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U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
- --- ACT OF 1934
For fiscal year ended MAY 31, 2000
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
For the transition period from to .
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Commission File Number: 0-17988
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NEOGEN CORPORATION
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(Name of registrant in its charter)
MICHIGAN 38-2367843
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
620 LESHER PLACE, LANSING, MICHIGAN 48912
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(Address of principal executive offices) (Zip Code)
517/372-9200
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(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act: NONE
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Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $ .16 PAR VALUE
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(Title of class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports) and (2) has been
subject to such filing requirements for the past 90 days. YES X NO
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Indicate by check mark if disclosure of delinquent filers in response to Item
405 of Regulation S-K is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K ( )
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of May 31, 2000 was $30,370,000 based on the closing price as
reported by the NASDAQ National Market.
As of July 31, 2000, registrant had 5,713,717 outstanding shares.
DOCUMENTS INCORPORATED BY REFERENCE
THE REGISTRANT'S DEFINITIVE PROXY STATEMENT TO BE PREPARED PURSUANT TO
REGULATION 14A AND FILED IN CONNECTION WITH SOLICITATION OF PROXIES FOR ITS
OCTOBER 5, 2000 ANNUAL MEETING OF SHAREHOLDERS IS INCORPORATED BY REFERENCE INTO
PART III OF THIS FORM 10-K.
1
PART I
ITEM 1. BUSINESS
GENERAL
Neogen Corporation develops, manufactures, and markets a diverse line of
products dedicated to food and animal safety. The Company's food safety segment
consists primarily of diagnostic test kits and related products, including
dehydrated culture media, marketed to food producers and processors to aid in
the detection of foodborne bacteria, natural toxins, food allergens, drug
residues, pesticide residues, plant disease infections and levels of general
sanitation. The diagnostic test kits are generally less expensive, easier to
use and provide greater accuracy and speed than many of the conventional
diagnostic methods currently in use. The majority of the tests are disposable,
single-use, immunoassay products that rely on Neogen's proprietary antibodies to
produce rapid and accurate test results.
The Company's animal safety segment is primarily engaged in the production and
marketing of products dedicated to animal health. These products include more
than 250 different veterinary instruments used to administer precise amounts of
antibiotics and vaccines helping to reduce drug residues in meat and milk
supplies. This segment also includes a line of consumable products marketed
primarily to veterinarians and distributors serving the professional equine
industry. These products include grooming aids, a USDA-approved vaccine to
prevent botulism in horses, a biologic used in the treatment of equine
respiratory infections and a line of premium health care products.
The Company's vision is to become a world leader in development and marketing
of products dedicated to food and animal safety. To meet this vision, the
Company has developed a growth strategy consisting of the following elements:
(i) increasing sales of existing products; (ii) introducing new products and
product lines; (iii) expanding international sales; and (iv) acquiring
businesses and forming strategic alliances.
The Company was formed as a Michigan corporation in June 1981 and actual
operations began in 1982. The Company's principal executive offices are located
at 620 Lesher Place, Lansing, Michigan 48912-1595 and its telephone number is
(517) 372-9200.
RECENT DEVELOPMENTS
Government Regulations
Federal regulations concerning food safety and food adulteration have had a
favorable impact on sales of several of the Company's food safety products.
Regulations issued by the U.S. Department of Agriculture and the U.S. Food and
Drug Administration governing federally inspected meat, poultry and seafood
processing plants require implementation of a Hazard Analysis and Critical
Control Points (HACCP) program. HACCP is a prevention-oriented system that
requires plants to identify critical control points along their production lines
and ensure that practices at those points minimize or prevent the likelihood of
bacterial contamination or growth. As HACCP plans continue to be implemented
and refined, Neogen expects facility environmental testing, product contact
surface testing and end-product testing to increase, resulting in higher sales
for several of the Company's diagnostic test kits.
Sale of Human Clinical Product Line (See Note 5 of the Notes to Consolidated
Financial Statements)
In April 1999, the Company sold its AMPCOR human clinical product line for
approximately $500,000. The sale allows management to focus resources on growth
opportunities in the Company's primary business segments of food and animal
safety. Sales of human clinical products were not material to the consolidated
sales of the Company. In conjunction with the sale of the AMPCOR human clinical
product line, the Company closed its manufacturing operations for diagnostic
test kits to detect microorganisms in Bridgeport, New Jersey. The Company
consolidated its manufacturing operations into its Lansing, Michigan facility.
2
Share Repurchase Program (See Note 12 of the Notes to Consolidated Financial
Statements)
In February 2000, the Company announced that its Board of Directors increased
its authorization to repurchase Neogen common stock from the previously
authorized 500,000 shares to 750,000 shares. The Board and Neogen's management
continue to believe that the Company's shares are undervalued from time to time
by the market. As of July 31, 2000, the Company had repurchased approximately
595,000 shares in open market and negotiated transactions. However, there is no
guarantee as to the exact number of shares that may be repurchased under this
program.
ACQUISITIONS
A part of the Company's growth strategy has been to acquire products and
businesses that provide the Company with access to technology or products that
expand its core business. Since 1982, the Company has made several such
acquisitions. The information below summarizes recent acquisitions. (See Notes
3 and 14 to Consolidated Financial Statements)
AmVet Pharmaceuticals
On June 2, 2000, the Company purchased substantially all of the assets of
AmVet Pharmaceuticals of Yaphank, New York. AmVet owns formulas for 25
different veterinary products under approximately 40 labels, the majority of
which are sold under the AmVet name. The products acquired have been merged
into the Company's Animal Safety Division. The purchase will be reported as a
2001 transaction and the first sales related to this acquisition will be
reported in the Company's fiscal 2001 year.
Acumedia Manufacturers, Inc.
On February 17, 2000, the Company purchased 100% of the outstanding stock of
Acumedia Manufacturers, Inc., with principal offices in Baltimore, Maryland.
Acumedia, an internationally recognized producer of culture media, was a wholly
owned subsidiary of IDEXX Laboratories, Inc. This acquisition gives the Company
an entree to the world market for dehydrated culture media which exceeds $300
million. It also provides products that can be supplied to many of the Company's
current Food Safety customers. Sale of Acumedia products in fiscal 2000
subsequent to the acquisition were approximately $900,000.
BotVax(TM) B
In August 1998, the Company purchased seed cultures, inventories,
manufacturing protocols and a USDA license to manufacture Type B equine botulism
vaccine (BotVax B) from BioPort Corporation of Lansing, Michigan. The
inventories and technology were transferred to the Company's Tampa, Florida
facility where BotVax B is produced for sale to the professional equine market.
Prior to obtaining the manufacturing rights to BotVax B, Neogen marketed this
product under terms of a distribution agreement with the Michigan Department of
Public Health. The distribution rights to BotVax B were among the items
purchased by BioPort from the Michigan Department of Public Health in August
1998. The Company acquired the manufacturing rights to BotVax B primarily to
improve gross margins and ensure availability of future supplies of inventory.
Vetoquinol U.S.A., Inc.
In December 1997, Neogen acquired substantially all of the assets of
Vetoquinol U.S.A., Inc., a wholly-owned subsidiary of Vetoquinol S.A. of France.
Sales and administrative functions have been moved to the Company's Lexington,
Kentucky, facilities. Neogen continues to operate a Tampa, Florida, production
facility. The principal product acquired is a biologic used for the treatment
of equine respiratory infections. The acquired assets resulted in approximately
$1,250,000, $1,200,000 and $570,000 of sales during fiscal years ended May 31,
2000, 1999 and 1998.
Triple Crown(TM)
In July 1997, the Company acquired substantially all of the assets of Triple
Crown, a division of W.J. Bartus, Inc. Neogen relocated the business to its
facilities in Lexington, Kentucky. The products and technologies acquired have
been merged into the Company's professional equine division, a part of the
Animal Safety Division, and added approximately $2,600,000, $2,350,000 and
$1,930,000 in sales in the fiscal years ended May 31, 2000, 1999 and 1998.
3
BUSINESS STRATEGY
The Company's vision is to become a worldwide leader in offering products
dedicated to food and animal safety. The Company's strategy to achieve this
objective includes the following:
- Increased Sales of Existing Products. The Company will continue to
expand its product offerings in multiple market segments including: grain,
nut and spice processors; meat, poultry and egg processors; seafood
processors; animal producers; fruit and vegetable producers/processors;
food service providers; pharmacologic research; and private and public
laboratories.
- Introduction of New Products. The Company has a continued commitment
to research and development programs, and has invested 7% to 8% of revenues
in this area over the past three years. The Company plans to continue to
leverage its own internal research and development efforts through
strategic relationships with other organizations and important government
contracts and grants. The majority of the Company's new product
development is focused on expanding disposable product offerings to the
Company's current markets.
- Expansion of International Sales. The Company believes that the
demand outside the United States for food and animal safety products is at
least equal to demand in this country. The Company will continue to
emphasize international sales as an important factor in its growth. The
Company is developing distribution channels to take advantage of markets
where there is a growing need for products such as those manufactured by
the Company.
- Acquisitions and Strategic Alliances. In the past, the Company has
expanded its product offerings and technology base through several
acquisitions. It also seeks to expand its products through licensing and
distribution agreements. The Company plans to continue to aggressively
pursue strategic acquisitions, and licensing and distribution agreements to
enhance its position in its existing markets. Management believes it is
more cost effective to use these strategies rather than to rely solely on
internal development of new products.
INDUSTRY OVERVIEW
Due to growing concern related to food and animal safety, animal producers,
food producers, processors, pharmaceutical and chemical companies, research
institutions, and regulatory agencies are all experiencing increased pressures
to find more efficient testing and monitoring programs. The Company's strategy
is based on its belief that there will be a continued increase in demand for
effective tools to better manage the use of biological products and to detect
harmful residues and microorganisms when present in food, animal feeds, and the
environment. Similarly, management believes that demand for products to ensure
safety in food and companion animals will continue to grow.
Industry consulting groups have estimated the total market for testing of food
and environmental safety will be in the range of $500 million within the next
several years. They estimate that a significant portion of this potential
market is represented by firms not testing and tests that are not currently
being conducted. Another significant portion of the market is represented by
older, traditional methods utilizing laborious microbiological techniques, or
time consuming and expensive, chemical analysis. Management believes that a
significant portion of this market potential will shift to rapid, easy to use
and inexpensive test systems, such as those produced by the Company.
COMPANY MARKETS
The Company has focused its strategy on the food safety and animal safety
markets. The Company is marketing and developing several types of diagnostic
tests to aid each of the individual food market areas in detecting natural
toxins, food allergens, drug residues, foodborne bacteria, pesticide residues,
disease infections and levels of general sanitation. The Company also markets a
complete line of veterinary instruments and a line of premium equine health care
products devoted to animal safety. The Company's products are sold into
definable market segments:
Grain, Nut and Spice Processors
Corn, wheat, barley, oats, milo, rice, oil seeds and various other minor grain
products become the principal ingredient for a multitude of food products. A
large variety of nuts, along with spices, chocolate, coffee and tea, are also
universally consumed. The safety of these ingredients is a significant source
of concern for snack food producers, pasta manufacturers, flour millers, animal
feed processors, bakeries, baby food producers, brewers, distillers and cereal
manufacturers, just to name a few of those whose livelihood depends upon the
abundance of safe ingredients.
The Company's diagnostic tests are used throughout these industries to monitor
for the presence of harmful natural toxins, food allergens, pesticides and
foodborne bacteria. The Company generally defines this market as products as
they leave the farm gate until they reach the consumer's plate.
4
Management believes it is the leader in the sale of disposable diagnostic
tests to the grain, nut and spice industries and has a larger selection of
products available to these industries than any of its competitors.
Meat, Poultry and Egg Processors
According to the U.S. Department of Agriculture, there are approximately 114
million cattle, hogs and lambs slaughtered in the U.S. each year and over 840
million chickens processed in the United States each year. The principal
concern for meat, poultry and egg safety is contamination by foodborne bacteria.
Management believes that the meat and poultry group offers one of the best
opportunities currently to contribute to the Company's growth. The Company
offers tests for E. coli O157:H7, Salmonella, Campylobactor, Listeria bacteria,
and several tests to determine the general level of plant sanitation.
A major reorganization in testing procedures by the U.S. Department of
Agriculture's Food Safety Inspection Service was announced in July 1996.
Implementation of these HACCP regulations began in January 1997 for all meat and
poultry plants in the United States according to an adoption schedule that
continued through January 2000. These new regulations mandate certain bacteria
testing by all inspected plants, and the programs encourage the use of a number
of other rapid tests, such as those produced by the Company.
Seafood Processors
Seafood is known to cause foodborne illnesses as a result of both natural
toxins and bacteria. In December 1995, the United States Food and Drug
Administration issued final rules that established mandatory inspection programs
for the seafood industry in the U.S. effective January, 1998. The industry is
now implementing quality control procedures that include the use of rapid
diagnostic tests. The Company's tests for this market include a general
sanitation rapid test, as well as tests used to detect the presence of
Salmonella, Listeria, sulfites and histamine, which can result in serious
illness or death.
A significant portion of the world's seafood supply now comes from aquaculture
production rather than wild harvest. These producers and processors must also
be concerned about the possibilities of pesticide contamination from runoff
water into their production areas and residues of drugs that may have been used
to ensure fish health during the production process.
Animal Producers
The animal production industry promotes food safety even while the animal is
inside the farm gate. The Company manufactures and markets 250 different
products that are used to administer animal health. Developed to provide more
precise drug delivery, these instruments help minimize the presence of animal
health drugs that might find their way into the meat and milk supply.
The Company also markets a vaccine, immunostimulant, specialized testing
service, and a line of premium health care products that are sold to the
professional equine market. The Company's line of diagnostic tests to detect
drugs of abuse in racing animals are sold virtually throughout the world. Most
animal racing jurisdictions perform post-race tests on horses and greyhounds to
make certain the animals' performance was not altered by some drug.
Many integrated poultry and livestock producers also use the Company's
diagnostic tests to detect harmful residues in animal feeds. These residues can
affect overall production efficiencies.
Fruit and Vegetable Producers/Processors
As with animals, significant portions of food safety begin inside the farm
gate where plant production takes place. The Company manufactures and markets a
group of diagnostic tests that are used by fruit and vegetable producers, as
well as greenhouse and ornamental plant producers, to detect the presence of
certain infectious diseases. These diseases affect crop production and can play
a major role in the quality and safety of the final food products.
This industry's testing arises from the potential presence of harmful residues
that might affect the safety of its products. The residues that require rapid
and inexpensive test kits include foodborne bacteria, natural toxins, and
pesticides. Several of the Company's products meet these industry needs and
others are being developed.
5
Pharmacologic Research
The Company sells a limited number of products used by the pharmaceutical
research industry. Since these products can be manufactured in the same
facilities as used to produce the Company's test kits, utilizing the same
equipment and personnel, the Company has continued to support this market
activity.
As a part of its immunoassay diagnostics test development programs, the
Company has discovered methods to manufacture unique, stable enzymes used in
test color development. The Company now markets these products to research
laboratories and other commercial diagnostic kit manufacturers around the world.
The Company does not anticipate being a major factor in this market. However,
its current products are profitable and synergistic to the Company's other
manufacturing activities.
Private and Public Laboratories
Private laboratories purchase diagnostic tests from the Company to provide
testing services to most of the market areas indicated in this section. These
private laboratories perform tests for firms which do not wish to do their own
testing internally. Public laboratories generally use the Company's test for
regulatory purposes. As an example, the U.S. Department of Agriculture uses
several of the Company's natural toxin test kits to determine the quality and
safety of grain products. The Company's test kit for the detection of E. coli
O157:H7 is used by the Food Safety Inspection Service to monitor for the
presence of this harmful bacteria in a number of laboratory locations. The
Company's bacteria tests are used by government animal pathology labs to aid in
determining causes of animal health problems, and plant tests are used in
regulatory labs to aid in plant quarantine situations.
PRODUCTS
FOOD SAFETY
The Company has developed and markets a number of food safety diagnostic test
kits generally characterized as immunoassay products that rely on the Company's
proprietary antibodies capable of detecting specific residues at the parts per
billion levels. Generally, the test kits are faster, less expensive, require
less laboratory equipment and less technical capabilities than conventional
testing methods.
The Company's food safety test kits aimed at the detection of harmful
foodborne bacteria are marketed under the Company's trade name, Reveal(R).
Current tests in this one-step simple format are used to detect the presence of
Salmonella, Listeria, and E. coli O157:H7. Neogen markets tests for
Campylobactor, Salmonella and E. coli O157:H7 under its Alert(R) trade name.
Company scientists are developing test kits for other harmful bacteria. Through
a marketing arrangement with Biotrace International PLC, the Company distributes
the Uni-Lite(R) XCEL, an instrument used to detect general sanitation levels.
The Company also has marketing rights from Orion Diagnostica to distribute four
different tests for microbiological contamination, including yeast and fungi.
The Company's Veratox(R), and Agri-Screen(R) diagnostic tests are used by the
food industry to detect levels of naturally-occurring toxins. These products
include both qualitative and quantitative tests for aflatoxin, DON, T-2 toxin,
zearalenone, ochratoxin, histamine and fumonisin. The Company's Agri-Screen
Ticket(R) test is used by the food industry to detect harmful residues of a
large number of plant pesticides. The seafood industry uses the Company's Alert
for Sulfites to make certain sulfite levels do not exceed federal regulatory
levels.
The Company also markets qualitative and quantitative tests to detect minute
levels of food allergens under the trade names Veratox and Alert. Currently,
tests are available for milk, peanut and egg residues, three of the most common
of all food allergies.
Marketed under the trade name Alert, the Company has several diagnostic tests
that are used to detect plant diseases. These quick tests identify the presence
of pythium, phytophthora, rhizoctonia, xanthamonas, and sclerotina. The kits
are used as an early detection device, and as a tool to limit fungicide
applications.
Following its acquisition of Acumedia Manufacturers, Inc. in February 2000,
the Company significantly expanded its presence in the dehydrated culture media
market. Standard and special formulation dry culture media products are
marketed to petri plate producers, laboratories, and other users on a world-wide
basis using direct sales, distributors and the food safety sales organization.
Sales of food safety products accounted for approximately 49%, 45% and 46% of
the Company's total revenues for fiscal years ended May 31, 2000, 1999 and 1998
respectively.
6
ANIMAL SAFETY
The Company markets 70 high sensitivity immunoassay tests for drugs of abuse
in animals and residues in meat. These include tests for narcotic analgesics,
stimulants, depressants, tranquilizers, anesthetics, steroids and diuretics.
Neogen also provides a testing service for equine veterinarians to detect EPM
which affects the central nervous system of horses, and can be fatal. In
addition, the Company markets BotVax B, the only USDA approved vaccine for the
prevention of Type B botulism in horses, and a line of approximately 69 premium
health care products sold to the professional equine market, including 24
additional products that were added with the June 2, 2000 acquisition of the
assets of AmVet Pharmaceuticals. Neogen also produces and markets EqStim(R) and
ImmunoRegulin(R), biologic products used as immunostimulants to help fight
infections in horses and dogs.
Through its wholly owned subsidiary Ideal Instruments, Inc., the Company
markets a complete line of veterinary instruments and animal health delivery
systems. Ideal offers approximately 250 different products, over half of which
are instruments used to deliver animal health products, such as antibiotics and
vaccines. Most of the remaining instruments are used in obstetrics and surgery.
Included among these products is a line of disposable syringes and needles
presently custom manufactured, and imported by Ideal.
The veterinary instruments product line is designed to provide better control
of animal health products, thereby reducing the likelihood of antibiotic and
pharmaceutical residues contaminating meat or milk products. At the same time,
the use of quality, high precision delivery instruments helps producers improve
efficiency.
The Company also has several products used for the detection of biologically-
active substances in humans by researchers and pharmaceutical companies for
biomedical research purposes. These tests are used to detect cyclic
nucleotides, hormones, leukotrienes, prostaglandins and steroids. Under the
trademarks K-Blue and K-Gold, the Company sells reagents used by diagnostic test
kit manufacturers.
In fiscal years ended May 31, 2000, 1999 and 1998, sales of animal safety
products as a percentage of total revenues were 51%, 55% and 54% respectively.
RESEARCH AND DEVELOPMENT
The Company maintains a strong commitment to research and development. The
Company's product development efforts are focused on the enhancement of existing
product lines and in development of new products based on the Company's existing
technologies. The Company employs 20 individuals in its research and
development department, including immunologists, chemists, engineers and
microbiologists. Research and development expenditures were approximately $1.6
million, $1.6 million and $1.4 million, representing 7%, 7% and 8%, of total
revenues in fiscal 2000, 1999 and 1998, respectively. The Company currently
intends to maintain its research and development expenditures at approximately
7% to 8% of total revenues.
The Company has ongoing development projects for new immunoassay diagnostic
tests for the food safety, animal safety and pharamacologics markets, as well as
engineering projects for new and improved veterinary instruments. Together with
an unrelated company, the Company is currently developing rapid test kits to
identify agricultural products which have improved plant genetics (IPG's), also
known as genetically modified organisms (GMO's). The Company expects that these
products will be available for marketing in late fiscal 2001.
Collaboration with Academic Institutions
Since its inception, the Company has identified a substantial amount of
applied research in its area of interest at universities that has been developed
by researchers. The Company has worked with over 45 scientific collaborators
associated with 17 academic institutions. The Company utilizes these
relationships in three strategic ways: (i) the technology is transferred from
the scientist or university to the Company for the completion of development
from the precursor findings or laboratory prototypes; (ii) the Company seeks out
and contracts with university researchers to aid its own staff in a part of the
development activities for products previously identified by the Company; and
(iii) new products developed by the Company are tested in laboratories on a
widespread geographic basis prior to the products' market releases. The Company
believes its research strategy has enabled it to produce better products, faster
and more cost effectively than if the research, development and testing were
done exclusively by Company employees in Company facilities.
Other Collaboration Efforts
Portions of certain technologies utilized in some products marketed by the
Company were acquired from or developed in collaboration with affiliated
partnerships, independent scientists, governmental units, universities, and
other third parties. The Company has entered into agreements with these parties
which provide for the payment of royalties based upon sales of products which
utilize the pertinent technology. For fiscal 2000, 1999 and 1998, royalty
expense under these agreements amounted to $752,000, $780,000, and $713,000,
respectively.
7
SALES AND MARKETING
The Company has chosen to organize its sales efforts according to market
segments rather than by product or geographic orientation. The Company's sales
and technical service organizations understand their customers' businesses and
are knowledgeable on how the Company's various products can be used within those
industries. Close relationships built with individual customers also help the
Company identify new products.
During the fiscal year ended May 31, 2000, the Company had in excess of 2,000
customers for its products. Since many of these customers are distributors, the
total number of end users of the Company's products is considerably larger.
Sales to international markets in fiscal 2000 accounted for 20% of the Company's
consolidated revenues. (See Note 11 of the Notes to the Company's Consolidated
Financial Statements.) No single distributor or customer accounted for more
than 10% of the Company's revenues in any of the past three years.
The Company markets, sells and services its products in more than 75 countries
through its own sales force, as well as through distributors in certain
geographic areas. Approximately 75 employees, or 35% of the Company's total
workforce, are engaged in these sales and marketing activities. The Company
operates its sales and distribution organization differently for given markets
and products as summarized below:
Food Safety Products. The Company has separately organized sales forces that
focus on the key industries in the food area. This group handles both sales and
technical services of the Company's disposable test kits. In the U.S. these
products are sold directly to end-users. Sales organizations are maintained for:
grain, nut and spices; feed and agriculture; meat, poultry and eggs; fruits and
vegetables; retail food services; private laboratories; seafood; and dehydrated
culture media.
Animal Safety Products. The Company maintains separately organized sales
forces that focus on the professional equine market and veterinary instruments.
Products for the professional equine market are handled by a sales force who
sell directly to equine veterinarians and also work through established
distributors selling to this market. The Company also has a sales force
specifically dedicated to marketing its veterinary instruments through a network
of domestic and international distributors.
International Sales. Virtually all of the Company's sales to customers
outside of the United States and Canada are handled by distributors, who
typically market the Company's products, as well as other products that are used
by the same customer base. The Company is expanding distribution channels in
South and Central America, Europe and Asia to increase sales. The Company does
not maintain sales offices outside the U.S.
PROPRIETARY PROTECTION AND APPROVALS
The Company applies for patents and trademarks whenever appropriate. Since
its inception, the Company has acquired and received more than 50 patents and
trademarks, and has several pending patents and trademarks. The patents expire
at various times over the next 20 years.
Management believes that the Company has adequate protection as to proprietary
rights for its products. However, the Company is aware that substantial
research in agricultural biotechnology has taken place at universities,
governmental agencies and other companies throughout the world and that numerous
patent applications have been filed and that numerous patents have been issued.
In addition, patent litigation currently exists with respect to fundamental
agricultural biotechnology and biochemistry. Accordingly, there can be no
assurance that the Company's existing patents will be sufficient to protect
completely the Company's proprietary rights.
The Company uses trade secrets as proprietary protection in numerous of its
food and animal safety products. In many cases, the Company has developed
unique antibodies capable of detecting residues at minute levels. The supply of
these antibodies, and the proprietary techniques utilized for their development,
may offer better protection than the filing of patents. Such proprietary
reagents are kept in secure facilities and stored in more than one location to
circumvent their destruction by natural disaster.
One of the major areas affecting the success of biotechnology development
involves the time, costs and uncertainty surrounding regulatory approvals.
Currently, the Company has several products requiring regulatory approval
including BotVax B, EqStim and Immuno-Regulin. On a combined bases, sales for
these products amounted to approximately 9% of total sales in fiscal year 2000.
The Company's strategy is to select technical and proprietary products which do
not require mandatory approval to be marketed.
The Company does utilize third party validations on many of its disposable
test kits as a marketing tool to provide its customers with the proper
assurances. These include validation by the Association of Official Analytical
Chemists, independently administered third-party, multi-laboratory collaborative
studies, and approvals by the U.S. Federal Grain Inspection Service and the U.S.
Food Safety Inspection Service for use of Company products in their
laboratories.
8
MANUFACTURING
The Company manufactures its products in Lansing, Michigan, Lexington,
Kentucky, Schiller Park, Illinois, Baltimore, Maryland and Tampa, Florida.
There are currently 83 full-time employees assigned to manufacturing in these
five locations. All locations generally operate on a one-shift basis, but could
be increased to a two-shift basis. The Company believes it could increase the
current output of its primary product lines by more than 50% using the current
space available with minimal amounts of additional capital equipment.
Manufacturing diagnostic tests for natural toxins, microorganisms, food
allergens, pesticides and plant disease diagnostic tests takes place in Lansing,
Michigan. Proprietary monoclonal and polyclonal antibodies for the Company's
diagnostic kits are produced on a regular schedule in the Company's immunology
laboratories in Lansing. Other reagents are similarly prepared by the chemistry
group. These component parts are then transferred to another section in the
same building, where final kit assembly and quality assurance are conducted, and
shipping takes place.
The Lexington, Kentucky facility is devoted exclusively to the manufacture of
pharmacological diagnostic test kits, test kits for drug residues and
professional equine products. Proprietary antibodies for some of the diagnostic
kits were produced at the University of Kentucky under a license and supply
agreement. All other manufacturing operations, including preparation of other
reagents, quality assurance and final kit assembly, are performed by Neogen
personnel in the Lexington facilities.
The Company's Schiller Park, Illinois facility, which is used primarily to
manufacture veterinary instruments, is a complete metal working operation with
equipment to process raw materials, such as brass rod and tubing, to finished
instruments with skin-wrapped merchandisable packaging.
The Baltimore, Maryland facility is an FDA-approved manufacturing plant
devoted to the production of dehydrated culture media products. Products are
blended following strict formulations or custom blended to customer
specification and shipped direct to customers from the Baltimore facility.
The Tampa, Florida facility is a USDA-approved manufacturing plant devoted to
the production of the biologic products EqStim(R) and ImmunoRegulin(R). P.
acnes seed cultures are added to media and then subjected to several stages of
further processing resulting in a product that is filled and packaged within the
Tampa facility. Final product is then shipped to Neogen's Lexington facilities
for inventory and distribution to customers. The Company's BoxVax B vaccine is
also produced in the Tampa facility, utilizing Type B botulism seed cultures and
a traditional fermentation process.
The Company purchases component parts and raw materials from over 200
suppliers. Though many of these supplies are purchased from a single source in
order to achieve the greatest volume discounts, the Company believes it has
identified acceptable alternative suppliers for all of its components and raw
materials.
Shipments of products are generally accomplished within a 48-hour turnaround
time. As a result of this quick response time, the Company's backlog of
unshipped orders at any given time is not significant.
COMPETITION
The Company knows of no competitor that is pursuing its fundamental strategy
of developing a full line of products, ranging from disposable tests and
dehydrated culture media to veterinary instruments for a large number of food
safety and animal safety concerns. However, the Company does have competitors
for each of its primary product lines. The Company competes with a large number
of companies ranging from very small businesses to divisions of large companies.
Many of these firms have substantially greater financial resources than the
Company.
Academic institutions and other public and private research organizations are
also conducting research activities and may commercialize products on their own
or through joint ventures. The existence of competing products or procedures
that may be developed in future years may adversely affect the marketability of
the products developed by the Company.
The Company believes that it maintains inventory levels and sells its products
under terms and conditions that are normal for companies against which it
competes. The Company competes primarily on the basis of ease of use, speed,
accuracy, and other similar performance characteristics of its products. The
breadth of the Company's product line, the effectiveness of its sales and
customer service organizations and pricing are also components in the Company's
competitive plan. The Company is not aware of any factors within its product
lines that place the Company in a negative competitive position relative to its
competitors.
9
GOVERNMENTAL REGULATION
A significant portion of the Company's products are affected by the
regulations of various domestic and foreign government agencies, including the
U.S. Department of Agriculture and the U.S. Food and Drug Administration. A
significant portion of the Company's revenue is derived from products used to
monitor and detect the presence of residues that are regulated by various
government agencies. Furthermore, a significant portion of the Company's growth
may be affected by the implementation of new regulations such as the U.S. Food
and Drug Administration's final rule, Procedures for the Safe and Sanitary
Processing and Importing of Fish and Fishery Products, and the final rule of the
U.S. Department of Agriculture, Pathogen Reduction; Hazard Analysis and Critical
Control Point Systems.
The Company's development and manufacturing processes involve the use of
certain hazardous material, chemicals and compounds. The Company believes that
its safety features for handling and disposing of such commodities comply with
the standard prescribed by local, state and federal regulations. The Company's
cost to comply with these regulations is not significant and the Company has no
reason to believe that any such future legislation or rules would be materially
adverse to its business.
EMPLOYEES
Currently, the Company employs approximately 217 full-time persons. None of
the employees are covered by collective bargaining agreements. There have been
no work stoppages or slow downs due to labor-related problems. The Company
believes that its relationship with its employees is good. All employees having
access to proprietary information have executed confidentially agreements with
the Company.
INSURANCE
The Company maintains product liability insurance on all products with a
coverage limit of $3 million per occurrence. In addition, the Company also
maintains insurance in amounts and types which the Company believes to be
customary in its industry.
ITEM 2. PROPERTIES
The Company owns two separate buildings located in Lansing, Michigan. A
26,000 square foot building located at 620 Lesher Place is used for the
Company's corporate administrative offices, along with sales and marketing
offices and research facilities for food safety. A 14,000 square foot brick
building located at 600 Lesher Place is used primarily for production of food
safety diagnostic test kits. The Company also owns a facility comprising 1,100
square feet within one block of the existing corporate headquarters used for
various administrative functions including temporary office space and records
storage.
Veterinary instrument manufacturing operations are housed in a 34,000 square
foot building located at 9355 West Byron Street in Schiller Park, Illinois. The
Company entered into a seven-year, non-cancelable operating lease for this
property effective August 1, 1993. The lease agreement provides for annual
lease payments of $100,300 for each of the first two years with annual increases
of approximately 3.5% thereafter for the remainder of the lease. Upon
expiration of the lease of this facility, management believes it can renegotiate
a lease on the current facility or relocate to a comparable facility with lease
terms similar to those currently enjoyed. No significant disruption of
operations would be expected in the event of a move to an alternative facility.
Animal safety sales and marketing, and the Company's operations focused on the
professional equine market are located in 23,000 square feet of leased space in
a three-story building at 628 Winchester in Lexington, Kentucky. The Company
entered into a five-year, non-cancelable operating lease for the space effective
July 1, 1993. Effective July 1, 1999, the lease was amended to extend the term
of the lease to June 30, 2001 and to provide for annual lease payments,
including all utilities, of $102,000.
Dehydrated culture media manufacturing takes place in an FDA licensed
facility. The operations are located in 12,600 square feet of leased space at
9601 Pulaski Park Drive, Baltimore, Maryland. The five year lease, effective
July 1, 1998, was assumed as part of the acquisition of Acumedia by the Company.
The lease provides for annual payments beginning at $75,600 and increasing to
$81,412 in the last year of the lease.
The Company leases 5,200 square feet at 5910 Breckenridge Center Parkway in
Tampa, Florida where the manufacturing of two animal safety products takes
place. This USDA-approved facility is subject to a three-year non-cancelable
operating lease that expires on September 30, 2001. The lease provides for
annual payments of $31,422 in year one increasing 4% in years two and three
along with payments for operating expenses and property taxes estimated to be
$13,625 annually subject to increases based on actual costs incurred.
10
ITEM 3. LEGAL PROCEEDINGS
In August 1996, the Company filed a lawsuit against Vicam, LP, Vicam
Management Corporation, and Jack L. Radlo in the U.S. District Court of the
Middle District of Florida, Tampa Division.. The Company was suing to recover
damages incurred as a result of Vicam's publication of a false allegation that a
Neogen product violated two patents licensed to Vicam. Subsequently, the court
found in Neogen's favor on several pivotal issues including a summary judgement
that Neogen's product did not infringe the patents as alleged by Vicam. On
March 27, 2000, the lawsuit proceeded to trial to establish damages that Neogen
might recover. Before the trial was concluded, Vicam agreed to pay Neogen a
significant cash settlement and not to further interfere with Neogen's right to
market specific products. The lawsuit was subsequently dismissed. (See Note 4
of the Notes to the Company's Consolidated Financial Statements.)
The Company is involved in other legal proceedings, none of which, in the
opinion of the management is material to the financial statements.
11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock is traded on the NASDAQ National Market under the symbol
"NEOG". The following table sets for, the fiscal periods indicated, the high
and low sales prices for the Common Stock as reported on the NASDAQ National
Market.
HIGH LOW
-------- ---------
FISCAL YEAR ENDED MAY 31, 2000
First Quarter ............................................................. 7.25 6.00
Second Quarter ............................................................. 7.50 5.88
Third Quarter ............................................................. 6.75 5.00
Fourth Quarter ............................................................. 8.25 5.38
FISCAL YEAR ENDED MAY 31, 1999
First Quarter ............................................................. 9.13 6.00
Second Quarter ............................................................. 7.94 5.75
Third Quarter ............................................................. 9.25 6.63
Fourth Quarter ............................................................. 7.94 5.63
As of July 31, 2000, there were approximately 500 stockholders of record of
Common Stock, which the Company believes represents a total of approximately
6,000 beneficial holders. The Company has never paid any cash dividends on its
Common Stock and does not anticipate paying any cash dividends in the
foreseeable future.
12
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth, for the fiscal periods indicated, selected
consolidated financial data derived from the Company's audited Consolidated
Financial Statements for each of the fiscal years ended May 31, 1996 through
2000. This information should be read in conjunction with the Consolidated
Financial Statements, related notes and other financial information included
herein.
YEARS ENDED MAY 31
------------------
1996(1) 1997(1) 1998(1) 1999(1) 2000(1)
------ ------ ------ ------ ------
Income Statement Data: (In thousands, except per share data)
Food Safety Sales $ 6,321 $ 8,605 $ 8,419 $ 10,069 $ 11,634
Animal Safety Sales 6,169 6,654 10,069 12,110 11,878
-------- -------- -------- -------- --------
Total Sales 12,490 15,259 18,488 22,179 23,512
Cost of Sales 5,484 6,201 7,960 9,477 10,860
Sales and Marketing 3,539 4,197 4,910 5,311 6,102
General and Administrative 1,774 2,230 2,716 3,207 2,588
Research and Development 1,238 1,320 1,424 1,640 1,600
Restructuring Charges 695 -- -- -- --
-------- -------- -------- -------- --------
Operating Income (Loss) (240) 1,311 1,478 2,544 2,362
Other Income
Litigation Settlement -- -- -- -- 1,100
Interest and Other 3 564 897 104 821
-------- -------- -------- -------- --------
Net Income (Loss) Before Tax (237) 1,875 2,375 2,648 4,283
Provision for Income Taxes 7 63 127 393 1,210
-------- -------- -------- -------- --------
Net Income $ (244) $ 1,812 $ 2,248 $ 2,255 $ 3,073
======== ======== ======== ======== ========
Net Income Per Share (diluted) $ (0.05) $ 0.32 $ 0.35 $ 0.37 $ 0.52
======== ======== ======== ======== ========
Common Shares
Outstanding (diluted) 4,514 5,649 6,397 6,141 5,922
MAY 31
1996(1) 1997(1) 1998(1) 1999(1) 2000(1)
------ ------ ------ ------ ------
(In thousands)
Cash and Marketable Securities $ 2,183 $ 13,044 $ 10,589 $ 10,667 $ 10,670
Working Capital 5,235 17,265 17,192 17,355 18,265
Total Assets 11,531 23,148 25,413 26,108 29,528
Long-Term Debt 279 208 174 126 77
Stockholders' Equity 8,858 21,013 23,609 23,786 25,804
(1) The periods presented are not comparable due to restructuring charges in
fiscal year 1996, secondary offering of public stock in fiscal year 1997,
sale of product line, closing of manufacturing facilities and change in
effective federal income tax rate in fiscal year 1999 and 2000, the
litigation settlement in 2000 and several acquisitions. (See Notes to
Consolidated Financial Statements.)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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 financial 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.
13
RESULTS OF OPERATIONS
REVENUES (DOLLARS IN THOUSANDS) 2000 Increase 1999 Increase 1998
(Decrease)
- -----------------------------------------------------------------------------------------------
Product Sales:
Food Safety $11,634 16% $10,069 20% $ 8,419
Animal Safety 11,878 (2%) 12,110 20% 10,069
TOTAL REVENUES $23,512 6% $22,179 20% $18,488
- -----------------------------------------------------------------------------------------------
In 2000, sales of food safety products increased 16% due to an increase in
sales of the newly introduced general sanitation product line, $900,000 of sales
from Acumedia, the Company's newly acquired dehydrated culture media company,
and a 22% increase in the Company's sales of test kits to detect harmful
bacteria in food, partially offset by a decrease of revenues of $650,000 from
Ampcor Diagnostics, Inc. that was sold in late 1999. Some of the products
marketed to detect mycotoxins in grains had declines in sales as a result of the
relative absence of the weather conditions that promote the occurrence of mold
in commodity crops.
The 20% increase in 1999 sales of food safety products was primarily due to
increases in sales in two areas. Weather conditions in the southern United
States promoted mold growth in corn and other commodity crops and sales of test
kits increased $623,000. Sales of test kits to detect harmful bacteria
increased $847,000 in 1999 due to strong international demand and because of
higher sales to meat processors concerned about well-publicized E. coli and
Listeria outbreaks in hamburger, hot dogs, and luncheon meats.
Animal safety sales decreased 2% in 2000 following an increase of 20% in 1999.
Vetoquinol and Triple Crown products contributed $400,000 and $1,000,000 in
increased sales in 2000 and 1999, respectively. Other products experiencing
changes in demand in 2000 included the Company's drug detection products that
increased almost 13% and the products of Ideal Instruments, which increased 14%,
exclusive of specialty needle products used to inject spices and marinades into
meat and poultry which decreased over $700,000 because of the loss of a single
customer. In 1999, changes in demand included a $450,000 increase in the
Company's vaccine to prevent Type B botulism in horses, and specialty needles
which increased $700,000.
COST OF GOODS SOLD (DOLLARS IN THOUSANDS) 2000 Increase 1999 Increase 1998
- ---------------------------------------------------------------------------------------------
Cost of Goods Sold $10,860 15% $9,477 19% $7,960
- ---------------------------------------------------------------------------------------------
Costs of goods sold increased 15% in 2000 and 19% in 1999, principally as a
result of increases in sales of products with higher raw material costs in 2000
and increases in product sales in 1999. Expressed as a percent of sales, cost
of goods sold was 46% in 2000 and 43% in 1999 and 1998. The percentage for 2000
was higher principally due to the introduction of Biotrace and Acumedia products
that have a lower margin than many of the Company's historical products.
OPERATING EXPENSES (DOLLARS IN THOUSANDS) 2000 Increase 1999 Increase 1998
(Decrease)
- --------------------------------------------------------------------------------------------------
Sales and Marketing $6,102 15% $5,311 8% $4,910
General and Administrative 2,588 (19%) 3,207 18% 2,716
Research and Development 1,600 (2%) 1,640 15% 1,425
- --------------------------------------------------------------------------------------------------
Many sales and marketing expense categories increased in 2000 and 1999
including salaries, fringe, royalties, commissions, trade shows and travel as
well as technical service in 1999. The increase in 2000 compared to 1999 is the
result of continued expansion of sales activities both domestically and
internationally to gain wider distribution of products dedicated to food and
animal safety. The Company expects to continue to expand its sales and
marketing efforts in the future.
The decrease in General and Administrative expense in 2000 was the result of
the recovery of legal fees in the Vicam litigation. Other factors that affected
this category of expense included expenses related to employment of additional
personnel, particularly in accounting, offset by a recovery of certain state
taxes.
The 1999 increase in General and Administrative expense was due to two
factors. Increases in sales volume and overall business activity resulted in
the need for additional administrative staff. The increase in staff, along with
higher accruals for bonuses due to improved operating performance, resulted in
$208,000 of higher salary and fringe expense. In addition, legal and
professional fees increased $259,000 compared to 1998.
Management believes that the Company is not involved in any material adverse
legal proceedings. However, Neogen is a party in lawsuits as discussed in ITEM
3. LEGAL PROCEEDINGS in this Form 10-K. Management intends to vigorously
pursue this litigation and cannot predict the outcome of these lawsuits.
Furthermore, management has no way to predict the level of expenses that may be
incurred in fiscal year 2001 in pursuing this litigation.
Management believes that research and development is critical to the Company's
future and expects to continue to incur expenses at approximately the current
percentage of revenue.
14
OTHER INCOME (DOLLARS IN THOUSANDS) 2000 Increase 1999 (Decrease) 1998
- ------------------------------------------------------------------------------------------------
Other Income:
Litigation Settlement $1,100 n/a $ -- $ --
Interest and Other 821 689% 104 (88%) 897
- ------------------------------------------------------------------------------------------------
TOTAL $1,921 1,747% $ 104 (88%) $ 897
- ------------------------------------------------------------------------------------------------
Other income increased significantly in 2000. This was due to improved
interest earnings due to higher rates and the settlement of the Vicam litigation
and the absence of factors that reduced other income in the prior year.
Other income declined significantly in 1999. This was primarily due to the
loss on sale of the Company's human clinical product line and related fourth
quarter charge for closure of a manufacturing facility, which totaled
approximately $629,000. (See Note 5 of Notes to Consolidated Financial
Statements). In addition, interest income decreased during 1999 due to lower
rates and lower average invested balances.
NET INCOME AND NET INCOME PER SHARE 2000 Increase 1999 Increase 1998
(DOLLARS IN THOUSANDS)
- -------------------------------------------------------------------------------------------------------------
Net Income $3,073 36% $2,255 0% $2,248
Net Income Per Share - Diluted $ 0.52 $ 0.37 $ 0.35
- -------------------------------------------------------------------------------------------------------------
During fiscal 2000, the Company's operating income decreased by $200,000,
principally because of less than expected operating results in the second
quarter due to unavailable BotVax B vaccine and margin declines due to product
mix changes. Additionally, the Company increased sales and marketing
expenditures but did not see substantial results therefrom until late in the
year. Other income increased from the Vicam litigation settlement and the
absence of the loss from sale of product line that reduced this category in
1999.
The Company's effective Federal Income Tax rate has historically been
significantly less than the statutory rate because of available net operating
loss and credit carryovers. These items have been substantially utilized which
will result in tax expense approaching the statutory rate in future years. The
2000 tax rate increased to 28% from 15% in 1999 as a result of these factors.
FINANCIAL CONDITION AND LIQUIDITY
At May 31, 2000 the Company had $10,670,000 in cash and marketable securities,
working capital of $18,265,000 and stockholders' equity of $25,804,000. In
addition, the Company had unused bank lines of credit totaling $10,000,000.
Cash and marketable securities increased $3,000 during fiscal 2000. Cash
provided from operations, including the settlement of the Vicam litigation
totaling $2,000,000, was offset by the aggregate of the acquisition of Acumedia
Manufacturers, Inc. for $2,650,000, the use of $1,326,000 for the purchase of
221,000 shares of the Company's common stock (See Notes 3, 4 and 12 of the Notes
to Consolidated Financial Statements) and $920,000 for purchases of property,
equipment and other assets. On June 2, 2000, the Company closed the acquisition
of substantially all of the assets of AmVet Pharmaceuticals with the payment of
$3,400,000. (See Note 14 of the Notes to Consolidated Financial Statements.)
The increase in accounts receivable resulted from $900,000 of accounts
receivable related to the Acumedia acquisition and fourth quarter 2000 sales
increases in excess of 23% when compared to the fourth quarter of 1999.
Inventory levels, exclusive of the $1,300,000 of inventory related to the
Acumedia acquisition, actually decreased during the year. This is the result of
continued effort on the part of management to control the level of this asset
while maintaining high levels of customer service.
Prepaid expenses and other current assets declined $300,000 following
application of $375,000 of prepaid Federal Income Taxes included in this
category in 1999.
Increases in property and equipment and goodwill principally resulted from the
acquisition of Acumedia.
The increase in accounts payable is due to the addition of Acumedia and higher
than normal accruals of legal fees related to the Vicam litigation.
Current maturities of long-term debt include a $450,000 note issued as part of
the acquisition of Acumedia. The note is due in February 2001.
Other than the note issued in connection with the Acumedia acquisition, the
Company did not borrow any funds during fiscal 2000 and made scheduled payments
totaling $49,000 on long-term debt. At May 31, 2000, the Company had no
material commitments for capital expenditures. Inflation and changing prices
have not had and are not expected to have a material effect on the Company's
operations.
Neogen has been profitable for 28 of its last 29 quarters and has generated
positive cash from operations during the period. Management believes that the
Company's existing cash and marketable securities at May 31, 2000, along with
available bank lines of credit and cash expected to be generated from
operations, will be sufficient to fund activities for the foreseeable future.
However, existing cash and marketable securities may not be sufficient to meet
the Company's cash requirements to commercialize products currently under
development or its plans to acquire additional technology and products that fit
within the Company's mission statement. Accordingly, the Company may be
required to issue equity securities or enter into other financing arrangements
for a portion of the Company's future capital needs.
15
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
NEOGEN CORPORATION
AND SUBSIDIARIES
CONTENTS
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 17
CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheets 18-19
Statements of Income 20
Statements of Stockholders' Equity 21
Statements of Cash Flows 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 23-34
16
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
Neogen Corporation
Lansing, Michigan
We have audited the accompanying consolidated balance sheets of Neogen
Corporation and subsidiaries as of May 31, 2000 and 1999, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended May 31, 2000. We have also audited the
schedule listed in Item 14(b). These financial statements and the schedule are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and the schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the schedule are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements and
the schedule. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement and schedule presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Neogen Corporation
and subsidiaries at May 31, 2000 and 1999, and the results of their operations
and their cash flows for each of the three years in the period ended May 31,
2000 in conformity with generally accepted accounting principles.
Also, in our opinion, the schedule presents fairly, in all material respects,
the information set forth therein.
BDO SEIDMAN, LLP
Troy, Michigan
July 14, 2000
17
NEOGEN CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
================================================================================
May 31, 2000 1999
- ------------------------------------------------------------------------------------------------------------------
ASSETS (Note 6)
CURRENT ASSETS
Cash $ 2,198,189 $ 1,062,811
Marketable securities (Note 2) 8,471,740 9,603,844
Accounts receivable, less allowance for doubtful accounts of 4,876,692 3,295,536
$361,000 and $166,000
Inventories 5,393,017 4,360,580
Prepaid expenses and other current assets 662,201 960,745
- ------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 21,601,839 19,283,516
- ------------------------------------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT
Land and improvements 90,532 79,263
Buildings and improvements 1,344,792 786,066
Machinery and equipment 4,962,938 4,331,297
Furniture and fixtures 462,316 375,983
- ------------------------------------------------------------------------------------------------------------------
6,860,578 5,572,609
Less accumulated depreciation 4,205,333 3,424,668
- ------------------------------------------------------------------------------------------------------------------
NET PROPERTY AND EQUIPMENT 2,655,245 2,147,941
- ------------------------------------------------------------------------------------------------------------------
INTANGIBLE AND OTHER ASSETS
- ------------------------------------------------------------------------------------------------------------------
Goodwill, net of accumulated amortization of $682,711 and 3,892,260 3,199,802
$511,106 (Note 3)
Other assets, net of accumulated amortization of $662,013 and 1,379,097 1,476,879
$544,600 (Note 3)
- ------------------------------------------------------------------------------------------------------------------
TOTAL INTANGIBLE AND OTHER ASSETS 5,271,357 4,676,681
- ------------------------------------------------------------------------------------------------------------------
$29,528,441 $26,108,138
==================================================================================================================
See accompanying notes to consolidated financial statements.
18
NEOGEN CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
================================================================================
May 31, 2000 1999
- ------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,742,818 $ 842,429
Accruals
Compensation and benefits 633,055 606,689
Income taxes 430,250 -
Other 32,584 430,828
Current maturities of long-term debt (Note 6) 498,672 48,672
- ------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 3,337,379 1,928,618
LONG-TERM DEBT, less current maturities (Note 6) 77,048 125,720
OTHER LONG-TERM LIABILITIES 310,168 267,982
- ------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 3,724,595 2,322,320
- ------------------------------------------------------------------------------------------------------------------
COMMITMENTS (Notes 3, 9 and 10)
STOCKHOLDERS' EQUITY (Notes 7 and 12)
Preferred stock, $1.00 par value, shares authorized - -
100,000, none issued and outstanding
Common stock, $.16 par value, shares authorized 20,000,000; 923,710 948,685
issued and outstanding 5,773,187 and 5,929,279
Additional paid-in capital 21,205,218 22,235,726
Retained earnings 3,674,918 601,407
- ------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 25,803,846 23,785,818
- ------------------------------------------------------------------------------------------------------------------
$29,528,441 $26,108,138
==================================================================================================================
See accompanying notes to consolidated financial statements.
19
NEOGEN CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
================================================================================
Year Ended May 31, 2000 1999 1998
- --------------------------------------------------------------------------------------------------------------------------
NET SALES $23,512,018 $22,179,008 $18,488,389
COST OF GOODS SOLD 10,860,468 9,476,873 7,959,655
- --------------------------------------------------------------------------------------------------------------------------
GROSS MARGIN 12,651,550 12,702,135 10,528,734
- --------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Sales and marketing 6,101,683 5,311,494 4,909,997
General and administrative (Note 4) 2,587,514 3,206,969 2,715,738
Research and development 1,599,782 1,639,600 1,424,583
- --------------------------------------------------------------------------------------------------------------------------
10,288,979 10,158,063 9,050,318
- --------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME 2,362,571 2,544,072 1,478,416
- --------------------------------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE)
Litigation settlement (Note 4) 1,100,000 - -
Interest income 560,739 493,430 605,990
Interest expense (12,106) (15,945) (22,581)
Loss on sale of product line (Note 5) - (628,839) -
Other 272,307 255,210 313,548
- --------------------------------------------------------------------------------------------------------------------------
1,920,940 103,856 896,957
- --------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE TAXES ON INCOME 4,283,511 2,647,928 2,375,373
TAXES ON INCOME (Note 8) 1,210,000 393,000 127,000
- --------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 3,073,511 $ 2,254,928 $ 2,248,373
==========================================================================================================================
BASIC EARNINGS PER SHARE $ .52 $ .37 $ .36
DILUTED EARNINGS PER SHARE $ .52 $ .37 $ .35
==========================================================================================================================
See accompanying notes to consolidated financial statements.
20
NEOGEN CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
================================================================================
Common Stock Additional Retained
------------------------------------ Paid-In Earnings
Shares Amount Capital (Deficit)
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE, June 1, 1997 6,110,608 $977,697 $23,937,397 $(3,901,894)
Exercise of options 97,100 15,536 329,958 -
Exercise of warrants 471 76 2,194 -
Net income for the year - - - 2,248,373
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE, May 31, 1998 6,208,179 993,309 24,269,549 (1,653,521)
Exercise of options 35,800 5,728 84,810 -
Repurchase of common stock (Note 12) (314,700) (50,352) (2,118,633) -
Net income for the year - - - 2,254,928
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE, May 31, 1999 5,929,279 948,685 22,235,726 601,407
Exercise of options and warrants 64,931 10,389 259,823 -
Repurchase of common stock (Note 12) (221,023) (35,364) (1,290,331) -
Net income for the year - - - 3,073,511
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE, May 31, 2000 5,773,187 $923,710 $21,205,218 $ 3,674,918
===============================================================================================================================
See accompanying notes to consolidated financial statements.
21
NEOGEN CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
================================================================================
Year Ended May 31, 2000 1999 1998
- --------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 3,073,511 $ 2,254,928 $ 2,248,373
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 945,979 878,886 724,524
Loss on sale of product line - 628,839 -
Changes in operating assets and liabilities,
net of acquisitions
Accounts receivable (736,480) (311,541) (622,662)
Inventories 143,188 342,794 (449,877)
Prepaid expenses and other current assets 298,544 (442,881) (81,947)
Accounts payable 850,389 263,615 (264,171)
Accrued expense and other liabilities 100,558 67,121 (89,450)
- --------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,675,689 3,681,761 1,464,790
- --------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from marketable securities 31,415,208 25,388,316 25,575,582
Purchases of marketable securities (30,283,104) (25,123,298) (23,119,531)
Purchases of property, equipment and other assets (920,201) (876,726) (624,706)
Acquisitions (2,648,059) (600,000) (3,587,033)
- --------------------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (2,436,156) (1,211,708) (1,755,688)
- --------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from issuance of common shares 270,212 90,538 347,764
Repurchase of common stock (1,325,695) (2,168,985) -
Payments on long-term borrowings (48,672) (48,672) (55,853)
- --------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (1,104,155) (2,127,119) 291,911
- --------------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN CASH 1,135,378 342,934 1,013
CASH, at beginning of year 1,062,811 719,877 718,864
- --------------------------------------------------------------------------------------------------------------------------------
CASH, at end of year $ 2,198,189 $ 1,062,811 $ 719,877
================================================================================================================================
See accompanying notes to consolidated financial statements.
22
NEOGEN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
================================================================================
1. SUMMARY OF Nature of Operations
ACCOUNTING POLICIES
Neogen Corporation and subsidiaries (the
Company) develop, manufacture, and sell a
diverse line of products dedicated to food and
animal safety. The Company's products are
currently used for animal health applications,
food safety testing and in medical research.
Basis of Consolidation
The consolidated financial statements include
the accounts of Neogen Corporation, Ideal
Instruments, Inc. (Ideal), Acumedia
Manufacturing, Inc. (Acumedia), AMPCOR
Diagnostics, Inc. (AMPCOR - see Note 5) and two
majority owned companies which are general
partners for research limited partnerships. The
investments in partnerships are not significant
to the consolidated financial statements.
All significant intercompany accounts and
transactions have been eliminated in
consolidation.
Use of Estimates
The preparation of financial statements in
conformity with generally accepted accounting
principles requires management to make
estimates and assumptions that affect the
reported amounts of (1) assets and liabilities
and the disclosure of contingent assets and
liabilities as of the date of the financial
statements, and (2) revenues and expenses
during the reporting period. Actual results
could differ from these estimates.
Risks and Uncertainties
Diagnostic products, specifically test kits for
the detection of mycotoxins, contribute a
significant portion of the Company's revenues
and profits. The Company expects that its
ability to maintain or expand its current
levels of revenues and profits in the future
will depend on various factors, including the
impact of weather on agriculture and food
production.
Concentrations of Credit Risk
Financial instruments which potentially subject
the Company to concentrations of credit risk
consist principally of accounts receivable. The
Company attempts to minimize credit risk by
reviewing all customer's credit history before
extending credit and by monitoring customer's
credit exposure on a continuing basis. The
Company establishes an allowance for possible
losses on accounts receivable based upon
factors surrounding the credit risk of specific
customers, historical trends and other
information.
23
Fair Values of Financial Instruments
The carrying amounts of accounts receivable,
accounts payable, accrued expenses, and current
maturities of long-term debt approximate fair
value because of the short maturity of these
items.
The carrying amounts of the long-term debt
issued pursuant to the Company's bank credit
agreements approximate fair value because the
interest rates on these instruments change with
market rates.
Marketable Securities
All marketable securities are classified as
available-for-sale and are available to support
current operations or to take advantage of
other investment opportunities. These
securities are stated at estimated fair market
value. The cost of securities sold is based on
the specific identification method and interest
earned is included in other income.
Inventories
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:
2000 1999
---------------------------------------------------------
Raw materials $ 2,206,835 $ 1,809,725
Work-in-process 678,117 755,225
Finished goods 2,508,065 1,795,630
---------------------------------------------------------
$ 5,393,017 $ 4,360,580
=========================================================
Property and Equipment
Property and equipment is stated at cost.
Expenditures for major improvements are
capitalized while repairs and maintenance are
charged to expense. Depreciation is provided on
the straight-line method over the estimated
useful lives of the respective assets,
generally twenty to thirty-one years for
buildings and improvements and three to ten
years for furniture, machinery and equipment.
Depreciation expense was $656,961, $542,024 and
$469,324 in 2000, 1999 and 1998, respectively.
Intangible Assets
Goodwill represents the excess of acquisition
costs over the estimated fair value of net
assets acquired. Goodwill is amortized on a
straight-line basis over periods ranging from
fifteen to twenty-five years.
24
Other intangible assets, consisting primarily
of covenants not to compete, licenses and
patents, are recorded at fair value at the date
of acquisition. These intangible assets are
amortized on a straight-line basis over periods
ranging from five to seventeen years.
Long-lived Assets
The Company reviews the carrying values of its
long-lived assets for possible impairment
whenever events or changes in business
conditions indicate that the carrying amount of
the assets may not be recoverable. The Company
evaluates whether impairment exists on the
basis of undiscounted future cash flows from
operations before interest for the remaining
useful life of the assets. If necessary,
impairment will be measured based on the
difference between discounted future cash flows
and the net book value of the related assets.
Any long-lived assets held for disposal are
reported at the lower of these carrying amounts
or fair value less costs to sell.
Revenue Recognition
The Company recognizes product sales at the
time of shipment.
Earnings Per Share
Earnings per share is calculated according to
Statement of Financial Accounting Standards
("SFAS") No. 128 - "Earnings Per Share" which
requires companies to present basic and diluted
earnings per share. Basic earnings per share is
based on the weighted average number of common
shares outstanding during the year. Diluted
earnings per share is based on the weighted
average number of common shares and dilutive
potential common shares outstanding during the
year. The Company's dilutive potential common
shares outstanding during the year result
entirely from dilutive stock options and
warrants. The following table presents the
earnings per share calculations:
25
For the Year Ended May 31, 2000 1999 1998
---------------------------------------------------------------------------------------------
Numerator for Basic and Diluted Earnings
Per Share
Net income $ 3,073,511 $ 2,254,928 $ 2,248,373
---------------------------------------------------------------------------------------------
Denominator
Denominator for basic earnings per
share - weighted average shares 5,905,623 6,099,129 6,176,995
Effect of Dilutive Securities
Stock options and warrants 16,859 41,734 219,860
---------------------------------------------------------------------------------------------
Dilutive Potential Common Stock
Denominator for diluted earnings
per share - adjusted weighted
average shares and assumed
conversions 5,922,482 6,140,863 6,396,855
=============================================================================================
Basic Earnings Per Share $ .52 $ .37 $ 36
=============================================================================================
Diluted Earnings Per Share $ .52 $ .37 $ .35
=============================================================================================
Options to purchase 616,200, 441,100, and
33,400 shares of common stock at prices ranging
from $6.50 to $13.25, $7.13 to $13.25, and
$11.31 to $13.25 in 2000, 1999, and 1998,
respectively, were outstanding, but were not
included in the computation of diluted earnings
per share because the option's exercise price
was greater than the average market price of
the common shares.
2. MARKETABLE The Company currently invests in only high
SECURITIES quality, short-term investments with maturity
dates of less than one year, which are
classified as available-for-sale. As such,
there were no significant differences between
amortized cost and estimated fair market value
at May 31, 2000 and 1999. Additionally, since
investments are short-term and are generally
allowed to mature, realized gains and losses
for both years have been minimal. The following
table presents the estimated fair value
breakdown of investment by category:
2000 1999
----------------------------------------------------------------------------
Corporate Debt Securities $ 8,471,740 $ 9,341,730
U.S. Treasury and Agency Securities - 262,114
----------------------------------------------------------------------------
$ 8,471,740 $ 9,603,844
============================================================================
26
3. Acquisitions On February 17, 2000, Neogen Corporation
purchased 100% of the common stock of Acumedia
with principal offices in Baltimore, Maryland.
Acumedia is an internationally recognized
producer of culture media. The acquisition was
accounted for using the purchase method.
Initial consideration for the purchase,
including direct acquisition related expenses,
was $3,098,000, which included cash payments
and a one year 7% promissory note of $450,000
(see Note 6). The initial consideration
resulted in goodwill of approximately $660,000.
Additional consideration of up to $1,000,000
may be due to the seller in March 2001 based on
Acumedia achieving specified levels of post
closing revenues.
Unaudited proforma financial information as if
the acquisition of Acumedia had taken place on
June 1, 1998 is as follows:
2000 1999
-------------------------------------------------------------------------------
Revenues $ 26,081,000 $ 25,856,000
Net income 2,901,000 1,843,000
-------------------------------------------------------------------------------
Earnings Per Share - Basic And
Diluted .49 .30
===============================================================================
These unaudited proforma results have been
prepared for comparative purposes only and
include certain adjustments, such as additional
amortization expense as a result of goodwill
and the related effect on income tax expense.
They do not purport to be indicative of the
results of operations that actually would have
resulted had the acquisition occurred on the
date indicated, or that may result in the
future.
In August 1998, the Company purchased certain
inventory and technology from BioPort
Corporation of Lansing, Michigan. The purchase
price consisted of a single cash payment of
$600,000. All acquired assets were integrated
with the Company's Lexington, Kentucky
division.
Effective December 30, 1997, Neogen acquired
certain assets of Vetoquinol, U.S.A., Inc.
located in Tampa, Florida. The acquisition was
accounted for by the purchase method. Neogen
continues to operate the production facility in
Tampa and has relocated all sales and
administrative functions to the Company's
Lexington, Kentucky facility. The purchase
price consisted of cash payments totaling
approximately $2,188,000.
Effective July 1, 1997, Neogen acquired certain
assets of Triple Crown, a division of W.J.
Bartus, Inc. of Fort Pierce, Florida. The
acquisition was accounted for by the purchase
method and all acquired assets, consisting of
inventory, fixed assets and 20 related products
were moved to the Company's Lexington, Kentucky
division. The initial purchase price consisted
of a cash payment of approximately $1,400,000.
A second and final cash payment of $500,000 is
due provided the seller meets certain
conditions of the asset purchase agreement.
Additional consideration, if any, in connection
with the aforementioned acquisitions will be
recorded as additional goodwill and amortized
over the remaining amortization period.
27
4. Litigation Settlement In the fourth quarter of fiscal 2000, the
Company reached a settlement with Vicam L.P.,
Vicam Management Corporation, and Jack C. Radlo
("Vicam") on all claims against Vicam not
previously settled. The settlement included
reimbursement of $900,000 to Neogen for legal
and professional fees and expenses, and
$1,100,000 to settle all claims.
The reimbursement of legal and professional
fees and expenses was netted against general
and administrative expenses in fiscal 2000,
which included approximately $750,000 of such
expenses.
5. SALE OF PRODUCT LINE In the fourth quarter of fiscal 1999, the
Company sold its AMPCOR human clinical product
line and related assets in exchange for notes
receivable of approximately $500,000, the
majority of which is due in monthly
installments through April 2004. In connection
with the asset sale, the Company closed the
AMPCOR facility located in Bridgeport, New
Jersey and moved its remaining AMPCOR
manufacturing operations for diagnostic test
kits to detect microorganisms to the Company's
headquarters in Lansing, Michigan. As a result
of the asset sale and related facility closure,
the Company recorded a loss of $628,839.
Included in the loss was approximately $200,000
related to lease obligations, employee
severance costs and other expenses incurred to
close the facility. Sales of human clinical
products were not material to the consolidated
sales of the Company in 1999 and 1998.
6. NOTES PAYABLE AND The Company and its subsidiaries have
LONG-TER DEBT available working capital lines-of-credit and
borrowing arrangements with banks totalling
$2,500,000. At May 31, 2000 and 1999, there
were no borrowings outstanding. These
arrangements bear interest at rates ranging
from the prime rate less .50% to the prime rate
(the prime rate was 9.5% at May 31, 2000), and
are collateralized by substantially all assets
of the Company and its subsidiaries.
In addition, the Company maintains an unsecured
acquisition line-of-credit in the amount of
$7,500,000 at the prime rate less .50%. There
were no borrowings on this line-of-credit at
May 31, 2000 and 1999.
Long-term debt consisted of the following:
2000 1999
---------------------------------------------------------
Note payable $ 450,000 $ -
Term note payable 125,720 174,392
---------------------------------------------------------
575,720 174,392
Less current maturities 498,672 48,672
---------------------------------------------------------
Total Long-Term Debt $ 77,048 $ 125,720
=========================================================
The note payable is due in February 2001 and
bears interest at 7%.
28
The term note is payable in sixty monthly
installments of $4,056 plus interest at the
prime rate less .50%, is due in fiscal 2003 and
is collateralized by substantially all the
assets of Neogen.
The terms of certain financing agreements
contain, among other provisions, the
requirements to meet certain financial ratios
and levels of working capital and tangible net
worth, and restrict the payment of dividends.
Maturities of long-term debt are: 2001 -
$498,672; 2002 - $48,672; and 2003 - $28,376
7. STOCK OPTIONS AND The Company maintains Stock Option Plans (the
STOCK WARRANTS Plans) under which qualified and non-qualified
options to purchase shares of common stock may
be granted to eligible directors, members of
the Scientific Review Council, officers, or
employees of the Company at an exercise price
of not less than the fair market value of the
stock on the date of grant. The number of
shares authorized for issuance under the Plans
is 1,459,375. At May 31, 2000, options have
been granted with three to five year vesting
schedules and option terms of five to ten
years. A total of 12,000 shares were available
for future grants under the Plans.
The Company applies Accounting Principles Board
Opinion No. 25 in accounting for its stock
option plans. Accordingly, no compensation cost
has been recognized for the Plans. Had
compensation expense for the Company's stock
option plans been determined based on the fair
value at the grant dates consistent with the
method of SFAS No. 123, the Company's net
income and earnings per share would have been
the following pro forma amounts:
2000 1999 1998
==================================================================
Net Income
As reported $ 3,073,511 $ 2,254,928 $ 2,248,373
Pro forma 2,627,331 1,917,963 1,921,062
Earnings Per Share
As reported:
Basic .52 .37 .36
Diluted .52 .37 .35
Pro forma:
Basic .44 .31 .31
Diluted .44 .31 .30
==================================================================
29
The following is a summary of the Plan's
activity:
Weighted Average
Shares Exercise Price
---------------------------------------------------------------------------
Outstanding at June 1, 1997 (219,077 exercisable) 489,700 $ 5.73
Granted 145,000 9.08
Exercised (97,100) 3.56
Forfeited (10,700) 6.94
---------------------------------------------------------------------------
Outstanding at May 31, 1998 (209,544 exercisable) 526,900 7.03
Granted 161,500 7.05
Exercised (35,800) 2.71
Forfeited (52,900) 7.47
---------------------------------------------------------------------------
Outstanding at May 31, 1999 (265,518 exercisable) 599,700 7.25
Granted 198,500 6.44
Exercised (21,666) 3.55
Forfeited (70,500) 6.80
---------------------------------------------------------------------------
Outstanding at May 31, 2000 (295,182 exercisable) 706,034 $ 7.18
===========================================================================
The fair value of each option granted is
estimated on the date of grant using the
Black-Scholes option pricing model with the
following weighted-average assumptions for
grants in 2000, 1999 and 1998, respectively:
dividend yield of 0%; expected volatility of
51.0%, 52.0% and 55.0%; risk free interest
rates of 5.7%, 5.2% and 6.0%; and expected
lives of four years.
The weighted-average grant date fair value of
options granted in 2000, 1999 and 1998 was
$2.97, $3.24 and $4.32, respectively.
The following is a summary of stock options
outstanding at May 31, 2000:
------------------------------------------ --------------------------
Options Outstanding Options Exercisable
------------------------------------------ --------------------------
Average Weighted Weighted
Remaining Average Average
Contractual Exercise Exercise
Number Life (Years) Price Number Price
---------------------------------------------------------------------------------------
$ 2.75 - 2.75 10,000 2.4 $ 2.75 10,000 $ 2.75
4.63 - 6.88 311,834 4.9 6.33 86,528 6.07
7.13 - 9.25 350,800 3.9 7.58 176,382 7.65
11.31 - 13.25 33,400 5.3 12.31 22,272 12.31
---------------------------------------------------------------------------------------
$ 2.75 - 13.25 706,034 4.4 $ 7.18 295,182 $ 7.37
---------------------------------------------------------------------------------------
The weighted-average exercise price of the
265,518 shares which were exercisable at May
31, 1999 and 209,544 shares which were
exercisable at May 31, 1998 was $6.72 and
$5.69, respectively.
30
The following table summarizes warrant activity
for the years ended May 31, 2000, 1999 and
1998. All warrants are exercisable for
unregistered common stock of the Company and
expire in 2010.
Warrant
Shares Price
--------------------------------------------------------------
Outstanding Warrants June 1, 1997 48,592 $4.82
Warrants exercised during the year (471) 4.82
Warrants expiring during the year (4,856) 4.82
--------------------------------------------------------------
Outstanding Warrants at May 31, 1998 43,265 4.82
Warrants exercised during the year -- --
Warrants expiring during the year -- --
--------------------------------------------------------------
Outstanding Warrants at May 31, 1999 43,265 4.82
Warrants exercised during the year (43,265) 4.82
Warrants granted during the year 8,000 6.25
--------------------------------------------------------------
Outstanding Warrants at May 31, 2000 8,000 $6.25
==============================================================
8. TAXES ON INCOME Income taxes are calculated using the liability
method specified by SFAS No. 109 "Accounting
for Income Taxes."
The provision for taxes on income consisted of
the following:
2000 1999 1998
---------------------------------------------------------
Current:
Federal $1,180,000 $ 367,000 $ 41,000
State 30,000 26,000 86,000
Deferred -- -- --
---------------------------------------------------------
$1,210,000 $ 393,000 $ 127,000
=========================================================
Deferred income taxes reflect the tax effects
of temporary differences between the carrying
amounts of assets and liabilities for financial
reporting purposes and the amounts used for
income tax purposes. Significant components of
the Company's deferred tax liabilities and
assets as of May 31, 2000 and 1999 are as
follows:
31
Deferred tax liabilities:
2000 1999
--------------------------------------------------------------------------
Property and equipment $ 193,000 $ 165,000
Losses of affiliated partnerships 35,000 44,000
--------------------------------------------------------------------------
Total Deferred Tax Liabilities 228,000 209,000
--------------------------------------------------------------------------
Deferred tax assets:
Inventory and accounts receivable 274,000 160,000
Accruals 232,000 129,000
Tax credit carryforwards -- 232,000
--------------------------------------------------------------------------
506,000 521,000
Valuation Allowance for Deferred Tax Assets (278,000) (312,000)
--------------------------------------------------------------------------
Net Deferred Tax Assets 228,000 209,000
--------------------------------------------------------------------------
Net Deferred Tax $ -- $ --
==========================================================================
The reconciliation of income taxes computed at
the U.S. federal statutory tax rates to income
tax expense for the years ended May 31, 2000,
1999 and 1998 is as follows:
2000 1999 1998
-------------------------------------------------------------------------------------
Tax at U.S. statutory rates $ 1,456,000 $ 900,000 $ 808,000
Adjustment of valuation allowance (34,000) (387,000) (634,000)
Prior year adjustments (71,000) -- --
Tax credits (60,000) -- --
Alternative minimum tax -- -- 41,000
Other (81,000) (120,000) (88,000)
-------------------------------------------------------------------------------------
Taxes on Income $ 1,210,000 $ 393,000 $ 127,000
=====================================================================================
9. COMMITMENTS The Company has agreements with related
research limited partnerships and unrelated
third parties which provide for the payment of
royalties on the sale of certain products.
Royalty expense, primarily to related research
limited partnerships, under the terms of these
agreements for 2000, 1999 and 1998 was
$752,000, $780,000 and $713,000, respectively.
The Company leases office and manufacturing
facilities under noncancelable operating
leases. Rent expense for 2000, 1999 and 1998
was $298,000, $302,000 and $282,000,
respectively. Future minimum rental payments
for these leases are as follows: 2001 -
$244,000; 2002 - $125,000; 2003 - $82,000; and
2004 - $7,000.
10. DEFINED CONTRIBUTION The Company maintains a defined contribution
BENEFIT PLAN 401(k) benefit plan covering substantially all
employees. Employees are permitted to defer up
to 15% of compensation, with the Company
matching 100% of the first 3% deferred and 50%
of the next 2% deferred. The Company's expense
under this plan was $152,000, $117,000 and
$73,000 for the years ended May 31, 2000, 1999
and 1998, respectively.
32
11. Segment Information 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, 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 distributors serving the
professional equine industry.
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. The
accounting policies of the segments are the
same as those described in Note 1, Summary of
Accounting Policies.
Segment information for the years ended May 31,
2000, 1999 and 1998 was as follows:
Food Animal Corporate and
Safety Safety Eliminations TOTAL
-----------------------------------------------------------------------------------------------
2000
Net sales from external customers $ 11,633,844 $ 11,878,174 $ -- $ 23,512,018
Operating income 1,593,219 1,364,064 (594,712) 2,362,571
Depreciation and amortization 428,010 517,969 -- 945,979
Litigation settlement -- -- 1,100,000 1,100,000
Interest income -- 1,797 558,942 560,739
Income taxes 450,880 328,211 430,909 1,210,000
Total assets 10,757,192 10,382,817 8,388,432 29,528,441
Expenditures for long-lived assets 395,005 525,196 -- 920,201
================================================================================================
1999
Net sales from external customers $ 10,069,469 $ 12,109,539 $ -- $ 22,179,008
Operating income 1,513,369 1,754,234 (723,531) 2,544,072
Depreciation and amortization 378,581 500,305 -- 878,886
Interest income 2,350 253 490,827 493,430
Loss on sale of product line (628,839) -- -- (628,839)
Income taxes 213,042 297,415 (117,457) 393,000
Total assets 6,444,122 9,767,902 9,896,114 26,108,138
Expenditures for long-lived assets 534,733 341,993 -- 876,726
================================================================================================
1998
Net sales from external customers $ 8,418,957 $ 10,069,432 $ -- $ 18,488,389
Operating income 1,276,400 1,013,892 (811,876) 1,478,416
Depreciation and amortization 358,147 366,377 -- 724,524
Interest income 35 396 605,559 605,990
Income taxes 251,190 155,554 (279,744) 127,000
Total assets 5,611,458 10,055,351 9,745,833 25,412,642
Expenditures for long-lived assets 291,022 333,684 -- 624,706
================================================================================================
(1) Includes corporate assets, consisting of
marketable securities, and overhead
expenses not allocated to specific business
segments. Also includes the elimination of
intersegment transactions and minority
interests.
33
The Company has no long-lived assets outside of
the United Sates and no significant foreign
operations. Export sales amounted to $4,768,300
or 20% of consolidated sales in 2000,
$4,913,782 or 22% in 1999 and $4,039,571 or 22%
in 1998, respectively, and were derived
primarily in the geographic areas of South and
Latin America, Canada, Europe and the Far East.
The Company does not have sales to any single
foreign county or any single customer exceeding
10% of consolidated sales.
12. STOCK REPURCHASE The Company's Board of Directors have
authorized the purchase of up to 750,000 shares
of the Company's common stock. As of May 31,
2000, the Company had purchased 535,723 shares
in negotiated and open market transactions for
a total price, including commissions, of
approximately $3,500,000. Shares purchased
under this buy-back program will be retired or
used to satisfy future issuance of common stock
upon the exercise of outstanding stock options
and warrants.
13. SUPPLEMENTAL DISCLOSURE Cash paid for income taxes totaled $681,000,
OF CASH FLOWS INFORMATION $749,000, and $65,000 in 2000, 1999 and 1998,
respectively. Cash paid for interest totaled
$12,000, $16,000 and $23,000 in 2000, 1999 and
1998, respectively.
Non-Cash Investing and Financing Activities
In February 2000 the Company acquired Acumedia
for cash and a $450,000 note payable.
In the fourth quarter of fiscal 1999, the
Company sold its AMPCOR human clinical product
line and related assets in exchange for notes
receivable of approximately $500,000.
14. SUBSEQUENT EVENT On June 2, 2000, the Company acquired
substantially all of the assets of AmVet
Pharmaceuticals ("AmVet") located in Yaphank,
New York. The purchase price, subject to
certain post closing adjustments, was
$3,400,000 paid in cash, with provisions for up
to an additional $1,000,000 to be paid to AmVet
based on it achieving specified levels of past
closing revenues.
The Company intends to move the operations of
AmVet to its Animal Safety Division in
Lexington, Kentucky.
15. SUMMARY OF Quarterly Data
(Unaudited)
Fiscal Quarter Ended
---------------------------------------------
August November February May
1999 1999 2000 2000
-------------------------------------------------------------------------
(Dollars in thousands, except per share data)
Net sales $5,340 $5,425 $6,276 $6,471
Gross profit 3,079 2,972 3,555 3,046
Net income 808 339 627 1,300
Basic earnings per share .14 .06 .11 ..22
Diluted earnings per share .14 .06 .11 .22
=========================================================================
The quarter ended May 31, 2000 includes the
litigation settlement discussed in Note 4.
34
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
Certain information required by Part III has been omitted from this Report since
the Company will file a definitive proxy statement pursuant to Regulation 14A
(the "Proxy Statement") not later than 120 days after the end of the fiscal year
covered by this Report, and certain information included therein is incorporated
herein by reference.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning the Company's directors and executive officers
required by this Item is incorporated by reference to the Company's Proxy
Statement.
OFFICERS AND OTHER KEY INDIVIDUALS OF THE REGISTRANT
The officers of the Company are elected by and serve at the discretion of the
Board of Directors. The Board of Directors has also named a Scientific Review
Council to serve at the pleasure of the Board. The Scientific Review Council
meets several times annually to review the research progress of the Company and
to recommend or approve new research and product development activities of the
Company. The names and occupations of the Company's officers and other key
individuals are set forth below.
YEAR JOINED
NAME POSITION WITH THE COMPANY THE COMPANY
- ---- ------------------------- -----------
James L. Herbert Chairman, President, Chief Executive Officer, Director 1982
Thomas H. Reed Secretary, Director 1995
Brinton M. Miller, Ph.D. Senior Vice President 1984
Lon M. Bohannon Vice President, Chief Operating Officer, Director 1985
Gerald S. Traynor Vice President 1990
Terri A. Morrical Vice President 1992
Edward L. Bradley Vice President 1994
Joseph M. Madden, Ph.D. Vice President, Scientific Affairs 1997
Paul S. Satoh, Ph.D. Vice President, Diagnostic Research & Development 1998
David A. Wall Vice President, Diagnostic Manufacturing 1998
Anthony E. Maltese Manager, Corporate Development 1999
Richard R. Current Vice President, Chief Financial Officer 1999
There are no family relationships among officers. Information concerning the
executive officers of the Company follows:
James L. Herbert, age 60, has been President, Chief Executive Officer, and a
director of the Company since he joined Neogen in June, 1982. In 1999, he
assumed the additional position of Chairman of the Board. He previously held
the position of Corporate Vice President of DeKalb Ag Research, a major
agricultural genetics and energy company. He has management experience in
animal biologics, specialized chemical research, medical instruments,
aquaculture, animal nutrition, and poultry and livestock breeding and
production.
Thomas H. Reed, age 54, was elected to the Board of Directors in October 1995
and was elected Secretary in October 1999. Mr. Reed formerly was Vice President
of MLE Marketing, a division of Southern States Cooperative, Inc. Prior to
assuming that position, he served as President and Chief Financial Officer for
Michigan Livestock Exchange. Mr. Reed is a member of the Board of Directors of
the National Livestock Producers Association and is a former chairman of the
Michigan State University Board of Trustees.
Dr. Brinton M. Miller, age 73, joined the Company in January 1984 as Vice
President of Research and Development. He presently serves on a part-time
basis, as the Company's Senior Vice President. Prior to joining Neogen, Dr.
Miller held numerous research management positions during his 27-year career
with Merck, Sharp and Dohme Laboratories.
Lon M. Bohannon, age 47, joined the Company in October 1985 as Vice President of
Finance, was promoted to Chief Financial Officer in June 1987, was promoted to
Vice President Administration and Chief Financial Officer in November 1994, was
elected to the Board of Directors in October 1996, and was named Chief Operating
Officer in September 1999. He is responsible for all Company operations except
research, finance, and corporate development. A CPA, he was Administrative
Controller for Federal Forge, Inc., a metal forging and stamping firm, from
March 1980 until October 1985, and a member of the public accounting firm of
Ernst & Young from June 1975 to March 1980.
35
Gerald S. Traynor, age 65, joined Neogen in July 1990 as General Manager for
Ideal Instruments, Inc. He was promoted to Vice President of Instrument
Development and Manufacturing in January 1991 with responsibility for the
Company's veterinary instrument and electronic instrument manufacturing
operations. He was Vice President of Manufacturing for Martin Yale Industries
for three years before joining Neogen and filled the same position for The
Hedman Company from 1983-1987. Earlier, he served 16 years in various
manufacturing management positions at ITT.
Terri A. Morrical, age 35, joined Neogen Corporation on September 1, 1992 as
part of the Company's acquisition of WTT, Incorporated. She currently serves as
Vice President and General Manager of the Company's Lexington division and is
responsible for all sales pertaining to animal safety. Mrs. Morrical graduated
from Miami University in 1986. From 1986 to 1991, she was Controller for Freeze
Point Cold Storage Systems and concurrently served in the same capacity for
Powercore, Inc. In 1990, she joined WTT, Incorporated as VP/CFO and then became
President, the position she held at the time Neogen acquired the business.
Edward L. Bradley, age 40, joined Neogen in February 1995 as Vice President of
Sales and Marketing for AMPCOR Diagnostics, Inc. In June 1996, he was made a
Vice President of Neogen Corporation. Currently, Mr. Bradley is responsible for
all sales and marketing activities focused on food safety products on a
worldwide basis. From 1988 to 1995, Bradley served in several sales and
marketing capacities for Mallinckrodt Animal Health, including the position of
National Sales Manager responsible for 40 employees in their Food Animal
Products Division. Prior to joining Mallinckrodt, Bradley held several sales
and marketing positions for Stauffer Chemical Company.
Dr. Joseph M. Madden, age 51, joined Neogen in December 1997 as Vice President
of Scientific Affairs after retiring from the Food and Drug Administration as
its Microbiology Strategic Manager. He joined the FDA in 1978 and spent his
first 10 years as a research microbiologist for the agency. Dr. Madden has
served on numerous committees on food safety, including his current appointment
to the National Advisory Committee on Microbiological Criteria for Foods. He is
regarded by regulatory agencies and the food industry as being one of the
nation's top experts on both scientific and regulatory issues relating to food
safety.
Dr. Paul S. Satoh, age 63, became Neogen's Vice President for Research and
Development in March 1998 after having spent 26 years as a senior scientist and
research manager at Pharmacia & Upjohn Inc. Dr. Satoh joined Neogen after
serving nearly six years on the Company's Scientific Review Council as an
immunology specialist. At Upjohn, Dr. Satoh also taught immunopharmacology at
the University of Michigan in Ann Arbor, and general studies in chemistry and
social issues in biology at Western Michigan University. His most recent
positions at Pharmacia & Upjohn included senior scientist in drug metabolism
research and senior scientist for strategic information analysis and competitive
intelligence.
David A. Wall, age 52, joined Neogen Corporation in October 1998 as Vice
President and General Manager of Ampcor Diagnostics Incorporated. In May 1999,
he assumed his current position as Vice President of Diagnostic Manufacturing
and Quality Control. Before joining Neogen, he served as Manager of the
immunodiagnostics operations for REMEL, Inc. in Augusta, GA, a position he held
since 1992. Prior to that, Mr. Wall served as founder, President and Chairman
of the Board for Medical Diagnostic Technologies Inc. also in Augusta. Earlier,
Mr. Wall served as Laboratory Director for Zeus Scientific, Inc. and in the
early 1980's participated in the development of the first commercially available
test for Legionnaire's Disease.
Anthony E. Maltese, age 57, joined Neogen on June 1, 1999 as Manager of
Corporate Development. Prior to joining Neogen, Mr. Maltese served as Vice
President of Business Development for Creatogen Biosciences, GmbH of Angsburg,
Germany. From 1990 to 1998, he worked in production and special project
management positions for REMEL, Inc. including Manager of Business Development.
Prior to REMEL, Mr. Maltese spent 20 years at Difco Laboratories, where he
served in several management positions in the areas of purchasing, technical
sales support, production and research.
Richard R. Current, age 56, joined the Company in November 1999 as Vice
President and Chief Financial Officer. Prior to joining Neogen, Mr. Current
served as Executive Vice President and Chief Financial Officer of Integral
Vision, Inc. from 1994 to 1999 and as Vice President and Chief Financial Officer
of the Shane Group, Inc., a privately held company from 1991 to 1994. Mr.
Current was associated with the public accounting firm of Ernst & Young for 24
years and served as Managing Partner of the Lansing, Michigan office from 1986
to 1991.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to the
Company's Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to the
Company's Proxy Statement.
36
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Jack C. Parnell, a Company Director, is a governmental relations advisor to
the law firm of Kahn, Soares & Conway. Kahn, Soares & Conway has been retained
by the Company to represent it in governmental relations matters. The Company
pays Kahn, Soares & Conway a monthly fee of $1,750 for ten hours of consulting.
The agreement with Kahn, Soares & Conway is terminable by either party at the
end of any month.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this Report:
(1) Exhibits. The Exhibits listed on the accompanying Index to
Exhibits immediately following the signatures are filed as part
of, or incorporated by reference into, this Report.
(b) Schedule II - Valuation and Qualifying Accounts.
(c) Reports on Form 8-K. The Company filed reports on April 12, 2000 on Form
8-K reporting under Item 5 the settlement of litigation with Vicam L.P. and
on April 28, 2000 on Form 8-K reporting under Item 7 financial information
of business to be acquired.
37
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
NEOGEN CORPORATION
/s/ James L. Herbert /s/ Richard R. Current
-------------------- ----------------------
James L. Herbert, President Richard R. Current, Vice President
Chief Executive Officer Chief Financial Officer
Dated: August 10, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
SIGNATURE Title Date
- --------- ----- ----
/s/ James L. Herbert Chairman, Board of Directors, August 10, 2000
- ---------------------------- President, Chief Executive Officer,
James L. Herbert Director (Principal Executive Officer)
/s/ Lon M. Bohannon Vice President and Chief Operating Officer August 10, 2000
- ----------------------------
Lon M. Bohannon
* Secretary and Director
- ----------------------------
Thomas H. Reed
* Director
- ----------------------------
Herbert D. Doan
* Director
- ----------------------------
Robert M. Book
* Director
- ----------------------------
Gordon E. Guyer
* Director
- ----------------------------
G. Bruce Papesh
* Director
- ----------------------------
Leonard E. Heller, Ph.D.
* Director
- ----------------------------
Jack C. Parnell
*By: /s/ James L. Herbert August 10, 2000
------------------------
James L. Herbert, Attorney-in-fact
38
Neogen Corporation
Annual Report on Form 10-K
Year Ended May 31, 2000
EXHIBIT INDEX
-------------
EXHIBIT NO. DESCRIPTION
- ----------- -----------
3 (a) (1) Articles of Incorporation, as restated
3 (a) (1) By-Laws, as amended
10 (a) (2) Neogen Research Limited Partnership II/Neogen Corporation Agreement for the Sale of Patent Rights
and Related Know How, dated October 14, 1988
10 (b) (8) Neogen/Vetoquinol U.S.A., Inc. Asset Purchase Agreement dated December 31, 1997
10 (c) (8) Neogen 1997 Stock Option Plan
10 (d) Tenner Incorporated/AMPCOR Diagnostics, Inc. Asset Purchase Agreement dated April 28, 1999
10 (e) (6) Neogen Corporation/United States Department of Agriculture License Agreement, dated June 29, 1994
10 (f) (4) Ideal Instruments, Inc. Lease Agreement for 9355 West Byron Street, Schiller Park, Illinois,
dated June 29, 1993
10 (g) (2) Neogen Research Limited Partnership II First Amended and Restated Partnership Agreement, dated
December 30, 1985
10 (h) (9) Neogen/BioPort Corporation Product Purchase Agreement dated May 22, 1998
10 (i) (8) Lease Agreement for Florida Manufacturing facilities
10 (j) (3) Amended and Restated Incentive Stock Option Plan II and Sample Individual Incentive Stock Option
agreement
10 (k) (5) Neogen/International Diagnostic Systems Asset Purchase Agreement, dated June 27, 1995
10 (l) (4) ELISA Technologies Lease Agreement for space at 628 East Third Street, Lexington, Kentucky, dated
May 19, 1993
10 (m) Amendment to ELISA Technologies Lease Agreement
10 (n) (6) Neogen Corporation/Kahn, Soares and Conway contract
10 (o) (8) NBD Bank Loan Documents
10 (p) (8) Comerica Bank Loan Documents
10 (q) (7) Neogen Corporation/W.J. Bartus, Inc. Asset Purchase Agreement, dated July 3, 1997
10 (r) (7) Neogen Corporation/Orion Diagnostica Distribution Agreement
10 (s) (7) Neogen Corporation/Oxoid Distribution Agreement
10 (t) (1) Stock Purchase Agreement between Registrant and IDEXX Laboratories, Inc., dated February 17, 2000
10 (u) Lease Agreement for Acumedia Facility
10 (v) Neogen/AmVet Asset Purchase Agreement, dated June 2, 2000
10 (x) Amendment to 1997 Neogen Stock Option Plan
21 List of Subsidiaries
23 Consent of Independent Auditors
24 Power of Attorney (included on Signature Page)
27 Financial Data Schedule
(1) Incorporated by reference to the exhibit filed with the Registrant's
Quarterly Report on Form 10-Q dated February 29, 2000.
(2) Incorporated by reference to the exhibit filed with the Registrant's
Registration Statement on Form S-18 (No. 33-29844C) filed July 17, 1989 and
amended on August 17, 1989 and August 22, 1989, which Registration became
effective August 30, 1989.
(3) Incorporated by reference to the exhibit filed with the Registrant's Annual
Report on Form 10-K for the year ended May 31, 1992.
(4) Incorporated by reference to the exhibit filed with the Registrant's Annual
Report on Form 10-KSB for the year ended May 31, 1993.
(5) Incorporated by reference to the exhibit filed with the Registrant's Annual
Report on Form 10-KSB for the year ended May 31, 1995.
(6) Incorporated by reference to the exhibit filed with the Registrant's
Registration Statement on Form S-2 (No. 333-12193) filed September 17, 1996
and amended on October 18, 1996, which Registration became effective
October 22, 1996.
(7) Incorporated by reference to the exhibit filed with the Registrant's Annual
Report on Form 10-KSB for the year ended May 31, 1997.
(8) Incorporated by reference to the exhibit filed with the Registrant's Annual
Report on Form 10-KSB for the year ended May 31, 1998.
(9) Incorporated by reference to the exhibit filed with the Registrant's Annual
Report on Form 10-K for the year ended May 31, 1999.
39
Neogen Corporation and Subsidiaries
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
Balance Charged To Balance
at Beginning Costs and at End
Description of Year Expenses Acquisition (1) Write-Offs of Year
===============================================================================================================
Allowance for Doubtful Accounts:
Year Ended May 31:
2000 $166,000 $162,000 $90,000 $57,000 $361,000
1999 227,000 6,000 67,000 166,000
1998 320,000 (11,000) 82,000 227,000
===============================================================================================================
(1) Acquisition of Acumedia Manufacturers, Inc. on February 17, 2000.
40