<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X]
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For quarterly period ended: AUGUST 31, 1996
[ ]TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
---------------- --------------
Commission File Number: 0-17988
NEOGEN CORPORATION
(Exact name of small business issuer as specified in its charter)
MICHIGAN 38-2367843
(State or other jurisdiction of (IRS employer
incorporation or organization) Identification No.)
620 LESHER PLACE, LANSING, MICHIGAN 48912
(Address of principal executive offices)
(517)372-9200
(Issuer's telephone number)
NONE
(Former name, former address and former
fiscal year, if changed since last report.)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 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
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Check whether the registrant filed all documents and reports required
to be filed by Section 12, 13, or 15(d) of the Securities Exchange Act of 1934
after distribution of securities under a plan confirmed by a court.
Yes No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practical date.
4,598,042 SHARES WERE OUTSTANDING ON SEPTEMBER 10, 1996
<PAGE> 2
INDEX
NEOGEN CORPORATION AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. Interim Financial Statements (unaudited)
Consolidated balance sheets--August 31, 1996 and May 31, 1996.
Consolidated statements of operations--Three months ended August 31, 1996
and 1995.
Consolidated statements of stockholders' equity--Three months ended August
31, 1996 and 1995.
Consolidated statements of cash flows--Three months ended August 31, 1996
and 1995.
Notes to consolidated financial statements--August 31, 1996.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes In Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. INTERIM FINANCIAL STATEMENTS
<PAGE> 4
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
NEOGEN CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
August 31 May 31
1996 1996
-----------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and equivalents $ 2,389,129 $ 2,183,033
Net accounts receivable 2,127,922 1,643,181
Inventories 3,387,907 3,378,671
Other current assets 356,798 318,882
------------ ------------
TOTAL CURRENT ASSETS 8,261,756 7,523,767
NET PROPERTY AND EQUIPMENT 1,428,963 1,381,788
INTANGIBLE AND OTHER ASSETS
Goodwill, net of accumulated amortization 2,061,951 2,034,153
Other assets, net of accumulated
amortization 571,373 591,436
------------ ------------
$ 12,324,043 $ 11,531,144
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable and current maturities
of long-term notes payable $ 1,100,093 $ 1,115,093
Accounts payable 651,913 497,502
Accrued compensation and benefits 506,590 369,788
Restructuring charges 163,812 217,794
Other accrued liabilities 179,946 88,878
------------ ------------
TOTAL CURRENT LIABILITIES 2,602,354 2,289,055
LONG-TERM NOTES PAYABLE 261,131 278,918
OTHER LONG-TERM LIABILITIES 105,467 105,467
STOCKHOLDERS' EQUITY
Common stock:
Par value $.16 per share, 10,000,000
shares authorized, 4,598,042 shares
issued at August 31, 1996; 4,559,260
shares issued at May 31, 1996 735,687 729,482
Additional paid in capital 13,932,040 13,841,617
Retained-earnings (deficit) (5,312,636) (5,713,395)
------------ ------------
9,355,091 8,857,704
------------ ------------
$ 12,324,043 $ 11,531,144
============ ============
</TABLE>
<PAGE> 5
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
NEOGEN CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Three Months Ended August 31
1996 1995
-------------------------------
<S> <C> <C>
REVENUES
Sales $ 4,030,363 $ 2,847,579
Contract revenues 4,560 78,065
------------ ------------
4,034,923 2,925,644
EXPENSES
Cost of goods sold 1,546,190 1,182,238
Sales and marketing 1,169,641 858,554
General and administrative 555,046 431,297
Research and development 348,074 321,335
------------ ------------
3,618,951 2,793,424
------------ ------------
INCOME FROM OPERATIONS 415,972 132,220
OTHER INCOME (EXPENSE)
Interest income 22,458 18,391
Interest expense (30,968) (36,376)
Other 5,000 24,003
------------ ------------
(3,510) 6,018
------------ ------------
INCOME BEFORE INCOME TAXES 412,462 138,238
INCOME TAXES 11,703 7,200
------------ ------------
NET INCOME $ 400,759 $ 131,038
============ ============
NET INCOME PER SHARE (NOTE B) $ 0.08 $ 0.03
============ ============
</TABLE>
See notes to consolidated financial statements.
<PAGE> 6
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
NEOGEN CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Common Stock
-------------------- Additional Retained-
Number Paid-In Earnings
of Shares Amount Capital (Deficit)
------------- ------ ------- ---------
<S> <C> <C> <C> <C>
Balance at June
1, 1996 4,559,260 $ 729,482 $ 13,841,617 $ (5,713,395)
Exercise of options 37,000 5,920 82,119
Exercise of warrants 1,782 285 8,304
Net income for the
three months ended
August 31, 1996
400,759
--------- --------- ------------ -------------
Balance at August 31,
1996 4,598,042 $ 735,687 $ 13,932,040 $ (5,312,636)
========= ========= ============ =============
Balance at June 1,
1995 4,460,027 $ 713,604 $ 13,592,684 $ (5,469,856)
Exercise of options 4,000 640 5,645
Net income for the
three months ended
August 31, 1995
131,038
--------- --------- ------------ -------------
Balance at August
31, 1995 4,464,027 $ 714,244 $ 13,598,329 $ (5,338,818)
========= ========= ============ =============
</TABLE>
See notes to consolidated financial statements.
<PAGE> 7
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NEOGEN CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Three Months Ended August 31
1996 1995
------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 400,759 $ 131,038
Adjustments to reconcile net income to
net cash provided from (used in)
operating activities:
Depreciation and amortization 139,202 131,213
Changes in operating assets and
liabilities:
Accounts receivable (484,741) (229,173)
Inventories (9,236) (129,517)
Other current assets (37,916) (32,710)
Accounts payable 154,411 42,190
Other accrued expenses 173,888 (84,472)
------------ ------------
NET CASH PROVIDED FROM
(USED IN) OPERATING ACTIVITIES 336,367 (171,431)
INVESTING ACTIVITIES:
Purchases of property and equipment
and other assets (140,990) (189,497)
Acquisition of business (53,122) (680,056)
------------ ------------
NET CASH USED IN
INVESTING ACTIVITIES (194,112) (869,553)
FINANCING ACTIVITIES:
Payments on short-term borrowings (15,000)
Payments on long-term borrowings (17,787) (22,052)
Proceeds from issuance
of common stock 96,628 6,285
------------ ------------
NET CASH PROVIDED FROM
(USED IN) FINANCING ACTIVITIES 63,841 (15,767)
------------ ------------
INCREASE (DECREASE) IN CASH 206,096 (1,056,751)
Cash at beginning of period 2,183,033 2,237,979
------------ ------------
CASH AT END OF PERIOD $ 2,389,129 $ 1,181,228
============ ============
</TABLE>
See notes to consolidated financial statements
<PAGE> 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NEOGEN CORPORATION AND SUBSIDIARIES
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-QSB and Item
310 of Regulation S-B. 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
months ended August 31, 1996 are not necessarily indicative of the results to
be expected for the fiscal year ending May 31, 1997. For more complete
financial information, these consolidated financial statements should be read
in conjunction with the May 31, 1996 audited consolidated financial statements
and the notes thereto included in the Company's annual report on Form 10-KSB
for the year ended May 31, 1996.
NOTE B - NET INCOME PER SHARE
The net income per share amounts for 1996 and 1995 are based on the weighted
average number of common shares outstanding adjusted to reflect the assumed
exercise of outstanding stock options and warrants, to the extent these items
had a dilutive effect on the computations.
<PAGE> 9
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
THREE MONTHS ENDED AUGUST 31, 1996 COMPARED TO THREE MONTHS ENDED AUGUST 31,
1995.
Total revenues for the quarter ended August 31, 1996 were $1,109,000 or 38%
higher than the same quarter in 1995. Sales of diagnostic products were up
$1,213,500 in the first quarter representing an increase of 55% while sales of
veterinary instruments declined $31,000 or 5%. Contract revenues in the first
quarter decreased $73,500 or 94%.
The significant increase in diagnostic product sales was primarily due to a
$684,000 or 120% increase in sales of the Company's diagnostic test kits for
the detection of vomitoxin. In early July, 1996, a large portion of midwest
winter wheat was found to contain high levels of vomitoxin due to cool, rainy
weather conditions during the flowering stages of the grain. Although sales of
vomitoxin test kits should continue to run higher than the prior year for the
remainder of fiscal 1997, it is unlikely that sales will continue at the pace
experienced in the first quarter.
The Company also experienced an increase in sales of $122,000 or 220% for test
systems to detect E. coli O157:H7 and salmonella. Approximately $37,000 of
this increase was due to international sales of E. coli test kits shipped to
Japan. The remaining increase is the result of a growing demand for test kits
to detect micro-organisms. Management believes that the July, 1996
announcement of new inspection and safety regulations for the meat and poultry
industry scheduled to begin implementation in January, 1997, will have a
positive effect on future sales.
The decline in veterinary instrument sales was due to depressed cattle prices
resulting in lower overall demand for durable veterinary instruments. In
management's opinion, the current down cycle in cattle prices should improve
over the remainder of this fiscal year. In addition, the Company has
reorganized its sales and marketing efforts for veterinary instruments which
management believes will favorably impact future sales for this segment.
The decline in contract revenues for the first quarter of this year was
primarily due to scheduled completion in the second quarter of last year of two
contracts with the United States Department of Agriculture. It is common for
contract revenues to fluctuate from quarter to quarter and year to year
depending on timing and terms of the contracts.
Cost of goods sold increased 31% as a direct result of the overall increase in
product sales. Expressed as a percentage of sales, cost of goods sold was 38%
in the first quarter of fiscal 1997 compared to 42% in the first quarter of
fiscal 1996. This improvement was due to a higher sales mix of diagnostic test
kits, increased labor product-
<PAGE> 10
ivity, and better utilization of fixed overhead costs for diagnostic products.
Sales and marketing expenses increased $311,000 in the first quarter compared
to the prior year. Commissions and royalties expense increased $133,000 in the
first quarter due to increased sales volume. Expenses for printing,
advertising, and promotions related to sales activities for diagnostic products
increased $64,000 compared to the prior year. A total of $37,000 was due to
higher salaries, fringe, and travel cost associated with the hiring of new
salesmen and technical support personnel. The remaining increase is primarily
due to an increase in the provision for doubtful accounts.
General and administrative expenses were $124,000 higher in the quarter ended
August 31, 1996 than the quarter ended August 31, 1995. Bonus accruals
increased $75,000 in the first quarter compared to last year based on improved
operating performance. Michigan Single Business Tax was $16,000 higher than
the prior year due to increased profitability at the Company's Lansing,
Michigan operations. Salaries for clerical and accounting personnel increased
$12,000 due to higher sales volume. As a percentage of total revenues, general
and administrative expense declined to 14% in the first quarter compared to 15%
last year.
Although research and development expense increased less than 10% in the first
quarter this year compared to the first quarter last year, management believes
that research and development is critical to the Company's future. Accordingly,
the Company expects its annual research and development expense for the current
fiscal year to approximate the same levels, expressed as a percentage of
revenue, as experienced in prior years.
Other income (expense) was lower in the first quarter than last year primarily
due to the timing of recognition of the Company's share of royalties paid to an
affiliated partnership.
Due to the substantial increase in sales volume for diagnostic products in the
first quarter, the Company posted net income of $.08 per share compared to $.03
per share in the same period last year.
FINANCIAL CONDITION AND LIQUIDITY
At August 31, 1996, the Company had $2,389,000 in cash and equivalents, working
capital of $5,659,000, and stockholders' equity of $9,355,000. In addition,
the Company has bank lines of credit totaling $2,500,000 with $1,029,000
borrowed against these lines as of August 31, 1996. Cash and equivalents
increased $206,000 during the first quarter primarily as a result of improved
profitability.
During the first quarter, accounts receivable increased $485,000 exclusively
due to strong sales of diagnostic test kit products during the months of July
and August. Inventories at August 31, 1996 were virtually unchanged compared
to May 31, 1996. The increase in other current assets was primarily the result
of an increase in prepaid insurance and professional fees at August 31, 1996.
<PAGE> 11
The increase in accounts payable was the result of differences in timing for
normal month-end cutoffs for trade payables at August 31, 1996 compared to May
31, 1996 and also the result of an overall increase in vendor activity due to
increased sales volume. Accruals for restructuring charges are expected to
decline throughout fiscal 1997 as the Company pays or settles these
liabilities. Other accrued liabilities increased $228,000 due to increased
accruals for taxes, royalties, commissions and bonuses all of which are the
result of increased sales and improved operating performance.
The Company did not borrow any additional funds during the first quarter and
made scheduled payments on long-term debt totaling $17,787. Neogen expended
approximately $141,000 in the first quarter for additions to property,
equipment, and other assets. At August 31, 1996, the Company had no material
commitments for capital expenditures. Inflation and changing prices are not
expected to have a material effect on the Company's operations.
Neogen has been profitable for thirteen of its last fourteen quarters and has
generated positive cash flows from operations during this period. Management
believes that the Company's existing cash and equivalents at August 31, 1996,
along with its available bank lines of credit, will be sufficient to fund
activities for 1997 and 1998. However, existing cash and equivalents 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.
<PAGE> 12
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit Index
Exhibit 4 - Instruments defining the rights of security
holders - incorporated by reference from Exhibit 3(a) (2) of
the Second Amendment to the Form S-18 Registration Statement
filed on August 22, 1989.
Exhibit 11 - Statement regarding computation of earnings per
share.
Exhibit 27 - Financial Data Schedule
(b) Reports On Form 8-K Filed In Quarterly Period Ended August 31, 1996.
The Company did not file any reports on Form 8-K in the
quarterly period ended August 31, 1996.
<PAGE> 13
SIGNATURES
Pursuant to the requirements 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
September 13, 1996 /s/ James L. Herbert
- ------------------------- -------------------------------
Date James L. Herbert
President
September 13, 1996 /s/ Lon M. Bohannon
- ------------------------- -------------------------------
Date Lon M. Bohannon
Vice President-Chief Financial
Officer
<PAGE> 14
EXHIBIT INDEX
-------------
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
11 Statement regarding computation of earnings per share.
27 Financial Data Schedule
<PAGE> 1
(11)--STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
NEOGEN CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Three Months Ended August 31
1996 1995
----------- -----------
<S> <C> <C>
Weighted average common and common
equivalent shares outstanding:
Average shares outstanding 4,587,436 4,460,399
Net effect of dilutive stock
warrants--based on the treasury
stock method using quarter-end
market price which is greater
average market price 40,658 60,768
Net effect of dilutive stock
options--based on the treasury
stock method using quarter-end
market price which is greater
average market price 142,189 174,104
--------- ---------
TOTALS 4,770,283 4,695,271
========= =========
Net income $ 400,759 $ 131,038
========= =========
Net income per share $ 0.08 $ 0.03
========= =========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Neogen
Corporation Form 10-QSB for the Quarter Ended August 31, 1996 and is qualified
in its entirety by reference to such Form 10-QSB.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> JUN-01-1996
<PERIOD-END> AUG-31-1996
<CASH> 2,389,129
<SECURITIES> 0
<RECEIVABLES> 2,387,922
<ALLOWANCES> 260,000
<INVENTORY> 3,387,907
<CURRENT-ASSETS> 8,261,756
<PP&E> 4,106,831
<DEPRECIATION> 2,677,868
<TOTAL-ASSETS> 12,324,043
<CURRENT-LIABILITIES> 2,602,354
<BONDS> 0
0
0
<COMMON> 735,687
<OTHER-SE> 8,619,404
<TOTAL-LIABILITY-AND-EQUITY> 12,324,043
<SALES> 4,030,363
<TOTAL-REVENUES> 4,034,923
<CGS> 1,546,190
<TOTAL-COSTS> 3,618,951
<OTHER-EXPENSES> (27,458)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30,968
<INCOME-PRETAX> 412,462
<INCOME-TAX> 11,703
<INCOME-CONTINUING> 400,759
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 400,759
<EPS-PRIMARY> .08
<EPS-DILUTED> .08
</TABLE>
