SECURITIES AND EXCHANGE COMMISSION ~~Washington, D.C. 20549~~

Washington, D.C. 20549

FORM 10-K

(Mark One)

ý ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [Fee Required]

ý		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended: May 31, 2003

OR

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [No Fee Required]

For the fiscal year ended: May 31, 2002

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [No Fee Required]

For the transition period from to

Commission file number 0-12395

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

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

Delaware		22-2445061
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

8561 154^th Avenue NE, Redmond, Washington 98052
(Address of principal executive offices)

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

Securities Registered Pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Delaware		22-2445061
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

Common Stock - $.01 par value

~~8561 154th Avenue NE, Redmond, Washington 98052~~ (~~Address~~Title of ~~principal executive offices~~Class)

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

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

Title of each class		Name of each exchange on which registered
None		None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock—$.01 par value (Title of Class)

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

Indicate by 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 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~~ this Form 10-K. o o

~~The aggregate~~Indicate ~~market value of voting stock held~~ by check ~~non-affiliates~~mark ofwhether the ~~Registrant~~registrant onis ~~August 1,~~an ~~2002~~accelerated ~~was~~filer ~~approximately~~(as ~~$38,663,000.~~defined ~~On that date, there were 2,656,167~~in ~~shares~~ Exchange ofAct ~~common~~Rule ~~stock outstanding, net of Treasury Stock~~12b-2).

Certain sections of Registrant's definitive Proxy Statement for its 2002 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 2002 Annual Meeting of Stockholders. Yes o No ý

~~Page~~The aggregate market value of 1 the voting and non-voting common equity held by non-affiliates of 45the Registrant ~~pages~~on November 29, 2002 was approximately $35,703,000, net of Treasury ~~Exhibit~~ Stock. On ~~Index~~August on22, ~~Page~~2003, 25there were 2,654,638 shares of common stock outstanding, net of Treasury Stock.

Certain information required by Part III hereof is incorporated by reference from the ~~TABLE~~ Registrant’s OFdefinitive ~~CONTENTS~~ Proxy Statement for its 2003 Annual Meeting of Stockholders.

			Page
PART I	Item 1.	Business
		A. Introduction	3
		B. Sales Development	3
		C. Research and Product Development	5
		D. Patents and Trademarks	6
		E. Raw Materials	9
		F. Competition	9
		G. Government Regulation	9
		H. Employees	11
		I. Advertising and Promotion	11
		J. Manufacturing	11
	Item 1A.	Executive Officers of the Company	11
	Item 2.	Properties	12
	Item 3.	Legal Proceeding	13
	Item 4.	Submission of Matters to a Vote of Security Holders	13
PART II	Item 5.	Market for the Registrant's Common Stock and Related Stockholder Matters	14
	Item 6.	Selected Financial Data	14
	Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	15
	Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	21
	Item 8.	Financial Statements and Supplementary Data	21
	Item 9.	Changes In and Disagreements with Accountants on Accounting and Financial Disclosures	21
PART III	Item 10.	Directors and Executive Officers	22
	Item 11.	Executive Compensation	22
	Item 12.	Security Ownership of Certain Beneficial Owners and Management	23
	Item 13.	Certain Relationships and Related Transactions	23
PART IV	Item 14.	Exhibits, Financial Statement Schedules and Reports on Form 8-K	23

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 1A.	Executive Officers of the Company

	Item 2.	Properties

	Item 3.	Legal Proceeding

PART II	Item 5.	Market for the Registrant’s Common Stock and Related Stockholder Matters

	Item 6.	Selected Financial Data

	Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations

	Item 7A.	Quantitative and Qualitative Disclosures about Market Risk

	Item 8.	Financial Statements and Supplementary Data

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

	Item 9A.	Controls and Procedures

PART III	Item 10.	Directors and Executive Officers

	Item 11.	Executive Compensation

	Item 12.	Security Ownership of Certain Beneficial Owners and Management

	Item 13.		Certain Relationships and Related Transactions

PART IV	Item 15.		Exhibits, Financial Statement Schedules and Reports on Form 8-K

~~PART I~~ 2

PART ~~ITEM 1. Business~~ I

~~Alcide®~~This ~~Corporation~~report (contains forward looking statements. These statements relate to future events or future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “believes” “anticipates,” “expects” “intends,” “estimates,” “predicts,” and similar expressions, the "negatives of these terms, or other terminology. These statements are only predictions. They 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 events or results to differ materially from those projected. Some of the risks and uncertainties that could affect the Company")’s isoperating aresults ~~Delaware~~and ~~Corporation~~performance ~~organized~~are described throughout this report, such as in ~~1983~~the ~~which~~“Management’s ~~has~~Discussion ~~its~~and ~~executive~~Analysis ~~offices~~of Financial Condition and ~~research~~Results ~~laboratories~~of atOperations” ~~8561~~below. You should review and consider these and other risks carefully. Readers are cautioned not to place undue ~~154th~~ reliance ~~Avenue~~on NEsuch forward-looking statements which speak only as of the date of this report. We undertake no obligation to update publicly any forward looking statements to reflect new information, events ~~Redmond~~or circumstances after the date of this Report, ~~Washington~~or ~~98052.~~to reflect the occurrence of unanticipated events.

~~Alcide is~~ITEM ~~engaged in the research, development and commercialization of unique chemical compounds having intense microbiocidal activity~~1. ~~The Company holds substantial worldwide rights to its discoveries through various patents, patent applications, trademarks and other intellectual property, technology, and know-how.~~ Business

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 thereofA. 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. Introduction

~~The Company presently sells antimicrobial products to the dairy, health care and food processing industries. Its products include: UDDERgold~~Alcide® ~~Plus,~~ ~~UDDERgold~~ Corporation ~~Platinum®~~(the ~~and~~“Company”) ~~UDDERgold®~~is ~~Germicidal~~a ~~Barrier~~Delaware ~~Teat~~corporation ~~Dips,~~organized ~~Pre-Gold®~~in ~~Germicidal~~1983 ~~Pre-Milking Teat Dip and 4XLA®~~which ~~Pre-~~ has ~~and~~its ~~Post-Milking~~executive ~~Teat~~offices ~~Dip to the dairy industry; Exspor® Sterilant-Disinfectant~~ and ~~LD®~~research ~~Disinfectant~~laboratories toat ~~the~~8561 ~~health care industry; and~~154th ~~SANOVA®~~ Avenue ~~antimicrobial~~NE, ~~intervention to the food processing industry. The Company's sales to date have primarily been derived from UDDERgold Plus~~Redmond, ~~UDDERgold~~Washington ~~and 4XLA teat dips and SANOVA food processing antimicrobial~~98052.

~~Total~~Alcide is ~~product~~ engaged ~~sales~~in ~~for~~ the ~~fiscal~~research, ~~year~~development ~~ended~~and ~~May 31,~~commercialization ~~2002~~of ~~were~~unique ~~$21,988,690~~chemical compounds having intense microbiocidal activity. The ~~Export~~Company ~~sales~~holds substantial worldwide rights to ~~international~~its ~~distributors~~discoveries through ~~accounted~~various ~~for~~patents, $4patent applications,~~377,379,~~ ~~20%~~trademarks ofand ~~total~~other ~~sales.~~intellectual property, technology, and know-how.

~~Worldwide sales of dairy line products during fiscal year 2002 were $9,265,736 as compared with $9,115,088 in fiscal year 2001~~B. ~~In fiscal 2002, sales to the dairy~~ Sales ~~industry accounted for 42% 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.~~ Development

The UCompany sells antimicrobial products to the dairy, health care and food processing industries.S Its products include: UDDERgold® 5-Star, UDDERgold® Plus, UDDERgold Platinum® 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 ~~Dairy~~Company’s ~~Industry~~ sales to date have primarily been derived from the UDDERgold family of teat dips and SANOVA food processing antimicrobial.

InTotal revenue for the fiscal ~~2002~~year ended May 31, ~~dairy~~2003 ~~industry~~was ~~sales~~$21,924,454 inof ~~the~~which ~~United~~$897,177 ~~States~~was license ~~were~~revenue. Export sales to international distributors accounted for $4,~~888~~437,~~357~~037, 5320% of total ~~Alcide sales to the dairy industry~~revenue.

31. Dairy Industry

Worldwide revenue ~~International~~from ~~Dairy~~dairy ~~Industry~~ line products during fiscal year 2003 was $7,875,840 (including $897,177 license revenue) as compared with $9,265,736 in fiscal year 2002. In fiscal 2003, sales to the dairy industry accounted for 36% of the Company’s total revenue. Loss of the sales generated by dairy line products, could have a material adverse effect on the Company.

~~Alcide products are sold to the dairy industry in Canada, Latin America, Europe and selected Asian markets through a network of distributors~~U. ~~Sales to the international dairy industry were $4,377,379 in fiscal 2002, or 47% of total sales to the dairy industry~~S. Dairy Industry

In ~~Distributor~~fiscal 2003, ~~Arrangements~~ dairy industry revenue in the United States was $3,438,803 (including $897,177 license revenue), 44% of Alcide’s total dairy industry revenue.

~~Alcide~~International ~~sales~~Dairy to the dairy industry are primarily 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 could have a material impact on the Company's sales and earnings. Industry

OnAlcide ~~April 26,~~ products ~~2002,~~are ~~Alcide~~sold ~~licensed~~to ~~its~~the ~~technology know-how and trademarks associated with its~~ dairy industry ~~products to IBA, Inc. of Millbury, MA, one of its domestic distributors,~~ in ~~a new five year agreement beginning June 1~~Canada, ~~2002.~~Latin ~~Under the agreement~~America, ~~IBA~~Europe ~~will manufacture products using Alcide's technology~~ and ~~carrying Alcide's trademarks for~~ ~~direct,~~ selected ~~nonexclusive~~Asian ~~distribution~~markets through ~~IBA's~~a ~~extensive United States distribution~~ network, ~~and~~of ~~will pay Alcide licensing revenue~~distributors. Sales ~~Alcide revenue on products licensed~~ to ~~and~~the ~~manufactured~~international bydairy ~~IBA will~~industry be were ~~approximately~~$4,437,037 ~~44%~~in ~~lower~~fiscal ~~than~~2003, ifor ~~such~~56% ~~products~~of ~~had~~total ~~been~~dairy ~~manufactured~~industry ~~and sold by Alcide~~revenue.

On May 20, 2002, Alcide entered into a new three year contract with Agri-Lloyd International, Ltd. to exclusively market Alcide's dairy industry products in the United Kingdom and the Republic of Ireland starting in late September 2002. 3

InDistributor 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 2003, 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 (deli) meat. Arrangements

Alcide~~'s fiscal~~ ~~2002 SANOVA~~ sales ~~have been predominately~~ to the ~~poultry~~dairy industry ~~and~~are ~~totaled~~primarily ~~$12,229,362,~~to andistributors ~~increase~~who ofhave ~~46%~~contracted ~~over~~ with the ~~$8,400,623~~Company ~~SANOVA sales in fiscal 2001. It is expected that SANOVA will continue~~ to bedistribute ~~an important and growing contributor to~~ the Company'’s ~~sales~~products. In ~~and~~each ~~income~~case ~~expansion.~~the ~~Should~~distributor ~~there~~purchases beproduct afrom ~~loss~~Alcide offor resale ~~sales~~ to the ~~food~~end ~~processing~~user. Loss ~~industries,~~of orany ~~should~~of ~~growth~~ the ~~fail~~Company’s todistributors ~~materialize,~~could ~~there~~have ~~would be~~ a material ~~adverse~~ impact on the Company.’s ~~In fiscal 2002, SANOVA~~ sales and ~~accounted for 56% of total Company sales~~earnings.

On ~~May 31,~~ April 26, 2002, 38Alcide ~~poultry~~entered ~~operations~~into an agreement licensing its technology know-how and trademarks associated with its dairy industry products to IBA, Inc. (“IBA”) of Millbury, MA, one of its domestic distributors, in a five ~~red~~year ~~meat~~agreement beginning ~~operations~~June ~~were~~1, ~~using~~2002. Under ~~SANOVA~~the agreement, ~~under~~IBA ~~contract~~manufactures ~~with~~products using Alcide.’s ~~Additional~~technology ~~contracts~~and carrying Alcide’s trademarks for ~~SANOVA~~direct, ~~expansion~~nonexclusive ~~are~~distribution ~~anticipated~~through IBA’s extensive United States distribution network, and pays Alcide licensing revenue. Alcide revenue on products licensed to and manufactured by IBA in fiscal year 2003 was approximately 43% lower than if such products had been manufactured and sold by Alcide.

~~The~~Subsequent ~~Company~~to the ~~markets~~end aof ~~line~~fiscal of2003, ~~hard~~Alcide ~~surface~~entered ~~sterilants~~into ~~and~~a ~~disinfectants~~license ~~which~~agreement ~~kills~~with ~~microorganisms~~Ferdinand Eimermacher ~~and~~GmbH ~~helps~~(“Eimermacher”) ~~reduce~~to ~~the~~manufacture ~~potential~~and ~~for~~distribute ~~disease~~teat ~~transmission~~dips ~~via~~using ~~contaminated~~ Alcide’s ~~surfaces.~~technology ~~The~~and ~~Company's~~trademarks LDin ~~disinfectant~~Austria, Germany and ~~Exspor~~Switzerland. Eimermacher ~~Sterilant-Disinfectant~~will ~~offer~~pay ~~users~~Alcide alicensing revenue ~~combination~~on ofall ~~broad~~sales ~~spectrum~~utilizing ~~efficacy,~~the ~~speed~~Company’s ~~and relative safety~~technology.

~~Fiscal year 2002 sales of hard surface sterilants and disinfectants were $493,592, or~~ 2~~% of total sales, as compared with $442,264 in fiscal year 2001~~. Food Processing Antimicrobials (SANOVA)

4In 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 2003, Alcide continued its expansion of SANOVA in both the red meat and poultry industries and entered the fruit and vegetable processing, sausage and comminuted (deli) meat industries.

~~The Company'~~Alcide’s ~~invoice~~fiscal 2003 ~~terms~~SANOVA ~~for~~sales totaled $13,587,212, an increase of 11% over the ~~dairy~~$12,229,362 SANOVA ~~and~~sales ~~health~~in ~~care~~fiscal ~~industries~~2002. It ~~conform~~is expected that SANOVA will continue to ~~those~~be inan important and growing contributor to the ~~chemical~~Company’s ~~industry~~sales and income expansion. A loss or other reduction of sales to the food processing industries, or a failure or slowing of growth in ~~general~~those industries, ~~which~~could ~~are:~~have a material ~~domestic-30 days,~~ adverse ~~export-60 days~~impact on the Company. In fiscal 2003, SANOVA sales accounted for 62% of total Company revenue.

~~Alcide had~~On ~~$602,673 of firm orders on~~ May 31, ~~2002~~2003, 42 ~~for~~poultry ~~future~~operations ~~delivery~~and to10 ~~dairy~~red ~~industry~~meat ~~distributors~~operations aswere ~~compared~~using toSANOVA ~~orders~~under contract ~~for~~with ~~future~~Alcide. As ~~delivery~~of atJuly ~~May~~ 31, 2003, ~~2001~~two ofoperations ~~$803,731. The~~have ~~Company's~~been ~~distributors~~added ~~typically~~and ~~place~~an ~~orders~~additional ~~one~~seven toinstallations ~~four~~were scheduled ~~months~~for instart-up ~~advance.~~by November 2004.

~~The Company's invoice terms, product pricing and delivery for food processing antimicrobials are based on contracts with each customer which typically cover one to four years~~3. ~~For large~~ Health ~~customers (those using more than 15,000 gallons of SANOVA per month) Alcide provides bulk shipments of inventory to the customer and the customer is invoiced at month-end based on the~~ ~~amount~~Care of product processed or gallons of SANOVA used. Smaller SANOVA customers are billed at the time SANOVA is shipped to their facilities. Payment in either case is due fifteen to thirty days after billing. Industry

~~Recognizing~~The ~~that~~Company markets ~~Alcide~~a ~~Corporation's~~line ~~long-term survival and growth is significantly dependent on the strength~~ of ~~its~~hard ~~proprietary~~surface ~~position,~~sterilants ~~specific emphasis was placed on enhancing the Company's knowledge~~ and ~~understanding~~disinfectants ofwhich ~~key processes in the field of acidified sodium chlorite vis-à-vis the basis for the~~kills ~~antimicrobial~~ microorganisms ~~performance~~and ofhelps ~~the~~reduce ~~biocidal system,~~ the ~~development~~potential ~~of new assay methodologies~~ for ~~anticipated~~disease ~~future~~transmission ~~residue determination needs and the integration of this knowledge into the new~~via ~~product~~ contaminated ~~formulation development effort~~surfaces. The ~~key~~Company’s ~~drivers~~LD disinfectant ~~for~~and ~~this~~Exspor ~~renewed~~Sterilant-Disinfectant ~~focus~~offer ~~are~~users ~~the increasingly competitive market place arising from the presence of~~ a ~~number~~combination of ~~newly approved technologies (Food~~ ~~Safety)~~ broad ~~and~~spectrum ~~increasing~~efficacy, ~~numbers~~speed ~~of generic products (Animal Health). New patent submissions have emanated from this effort~~ and ~~more~~relative ~~are expected in the future as the effort continues~~safety.

~~All~~Fiscal year of 2003 ~~the~~sales ~~research~~of ~~and~~hard ~~product~~surface ~~development~~sterilants ~~activities~~and ~~conducted~~disinfectants ~~by the Company during fiscal 2002~~ were ~~funded by the Company~~$461,402, ~~either~~or ~~under~~2% ~~the~~of total ~~Company's~~sales, ~~direct~~as ~~supervision~~compared atwith ~~contract research~~$493,592 ~~facilities~~in orfiscal ~~in-house.~~year 2002.

A4. Industry ~~second and significant component of the 2002 research and development program was the emphasis placed on regulatory affairs as the Company is faced with increasingly more stringent and~~ ~~sophisticated~~Practices demands from the regulatory agencies that control introduction of products to the market. While the Company typically depends on contract assistance to submit registrations in foreign markets, all submissions, support documentation and ~~any~~Backlog ~~supportive data that may be needed are generated and compiled in-house by Alcide's own regulatory specialists.~~ Orders

~~While~~The Company’s ~~many~~ invoice ofterms ~~the~~for ~~research~~its dairy and ~~development~~health ~~programs~~care ~~undertaken~~industry byproducts ~~the~~conform ~~Company~~to ~~and~~those in ~~described~~the ~~hereafter,~~specialty ~~give~~chemical ~~evidence~~industry ofin ~~possible success~~general, ~~the~~which ~~nature~~are: domestic-30 ~~of research~~days, ~~coupled~~export-60 ~~with the necessity for regulatory approval is such that there can be no assurance of ultimate program success or that any resulting product may be commercially viable~~days.

~~During~~Alcide ~~fiscal 2002~~had $184,341 ~~Food~~of ~~Safety~~firm ~~research~~orders ~~and~~on ~~development~~May ~~activities~~31, ~~were~~2003 ~~heavily~~for ~~weighted~~future ~~toward~~delivery ~~process~~to ~~validation~~dairy ~~under commercial conditions. Four process~~industry ~~development~~ distributors ~~engineers~~as ~~and~~compared ~~one~~ to ~~two~~orders ~~Food~~for ~~Safety~~future ~~technicians~~delivery ~~were~~at ~~devoted~~May ~~full-time~~31, to2002 ~~this activity during the fiscal year with primary activities directed toward documenting~~of ~~shelf-life extension for various produce items~~ $602, ~~process validation work on sausages and comminuted meats and process development for red meat parts and trim~~673. The ~~These~~Company’s ~~efforts~~dairy ~~were supported~~industry by distributors ~~Alcide's~~typically ~~laboratory~~place ~~staff~~orders ~~and~~one ~~outside~~to ~~consultants~~four ~~having~~months ~~expertise~~ in ~~produce and meat processing~~advance.

5The Company’s invoice terms, product pricing and delivery for SANOVA food processing antimicrobials are based on contracts with each customer which typically cover one to four years. For large customers (those using more than 15,000 gallons of SANOVA per month), Alcide provides bulk shipments of inventory to the customer and the

Significant progress was made on the regulatory front during fiscal 2002. In order to break the label claim dead-locks that have arisen from the existence of dual Environmental Protection Agency/Food and Drug Administration jurisdiction over antimicrobial products that are to be used on produce, it was necessary to develop some innovative approaches to the various agencies. Evidence of the success of the Company's approach became apparent in the March 2002 granting by EPA of a "time-limited" approval to add pathogen reduction claims to the SANOVA label for use on produce. The Company is not aware of any other antimicrobial product that is approved for use in the produce area and that has pathogen reduction claims. Under its new approval, Alcide has a two-year period of time in which to develop and submit additional performance data to EPA in support of this new claim. Likewise, the Company's FDA approvals, that permit the use of SANOVA on what is now a wide variety of meat types, have resulted in the identification of certain gaps in United States Department of Agriculture's regulations. This has again meant that the Company has been placed in the situation of having to be the first to negotiate to close these gaps with the agency. The granting of approvals for use of SANOVA on post-chill red meats without need for labeling (early 2001) and the product's use on processed, comminuted and formed meat products (December 2001), again, without need for labeling are two examples of the success of the Company's efforts. 4

~~In fiscal~~customer ~~2003,~~is ~~the~~invoiced ~~primary focus of Alcide research and development will be in three key areas. The first of these will be the development and submission of a Food Additive Petition to~~at ~~further~~ month-end ~~expand~~based ~~the dose levels of acidified sodium chlorite that are currently approved~~ on ~~seafood. The second area of focus is expected to be in~~ the ~~development~~amount of ~~the additional performance data that will be necessary to extend the current "time-limited" SANOVA pathogen reduction claims for produce into a full claim for the~~ product. ~~Finally,~~processed ~~the~~or ~~third~~gallons ~~key area~~ of ~~focus in fiscal 2003 is expected to be in the expansion of approvals for~~ SANOVA ~~use on foods into the international market~~ used. Smaller ~~Several large markets with significant potential for use of the~~ SANOVA ~~process~~customers ~~have already~~are ~~been~~ billed ~~identified~~at ~~and efforts will therefore be focused on~~ the ~~submission~~time ofSANOVA ancomponents ~~"international~~are ~~registration~~shipped ~~dossier"~~to ~~into~~their ~~each~~facilities. Payment ofin ~~these~~either ~~new~~case ~~markets~~is ~~seeking~~due ~~ultimate~~fifteen ~~acceptance for all of the currently~~to ~~approved~~ thirty ~~domestic~~days ~~uses.~~after billing.

Primarily, developments in support of this business unit during fiscal 2002 focused on two key areas: the finalization of formulation efforts for a new teat dip product targeted for ultimate introduction into the US market; and the regulatory approval and launch of the Company's newest product into the European marketC. ~~Significant discoveries in the basic~~ Research ~~chemistry~~ and ~~excipient~~Product interaction areas have led to unique findings which management believes are patentable. As a part of these efforts, elements of the chemistry discoveries of the last year were also submitted for patent approval to further extend the proprietary coverage of the Company's teat dip technology. Development

~~Within~~Recognizing ~~Europe,~~ that ~~submissions~~Alcide’s ~~have~~long-term ~~now~~survival ~~been~~and ~~made~~growth inis ~~all~~significantly ~~key~~dependent ~~markets~~on ~~seeking~~the strength ~~approval~~of ~~for~~its proprietary position, specific emphasis has been placed on enhancing the Company'’s ~~first~~knowledge ~~new~~and ~~product~~understanding ~~introduction~~of key processes in ~~this~~the field ~~market~~of ~~area~~acidified insodium ~~ten~~chlorite ~~years.~~vis-à-vis ~~UDDERgold~~the ~~Platinum~~basis for the antimicrobial ~~represents~~ performance anof ~~advance~~the ~~over~~biocidal system, the ~~original~~development ~~UDDERgold~~of ~~product~~new inassay ~~both~~methodologies for ~~performance~~anticipated future residue determination needs and ~~conditioning~~the ~~capabilities~~integration of this knowledge into the new product formulation development efforts. The ~~Approvals~~key ~~and~~driver ~~launches~~for ~~have~~this ~~already~~focus ~~occurred~~is inthe ~~France~~increasingly competitive ~~and~~marketplace ~~Hungary~~arising ~~with~~from ~~more~~the ~~expected~~presence of a number of newly approved ~~during~~ technologies ~~2003~~(Food Safety) and growing number of generic products (Animal Health). New ~~Approval~~patent ~~for~~submissions ~~the~~have emanated ~~new~~from ~~product~~this ~~was~~effort ~~also~~and ~~attained~~more are expected in ~~Canada~~the ~~during~~future ~~fiscal~~as ~~2002.~~the effort continues.

~~During fiscal~~All ~~2003,~~of ~~new~~the research and product development ~~efforts~~activities ~~will~~funded ~~continue~~by ~~focus ing on~~ the ~~creation~~Company ofduring ~~formulations that further improve performance, conditioning and other product~~fiscal ~~characteristics of~~ ~~importance~~2003 towere ~~the~~conducted ~~end~~under ~~user. Significant effort will continue to be placed in~~ the ~~regulatory~~Company’s ~~area~~direct assupervision ~~the~~at ~~approvals~~contract ~~for~~research facilities ~~UDDERgold~~or ~~Platinum continue processing~~in-house.

~~The~~A ~~Company~~second ~~considers~~and significant ~~protection~~component of ~~its~~our ~~technologies~~research byand ~~United~~development ~~States~~program has focused on addressing the increasingly more stringent and ~~foreign~~sophisticated ~~patents~~demands toof bethe regulatory anagencies ~~important~~that ~~aspect~~control introduction of ~~its~~our ~~business.~~products Noto ~~assurance~~the market. While ~~can~~the beCompany ~~given,~~typically ~~however,~~ depends ason contract assistance to ~~the~~submit ~~validity,~~registrations ~~enforceability~~in orforeign ~~scope~~markets, ofall submissions, ~~its~~support ~~patent~~documentation ~~protection.~~and ~~Should~~supportive ~~the~~data ~~patents~~are begenerated ~~held~~and compiled ~~invalid,~~in-house ~~become~~by ~~ineffective~~Alcide’s own regulatory specialists.

6While many of the research and development programs undertaken by the Company and described in this report, 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 may be commercially viable.

If Alcide ~~against~~ violates ~~competition~~regulatory requirements at any stage, whether before or ~~expire~~after marketing ~~prior~~approval tois ~~the~~obtained, ~~Company's~~Alcide ~~successful~~may ~~development~~be offined, forced to remove a product from the market ~~for~~or ~~its~~experience ~~products~~other adverse consequences, ~~there~~including ~~may~~delay, which becould amaterially ~~material~~harm ~~adverse~~our ~~impact~~financial onresults. Additionally, the Company's ~~business.~~may ~~Furthermore,~~not be able to obtain the labeling ~~possibility~~ claims ofnecessary ~~patent~~or ~~infringement~~desirable byfor ~~third~~product ~~parties~~promotion. We ~~cannot~~also may be ~~entirely~~required ~~eliminated.~~to undertake post-marketing testing. In ~~the~~addition, ~~event~~if Alcide or other parties identify side effects after any of ~~such~~our ~~infringement~~products byare ~~third~~on ~~parties~~the market, or if manufacturing ~~the~~problems ~~Company~~occur, isregulatory ~~not~~approval ~~successful~~may inbe ~~terminating~~withdrawn ~~such~~and ~~infringement~~ reformulation of our products, ~~the~~additional ~~viability~~testing, changes in labeling of ~~the~~our products, ~~Company~~and/or ~~could~~additional bemarketing ~~severely~~applications ~~and~~may ~~adversely~~be ~~affected~~required.

~~Conversely,~~The no requirements ~~assurances~~governing ~~can~~the beconduct ~~given~~of ~~that the manufacture~~testing, ~~use~~manufacturing orand ~~sale~~marketing of Alcide products outside the ~~Company's~~United ~~products~~States ~~will~~vary ~~not~~widely ~~infringe~~from ~~the~~country ~~patent~~to country. Foreign ~~rights~~approvals ofmay ~~others~~take longer to obtain than domestic government approvals and can involve additional testing. Foreign Inregulatory ~~the~~approval processes ~~event~~include all of ~~infringement~~the orrisks ~~alleged infringement,~~associated with the ~~Company's~~US ~~ability~~government toapproval processes. Also, ~~market~~approval ~~its~~of ~~products~~a ~~could~~product by beUS ~~adversely~~regulators ~~affected~~does ~~and~~not ~~the~~ensure ~~viability~~approval of the ~~Company~~same ~~could~~product beby ~~severely~~the ~~and~~health authorities ~~adversely~~of ~~affected.~~other countries.

~~The~~1. Food ~~Company owns the following issued United States patents:~~ Safety

~~U.S.~~During fiscal ~~Patent~~ 2003, NoFood Safety research and development activities continued to be heavily weighted toward process validation under commercial conditions. 4 Teams of Alcide engineers accompanied by field research managers conducted a number of evaluations to determine the performance of the SANOVA process on red meats,~~891~~ produce,~~216 "Disinfecting~~ ~~Compositions~~fish and ~~Methods~~poultry ~~Therefor"~~under a wide variety of commercial use conditions.

UOn the regulatory front, the Company initiated a number of new filings seeking approval of the SANOVA process outside of the United States.S By fiscal year-end, submissions had been made and were under review in a number of key markets selected as representing substantial opportunities for the SANOVA process. Submissions were also made and final approvals granted in two ~~Patent~~ additional Nocountries – Chile and Mexico. ~~4,956,184~~ ~~"Topical~~ The ~~Treatment~~Company also filed a petition to the Food and Drug Administration (“FDA”) to amend the current approval for use of ~~Genital~~acidified ~~Herpes~~sodium ~~Lesions"~~chlorite on seafood to permit the use of a higher dose range. Regulatory process management – for current and new filings – will continue to require a significant amount of effort in the next fiscal year.

~~U.S. Patent No. 4,986,990 "Disinfection Method and Composition Therefor"~~ 5

U2.S. Animal ~~Patent No. 5,019,402~~ ~~"Composition~~Health ~~and Procedure for Disinfecting Blood and Blood Components"~~ Products

~~U.S. Patent~~During ~~No. 5~~fiscal 2003,~~100,652~~ new product development efforts continued to focus on the creation of new ~~"Disinfecting~~ teat ~~Oral~~dip ~~Hygiene~~formulations ~~Compositions~~that further improve performance, conditioning and ~~Process~~other product ~~for~~characteristics ~~Using~~of importance to the ~~Same"~~end user. Significant effort will continue to be placed in the regulatory area during fiscal 2004, as current submissions for UDDERgold Platinum are processed and new submissions are lodged.

UD.S. Patents ~~Patent No. Re. 36,064~~ ~~"Disinfection Method~~ and ~~Composition Therefor"~~ Trademarks

~~U.S.~~The Company ~~Patent~~ considers Noprotection of its technologies by United States and foreign patents to be an important aspect of its business. 5 No assurance can be given,~~252~~ however,~~343~~ as to the validity, enforceability ~~"Method~~ or ~~and~~scope ~~Composition~~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 ~~Preventing~~its products, ~~and~~there ~~Treatment~~may be a material adverse impact on the Company’s business. Furthermore, the possibility of ~~Bacterial~~patent ~~Infections"~~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.

UConversely, no assurances can be given that the manufacture, use or sale of the Company’s products will not infringe the patent rights of others.S. The Company’s competitors or others may have ~~Patent~~ or Noacquire patent rights that they could enforce against the Company. If Rethey do so, Alcide may be required to alter its products, pay licensing fees or cease activities. If 37Alcide’s products conflict with patent rights of others,~~263~~ third parties could bring legal actions against Alcide ~~"Anti-inflammatory~~ claiming ~~Formulations~~damages and seeking to enjoin manufacturing and marketing and sales of the affected products. If these legal actions are successful, in addition to any potential liability for ~~Inflammatory~~damages, ~~Diseases"~~the Company could be required to obtain a license in order to continue to manufacture or market the affected products. The Company may not prevail in any legal action and a required license under the patent may not be available on acceptable terms or at all.

UThe cost to Alcide of any litigation or other proceedings relating to intellectual property rights, even if resolved in Alcide’s favor, could be substantial.S Some of Alcide’s competitors may be better able to sustain the costs of complex patent litigation because they have substantially greater resources. If third parties file patent applications, or are issued patents claiming technology also claimed by the Company in pending applications, the Company may be required to participate in interference proceedings in the Patent ~~No. 5~~Trademark Office,~~389~~ or opposition proceedings abroad,~~390~~ to determine priority of ~~"Process~~ invention. Alcide ~~for~~may ~~Removing~~be ~~Bacteria~~required ~~from~~to participate ~~Poultry~~in interference or opposition proceedings involving its issued patents and ~~Other~~pending ~~Meats"~~applications. The Company may be required to cease using the technology or license rights from prevailing third parties as a result of an unfavorable outcome in an interference proceeding. Such a prevailing party may not offer Alcide a license on commercially acceptable terms.

U1.~~S. Patent No. 5,597,561 "Adherent Disinfecting Compositions and Method of Use in Skin Disinfection"~~ Patents

~~U.S. Patent~~The ~~No. 5,628,959~~Company ~~"Composition~~ owns ~~and~~the ~~Method~~following ~~for~~issued ~~Sterilizing~~United ~~Dialyzers"~~States patents:

U.S. ~~Patent~~ Patent No. 5 4,~~651~~891,~~977 "Adherent Disinfecting Compositions and Methods Related Thereto"~~ 216

~~U.S.~~“Disinfecting ~~Patent No. 5,667,817~~ ~~"Method~~Compositions and ~~Composition~~Methods ~~for the Prevention and Treatment of Female Lower Genital Tract Microbial Infections"~~ Therefor”

U.S. ~~Patent~~ Patent No. 5 4,~~772~~956,~~985 "Composition and Methods for Treatment of Skin Lesions"~~ 184

7“Topical Treatment of Genital Herpes Lesions”

U.S. ~~Patent~~ Patent No. 6 4,~~063~~986,~~425 "Method for Optimizing the Efficacy of Chlorous Acid Disinfecting Sprays for Poultry and Other Meats"~~ 990

~~U.S.~~“Disinfection ~~Patent No. 6,096,350~~ ~~"Compositions~~Method and ~~Methods~~Composition ~~for Prevention and Treatment of Diseases Associated With Honey Bees"~~ Therefor”

U.S. ~~Patent~~ Patent No. 6 5,~~120~~019,~~731 "Frozen Chlorine Dioxide-Containing Composition and Methods Related Thereto"~~ 402

~~U.S.~~“Composition ~~Patent No. 6,123,966~~ ~~"Stabilized~~and ~~Two-Part~~Procedure for Disinfecting ~~System~~Blood and ~~Compositions~~Blood ~~and Methods Related Thereto"~~ Components”

~~Two additional~~ U.S. ~~patent applications are pending~~Patent No. ~~Numerous corresponding foreign applications are issued or pending.~~ 5,100,652

~~The~~“Disinfecting ~~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~~Oral ~~chlorite~~Hygiene ~~composition.~~Compositions ~~The~~and ~~Company's~~Process ~~second~~for ~~patent,~~Using ~~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.~~ Same”

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. 6

~~No assurances~~U.S. ~~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~~Patent ~~liability~~ No. ~~to the holder of the rights and a possible obligation to terminate use in such territory~~Re. 36,064

If“Disinfection ~~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~~Method ~~were~~and toComposition ~~infringe the rights of another in a territory, there would be an adverse impact on the Company.~~ Therefor”

~~In addition to the Company's mark Alcide®, the other Company marks registered in the~~ U.S. ~~are SANOVA®, Exspor®~~Patent No. ~~LD®~~5, ~~UDDERgold®~~252, ~~4XLA®, Pre-Gold®, DIPPINgold® and silverQUICK®.~~ 343

~~These same~~“Method ~~marks, as well as UDDERgold Platinum®, have been registered outside of the U.S. in markets where the Company has determined that there is a commercial opportunity~~and ~~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,~~Composition ~~the~~for ~~spelling~~Preventing ~~variant~~and ~~DIPPINguld®~~Treatment ~~has~~of ~~been~~Bacterial ~~registered in Denmark, Norway, Finland and Sweden.~~ Infections”

8U.S. Patent No. 5,389,390

~~Various~~“Process ~~Alcide~~for Removing ~~products~~Bacteria ~~include in their formulations chemical components available~~ from ~~few~~Poultry (and inOther 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 changed formulation. Meats”

~~The Company competes in substantially all of its markets on the basis of quality and technical innovation~~U.S. ~~A number of companies have announced their intention to~~Patent ~~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~~ No. ~~Additionally~~5, ~~there exist in the marketplace~~597, ~~products that are known to be competitive with the Company's products.~~ 561

~~The~~“Adherent ~~dairy~~ Disinfecting ~~market~~Compositions ~~into which UDDERgold Plus, UDDERgold Platinum, UDDERgold, Pre-Gold~~ and ~~4XLA~~Method ~~teat dips are sold is a highly fragmented worldwide market in which major specialty chemical companies compete. The major classes~~ of ~~products~~Use ~~sold~~ in ~~this~~Skin 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 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. Disinfection”

~~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~~Patent ~~directed at reduction of food borne pathogens. Of these, trisodium phosphate and peroxyacetic acid are 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~~No. ~~Irradiation technology has been approved by USDA and FDA~~5, ~~but is not broadly used by the poultry or red meat industries and~~628, in the limited cases where irradiation is used, the process may involve a secondary treatment outside the processing plant. Steam, hot water, organic acid and peroxyacetic 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 juice pasteurization and potentially may be utilized in the future as an antimicrobial intervention for sausage and other processed food products. 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. 959

~~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~~“Composition ~~Canada, the United Kingdom, Republic of Ireland, Denmark, The Netherlands, Spain, Portugal, New Zealand, Brazil, France, Italy, Chile, Colombia, Argentina, South Korea~~ and ~~India.~~Method ~~The~~for ~~product~~Sterilizing ~~is legally sold without formal registration in the United States, Greece, Hungary and Mexico.~~ Dialyzers”

~~4XLA teat dip has been registered in Canada, The Netherlands, Republic of Ireland, Switzerland, New Zealand, Chile, Denmark, Brazil, Portugal, Colombia and Argentina~~U.S. ~~The product is~~Patent ~~legally~~ No. ~~sold without formal registration in the United States~~5, ~~Mexico~~651, ~~Belgium, Italy, Spain and Cyprus.~~ 977

9“Adherent Disinfecting Compositions and Methods Related Thereto”

~~UDDERgold Plus~~U.S. ~~sales have been expanded to include Japan and Taiwan in addition to the United States, without formal registrations~~Patent No. 5,667,817

~~UDDERgold~~“Method and ~~Platinum~~ Composition ~~has~~for ~~been~~the ~~released~~Prevention inand ~~Hungary~~Treatment ~~after receiving approval as a variation~~ of ~~the~~Female ~~UDDERgold~~Lower ~~product.~~Genital ~~Similar applications are pending approval in other European markets, as~~Tract ~~well~~ Microbial ~~as Canada.~~ Infections”

~~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~~U.S. ~~Additional approval for use of the~~Patent ~~product in Canada was received in September 1999~~ No. ~~The product is now actively marketed and is being utilized by a number of major poultry processing companies.~~ 5,772,985

In“Composition ~~May 2001~~ and ~~the~~Methods ~~Company's Food Additive Petition~~ for ~~post-chill~~Treatment ~~use~~ of ~~SANOVA~~Skin ~~on poultry was approved by the FDA and by USDA. The product is now being used for this purpose by four major processing plants.~~ Lesions”

~~The Company's Food Additive Petition was approved by FDA in March 1998 and subsequently by USDA in February 2000~~U. ~~In February 2001 the Company resolved labeling issues with USDA, which determined that use of SANOVA as a post-chill application on beef would not require supplemental product labeling~~S. ~~This event enabled the Company to begin product~~Patent ~~commercialization. Four customers are presently using SANOVA for red meat carcass disinfection prior to chilling and two customers are utilizing the product as an antimicrobial intervention on beef~~ ~~parts and trim after chilling and boning~~No. ~~During the year~~6, the Company conducted several process validation studies directed at mitigating the initial processing and organoleptic problems encountered with application to parts and trim. Management believes that the process validation trials have been successful and hopes that this should lead to further expansion in this industry segment. 063,425

~~SANOVA use~~“Method ~~on cooked ready-to-eat sausages, comminuted meats and ready-to-eat deli products was approved by FDA and USDA in~~for ~~June 2001.~~ Optimizing ~~Subsequently, in October 2001, USDA raised issues concerning~~ the ~~degree~~Efficacy ~~to which SANOVA use would require supplemental labeling~~ of ~~treated~~Chlorous ~~product.~~Acid InDisinfecting ~~January 2002, USDA~~Sprays ~~concluded~~for ~~that~~Poultry ~~no labeling would be required. Subsequently, in March 2002, the Company began process validation studies under commercial conditions with several major processing companies.~~and ~~Commercialization~~ Other ~~of SANOVA use in this market category is expected to begin during this fiscal year.~~ Meats”

~~In December 1998 Alcide submitted a Food Additive Petition to the FDA for the use of SANOVA on raw agricultural commodities (fruits and vegetables)~~U. ~~The petition was approved in September 1999~~S. ~~The 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 on~~Patent ~~intact fruits and vegetables in processing plants. Marketing an antimicrobial intervention under EPA authority requires supplemental registration by the EPA authorities in each of the fifty states.~~ The Company began to receive such state approvals during the fourth fiscal quarter of 2002 and at fiscal year end approximately one half of the states had approved SANOVA use on intact fruits and vegetablesNo. 6,096,350

~~In April~~ ~~2002,~~“Compositions ~~the use of SANOVA on cut, sliced~~ and ~~processed~~Methods ~~fruits and vegetables was granted by the FDA, which has sole regulatory authority over this market segment. This, combined with the earlier EPA approval~~ for ~~intact~~Prevention ~~fruits~~ and Treatment ~~vegetables,~~of ~~now~~Diseases ~~allows~~Associated ~~for~~With ~~SANOVA~~Honey ~~commercialization~~ Bees”

10U.S. Patent No. 6,120,731

within“Frozen aChlorine limitedDioxide-Containing partComposition ofand theMethods produceRelated industry. Commercialization efforts are expected to begin during this fiscal year. Thereto”

~~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~~Patent ~~manufacturing have been obtained~~ No. 6,123,966

~~The~~ “Stabilized ~~corporate~~Two-Part ~~office~~Disinfecting ~~and~~System ~~laboratory staff of 22 employees occupy a 6,751 square foot leased facility in Redmond, Washington. Alcide's engineering, operations~~ and ~~maintenance staff of 15 employees occupy a 6,240 square foot leased office and warehouse facility in St. Louis, Missouri. In addition, the Company employs 7 field maintenance employees, 2 technical~~ ~~representatives~~Compositions and 4Methods ~~sales~~Related ~~management/marketing employees.~~ Thereto”

~~The Company~~U.S. ~~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~~Patent ~~development~~ No. 6,524,624

~~The~~“Two-Part ~~Company~~ Disinfecting isSystems ~~not~~and aCompositions ~~party to any collective bargaining agreement~~ and ~~considers~~Methods ~~its~~Related ~~employee relations to be excellent~~Thereto. ”

~~The~~U.S. ~~Company's advertising and promotion activities consist of cooperative promotional activities with its distributors of Animal Health products and participation~~Patent ~~in trade shows and exhibits sponsored by the poultry, red meat and produce industries~~ No. 6,328,909

~~All manufacturing of the Company's Animal Health and sterilant and disinfectant products is performed by contract manufacturers having appropriate FDA~~“Frozen ~~registration approval for such manufacturing. Product released for sale is dependent on quality control testing by Alcide. A change in contract manufacturers, however, would require qualification of~~ ~~the~~Chlorine ~~manufacturer~~Dioxide-Containing ~~(if~~Composition ~~not already qualified) by the FDA~~ and byMethods ~~some~~Related ~~international FDA equivalent~~Thereto. Such change could adversely affect Company sales short-term. Many qualified manufacturers regularly compete in the contract packaging marketplace. Under the new licensing arrangement with IBA, (see Distributor Arrangements on page 4) IBA will be responsible for manufacturing its own products. ”

~~SANOVA~~Two additional is U.S. ~~manufactured~~patent ~~and~~applications ~~diluted~~are atpending. Numerous ~~each~~corresponding ~~customer's~~foreign ~~site,~~applications ~~utilizing~~are ~~raw~~issued ~~materials~~or ~~supplied by Alcide and mixed, diluted and pumped in micro-processor controlled equipment owned by Alcide~~pending.

The Company’s ~~ITEM~~original 1Apatent, U.S. ~~Executive~~Patent ~~Officers~~No. ofRe. 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.

~~The persons listed in the following table are the current executive officers of the Company. Officers are elected annually. There is no family relationship among any of the directors or executive~~ 7

112. Trademarks

The Company ~~officers~~ has sought to acquire trademark protection, ~~and~~primarily ~~none~~by the filing of applications for registration of its marks in a large number of countries. There can be no assurance that a filed application will result in a registration; that the ~~persons~~issuance ~~has~~of ~~been~~a ~~involved~~trademark registration ~~during~~to the ~~past~~Company ~~five~~or ~~years~~the acquisition of rights through use will provide the Company with adequate protection against infringement in ~~any~~a ~~legal~~selected territory; ~~proceedings~~that ~~described~~the Company will be able to expand its product line under a registered mark in ~~applicable~~some ~~Securities~~territories; ~~and~~or, ~~Exchange~~that ~~Commission~~the ~~regulations.~~Company’s trademark rights cannot be terminated in some territories such as by petition by others claiming superior rights.

Name	Age	Positions with the Company and Principal Occupation or Employment during the past Five Years	Executive Officer Since
Joseph A. Sasenick	62	Chairman of the Board of the Company since April 2001. Director of the Company since 1991; Chief Executive Officer since 1992; President 1992 until April 2001; 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., a wholly owned subsidiary of Alcide Corporation, since January 1999. Presently serves on the Board of Directors of the Washington Biotechnology and Biomedical Association, 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
John P. Richards	60	President since April 2001; Chief Financial Officer since 1991; Secretary since 1994; 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	52	Executive Vice President, Chief Scientific Officer of the Company since March 1998; previously Director, Animal Health Research and Vice President, Clinical Research, August 1992 to March 1998. 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	51	Corporate Vice President and General Manager, Animal Health since February 2001. Prior to employment at Alcide, served as General Manager and Chief Operating Officer of Universal Marketing Services, Inc. from 1998 to 2001. Previously worked for ABS Global for 23 years in various sales, marketing and management positions.	2001

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.

The Company would be adversely impacted if rights to trademarks selected by the Company are ~~ITEM~~ unavailable 2.in ~~Properties~~ a territory, if a Company trademark registration were to become invalid, or if the Company’s business name or trademarks are found to infringe the rights of another in a territory.

~~The~~In ~~Company's~~addition ~~SANOVA~~to the ~~food antimicrobial is stored, mixed and applied on site at each customer'~~Company’s ~~plant~~mark ~~by means of equipment owned by~~ Alcide~~. Alcide's aggregate cost for equipment at processing plants on May 31~~®, ~~2002 was $14,400,000. In addition,~~ the other Company ~~had~~marks ~~purchased~~registered ~~SANOVA equipment components and construction~~ in ~~progress totaling $3,000,000 on~~ ~~May 31,~~ the ~~2002~~U.S. ~~Each~~are ~~new plant utilizing the~~ SANOVA®, ~~System~~Exspor® ~~will require an investment estimated at between $20~~LD®,~~000~~ ~~and $500~~UDDERgold®,~~000~~ 4XLA®, ~~depending~~Pre-Gold®, onDIPPINgold® ~~plant~~and ~~size~~silverQUICK®.

12These same marks, as well as UDDERgold Platinum®, have been registered outside of the U.S. in markets where the Company has determined that there is a commercial opportunity for the products. 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 ~~ITEM 3. Legal Proceeding~~ Materials

~~None~~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 changed formulation. There can be no assurance that Alcide’s reliance on these suppliers will not result in problems with product supply. Interruptions in the availability, or increases in costs, of products could have a material adverse effect on the Company’s results of operations.

~~ITEM 4~~F. ~~Submission of Matters to a Vote of Security Holders~~ Competition

~~None~~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’s products. Additionally, there exist in the marketplace, products that are known to be competitive with the Company’s products. Alcide’s competitors have, or have access to substantially greater financial, technical and human resources than Alcide. In addition, many of these competitors have significantly greater experience and resources than Alcide in research and development and regulatory approval procedures, as well as in marketing and sales and achieving manufacturing efficiencies.

131. Dairy Industry

The market into which UDDERgold 5-Star, UDDERgold Platinum, UDDERgold, Pre-Gold and 4XLA teat dips are sold is a highly fragmented worldwide market in ~~PART~~ which II major specialty chemical companies compete. The major classes of products sold in this market are iodophors and chlorhexidines. Domestically, where teat dips are not highly regulated, there are a large number of competitors but the top four who control over 60% of the market are West Agro/DeLaval, IBA, Westalia Surge and Ecolab. Globally, DeLaval and Ecolab are our key competitors. 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 marketplace. ABS Global, Inc., the Company’s former distributor, Ecolab and Westalia Surge have introduced such products. Management believes, however, that the expired patent’s technology is inferior to that represented by Alcide’s more recent patents.

~~ITEM 5. Market for the Registrant's Common Stock and Related Stockholder Matters~~ 8

~~The Company's common stock ("Common Stock") has been publicly traded since May 26, 1983 in the over-the-counter market on the~~2. Food ~~National~~ Safety ~~Association of Securities Dealers Automated Quotation System ("NASDAQ") under the symbol ALCD.~~ Antimicrobials

The market for ~~following~~ disinfection ~~table~~of ~~sets~~food ~~forth~~products ~~the~~is ~~high~~dynamic and ~~low~~rapidly ~~stock~~emerging ~~prices~~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 sold by Rhodia and peroxyacetic acid sold by Ecolab are used within the ~~Common~~poultry ~~Stock~~processing industry in a manner similar to the Company’s product, SANOVA. Chlorine dioxide and ozone are used 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, where irradiation is used, the process may involve a secondary treatment outside the processing plant. Steam, hot water, organic acid and peroxyacetic acid rinses are broadly used in the red meat industry on ~~NASDAQ~~carcasses prior to chilling for pathogen control. Ultra high pressure technology is being used in the ~~fiscal~~fruit ~~quarters~~juice ~~indicated,~~industry for juice pasteurization and potentially may be utilized in the future as ~~reported~~an antimicrobial byintervention ~~NASDAQ~~for sausage and other processed food products. 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, broadly accepted 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.

Common Stock	High	Low
Year Ended May 31, 2001
First Quarter	19.88	13.50
Second Quarter	37.00	14.06
Third Quarter	33.00	21.50
Fourth Quarter	34.50	19.69
Year Ended May 31, 2002
First Quarter	34.00	26.95
Second Quarter	30.80	20.40
Third Quarter	25.75	21.96
Fourth Quarter	25.25	22.00

G. Government Regulation

~~No dividends were declared or paid for these periods~~1. ~~The Company has never paid dividends on its Common Stock. The Company currently intends to retain future earnings for use in its~~ Dairy ~~business and, therefore, does not anticipate paying cash dividends in the foreseeable future.~~ Industry

OnThe Company’s ~~August 1~~ products sold to the dairy industry require registration for sale in a number of international markets. UDDERgold teat dip has been registered in Canada, ~~2002~~the United Kingdom, ~~there~~Republic ~~were~~of Ireland, ~~approximately~~Denmark, 1The Netherlands,~~440~~ ~~Common~~Spain, ~~stockholders~~Portugal, ofNew ~~record~~Zealand, Brazil, France, Italy, 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, ~~ITEM~~ New 6Zealand, Chile, Denmark, Brazil, Portugal, Colombia and Argentina. The ~~Selected~~product ~~Financial~~is ~~Data~~ legally sold without formal registration in the United States, Mexico, Belgium, Italy, Spain and Cyprus.

	Fiscal Years Ended
	May 31, 1998		May 31, 1999			May 31, 2000			May 31, 2001			May 31, 2002
Net sales	$	12,998,952	$	11,220,528		$	12,440,449		$	17,957,975		$	21,988,690
Net income (loss)		3,222,723		(974,463	)		(447,073	)		1,537,525	*		1,781,252
Diluted earnings (loss) per common share and equivalents		1.16		(.38	)		(.18	)		.58	*		.65
Total assets		16,369,337		15,619,987			14,530,321			19,002,600			21,865,333
Long-term obligations		—		316,000			158,000			—			26,346
Redeemable Preferred Stock		212,936		190,377			190,377			190,377			179,614

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

14UDDERgold Platinum has received approval as a variation of UDDERgold in the United Kingdom, the Netherlands, and Italy. Similar applications are pending approval in other European markets and in Canada. The product is legally sold without formal registration in France.

~~Selected~~2. Food Processing ~~Quarterly Financial Data for the Years Ended May 31, 2001 and May 31, 2002 (unaudited)~~ Industry

	Net Sales		Gross Profit		Net Income			Diluted Earnings per Share
Year Ended May 31, 2001
First Quarter	$	4,246,569	$	2,227,310	$	381,431		$	.15
Second Quarter		4,692,638		2,551,016		606,481			.23
Third Quarter		4,158,786		2,107,113		251,520	*		.09	*
Fourth Quarter		4,859,982		2,154,668		298,093	*		.11	*
Total for Year	$	17,957,975	$	9,040,107	$	1,537,525		$	.58
Year Ended May 31, 2002
First Quarter	$	5,399,830	$	2,629,130	$	321,101		$	.12
Second Quarter		5,731,980		2,772,855		438,568			.16
Third Quarter		5,500,252		2,586,883		540,316			.20
Fourth Quarter		5,356,628		2,441,291		481,267			.18
Total for Year	$	21,988,690	$	10,430,159	$	1,781,252		$	.65

a. Poultry

The Company’s ~~ITEM~~Food 7.Additive ~~Management's~~Petition ~~Discussion~~for pre-chill use of SANOVA was approved by FDA in April, 1996 and ~~Analysis~~by USDA in January 1998. Additional approval for use of ~~Financial~~the ~~Condition~~product in Canada was received in September 1999. The product is now actively marketed and ~~Results~~is being utilized by a number of ~~Operations~~ major poultry processing companies.

~~Risk~~In May 2001, the Company’s Food Additive Petition for post-chill use of SANOVA on poultry was approved by FDA and ~~Uncertainty~~ by USDA. The product is now being used for this purpose by six major processing plants.

This report includes forward looking statements which involve risk and uncertainty including, without limitation, risk of dependence on patents, trademarks, third party suppliers, market acceptance of and demand for the Company's products, distribution capabilities and the development of technology and government regulatory approval thereofb. Red Meat

~~Sentences~~The Company’s or Food ~~phrases~~Additive ~~that~~Petition ~~use~~was ~~words~~approved ~~such~~by asFDA ~~"believes",~~in ~~"anticipates",~~March ~~"hopes",~~1998 ~~"plans", "may", "can", "will", "expects"~~ and ~~others~~subsequently ~~are often used to flag such forward looking statements~~by ~~but~~ USDA ~~their~~in ~~absence~~February ~~does not necessarily mean a statement is not forward looking~~2000. In ~~Such~~February 2001, ~~statements~~the ~~reflect~~Company ~~management's~~resolved ~~current~~labeling ~~opinion~~issues ~~and~~with ~~are~~USDA, ~~designed~~which todetermined ~~help~~that ~~readers understand management's thinking.~~use By of ~~their~~SANOVA ~~very~~as ~~nature,~~a ~~however,~~post-chill ~~such~~application ~~statements~~on ~~are~~beef ~~subject~~would tonot ~~certain~~require ~~risks~~supplemental product ~~and~~labeling. This ~~uncertainties~~event ~~that~~enabled the ~~could~~Company ~~cause actual results~~ to ~~differ~~begin ~~materially~~product ~~from~~commercialization ~~those~~and ~~expected~~a ornumber ~~projected.~~of ~~Readers~~customers are ~~cautioned~~ presently ~~not~~using toSANOVA ~~place~~for ~~undo~~red ~~reliance~~meat oncarcass ~~these~~disinfection ~~forward~~prior ~~looking~~to ~~statements~~chilling ~~which~~as well ~~speak only~~ as ofan ~~the~~antimicrobial ~~date~~intervention ~~hereof.~~on ~~The~~beef ~~Company~~parts ~~undertakes~~and notrim ~~obligation~~after tochilling ~~release publicly any revisions to these forward~~and ~~looking~~ boning. During ~~statements~~fiscal ~~that~~2002 ~~may~~and ~~be made to reflect events or circumstances after~~ 2003, the ~~date~~Company ~~hereof~~conducted orseveral toprocess ~~reflect~~validation ~~the~~studies ~~occurrence~~directed ofat ~~unanticipated events.~~ mitigating the

Substantially all of the Company's products are subject to regulatory approval of or control by various governmental agencies such as the Food and Drug Administration, Department of Agriculture and Environmental Protection Agency in the United States and their equivalents in international markets. The exercise of control and regulatory authority by these agencies can have a material effect on the Company's business directly as it relates to the Company's products and indirectly as it may relate to competitors' products. 9

15initial processing and organoleptic problems encountered with application to parts and trim. Management believes that the process validation trials have been successful and will lead to further expansion in this industry segment.

~~Within the~~SANOVA ~~Animal~~use ~~Health~~on cooked ~~and~~ready-to-eat ~~Surface Disinfectant business segment~~sausages, ~~all~~comminuted ofmeats ~~the~~and ~~Company's~~ready-to-eat ~~Animal~~deli ~~Health~~ products was ~~are~~approved ~~sold~~by ~~through~~FDA ~~distributors~~and ~~having~~USDA ~~exclusive~~in ~~or semi-exclusive~~June ~~rights to specified geographical territories~~2001. Subsequently, ~~The~~in ~~loss~~October of2001, aUSDA ~~distributor~~raised ~~can~~issues ~~have~~concerning athe ~~material~~degree to ~~effect~~which onSANOVA ~~the~~use ~~Company's~~would ~~sales,~~require ~~particularly,~~supplemental inlabeling ~~the~~of ~~short-term until~~treated a product. In ~~replacement~~January ~~is found~~2002, ~~contracted~~USDA concluded ~~and~~that ~~trained~~no inlabeling ~~the~~would ~~sale~~be ~~of the Company's products~~required. In ~~Further~~March 2002, the Company ~~faces~~began ~~well~~process ~~established~~validation ~~competition~~studies inunder commercial ~~each~~conditions ofwith ~~the~~several ~~markets~~major ~~where~~processing ~~its Animal Health products are sold~~companies. Commercialization ~~Such~~of ~~competition,~~SANOVA ~~particularly,~~use ~~competition~~in ~~claiming~~this market ~~equivalence~~category tobegan ~~the~~in ~~Company's~~fiscal ~~products, can limit the sales potential for Alcide's products~~2003.

~~Alcide's Food Safety products participate in a rapidly evolving marketplace which by its nature attracts innovation and competing technologies~~c. Fruits ~~The Company's SANOVA sales are based on performance, price~~ and ~~convenience. Introduction of competitive products better meeting these customer needs can have a material impact on the Company's ability to sell and expand the use of its~~ ~~SANOVA products.~~ Vegetables

~~The~~In December ~~Company's~~ 1998, ~~business~~Alcide ~~model~~submitted ~~for~~a ~~its~~ Food ~~Safety~~Additive ~~business~~Petition ~~involves~~to athe ~~capital~~FDA ~~investment~~for ~~ranging~~the ~~from~~use ~~$20,000~~of SANOVA toon ~~$500,000~~raw ~~for~~agricultural ~~each~~commodities ~~user~~(fruits ~~plant~~and ~~site~~vegetables). The ~~depending~~petition onwas ~~the~~approved ~~size~~in ~~of the operation.~~September 1999. The ~~capital~~EPA ~~investments~~concurrently ~~are~~stated ~~depreciated~~that it ~~over~~intended ato ~~five-year~~exert ~~life~~its ~~while~~regulatory ~~customer~~authority ~~contracts~~over ~~range~~this ~~from~~area. Subsequently, ~~one~~in toMarch ~~four~~2001 ~~years.~~EPA Ifgranted aits approval ~~substantial~~for ~~number~~use of ~~customers~~SANOVA ~~elect~~on ~~not~~intact tofruits ~~renew~~and ~~their contracts,~~vegetables ~~non-productive~~in ~~assets~~processing plants. Marketing ~~would~~an ~~exist~~antimicrobial intervention ~~until~~under ~~new~~EPA ~~customers~~authority ~~are~~requires ~~found.~~supplemental ~~However,~~registration by the ~~Company's~~EPA authorities ~~experience~~in ~~after~~each ~~four~~of ~~years in~~ the ~~Food~~fifty ~~Safety~~states. These ~~business~~registrations ~~is that all customers~~ have ~~renewed~~ ~~their~~now ~~contracts.~~been obtained.

~~Occasionally~~In April 2002, the ~~Company~~use ~~also~~of ~~incurs~~SANOVA ~~installation~~on ~~costs~~cut, ofsliced ~~between~~and ~~$80,000~~processed fruits and ~~$120,000~~vegetables towas granted ~~install~~by the ~~SANOVA~~FDA, ~~equipment~~which ~~components~~has atsole ~~the~~regulatory ~~customer~~authority ~~site~~over ~~and~~this ~~connect~~market segment. This, ~~the~~combined ~~components~~ with the ~~plumbing~~ earlier ~~and~~EPA ~~electrical~~approval ~~interfaces~~for tointact ~~put~~fruits ~~the~~and ~~system~~vegetables, ~~into~~allows ~~operation.~~for ~~The~~SANOVA commercialization ~~capital~~within ~~investments are depreciated over~~ a ~~five-year~~limited ~~life.~~part ~~Installation~~of ~~costs are depreciated over~~ the ~~shorter~~produce ofindustry. Commercialization ~~a five-year~~efforts ~~life~~began orin ~~the contract term~~fiscal 2003.

~~Critical Accounting Policies~~ d. Seafood

~~Animal~~In December ~~Health~~ 2002, ~~and~~Alcide ~~Surface~~submitted ~~Disinfectant~~a ~~sales~~food ~~are~~additive ~~recognized~~petition atto the ~~time~~FDA ofproposing ~~shipment to distributors or to end users. The Company provides a limited warranty to its distributors which limits~~ the same ~~Company's~~ SANOVA ~~obligation~~concentration tolevel ~~replacement~~as ofpreviously ~~defective~~approved ~~product. Such replacements have,~~ for ~~the past several years~~poultry, ~~been~~red ~~less~~meat ~~than~~ and produce.~~1% of net sales.~~ The ~~distributors~~petition ~~have~~is nocurrently ~~contractual~~under ~~right~~review ~~to return~~by ~~unsold product~~ FDA.

163. Sterilants/Disinfectants

~~Commitments~~The Company’s line of hard surface sterilants and ~~Contingencies~~ disinfectants is regulated in the U.S. by EPA and FDA. Appropriate EPA and FDA approvals for sale and manufacturing have been obtained.

~~Leases: The Company leases certain property and vehicles under non-cancelable operating leases that expire through May 2004~~H. ~~Insurance, utilities and maintenance expenses are borne by the Company. There are no contingent rentals or sublease rentals.~~ Employees

~~Line of Credit Payable:~~ The ~~Company~~corporate office ~~has~~and alaboratory ~~$10,000,000~~staff ~~unrestricted line~~ of ~~credit~~21 ~~with~~employees USoccupy ~~Bank.~~a ~~The~~6,751 ~~line~~square offoot ~~credit's~~leased facility ~~current~~in ~~expiration date is August 31~~Redmond, ~~2003~~Washington. ~~Two unsecured~~ ~~advances~~ Alcide’s ~~of $1~~engineering,~~000,000~~ ~~each~~operations ~~have~~and ~~been~~maintenance ~~taken~~staff onof ~~the~~15 ~~line~~employees occupies ofa ~~credit~~6,240 ~~one~~square infoot ~~February 2001~~leased office and ~~another~~warehouse infacility ~~June 2001. Currently, both advances are due~~ in ~~September 2002~~St. ~~The interest~~Louis, ~~rates are approximately 4~~ Missouri.3% In ~~for~~addition, the ~~first~~Company employs ~~advance~~8 ~~and~~field ~~3.9%~~maintenance ~~for~~employees, ~~the~~2 ~~second.~~technical ~~Interest~~representatives isand ~~paid~~4 ~~monthly.~~sales management/marketing employees.

~~SANOVA Agreements:~~ The Company also has ~~signed~~relationships ~~contracts~~ with, ~~poultry~~ and ~~beef~~from ~~processing~~time ~~plants for SANOVA systems~~ to betime ~~installed~~engages inthe FYservices ~~2003, which will cost approximately $2,100,000. As~~ of ~~May 31~~, university ~~2002,~~professors ~~$1,200,000 of the equipment required had been purchased~~ and ~~recorded~~other asqualified ~~construction~~consultants into ~~progress.~~assist ~~The~~it ~~Company had also purchased an additional $1,800,000 of SANOVA equipment~~in ~~components~~ technological onresearch ~~May 31,~~and ~~2002 to support future anticipated growth~~development.

~~Employment Agreements:~~The ~~One~~Company ~~officer~~is not ~~has~~ a ~~one~~party ~~year,~~to ~~automatically~~any ~~renewable,~~collective ~~employment~~bargaining agreement ~~which~~and ~~obligates~~considers ~~the~~its ~~Company~~employee relations to ~~a salary of $260,253 per year. Bonus compensation of 100% of base pay can~~ be ~~earned at the discretion of the Board of Directors~~excellent.

~~Redeemable Class "B" Preferred Stock: On September 30th of each year, the Company redeems a portion of its outstanding Series 2 Class "B" Preferred Stock~~I. ~~The amount~~ Advertising ~~redeemed is equal to .7% of the Company's prior year net income. As the Company recorded net income of $1,781,252 in fiscal 2002, it will redeem 4,750 shares of Series 2 Stock on~~ ~~September 30,~~and ~~2002 for $12,469.00. This will leave a total of $167,145 of Class "B" Preferred Stock to be redeemed in subsequent fiscal years.~~ Promotion

The Company’s advertising ~~currently~~and ~~has~~promotion noactivities ~~commitments~~consist ~~beyond~~of ~~fiscal~~cooperative ~~2004~~promotional activities ~~other~~with ~~than~~its ~~the~~distributors ~~redemption~~ of ~~Class~~Animal ~~"B"~~Health ~~Preferred~~products ~~Stock.~~and ~~The~~participation ~~future~~in trade ~~amounts~~shows toand beexhibits ~~redeemed~~sponsored ~~depend~~by ~~upon~~the ~~future~~poultry, ~~net~~red ~~income~~meat and ~~are~~ ~~not yet known~~produce industries. ~~The following table summarizes the above commitments.~~

	Less than 1 year		FY 2004
Operating Leases	$	172,766	$	120,639
Line of Credit Payable		2,000,000		—
SANOVA Agreements		875,000		—
Employment Agreements		260,253		—
Redeemable Class "B" Preferred Stock		12,469		—
Total Contractual Commitments	$	3,320,488	$	120,639

17J. Manufacturing

~~Financial~~All manufacturing ~~Condition~~of the Company’s Animal Health and ~~Results~~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. A change in contract manufacturers, however, would require qualification of ~~Operations~~ the manufacturer (if not already qualified) by FDA and by some international FDA equivalent. Such change could adversely affect Company sales short-term. Many qualified manufacturers regularly compete in the contract packaging marketplace. Under the licensing arrangement with IBA, IBA is responsible for manufacturing its own products.

~~Fiscal~~SANOVA ~~Year~~is manufactured ~~2002~~and asdiluted ~~Compared~~at ~~with~~each ~~2001~~ customer’s site, utilizing raw materials supplied by Alcide and mixed, diluted and pumped in micro-processor controlled equipment owned by Alcide.

~~Net~~ITEM 1A. Executive Officers ~~Sales~~ of the Company

~~Fiscal~~The ~~year~~persons listed ~~2002~~in ~~sales~~the following table are the current executive officers of ~~$21~~the Company. Officers are elected annually. There is no family relationship among any of the directors or executive officers,~~988,690~~ ~~were~~and ~~22%~~none ~~higher~~of ~~than~~the persons ~~fiscal~~has ~~2001~~been ~~sales~~involved ~~reflecting~~during ~~primarily~~the ~~increased~~past ~~SANOVA~~five ~~sales~~years ~~volume.~~in any legal proceedings described in applicable Securities and Exchange Commission regulations.

Sales of SANOVA antimicrobial for the fiscal year ended May 31, 2002 were $12,229,362, an increase of $3,828,739, or 46% versus SANOVA sales during the preceding fiscal year. The SANOVA sales increase is a direct result of operations added during fiscal 2001 and fiscal 2002. On May 31, 2002, 38 poultry operations and 5 red meat operations were utilizing the SANOVA system to improve the quality of their product.

Name	Age	Positions with the Company and Principal Occupation or Employment during the past Five Years	Executive Officer Since

Joseph A. Sasenick	63	Chairman of the Board of the Company since April 2001; Director of the Company since 1991; Chief Executive Officer since 1992; President 1992 until April 2001; 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., a wholly owned subsidiary of Alcide Corporation, since January 1999. Presently serves on the Board of Directors of the Washington Biotechnology and Biomedical Association, 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

John P. Richards	61	President since April 2001; Chief Financial Officer since August 1991; Secretary since 1995; 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	53	Executive Vice President, Chief Scientific Officer of the Company since March 1998; previously Director, Animal Health Research and Vice President, Clinical Research, August 1992 to March 1998. 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	52	Corporate Vice President and General Manager, Animal Health since February 2001. Prior to employment at Alcide, served as General Manager and Chief Operating Officer of Universal Marketing Services, Inc. from 1998 to 2001. Previously worked for ABS Global for 23 years in various sales, marketing and management positions. Presently serves on the Board of Directors’ and is second Vice President of the National Mastitis Council.	2001

The Company's Animal Health and Surface Disinfectant sales for the fiscal year ended May 31, 2002 were $9,759,328, an increase of $201,976, or 2% over fiscal 2001 reflecting a $841,374 increase in surface disinfectant and ancillary product sales to distributors offset by a decrease of $639,398 in sales of teat dips. 11

~~Cost~~ITEM ~~of Goods Sold~~ 2. Properties

~~Cost~~The ofCompany leases ~~goods~~a ~~sold~~6,751 ~~was~~square ~~53%~~foot offacility ~~net~~in ~~sales~~Redmond, ~~for~~Washington, ~~fiscal~~which ~~2002~~is asused ~~compared~~by the tocorporate ~~50%~~office ofand ~~net~~laboratory ~~sales~~staff. The Redmond facility has adequate capacity for ~~fiscal~~the ~~2001~~Company’s present needs. The ~~(See~~Company ~~page~~also 34leased ~~for~~a ~~net~~6,240 square ~~sales~~foot office and ~~gross~~warehouse ~~margin~~facility byin ~~business~~St. Louis, Missouri, through July ~~segment)~~ 2003. Effective July 25, 2003, the Alcide engineering operations and maintenance staff relocated to a larger 29,000 square foot office and warehouse facility to meet the growing demands of the Food Safety business. The new St. Louis facility has adequate capacity for the Company’s present and foreseeable future needs.

~~Cost of~~ITEM ~~goods sold for the Animal Health and Surface Disinfectant segment increased from 41% of net sales during fiscal 2001 to 43% of net sales in fiscal 2002~~3. ~~The increased cost of~~ Legal ~~goods sold as a percentage of net sales for the segment was caused primarily by the transition to a new distributor and new product launch in France and increased sales in a new line of ancillary~~ ~~products which have a lower gross margin.~~ Proceeding

~~Cost of~~The ~~goods~~Company ~~sold~~is the asplaintiff in a ~~percentage~~patent ofinfringement ~~sales~~lawsuit ~~for~~filed ~~the~~on ~~SANOVA~~October ~~business~~31, ~~segment~~2002 ~~were~~in Federal ~~60%~~District Court for the Western District of ~~net~~Washington, ~~sales~~Alcide Corporation ~~for~~v. ~~fiscal~~Bio-Cide ~~2002~~International, ~~versus~~Inc., ~~59%~~Civil ofAction ~~net~~No. ~~sales~~C02-2232C. Alcide ~~for~~owns ~~fiscal~~U.S. ~~2001~~Patent No. ~~The~~Re ~~increase~~36,064 entitled as“Disinfection aMethod ~~percentage~~and ofComposition Therefor,” issued January 26, ~~sales~~ 1999. In ~~was~~this ~~caused~~lawsuit, ~~primarily~~Alcide has alleged patent infringement by Bio-Cide and seeks an injunction as well as damages. Bio-Cide has not filed any counterclaims, but alleges that the ~~under~~patent is not infringed and is invalid. On May 15, 2003, Bio-~~utilization~~Cide moved for summary judgment of ~~equipment~~invalidity. The ~~during~~Court ~~production~~denied ~~stoppages~~Bio-Cide’s atmotion. Alcide ~~two~~intends ~~SANOVA~~to ~~customers~~vigorously ~~during~~pursue ~~part~~its ofcase ~~fiscal~~against ~~2002~~Bio-Cide. Trial is currently scheduled for February 23, 2004.

~~Research and Development Expense~~ 12

~~Research~~PART and development expenses of $2,639,877 for the fiscal year ended May 31, 2002, were 6% or $160,026 higher than incurred in fiscal 2001. The increase was caused primarily by filling staff positions that were vacant during the preceding year coupled with a $101,000 increase in expenses paid to regulatory consultants hired to assist in registration of SANOVA for new product categories. II

~~Selling,~~ITEM ~~General~~5. Market for the Registrant’s Common Stock and ~~Administrative~~Related ~~Expense~~ Stockholder Matters

~~Selling,~~The ~~general and administrative expense of $5,127,686 for fiscal year 2002 was $876,327, or 21% higher than expenses for fiscal 2001. Major components of the~~Company’s ~~increase~~ common ~~were~~stock ~~$293,000,~~(“Common orStock”) ~~14%~~has ~~increase~~been inpublicly ~~engineering,~~traded ~~selling~~since ~~and~~May ~~administrative expense to support the 46% increase in SANOVA sales revenue coupled with a $318~~26,~~000~~ ~~increase~~1983 in ~~marketing expenses to~~ ~~solidify~~ the over-the-counter ~~Animal~~market ~~Health~~on ~~and~~the ~~Surface~~NASDAQ ~~Disinfectant~~National ~~business~~Market ~~segment~~under ~~and~~the ~~a $154,000 increase in variable compensation expense~~symbol ALCD.

IfThe following ~~SFAS~~ table ~~No. 142~~sets ~~had~~forth ~~been~~the inhigh ~~effect during fiscal 2001~~ and ~~goodwill~~low ~~recorded~~stock inprices ~~February 2001~~of ~~had~~the ~~not~~Common ~~been~~Stock ~~amortized,~~on ~~selling~~NASDAQ for ~~general~~the ~~and~~fiscal ~~administrative~~quarters ~~expense would have been $4~~indicated,~~207,831~~ ~~instead~~as ofreported ~~$4,251,359.~~by NASDAQ.

	High	Low

Common Stock

Year Ended May 31, 2002
First Quarter	34.00	26.95
Second Quarter	30.80	20.40
Third Quarter	25.75	21.96
Fourth Quarter	25.25	22.00

Year Ended May 31, 2003
First Quarter	23.21	14.86
Second Quarter	17.69	13.01
Third Quarter	17.48	12.58
Fourth Quarter	16.75	9.82

~~Interest~~No ~~Income~~dividends were declared or paid for these periods. The Company has never paid dividends on its Common Stock. The Company currently intends to retain future earnings for use in its business and, ~~Interest~~therefore, ~~Expense~~ does not anticipate paying cash dividends in the foreseeable future.

~~Interest~~On ~~income~~August ~~was $71~~22,~~728~~ ~~for the fiscal year ended May 31~~2003, ~~2002,~~there awere approximately ~~substantial decrease from the $139~~1,~~333~~400 ~~earned~~Common ~~during~~stockholders ~~fiscal~~of ~~2001~~record. ~~The decrease was due to lower investable cash resources and lower prevailing short-term interest rates.~~

Fiscal 2002 interest expense of $88,597 was substantially higher than the $18,229 incurred during fiscal 2001 as a direct result of borrowing on the Company's line of credit to support asset purchases for the growing SANOVA business. 13

~~Income~~ITEM ~~Taxes~~ 6. Selected Financial Data

During fiscal 2002, the Company recorded income tax expense of $838,235 at an effective tax rate of 32%, as compared to an income tax expense of $825,360 at an effective rate of 34.9% during fiscal 2001. The lower rate recorded for fiscal 2002 reflects primarily the cumulative benefit of research and development tax credits and extraterritorial income exclusion.

	Fiscal Years Ended
	May 31, 1999			May 31, 2000			May 31, 2001			May 31, 2002		May 31, 2003

Total Revenue	$	11,220,528		$	12,440,449		$	17,957,975		$	21,988,690	$	21,924,454

Net income (loss)	(974,463		)	(447,073		)	1,537,525		*	1,781,252		1,129,610

Diluted earnings (loss) per common share and potential common shares	(.38		)	(.18		)	.58		*	.65		.42

Total assets	15,619,987			14,530,321			19,002,600			21,865,333		21,368,704

Long-term obligations	316,000			158,000			—			26,346		8,140

Redeemable Preferred Stock	190,377			190,377			190,377			179,614		167,145

~~The~~Selected ~~Company~~ Quarterly ~~expects~~Financial ~~its~~Data ~~effective rate~~ for ~~fiscal~~the ~~2003~~Years toEnded beMay ~~approximately~~31, ~~33%~~2002 toand ~~35%~~May of31, ~~pretax income.~~ 2003 (unaudited)

Fiscal Year 2001 as Compared with 2000

	Total Revenue		Gross Profit		Net Income		Diluted Earnings per Share
Year Ended May 31, 2002
First Quarter	$	5,399,830	$	2,629,130	$	321,101	$	.12
Second Quarter	5,731,980		2,772,855		438,568		.16
Third Quarter	5,500,252		2,586,883		540,316		.20
Fourth Quarter	5,356,628		2,441,291		481,267		.18
Total for Year	$	21,988,690	$	10,430,159	$	1,781,252	$	.65

Year Ended May 31, 2003
First Quarter	$	5,045,192	$	2,239,914	$	61,669	$	.02
Second Quarter	5,778,552		2,692,435		434,914		.16
Third Quarter	5,503,594		2,408,355		279,799		.10
Fourth Quarter	5,597,116		2,567,976		353,228		.13
Total for Year	$	21,924,454	$	9,908,680	$	1,129,610	$	.42

~~Net~~* If Statement ~~Sales~~ of Financial Accounting Standards, (“SFAS”) No. 142, “Goodwill and Other Intangible Assets”, had been in effect in fiscal 2001 and goodwill had not been amortized, net income for the year ended May 31, 2001 would have been $1,565,849 and diluted earnings per share would have been $.59.

~~Fiscal year 2001 net sales of $17,957,975 were $5,517,526, 44% higher than fiscal year 2000 sales.~~ 14

~~Sales of~~ITEM ~~SANOVA food antimicrobial for fiscal 2001 were $8,400,623, an increase of $4,511,436, 116% vs~~7. ~~SANOVA sales during the preceding fiscal year. Twenty-eight poultry plants,~~ Management’s ~~processing~~ Discussion ~~approximately five billion pounds of poultry annually~~ and ~~representing~~Analysis ~~roughly 16%~~ of ~~the~~Financial ~~total~~Condition ~~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~~Results ~~Disinfectant sales for the twelve 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.~~ Operations

~~Cost~~Risk ofand ~~Goods Sold~~ Uncertainties

~~Cost~~Risks ofand ~~goods~~uncertainties ~~sold~~that asmay aaffect ~~percentage~~the ofCompany’s ~~sales~~operating ~~was~~results and ~~50%~~business ~~for~~performance include: the ~~fiscal~~Company’s ~~year~~ability ~~ended~~to ~~May 31,~~protect ~~2001,~~its apatents and ~~decrease~~other ofproprietary ~~ten~~rights; ~~points~~the ~~from~~volume ~~the~~and ~~60%~~timing of ~~net~~product sales; ~~for~~pricing; market acceptance of its products; the ~~same~~costs and effects of complying with laws ~~period~~ and ~~last~~regulations ~~year.~~relating ~~Cost~~to the environment and to the manufacture, storage, distribution and labeling of ~~goods~~the ~~sold~~Company’s ~~for~~products; the ~~Animal~~ability ~~Health~~to develop and maintain ~~Surface~~distribution ~~Disinfectant~~and ~~business~~supply ~~segment~~arrangements; ~~was~~the ateffect ~~41%~~of the Company’s accounting policies; changes in ~~both~~tax, fiscal ~~2000~~and governmental and ~~fiscal~~regulatory policies; ~~2001.~~economic ~~SANOVA~~factors ~~cost~~such ofas ~~goods~~the ~~sold~~worldwide aseconomy, ainterest ~~percentage~~rates, currency rates and currency movements; changes in the capital markets affecting the Company’s ability to raise capital; the occurrence of ~~sales~~litigation or claims; ~~improved~~ the ~~substantially~~loss ~~from~~or ~~102%~~insolvency toof ~~59%~~a ~~from~~major FYcustomer, ~~2000~~distributor or supplier; losses of or changes in executive management; the Company’s ability to FYcontinue ~~2001~~product introductions and ~~this~~technological ~~growing~~innovations; ~~business~~and ~~segment~~other ~~accounted~~uncertainties ~~for~~and ~~the~~risks reported ~~entire~~from ~~improvement~~time to time in ~~cost~~our ofreports ~~goods~~filed aswith athe ~~percentage~~Securities ofand Exchange ~~sales~~Commission. In ~~(See~~addition, ~~Segment~~the ~~Reporting,~~ Company ~~page~~notes ~~34)~~that its stock price can be affected by fluctuations in quarterly earnings. There can be no assurance that the Company’s earnings levels will meet investors’ expectations.

~~Research~~Substantially all of the Company’s products are subject to regulatory approval of or control by various governmental agencies such as the FDA, USDA and ~~Development~~EPA ~~Expense~~ in the United States and their equivalents in international markets. The exercise of control and regulatory authority by these agencies can have a material effect on the Company’s business directly as it relates to the Company’s products and indirectly as it relates to competitors’ products.

~~Research~~Within the Animal Health and ~~development~~Surface ~~expenses~~Disinfectant ofbusiness $2segment,~~479,851~~ ~~for~~all of the ~~fiscal~~Company’s ~~year~~Animal ~~ended~~Health ~~May 31,~~products ~~2001~~are ~~were~~sold ~~$684,598,~~through distributors having exclusive or ~~38%~~semi-exclusive ~~higher~~rights ~~than~~to ~~for~~specified ~~fiscal~~geographical ~~2000~~territories. The ~~primarily~~loss asof a distributor can have a ~~result~~ material ofeffect ~~process~~on ~~development~~the ~~engineering~~Company’s ~~expenses~~sales, ~~related~~particularly, toin ~~development~~the short-term until a replacement is found, contracted and trained in the sale of ~~SANOVA~~the ~~applications~~Company’s products. Further, ~~for~~the ~~red~~Company ~~meat~~faces well ~~parts/trim~~established ~~and~~competition ~~red~~in ~~meat~~each ~~carcass~~of ~~interventions~~the markets where its Animal Health products are sold. Such competition, particularly, competition claiming equivalence to the Company’s products, can limit the sales potential for Alcide’s products.

~~Selling~~Alcide’s Food Safety products participate in a rapidly evolving marketplace which by its nature attracts innovation and competing technologies. The Company’s SANOVA sales are based on performance, ~~General~~price and ~~Administrative~~convenience. Introduction ~~Expense~~ of competitive products better meeting these customer needs can have a material impact on the Company’s ability to sell and expand the use of its SANOVA products.

~~Selling,~~The ~~general~~Company’s ~~and~~business ~~administrative~~model ~~expenses~~for ofits ~~$4,251,359~~Food ~~for~~Safety ~~fiscal~~business ~~2001~~involves ~~were~~a capital investment ranging from $~~196~~20,~~622~~000 to $500,000 orfor 5%each ~~higher~~user ~~than~~plant ~~for~~site depending ~~fiscal~~on ~~2000.~~the size of the operation. The ~~increase~~capital ~~reflects~~investments ~~the~~are ~~addition~~depreciated ofover a five-year life while ~~new~~ customer ~~employees~~contracts range from one to ~~support~~four years. If a substantial number of customers elect not to renew their contracts, non-productive assets would exist until new customers are found. However, the Company'’s experience, ~~44%~~after ~~sales~~more ~~increase.~~than four and one half years in the Food Safety business, is that all but three customers have renewed their contracts.

19Occasionally, the Company also incurs installation costs of between $80,000 and $120,000 to install the SANOVA equipment components at the customer site and connect the components with plumbing and electrical interfaces to put the system into operation. Installation costs are depreciated over the shorter of a five-year life or the contract term.

~~Interest~~The ~~Income~~economic vitality of the industries served by the Company’s products can have an impact on Alcide’s ability to sell its products, ~~Net~~ expand sales and maintain product price levels. Within the Animal Health business segment, the Company’s products are premium priced consistent with their superior performance. However, as dairy industry product margins are compressed, some farmers may discontinue the use of Alcide products in favor of lower priced competitors’ products.

~~Interest income~~Likewise, ~~net~~the ofCompany’s ~~interest~~ability ~~expense~~to ~~was~~sell ~~$121,104~~and ~~for~~expand ~~fiscal~~sales ~~2001,~~of anits ~~amount~~Food Safety ~~$131,015~~products ~~lower~~may ~~than~~be inimpacted ~~fiscal~~by ~~2000.~~economic ~~The~~conditions ~~decreased~~within ~~amounts~~the ofpoultry ~~interest result~~and ~~essentially~~ red ~~from~~meat ~~lower~~industries. During ~~investable~~the ~~cash~~fiscal year ~~resources~~ended inMay ~~fiscal~~31, ~~2001~~2003, asthree ~~compared~~Alcide topoultry ~~the~~customers ~~previous~~elected ~~fiscal~~not ~~year,~~to ~~and~~use SANOVA ~~also~~as toa ~~interest~~direct ~~expense~~result of ~~$18,229,~~economic ~~while~~conditions. Two noof ~~such~~the ~~interest~~three ~~expense~~customers ~~was~~have ~~incurred~~allowed intheir ~~the previous~~SANOVA ~~fiscal~~agreement ~~year~~to expire.

~~Income Taxes~~ 15

~~During~~Critical ~~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~~Accounting ~~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 increase in the tax rate from fiscal 2000 to fiscal 2001 was~~ ~~due to income subject to state taxation.~~ Policies

~~Liquidity~~• Revenue ~~and Capital Resources~~ Recognition

~~The~~Revenue ~~Company's~~from ~~cash~~sales ~~equivalents,~~of ~~short-term~~SANOVA ~~investments~~food ~~and~~antimicrobials USis ~~Treasury~~recognized ~~instruments~~based ~~totaled $2,847,581~~ on ~~May 31, 2002 as compared to $2,332,782~~ on the ~~May 31,~~terms ~~2001.~~of ~~During~~the ~~fiscal~~Company’s ~~2002,~~contracts ~~net~~with ~~cash~~individual ~~provided by operating activities was $4,737,487~~customers. For Ancustomers ~~additional~~using ~~$1,000,000~~more ~~was~~than ~~generated through a draw on the Company's $10~~15,000~~,000~~ ~~line~~ gallons of ~~credit (resulting~~SANOVA inper ~~a cumulative $2~~month,~~000,000~~ ~~draw~~Alcide onprovides ~~the~~bulk ~~line~~shipments of ~~credit).~~inventory ~~These~~to ~~cash~~the customer ~~resources~~and ~~were used for~~ the ~~acquisition~~customer ofis ~~equipment~~invoiced ~~totaling~~at ~~$5,359,256.~~month-end ~~The~~with ~~Company~~revenue ~~also received $147,814 as cash~~recognized ~~receipts~~ based ~~from~~on the ~~exercise~~amount of ~~stock~~product ~~options~~processed ~~and~~or ~~redeemed~~gallons ~~a portion~~ of ~~its~~SANOVA ~~Class B Preferred Stock for $10,763~~used. All Atother ~~this~~customers ~~time,~~are ~~the~~invoiced ~~Company~~and ~~expects~~revenue is torecognized ~~fund~~at ~~its~~the ~~existing~~time ~~operations~~SANOVA ~~and~~is ~~growth~~shipped ~~with cash~~to ~~generated~~their ~~by operations~~facilities. Payment Ifin ~~growth~~either ~~exceeds~~case ~~current~~is ~~expectations,~~due itfifteen ~~may be necessary~~ to thirty ~~take~~days ~~additional~~after ~~advances on the Company's line of credit~~billing.

~~Outlook~~ Animal Health and Surface Disinfectant sales are recognized 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. The distributors have no contractual right to return unsold product.

~~Recently~~• Depreciation ~~Issued~~and ~~Accounting~~Book ~~Pronouncements~~ Value of SANOVA Plant Assets

InCapital ~~June 2001,~~investments ~~the~~for ~~Financial~~SANOVA ~~Accounting~~plant ~~Standards~~assets ~~Board~~are ~~("FASB")~~depreciated ~~issued~~over ~~Statement~~a five-year oflife, ~~Financial~~while ~~Accounting~~customer ~~Standards~~contracts ~~("SFAS")~~range ~~No. 143,~~from ~~"Accounting~~one ~~for Asset~~year ~~Retirement~~to ~~Obligations,"~~four years. As ~~which~~the isSANOVA ~~effective~~food ~~for~~antimicrobial business ~~fiscal~~has ~~years~~been ~~beginning~~in ~~after~~existence ~~June 15,~~for ~~2002~~less ~~(effective~~than ~~for~~five years, the Company onhas ~~June 1~~a limited, practical ~~2003).~~basis ~~The~~on ~~statement~~which ~~provides~~to ~~accounting~~assign ~~and reporting~~depreciable ~~standards~~life. Management ~~for~~believes, ~~recognizing~~however, ~~obligations~~based ~~related~~on toover ~~asset~~four ~~retirement~~and ~~costs~~one ~~associated~~half years ~~with~~experience, ~~the~~that ~~retirement of tangible long~~well-~~lived~~maintained assets. ~~Under~~will ~~this~~be ~~statement,~~operational ~~legal~~beyond ~~obligations~~five ~~associated~~ years ~~with~~and, ~~the~~further, ~~retirement~~that ofif ~~long-lived~~customers ~~assets~~decide ~~are~~not to berenew ~~recognized at~~ their ~~fair~~contracts, ~~value in~~ the assets ~~period~~can inbe ~~which~~relocated ~~they~~to ~~are~~new ~~incurred~~customer ifsites. The acost ~~reasonable~~to ~~estimate~~maintain ofthe ~~fair~~assets ~~value~~is ~~can~~charged beto ~~made~~operations. ~~The fair value~~

20Commitments and Contingencies

ofLeases: The ~~the~~Company ~~asset~~leases certain ~~retirement~~property ~~costs~~under ~~is capitalized as part of the carrying amount of the long~~non-~~lived~~cancelable ~~asset~~operating ~~and~~leases ~~expensed~~that ~~using~~expire athrough ~~systematic and rational method over the assets' useful life. Any~~July ~~subsequent changes to the fair value of the liability will be expensed~~ 2009. Insurance, ~~Management~~utilities isand maintenance ~~currently~~expenses ~~assessing~~are ~~the~~borne ~~impact~~by ~~of this statement on~~ the Company's. There ~~financial~~are ~~position~~no ~~and~~contingent ~~results~~rentals ofor ~~operations.~~sublease rentals.

~~In October 2001,~~SANOVA ~~the~~Agreements: The ~~FASB~~Company has ~~issued~~signed ~~SFAS~~contracts ~~No. 144,~~with ~~"Accounting~~poultry ~~for~~and ~~the~~beef ~~Impairment~~processing orplants ~~Disposal of Long-Lived Assets," which is effective~~ for ~~fiscal~~SANOVA ~~years beginning~~systems ~~after~~ to ~~December 15,~~be ~~2001~~installed ~~(effective~~in ~~for~~FY ~~the Company on June 1~~2004, ~~2002).~~which ~~This~~will ~~statement~~cost ~~supersedes~~approximately ~~SFAS No. 121~~$1, ~~"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"~~650, ~~and replaces the provisions of APB Opinion No~~000. ~~30,~~ As ~~"Reporting the Results~~ of ~~Operations-Reporting~~May ~~the Effects of Disposal of Segments of a Business~~31, ~~and Extraordinary~~2003, ~~Unusual and Infrequently Occurring Events and Transactions~~$1,"050,000 ~~for the disposal~~ of ~~segments of a business. SFAS No. 144 retains~~ the ~~fundamental provisions of SFAS~~ ~~No. 121~~ equipment ~~for~~required ~~the~~had ~~recognition~~been ~~and~~purchased ~~measurement of the impairment of long-lived assets to be held~~ and ~~used~~recorded ~~and~~as ~~the~~construction ~~measurement~~in ~~of long-lived assets to be disposed of by sale~~progress. ~~Under SFAS No. 144~~ Additionally, ~~long-lived~~the ~~assets~~Company ~~are~~had ~~measured~~$1,545,000 ~~at the lower~~ of SANOVA ~~carrying~~equipment ~~amount~~components oras ~~fair value less cost to sell. Adoption~~ of ~~this~~May ~~standard~~31, is2003 ~~not expected~~ to ~~have~~support ~~a material~~future ~~impact on the Company's financial position or results of operations~~anticipated growth.

InEmployment Agreements: One ~~July 2002,~~ officer ~~the~~has ~~FASB~~a ~~issued~~one ~~SFAS No. 146~~year, ~~"Accounting~~automatically ~~for Costs Associated with Exit or Disposal Activities~~renewable," ~~(effective~~employment ~~January 1,~~agreement ~~2003)~~ which ~~replaces Emerging~~ ~~Issues Task Force (EITF) Issue No. 94-3 "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a~~ ~~Restructuring)."~~currently ~~SFAS~~obligates ~~No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when~~ the ~~liability~~Company ~~is incurred and states that an entity's commitment~~ to ~~an exit plan, by itself, does not create~~ a ~~present~~base ~~obligation~~salary ~~that meets the definition~~ of a$273,266 ~~liability.~~per ~~SFAS No~~year. ~~146~~ Bonus ~~also~~compensation ~~establishes~~of ~~that~~100% ~~fair~~of ~~value~~base ispay ~~the objective for initial~~can ~~measurement~~ be ofearned ~~the~~at ~~liability. The Company does not expect~~ the ~~adoption~~discretion of ~~SFAS No. 146 to have a material impact upon~~ the ~~Company's~~Board ~~financial position or results~~ of ~~operations~~Directors.

Redeemable Class “B” Preferred Stock: On September 30th of each year, the Company redeems a portion of its ~~ITEM~~ outstanding 7ASeries 2 Class “B” Preferred Stock. The ~~Quantitative~~amount ~~and~~redeemed ~~Qualitative~~is ~~Disclosures~~equal ~~About~~to ~~Market~~.7% ~~Risk~~ of the Company’s prior year net income. As the Company recorded net income of $1,129,610 in fiscal 2003, it will redeem 3,012 shares of Series 2 Stock on September 30, 2003 for $7,907. This will leave a total of $159,238 of Class “B” Preferred Stock to be redeemed in subsequent fiscal years. The amounts to be redeemed subsequent to September 2003 depend upon future net income and are not yet known.

The ~~Company is not significantly exposed to market risks arising from changes in interest rates as its cash and marketable securities of $2,847,581 at~~ ~~May 31,~~ following ~~2002~~table ~~are~~summarizes inthe ~~close~~above ~~approximation to its short term borrowings and, therefore, changes in prevailing interest rates paid for borrowing would tend to be offset by changes in interest received for investments~~commitments.

Further, at its present growth rate, the Company expects to be in a balanced cash position during fiscal 2003.

	Less than 1 year		FY 2005		FY 2006		FY 2007		FY 2008		FY 2009
Operating Leases	$	233,592	$	135,544	$	137,999	$	140,946	$	141,437	$	23,573
SANOVA Agreements	600,000		—		—		—		—		—
Employment Agreements	273,266		—		—		—		—		—
Redeemable Class “B” Preferred Stock	7,907		—		—		—		—		—
Total Contractual Commitments	$	1,114,765	$	135,544	$	137,999	$	140,946	$	141,437	$	23,573

~~Lastly, the Company's policy is to invest any excess cash resources in low risk, short-term and intermediate-term US Treasury instruments and bank money market funds to minimize market risks.~~ 16

~~The Company~~Financial ~~has~~Condition noand ~~foreign~~Results ~~currency exposure. All~~ of ~~its transactions with international distributors are denominated in US dollars.~~ Operations

Fiscal Year 2003 as ~~ITEM~~ Compared 8.with ~~Financial Statements and Supplementary Data~~ 2002

~~Reference~~Net ~~is made to pages 13 and 28 through 41 of Form 10-K.~~ Sales

Net sales and license revenue totaling $21,924,454 for the fiscal year ended May ~~ITEM~~ 31, 9.2003, ~~Changes~~was Inat ~~and~~substantially ~~Disagreements~~the ~~with~~same ~~Accountants~~level onas ~~Accounting~~prior ~~and~~year ~~Financial~~net ~~Disclosures~~ sales of $21,988,960.

OnSales of ~~May 24,~~SANOVA ~~2002,~~food ~~Alcide~~antimicrobial ~~Corporation~~to ~~decided~~the topoultry ~~dismiss~~and ~~Arthur~~red ~~Andersen~~meat ~~LLP~~industries ~~(Andersen)~~were $13,587,212 asfor ~~its~~fiscal ~~independent~~year ~~auditors~~2003, ~~and~~11% ~~appoint~~or ~~KPMG~~$1,357,850 ~~LLP~~higher ~~(KPMG)~~than asfor the ~~Company's~~ previous ~~independent~~fiscal ~~auditors~~year. As ~~The~~of ~~decision~~May ~~not~~31, 2003, tothere ~~renew~~were ~~the~~SANOVA ~~engagement~~systems installed at 38 poultry processing plants and 12 red meat plants. Six of ~~Andersen~~the poultry plants were using SANOVA applications both pre-chill and post-chill, thus bringing the total to ~~select~~56 ~~KPMG~~operations ~~was~~at ~~approved~~the byend of fiscal 2003. Two of the ~~Company's~~poultry ~~Board~~operations and two of ~~Directors~~the red ~~upon~~meat operations were not revenue producing at the ~~recommendation~~end of ~~its~~the ~~Audit~~fiscal ~~Committee~~year.

~~The~~SANOVA ~~change~~ sales into the ~~Company's~~poultry ~~certifying~~industry ~~accountant~~during ~~was~~fiscal ~~reported~~2003 onwere ~~Form 8-K~~adversely ~~and~~affected ~~Form 8-K/A~~by economic ~~filed~~conditions ~~with~~within the ~~Securities~~poultry ~~and~~industry, ~~Exchange~~which ~~Commission~~in onturn, caused SANOVA ~~May 29~~ customers to reduce their use of SANOVA, ~~2002~~discontinue ~~and~~using ~~June 21~~antimicrobial interventions altogether, ~~2002~~or in the case of one plant, ~~respectively~~switch to a lower priced competitor’s product. The following table shows the difference in sales during fiscal 2003 as compared to sales in 2002 for these customers.

21Estimated negative impact in fiscal year 2003 caused by poultry industry profitability:

PART III

	Reduced Net Sales		Reduced Gross Margin		Reduced Income Before Tax

Idle Plants	$	1,376,000	$	960,000	$	960,000
Reduced Plant Thruput	276,000		193,000		193,000
Asset Impairment	—		—		100,000
Bad Debt Allowance	—		—		27,000

	$	1,652,000	$	1,153,000	$	1,280,000

The Company’s Animal Health and Surface Disinfectant revenues for fiscal year 2003 ~~ITEM~~ were 10$8,337,242, an amount 15% or $1,422,086 lower than for fiscal 2002, reflecting primarily changes in distributor inventory levels during the first four months of fiscal 2003. In ~~Directors~~the United Kingdom, the Company established a new distributor relationship with Agri-Lloyd beginning September 15, 2002 while the Company’s previous distributor liquidated its inventory of Alcide products resulting in a $280,000 sales reduction from the prior year. Lastly, IBA, the Company’s largest distributor, transitioned from a distributor arrangement with Alcide to a licensing arrangement and ~~Executive~~this ~~Officers~~ transition had the effect of reducing sales to IBA by an estimated $750,000 during fiscal 2003. The gross margin impact of the sales reduction to IBA is estimated at approximately $200,000 attributable entirely to distributor inventory reduction which occurred during the first quarter as IBA sold through its existing inventory of Alcide produced products and began distributing IBA produced products.

~~This~~Cost ~~information is incorporated by reference from the Sections captioned "Item 1-Election~~ of ~~Directors"~~Goods and "Section 16(a) Beneficial Ownership Reporting Compliance" contained in the Company's definitive Proxy Statement for its 2002 Annual Meeting of Shareholders. Information regarding executive officers is presented under the heading "Executive Officers of the Company" in Part I, Item 1A of this Report. Sold

Cost of goods sold was 55% of total revenue for fiscal 2003 a two point increase ~~ITEM~~ when ~~11.~~compared ~~Executive~~to ~~Compensation~~ the 53% of net sales in fiscal 2002.

~~For the fiscal year ended May 31, 2002, directors who do not have a consulting or an employment agreement with the Company received $1,000 cash~~Cost ~~compensation per Board~~ of ~~Directors~~goods ~~meeting~~sold ~~attended~~as ~~and committee meeting attended, unless held concurrently,~~ a ~~$6,000~~percentage ~~cash retainer and a grant~~ of ~~stock~~net ~~options~~sales ~~having~~for anthe ~~aggregate~~SANOVA ~~exercise~~(Food ~~price of~~Safety) ~~$25~~ business segment,~~000~~ ~~based~~was on64% ~~the fair market value~~ of ~~the~~sales ~~Common~~for ~~Stock on the date of grant. In the past~~ fiscal ~~year,~~2003 ~~this~~as ~~compensation~~compared ~~applied~~ to ~~William~~60% G.of ~~Spears~~sales in ~~and~~fiscal ~~Charles A~~2002. The ~~Baker.~~increase Itas ~~did not apply to~~a ~~Kenneth~~ percentage N.of ~~May~~net ~~who~~sales ~~had~~was acaused ~~consulting~~primarily ~~arrangement~~by ~~with~~ the ~~Company,~~underutilization toof equipment ~~Thomas~~during L.production ~~Kempner~~stoppages ~~who~~and ~~benefited~~reductions ~~indirectly~~at ~~from~~SANOVA acustomer ~~consulting~~plants during ~~arrangement~~fiscal ~~between~~2003 as the Company ~~and~~continued ~~Loeb~~to ~~Partners~~record ~~Corporation~~depreciation orexpense towith ~~Joseph~~ no A.offsetting ~~Sasenick,~~sales ~~who~~revenue. (See ~~received~~above table afor ~~salary~~the asimpact anon ~~officer~~gross ~~of the Company~~margin).

~~The~~Cost ~~following~~ of ~~table~~goods ~~summarizes~~sold ~~compensation~~for ~~earned~~the inAnimal ~~fiscal~~Health ~~years~~and ~~ended~~Surface ~~May 31,~~Disinfectant ~~2002,~~business ~~2001~~segment was ~~and~~45% ~~2000~~of bynet ~~the~~sales ~~Chief~~(excludes ~~Executive~~license ~~officer~~revenue) ~~and~~for ~~three~~fiscal ~~other~~2003 ~~executive~~versus ~~officers~~43% ~~whose~~of ~~aggregate~~ net ~~salary~~sales ~~and~~in ~~bonus~~fiscal ~~exceeded~~2002. The ~~$100,000~~increased cost inof ~~the~~goods ~~most~~sold ~~recent~~as ~~fiscal~~a ~~year~~percentage (of net sales for the ~~"Named~~segment ~~Executive~~was ~~Officers").~~caused primarily by a shift in product mix as a result of the aforementioned distributor

~~Summary Compensation Table~~ 17

				Long-Term Compensation Awards
	Fiscal Year Compensation
Name and Principal Position				Number of Shares Underlying Options (#)	All Other Compensation (2)
	Year	Salary ($)	Bonus ($)
Joseph A. Sasenick Chairman/Chief Executive Officer	2002 2001 2000	256,932 241,212 230,627	194,582 110,554 112,513	10,000 5,000 5,000	9,795 9,795 9,150
John P. Richards President/Chief Financial Officer	2002 2001 2000	166,615 156,428 149,557	118,296 71,691 72,963	8,000 4,000 4,000	5,317 5,317 4,755
G. Kere Kemp Executive Vice President Chief Scientific Officer	2002 2001 2000	128,413 120,563 115,282	79,008 55,272 56,250	8,000 4,000 4,000	4,027 4,027 3,772
James L. Winter(1) Corporate Vice President/ General Manager— Animal Health	2002 2001	112,242 36,384	7,000 -0-	8,000 5,000	-0- -0-

inventory reductions which affected sales of products UDDERgold^® Plus and UDDERgold^®to a greater degree than lower margin ancillary products.

22Research and Development Expense

Reflecting the conclusion of development activities related to the Company’s new animal health products and ~~ITEM~~ the ~~12.~~reduction ~~Security~~in ~~Ownership~~the cost of ~~Certain~~SANOVA ~~Beneficial~~process ~~Owners~~validation trials, research and development ~~Management~~ expenses in fiscal 2003 of $2,158,287 were $481,590 lower than in fiscal 2002.

~~This information is incorporated by reference from the Section captioned "Share Ownership by Directors~~Selling, ~~Executive~~General ~~Officers~~ and ~~Certain Beneficial Owners"~~ ~~contained~~ Administrative ~~in the Company's definitive Proxy Statement for its 2002 Annual Meeting of Shareholders.~~ Expense

Selling, general and ~~ITEM~~ administrative 13expense of $5,955,313 was $827,627 higher than in fiscal 2002. Major ~~Certain~~components ~~Relationships~~of the increase were a $156,000 increase in liability and ~~Related~~property ~~Transactions~~ insurance costs, an estimated $140,000 increase related to additional staff and staff expenses to enter the fish markets, a $27,000 allowance for doubtful accounts related to a receivable from a poultry customer in Puerto Rico, $105,000 in legal and other expenses incurred in connection with the Company’s patent infringement lawsuit against Bio-Cide International, $95,000 to write down the value of SANOVA assets at idle plants, $96,000 in animal health marketing expenses incurred to launch UDDERgold 5-Star and to solidify the Animal Health and Surface Disinfectant business segment and an estimated $40,000 increase in legal and other costs to comply with evolving SEC and NASDAQ regulations.

~~This information is incorporated by reference from the Section captioned "Certain Transactions" contained in the Company's definitive Proxy Statement for its 2002~~Interest ~~Annual~~ Income ~~Meeting~~and ofInterest ~~Shareholders.~~ Expense

Interest income was $25,059 for the fiscal year ended May 31, 2003, a substantial ~~PART~~ decrease IV from the $71,728 earned during fiscal 2002. The decrease was due to lower prevailing short-term interest rates.

Fiscal ~~ITEM~~ 2003 ~~14.~~interest ~~Exhibits~~expense of $57,116 ~~Financial~~was ~~Statement~~substantially ~~Schedules~~lower than the 88,597 incurred during fiscal 2002 as a direct result of lower interest rates and total ~~Reports~~repayment onin ~~Form 8-K~~ March 2003 of all line of credit advances.

~~Reports~~Income ~~of Independent Public Accountants.~~ Consolidated Balance Sheets as of May 31, 2001 and May 31, 2002. Consolidated Statements of Operations for each of the years ended May 31, 2000, May 31, 2001 and May 31, 2002. Consolidated Statements of Shareholders' Equity for each of the years ended May 31, 2000, May 31, 2001 and May 31, 2002. Consolidated Statements of Cash Flows for each of the years ended May 31, 2000, May 31, 2001 and May 31, 2002. Taxes

~~Notes~~During fiscal 2003, the Company recorded income tax expense of $610,500 at an effective tax rate of 35%, as compared to ~~Consolidated~~income ~~Financial~~tax ~~Statements~~expense of $838,235 at an effective rate of 32% during fiscal 2002. The lower rate recorded for fiscal 2002 reflects primarily the cumulative prior years benefits of research and development tax credits and extraterritorial income exclusions.

~~None.~~The Company expects its effective rate for fiscal 2004 to be approximately 34% to 36% of pretax income.

~~See Index~~Fiscal toYear ~~Exhibits~~2002 onas ~~Page~~Compared ~~24.~~with 2001

~~Reports on~~Net ~~Form 8-K dated May 24, 2002 and Form 8-K/A dated June 21, 2002, reporting change in accountants.~~ Sales

23Fiscal year 2002 sales of $21,988,690 were 22% higher than fiscal 2001 sales reflecting, primarily, increased SANOVA sales volume.

Sales of SANOVA antimicrobial for the fiscal year ended May 31, 2002 were $12,229,362, an ~~SIGNATURES~~ increase of $3,828,739, or 46% versus SANOVA sales during the preceding fiscal year. The SANOVA sales increase is a direct result of operations added during fiscal 2001 and fiscal 2002. As of May 31, 2002, 38 poultry operations and 5 red meat operations were utilizing the SANOVA system to improve the quality of their product.

~~Pursuant to~~The ~~the~~Company’s ~~requirements~~Animal ofHealth and ~~Section 13~~Surface orDisinfectant ~~15(d)~~sales offor the ~~Securities~~fiscal ~~Exchange~~year ~~Act~~ended May 31, 2002 were $9,759,328, an increase of ~~1934~~$201,976, ~~the~~or ~~Registrant~~2% ~~has~~over ~~duly~~fiscal ~~caused~~2001 ~~this~~reflecting ~~report~~a $841,374 toincrease bein ~~signed~~surface ondisinfectant ~~its~~and ~~behalf~~ancillary product sales to distributors offset by ~~the~~a ~~undersigned~~decrease of $639,398 ~~thereunto duly~~in ~~authorized.~~sales of teat dips.

ALCIDE CORPORATION (Registrant) By /s/ JOSEPH A. SASENICK Joseph A. Sasenick, Chairman Chief Executive Officer By /s/ JOHN P. RICHARDS John P. Richards, President Chief Financial Officer (Principal Accounting Officer)18

~~Date: August 19,~~Cost ~~2002~~of Goods Sold

~~Pursuant to~~Cost ~~the requirements~~ of ~~the~~goods ~~Securities~~sold ~~Exchange~~was ~~Act~~53% of ~~1934,~~net ~~this~~sales ~~report~~for ~~has~~fiscal ~~been~~2002 ~~signed~~as ~~below~~compared byto 50% ~~the following persons on behalf~~ of ~~the~~net ~~Registrant~~sales ~~and~~for infiscal ~~the capacities and on the dates indicated:~~ 2001.

/s/ THOMAS L. KEMPNER Thomas L. Kempner	Director	August 19, 2002
/s/ CHARLES BAKER Charles Baker	Director	August 19, 2002
/s/ JOSEPH A. SASENICK Joseph A. Sasenick	Director, Chairman Chief Executive Officer	August 19, 2002
/s/ WILLIAM G. SPEARS William G. Spears	Director	August 19, 2002

Cost of goods sold for the Animal Health and Surface Disinfectant segment increased from 41% of net sales during fiscal 2001 to 43% of net sales in fiscal 2002. The increased cost of goods sold as a percentage of net sales for the segment was caused primarily by the transition to a new distributor and new product launch in France and increased sales in a new line of ancillary products which have a lower gross margin.

24Cost of goods sold as a percentage of sales for the SANOVA business segment were 60% of net sales for fiscal 2002 versus 59% of net sales for fiscal 2001. The increase as a percentage of sales was caused primarily by the under-utilization of equipment during production stoppages at two SANOVA customers during part of fiscal 2002.

Research and Development ~~INDEX TO EXHIBITS~~ Expense

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 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 reference).
3.3		Amendments to the By-Laws, as amended, on November 20, 1986, October 8, 1987, July 18, 1989, September 13, 1990, August 20, 1991, November 8, 1991, February 4, 1992, August 20, 1992 and October 14, 1997.
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).**
10.24		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).
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).

Research and development expenses of $2,639,877 for the fiscal year ended May 31, 2002, were 6% or $160,026 higher than incurred in fiscal 2001. The increase was caused primarily by filling staff positions that were vacant during the preceding year coupled with a $101,000 increase in expenses paid to regulatory consultants hired to assist in registration of SANOVA for new product categories.

25Selling, General and Administrative Expense

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).
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).**
10.32		Distributor Agreement by and between the Company and Sfan Laboratoire dated May 28, 2001, covering the territories of France, Algeria, Morocco and Tunisia (previously filed as an exhibit to Form 10-Q of the Registrant for the quarter ended August 31, 2001, and incorporated herein by reference).
10.33		2001 Stock Incentive Plan (previously filed as an exhibit to Form 10-Q of the Registrant for the quarter ended November 30, 2001, and incorporated herein by reference).**
10.34		Distributor Agreement by and between the Company and Agri-Lloyd International LTD, dated May 15, 2002, covering the United Kingdom.
10.35		Licensing Agreement by and between the Company and IBA, Inc., dated April 26, 2002, covering the United States and Mexico.
23.1		Consent of Independent Public Accountants
99.1		Certification of Periodic Report for Chairman and Chief Executive Officer of Alcide Corporation.
99.2		Certification of Periodic Report for President and Chief Financial Officer of Alcide Corporation.

Selling, general and administrative expense of $5,127,686 for fiscal year 2002 was $876,327, or 21% higher than expenses for fiscal 2001. Major components of the increase were $293,000, or 14% increase in engineering, selling and administrative expense to support the 46% increase in SANOVA sales revenue coupled with a $318,000 increase in marketing expenses to solidify the Animal Health and Surface Disinfectant business segment and a $154,000 increase in variable compensation expense.

26If SFAS No. 142 had been in effect during fiscal 2001 and goodwill recorded in February 2001 had not been amortized, selling general and administrative expense would have been $4,207,831 instead of $4,251,359.

Interest Income and ~~Report~~ Interest ~~of Independent Public Accountants~~ Expense

~~The~~Interest income was $71,728 for the fiscal year ended May 31, 2002, a ~~Board~~ substantial ofdecrease ~~Directors~~from the $139,333 earned during fiscal 2001. The decrease was due to lower investable cash resources and ~~Shareholders~~lower ofprevailing ~~Alcide~~short-term ~~Corporation:~~interest rates.

~~We have~~Fiscal ~~audited the accompanying consolidated balance sheet of Alcide Corporation and subsidiary as of May 31,~~ 2002, ~~and~~interest ~~the~~expense ~~related consolidated statements~~ of ~~operations~~$88, ~~shareholders'~~597 ~~equity~~was ~~and~~substantially ~~cash~~higher ~~flows for~~ than the ~~year~~$18,229 ~~then~~incurred ~~ended.~~during ~~These~~fiscal ~~consolidated~~2001 ~~financial~~as ~~statements~~a ~~are~~direct ~~the~~result ~~responsibility~~ of ~~the~~borrowing on the Company'’s ~~management.~~line ~~Our~~of ~~responsibility~~credit is to ~~express~~support anasset ~~opinion~~purchases ~~on these~~for ~~consolidated~~the ~~financial~~growing ~~statements based on our audit~~SANOVA business.

~~We conducted~~Income our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. Taxes

~~In our~~During ~~opinion~~fiscal 2002, the ~~consolidated~~Company ~~financial~~recorded ~~statements~~income ~~referred~~tax toexpense ~~above~~of ~~present fairly~~$838,235 at inan ~~all~~effective ~~material~~tax ~~respects,~~rate ~~the~~of ~~financial~~32%, ~~position~~as ofcompared ~~Alcide~~to ~~Corporation~~income ~~and~~tax ~~subsidiary~~expense as of ~~May 31,~~ ~~2002~~$825,360 at ~~and~~an ~~the~~effective ~~results~~rate of ~~their~~34.9% ~~operations~~during ~~and~~fiscal ~~their~~2001. The ~~cash~~lower ~~flows~~rate recorded for ~~the~~fiscal ~~year~~2002 ~~then~~reflects ~~ended~~primarily inthe cumulative ~~conformity~~benefit ~~with~~of ~~accounting~~research ~~principles~~and ~~generally~~development ~~accepted~~tax incredits ~~the~~and ~~United~~extraterritorial income ~~States of America~~exclusion.

~~As discussed~~Liquidity ~~in Note 7 to the consolidated financial statements, effective June 1, 2001, the Company changed its method of accounting for purchased goodwill~~ and ~~certain~~Capital ~~intangibles in fiscal year 2002.~~ Resources

~~(signed)~~The Company’s cash and cash equivalents totaled $2,286,641 on May 31, ~~KPMG~~ 2003 ~~LLP~~as compared to $2,847,581 on May 31, 2002. During fiscal 2003, net cash provided by operating activities was $3,846,314. The Company repaid the $2 million draw on its $10 million line of credit during fiscal year 2003. Cash resources were used for the acquisition of equipment totaling $2,332,670. The Company also received $53,205 as cash receipts from the exercise of stock options and redeemed a portion of its Class B Preferred Stock for $12,469. At this time, the Company expects to fund its existing

~~Seattle, Washington June 28, 2002~~ 19

27operations and growth with cash generated by operations. If growth exceeds current expectations, it may be necessary to take advances on the Company’s line of credit.

~~Report of Independent Public Accountants~~ Outlook

~~The Board~~• SANOVA ofFood ~~Directors~~Quality ~~and Shareholders of Alcide Corporation:~~ System

~~We have~~Management ~~audited~~expects the ~~accompanying~~size ~~consolidated balance sheets~~ of ~~Alcide~~the ~~Corporation~~Company’s (afood ~~Delaware~~antimicrobial business ~~Corporation)~~will ~~and~~continue ~~subsidiary~~to asexpand. The addition of ~~May 31,~~customers ~~2001~~during ~~and~~fiscal ~~2000,~~2003 ~~and~~is ~~the~~expected ~~related consolidated~~to ~~statements~~cause ofa ~~operations,~~further increase ~~changes~~ in ~~shareholders'~~SANOVA ~~equity~~sales ~~and~~as ~~cash~~the ~~flows~~annualized ~~for~~effect ~~each~~is ofrealized ~~the~~during ~~three~~fiscal 2004. In ~~years~~addition, in the ~~period~~Company ~~ended~~expects to ~~May 31,~~add ~~2001.~~new ~~These~~customers ~~financial~~during ~~statements~~fiscal ~~are the~~2004. ~~responsibility~~ As of ~~the~~July ~~Company's~~31, ~~management.~~2003, ~~Our~~two ~~responsibility~~new iscustomers tohad ~~express~~been added and an ~~opinion~~additional seven oninstallations ~~these~~were ~~financial~~scheduled ~~statements~~for ~~based~~start-up onby ~~our~~November ~~audits~~2004.

~~We conducted~~• Animal ~~our~~Health ~~audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan~~ and ~~perform~~Surface ~~the audit to obtain reasonable~~Disinfectant ~~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. Products

InThe worldwide dairy herd is decreasing slightly as cows become more ~~our~~ productive ~~opinion,~~partly through the ~~financial~~increased ~~statements~~use ~~referred~~of tomastitis ~~above~~prevention ~~present~~products such ~~fairly,~~as inthose ~~all~~marketed ~~material~~by ~~respects~~Alcide. In addition, the ~~financial~~Company ~~position~~now offaces ~~Alcide~~direct ~~Corporation~~competition ~~and~~from ~~subsidiary~~products assimilar ofto ~~May 31, 2001~~its ~~and~~ products. Despite ~~2000~~these conditions, management ~~and~~believes that the ~~results~~market ofposition ~~their~~enjoyed ~~operations~~by ~~and~~its ~~their~~products, ~~cash~~coupled with ~~flows~~the ~~for~~strength ~~each~~ of the ~~three~~Company’s ~~years~~distribution innetwork ~~the~~will ~~period~~enable ~~ended~~Alcide ~~May 31,~~to maintain ~~2001~~or inimprove ~~conformity~~its ~~with~~level ~~accounting~~of ~~principles~~udder ~~generally~~care ~~accepted~~sales in ~~the~~ ~~United~~fiscal ~~States~~2004.

~~/s/~~Recently ~~ARTHUR~~ Issued ~~ANDERSEN~~Accounting ~~LLP~~ Pronouncements

~~Seattle~~In November 2002, the EITF issued a final consensus on Issue 00-21, “Accounting for Revenue ~~Washington~~ ~~June~~Arrangements with Multiple Deliverables.” 29 Issue 00-21 provides guidance on how and when to recognize revenues on arrangements requiring delivery of more than one product or service. Issue 00-21 is effective prospectively for arrangements entered into in fiscal periods beginning after June 15, ~~2001~~2003. Companies may also elect to apply the provisions of Issue 00-21 to existing arrangements and record the income statement impact as a cumulative effect of a change in accounting principle. The provisions of this statement are not expected to have a material impact on the Company’s financial position or results of operations.

~~The~~In November ~~report~~ 2002, ofthe ~~Arthur~~FASB ~~Andersen~~issued ~~LLP~~Interpretation ~~(Andersen)~~No. is45, a“Guarantor’s ~~copy~~Accounting ofand Disclosure aRequirements ~~report~~for ~~previously~~Guarantees, ~~issued~~Including byIndirect ~~Andersen~~Guarantees onof Indebtedness ~~June 29,~~of ~~2001~~Others.” For Weguarantees issued ~~have~~or ~~not~~modified ~~been~~after ~~able~~December to31, ~~obtain~~2002, a ~~re-issued~~liability ~~report from~~shall ~~Andersen.~~be ~~Andersen~~recognized ~~has~~for the ~~not~~fair ~~consented~~value toof the ~~inclusion~~obligation ofundertaken ~~its report~~ in ~~this~~issuing ~~Annual~~the ~~Report on Form 10-K~~guarantee. The ~~report~~disclosure ofrequirements ~~Andersen~~are ~~refers~~effective for tointerim and annual financial statements for ~~the~~periods ~~year~~ending ~~ended~~after December ~~May 31~~ 15, ~~2000 not included herein~~2002. See ~~Because~~Note ~~Andersen~~9 ~~has not consented to~~ (the ~~inclusion~~commitments and ofcontingencies ~~its~~note) ~~report~~for indisclosures ~~this~~required ~~Annual~~by ~~Report,~~FIN it45. The ~~may~~adoption beof ~~more~~FIN ~~difficult~~45 ~~for~~did ~~you~~not tohave ~~seek remedies against Andersen and~~a ~~your~~ material ~~ability~~effect toon ~~seek~~the ~~relief~~Company’s ~~against~~consolidated ~~Andersen~~financial ~~may be impaired~~statements.

28In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure.” SFAS No. 148 amends SFAS No. 123 “Accounting for Stock-Based Compensation,” to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The annual disclosure provisions are effective for fiscal years ending after December 15, 2002. The Company adopted the disclosure requirements of this standard in fiscal 2003 and the adoption of SFAS 148 did not have a material effect on its consolidated financial statements.

On May 15, 2003, the FASB issued SFAS No. 150 “Accounting for Certain Financial ~~Alcide~~ Instruments ~~Corporation Consolidated~~with ~~Balance~~Characteristics ~~Sheets~~ of Both Liabilities and Equity.” The statement requires issuer to classify as liabilities (or assets in some circumstances) three classes of freestanding financial instruments that embody obligations for the issuer. Generally, the statement is effective for financial instruments entered into or modified after May 31, 2003 and is otherwise effective at the beginning of the first interim period after June 15, 2003. The provisions of this statement are not expected to have a material impact on the Company’s financial position or results of operations.

				May 31,
				2001			2002
Assets:
	Current assets:
		Cash and cash equivalents		$	839,103		$	2,847,581
		Short-term investments			992,426			—
		Accounts receivable—trade			2,627,810			2,849,103
		Inventory			2,034,348			1,823,691
		Deferred and prepaid income taxes			851,231			434,200
		Spare parts			458,203			652,620
		Prepaid expenses and other current assets			357,481			412,118
			Total current assets		8,160,602			9,019,313
	Equipment and leasehold improvements:
		Sanova plant assets			10,953,012			14,376,961
		Construction in progress			1,330,900			3,009,716
		Office equipment			463,848			553,539
		Laboratory, manufacturing equipment and vehicles			285,024			451,824
		Leasehold improvements			73,483			73,483
	Less: Accumulated depreciation and amortization				(3,376,710	)		(6,118,278	)
	Total equipment and leasehold improvements, net				9,729,557			12,347,245
	Deferred income tax asset				55,305			—
	Goodwill				478,807			478,807
	Long-term investments and other assets				578,329			19,968
Total Assets				$	19,002,600		$	21,865,333
Liabilities and Shareholders' Equity:
	Current liabilities:
		Accounts payable		$	1,166,819		$	743,514
		Accrued expenses			635,506			626,953
		Line of credit payable			1,000,000			2,000,000
			Total current liabilities		2,802,325			3,370,467
	Deferred tax liability				—			94,837
	Other long-term liabilities				—			26,346
			Total liabilities		2,802,325			3,491,650
	Commitments and Contingencies
	Redeemable Class "B" Preferred Stock—noncumulative convertible $.01 par value; authorized 10,000,000 shares; issued and outstanding:
		May 31, 2001—72,525; May 31, 2002—68,425			190,377			179,614
	Shareholders' equity:
	Class "A" Preferred Stock—no par value; authorized 1,000 shares; issued and outstanding:
		May 31, 2001—138; May 31, 2002—138			18,636			18,636
	Common Stock $.01 par value; authorized 100,000,000 shares; issued and outstanding:
		May 31, 2001—3,007,819; May 31, 2002—3,031,292			30,078			30,313
	Common treasury stock at cost
		May 31, 2001—380,959; May 31, 2002—375,959			(7,283,165	)		(7,144,721	)
	Additional paid-in capital				21,122,177			21,386,417
	Retained earnings				2,122,172			3,903,424
			Total Shareholders' Equity		16,009,898			18,194,069
Total Liabilities and Shareholders' Equity				$	19,002,600		$	21,865,333

~~See accompanying notes to consolidated financial statements.~~ 20

29components of a combined sales arrangement must be accounted for separately. Issue 01-8 is effective prospectively for arrangements entered into, modified, or acquired in fiscal periods beginning after May 28, 2003. We are in the process of evaluating the impact of Issue 01-8, if any, on our financial position or results of operations.

ITEM ~~Alcide~~7A. Quantitative and ~~Corporation Consolidated~~Qualitative ~~Statements~~Disclosures ofAbout ~~Operations~~ Market Risk

		For the Years Ended May 31,
		2000			2001			2002
Net Sales		$	12,440,449		$	17,957,975		$	21,988,690
Expenditures:
	Cost of goods sold		7,443,718			8,917,868			11,558,531
	Research and development expense		1,795,253			2,479,851			2,639,877
	Consulting expense to related parties		96,000			96,000			74,000
	Selling, general and administrative expense		4,054,737			4,251,359			5,127,686
			13,389,708			15,745,078			19,400,094
Operating income (loss)			(949,259	)		2,212,897			2,588,596
Interest income			252,119			139,333			71,728
Interest expense			—			(18,229	)		(88,597	)
Other income			20,557			28,884			47,760
Income (loss) before (provision) benefit for income taxes			(676,583	)		2,362,885			2,619,487
(Provision) benefit for income taxes			229,510			(825,360	)		(838,235	)
Net income (loss)		$	(447,073	)	$	1,537,525		$	1,781,252
Basic earnings (loss) per common share		$	(.18	)	$	.60		$	.67
Diluted earnings (loss) per common share and equivalents		$	(.18	)	$	.58		$	.65
Weighted average common shares outstanding			2,518,767			2,572,898			2,643,467
Weighted average common shares and common share equivalents			2,518,767			2,655,117			2,720,006

The Company is not significantly exposed to market risks arising from changes in interest rates. At its present growth rate, the Company expects to be in a balanced cash position during fiscal 2004. The Company’s policy is to invest any excess cash resources in low risk, short-term and intermediate-term U.S. Treasury instruments and bank money market funds to minimize market risks.

~~See~~The Company ~~accompanying~~ has ~~notes~~no todirect ~~consolidated~~foreign ~~financial~~currency ~~statements~~exposure. All of its present transactions with international distributors are denominated in U.S. dollars.

30ITEM 8. Financial Statements and Supplementary Data

Reference is ~~Alcide~~made ~~Corporation Consolidated~~to ~~Statements~~pages 13,14 and 29 through 43 of ~~Shareholders'~~Form ~~Equity~~ 10-K.

	Class "A" Preferred Stock					Common Stock			Additional Paid in Capital		Common Treasury Stock					Retained Earnings			Total Shareholders' Equity
	Shares		Amount			Shares	Amount				Shares		Amount
Balance May 31, 1999	594		$	80,437		2,888,968	$	28,889	$	19,702,230	(361,138	)	$	(6,939,750	)	$	1,031,720		$	13,903,526
Redeem Class "A" Preferred	(456	)		(61,801	)					15,671										(46,130	)
Exercise of Stock Options						15,100		151		94,793										94,944
Purchase Treasury Stock, Net											(23,287	)		(314,498	)					(314,498	)
Tax Benefit from Exercise of Stock Options										19,974										19,974
Net Loss																	(447,073	)		(447,073	)
Balance May 31, 2000	138		$	18,636		2,904,068	$	29,040	$	19,832,668	(384,425	)	$	(7,254,248	)	$	584,647		$	13,210,743
Exercise of Stock Options						90,263		903		465,940										466,843
Purchase Treasury Stock											(5,000	)		(138,750	)					(138,750	)
Stock Contributed to ESOP											8,466			109,833						109,833
Tax Benefit from Exercise of Stock Options										498,764										498,764
Stock Issued for Officers' Bonuses						13,488		135		225,265										225,400
Issued Stock Warrants										99,540										99,540
Net Income																	1,537,525			1,537,525
Balance May 31, 2001	138		$	18,636		3,007,819	$	30,078	$	21,122,177	(380,959	)	$	(7,283,165	)	$	2,122,172		$	16,009,898
Exercise of Stock Options						23,473		235		147,579										147,814
Stock Contributed to ESOP											5,000			138,444						138,444
Tax Benefit from Exercise of Stock Options										116,661										116,661
Net Income																	1,781,252			1,781,252
Balance May 31, 2002	138		$	18,636		3,031,292	$	30,313	$	21,386,417	(375,959	)	$	(7,144,721	)	$	3,903,424		$	18,194,069

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

~~See~~On ~~accompanying~~May ~~notes~~24, 2002, the Company dismissed Arthur Andersen LLP (Andersen) as its independent auditors and appointed KPMG LLP (KPMG) as the Company’s independent auditors. The decision not to ~~consolidated~~renew ~~financial~~the ~~statements~~engagement of Andersen and to select KPMG was approved by the Company’s Board of Directors upon the recommendation of its Audit Committee. The change in the Company’s certifying accountant was reported on Form 8-K and Form 8-K/A filed with the Securities and Exchange Commission on May 29, 2002 and June 21, 2002, respectively.

31ITEM 9A. Controls and Procedures

Under the supervision of and with the participation of the Company’s management, including the Company’s Chairman and Chief Executive Officer and ~~Alcide~~ the ~~Corporation Consolidated~~President ~~Statements~~and Chief Financial Officer, the Company has evaluated the effectiveness and design and operation of ~~Cash~~its ~~Flows~~ disclosure controls and procedures as of the end of the fourth quarter of 2003 and, based on their evaluation, the Chairman and Chief Executive Officer and the President and Chief Financial Officer have concluded that these disclosure controls and procedures are effective in ensuring that all material information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934 have been made known to them in a timely fashion. There were no changes in the Company’s internal controls over financial reporting that occurred during the fourth quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

		For the Years Ended May 31,
		2000			2001			2002
Cash Flows from Operating Activities:
Net income (loss)		$	(447,073	)	$	1,537,525		$	1,781,252
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
	Depreciation		1,030,075			1,938,818			2,741,568
	Amortization of investment premiums and goodwill		1,002			44,530			483
	Stock bonus to officers		—			225,400			—
	Common Stock contributed to the employee stock ownership plan		83,057			109,833			138,444
Tax benefit from exercise of stock options			19,974			498,764			116,661
Deferred income taxes			(240,033	)		292,155			734,793
Decrease (increase) in assets:
	Accounts receivable—trade		(226,129	)		(141,764	)		(221,293	)
	Inventory		660,397			(630,258	)		210,657
	Prepaid income taxes		615,000			(96,359	)		(167,620	)
	Spare parts		(314,366	)		(9,145	)		(194,417	)
	Prepaid expenses and other current assets		(61,937	)		(136,884	)		(54,637	)
	Long-term investments and other assets		19,354			23,232			57,108
Increase (decrease) in liabilities:
	Accounts payable		(203,480	)		572,365			(423,305	)
	Accrued expenses and taxes payable		(35,403	)		258,759			(8,553	)
	Other long-term liabilities		(158,000	)		(158,000	)		26,346
Net cash provided by operating activities			742,438			4,328,971			4,737,487
Cash Flows from Investing Activities:
Purchase of short-term investments			—			(974,372	)		—
Sale of investments			—			—			1,493,196
Goodwill and other intangibles			—			(422,795	)		—
Acquisition of equipment and leasehold improvements			(4,990,842	)		(5,215,517	)		(5,359,256	)
Net cash used in investing activities			(4,990,842	)		(6,612,684	)		(3,866,060	)
Cash Flows from Financing Activities:
Purchase of Alcide Common Stock			(397,555	)		(138,750	)		—
Redemption of Class "A" Preferred Stock			(46,130	)		—			—
Redemption of Class "B" Preferred Stock			—			—			(10,763	)
Borrowing on line of credit			—			1,000,000			1,000,000
Exercise of stock options			94,944			466,843			147,814
Net cash provided by (used in) financing activities			(348,741	)		1,328,093			1,137,051
Net increase (decrease) in cash and cash equivalents			(4,597,145	)		(955,620	)		2,008,478
Cash and cash equivalents at beginning of year			6,391,868			1,794,723			839,103
Cash and cash equivalents at end of year		$	1,794,723		$	839,103		$	2,847,581
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for interest		$	—		$	18,229		$	88,597
Cash paid during the year for income taxes		$	1,600		$	130,800		$	250,900
Warrants issued in business acquisition		$	—		$	99,540		$	—

~~See accompanying notes to consolidated financial statements.~~ PART III

32ITEM 10. Directors and Executive Officers

This information is incorporated by reference from the Sections captioned “Item 1-Election of Directors” and “Section 16(a) Beneficial Ownership Reporting ~~ALCIDE~~ Compliance” ~~CORPORATION~~ contained in the Company’s definitive Proxy Statement for its 2003 Annual Meeting of Shareholders. Information regarding executive officers is presented under the heading “Executive Officers of the Company” in Part I, Item 1A of this Report.

~~Notes to Consolidated Financial Statements~~ ITEM 11. Executive Compensation

~~Alcide Corporation~~This ~~(the~~information ~~"Company")~~ is ~~engaged~~incorporated inby ~~the~~reference ~~research,~~from ~~development~~the ~~and~~Sections captioned ~~commercialization~~“Compensation of ~~unique~~Directors,” ~~chemical~~“Executive ~~compounds~~Compensation,” ~~having~~“2003 ~~intense~~Report of ~~microbiocidal~~Compensation/Stock ~~activity.~~Option ~~The~~Committee,” ~~Company~~“Stock ~~holds~~Performance ~~substantial~~Graph,” “Summary ~~worldwide~~ Compensation ~~rights~~Table,” to“Option ~~its~~Grants ~~discoveries~~in ~~through~~Last ~~various~~Fiscal ~~patents~~Year,” ~~patent~~“Option ~~applications,~~Exercises ~~trademarks~~ and Fiscal ~~other~~Year ~~intellectual~~Option ~~property~~Values,” ~~technology~~and “Employment Contracts, Termination of Employment and ~~know~~Change-~~how.~~in-Control Arrangements” contained in the Company’s definitive Proxy Statement for its 2003 Annual Meeting of Shareholders.

~~Revenue~~ITEM ~~from sales of SANOVA food antimicrobials is recognized based on the terms of the Company's contracts with individual customers~~ 12. ~~For customers using more than 15,000 gallons of~~ Security ~~SANOVA per month, Alcide provides bulk shipments of inventory to the customer and the customer is invoiced at month-end with revenue recognized based on the amount of product processed or~~ ~~gallons~~Ownership of ~~SANOVA~~Certain ~~used.~~Beneficial ~~All~~Owners ~~other customers are invoiced~~ and ~~revenue is recognized at the time SANOVA is shipped to their facilities. Payment in either case is due fifteen to thirty days after billing.~~ Management

~~Equipment~~This ~~provided~~ information byis ~~Alcide~~incorporated ~~and~~by ~~installed~~reference atfrom ~~food~~the ~~processing~~Section ~~plants~~captioned to“Share Ownership ~~mix~~by Directors, ~~distribute~~Executive Officers and ~~apply~~Certain ~~SANOVA~~Beneficial isOwners” contained ~~recorded~~in atthe ~~cost~~Company’s ~~and~~definitive ~~depreciated~~Proxy ~~over~~Statement ~~the~~for ~~five-year~~its ~~estimated,~~2003 Annual ~~useful~~ Meeting ~~life~~ of ~~the assets by the straight-line method~~Shareholders.

33Equity Compensation Plan Information

~~changes~~The following in table ~~circumstances~~provides ~~occur~~certain ~~which~~information ~~may~~about ~~indicate~~ the ~~carrying~~Company’s ~~amount~~equity compensation plans in effect as of the ~~asset~~end ~~may~~of ~~not~~fiscal beyear ~~recoverable.~~2003, including the Company’s 1993 Stock Option Plan, 1996 Stock Option Plan for Nonemployee Directors and 2001 Stock Incentive Plan.

In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which is effective for fiscal years beginning after December 15, 2001 (effective for the Company on June 1, 2002). This statement supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", and replaces the provisions of APB Opinion No. 30, "Reporting the Results of Operations-Reporting the Effects of Disposal of Segments of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions," for the disposal of segments of a business. SFAS No. 144 retains the fundamental provisions of SFAS No. 121 for the recognition and measurement of the impairment of long-lived assets to be held and used and the measurement of long-lived assets to be disposed of by sale. Under SFAS No. 144, long-lived assets are measured at the lower of carrying amount or fair value less cost to sell. Adoption of this standard is not expected to have a material impact on the Company's financial position or results of operations.

				(c)
	(a)			Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (excluding securities reflected in column (a))
	Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights	(b)
Plan Category		Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights
Equity Compensation Plans Approved by Shareholders	328,496	$	20.90	238,904
Equity Compensation Plans Not Approved by Shareholders	None	N/A		N/A

InITEM ~~July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," (effective January 1, 2003) which replaces Emerging~~ ~~Issues Task Force (EITF) Issue No~~13. ~~94-3 "Liability Recognition for~~ Certain Relationships ~~Employee Termination Benefits~~ and ~~Other~~Related Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability Transactions

34This information is incorporated by reference from the Section captioned “Certain Transactions” contained in the Company’s definitive Proxy Statement for its 2003 Annual Meeting of Shareholders.

is incurred and states that an entity's commitment to an exit plan, by itself, does not create a present obligation that meets the definition of a liability. SFAS No. 146 also establishes that fair value is the objective for initial measurement of the liability. The Company does not expect the adoption of SFAS No. 146 to have a material impact upon the Company's financial position or results of operations. 22

~~The Company~~PART follows the provisions of SFAS No. 131 "Disclosures about Segments of an Enterprise and Related Information" and reports 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. Management has determined the Company has two reportable segments, Animal Health and Surface Disinfectants and SANOVA Food Antimicrobial Products. IV

~~The~~ITEM ~~Company's reportable segments are strategic business units that offer similar products, but to entirely different customers at substantially different selling prices and cost of goods sold~~ ~~structures~~15. Exhibits, Financial ~~The~~Statement ~~Company~~Schedules ~~does not have any inter-segment revenues. International sales include sales to international distributors~~ and ~~sales~~Reports ~~through~~on ~~U.S.~~Form ~~distributors that are shipped directly to foreign countries.~~ 8-K

~~The~~(a) Documents ~~accounting~~ filed ~~policies of the segments are the same~~ as ~~those~~part ~~described in Note 2—Summary~~ of ~~Significant~~the ~~Accounting Policies. The Company evaluates performance based on gross margin from~~ report:

351. Consolidated Financial Statements Reports of Independent Public Accountants. Consolidated Balance Sheets as of May 31, 2002 and May 31, 2003. Consolidated Statements of Operations for each of the years ended May 31, 2001, May 31, 2002 and May 31, 2003. Consolidated Statements of Shareholders’ Equity for each of the years ended May 31, 2001, May 31, 2002 and May 31, 2003. Consolidated Statements of Cash Flows for each of the years ended May 31, 2001, May 31, 2002 and May 31, 2003. Notes to Consolidated Financial Statements. 2. Financial Statement Schedules None. 3. Exhibits See Index to Exhibits on Page 25.

(b) Reports ~~the~~ on ~~sale~~Form ~~of each segment's products and does not allocate expenses beyond gross margin to the two segments~~8-K.

~~Segment~~Report on Form ~~net~~ 8-K ~~sales~~dated April 14, ~~gross~~2003, ~~margin~~reporting ~~and~~results ~~assets~~of ~~are~~operations asfor ~~follows:~~the fiscal quarter ended February 28, 2003.

		FY 2000			FY 2001		FY 2002
Animal Health and Surface Disinfectants
	Net Sales—U.S.	$	4,474,757		$	5,027,340	$	5,381,949
	Net Sales—International	$	4,076,505		$	4,530,012	$	4,377,379
	Total Net Sales	$	8,551,262		$	9,557,352	$	9,759,328
	Gross Margin	$	5,061,884		$	5,609,888	$	5,536,850
	Assets (at end of period)	$	2,279,457		$	3,253,716	$	2,687,026
	Fixed Asset Additions		—		$	26,891		—
	Depreciation Expense		—		$	2,240	$	5,376
	Goodwill Amortization		—		$	43,528		—
SANOVA Food Antimicrobials
	Net Sales—U.S.	$	3,889,187		$	8,400,623	$	12,229,362
	Gross Margin	$	(65,153	)	$	3,430,219	$	4,893,309
	Assets (at end of period)	$	8,454,679		$	11,874,410	$	15,176,245
	Fixed Asset Additions	$	4,871,847		$	3,768,606	$	3,541,443
	Depreciation Expense	$	968,069		$	1,870,884	$	2,661,179
Not Segment Related
	Assets (at end of period)	$	3,796,185		$	3,874,474	$	4,002,062
	Fixed Asset Additions	$	118,995		$	125,884	$	138,997
	Depreciation Expense	$	62,006		$	65,694	$	75,013
Total
	Net Sales	$	12,440,449		$	17,957,975	$	21,988,690
	Gross Margin	$	4,996,731		$	9,040,107	$	10,430,159
	Assets (at end of period)	$	14,530,321		$	19,002,600	$	21,865,333
	Fixed Asset Additions	$	4,990,842		$	3,921,381	$	3,680,440
	Depreciation Expense	$	1,030,075		$	1,938,818	$	2,741,568
	Goodwill Amortization		—		$	43,528		—

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

~~No single~~Pursuant ~~customer~~to ~~accounted~~the ~~for~~requirements ~~10% or more~~ of Section ~~revenues~~13 inor ~~fiscal~~15(d) ~~2002. In fiscal 2001 and 2000, two~~ of the ~~Company's~~Securities ~~distributors~~Exchange inAct ~~the dairy industry each accounted for greater than 10%~~ of ~~total revenues. One customer accounted for $2~~1934,~~546,687~~ ~~and~~the ~~$2,330,684~~Registrant ofhas duly ~~sales~~caused inthis ~~fiscal~~report ~~2001~~to ~~and~~be ~~fiscal~~signed ~~2000,~~on ~~respectively.~~its ~~Another~~behalf ~~customer~~by ~~accounted~~the ~~for $2~~undersigned,~~701,709 and $3,409,385 of sales in fiscal 2001~~ ~~and~~ thereunto ~~fiscal~~duly ~~2000, respectively~~authorized.

Investments on the Company's accompanying consolidated balance sheets 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 consolidated balance sheets. On May 31, 2002, the Company had no such investments. During fiscal 2002 a treasury note held as a long-term investment was sold for a

	ALCIDE CORPORATION
	(Registrant)


	By	/s/ Joseph A. Sasenick
	Joseph A. Sasenick, Chairman
	Chief Executive Officer


	By	/s/ John P. Richards
	John P. Richards, President
	Chief Financial Officer (Principal Accounting Officer)

Date: August 19, 2002

36Pursuant 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:

realized gain of $13,660. Short-term investments at May 31, 2001 consisted of a one-year certificate of deposit with an interest rate of 5.29%, maturing January 22, 2002. Debt securities consisted entirely of debt obligations of the United States of America. Information regarding securities held at May 31, 2001 and May 31, 2002 is as follows:

/s/ Thomas L. Kempner	Director	August 19, 2003
Thomas L. Kempner


/s/ Charles Baker	Director	August 19, 2003
Charles Baker


/s/ Joseph A. Sasenick	Director, Chairman	August 19, 2003
Joseph A. Sasenick	Chief Executive Officer


/s/ William G. Spears	Director	August 19, 2003
William G. Spears

	Amortized Cost			Fair Value
Investment Classification
	2001		2002	2001		2002
Held-to-maturity:
Short-term	$	992,426	—	$	1,001,638	—
Long-term	$	501,253	—	$	512,970	—

	Gross Unrealized Gains
				Maturity
Investment Classification
	2001		2002	2001	2002
Held-to-maturity	$	20,929	—	0-2 years	—

INDEX TO EXHIBITS

~~Accounts receivable~~Exhibit ~~consisted of the following:~~ No.

	May 31, 2001		May 31, 2002
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).
Domestic distributors	$	487,005	$	349,942
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).
International distributors		851,896		813,155
3.3	Amendments to the By-Laws, as amended on November 20, 1986, October 8, 1987, July 18, 1989, September 13, 1990, August 20, 1991, November 8, 1991, February 4, 1992, August 20, 1992 and October 14, 1997.
SANOVA customers		1,195,578		1,580,444
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).
Other receivables		93,331		105,562
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).**
Total Accounts Receivable—Trade	$	2,627,810	$	2,849,103
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).**
10.24	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).
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).
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).**
10.32	Distributor Agreement by and between the Company and Sfan Laboratoire dated May 28, 2001, covering the territories of France, Algeria, Morocco and Tunisia (previously filed as an exhibit to Form 10-Q of the Registrant for the quarter ended August 31, 2001, and incorporated herein by reference).
10.33	2001 Stock Incentive Plan (previously filed as an exhibit to Form 10-Q of the Registrant for the quarter ended November 30, 2001, and incorporated herein by reference).**

~~Based on the nature of the customers and past experience, the Company has not provided an allowance for doubtful accounts at May 31, 2001 and 2002.~~ 25

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

10.34		Distributor Agreement by and between the Company and Agri-Lloyd International LTD, dated May 15, 2002, covering the United Kingdom.

10.35		Licensing Agreement by and between the Company and IBA, Inc., dated April 26, 2002, covering the United States and Mexico.

23.1		Consent of Independent Public Accountants.***

31.1		Certification of Chairman and Chief Executive Officer pursuant to Rule 13a-14a.***

31.2		Certification of President and Chief Financial Officer pursuant to Rule 13a-14a.***

32.1		Certification pursuant to 18 U.S.C. Section 1350.***

	May 31, 2001		May 31, 2002
Raw materials	$	416,236	$	307,922
Finished Products		910,245		630,517
SANOVA inventory at customer sites		707,867		885,252
Total Inventory	$	2,034,348	$	1,823,691

** Management contract, compensatory plan or arrangement.

~~On February 1,~~***Filed ~~2001 the Company purchased the assets of Universal Marketing Services, Inc~~herewith. (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. The amount was subsequently adjusted to $1,100,493 per physical audit. On May 31, 2002, $48,362 of this inventory remained in "finished products".

37Independent Auditors’ Report

~~model~~The ~~with~~Board ~~assumptions~~ of ~~expected~~Directors ~~volatility of 68.5%, contractual warrant life of three years~~ and risk-free rate of interest of 4.7%. The purchase price was allocated to the acquired assets based on their fair market value and the residual, $522,335, was recorded as goodwill. Goodwill was being amortized over a 48 month period. As of May 31, 2001, accumulated amortization was $43,528. As of May 31, 2002, no portion of the warrant has been exercised. Shareholders

~~In July 2001,~~Alcide the FASB issued SFAS No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS No. 141 requires business combinations initiated after June 30, 2001 to be accounted for using the purchase method of accounting and broadens the criteria for recording intangible assets separate from goodwill. Recorded goodwill and intangibles will be evaluated against this new criteria and may result in certain intangibles being subsumed into goodwill or, alternatively, amounts initially recorded as goodwill may be separately identified and recognized apart from goodwill. SFAS No. 142 requires the use of a non-amortization approach to account for purchased goodwill and certain intangibles. Under a non-amortization approach, goodwill and certain intangibles will not be amortized into results of operations, but instead will be reviewed for impairment and written down and charged to results of operations only in the periods in which the recorded value of goodwill and certain intangibles is more than its fair value. The provisions of each statement which apply to goodwill and intangible assets acquired prior to June 30, 2001 were "early-adopted" by the Company on June 1, 2001. The result of this "early-adoption" is that a portion of other intangible assets have been subsumed into goodwill because they don't meet the required criteria for reporting as separate, identifiable, indefinite-lived assets under the provisions of SFAS 142. The goodwill will be reviewed on an annual basis for potential impairment by assessing the fair value of the reporting unit to which the goodwill is assigned. The last review was as of May 31, 2002 and no impairment was indicated. Corporation:

IfWe have audited the accompanying consolidated ~~SFAS~~ balance ~~No. 142~~sheets ~~had~~of ~~been~~Alcide inCorporation ~~effect~~and insubsidiary ~~fiscal~~(the ~~2001,~~Company) ~~net~~as ~~income~~of ~~would~~May ~~have~~31, 2003 ~~been~~and $12002,~~565,849,~~ ~~basic~~and ~~earnings~~the ~~per~~related ~~share~~consolidated ~~would~~statements ~~have~~of ~~been~~operations, shareholders’ ~~$.61~~equity and ~~diluted~~cash ~~earnings~~flows ~~per~~for ~~share~~the ~~would~~years ~~have~~then ~~been $~~ended.~~59.~~ These ~~Adjusted~~ consolidated ~~net~~financial ~~income~~statements are the responsibility of ~~$1,565,849~~the isCompany’s management. ~~calculated~~Our byresponsibility ~~adding~~is ~~back~~to ~~amortization~~express ~~expense~~an ofopinion ~~$28,324~~on ~~(fiscal~~these ~~2001~~consolidated financial ~~amortization~~statements ofbased ~~$43,528~~on ~~net~~our ofaudits. ~~tax~~The ~~effect~~2001 financial statements of ~~approximately~~the Company ~~34.9%)~~were toaudited ~~fiscal~~by ~~2001~~other ~~net~~auditors ~~income of~~who ~~$1,537,525~~have ceased operations. ~~Net~~Those auditors ~~income~~expressed ~~and~~an ~~earnings~~unqualified ~~per~~opinion ~~share~~on ~~for~~those ~~fiscal~~financial ~~2000~~statements, ~~would~~before the ~~not~~revision ~~have~~described ~~been~~in ~~affected~~Note as2 to the ~~company~~financial ~~had~~statements, noin ~~goodwill~~their ~~prior~~report dated toJune ~~February~~ 29, 2001.

~~Accrued~~We conducted our audits in accordance with ~~expenses~~ auditing ~~were:~~standards generally accepted in the United States of America. 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.

	May 31, 2001		May 31, 2002
Accrued employee salaries, incentive and benefits	$	315,287	$	376,591
Payable to Novus—short-term		158,000		—
Accrued consulting and outside services		30,205		55,636
Other accrued expenses		132,014		194,726
Total Accrued Expenses	$	635,506	$	626,953

In our opinion, the 2003 and 2002 consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of May 31, 2003 and 2002, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

38As discussed above, the 2001 financial statements of the Company were audited by other auditors who have ceased operations. As described in Note 2, these financial statements have been revised to include the transitional disclosures required by Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, which was adopted by the Company as of June 1, 2001. In our opinion, the disclosures for 2001 in Note 2 are appropriate. However, we were not engaged to audit, review, or apply any procedures to the 2001 financial statements of the Company other than with respect to such disclosures and, accordingly, we do not express an opinion or any other form of assurance on the 2001 financial statements taken as a whole.

~~In August 2001~~/s/ ~~the~~KPMG ~~Company~~LLP ~~renewed its $10~~Seattle,~~000,000~~ ~~unrestricted~~Washington ~~line~~July ~~of credit with US Bank. The new expiration date is August 31~~2, 2003.

Two unsecured advances of $1,000,000 each have been taken on the line of credit, one in February 2001 and another in June 2001. Currently, both advances are due in September 2002. The interest rates on these advances are twelve month LIBOR plus an applicable margin based on the Company's cash flow leverage ratio and are approximately 4.3% for the first advance and 3.9% for the second. Interest is paid monthly. Management believes the Company is in full compliance with all bank covenants as of May 31, 2002. 27

~~Future~~Report of ~~annual~~ Independent ~~lease~~Public ~~commitments are as follows:~~ Accountants

FY 2003		$	172,766
FY 2004		$	120,639

The Board of Directors and Shareholders of Alcide Corporation:

~~Lease~~We have audited the ~~payments~~ accompanying inconsolidated FYbalance ~~2002,~~sheets FYof ~~2001~~Alcide Corporation (a Delaware Corporation) and FYsubsidiary ~~2000~~as ~~were~~of ~~$179~~May 31,~~878~~ 2001 and 2000, ~~$175~~and the related consolidated statements of operations,~~037~~ changes in shareholders’ equity and ~~$115~~cash flows for each of the three years in the period ended May 31,~~587~~ ~~respectively~~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.

AWe conducted our audits in ~~summary~~ 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 ~~provision~~and ~~(benefit)~~disclosures ~~for~~in ~~income~~the ~~taxes~~financial ~~follows:~~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.

		FY 2000			FY 2001		FY 2002
Current
	Federal	$	(543,251	)	$	34,441	$	10,000
	State and local		—			—		—
		$	(543,251	)	$	34,441	$	10,000
Deferred
	Federal	$	313,741		$	769,653	$	788,547
	State and local		—			21,266		39,688
		$	(229,510	)	$	825,360	$	838,235

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.

39/s/ ARTHUR ANDERSEN LLP Seattle, Washington June 29, 2001

AThe report of Arthur Andersen ~~reconciliation~~ LLP ~~between~~(Andersen) is a copy of a report previously issued by Andersen on June 29, 2001. We have not been able to obtain a re-issued report from Andersen. Andersen has not consented to the ~~statutory~~inclusion ~~federal~~of ~~income~~its ~~tax~~report ~~rate~~in ~~and~~this Annual Report on Form 10-K. The report of Andersen refers to certain financial statements not included herein. Because Andersen has not consented to the inclusion ~~effective~~of ~~income~~its ~~tax~~report ~~rate~~in isthis asAnnual ~~follows:~~Report, it may be more difficult for you to seek remedies against Andersen and your ability to seek relief against Andersen may be impaired.

	FY 2000		FY 2001		FY 2002
Statutory federal income tax rate	34.0	%	34.0	%	34.0	%
State taxes	—		.9	%	1.0	%
Cumulative prior years tax credits	—		—		(3.0	)%
Effective income tax rate	34.0	%	34.9	%	32.0	%

~~The components~~Alcide ~~of the deferred tax assets and liabilities are as follows:~~ Corporation

	May 31, 2001		May 31, 2002
Deferred tax assets:
Operating loss carryforwards	$	757,316	$	759,935
Stock option timing differences		269,854		42,170
Research and experimental credits carryforward		83,895		92,798
Alternative minimum tax carryforward		295,043		284,053
Total deferred tax assets		1,406,108		1,178,956
Deferred tax liabilities:
Depreciation		588,694		995,734
Amortization		—		12,188
Other		7,237		95,650
Total deferred tax liabilities		595,931		1,103,572
Net deferred tax asset	$	810,177	$	75,384

Consolidated Balance Sheets

The temporary differences result from the use of straight-line deprecation for equipment in the financial statements versus the 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. The gross operating loss carryforward of approximately $2,170,000 and the research and experimental credits carryforward will begin to expire in 2019.

	May 31,
	2002			2003
Assets:
Current assets:
Cash and cash equivalents	$	2,847,581		$	2,286,641
Accounts receivable – trade, net	2,849,103			3,831,527
Inventory	1,823,691			2,097,097
Deferred and prepaid income taxes	434,200			243,413
Spare parts	652,620			884,226
Prepaid expenses and other current assets	412,118			468,863
Total current assets	9,019,313			9,811,767
Equipment and leasehold improvements:
SANOVA plant assets	14,376,961			17,037,502
Construction in progress	3,009,716			2,596,332
Office equipment	553,539			567,158
Laboratory, manufacturing equipment and vehicles	451,824			523,718
Leasehold improvements	73,483			73,483
Less: Accumulated depreciation and amortization	(6,118,278		)	(9,790,948		)
Total equipment and leasehold improvements, net	12,347,245			11,007,245
Goodwill	478,807			478,807
Other assets	19,968			70,885
Total Assets	$	21,865,333		$	21,368,704

Liabilities and Shareholders’ Equity:
Current liabilities:
Accounts payable	$	743,514		$	686,391
Accrued expenses	616,953			501,578
Line of credit payable	2,000,000			—
Income taxes payable	10,000			115,300
Total current liabilities	3,370,467			1,303,269
Deferred tax liability	94,837			565,287
Other long-term liabilities	26,346			8,140
Total Liabilities	3,491,650			1,876,696

Commitments and Contingencies

Redeemable Class “B” Preferred Stock - noncumulative convertible $.01 par value; authorized 10,000,000 shares; issued and outstanding: May 31, 2002 – 68,425; May 31, 2003 – 63,675	179,614			167,145

Shareholders’ equity:
Class “A” Preferred Stock - no par value; authorized 1,000 shares; issued and outstanding: May 31, 2002 - 138; May 31, 2003 - 138	18,636			18,636
Common Stock $.01 par value; authorized 10,000,000 shares; issued: May 31, 2002 - 3,031,292; May 31, 2003 – 3,040,597	30,313			30,406
Common treasury stock at cost May 31, 2002 - 375,959; May 31, 2003 – 385,959	(7,144,721		)	(7,260,041		)
Additional paid-in capital	21,386,417			21,502,828
Retained earnings	3,903,424			5,033,034
Total Shareholders’ Equity	18,194,069			19,324,863
Total Liabilities and Shareholders’ Equity	$	21,865,333		$	21,368,704

~~Basic earnings~~See ~~(loss)~~accompanying ~~per~~notes ~~share~~to isconsolidated ~~computed~~financial ~~by dividing net income (loss) by the weighted average number of common shares outstanding during the year~~statements. 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 and warrants. Common stock equivalents, excluded because of their antidilutive effect were 92,290 shares in FY 2002, 51,790 shares in FY 2001 and 316,482 shares in FY 2000.

4029

~~Basic and~~Alcide ~~diluted earnings (loss) per share were calculated as follows:~~ Corporation

	Computation of Earnings (Loss) Per Common Share For the Years Ended May 31,
	2000			2001		2002
Net income (loss)	$	(447,073	)	$	1,537,525	$	1,781,252
Weighted average number of common shares outstanding		2,518,767			2,572,898		2,643,467
Basic earnings (loss) per share	$	(.18	)	$	.60	$	.67
Assuming exercise of options and warrants reduced by the number of shares which could have been purchased with the proceeds from exercise of such options (Ø if antidilutive)		Ø			82,219		76,539
Weighted average common shares outstanding and common share equivalents		2,518,767			2,655,117		2,720,006
Diluted earnings (loss) per share	$	(.18	)	$	.58	$	.65

Consolidated Statements of Operations

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.

	For the Years Ended May 31,
	2001			2002			2003

Revenue:
Net sales	$	17,957,975		$	21,988,690		$	21,027,277
License revenue	—			—			897,177
Total revenue	17,957,975			21,988,690			21,924,454

Expenditures:
Cost of goods sold	8,917,868			11,558,531			12,015,774
Research and development expense	2,479,851			2,639,877			2,158,287
Consulting expense to related parties	96,000			74,000			60,000
Selling, general and administrative expense	4,251,359			5,127,686			5,955,313
Total expenditures	15,745,078			19,400,094			20,189,374

Operating income	2,212,897			2,588,596			1,735,080
Interest income	139,333			71,728			25,059
Interest expense	(18,229		)	(88,597		)	(57,116		)
Other income	28,884			47,760			37,087
Income before provision for income taxes	2,362,885			2,619,487			1,740,110
Provision for income taxes	(825,360		)	(838,235		)	(610,500		)
Net income	$	1,537,525		$	1,781,252		$	1,129,610
Basic earnings per common share	$	.60		$	.67		$	.42
Diluted earnings per common share	$	.58		$	.65		$	.42
Weighted average common stock and dilutive potential common shares outstanding:
Basic	2,572,898			2,643,467			2,658,469
Diluted	2,655,117			2,720,006			2,680,012

~~The Company~~See ~~has~~accompanying ~~not~~notes ~~declared~~to consolidated ~~dividends~~financial ~~on any of its classes of stock~~statements.

~~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.

On September 30,Alcide 1994, the Company issued to holders of any outstanding Series 1 Stock, in a recapitalization, one share of non-voting 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 $1,781,252 in fiscal 2002, it will redeem 4,750 shares of Series 2 Stock on September 30, 2002 for $12,469. The Company may redeem any or all of the issued and outstanding Series 2 Stock at its option, at any time, at the redemption price of $2.625 per share. Corporation

~~The Company~~Consolidated ~~had~~Statements an incentive stock option plan that expired in May 1993. No additional grants may be issued under this plan. With shareholder approval, the Company replaced this plan with a new plan effective December 1993, which allowed for the issue of ~~both incentive stock options and nonqualified stock options. In October 2001, shareholders approved a new plan which replaced~~Shareholders’ ~~the~~ Equity

	Class “A” Preferred Stock			Common Stock			Additional Paid in Capital		Common Treasury Stock					Retained Earnings		Total Shareholders’ Equity
	Shares	Amount		Shares	Amount		Additional Paid in Capital		Shares		Amount			Retained Earnings		Total Shareholders’ Equity
Balance May 31, 2000	138	$	18,636	2,904,068	$	29,040	$	19,832,668	(384,425	)	$	(7,254,248	)	$	584,647	$	13,210,743

Exercise of Stock Options				90,263	903		465,940									466,843
Purchase Treasury Stock									(5,000	)	(138,750		)			(138,750		)
Stock Contributed to ESOP									8,466		109,833					109,833
Tax Benefit from Exercise of Stock Options							498,764									498,764
Stock Issued for Officers’ Bonuses				13,488	135		225,265									225,400
Issued Stock Warrants							99,540									99,540
Net Income														1,537,525		1,537,525

Balance May 31, 2001	138	$	18,636	3,007,819	$	30,078	$	21,122,177	(380,959	)	$	(7,283,165	)	$	2,122,172	$	16,009,898

Exercise of Stock Options				23,473	235		147,579									147,814
Stock Contributed to ESOP									5,000		138,444					138,444
Tax Benefit from Exercise of Stock Options							116,661									116,661
Net Income														1,781,252		1,781,252

Balance May 31, 2002	138	$	18,636	3,031,292	$	30,313	$	21,386,417	(375,959	)	$	(7,144,721	)	$	3,903,424	$	18,194,069

Exercise of Stock Options				6,034	60		53,145									53,205
Purchase Treasury Stock									(10,000	)	(115,320		)			(115,320		)
Stock Contributed to ESOP				3,271	33		53,873									53,906
Tax Benefit from Exercise of Stock Options							9,393									9,393
Net Income														1,129,610		1,129,610

Balance May 31, 2003	138	$	18,636	3,040,597	$	30,406	$	21,502,828	(385,959	)	$	(7,260,041	)	$	5,033,034	$	19,324,863

~~un-expired~~See ~~portion~~accompanying ofnotes ~~the 1993 plan. Nonqualified 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. Nonqualified stock options are granted with an exercise price equal to 100% or greater of the fair~~ ~~market~~consolidated ~~value~~financial ~~of the Common Stock on the date of grant~~statements. ~~Under this plan there are 218,750 options available for grant as of May 31, 2002.~~

The Company also has a stock option plan for nonemployee directors which was approved by shareholders in October 1996. 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 38,058 options available for grant as of May 31~~, 2002.~~

Options areAlcide exercisable within ten years from the date of option grant. Options awarded to officers and employees typically vest over a five-year period. Options awarded to nonemployee board members vest immediately. Options will expire during the period January 2003 through March 2012. 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 SFAS No. 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 No. 123. Corporation

The statusConsolidated Statements of theCash plans are as follows: Flows

	FY 2000					FY 2001				FY 2002
	For the Years Ended May 31,
	No. of Shares		Weighted Avg. Share $			No. of Shares		Weighted Avg. Share $		No. of Shares		Weighted Avg. Share $
	2001			2002			2003
Outstanding at beginning of year	298,200		$	13.70		316,483		$	14.16	260,787		$	18.05
Cash Flows from Operating Activities:
Granted	38,333			15.13		44,393			20.32	93,370			25.43
Net income	$	1,537,525		$	1,781,252		$	1,129,610
Exercised	(15,100	)		6.29		(94,089	)		6.22	(24,231	)		7.13
Adjustments to reconcile net income to net cash provided by operating activities:
Cancelled	(4,950	)		18.10		(6,000	)		15.25	(13,300	)		16.38
Depreciation	1,938,818			2,741,568			3,672,670
Outstanding at end of year	316,483		$	14.16		260,787		$	18.05	316,626		$	21.13
Amortization of investment premiums and goodwill	44,530			483			—
Exercisable at end of year	240,182		$	11.32		170,087		$	15.98	167,676		$	18.78
Stock bonus to officers	225,400			—			—
Common Stock contributed to the employee stock ownership plan	109,833			138,444			53,906
Tax benefit from exercise of stock options	498,764			116,661			9,393
Deferred income taxes	292,155			734,793			495,808
Decrease (increase) in assets:
Accounts receivable - trade, net	(141,764		)	(221,293		)	(982,424		)
Inventory	(630,258		)	210,657			(273,406		)
Prepaid income taxes	(96,359		)	(167,620		)	165,429
Spare parts	(9,145		)	(194,417		)	(231,606		)
Prepaid expenses and other current assets	(136,884		)	(54,637		)	(56,745		)
Long-term investments and other assets	23,232			57,108			(50,917		)
Increase (decrease) in liabilities:
Accounts payable	572,365			(423,305		)	(57,123		)
Accrued expenses and taxes payable	258,759			(8,553		)	(10,075		)
Other long-term liabilities	(158,000		)	26,346			(18,206		)
Net cash provided by operating activities	4,328,971			4,737,487			3,846,314
Cash Flows from Investing Activities:
Purchase of short-term investments	(974,372		)	—			—
Sale of investments	—			1,493,196			—
Goodwill and other intangibles	(422,795		)	—			—
Acquisition of equipment and leasehold improvements	(5,215,517		)	(5,359,256		)	(2,332,670		)
Net cash used in investing activities	(6,612,684		)	(3,866,060		)	(2,332,670		)
Cash Flows from Financing Activities:
Purchase of Alcide Common Stock	(138,750		)	—			(115,320		)
Redemption of Class “B” Preferred Stock	—			(10,763		)	(12,469		)
Borrowing (repayment) on line of credit	1,000,000			1,000,000			(2,000,000		)
Exercise of stock options	466,843			147,814			53,205
Net cash provided by (used in) financing activities	1,328,093			1,137,051			(2,074,584		)
Net increase (decrease) in cash and cash equivalents	(955,620		)	2,008,478			(560,940		)
Cash and cash equivalents at beginning of year	1,794,723			839,103			2,847,581
Cash and cash equivalents at end of year	$	839,103		$	2,847,581		$	2,286,641
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for interest	$	18,229		$	88,597		$	57,116
Cash paid during the year for income taxes	$	130,800		$	250,900		$	40,000
Warrants issued in business acquisition	$	99,540		$	—		$	—

~~Information relating~~See toaccompanying ~~stock~~notes ~~options~~to ~~outstanding~~consolidated ~~and~~financial ~~stock options exercisable at May 31, 2002 is as follows:~~ statements.

		Options Outstanding				Options Exercisable
Range of Exercise Prices		No. of Shares	Weighted Avg. Life	Wtd. Avg. $/Sh.		No. of Shares	Wtd. Avg. $/Sh.
$	6.90 - $11.94	67,834	2.06	$	10.07	65,834	$	10.01
$	12.00 - $20.00	68,332	7.51	$	16.52	23,882	$	16.21
$	20.25 - $63.00	180,460	6.99	$	27.03	77,960	$	26.97
		316,626	6.04	$	21.13	167,676	$	18.78

42Alcide Corporation

Had compensationNotes cost for these stock option plans been determined in accordance with SFAS No. 123, the Company's "Net income" and "Net income per common share" would have decreased to the followingConsolidated proFinancial forma amounts for the years ended May 31, 2000, 2001 and 2002. Statements

		FY 2000			FY 2001		FY 2002
Net income (loss)	As reported	$	(447,073	)	$	1,537,525	$	1,781,252
	Pro forma	$	(699,878	)	$	1,265,281	$	1,300,198
Basic earnings (loss) per common share	As reported	$	(.18	)	$	.60		.67
	Pro forma	$	(.28	)	$	.49		.49
Diluted earnings (loss) per common share and equivalents	As reported	$	(.18	)	$	.58		.65
	Pro forma	$	(.28	)	$	.48		.49

1. General:

~~The~~Alcide ~~fair~~ Corporation ~~value~~(the of“Company”) ~~each stock option granted~~ is ~~valued~~engaged onin the date of grant using the Black-Scholes option pricing model. The weighted average grant-date fair value of stock options granted during fiscal 2002 was $21.43 per share using the assumptions of expected volatility of 89.2%research, ~~expected~~development ~~option lives of 7.5 years, risk-free rate of interest of 5.0%~~ and ~~no expected~~ ~~dividends. During fiscal 2001, the weighted average grant-date fair value of stock options granted was $13.84 per share using the assumptions of expected volatility of 59.4%, expected~~ ~~option~~commercialization ~~lives~~ of ~~7.5 years,~~unique ~~risk-free~~chemical ~~rate~~compounds ofhaving ~~interest~~intense ofmicrobiocidal 5activity.8% The ~~and~~Company noholds ~~expected~~substantial ~~dividends. During fiscal 2000, the weighted average grant date fair value of stock options granted was~~worldwide ~~$10.06~~ rights ~~per~~to ~~share~~its ~~using~~discoveries ~~the~~through ~~assumptions~~various ofpatents, ~~expected~~patent ~~volatility of 57.2%~~applications, trademarks ~~expected~~and ~~option~~other ~~lives~~intellectual ~~of 7.5 years~~property, ~~risk-free~~technology ~~rate of interest of 6.3%~~ and ~~no expected dividends~~know-how.

~~Consulting~~2. Nature ~~Agreements:~~ of Business and Summary of Significant Accounting Policies:

~~Loeb~~a. Basis of ~~Partners~~Presentation: The ~~Corporation~~consolidated financial ~~During~~statements include the ~~fiscal~~accounts ~~years~~of ~~ended May 31, 2002, 2001 and 2000~~ the Company ~~paid Loeb Partners Corporation $60,000 each year in cash for executive~~ and ~~management~~its ~~services provided by Mr. Kempner~~wholly-owned subsidiary, aAlcide ~~member~~Food ~~of the Company's Board of Directors~~Safety, ~~and Mr~~Inc. ~~Mintz, Managing Director of Loeb Partners Corporation.~~ ~~Mr. Kempner~~ All ~~holds~~inter-company ~~approximately~~accounts ~~51%~~and ofbalances ~~the~~have ~~voting~~been ~~equity of Loeb Holding Corporation, of which Loeb Partners Corporation is a 100% wholly-owned operating subsidiary~~eliminated.

~~Kenneth N~~b. Revenue Recognition: Animal ~~May~~Health ~~During~~and ~~the~~Surface Disinfectant ~~fiscal~~sales ~~year~~are ~~ended~~recognized ~~May 31,~~at ~~2002,~~the ~~Dr. May~~time ~~earned~~of ~~$14,000~~shipment ~~for~~to ~~consulting~~distributors ~~services~~or into end ~~the~~users. The ~~field~~Company ofprovides ~~pathogen control~~a on limited ~~poultry~~warranty ~~and~~to ~~other~~its ~~food~~distributors ~~products.~~which ~~Dr. May~~limits ~~retired from~~ the Company'’s ~~Board~~obligation to replacement of ~~Directors~~defective inproduct. Replacements have, ~~October 2001~~for ~~and~~the ispast noseveral ~~longer~~years, abeen ~~related~~less ~~party~~than .1% ~~During~~of ~~fiscal~~net ~~2001~~sales. The ~~and~~distributors ~~fiscal~~have ~~2000,~~no hecontractual ~~earned~~right ~~$36,000~~ to ~~each~~return ~~year.~~unsold product.

~~The Company~~Revenue ~~has~~recognition anfrom ~~employee~~sales ~~stock~~of ~~ownership~~SANOVA ~~plan~~food ~~(the~~antimicrobials ~~Plan).~~is determined ~~Employees~~by ~~who~~the ~~are~~terms ~~at least age 21 and have completed one year~~ of ~~service~~the ~~are eligible to participate. The~~ Company’s ~~may~~contracts ~~make~~with ~~discretionary~~individual ~~contributions to the Plan~~ customers. For ~~Compensation~~customers ~~expense~~using ismore than ~~recognized~~15,000 ~~based~~gallons onof ~~the~~SANOVA ~~fair~~per ~~value~~month, ofAlcide ~~the~~provides ~~Company's~~bulk ~~common~~shipments ~~stock as~~ of inventory ~~the~~to ~~date~~ the ~~shares~~customer ~~are purchased~~ and ~~contributed to~~ the ~~Plan.~~customer ~~The~~is ~~ESOP~~invoiced ~~plan year~~at ~~ends~~month-end onwith ~~December 31~~revenue recognized ~~while~~based ~~the Company's fiscal year ends~~ on ~~May 31. During~~ the ~~ESOP~~amount ~~plan~~of ~~years~~product ~~ended~~processed ~~December 21,~~or ~~1999,~~gallons ~~2000~~of ~~and~~SANOVA used. All ~~2001,~~other ~~the~~customers ~~Company's~~are ~~contributions were~~invoiced ~~approximately $83,000, $124,000~~ and ~~$226,000.~~revenue ~~During~~is ~~the~~recognized ~~Company's~~at ~~fiscal years ended May 31, 2000, 2001 and 2002,~~ the ~~Company~~time ~~recorded~~SANOVA ~~ESOP~~is ~~expense~~shipped ofto ~~$100,057,~~their facilities. Payment ~~$215,582~~in ~~and~~either ~~$257,646.~~case ~~The~~is ~~Company~~ due ~~estimates~~fifteen ~~its annual contribution~~ to ~~the~~thirty ~~Plan~~days ~~and~~after ~~accrues a liability over the fiscal year consistent with the estimate~~billing.

43c. Cash and cash equivalents consist of demand deposits, short-term, interest-bearing instruments with maturity of 90 days or less at time of purchase and money market accounts.

~~Corporate~~d. Costs of ~~Office~~advertising, product promotion and trade shows are expensed as ~~8561~~ incurred. Amounts ~~154th~~expensed ~~Avenue~~in NEfiscal ~~Redmond~~ year 2003, ~~Washington~~fiscal ~~98052 Phone:~~year ~~(425) 882-2555 Fax:~~2002 ~~(425) 861-0173 E-mail:~~and ~~info@alcide.com~~fiscal year 2001 were $207,965, $188,957, and ~~Website:~~ $158,929, ~~www~~respectively.~~alcide.com~~

~~Independent~~e. Normal repair ~~Public~~and ~~Accountants KPMG~~maintenance ~~LLP 3100~~costs ~~Two~~that ~~Union~~do ~~Square~~not extend the useful life of a capital ~~601~~ asset ~~Union~~are ~~Street~~expensed as incurred. Spare ~~Seattle,~~ parts WArequired ~~98101-2327~~for SANOVA plant maintenance are expensed when used.

~~Common Stock Listing~~f. Inventory ~~NASDAQ~~ ~~(Symbol—ALCD)~~is recorded at the lower of cost or market on a first-in, first-out basis.

~~Transfer~~g. Depreciation and ~~Agent~~Amortization: Office, laboratory, computer equipment and ~~Registrar Computershare~~automobiles ~~Trust~~are ~~Company, Inc.~~recorded at cost and depreciated over ~~350~~ estimated ~~Indiana~~useful ~~Street,~~lives ~~Ste~~of three to five years by the straight-line method. Leasehold ~~800~~improvements are amortized over ~~Golden,~~ the COlives ~~80401~~of the leases by the straight-line method.

44Equipment provided by Alcide and installed at food processing plants to mix, distribute and apply SANOVA is recorded at cost and depreciated by the straight-line method over the five-year estimated, useful life of the assets.

~~QuickLinks~~h. Impairment of Long-Lived Assets: For long-lived assets, including equipment, the Company evaluates the carrying value of the assets by comparing the estimated future cash flows generated from the use of the assets and their eventual disposition with the assets’ reported net book value. The carrying value of an asset is evaluated for impairment when events or changes in circumstances occur which may indicate the carrying amount of the asset may not be recoverable.

i. Impairment of Goodwill: Through May 31, 2001, the Company amortized goodwill over its estimated life. As of June 1, 2001, the Company early-adopted the provisions of SFAS No. 142 “Goodwill and Other Intangible Assets”, and ceased amortization of goodwill. If SFAS No. 142 had been in effect in fiscal 2001, adjusted net income, basic earnings per share and diluted earnings per share would have been $1,565,849, $0.61, and $0.59, respectively. Adjusted net income of $1,565,849 is calculated by adding back amortization expense of $28,324 (goodwill amortization of $43,528 net of tax effect of approximately 34.9%) to fiscal 2001 net income of $1,537,525.

Beginning June 1, 2001, the Company assesses goodwill for impairment by applying a fair value based test at least annually. The Company compares the fair value of the reporting unit the goodwill is assigned to, Animal Health and Surface Disinfectants, to its carrying value. If the fair value of the reporting unit is greater than the carrying value, goodwill is not impaired. If the fair value of the reporting unit is less than the carrying value, the difference between the implied fair value of the reporting unit’s goodwill and its carrying value will be recorded as an impairment loss. The Company has performed the fair value based assessment of goodwill as of June 1, 2001. Based upon this assessment, management believes goodwill was not impaired upon the implementation of this standard. The Company also performed the fair value based assessment during the fourth quarter of 2002 and 2003, and determined that goodwill had not been impaired in either period based upon this standard.

j. Income Taxes: Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Tax benefits that the Company receives upon an employee’s exercise of nonqualified stock options are recorded as an increase to additional paid-in capital.

k. 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 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.

l. Stock-Based Compensation: The Company has stock-based compensation plans for employees and directors. The Company grants stock options to employees and directors with an exercise price equal to the fair market value of the shares at the date of grant. The Company accounts for stock option grants to employees and directors under the recognition and measurement provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. The Company has adopted the disclosure—only provisions of SFAS No. 123, “Accounting for Stock-Based Compensation,” as amended by SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure.” Accordingly, no compensation cost has been recognized for these stock option grants. Awards under the plan vest over periods ranging from immediate vesting to five years, depending upon the type of award.

The following table illustrates the effect on net income and earnings per share if the fair value based method had been applied to all outstanding and unvested awards in each period presented, using the Black-Scholes valuation model.

	For Years Ended May 31,
	2001			2002			2003
Net income , as reported	$	1,537,525		$	1,781,252		$	1,129,610

Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects	(272,244		)	(481,054		)	(457,960		)

Pro forma net income	$	1,265,281		$	1,300,198		$	671,650

Earnings per share
Basic — as reported	.60			.67			.42
Basic — pro forma	.49			.49			.25

Diluted — as reported	.58			.65			.42
Diluted — pro forma	.48			.49			.25

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 fiscal 2003 was $11.67 per share using the assumptions of expected volatility of 67.0%, expected option lives of 7.5 years, risk-free rate of interest of 4.2% and no expected dividends. During fiscal 2002, the weighted average grant-date fair value of stock options granted was $21.43 per share using the assumptions of expected volatility of 89.2%, expected option lives of 7.5 years, risk-free rate of interest of 5.0% and no expected dividends. During fiscal 2001, the weighted average grant date fair value of stock options granted 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.

m. Recently Issued Accounting Pronouncements: In November 2002, the EITF issued a final consensus on Issue 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables.” Issue 00-21 provides guidance on how and when to recognize revenues on arrangements requiring delivery of more than one product or service. Issue 00-21 is effective prospectively for arrangements entered into in fiscal periods beginning after June 15, 2003. Companies may also elect to apply the provisions of Issue 00-21 to existing arrangements and record the income statement impact as a cumulative effect of a change in accounting principle. The provisions of this statement are not expected to have a material impact on the Company’s financial position or results of operations.

In November 2002, the FASB issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” For guarantees issued or modified after December 31, 2002, a liability shall be recognized for the fair value of the obligation undertaken in issuing the guarantee. The disclosure requirements are effective for interim and annual financial statements for periods ending after December 15, 2002. See Note 9 (the commitments and contingencies note) for disclosures required by FIN 45. The adoption of FIN 45 did not have a material impact on the Company’s financial position or results of operations.

In December 2002, the FASB, issued SFAS No. 148, “Accounting for Stock-Based Compensation Transition and Disclosure.” SFAS No. 148 amends SFAS No. 123 “Accounting for Stock-Based Compensation,” to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The annual disclosure

provisions are effective for fiscal years ending after December 15, 2002. The adoption of the disclosure requirements of this standard in fiscal 2003 did not have a material impact on the Company’s financial position or results of operations.

On May 15, 2003, the FASB issued SFAS No. 150 “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity.” The statement requires issuer to classify as liabilities (or assets in some circumstances) three classes of freestanding financial instruments that embody obligations for the issuer. Generally, the statement is effective for financial instruments entered into or modified after May 31, 2003 and is otherwise effective at the beginning of the first interim period after June 15, 2003. The provisions of this statement are not expected to have a material impact on the Company’s financial position or results of operations.

In May 2003, the EITF issued a final consensus on Issue 01-8, “Determining Whether an Arrangement Contains a Lease.” Issue 01-8 provides guidance on determining whether an arrangement is or includes a lease within the scope of SFAS No. 13 “Accounting for Leases.” If it is determined that a lease exists, the lease and non-lease components of a combined sales arrangement must be accounted for separately. Issue 01-8 is effective prospectively for arrangements entered into, modified, or acquired in fiscal periods beginning after May 28, 2003. We are in the process of evaluating the impact of Issue 01-8, if any, on our financial position or results of operations.

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

o. Concentration of Risk: Various Company 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 changed formulation.

All manufacturing of the Company’s Animal Health and sterilant and disinfecting products is performed by contract manufacturers having appropriate FDA registration approval for such manufacturing. A change in contract manufacturers, however, would require qualification of the manufacturer (if not already qualified) by FDA and by some international FDA equivalent. Such change could adversely affect Company sales short-term.

3. Segment Reporting:

The Company follows the provisions of SFAS No. 131 “Disclosures about Segments of an Enterprise and Related Information” and reports 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. Management has determined the Company 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 prices and cost of goods sold structures. The Company does not have inter-segment revenues. International sales include sales to international distributors and sales through U.S. distributors that are shipped directly to foreign countries.

The accounting policies of the segments are as 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.

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

	FY 2001		FY 2002		FY 2003
Animal Health and Surface Disinfectants
License Revenue - U.S.	$	—	$	—	$	897,177
Net Sales - U.S.	5,027,340		5,381,949		3,003,028
Net Sales - International	4,530,012		4,377,379		4,437,037
Total Revenue	9,557,352		9,759,328		8,337,242
Gross Margin	5,609,888		5,536,850		4,999,331

Assets (at end of period)	3,253,716		2,687,026		3,510,917
Fixed Asset Additions	26,891		—		—
Depreciation Expense	2,240		5,376		5,376
Goodwill Amortization	43,528		—		—

SANOVA
Net Sales - U.S.	8,400,623		12,229,362		13,587,212
Gross Margin	3,430,219		4,893,309		4,909,349

Assets (at end of period)	11,874,410		15,176,245		14,504,133
Fixed Asset Additions	3,768,606		3,541,443		2,247,158
Depreciation Expense	1,870,884		2,661,179		3,550,892

Not Segment Related
Assets (at end of period)	3,874,474		4,002,062		3,353,654
Fixed Asset Additions	125,884		138,997		85,512
Depreciation Expense	65,694		75,013		116,402

Total
License Revenue	—		—		897,177
Net Sales	17,957,975		21,988,690		21,027,277
Total Revenue	17,957,975		21,988,690		21,924,454
Gross Margin	9,040,107		10,430,159		9,908,680

Assets (at end of period)	19,002,600		21,865,333		21,368,704
Fixed Asset Additions	3,921,381		3,680,440		2,332,670
Depreciation Expense	1,938,818		2,741,568		3,672,670
Goodwill Amortization	43,528		—		—

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

No single customer accounted for 10% or more of revenues in fiscal 2003 or fiscal 2002. In fiscal 2001, two of the Company’s distributors in the dairy industry each accounted for greater than 10% of total revenues. One distributor accounted for $2,546,687 of sales, in fiscal 2001 and another distributor accounted for $2,701,709 of sales in fiscal 2001.

4. Accounts Receivable –Trade consisted of the following:

	May 31, 2002		May 31, 2003
Domestic distributors	$	349,942	$	372,837
International distributors	813,155		1,402,504
SANOVA customers	1,580,444		1,888,840
Other receivables	105,562		167,346

Total Accounts Receivable - Trade	$	2,849,103	$	3,831,527

The Company evaluates impairment of its trade receivables on a regular basis. During the third quarter of fiscal year 2003, the Company recorded an allowance for doubtful accounts of $27,000 to reflect the Company’s probable loss relating to receivables from one of its customers that filed for Chapter 11 bankruptcy protection. The allowance for doubtful accounts was $28,000 and $1,000 as of May 31, 2003 and May 31, 2002, respectively, which was estimated based on collection history and known events.

5. Inventory consisted of the following:

	May 31, 2002		May 31, 2003
Raw materials	$	307,922	$	692,480
Finished Products	630,517		484,426
SANOVA inventory at customer sites	885,252		920,191

Total Inventory	$	1,823,691	$	2,097,097

6. Acquisition of Universal Marketing Services’ Business:

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 reduced by the outstanding balance of accounts receivable from UMS and a warrant to purchase 7,000 shares of the Company’s Common Stock at $29.25 per share. The warrant has been valued at $99,540 using the Black-Scholes model with assumptions of expected volatility of 68.5%, contractual warrant life of three years and risk-free rate of interest of 4.7%. The purchase price was allocated to the acquired assets based on their fair market value and the residual balance, $522,335, was recorded as goodwill. During fiscal 2001, goodwill was being amortized based on a 48 month estimated useful life. As of May 31, 2001, accumulated amortization was $43,528. As of May 31, 2003, no portion of the warrant had been exercised as the market value of the stock was substantially lower than the warrant exercise price.

In July 2001, the FASB issued SFAS No. 141, “Business Combinations” and SFAS No. 142, “Goodwill and Other Intangible Assets”. SFAS No. 141 required business combinations initiated after June 30, 2001 to be accounted for using the purchase method of accounting and broadened the criteria for recording intangible assets separate from goodwill. The provisions of SFAS No. 141 and SFAS No. 142 were “early-adopted” by the Company on June 1, 2001. With the adoption of these standards certain amounts previously included in other intangible assets were reclassified as goodwill, since under the new standards they did not meet the criteria for reporting as separate, identifiable, indefinite-lived assets.

7. Accrued Expenses:

Accrued expenses were:

	May 31, 2002		May 31, 2003
Accrued employee salaries, incentive and benefits	$	376,591	$	332,900
Accrued consulting and outside services	55,636		110,735
Other accrued expenses	184,726		57,943

Total Accrued Expenses	$	616,953	$	501,578

8. Line of Credit Payable:

In September 2002, the Company extended its $10,000,000 unrestricted line of credit with US Bank. The new expiration date is September 30, 2004.

Two advances of $1,000,000 each have been taken on the line of credit. The Company repaid both advances in March 2003.

9. Commitments and Contingencies:

a. Leases: The Company leases certain property under non-cancelable operating leases that expire through July 2009. 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 2004	$	233,592
FY 2005	$	135,544
FY 2006	$	137,999
FY 2007	$	140,946
FY 2008	$	141,437
FY 2009	$	23,573

Lease payments in fiscal year 2003, fiscal year 2002 and fiscal year 2001 were $172,766, $179,878 and $175,037, respectively.

b. SANOVA Agreements: The Company has signed agreements with poultry and beef processing plants for SANOVA system installations in fiscal 2004, at a cost of approximately $1,650,000. As of May 31, 2003, $1,050,000 of the equipment required had been purchased and recorded as construction in progress.

c. Employment Agreements: One officer has a one year, automatically renewable, employment agreement which currently obligates the Company to a base salary of $273,266 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 enters into agreements with each of its major dairy industry distributors. The agreements typically describe the territories covered, product pricing and expected product purchases during the terms of the agreements.

10. Income Taxes:

A summary of the provision for income taxes follows:

	FY 2001		FY 2002		FY 2003
Current
Federal	$	34,441	$	10,000	$	111,000
State and local	—		—		4,300
	$	34,441	$	10,000	$	115,300

Deferred
Federal	$	769,653	$	788,547	$	482,100
State and local	21,266		39,688		13,100
Total	$	825,360	$	838,235	$	610,500

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

	FY 2001		FY 2002		FY 2003
Statutory federal income tax rate	34.0	%	34.0	%	34.0	%
State taxes, net of federal benefit	.9	%	1.0	%	1.0	%
Cumulative prior years tax credits	—		(3.0	)%	—
Effective income tax rate	34.9	%	32.0	%	35.0	%

The components of the deferred tax assets and liabilities are as follows:

	May 31, 2002		May 31, 2003
Deferred tax assets:
Operating loss carryforwards	$	759,935	$	625,394
Allowance for doubtful accounts	—		9,800
Stock option timing differences	42,170		9,669
Research and experimental credits carryforward	92,798		130,326
Alternative minimum tax carryforward	284,053		385,053
Total deferred tax assets	1,178,956		1,160,242

Deferred tax liabilities:
Depreciation	995,734		1,426,588
Amortization	12,188		24,375
Other	95,650		129,703
Total deferred tax liabilities	1,103,572		1,580,666

Net deferred tax asset (liability)	$	75,384	$	(420,424	)

Temporary differences result from the use of straight-line deprecation for equipment in the financial statements versus the 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. The gross operating loss carryforward of approximately $1,787,000 and the research and experimental credits carryforward will begin to expire in 2019.

11. Earnings Per Share:

Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding during the year. Diluted earnings per share is computed by dividing net income by the weighted average number of common shares and potential common shares outstanding during the year. Potential common shares of the Company include the dilutive effect of outstanding stock options and warrants. Potential common shares, excluded because of their antidilutive effect were 255,342 shares in fiscal year 2003, 92,290 shares in fiscal year 2002 and 51,790 shares in fiscal year 2001.

Basic and diluted earnings per share were calculated as follows:

Computation of Earnings Per Common Share

	For the Years Ended May 31,
	2001		2002		2003
Net income	$	1,537,525	$	1,781,252	$	1,129,610
Weighted average number of common shares outstanding	2,572,898		2,643,467		2,658,469
Basic earnings per share	$	.60	$	.67	$	.42
Assuming exercise of options and warrants reduced by the number of shares which could have been purchased with the proceeds from exercise of such options	82,219		76,539		21,543
Weighted average common shares outstanding and dilutive potential common shares	2,655,117		2,720,006		2,680,012

Diluted earnings per share	$	.58	$	.65	$	.42

12. Shareholders’ Equity and Redeemable Preferred Stock:

a. Authorized Capital

The authorized capital of the Company is 10,000,000 shares of $.01 par value Common Stock, 1,000 shares of no par value Class “A” Preferred Stock and 10,000,000 shares of $.01 par value Class “B” Preferred Stock. The Company has not declared dividends on any of its classes of stock.

b. 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 non-voting 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 30^th 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 30^th 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 $1,129,610 in fiscal 2003, it will redeem 3,012 shares of Series 2 Stock on September 30, 2003 for $7,907. The Company may redeem any or all of the issued and outstanding Series 2 Stock at its option, at any time, at the redemption price of $2.625 per share.

13. Stock Options:

The Company had an incentive stock option plan that expired in May 1993. No additional grants may be issued under this plan. With shareholder approval, the Company replaced this plan with a new plan effective December 1993, which allowed for the issue of both incentive stock options and nonqualified stock options. In October 2001, shareholders approved a new plan which replaced the un-expired portion of the 1993 plan. Nonqualified 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. Nonqualified stock options are granted with an exercise price equal to 100% or greater of the fair market value of the Common Stock on the date of grant. Under this plan there are 204,550 options available for grant as of May 31, 2003.

The Company also has a stock option plan for nonemployee directors which was approved by shareholders in October 1996. 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 34,354 options available for grant as of May 31, 2003.

Options are exercisable within ten years from the date of option grant. Options awarded to officers and employees typically vest over a five-year period. Options awarded to nonemployee board members vest immediately. Options will expire during the period December 2003 through October 2012. 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 SFAS No. 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 No. 123.

The status of the plans are as follows:

	FY 2001				FY 2002				FY 2003
	No. of Shares		Weighted Avg. Share $		No. of Shares		Weighted Avg. Share $		No. of Shares		Weighted Avg. Share $
Outstanding at beginning of year	316,483		$	14.16	260,787		$	18.05	316,626		$	21.13
Granted	44,393		20.32		93,370		25.43		36,704		16.66
Exercised	(94,089	)	6.22		(24,231	)	7.13		(6,034	)	8.82
Cancelled	(6,000	)	15.25		(13,300	)	16.38		(18,800	)	20.39
Outstanding at end of year	260,787		$	18.05	316,626		$	21.13	328,496		$	20.90

Exercisable at end of year	170,087		$	15.98	167,676		$	18.78	197,996		$	20.03

Information relating to stock options outstanding and stock options exercisable at May 31, 2003 is as follows:

	Options Outstanding
Range of Exercise		Weighted			Options Exercisable
Prices	No . of Shares	Avg. Life	Wtd. Avg. $/Sh.		No. of Shares	Wtd. Avg. $/Sh.
$ 8.63 - $11.94	60,300	1.09	$	10.15	59,600	$	10.13
$12.00 - $20.00	96,786	7.40	$	16.52	38,286	$	15.99
$20.25 - $63.00	171,410	5.92	$	27.15	100,110	$	27.56
	328,496	5.47	$	20.90	197,996	$	20.07

14. Related Party Transactions:

Consulting Agreements:

Loeb Partners Corporation During the fiscal years ended May 31, 2003, 2002 and 2001 the Company paid Loeb Partners Corporation $60,000 each year in cash for executive and management services provided by Mr. Kempner, a member of the Company’s Board of Directors, and Mr. Mintz, Managing Director of Loeb Partners Corporation. Mr. Kempner holds approximately 51% of the voting equity of Loeb Holding Corporation, of which Loeb Partners Corporation is a 100% wholly-owned operating subsidiary.

Kenneth N. May During the fiscal year ended May 31, 2002, Dr. May earned $14,000 for consulting services in the field of pathogen control on poultry and other food products. Dr. May retired from the Company’s Board of Directors in October 2001 and is no longer a related party. During fiscal 2001, he earned $36,000.

15. 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. Compensation expense is recognized based on the fair value of the Company’s common stock as of the date the shares are purchased and contributed to the Plan. The ESOP plan year ends on December 31 while the Company’s fiscal year ends on May 31. During the ESOP plan years ended December 31, 2000, 2001 and 2002, the Company’s contributions were approximately $124,000, $226,000 and $290,000. During the Company’s fiscal years ended May 31, 2001, 2002 and 2003, the Company recorded ESOP expense of $189,921, $257,646 and $303,330. The Company estimates its annual contribution to the Plan and accrues a liability over the fiscal year consistent with the estimate.

ALCIDE CORPORATION

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