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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended February 29, 2004

or

For the transition period from              to             

Commission file number 0-17988

Neogen Corporation

(Exact name of registrant as specified in its charter)

620 Lesher Place

Lansing, Michigan 48912

(Address of principal executive offices including zip code)

(517) 372-9200

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12B – 2 of the Exchange Act).    YES  x    NO  ¨

As of April 1, 2004, there were 8,009,000 outstanding shares of Common Stock.

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NEOGEN CORPORATION AND SUBSIDIARIES

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PART I – FINANCIAL INFORMATION

ITEM 1. Interim Consolidated Financial Statements (Unaudited)

NEOGEN CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

See notes to interim unaudited consolidated financial statements

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NEOGEN CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

See notes to interim unaudited consolidated financial statements

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NEOGEN CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

See notes to interim unaudited consolidated financial statements

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NEOGEN CORPORATION SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

See notes to interim unaudited consolidated financial statements

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NEOGEN CORPORATION AND SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENT (UNAUDITED)

1. BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (generally accepted accounting principles) for interim financial information and with the instructions to Form 10-Q and Article 10 Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation have been included. The results of operations for the three month and nine month periods ended February 29, 2004 are not necessarily indicative of the results to be expected for the fiscal year ending May 31, 2004. For more complete financial information, these consolidated financial statements should be read in conjunction with the May 31, 2003 audited consolidated financial statements and the notes thereto included in the Company’s annual report on Form 10-K for the year ended May 31, 2003.

The Company previously classified shipping revenue as an offset to the related expense in sales and marketing in the consolidated statements of income. Beginning June 1, 2003, these amounts have been classified as revenue. Previously reported fiscal year 2003 revenue and sales and marketing expense balances have been reclassified to conform with fiscal year 2004 presentation.

2. INVENTORIES

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

3. NET INCOME PER SHARE

The calculation of net income per share follows:

On January 2, 2004, the Company paid a 5 for 4 stock split in the form of a stock dividend. All income per share amounts have been retroactively restated to reflect the split as if it took place at the beginning of all periods presented.

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4. STOCK REPURCHASE

The Company’s Board of Directors has authorized the purchase of up to 1,250,000 shares of the Company’s Common Stock. As of February 29, 2004, the Company has purchased 871,000 shares in negotiated and open market transactions. Shares purchased under this buy-back program were retired.

5. 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, food allergens, pesticide residues, disease infections and levels of general sanitation. The Animal Safety segment is primarily engaged in the production and marketing of products dedicated to animal health, including 250 different veterinary instruments and a complete line of consumable products marketed to veterinarians and animal health product distributors. Additionally the Animal Safety segment produces and markets a line of rodenticides to assist in the control of rats and mice in and around agricultural, food production and other facilities.

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

Segment information for the three months ended February 29, 2004 and February 28, 2003 follow:

Segment information for the nine months ended February 29, 2004 and February 28, 2003 follow:

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6. STOCK OPTIONS

The Company follows Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, in accounting for its stock option plan. Under Opinion No. 25, no compensation expense is recognized because the exercise price of the Company’s stock options equals the market price of underlying stock on the date of grant. Had compensation expense for the Company’s stock-based compensation plans been determined based on the fair value at the grant dates for awards under those plans consistent with Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation, the Company’s net income and net income per share would have been as follows:

7. LEGAL PROCEEDINGS

The Company is subject to certain legal proceedings in the normal course of business that, in the opinion of Management, will not have a material effect on its future results of operations or financial position.

8. SHIPPING EXPENSE

The Company classifies shipping expense with sales and marketing expense. Such expenses totaled $562,000 and $1,474,000 in the three and nine month periods ended February 29, 2004, respectively, and $424,000 and $1,213,000 in the three and nine month periods ended February 28, 2003, respectively.

9. BUSINESS ACQUISITIONS

As of February 28, 2003, the Company acquired, in a purchase business combination, the outstanding common stock of Adgen Ltd. of Ayr, Scotland, a Company involved in the manufacture and sale of diagnostic test kits for the detection of plant diseases and the distribution of food safety diagnostic test kits. Consideration was net cash of $1,850,000 and 32,000 shares of common stock with a fair value of $341,000. Additionally, the Company is obligated to pay contingent consideration based on future annual revenue levels. As of February 29, 2004, no additional consideration has been paid as such required revenue levels have not been achieved. If all revenue and net income levels are achieved, the Company could pay $450,000 of additional consideration. If consummated as of the beginning of fiscal 2003, operating results would not have been materially different from amounts previously reported.

On November 21, 2003, Neogen Corporation purchased 100% of the common stock of Hacco, Inc. and of Hess & Clark, Inc. from United Agri Products, Inc. a then wholly owned subsidiary of ConAgra, Inc. Hacco has principal offices in Randolph, Wisconsin, and is a producer of rodenticide products. The Hess & Clark acquisition was principally a product line acquisition in which the Company acquired lines of disinfectants and antibacterials.

Consideration for the acquisitions, subject to certain post closing adjustments, was $10,000,000 million in cash plus the assumption of approximately $1,000,000 million of liabilities. On a preliminary basis pending final asset valuation procedures, allocation of the purchase price included current assets of $2,000,000, property plant and equipment of $2,400,000, goodwill and other assets of $6,600,000.

Unaudited pro forma financial information, as if the acquisitions of Hacco and Hess & Clark had taken place on June 1, 2002 is as follows:

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10. LONG TERM DEBT

On November 26, 2003, the Company entered into a new financing agreement with a bank providing for an unsecured revolving line of credit of $15,000,000 that replaced certain previously existing borrowing arrangements. Interest is at prime less 1.25% or Eurodollar prime equivalent, less 150 basis points at the Company’s option (rate elected was 2.50% at February 29, 2004). Financial covenants include maintaining current ratios and debt to earnings ratios (as defined) and specified levels of tangible net worth, all of which are complied with at the balance sheet date. The agreement matures September 1, 2005.

ITEM 2. 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 performance. While management is optimistic about the Company’s long-term prospects, historical financial information may not be indicative of future financial performance.

Safe Harbor and Forward-Looking Statements

Forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, are made through out this Quarterly Report on Form 10-Q. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words “believes,” “anticipates,” “plans,” “expects,” “seeks,” “estimates,” and similar expressions are intended to identify forward-looking statements. There are a number of important 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, that could cause Neogen Corporation’s results to differ materially from those indicated by such forward-looking statements, including those detailed in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

In addition, any forward-looking statements represent management’s views only as of the day this Quarterly Report on Form 10-Q was first filed with the Securities and Exchange Commission and should not be relied upon as representing management’s views as of any subsequent date. While management may elect to update forward-looking statements at some point in the future, it specifically disclaims any obligation to do so, even if its views change.

Critical Accounting Policies and Estimates

Management’s Discussion and Analysis of Financial Condition and Results of Operations is based on the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in United States of America. The preparation of these financial statements requires management to make estimates and judgements that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. Management believes the critical accounting policies and areas that require the most significant judgements and estimates to be used in the preparation of the consolidated financial statements are as follows:

Revenue Recognition

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

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Allowance for Doubtful Accounts

Management attempts to minimize credit risk by reviewing customers’ credit history before extending credit and by monitoring credit exposure on a regular basis. An allowance for possible losses on accounts receivable is established based upon factors surrounding the credit risk of specific customers, historical trends and other information.

Inventory

Obsolete inventory is written off as it is identified. Product obsolescence may be caused by shelf-life expiration, discontinuance of a product line, replacement products in the marketplace or other competitive situations.

Valuation of Intangible Assets and Goodwill

Management assesses goodwill and other non-amortizable intangible assets for possible impairment at least annually. In the event of changes in circumstances which indicate the carrying value of these assets may not be recoverable, this assessment may take place at any time. Factors that could cause an impairment review to take place would include:

When management determines that the carrying value of intangible assets may not be recoverable based on the existence of one or more of the above indicators of impairment, the carrying value is compared to estimated fair value determined based on projected discounted cash flows using a discount rate commensurate with the risk inherent in the Company’s current business model. Any impairment identified in this computation is given current recognition in any unissued financial statements.

Three and Nine Months Ended February 29, 2004 Compared to Three and Nine Months Ended February 28, 2003

Executive Overview

On an overall basis the quarter had excellent increases in revenues compared to the same quarter in the prior year primarily as a result of revenue increases in the Animal Safety segment. The Animal Safety segment’s revenue increases came from the Company’s late November acquisitions of Hacco, Inc. and Hess & Clark, Inc. that were reported as new components of this segment in the current year. Additionally, Animal Safety segment revenues from continuing products increased 12% following a year in which the segment experienced little growth. Growth came as the result of economic improvements in certain markets and from implementation of the segment’s sales and marketing plans. Food Safety segment revenues increased 5% with difficult revenue comparisons in the current year due to large weather related sales increases in the prior year. The segment had successes during the quarter in sales of test kits for Listeria, Salmonella, and allergens and had a large delivery of test kits for genetically modified organisms to Brazil. While total revenues were up 29%, net income was up 15% principally as a result of the effect of changes in product mix on overall gross margins and the effect of the integration costs of the Hacco and Hess & Clark acquisitions. While these costs will begin to abate in the Company’s fourth quarter, additional costs of the acquisition will continue to be incurred into early fiscal 2005.

For the nine month period the results and the overall explanations thereof were much the same as for the third quarter with the revenue increases of the Animal Safety segment having the largest effect on overall sales increases for the Company. The Food Safety segment was affected by the same difficult weather related comparisons as in the prior year when sales were up 31% compared to the third quarter of the 2002 year.

See the discussions below for more detail analysis of the results of the Company’s operations for the three and nine month periods ended February 29, 2004 as compared to the same periods in the prior year.

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Detail Revenue Changes

Within the Food Safety business segment, sales of natural toxin test kits decreased by 24.4% in the three-month period and decreased 8.3% in the nine-month period in comparison with the prior year. A significant portion of the U.S. grain crop was contaminated with aflatoxin in 2002 and the Company’s products were widely used in the identification of infected commodities and thereby the protection of consumers from exposure to this carcinogen. The 2003 crop was largely uninfected. Sales of allergen detection products increased 30.4% in the three-month period and 40.9% in the nine-month period ended February 29, 2004. The Company continues to enjoy rapid market acceptance of these products. Sales of diagnostic tests for monitoring bacteria and general sanitation increased 2.4% in the three-month period and were equal to the prior year in the nine-month period. The Company experienced heavier levels of competition and decreased levels of testing for E.coli by certain customers during the three and nine month periods. Sales of tests for the detection of Listeria and Salmonella increased by 28% and 8% in the three-month periods and 22% and 7% in the nine-month periods. Product sales for the general sanitation markets increased 16.3% in the three-month period and by 19.5% in the nine-month period. These increases were the result of increased market penetration and general acceptance of these product offerings. Other sales increased by 67.2% in the three-month period ended February 29, 2004 and 43.7% in the nine-month period. During the third quarter, Neogen shipped a substantial order of test kits to Brazil to detect soybeans that have been genetically modified to make them tolerant to Roundup herbicides. Brazil is a leading exporter of soybeans to the European market, which demands assurances that the commodity is GMO-free.

Within the Animal Safety business segment, sales of Life Sciences and other related products increased 7.2% in the three months ended February 2004 and decreased 5.6% in the nine-month period in comparison with the prior year. These product sales have remained reasonably consistent with the prior year, the testing market for drugs of abuse in race-horses and greyhounds, being a mature market, does not have the number of opportunities for growth and expansion as many of the Company’s other markets. Sales of Neogen’s vaccine for equine botulism increased by 74.2% in the three-month period and 22.2% in the nine-month period due to timing of certain international deliveries. The addition of Hacco’s rodenticides and Hess & Clark’s disinfectants in the November acquisition were a significant addition to the sales of the Animal Safety business segment. Sales of veterinary instruments in the three-month period ended February 2004 were up 26.5% and sales in the nine-month period were up 30.5% significantly from sales into the retail segment including the addition of 100 Petsmart locations and the important Midwestern farm and ranch retailer Mattoon Rural King. Other sales consisting primarily of Amvet Pharmaceutical products and Triple Crown products increased 13.1% in the three-month period and 8.9% in the nine-month period as the Company continues to penetrate the companion animal markets.

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Gross margins decreased from 53.0% to 47.1% in the three-month comparative period and decreased from 54.5% to 50.2% in the nine-month period ended February 28, 2003 in comparison with the prior year. These decreases in margins resulted from changes in product mix and the effect of the addition of the products of Hacco and Hess & Clark. These products have lower gross margins, somewhat offset by lower overall operating costs.

Sales and marketing expenses increased $44,000 in the three-month period and decreased $176,000 in the nine-month period. As a percentage of revenues these expenses decreased from 26% of sales to 20% of sales in the three-month period and decreased from 25% to 22% in the nine-month period. Cost control measures were responsible for the percentage decreases from the prior year.

General and administrative expenses increased $319,000 in comparison with the prior year three-month period ended February 29, 2004 and increased $282,000 when compared in the nine-month period of the prior year. The increase in third quarter expenses arose primarily from the addition of subsidiary operations of Adgen and Hacco as well as expenses related to the increased levels of operations of the Company. During the nine-month period, administrative expenses decreased due to reimbursements made by third parties to the Company for legal costs that were previously expensed related to two disputes that were settled in the first quarter of fiscal 2004. As a percentage of revenue these expenses remained at 9% in the comparable three-month and nine-month periods.

Research and development expenses increased by $171,000 for the three-month period ended February 29, 2004 as compared to the same period in the prior year and increased $2,000 in the nine-month period in comparison with the same period in the prior year. As a percentage of revenue these expenses remained at 5% in the three-month period and decreased from 6% to 5% for the nine-month period ended February 29, 2004. Although on a quarter to quarter basis, some fluctuations of research and development expense will occur, management expects research and development expense to approximate 5% to 6% of revenues over time. These expenditures approximate 8% to 10% of revenues from products and product lines that are supported by research and development.

Other income was substantially unchanged when comparing the fiscal 2004 three-month and nine-month periods with those of the prior year. Federal and state income tax rates used in the computation of income tax expense in the periods remained comparable to those in the prior year.

Financial Condition and Liquidity

At February 29, 2004, the Company had $1,597,000 in cash and marketable securities, working capital of $19,311,000 and stockholders’ equity of $46,535,000. In addition, available bank lines totaled $10,400,000. Cash and marketable securities decreased by $7,300,000 from May 31, 2003 primarily due to the use for the acquisition of Hacco Inc. and Hess & Clark, Inc. during the second quarter as described in Note 9 to the interim unaudited consolidated financial statements.

Accounts receivable were $2,034,000 higher than at May 31, 2003. Days outstanding in account receivables decreased from 56 days at May 31, 2003 to 55 days as of February 29, 2004. Management believes that the recorded allowance is adequate to provide for accounts that may become uncollectable. Inventories at February 29, 2004 increased $2,605,000 with $1,750,000 resulting from the acquisitions of Hacco and Hess & Clark and the remainder resulting from the continued policy of maintaining adequate inventories to meet customer needs. The increase of $570,000 in current liabilities results from the timing of payments.

During the third fiscal quarter, the Company purchased an office, manufacturing and distribution facility in Lexington, Kentucky for approximately $1,900,000 and a facility in Lansing, Michigan for approximately $800,000. It is expected that expenditures of up to $1,000,000 will be incurred to outfit the facilities to meet the Company’s needs. These facilities replace certain leased facilities and also will be used in expanding the Company’s operations as needs arise. The purchases were financed by drawings under the bank revolving line of credit.

Inflation and changing prices are not expected to have a material effect on operations.

Management believes that the Company’s existing cash as of February 29, 2004, along with its available bank revolving line of credit and cash expected to be generated from future operations, will be sufficient to fund activities for the foreseeable future. However, existing cash and bank lines may not be sufficient to meet the Company’s cash requirements to commercialize products currently under development or its plans to acquire other organizations, technologies or 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.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company has minimal interest rate and foreign exchange rate risk exposure and no fixed rate investments or borrowings. Generally sales are denominated in U.S. dollars, however, because the Company markets and sells its products throughout the world, it could be significantly affected by weak economic conditions in foreign markets that could reduce demand for its products.

The Company has assets, liabilities and operations outside of the United States that are located primarily in Ayr, Scotland where the functional currency is the British Pound. This investment is considered long-term accordingly, the Company does not hedge its net investment or engage in other foreign currency hedging activities due to the insignificance of the balances to the Company as a whole.

ITEM 4. CONTROLS AND PROCEDURES

Within the 90-day period preceding the date of this report, and evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures was carried out under the supervision and with the participation of the Company’s Chief Executive and Chief Financial Officers. Based on that evaluation, the certifying officers concluded that the Company’s management had the relevant information necessary to permit an assessment of the need to disclose material developments and risks pertaining to the Company’s business in its periodic filings with the Securities and Exchange Commission. There have been no significant changes to the Company’s internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Company is subject to certain legal proceedings in the normal course of business that, in the opinion of Management, will not have effect on its future results of operations or financial position.

Items 2,3,4 and 5 are not applicable and have been omitted.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibit Index

31.1 – Certification of Chief Executive Officer pursuant to Rule 13a – 14 (a).

31.2 – Certification of Chief Financial Officer pursuant to Rule 13 a – 14 (a).

32.   – Certification pursuant to 18 U.S.C. section 1350

(b) Reports on Form 8-K Filed in Quarterly Period Ended February 29, 2004.

Form 8-K dated December 5, 2003

Form 8-K dated December 15, 2003

Form 8-K dated January 8, 2004

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

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