The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (generally accepted accounting principles) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation have been included. The results of operations for the three and nine month periods ended February 28, 2003 are not necessarily indicative of the results to be expected for the fiscal year ending May 31, 2003. For more complete financial information, these consolidated financial statements should be read in conjunction with the May 31, 2002 audited consolidated financial statements and the notes thereto included in the Company's annual report on Form 10-K for the year ended May 31, 2002.

On March 6, 2003, Neogen Corporation completed the purchase of 100% of the common stock of Adgen Ltd., a privately held company located in Ayre, Scotland. Adgen is a producer and marketer of diagnostic testing products. Since its founding in 1994, Adgen has been a distributor of Neogen products in Europe. Consideration included net cash of $1,850,000 and 32,000 shares of common stock. Additionally, the Company agreed to pay contingent consideration based upon future revenue levels.

Inventories are stated at the lower of cost, determined on the first-in, first-out method, or market. The components of inventories are as follows:

                                          February 28,    May 31,
                                              2003          2002
                                          ------------  ------------
                                                (In thousands)
Raw materials........................... $      3,267  $      2,969
Work-in-process.........................          592           589
Finished goods..........................        4,908         5,125
                                          ------------  ------------
                                         $      8,767  $      8,683
                                          ============  ============

The allocation of goodwill and other intangible assets following SFAS 142 as of May 31, 2002 and February 28, 2003 is summarized in the following table:

                                                                                      Balance
                                            Balance                                 February 28,
                                          May 31, 2002   Additions     Deletions        2003
                                          ------------  ------------  -----------   ------------
                                                            (In thousands)
Goodwill:
     Food Safety........................ $      4,217  $         46  $        --   $      4,263
     Animal Safety......................        6,997            --           --          6,997
                                          ------------  ------------  -----------   ------------
          Total.........................       11,214            46           --         11,260
Intangible assets with indefinite lives.          415            30           (4)           441
Intangible assets with finite lives:
     Licenses...........................          709           673          (90)         1,292
     Covenants not to compete...........          415            35           --            450
     Patents............................          348            40           --            388
     Other..............................            1           113          (33)            81
                                          ------------  ------------  -----------   ------------
                                                1,473           861         (123)         2,211

The following table presents the calculation of net income per share:

                                                Three Months Ended       Nine Months Ended
                                                  February 28, 2003         February 28, 2003
                                            ------------------------  ------------------------
                                                2003           2002       2003           2002
                                            -----------  -----------  -----------  -----------
Basic and Diluted - Net Income per Share
   Numerator - Net Income................. $     1,030  $       826  $     3,506  $     2,833
                                            ===========  ===========  ===========  ===========
Denominator:
   For basic net income per share-
      Weighted average shares.............       6,104        6,067        6,113        5,968
   Effect of dilutive securities-
      Stock options and warrants..........         282          374          255          397
                                            -----------  -----------  -----------  -----------
   For diluted net income per share-
      Adjusted weighted average shares
        and assumed conversions...........       6,386        6,441        6,368        6,365
                                            ===========  ===========  ===========  ===========

Basic Net Income per Share................ $      0.17  $      0.13  $      0.57  $      0.47
                                            ===========  ===========  ===========  ===========

Diluted Net Income per Share.............. $      0.16  $      0.13  $      0.55  $      0.45
                                            ===========  ===========  ===========  ===========

The Company's Board of Directors has authorized the purchase of up to 1,000,000 shares of the Company's common stock. As of February 28, 2003, the Company had purchased 697,000 shares in negotiated and open market transactions. Shares purchased under this buy-back program will be retired and used to satisfy future issuance of common stock upon the exercise of outstanding stock options and warrants.

The Company has two reportable segments: Food Safety and Animal Safety. The Food Safety segment produces and markets diagnostic test kits and related products used by food producers and processors to detect harmful natural toxins, drug residues, foodborne bacteria, food allergens, pesticide residues, disease infections and levels of general sanitation. The Animal Safety segment is primarily engaged in the production and marketing of products dedicated to animal health, including 250 different veterinary instruments and a complete line of consumable products marketed to veterinarians and animal health product distributors.

These segments are managed separately because they represent strategic business units that offer different products and require different marketing strategies. The Company evaluates performance based on total sales and operating income of the respective segments.

Segment information for the three months ended February 28, 2003 and 2002 was as follows:

                                                              Corporate
                                      Food        Animal         and
                                     Safety       Safety     Eliminations(1)     Total
                                   -----------  -----------  ------------     -----------
                                                  (In thousands)
2003
Net sales to external customers.. $     6,205  $     4,897  $         --     $    11,102
Operating income.................       1,151          458          (194)          1,415
Total assets.....................      19,474       18,228         6,178          43,880

2002
Net sales to external customers.. $     4,760  $     4,895  $         --     $     9,655
Operating income.................         753          437           (82)          1,108
Total assets.....................      16,176       17,754         3,537          37,467

Segment information for the nine months ended February 28, 2003 and 2002 was as follows:

                                                              Corporate
                                      Food        Animal         and
                                     Safety       Safety     Eliminations(1)     Total
                                   -----------  -----------  ------------     -----------
                                                  (In thousands)
2003
Net sales to external customers.. $    18,876  $    15,396  $         --     $    34,272
Operating income.................       3,905        1,665          (580)          4,990
Total assets.....................      19,474       18,228         6,178          43,880

2002
Net sales to external customers.. $    14,998  $    15,087  $         --     $    30,085
Operating income.................       2,666        1,897          (527)          4,036
Total assets.....................      16,176       17,754         3,537          37,467

(1) Includes corporate assets, consisting principally of marketable securities, and overhead expenses not allocated to specific business segments. Also includes the elimination of intersegment transactions and minority interests.

The Company is involved in no legal proceedings that in the opinion of management will have a material effect on its results of operations or financial position.

In June 2002, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 146, Accounting for Costs Associated with Exit or Disposal Activities, which requires liabilities for costs associated with an exit or disposal activity to be recognized when the liability is incurred. SFAS No. 146 supersedes EITF Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity, and was effective for the Company for exit or disposal activities initiated after December 31, 2002. The adoption of this statement did not have an effect 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 (FIN 45). FIN 45 changes current practice in accounting or, and disclosure of, guarantees. FIN 45 will require certain guarantees to be recorded at fair value on the Company's balance sheet, a change from current practice, which is generally to record a liability only when a loss is probable and reasonably estimable, as those terms are defined in SFAS No. 5, Accounting for Contingencies. FIN 45 also requires a guarantor to make significant new disclosures, even when the likelihood of making any payments under the guarantee is remote, which is another change from current practice. The disclosure requirements of FIN 45 are effective immediately. The initial recognition and initial measurement provisions are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. The Company expects that the new recognition and measurement provisions will not have a significant effect on the Company's future financial results and has determined that no initial disclosure or recognition is necessary.

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation Transition and Disclosure - an amendment of FASB Statement No. 123. 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 disclosure in interim financial statements regarding the method used on reported results for interim periods beginning after December 15, 2002. The Company does not intend to adopt a fair-value based method of accounting for stock-based employee compensation until a final standard is issued by the FASB.

The information in this Management's Discussion and Analysis of Financial Condition and Results of Operations contains both historical financial information and forward-looking statements. Neogen does not provide forecasts of future performance. While management is optimistic about the Company's long-term prospects, historical financial information may not be indicative of future financial performance.

The words "anticipate", "believe", "potential", "expect", and similar expressions used herein are intended to identify forward-looking statements. Forward-looking statements involve certain risks and uncertainties. Various factors, including competition, recruitment and dependence on key employees, impact of weather on agriculture and food production, identification and integration of acquisitions, research and development risks, patent and trade secret protection, government regulation and other risks detailed from time to time in the Company's reports on file at the Securities and Exchange Commission may cause actual results to differ materially from those contained in the forward-looking statements.

Management's Discussion and Analysis of Financial Condition and Results of Operations is based on the Company's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses and related disclosure of contingent assets and liabilities. Management believes the critical accounting policies and areas that require the most significant judgments and estimates to be used in the preparation of the consolidated financial statements are revenue recognition, allowance for doubtful accounts, inventory valuation, and the assessment of the possible impairment of goodwill and other intangible assets.

Revenue from sales of products is recognized at the time title of goods passes to the buyer and the buyer assumes the risks and rewards of ownership. This is generally at the time of shipment. Where right of return exists, allowances are made at the time of sale to reflect expected returns based on historical experience.

Allowances for accounts receivable are maintained based on historical payment patterns, aging of accounts receivable and actual write-off history. Management attempts to minimize credit risk by reviewing customers' credit history before extending credit and by monitoring credit exposure on a regular basis.

The Company writes down its inventory for estimated obsolescence equal to the cost of the inventory. Product obsolescence may be caused by shelf-life expiration, discontinuance of a product line, replacement products in the marketplace or other competitive situations.

Management assesses goodwill and intangible assets for possible impairment on no less often than an annual basis. In the event of changes in circumstances which indicate the carrying value of these assets may not be recoverable, this assessment may take place at any time. Factors that could cause an impairment review to take place would include:

-- Significant under-performance relative to expected historical or projected future operating results.

-- Significant changes in the use of acquired assets or strategy of the Company.

-- Significant negative industry or economic trends.

If the carrying value of goodwill and other nonamortizable intangible assets is not recoverable based upon a discounted cash flows analysis, such assets are reduced by the estimated shortfall of fair value to carrying value.

The Company's sales increased 15% for the quarter and 14% for the nine- month period ended February 28, 2003 as compared to the same periods of the prior year. By segment, Food Safety sales were up 31% for the quarter and 26% year to date and Animal Safety sales were flat for the quarter and increased 2% year to date.

In the Food Safety segment sales of test kits for the detection of naturally occurring mycotoxins increased 53% for the quarter and 37% for the nine-month period ended February 28, 2003 as compared to the same periods of the prior year. In fiscal 2003 a significant portion of the U.S. corn and sorghum crop was contaminated with aflatoxin. The Company's products were heavily used in the identification of contaminated commodities and thereby protecting of consumers from exposure to this carcinogen. Additionally, sales of test kits for the detection of pathogens such as E. coli O157:H7, Salmonella and Listeria, increased 16% for the quarter and 19% for the nine-month period. The Company's continued investment in product development and sales and marketing efforts have put it in a position to capitalize on greater awareness of contamination of food products and to expand its market share of an expanding market. Finally, sales of diagnostic test kits to detect allergenic substances in food products increased 34% in the quarter and 38% in the nine-month period. This relatively new product line has benefited from government regulation and consumer demand for food products that they are assured are properly labeled and free from common allergenic substances.

In the Animal Safety segment sales of test kits for the detection of drugs of abuse in racing animals, forensics, and life science products were up 15% in the quarter and 18% for the nine-month period ended February 28, 2003, in comparison with the same periods of the prior year. The sales of forensic products were up over 100% to nearly $200,000 as the Company continues to penetrate this market. Life science sales revenues increased as customers have added research projects that make use of these products. Additionally, the Company's equine vaccine and immunostimulant products increased 1% for the quarter and 7% for the nine-month period. This slower growing, but high margin, product group was favorably affected in the early part of the 2003 fiscal year by use of the immunostimulant product to aid in the prevention of West Nile virus in horses. Also, sales of products used for wound care that had grown rapidly in prior years experienced a decrease of 33% in the quarter and 18% for the nine-month period. Several competitors have entered the market resulting in erosion of the Company's sales. Finally, sales of durable veterinary products increased by 22% for the quarter in comparison with the prior year but remain 2% less than the prior year for the nine-month period. Sales in this area have increased as the Company has continued to be successful in its retail strategy with the addition of new accounts in the quarter.

Overall gross margin in the February 2003 quarter increased to 52% from 48% in the February 2002 quarter and to 53% in the nine-months ended February 28, 2003 from 50% in 2002 principally as a result of product mix. Margins of the Food Safety and Animal Safety segments increased in the quarter and nine-month periods as a result of the same factors.

Sales and marketing expenses in the February 2003 quarter increased $514,000 or 24% from the February 2002 quarter and $1,468,000 or 22% for the nine-month period. As a percentage of sales, sales and marketing expenses rose from 22% to 24% in the quarter and from 22% to 23% for the nine-month period. The Company's continued investment in sales and marketing has supported overall sales increases and sales of higher margin products in a difficult economic environment. On a segment basis, sales expenses as a percent of sales were generally comparable to the prior year.

General and administrative expenses increased $120,000 or 13% in the February 2003 quarter as compared to the February 2002 quarter, and $35,000 or 1% for the nine-month period. As a percentage of revenue these expenses decreased from 10% to 9% in both the quarter and the nine-month periods. General and administrative expenses by division were consistent with the prior year. Control of general and administrative expense at the 9% to 10% of revenue level has been an objective of management over the past several quarters.

Research and development expenses increased $183,000 or 42% in the February 2003 quarter as compared to the February 2002 quarter, and $627,000 or 42% in the nine-month period. As a percentage of revenues, research and development expenses increased to 5.6% and 6.2% for the fiscal 2003-quarter and nine-month period, respectively. The increase is the result of several new research and development projects in each business segment. Management continues to maintain a goal of research and development spending in the range of 5% to 7% of total revenues and approximately 10% of revenues of products that are the result of research efforts.

The provision for federal and state income taxes at 32.7% of income before income tax in the February 2003 quarter was substantially unchanged from the February 2002 quarter. For the nine-month period, the tax provision decreased to 34.5% from 35.6% in the same period of the prior year. The provision was favorably affected by the recognition of higher levels of foreign and research and development tax credits.

Other income was substantially unchanged in the February 2003 quarter and the nine-month period as compared with the same periods in the prior year.