                                                      |                                                  |                           
|                                           |                                                                                                                                      | Cash and cash equivalents                        |                           
|                                           |                                                                                                                                      | Short-term investments                           |                           
|                                           |                                                                                                                                      | Accounts receivabletrade                        |                           
|                                           |                                                                                                                                      | Inventory                                        |                           
|                                           |                                                                                                                                      | Deferred and prepaid income taxes                |                           
|                                           |                                                                                                                                      | Components and spare parts                       |                           
|                                           |                                                                                                                                      | Prepaid expenses and other current assets        |                           
|                                           |                                                                                                                                      |                                                  |                           
|                                           |                                                                                                                                      |                                                  | Total current assets      
|                                           |                                                                                                                                      |                                                  |                           
|                                           | Equipment and leasehold improvements:                                                                                                |                                                  |                           
|                                           |                                                                                                                                      | Sanova plant assets                              |                           
|                                           |                                                                                                                                      | Construction in progress                         |                           
|                                           |                                                                                                                                      | Office equipment                                 |                           
|                                           |                                                                                                                                      | Laboratory, manufacturing equipment and vehicles |                           
|                                           |                                                                                                                                      | Leasehold improvements                           |                           
|                                           | Less: Accumulated depreciation and amortization                                                                                      |                                                  |                           
|                                           |                                                                                                                                      |                                                  |                           
|                                           | Total equipment and leasehold improvements, net                                                                                      |                                                  |                           
|                                           | Deferred income tax asset                                                                                                            |                                                  |                           
|                                           | Goodwill and other intangibles, net                                                                                                  |                                                  |                           
|                                           | Long term investments and other assets                                                                                               |                                                  |                           
|                                           |                                                                                                                                      |                                                  |                           
|Total Assets                               |                                                                                                                                      | $                                                | 14,530,321                
|                                           |                                                                                                                                      |                                                  |                           
|Liabilities and Shareholders' Equity:      |                                                                                                                                      |                                                  |                           
|                                           | Current liabilities:                                                                                                                 |                                                  |                           
|                                           |                                                                                                                                      | Accounts payable                                 |                           
|                                           |                                                                                                                                      | Accrued expenses                                 |                           
|                                           |                                                                                                                                      | Line of credit payable                           |                           
|                                           |                                                                                                                                      |                                                  |                           
|                                           |                                                                                                                                      |                                                  | Total current liabilities 
|                                           |                                                                                                                                      |                                                  |                           
|                                           | Long term payable to Novus                                                                                                           |                                                  |                           
|                                           |                                                                                                                                      |                                                  |                           
|                                           |                                                                                                                                      |                                                  | Total liabilities         
|                                           |                                                                                                                                      |                                                  |                           
|                                           | Commitments and Contingencies                                                                                                        |                                                  |                           
|                                           | Redeemable Class "B" Preferred Stocknoncumulative convertible $.01 par value; authorized 10,000,000 shares; issued and outstanding: |                                                  |                           
|                                           |                                                                                                                                      | May 31, 200072,525; May 31, 200172,525         |                           
|                                           |                                                                                                                                      |                                                  |                           
|                                           | Shareholders' equity:                                                                                                                |                                                  |                           
|                                           | Class "A" Preferred Stockno par value; authorized 1,000 shares; issued and outstanding:                                             |                                                  |                           
|                                           |                                                                                                                                      | May 31, 2000138; May 31, 2001138               |                           
|                                           | Common Stock $.01 par value; authorized 100,000,000 shares; issued and outstanding:                                                  |                                                  |                           
|                                           |                                                                                                                                      | May 31, 20002,904,068; May 31, 20013,007,819   |                           
|                                           | Treasury stock at cost                                                                                                               |                                                  |                           
|                                           | Additional paid-in capital                                                                                                           |                                                  |                           
|                                           | Retained earnings                                                                                                                    |                                                  |                           
|                                           |                                                                                                                                      |                                                  |                           
|                                           |                                                                                                                                      |                                                  | Total Shareholders' Equity
|                                           |                                                                                                                                      |                                                  |                           
|Total Liabilities and Shareholders' Equity |                                                                                                                                      | $                                                | 14,530,321                
|                                           |                                                                                                                                      |                                                  |                           

See
notes to financial statements.

24

---



Alcide Corporation

Consolidated Statements of Operations

|                                                          |                                       | For the Years Ended May 31, |           
|--------------------------------------------------------- | ------------------------------------- | --------------------------- | ----------
|
|Net Sales                                                 |                                       | $                           | 11,220,528
|Expenditures:                                             |                                       |                             |           
|                                                          | Cost of goods sold                    |                             |           
|                                                          | Royalty expense                       |                             |           
|                                                          | Research and development expense      |                             |           
|                                                          | Consulting expense to related parties |                             |           
|                                                          | Selling, general/administrative       |                             |           
|                                                          |                                       |                             |           
|                                                          |                                       |                             | 13,072,976
|                                                          |                                       |                             |           
|Operating income (loss)                                   |                                       |                             | (1,852,448
|Interest income and expense, net                          |                                       |                             | 557,669   
|Other income                                              |                                       |                             |          
|                                                          |                                       |                             |           
|Income (loss) before (provision) benefit for income taxes |                                       |                             | (1,294,779
|(Provision) benefit for income taxes                      |                                       |                             | 320,316   
|                                                          |                                       |                             |           
|Net income (loss)                                         |                                       | $                           | (974,463  
|                                                          |                                       |                             |           
|Basic earnings (loss) per common share                    |                                       | $                           | (.38      
|                                                          |                                       |                             |           
|Diluted earnings (loss) per common share and equivalents  |                                       | $                           | (.38      
|                                                          |                                       |                             |           
|Weighted average common shares outstanding                |                                       |                             | 2,550,312 
|Weighted average common shares & common share equivalents |                                       |                             | 2,550,312 

See
notes to financial statements.

25

---



Alcide Corporation

Consolidated Statements of Changes in Shareholders' Equity

|                                           |  | Class "A"
Preferred Stock |   | Common Stock |         | Additional
Paid in Capital |           | Common Treasury Stock |   | Retained Earnings
(Accumulated
Deficit) |  | Total
Shareholders'
Equity |           
|------------------------------------------ |  | ------------------------- | - | ------------ | ------- | -------------------------- | --------- | --------------------- | - | --------------------------------------- |  | -------------------------- | ----------
|
|Balance May 31, 1998                       |  | 1,000                     |   | $            | 135,307 |                            | 2,872,313 |                       | $ | 28,723                                  |  | $                          | 19,559,369
|Redeem Class "A" Preferred                 |  | (406                      | ) |              | (54,870 | )                          |           |                       |   |                                         |  |                            | 13,913    
|Exercise of Stock Options                  |  |                           |   |              |         |                            | 16,655    |                       |   | 166                                     |  |                            | 109,581   
|Purchase Treasury Stock, Net               |  |                           |   |              |         |                            |           |                       |   |                                         |  |                            |           
|Tax Benefit from Exercise of Stock Options |  |                           |   |              |         |                            |           |                       |   |                                         |  |                            | 19,367    
|Net Loss                                   |  |                           |   |              |         |                            |           |                       |   |                                         |  |                            |           
|                                           |  |                           |   |              |         |                            |           |                       |   |                                         |  |                            |           
|Balance May 31, 1999                       |  | 594                       |   | $            | 80,437  |                            | 2,888,968 |                       | $ | 28,889                                  |  | $                          | 19,702,230
|Redeem Class "A" Preferred                 |  | (456                      | ) |              | (61,801 | )                          |           |                       |   |                                         |  |                            | 15,671    
|Exercise of Stock Options                  |  |                           |   |              |         |                            | 15,100    |                       |   | 151                                     |  |                            | 94,793    
|Purchase Treasury Stock, Net               |  |                           |   |              |         |                            |           |                       |   |                                         |  |                            |           
|Tax Benefit from Exercise of Stock Options |  |                           |   |              |         |                            |           |                       |   |                                         |  |                            | 19,974    
|Net Loss                                   |  |                           |   |              |         |                            |           |                       |   |                                         |  |                            |           
|                                           |  |                           |   |              |         |                            |           |                       |   |                                         |  |                            |           
|Balance May 31, 2000                       |  | 138                       |   | $            | 18,636  |                            | 2,904,068 |                       | $ | 29,040                                  |  | $                          | 19,832,668
|Exercise of Stock Options                  |  |                           |   |              |         |                            | 90,263    |                       |   | 903                                     |  |                            | 465,940   
|Purchase Treasury Stock                    |  |                           |   |              |         |                            |           |                       |   |                                         |  |                            |           
|Transferred Stock to ESOP                  |  |                           |   |              |         |                            |           |                       |   |                                         |  |                            |           
|Tax Benefit from Exercise of Stock Options |  |                           |   |              |         |                            |           |                       |   |                                         |  |                            | 498,764   
|Stock Issued for Officers' Bonuses         |  |                           |   |              |         |                            | 13,488    |                       |   | 135                                     |  |                            | 225,265   
|Issued Stock Warrants                      |  |                           |   |              |         |                            |           |                       |   |                                         |  |                            | 99,540    
|Net Income                                 |  |                           |   |              |         |                            |           |                       |   |                                         |  |                            |           
|                                           |  |                           |   |              |         |                            |           |                       |   |                                         |  |                            |           
|Balance May 31, 2001                       |  | 138                       |   | $            | 18,636  |                            | 3,007,819 |                       | $ | 30,078                                  |  | $                          | 21,122,177
|                                           |  |                           |   |              |         |                            |           |                       |   |                                         |  |                            |           

See notes to financial statements.

26

---



Alcide Corporation

Consolidated Statements of Cash Flows

|                                                                                                   |                                                                                     | For the Years ended May 31, |           
|-------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------- | --------------------------- | ----------
|
|Cash Flows from Operating Activities:                                                              |                                                                                     |                             |           
|Net income (loss)                                                                                  |                                                                                     | $                           | (974,463  
|Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |                                                                                     |                             |           
|                                                                                                   | Depreciation                                                                        |                             |           
|                                                                                                   | Amortization of investment discounts/premiums/goodwill                              |                             |           
|                                                                                                   | Stock bonus to officers                                                             |                             |           
|                                                                                                   | Common Stock issued to directors, consultants and the employee stock ownership plan |                             |           
|Tax benefit from exercise of stock options                                                         |                                                                                     |                             | 19,367    
|Deferred income taxes                                                                              |                                                                                     |                             | (576,680  
|Decrease (increase) in assets:                                                                     |                                                                                     |                             |           
|                                                                                                   | Accounts receivabletrade                                                           |                             |           
|                                                                                                   | Inventory                                                                           |                             |           
|                                                                                                   | Prepaid income taxes                                                                |                             |           
|                                                                                                   | Components and spare parts                                                          |                             |           
|                                                                                                   | Prepaid expenses and other current assets                                           |                             |           
|                                                                                                   | Long term investments and other assets                                              |                             |           
|Increase (decrease) in liabilities:                                                                |                                                                                     |                             |           
|                                                                                                   | Accounts payable                                                                    |                             |           
|                                                                                                   | Accrued expenses and taxes payable                                                  |                             |           
|                                                                                                   | Payable to Novus                                                                    |                             |           
|                                                                                                   |                                                                                     |                             |           
|Net cash provided by (used in) operating activities                                                |                                                                                     |                             | (1,887,442
|                                                                                                   |                                                                                     |                             |           
|Cash Flows from Investing Activities:                                                              |                                                                                     |                             |           
|Purchase of short-term investments                                                                 |                                                                                     |                             |          
|Redemption of investments                                                                          |                                                                                     |                             | 3,860,000 
|Goodwill and other intangibles                                                                     |                                                                                     |                             |          
|Acquisition of equipment and leasehold improvements                                                |                                                                                     |                             | (2,586,184
|                                                                                                   |                                                                                     |                             |           
|Net cash provided by (used in) investing activities                                                |                                                                                     |                             | 1,273,816 
|                                                                                                   |                                                                                     |                             |           
|Cash Flows from Financing Activities:                                                              |                                                                                     |                             |           
|Purchase of Alcide Common Stock                                                                    |                                                                                     |                             | (884,954  
|Redemption of Class "A" Preferred Stock                                                            |                                                                                     |                             | (40,957   
|Redemption of Class "B" Preferred Stock                                                            |                                                                                     |                             | (22,559   
|Borrow on line of credit                                                                           |                                                                                     |                             |          
|Exercise of stock options                                                                          |                                                                                     |                             | 109,747   
|                                                                                                   |                                                                                     |                             |           
|Net cash provided by (used in) financing activities                                                |                                                                                     |                             | (838,723  
|                                                                                                   |                                                                                     |                             |           
|Net decrease in cash and cash equivalents                                                          |                                                                                     |                             | (1,452,349
|Cash and cash equivalents at beginning of year                                                     |                                                                                     |                             | 7,844,217 
|                                                                                                   |                                                                                     |                             |           
|Cash and cash equivalents at end of year                                                           |                                                                                     | $                           | 6,391,868 
|                                                                                                   |                                                                                     |                             |           
|Supplemental Disclosures of Cash Flow Information:                                                 |                                                                                     |                             |           
|Cash paid during the year for interest                                                             |                                                                                     |                             |          
|Cash paid during the year for income taxes                                                         |                                                                                     | $                           | 976,997   

See
notes to financial statements.

27

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Alcide Corporation

Notes to Consolidated 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.

2.  Summary of Significant Accounting Policies:

a.  Revenue Recognition: Sales to the poultry industry are determined by the number of birds or pounds treated at each processor. Alcide owned
inventory is maintained at each customer processing site. Sales are recognized during the month in which inventory is used to disinfect customer's product. Animal health and disinfectant sales are
recorded at the time of shipment to distributors or to end users.

The
Company provides a limited warranty to its distributors which limits the Company's obligation to replacement of defective product. Such replacements have for the past several
years been less than .1% of net sales.

b.  Cash
and cash equivalents consist of short-term interest-bearing instruments and money market accounts redeemable on demand with maturity of
90 days or less at time of purchase.

c.  Royalties:
Until May, 1999, Alcide was obligated to pay royalties to certain early investors in the Company at a rate of 8% of net cash sales of applicable
products. In May, 1999, Alcide reached settlement of a lawsuit brought against it in February, 1996, by certain royalty rights holders. The cash settlement of $2,212,512 to royalty rights holders was
accrued during Alcide's fiscal third quarter of 1999 and paid in Alcide's fiscal fourth quarter of 1999. This payment satisfies all of Alcide's past and future obligations with respect to the royalty
agreement.

d.  Litigation
Expense: The expected costs to defend the Company in lawsuits filed against it are recorded in the period in which the Company becomes aware of the
action. No such suits were filed against the Company in fiscal 2001.

e.  Costs
of advertising, product promotion and trade shows are expensed as incurred. Amounts expensed in FY 2001, FY 2000 and FY 1999 were $158,929, $64,186 and
$24,488 respectively.

f.  Normal
repair and maintenance costs that do not extend the useful life of a capital asset are expensed as incurred. Spare parts required for SANOVA plant
maintenance are expensed when used.

g.  Depreciation
and Amortization: Office, laboratory and computer equipment is recorded at cost and depreciated over a five-year estimated useful life by
the straight-line method. Equipment provided by Alcide to poultry processing plants to mix and spray SANOVA is recorded at cost and depreciated over the five-year estimated
useful life of the assets by the straight-line method.

Leasehold
improvements are amortized over the lives of the leases by the straight-line method.

h.  Income
Taxes: The Company accounts for income taxes using the liability method. Under this method, the Company computes deferred income taxes and tax credits 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.

i.  Use
of Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to
make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets

28

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and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

j.  Recently
Issued Accounting Pronouncements: In June, 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"), which establishes accounting and reporting standards for derivative instruments and for hedging activities by requiring that all derivatives be
recognized on the balance sheet and measured at fair value. SFAS 137, issued August, 1999, postpones for one year the mandatory effective date for SFAS 133 to January 1, 2001. The
Company has not and does not plan to invest in derivatives.

In
December of 1999, the SEC released Staff Accounting Bulletin Number 101Revenue Recognition in Financial Statements. This bulletin became effective for the Company in
the fourth quarter of the fiscal year ended May 31, 2001. This bulletin provides guidance on revenue recognition criteria recommended by the SEC. The effects of this bulletin were not material
to the Company's financial position or the results of its operations.

In
June, 2001 the Financial Accounting Standards Board approved Statement of Financial Accounting Standard No. 141, "Business Combinations," and SFAS No. 142, "Goodwill
and Other Intangible Assets." SFAS No. 141 prospectively prohibits the pooling of interest method of accounting for business combinations initiated after June 30, 2001. SFAS
No. 142 requires companies to cease amortizing goodwill that existed at June 30, 2001. The amortization of existing goodwill will cease on December 31, 2001. Any goodwill
resulting from acquisitions completed after June 30, 2001 will not be amortized. SFAS No. 142 also establishes a new method of testing goodwill for impairment on an annual basis or on an
interim basis if an event occurs or circumstances change that would reduce the fair value of a reporting unit below its carrying value. The adoption of SFAS No. 142 will result in the Company's
discontinuation of amortization of its goodwill; however, the Company will be required to test its goodwill for impairment under the new standard beginning in the third quarter of fiscal year 2002,
which could have an adverse effect on the Company's future results of operations if an impairment occurs.

k.  Certain
reclassifications have been made to prior year financial statements to conform to the current year presentation.

l.  The
consolidated financial statements include the accounts of the Company and its subsidiary, Alcide Food Safety, Inc. All significant inter-company accounts
and balances have been eliminated.

3.  Segment Reporting:

The Company has adopted Statement of Financial Accounting Standard No. 131 (SFAS 131) "Disclosures about Segments of an Enterprise and Related
Information" during 1998. Following the provisions of SFAS No. 131, the Company is reporting segment information in the same format as reviewed by the Company's management (the "Management
Approach"), which is organized around differences in products and services. During fiscal 2001, management determined that due to the
growth of the Company's SANOVA business, the Company now has two reportable segments, Animal Health and Surface Disinfectants, and SANOVA Food Antimicrobial Products.

The
Company's reportable segments are strategic business units that offer similar products but to entirely different customers at substantially different selling price and cost of
goods sold structure.

The
accounting policies of the segments are the same as those described in Note 2Summary of Significant Accounting Policies. The Company evaluates performance
based on gross margin from the sale of each segment's products and does not allocate expenses beyond gross margin to the two segments.

29

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Segment net sales, gross margin and assets are as follows:

|                                        |                           | FY 1999 |   | FY 2000    |  | FY 2001
|--------------------------------------- | ------------------------- | ------- | - | ---------- |  | -------
|Animal Health and Surface Disinfectants |                           |         |   |            |  |        
|                                        | Net SalesU.S.            |         | $ | 5,501,603  |  | $      
|                                        | Net SalesInternational   |         | $ | 4,180,038  |  | $      
|                                        |                           |         |   |            |  |        
|                                        | Total Net Sales           |         | $ | 9,681,641  |  | $      
|                                        | Gross Margin              |         | $ | 5,771,740  |  | $      
|                                        | Assets (at end of period) |         | $ | 3,843,970  |  | $      
|Sanova                                  |                           |         |   |            |  |        
|                                        | Net SalesU.S.            |         | $ | 1,538,887  |  | $      
|                                        | Gross Margin              |         | $ | 545,016    |  | $      
|                                        | Assets (at end of period) |         | $ | 3,070,064  |  | $      
|Not Segment Related                     |                           |         |   |            |  |        
|                                        | Assets (at end of period) |         | $ | 8,705,953  |  | $      
|Total                                   |                           |         |   |            |  |        
|                                        | Net Sales                 |         | $ | 11,220,528 |  | $      
|                                        | Gross Margin              |         | $ | 6,316,756  |  | $      
|                                        | Assets (at end of period) |         | $ | 15,619,987 |  | $      

Assets
assigned to the business segments include accounts receivable, inventories, fixed assets, spare parts, components and goodwill.

In
fiscal 2001, 2000 and 1999, two of the Company's distributors in the dairy industry each accounted for greater than 10% of total revenues. Their combined sales in FY 1999, FY 2000
and FY 2001 were $4,109,603, $5,740,069 and $6,649,638 respectively.

30

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4.  Investments:

Investments on the Company's accompanying balance sheet represent certificates of deposit and debt securities that the Company has both the intent and ability
to hold to maturity and are classified as "held-to-maturity". These investments are carried at amortized cost and are reported under the captions "Short-term
investments" and "Long-term investments and other assets" in the accompanying balance sheet. Short-term investments at May 31, 2001 consist of a one-year
certificate of deposit with interest rate of 5.29%, maturing January 22, 2002. Debt securities consist entirely of debt obligations of the United States. Information regarding securities held
at May 31, 2000 and May 31, 2001 is as follows:

|                  |  | Amortized Cost |         | Fair Value
|----------------- |  | -------------- | ------- | ----------
|
|
|Held to maturity: |  |                |         |           
|Short term        |  |                |        |           
|Long term         |  | $              | 502,255 |           

|                 |  | Gross Unrealized Gains |        | Maturity
|---------------- |  | ---------------------- | ------ | --------
|
|
|Held to maturity |  | $                      | (7,100 | )       

5.  Accounts ReceivableTrade consisted of the following:

|                            |  | May 31, 1999 |           | May 31, 2000 |   | May 31, 2001
|--------------------------- |  | ------------ | --------- | ------------ | - | ------------
|IBA, Inc.                   |  | $            | 184,176   |              | $ | 209,048     
|UMS, Inc.                   |  |              | 1,028,227 |              |   | 472,403     
|Other Domestic Distributors |  |              |          |              |   |            
|International Distributors  |  |              | 621,905   |              |   | 641,021     
|SANOVA Customers            |  |              | 292,375   |              |   | 1,092,443   
|Other Receivables           |  |              | 133,234   |              |   | 71,131      
|                            |  |              |           |              |   |             
|Total Accounts Receivable   |  | $            | 2,259,917 |              | $ | 2,486,046   
|                            |  |              |           |              |   |             

6.  Inventory:

Inventory
is recorded at the lower of cost or market on a first-in, first-out basis, as follows:

|                                   |  | May 31, 2000 |           | May 31, 2001
|---------------------------------- |  | ------------ | --------- | ------------
|Raw materials                      |  | $            | 681,049   |             
|Finished Products                  |  |              | 212,047   |             
|SANOVA inventory at customer sites |  |              | 510,994   |             
|                                   |  |              |           |             
|Total                              |  | $            | 1,404,090 |             
|                                   |  |              |           |             

On
February 1, 2001 the Company purchased the assets of Universal Marketing Services, Inc. (UMS). The assets acquired included inventory sold to UMS by
the Company in prior periods. The inventory purchased was recorded at its fair market value of $1,154,467, which amount was subsequently adjusted to $1,100,493 per physical audit. At the end of May,
2001, $217,124 of this inventory remained in "finished products".

31

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7.  Goodwill:

On February 1, 2001, the Company purchased assets from Universal Marketing Services, Inc. for a total purchase price of $1,622,828. The purchase
price consisted of cash less balance of accounts receivable from UMS and a warrant to purchase 7,000 shares of the Company's Common Stock. The warrant has been valued at $99,540 using the
Black-Scholes model. The purchase price was allocated to the acquired assets (inventory and intangible assets) based on their fair market value and the residual was recorded as goodwill. Goodwill and
other intangible assets are being amortized over a 48 month period.

8.  Accrued Expenses:

At May 31, accrued expenses were comprised of the following:

|                                                  |  | 2000 |         | 2001
|------------------------------------------------- |  | ---- | ------- | ----
|Accrued employee salaries, incentive and benefits |  | $    | 97,671  |     
|Payable to Novus  short term                     |  |      | 158,000 |     
|Accrued consulting and outside services           |  |      | 62,000  |     
|Accrued patent, trademark and legal expenses      |  |      | 39,065  |     
|Other accrued expenses                            |  |      | 20,011  |     
|                                                  |  |      |         |     
|                                                  |  | $    | 376,747 |     
|                                                  |  |      |         |     

9.  Line of Credit Payable:

On February 21, 2001, the Company took an initial draw of $1 million on its $10 million unrestricted, unsecured line of credit with US
Bank. The principal draw is due August 31, 2001. The interest rate is approximately 6.56% and interest is paid monthly. The line of credit expires on August 31, 2001. The Company is
currently negotiating renewal of this line of credit.

32

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10.  Commitments and Contingencies:

a.  Leases: The Company leases certain property and vehicles under non-cancelable operating leases that expire through May, 2004.
Insurance, utilities and maintenance expenses are borne by the Company.

There
are no contingent rentals or sublease rentals.

Future
annual lease commitments are as follows:

FY 2002

$179,859FY 2003

$172,763FY 2004

$120,639


Lease payments in FY 2001, FY 2000 and FY 1999 were $175,037, $115,587 and $62,256 respectively.

b.  SANOVA
Agreements: The company has signed contracts with poultry and beef processing plants for SANOVA Systems to be installed in FY 2002 which will cost
approximately $3.7 million. As of May 31, 2001, $922,000 of the equipment required had been purchased and recorded as construction in progress.

c.  Employment
Agreements: One officer has an employment agreement which obligates the Company to a salary of $243,227 per year. Bonus compensation of 100% of base pay
can be earned at the discretion of the Board of Directors.

d.  Distribution
Agreements: The Company has entered into agreements with each of its major distributors of products sold to the dairy industry. Such agreements
typically describe the territories covered, product pricing, and expected product purchases during the term of the agreement. Each such agreement has been filed with the SEC and is incorporated herein
by reference.

11.  Income Taxes:

A summary of the provision (benefit) for income taxes follows:

|         |                 | FY 1999 |          | FY 2000  |   | FY 2001 
|-------- | --------------- | ------- | -------- | -------- | - | --------
|Current  |                 |         |          |          |   |         
|         | Federal         |         | $        | (592,866 | ) | $       
|         | State and local |         |          | 148,232  |   |         
|         |                 |         |          |          |   |         
|         |                 | $       | (444,634 | )        | $ | (543,251
|         |                 |         |          |          |   |         
|Deferred |                 |         |          |          |   |         
|         | Federal         |         | $        | 124,318  |   | $       
|         | State and local |         |          |         |   |         
|         |                 |         |          |          |   |         
|         |                 | $       | (320,316 | )        | $ | (229,510
|         |                 |         |          |          |   |         

A
reconciliation between the statutory federal income tax rate and the effective income tax rate is as follows:

|                                  |  | FY 1999 |    | FY 2000 |   | FY 2001 |  
|--------------------------------- |  | ------- | -- | ------- | - | ------- | -
|Statutory federal income tax rate |  | 34.0    | %  | 34.0    | % | 34.0    | %
|State taxes                       |  | (9.3    | %) |        |   | .9      | %
|                                  |  |         |    |         |   |         |  
|Effective income tax rate         |  | 24.7    | %  | 34.0    | % | 34.9    | %
|                                  |  |         |    |         |   |         |  

33

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At
May 31, 2000 and May 31, 2001, the deferred tax assets were comprised of the following:

2000

2001Operating loss carry forward

$
1,066,485

$
757,316Temporary differences


(276,281
)

(326,077
)Research & experimental credits carry forward


51,525


83,895Alt. Minimum tax carry forward


260,602


295,043Total deferred tax asset

$
1,102,331

$
810,177


The
temporary differences result from the use of straight-line deprecation for equipment in the financial statements versus use of accelerated depreciation for tax
reporting, the timing of stock option exercises and other miscellaneous book/tax timing differences. The Company has not established a valuation allowance against the deferred tax asset as management
believes it is more likely than not that the tax benefits will be realized in the future based on historical levels of pre-tax income and expected future taxable income.

12.  Earnings (Loss) Per Share:

Basic earnings per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the year. Diluted
earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares and common stock equivalents outstanding during the year. Common stock equivalents
of the Company include the dilutive effect of outstanding stock options. Common stock equivalents, excluded because of their antidilutive effect were 44,790 shares in FY 2001, 73,038 shares in FY 2000
and 107,204 shares in FY 1999.

Basic
and Diluted earnings per share were calculated as follows:

Computation of Earnings (Loss) Per Common Share

|                                                                                                                                                                |  | For the Years Ended May 31,
|--------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------
|
|Net Income (Loss)                                                                                                                                               |  | $                          
|Weighted average number of common shares outstanding                                                                                                            |  |                            
|Basic Earnings (Loss) Per Share                                                                                                                                 |  | $                          
|Assuming exercise of options reduced by the number of shares which could have been purchased with the proceeds from exercise of such options (if antidilutive) |  |                            
|                                                                                                                                                                |  |                            
|Weighted average common shares outstanding and common share equivalents                                                                                         |  |                            
|                                                                                                                                                                |  |                            
|Diluted Earnings (Loss) Per Share                                                                                                                               |  | $                          
|                                                                                                                                                                |  |                            

13.  Shareholder's 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.

34

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b.  Class "A" Preferred Stock

The
nonvoting Class "A" Preferred Stock has a preference with respect to both dividends and liquidation at its stated value of $135.30 per share. During fiscal 1999, Alcide offered to
redeem Class "A" Preferred Stock at a price of $101.00 per share. Eight hundred sixty-two shares have been redeemed. The Company has the option to force redemption at any time by payment
of $135.30 per share.

c.  Redeemable
Class "B" Preferred StockSeries 1 and 2.

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. On September 30th of
each year the Company redeems Series 2 Stock at $2.625 per share plus declared and unpaid dividends equal to the sinking fund payment. As the Company recorded Net Income of $1,537,525 in fiscal
2001, it will redeem 4,100 shares of Series 2 Stock on September 30, 2001 for $10,763. The Company may redeem any or all of the issued and outstanding Series 2 Stock at its
option, at any time, at the redemption priced of $2.625 per share.

14.  Stock Options:

The Company had an incentive stock option plan, which expired in May 1993. No additional grants may be issued under this plan. The Company replaced this
plan with a new plan effective December, 1993, which allows for the issue of both incentive stock options and nonstatutory stock options. Nonstatutory stock options may be granted to employees,
directors, officers and consultants. 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.
Non-qualified 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. Under this plan there are 26,950
options available for grant as of May 31, 2001.

The
Company also has a stock option plan for nonemployee directors. Options granted under the plan are granted with an exercise price equal to 100% of the fair market value of the
Common Stock on the date of grant. Under this plan there are 40,428 options available for grant as of May 31, 2001.

Options
are exercisable within 10 years from the date of option grant. Options will expire during the period July, 2001 through February, 2011. The Company accounts for its
stock option plans under the guidelines of Accounting Principles Board Opinion 25 ("APB 25"), under which no compensation cost has been recognized. In 1996, the Company adopted the disclosure
provisions of Statement of Financial Accounting Standards 123 ("SFAS 123"), "Accounting for Stock-Based Compensation," effective for years beginning after May 31, 1996. The Company has
continued to measure compensation cost for employee stock compensation plans under the guidelines of APB 25, as allowed by SFAS 123.

35

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The status of the plans are as follows:

|                                 |  | FY 1999 |   | FY 2000 |       | FY 2001
|-------------------------------- |  | ------- | - | ------- | ----- | -------
|
|Outstanding at beginning of year |  | 289,188 |   | $       | 11.78 |        
|Granted                          |  | 27,167  |   |         | 30.34 |        
|Exercised                        |  | (16,655 | ) |         | 6.59  |        
|Cancelled                        |  | (1,500  | ) |         | 23.10 |        
|                                 |  |         |   |         |       |        
|Outstanding at end of year       |  | 298,200 |   | $       | 13.70 |        
|                                 |  |         |   |         |       |        
|Exercisable at end of year       |  | 237,899 |   | $       | 9.89  |        
|                                 |  |         |   |         |       |        

Information
relating to stock options outstanding and stock options exercisable at May 31, 2001 is as follows:

Options Outstanding

Options ExercisableRange of Exercise Prices

No. of Shares

Weighted
Avg. Life

Wtd. Avg. $/Sh.

No. of Shares

Wtd. Avg. $/Sh.$5.00  $6.90

26,038

.38

$
5.43

26,038

$
5.43$8.63  $11.94

69,077

3.05

$
10.09

65,777

$
10.00$12.00  $63.00

165,672

6.98

$
23.34

78,272

$
24.51260,787

5.28

$
18.05

170,087

$
15.98


Had
compensation cost for these stock option plans been determined in accordance with SFAS 123, the Company's "Net income" and "Net income per common share" would have
decreased to the following pro forma amounts for the years ended May 31, 1999, 2000 and 2001.

|                                                         |  |             |  | FY 1999 |            | FY 2000 |   | FY 2001 
|-------------------------------------------------------- |  | ----------- |  | ------- | ---------- | ------- | - | --------
|Net Income (loss)                                        |  | As reported |  | $       | (974,463   | )       | $ | (447,073
|                                                         |  | Pro forma   |  | $       | (1,121,418 | )       | $ | (699,878
|Basic earnings (loss) per common share                   |  | As reported |  | $       | (.38       | )       | $ | (.18    
|                                                         |  | Pro forma   |  | $       | (.44       | )       | $ | (.28    
|Diluted earnings (loss) per common share and equivalents |  | As reported |  | $       | (.38       | )       | $ | (.18    
|                                                         |  | Pro forma   |  | $       | (.44       | )       | $ | (.28    

Because
the SFAS 123 method of accounting has not been applied to stock options granted before January 1, 1995, the resulting pro forma compensation cost may not be
representative of that to be expected in future years. The fair value of each stock option granted is valued on the date of grant using the Black-Scholes option pricing model. The weighted average
grant-date fair value of stock options granted during 2001 was $13.84 per share using the assumptions of expected volatility of 59.4%, expected option lives of 7.5 years,
risk-free rate of interest of 5.8% and no expected dividends. During 2000, the weighted average grant-date fair value of stock options granted was $10.06 per share using the
assumptions of expected volatility of 57.2%, expected option lives of 7.5 years, risk-free rate of interest of 6.3% and no expected dividends. During 1999, the weighted average
grant-date fair value of stock options granted was $20.60 per share using the assumptions of expected volatility of 61.7%, expected option lives of 7.5 years, risk-free
rate of interest of 5.3% and no expected dividends.

36

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15.  Related Party Transactions:

Consulting Agreements:



16.  Employee Stock Ownership Plan:

The Company has an employee stock ownership plan (the Plan). Employees who are at least age 21 and have completed one year of service are eligible to
participate. The Company may make discretionary contributions to the Plan. The Company's contributions for fiscal years 2001, 2000 and 1999 were approximately $124,000, $83,000 and $71,000,
respectively.

Corporate Office

8561
154th Avenue NE Redmond, Washington 98052
Phone: (425) 882-2555
Fax: (425) 861-0173
E-mail: info@alcide.com
Website: www.alcide.com

Independent Public Accountants

Arthur
Andersen LLP
801 Second Avenue, Suite 900
Seattle, WA 98104

Common Stock Listing

NASDAQ
(SymbolALCD)

Transfer Agent and Registrar

Computershare
Trust Company, Inc.
12039 W. Alameda Parkway, Suite Z-2
Lakewood, Colorado 80228

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