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U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934 [FEE REQUIRED]
For fiscal year ended MAY 31, 1996
OR
- --- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ___________ to ___________.
Commission File Number: 0-17988
NEOGEN CORPORATION
(Name of small business issuer in its charter)
MICHIGAN 38-2367843
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No. )
620 LESHER PLACE, LANSING, MICHIGAN 48912
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(Address of principal executive offices) (Zip Code)
517/372-9200
(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.16 PAR VALUE
(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
--- ---
Indicate by check mark if disclosure of delinquent filers in response
to Item 405 of Regulation S-B 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-KSB or any amendment to this Form 10-KSB. ( )
The issuer's revenue for its most recent fiscal year was $12,490,411
The aggregate market value of the voting stock held by non-affiliates
of the registrant as of April 30, 1996 was $21,781,613 based on the closing
price in the over-the-counter market as reported by NASDAQ National Market
System.
THE ISSUER WAS NOT INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PAST FIVE YEARS
As of August 12, 1996, registrant had outstanding 4,598,042 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 10, 1996 ANNUAL MEETING OF SHAREHOLDERS IS INCORPORATED BY REFERENCE
INTO PART III OF THIS FORM 10-KSB.
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PART I
ITEM 1. BUSINESS
GENERAL
Neogen Corporation ("Neogen" or the "Company") develops, manufactures, and
markets products used to control residues or improve quality for the
agriculture, pharmacologics, food, and environmental industries. The Company's
products are used by agricultural producers, food processors, laboratories, and
major pharmaceutical companies.
The Company has two primary industry segments through which it conducts its
business. Neogen's diagnostics products include test kits to detect harmful,
natural toxins, pesticides, and microorganisms. These products also include
test kits for detection of drugs of abuse in race horses and test kits used in
research by universities and pharmaceutical companies. Test kits to detect
plant diseases in ornamental plants, turf grasses, and horticulture crops are
also part of the diagnostics product line.
The Ideal Instrument line of veterinary instruments is aimed principally at
more precise and accurate delivery of animal health products such as
antibiotics and vaccines. This permits the reduction of potential residues in
meat and milk, while improving animal production efficiency.
Neogen 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.
BACKGROUND
Due to growing concern related to the presence of harmful residues and
microorganisms in food or the environment and their potential health risks,
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.
The Company has developed or acquired a number of products that it is
currently manufacturing and marketing. Additional products are under
development and others are planned. The Company believes its growth will be
derived from increased sales of its existing products, from sales of new
products developed internally, from sales of products developed by other firms
that fit into the Company's specific marketing niches, from joint research and
development programs with major chemical and pharmaceutical firms, and from the
acquisition of companies or product lines of certain companies. In all cases,
Neogen
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plans to adhere to its strategy and target its growth with products that
utilize its existing manufacturing base or that will be marketed to its
existing customer base.
RECENT DEVELOPMENTS
On June 21, 1996, the Company announced a restructuring program for certain
operating divisions. The restructuring program is designed to better position
Neogen over the long term to compete more efficiently and increase market
share. As part of the restructuring plan, the Company decided to discontinue
the electronic instrument operations and will implement a reorganization of
sales and marketing activities related to veterinary instruments.
The restructuring plan resulted in charges of $695,500 or $.15 per share
recorded in the fourth quarter of the fiscal year ended May 31, 1996. The
Company recorded liabilities of $217,794 at May 31 1996 pertaining to the
restructuring plan. The majority of these liabilities are expected to be paid
or settled in fiscal year 1997 as various aspects of the restructuring are
implemented.
Neogen will benefit from the restructuring in several ways. Discontinuing the
electronic instrument operations should benefit future earnings since this
product line has been generating losses for several years. In addition,
elimination of this product line enables Neogen to redirect manpower and
financial resources to its more profitable, and faster growing, diagnostics
business. Further, restructuring the sales organization for veterinary
instruments at Neogen's corporate headquarters improves efficiencies and allows
the Company to take advantage of certain economies of scale.
The Company is reorganizing its sales and marketing efforts for veterinary
instruments as part of the Company's announced restructuring program. In
connection with this reorganization, a reserve was established in the fourth
quarter of fiscal 1996 to cover the estimated cost of terminating a marketing
agency agreement with an outside firm that began representing the Company's
veterinary instrument product line in the U.S. and Canada on June 1, 1994. In
March, 1996, Neogen notified the outside firm that it was terminating the
marketing agency agreement effective June 30, 1996
In June, 1995, Neogen acquired certain assets of International Diagnostic
Systems Corp. of St. Joseph, Michigan. The acquisition was accounted for by
the purchase method and all acquired assets, consisting of inventory and
technology for 35 different diagnostic tests used to detect drugs of abuse in
animals, was moved to the Company's ELISA Technologies division in Lexington,
Kentucky.
The purchase price included initial consideration of approximately $680,000 in
cash. The purchase agreement also provided for contingent consideration based
on sales performance for the twelve month period ended June 14, 1996 which
resulted in a second and final cash payment of approximately $53,000 made in
July, 1996.
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This acquisition, while not significant to the overall operations of Neogen,
has been fully absorbed into the Company's Lexington, Kentucky operations and
is contributing positive sales and earnings for that division.
Effective August 1, 1994, the Company acquired substantially all of the assets
of AMPCOR, Inc. (AMPCOR). Located in Bridgeport, New Jersey, AMPCOR markets
diagnostic tests primarily for the food, agriculture, and human clinical
markets.
AMPCOR's sales and bottom line performance since acquisition have consistently
fallen below management's expectations. During fiscal 1996, AMPCOR's sales
increased 37%, but losses for this subsidiary were approximately $595,000 or
$.13 per share. The Company has increased spending on research and development
and sales and marketing programs at AMPCOR in response to opportunities that
are developing in the seafood, meat and poultry, and feed and grain markets.
Neogen expects to continue to invest resources in these areas during the next
twelve months. Consequently, management would not expect AMPCOR to generate
operating profits before the third or fourth quarter of fiscal 1997.
Management believes that significant and growing markets exist for diagnostic
tests for the detection of pathogenic bacteria such as E. Coli and Salmonella.
The Company acquired the assets of AMPCOR because it has developed and markets
tests for E. Coli, Salmonella, and other bacteria. In addition, management
believes that the format utilized in AMPCOR's products can be adapted for other
of the Company's diagnostic test kits.
PRODUCTS
DIAGNOSTIC TEST KITS - NATURAL TOXINS AND PESTICIDES
Marketed under the names Agri-Screen(R) and Veratox(R), the Company produces
and sells a variety of antibody-based enzyme immunoassay test kits used to
detect harmful residues in food and animal feed products. Agri-Screen kits are
used to screen for the presence of toxins or chemicals and provide
nonquantitative results while Veratox kits are used to provide exact
quantitative results of residue levels. Both products are designed and
marketed for use by food processors and agricultural firms to ensure their
products are safe for human or animal consumption. The test kits are used by
agricultural firms to determine whether animal feeds contain certain toxins
that might cause sickness, infertility, or death to farm animals. The tests
are also used by cereal, snack food, flour, and nut processors as well as pet
food manufacturers and major breweries to detect harmful mycotoxins.
The immunoassay diagnostic tests produced by Neogen are generally accurate to
the parts per billion level, can be conducted in 10-30 minutes, and are
available to the end user at prices ranging from $4 to $10 per test. The
company currently manufactures and markets tests for aflatoxin, zearalenone,
T-2 toxin, M-1 toxin, vomitoxin, fumonisin, and ochratoxin.
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The Company's Agri-Screen Ticket(TM) is an accurate, easy-to-use, and
economical test that detects the presence of approximately 50 of the world's
most widely used insecticides. The broad screen test can be conducted in as
little as three minutes at a cost to the user of approximately $5. The Ticket
has many different applications in testing water, air, soil, and food products.
DIAGNOSTIC TEST KITS - PLANT DISEASES
Marketed under the name Alert(R), the Company manufactures and markets several
immunoassay test kits used to identify fungal diseases before symptoms appear
in turf grass, ornamental plants, potatoes and other crops. The tests are used
by golf courses, farmers, greenhouse technicians, and nursery managers
providing an important management tool for early detection of disease and
enabling more judicious application of fungicides.
The diagnostic tests produced by the Company are used to screen for the
presence of disease, are simple to operate, and can be conducted in 10 minutes.
The Company also sells a hand-held reader, the AgriMeter(TM), which can be used
with the diagnostic test to provide more specific quantitative results.
Currently, the Company markets test kits for sclerotina, pythium, phytophthora,
rhizoctonia, and xanthomonas. Prices to the end user for these tests range
from $10 to $20 per test.
DIAGNOSTIC TESTS - MICROORGANISMS
AMPCOR Diagnostics, Inc. a wholly-owned subsidiary of Neogen, manufactures a
line of diagnostic test kits used to detect harmful microorganisms. Marketed
under the name Reveal(R), the simple-to-use, one-step tests are used to rapidly
screen for harmful bacteria that cause foodborne illnesses. The one-step
design combines the technology of chromatography with the sensitivity and
selectivity of a sandwich- type immunoassay.
The test, itself, takes approximately 15 minutes to run following a standard
sample enrichment period and is available to the end-user at prices ranging
from $5 to $10 per test. Currently, the Company manufactures and markets tests
for Salmonella and E. coli 0157:H7 to a variety of customers in the food and
grain, meat and poultry, and seafood industries. Under development are tests
for Campylobacter, Shigella, and Listeria which will be sold to the same
general customer base.
AMPCOR also markets a unique resuscitation media called Revive(R). This
product, available exclusively from AMPCOR, is used to speed up the standard
sample enrichment incubation period reducing significantly the overall time
necessary to test.
PHARMACOLOGICAL AND DRUGS OF ABUSE DIAGNOSTICS
ELISA Technologies, operating in Lexington, Kentucky as a division of Neogen
Corporation, currently markets over 50 high-sensitivity immunoassay test kits
for the detection of drugs
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abused in horse and greyhound racing. Included are tests for narcotic
analgesics, stimulants, depressants, tranquilizers, local anesthetics, anabolic
steroids, diuretics, and other drugs of abuse.
ELISA Technologies markets a second line of products used for the detection of
biologically active substances in humans. These products are sold to
universities and pharmaceutical companies for research purposes. Among these
products are tests for cyclic nucleotides, hormones, leukotrienes,
prostaglandins, steroids, and thromboxanes. This division also markets
K-Blue(R) and K-Gold, one-step substrates sold to other diagnostic test
manufacturers to replace two-step substrates.
The tests manufactured by ELISA Technologies generally take between 30 minutes
and one hour to run and cost between $1 and $5 per test. They are used by
worldwide racing commissions and private testing laboratories as well as
universities and private or public companies.
Neogen also markets through ELISA Technologies a Bot Tox-B vaccine for Equine
Botulism, or Shaker Foal Syndrome. The vaccine is produced under contract for
Neogen and is the only United States Department of Agriculture-approved vaccine
for this disease. It is used by many owners of valuable eventing horses
primarily in the eastern United States.
Because of its presence in the equine industry, ELISA Technologies also sells a
line of products used in topical therapy for horses. These products, including
shampoos, conditioners, and therapeutic lotions, come in a variety of sizes and
prices and are sold through dealers and distributors primarily to owners of
high value horses.
OTHER DIAGNOSTIC TESTS
As part of Neogen's purchase of AMPCOR, Inc., the Company acquired a line of
diagnostic tests sold primarily to clinical laboratories. Currently, AMPCOR
manufactures approximately 15 different tests in formats ranging from one-step
immunoassays to two-step dipstick methods to "Direct Latex Agglutination"
tests. The tests generally take less than 20 minutes to run and several
require a 24-hour incubated enrichment culture prior to running of the test.
They are sold at prices ranging from $.05 to $2.00 per test.
Neogen does not intend to allocate significant resources to this group of
products. However, the Company is pursuing alliances with major human health
distributors to obtain approvals which would allow for the sale of certain
bacteria tests, including E. coli, Salmonella, Campylobacter, and Shigella to
the human clinical market.
The Company has also developed a diagnostic test to be used for general quality
assurance. The test is used by the seafood industry to detect the presence of
histamine, a naturally-occurring substance associated with fish decomposition.
The test format is similar to that used by the Alert products and incorporates
the use of an AgriMeter to provide fast, easy-to-
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read results. The test sells for approximately $8.00 and provides the user
with results in 20-30 minutes.
VETERINARY INSTRUMENTS
Through its wholly-owned subsidiary Ideal Instruments, Inc. ("Ideal"), Neogen
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.
CORPORATE AGREEMENTS
Neogen believes that entering into business relationships with large,
multi-national firms is an effective way to develop new products and enhance
sales distribution. Neogen currently has development and manufacturing
contracts with Pfizer and Mallinckrodt.
The Pfizer agreement establishes a joint effort to develop new tests for Pfizer
animal health products. Under terms of the agreement, Neogen manufactures the
tests and Pfizer handles distribution.
The Mallinckrodt agreement provides for Neogen's subsidiary, Ideal Instruments,
Inc., to be the exclusive manufacturer of a patented instrument used for the
precise delivery of sustained release animal health products. Mallinckrodt has
issued an initial production order to Ideal for 5,000 units. Ideal delivered
1,000 units against this order during fiscal 1996 and will deliver the balance
of this order in fiscal 1997.
RESEARCH AND DEVELOPMENT
Neogen is committed to maintaining an aggressive program of new product
development and existing product enhancement. The Company has 17 employees who
are principally involved in research and development of new products and the
improvement of existing products. This staff has professional training in
immunology, chemistry, engineering, and microbiology.
Currently the Company has ongoing development projects for new immunoassay
diagnostic tests for food safety, the environment, and for the pharmacologics
market. In addition, the Company has development projects underway for new or
improved veterinary instruments.
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During 1996, the Company completed work on a Phase II grant from the U.S.
Department of Agriculture for the development of a time-temperature history
sensor. Instability of one component in the color system and poor precision
prevented the Company from developing a commercially viable product. However,
the USDA agreed to a minor change in scope for the unexpended funds in this
grant to provide for development of a simulated ground beef patty. This simple
device, if perfected, could be used for accurate assessment or monitoring of a
fast-food restaurant's cooking process and equipment. Research on this project
is expected to continue throughout fiscal year 1997.
The Company has entered into a Cooperative Research and Development Agreement
with the Agriculture Research Service of the U.S. Department of Agriculture.
The agreement provides for the joint development of immunoassay diagnostic
tests to detect residue levels of certain coccidiostats in meats, poultry,
dairy products, and animal feeds. The Company estimates that several
diagnostic tests may be developed under this agreement over the next several
years.
During 1996, the Company completed work on two separate contracts with the U.S.
Department of Agriculture. One contract resulted in development of a prototype
rapid screening test to determine if ground beef and poultry products were
cooked to the proper temperature to destroy foodborne microorganisms. Research
work toward development of a commercial test kit will not commence unless
additional funding is made available to the Company.
Completion of the second USDA contract resulted in the successful development
of amplification methods to enable the detection of certain bacteria in less
time than currently necessary utilizing traditional test systems. The
Company's AMPCOR Diagnostics subsidiary is currently marketing an E. coli
0157:H7 test system and a salmonella test system utilizing the technology
developed from this contract.
Since its inception, Neogen has identified a substantial amount of applied
research in its area of interest at universities that has been developed by
researchers. Neogen 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 Neogen 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 Neogen; and (iii) new products developed by the Company are
tested in laboratories on a widespread geographic basis prior to the products'
market release.
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 Neogen employees in Company facilities.
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In the fiscal years ended May 31, 1996 and 1995, the Company expended
approximately $1,238,000 and $1,136,000 respectively, for research and
development-related expenses. The Company expects to actively recruit
additional research personnel in 1997 to support new and ongoing research
projects. As a result, research expenses are expected to increase by
approximately 11% in 1997.
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 years 1996 and 1995,
royalty payments under these agreements amounted to $579,045 and $521,690
respectively.
SALES AND MARKETING
The Company markets its products through a multi-level sales and distribution
system. The Company has had good success utilizing sales personnel who spend
approximately 70% of their time selling the Company's products via telephone
directly to end users. This group also supports domestic and international
distributors and spends approximately 30% of their time calling directly on
large customers in the field. The Company supports its distributors, sales
agents, and direct sales activities with a group of support personnel involved
in order entry, advertising, and customer/technical service.
The Company employs 45 people for its sales and marketing activities. Of this
number, 33 are located in the Company's corporate headquarters, 9 are at ELISA
Technologies in Lexington, 2 are at AMPCOR Diagnostics in New Jersey, and 1 is
located in the south-eastern region of the United States. Compensation for
these employees is generally based on a combination of base pay and commissions
designed to provide higher compensation for achievement of higher sales.
Most of the Company's sales and marketing activities are concentrated in the
United States, Canada, Central America, South America, Europe, and the Far
East. Management believes significant opportunities are available to the
Company in export markets. The Company currently works through several
distributors for its diagnostic product lines in areas outside the United
States. The Company has approximately 25 distributors for its veterinary
instruments outside the United States.
During the year ended May 31, 1996, the Company had in excess of 1,000
customers for its products. Since many of these customers are distributors,
the total number of end users of Neogen's various products is considerably
larger. Export sales in 1996 amounted to 21% of consolidated sales and no
single distributor or other customer accounted for more than 10 percent of the
Company's revenues in fiscal years 1996 or 1995.
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MANUFACTURING
The Company manufactures its products in Lansing, Michigan, Lexington,
Kentucky, Bridgeport, New Jersey, and Schiller Park, Illinois. There are
currently 69 full-time employees assigned to manufacturing in these four
locations. All locations generally operate on a one-shift basis, but could be
increased to a two-shift basis. The Company believes it could double its
current output of its existing product lines using the current space
available with minimal amounts of additional capital equipment.
The Company's Schiller Park, Illinois facility, which is used primarily to
manufacture the Ideal veterinary instruments line, is a complete metal working
operation with equipment that allows Ideal to go from raw materials, such as
brass rod and tubing, to finished instruments with skin-wrapped merchandisable
packaging.
The Lexington, Kentucky facility is devoted exclusively to the manufacture of
pharmacological diagnostic test kits, test kits for drug residues, and related
products marketed by ELISA Technologies. Proprietary antibodies for some of
these 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 ELISA Technologies personnel in the Lexington facilities.
The Bridgeport, New Jersey facility manufactures all of the Company's one-step
diagnostic tests for the detection of microorganisms as well as test kits sold
into the human clinical laboratory market. Proprietary monoclonal and
polyclonal antibodies are produced as needed in laboratories at the New Jersey
operations. Additional laboratory personnel prepare reagents and perform
quality assurance functions. Final kit assembly, packaging, and shipping are
all performed in specific designated areas within the New Jersey facility. The
manufacture of the one-step diagnostic tests requires the use of several
custom-designed machines which enable manufacturing personnel to achieve high
volume output on a per hour basis.
Manufacturing diagnostic tests for natural toxins, pesticides, and plant
disease diagnostic tests takes place at the Company's corporate headquarters
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 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.
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Shipments of diagnostic test kits and veterinary instrument products are
generally accomplished within a 48-hour turnaround time. As a result of this
quick response time, the Company does not maintain a large backlog of unshipped
orders.
COMPETITION
The Company knows of no competitor pursuing the Company's fundamental strategy
of developing and marketing products to monitor and control residues affecting
agriculture, pharmacologics, food safety, and the environment. However, the
Company does have competitors for each of its primary product lines.
Management has identified four competitors of significance in the diagnostic
test kit product line for natural toxins and pesticides, two primary
competitors in the pharmacological diagnostics product line, three primary
competitors in the diagnostic test kit product line for microorganisms, and
four competitors of significance for the Ideal veterinary instrument product
line. The Company does not believe there is a dominant competitor in any
market where its products compete.
The principal methods of competition for veterinary instruments are price,
product quality, and customer service. The principal methods of competition
for the Company's diagnostic tests include these same three factors as well as
factors commonly associated with new technology such as convenience, ease of
use, and comparative advantages to existing technology employed. The Company
is not aware of any factors within its product lines that might place the
Company in a negative competitive position and believes that it competes
favorably in all of the aforementioned areas relative to its competitors.
The Company does anticipate that the overall intensity of competition and
number of competitors will increase as the markets for its products grow and
expand. Management believes that the synergism of its products and common
markets will enable the Company to meet this increased competition.
PROPRIETARY PROTECTION AND APPROVALS
Neogen applies for patents and trademarks whenever appropriate. Since its
inception, the Company has acquired and received 45 patents, trademarks, and
registered copyrights and applied for 5 additional patents, trademarks, and
copyrights. The patents expire at various times over the next 20 years.
Neogen is not presently aware of any dispute as to its proprietary rights to
its products which poses a significant threat to its operations and 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
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litigation (none involving the Company or its products) 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.
One of the major areas affecting the success of biotechnology development
involves the time, costs, and uncertainty surrounding regulatory approvals.
Currently, the only Neogen products requiring regulatory approval are Bot
Tox-B and serological test kits sold to human clinical laboratories (which were
acquired via the Company's acquisition of AMPCOR, Inc.) On a combined basis,
sales for these products amounted to less than 10% of total sales in fiscal
year 1996. Neogen's strategy is to select products on the fringe of regulatory
approval areas which do not require mandatory approval to be marketed.
While products such as diagnostic test kits are integrally involved with
products under scrutiny of the Food and Drug Administration, the Department of
Agriculture, and the Environmental Protection Agency, no approval from these
agencies is currently required for these products. However, there can be no
assurance that regulatory agencies will not require approvals in the future.
ENVIRONMENTAL LAWS
The Company, to the best of its knowledge and belief, is not in violation of
any Federal, state, or local environmental laws. The cost of complying with
environmental laws is not material to the Company or any of its manufacturing
locations.
EMPLOYEES
Currently, the Company employs approximately 152 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 confidentiality
agreements with the Company.
ITEM 2. PROPERTIES
The Company's corporate offices and Michigan-based manufacturing and research
facilities are maintained in a 25,000 square foot building located in Lansing,
Michigan. This facility was purchased by the Company on land contract in
August, 1985 and is fully paid for as of May 31, 1996. Currently, this
facility is 100% occupied. In 1995, the Company purchased additional
facilities comprising 1,100 square feet within one block of the existing
corporate headquarters. The new facility is used for offices to accommodate
eight persons employed in sales and marketing functions.
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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.
Approximately 16% of the Schiller Park facility is available for future
expansion.
The ELISA Technologies operations are maintained in 9,000 square feet of leased
space on two floors of a three story building located at 628 East Third Street
in Lexington, Kentucky. The Company entered into a five-year, non-cancelable
operating lease for the space effective July 1, 1993. The lease agreement
provides for an annual lease payment, including all utilities, of $57,600 for
the first year and increasing by $1,200 per year each year thereafter.
Approximately 10% of the Lexington facility is available for expansion.
The AMPCOR Diagnostics, Inc. operations are housed in 9,200 square feet of
leased space on one floor in a building located at 603 Heron Drive, Bridgeport,
New Jersey. The Company entered into a three-year three-month, non-cancelable
operating lease for the space effective February 1, 1995. The lease agreement
provides for an annual lease payment of $37,585 plus additional rent equal to
$7,334 per year with the additional rent subject to annual increase based upon
actual increases to certain operating expenses. Approximately 10% of the New
Jersey facility is available for future expansion.
Management believes that the Company's operating facilities are suitable for
conducting the current business and that they will continue to be adequate for
the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
Not Applicable.
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 Company's common stock is traded in the over-the-counter market and quoted
in the NASDAQ National Market System under the symbol NEOG. Price ranges
reported are based on interdealer sale quotations, as reported by NASDAQ,
without adjustments for markups, markdowns, or commissions typically paid by
retail investors, and may not represent actual transactions. No cash dividends
have ever been paid, and the Company does
-12-
<PAGE> 14
not currently anticipate paying cash dividends in the foreseeable future. As
of July 31, 1996, there were approximately 3,000 holders of the Company's
common stock.
<TABLE>
<CAPTION>
Year Ended Fiscal Quarter High Low
---------- -------------- ---- ---
<S> <C> <C> <C>
May 31, 1995 First Quarter $8.50 $6.63
Second Quarter $9.63 $7.38
Third Quarter $8.25 $5.88
Fourth Quarter $7.63 $6.13
May 31, 1996 First Quarter $8.00 $5.88
Second Quarter $8.25 $5.88
Third Quarter $6.25 $4.63
Fourth Quarter $8.25 $5.13
</TABLE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
REVENUES (DOLLARS IN THOUSANDS) INCREASE
1996 (DECREASE) 1995
- -------------------------------------------------------------------------
<S> <C> <C> <C>
PRODUCT SALES:
DIAGNOSTIC PRODUCTS $ 8,759 20% $ 7,330
VETERINARY INSTRUMENTS 3,569 (12%) 4,039
CONTRACT REVENUES 162 (55%) 357
- -------------------------------------------------------------------------
TOTAL REVENUES $12,490 7% $11,726
- -------------------------------------------------------------------------
</TABLE>
Total revenues for the year increased 7% due to a strong 20% increase in sales
of diagnostic products. Of the $1,429,000 increase in diagnostic product
sales, $608,000 was the result of a 15% increase in sales of test kits to
detect harmful mycotoxin residues in the feed, grain, and nut markets. Another
$621,000 of the increase was due to 30% higher sales of test kits and reagents
sold into the pharmacologics and equine markets. The remainder of the increase
was due to a 164% increase in test kits to detect microorganisms in the meat
and poultry market.
The increase in sales of diagnostic products was partially offset by a decline
in veterinary instruments sales. The decline in sales in this segment was
partially due to depressed cattle prices resulting in lower demand for durable
veterinary instruments. Sales representation that management believed was
unsatisfactory also contributed to the decline in sales causing the Company to
restructure its sales organization for veterinary instruments.
Contract revenues decreased significantly in 1996 due to scheduled completion
of two contracts awarded to the Company in September, 1994 by the United States
Department of
-13-
<PAGE> 15
Agriculture. It is common for contract revenues to fluctuate from year to year
depending on terms and timing of the contracts. However, contract revenues in
total are not significant to total revenues for the Company.
<TABLE>
<CAPTION>
COST OF GOODS SOLD (DOLLARS IN THOUSANDS)
1996 INCREASE 1995
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
COST OF GOODS SOLD $5,485 7% $5,152
- ---------------------------------------------------------------------------
</TABLE>
Expressed as a percentage of sales, cost of goods sold was 44% in 1996 compared
to 45% in 1995.
<TABLE>
<CAPTION>
OPERATING EXPENSES (DOLLARS IN THOUSANDS)
1996 INCREASE 1995
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
SALES AND MARKETING $3,539 8% $3,284
GENERAL AND ADMINISTRATIVE 1,774 16% 1,524
RESEARCH AND DEVELOPMENT 1,238 9% 1,136
RESTRUCTURING CHARGES 695 NA --
- ---------------------------------------------------------------------------
</TABLE>
The increase in sales and marketing expenses is principally due to higher costs
in two areas. Entry into the meat and poultry market resulted in approximately
$130,000 of increased expense spread across a number of categories including
salary, fringe, travel, printing, advertising, and trade shows. Increases in
cost for the same categories totaled $110,000 related to the introduction of
new products for the seafood and equine markets. Increases in sales and
marketing expenses for the feed, grain, and nut markets, primarily in the areas
of royalties, shipping expense, and special promotions, were almost completely
offset by lower commissions related to veterinary instruments sales. The
Company expects to continue to expand sales and marketing activities primarily
in areas related to diagnostic products for food safety.
General and administrative expenses are higher as a result of several items. A
total of $55,000 of the increase is due to two extra months of operations in
1996 than 1995 for AMPCOR Diagnostics, Inc. (ADI). Salary and fringe expenses
were up $150,000 as a result of new secretarial, accounting, and clerical
personnel needed to handle increased business volume. Amortization expense was
$40,000 higher than last year due exclusively to the acquisition of certain
assets of International Diagnostic Systems, Corp. (See Note 3 to Consolidated
Financial Statements).
The $102,000 increase in research and development cost is partially due to
$44,000 of added expense this year because of an extra two months of operations
at ADI compared to last year. The remainder of the increase is the result of
higher salaries, fringe, and supplies for research programs to develop new
diagnostic test kits for the equine and pharmacologic markets and for the
detection of harmful bacteria. Neogen considers investment in research
activities critical to the long-term future of the business.
-14-
<PAGE> 16
Restructuring charges recorded in the fourth quarter of 1996 pertain to costs
associated with discontinuance of the Company's electronic instrument
operations and reorganization of sales and marketing efforts for veterinary
instruments. (See Note 2 to Consolidated Financial Statements.) Liabilities
recorded at May 31, 1996 as a result of the restructuring program amounted to
$218,000 and are expected to be paid or settled during fiscal year 1997.
Management believes that the restructuring program places the Company in a
better competitive position to achieve future growth. The restructuring also
enables the Company to redirect manpower and financial resources to the more
profitable and faster-growing diagnostics business.
<TABLE>
<CAPTION>
OTHER INCOME (EXPENSE) (DOLLARS IN THOUSANDS)
1996 DECREASE 1995
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
OTHER INCOME (EXPENSE) $4 (95%) $73
- ---------------------------------------------------------------------------
</TABLE>
Other income declined during 1996 primarily due to higher interest expense as a
result of increased balances outstanding for bank borrowings.
<TABLE>
<CAPTION>
NET INCOME (LOSS) AND INCOME (LOSS) PER SHARE (DOLLARS IN THOUSANDS)
1996 DECREASE 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
NET INCOME (LOSS) $(244) (136%) $679
NET INCOME (LOSS) PER SHARE ($.05) $.15
- ------------------------------------------------------------------------------
</TABLE>
The net loss for the year is primarily due to restructuring charges of $695,000
recorded in the fourth quarter.
FINANCIAL CONDITION AND LIQUIDITY
At May 31, 1996, the Company had $2,183,000 in cash and equivalents, working
capital of $5,235,000 and stockholders' equity of $8,858,000. In addition, the
Company has bank lines of credit totaling $2,500,000 with $1,044,000 borrowed
against these lines as of May 31, 1996.
Effective June 15, 1995, Neogen acquired certain assets of International
Diagnostic Systems Corp. (IDS) of St. Joseph, Michigan. (See Note 3 to
Consolidated Financial Statements.) The purchase price paid in fiscal year
1996 was approximately $680,000 in cash. A second and final cash payment of
approximately $53,000 was paid in July, 1996.
The decline in other current assets at May 31, 1996 compared to 1995 was due to
collection of May 31, 1995 receivable balances for R & D contracts completed in
1996. The increase in goodwill at May 31, 1996 compared to last year is the
direct result of the acquisition of certain assets of IDS.
-15-
<PAGE> 17
Accounts payable decreased $245,000 due primarily to the timing of scheduled
payment dates for trade payables near year-end with lower balances at all of
the Company's operations.
The Company borrowed $100,000 on a bank line of credit during 1996 to fund
working capital needs at ADI and made payments of $115,000 on a separate bank
line of credit related to veterinary instruments. The Company also made
scheduled payments on long-term debt totaling $88,000. Neogen expended
approximately $413,000 in 1996 for additions to property, equipment, and other
assets. At May 31, the Company has no material commitments for capital
expenditures. Inflation and changing prices are not expected to have a
material effect on the Company's operations.
Since 1993, Neogen has generated positive cash flows from operations.
Management believes that the Company's existing cash and equivalents at May 31,
1996, along with its available bank lines of credit and expected future
increases in product sales, will be sufficient to fund activities for 1997 and
1998. However, cash and equivalents have been used in the last two years to
fund acquisitions made by the Company. In addition, existing cash and
equivalents may not be sufficient to meet the Company's longer term 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.
The Financial Accounting Standards Board (FASB) has issued Statement of
Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment
of Long-Lived Assets and Long-Lived Assets Being Disposed Of," which provides
guidance on how and when impairment losses are recognized on long-lived assets.
This statement, when adopted, is not expected to have a material impact on the
Company.
The FASB has issued SFAS No. 123, "Accounting for Stock-Based Compensation,"
which establishes a fair value based method of accounting for stock-based
compensation plans. This statement provides a choice to either adopt the fair
value based method of accounting or continue to apply APB Opinion No. 25, which
would require only disclosure of the proforma net income and earnings per
share, determined as if the fair value based method had been applied. The
Company plans to continue to apply APB Opinion No. 25 when adopting this
statement, and accordingly, this statement is not expected to have a material
impact on the Company.
-16-
<PAGE> 18
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
NEOGEN CORPORATION
AND SUBSIDIARIES
CONTENTS
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 18
CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheets 19-20
Statements of Operations 21
Statements of Stockholders' Equity 22
Statements of Cash Flows 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 24-34
-17-
<PAGE> 19
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, 1996 and 1995, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
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 are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
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, 1996 and 1995, and the results of their operations
and their cash flows for the years then ended in conformity with generally
accepted accounting principles.
BDO SEIDMAN, LLP
Troy, Michigan
July 18, 1996
-18-
<PAGE> 20
NEOGEN CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
May 31, 1996 1995
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Assets (Note 4)
CURRENT ASSETS
Cash and equivalents $ 2,183,033 $ 2,237,979
Accounts receivable, less allowance for
doubtful accounts of $185,000 and $152,000 1,643,181 1,681,200
Inventories (Notes 1 and 2) 3,378,671 3,806,872
Prepaid expenses and other current assets 318,882 355,027
- ----------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 7,523,767 8,081,078
- ----------------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT
Land and improvements 33,882 22,715
Buildings and improvements 440,532 394,551
Machinery and equipment 3,192,665 2,895,263
Furniture and fixtures 305,139 363,764
- ----------------------------------------------------------------------------------------------
3,972,218 3,676,293
Less accumulated depreciation 2,590,430 2,363,623
- ----------------------------------------------------------------------------------------------
NET PROPERTY AND EQUIPMENT 1,381,788 1,312,670
- ----------------------------------------------------------------------------------------------
INTANGIBLE AND OTHER ASSETS
Goodwill, net of accumulated amortization
of $210,740 and $109,441 (Note 3) 2,034,153 1,513,032
Other assets, net of accumulated amortization
of $330,810 and $241,971 591,436 631,826
- ----------------------------------------------------------------------------------------------
TOTAL INTANGIBLE AND OTHER ASSETS 2,625,589 2,144,858
- ----------------------------------------------------------------------------------------------
$11,531,144 $11,538,606
==============================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
-19-
<PAGE> 21
NEOGEN CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
May 31, 1996 1995
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Liabilities and Stockholders' Equity
CURRENT LIABILITIES
Notes payable - banks (Note 4) $ 1,043,946 $ 1,058,946
Accounts payable 497,502 742,652
Accruals
Compensation and benefits 369,788 338,407
Restructuring Charges (Note 2) 217,794 -
Other 88,878 65,129
Current maturities of long-term debt (Note 4) 71,147 87,136
- ---------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 2,289,055 2,292,270
LONG-TERM DEBT, less current maturities (Note 4) 278,918 351,233
OTHER LONG-TERM LIABILITIES 105,467 58,671
- ---------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 2,673,440 2,702,174
- ---------------------------------------------------------------------------------------------------
COMMITMENTS (Notes 7 and 9)
STOCKHOLDERS' EQUITY (Notes 5 and 6)
Preferred stock - -
Common stock, $.16 par value, shares authorized
10,000,000; issued and outstanding 4,559,260
and 4,460,027 729,482 713,604
Additional paid-in capital 13,841,617 13,592,684
Retained earnings (deficit) (5,713,395) (5,469,856)
- ---------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 8,857,704 8,836,432
- ---------------------------------------------------------------------------------------------------
$ 11,531,144 $11,538,606
===================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
-20-
<PAGE> 22
NEOGEN CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Year Ended May 31, 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
REVENUES
Sales $ 12,328,103 $ 11,368,672
Contract revenues 162,308 357,583
- --------------------------------------------------------------------------------
12,490,411 11,726,255
- --------------------------------------------------------------------------------
OPERATING EXPENSES
Cost of goods sold 5,484,524 5,151,957
Sales and marketing 3,538,876 3,284,420
General and administrative 1,773,966 1,523,883
Research and development 1,237,643 1,136,003
Restructuring charges (Note 2) 695,500 -
- --------------------------------------------------------------------------------
12,730,509 11,096,263
- --------------------------------------------------------------------------------
OPERATING INCOME (LOSS) (240,098) 629,992
- --------------------------------------------------------------------------------
OTHER INCOME (EXPENSE)
Interest income 75,733 89,785
Interest expense (153,286) (99,898)
Other 81,312 83,128
- --------------------------------------------------------------------------------
3,759 73,015
- --------------------------------------------------------------------------------
INCOME (LOSS) BEFORE TAXES ON INCOME (236,339) 703,007
TAXES ON INCOME (Note 8) (7,200) (24,300)
- --------------------------------------------------------------------------------
NET INCOME (LOSS) $ (243,539) $ 678,707
================================================================================
NET INCOME (LOSS) PER SHARE (Note 1) $ (.05) $ .15
================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
-21-
<PAGE> 23
NEOGEN CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED MAY 31, 1996 AND 1995
<TABLE>
<CAPTION>
===============================================================================================================
Common Stock Additional Retained
------------------ Paid-In Earnings
Shares Amount Capital (Deficit)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE, June 1, 1994 4,329,729 $ 692,757 $13,108,815 $ (6,148,563)
Issuance of common shares in
connection with acquisitions (Note 3) 55,753 8,920 316,080 -
Exercise of options 34,525 5,524 46,343 -
Exercise of warrants 40,020 6,403 121,446 -
Net income for the year - - - 678,707
- ---------------------------------------------------------------------------------------------------------------
BALANCE, May 31, 1995 4,460,027 713,604 13,592,684 (5,469,856)
Exercise of options 59,300 9,489 130,332 -
Exercise of warrants 39,933 6,389 118,601 -
Net loss for the year - - - (243,539)
- ---------------------------------------------------------------------------------------------------------------
BALANCE, May 31, 1996 4,559,260 $ 729,482 $13,841,617 $ (5,713,395)
===============================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
-22-
<PAGE> 24
NEOGEN CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
===============================================================================================================
Year Ended May 31, 1996 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (243,539) $ 678,707
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities
Depreciation and amortization 537,232 488,590
Loss (gain) on sale of equipment 2,489 (11,121)
Changes in operating assets and liabilities
Accounts receivable 38,019 (400,322)
Inventories 460,838 (844,783)
Prepaid expenses and other current assets 45,451 (86,571)
Accounts payable (245,150) (72,244)
Accrued liabilities 272,923 (229,756)
- ---------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 868,263 (477,500)
- ---------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of equipment 7,863 161,236
Purchases of property, equipment and other assets (412,523) (551,972)
Acquisition of businesses (680,056) (821,957)
- ---------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (1,084,716) (1,203,693)
- ---------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowing (payments) on notes payable - banks (15,000) 871,945
Proceeds from long-term borrowings - 70,000
Payments on long-term borrowings (88,304) (209,430)
Net proceeds from issuance of common shares 264,811 179,716
- ---------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 161,507 912,231
- ---------------------------------------------------------------------------------------------------------------
NET DECREASE IN CASH AND EQUIVALENTS (54,946) (768,962)
CASH AND EQUIVALENTS, at beginning of year 2,237,979 3,006,941
- ---------------------------------------------------------------------------------------------------------------
CASH AND EQUIVALENTS, at end of year $ 2,183,033 $ 2,237,979
===============================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
-23-
<PAGE> 25
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 products to control
residues or improve quality for the agriculture,
pharmacologics, food and environmental industries. The
Company's products are currently used for animal health
applications, food and environmental testing, and in
medical research.
BASIS OF CONSOLIDATION
The consolidated financial statements include the
accounts of Neogen Corporation, Ideal Instruments, Inc.
(Ideal), AMPCOR Diagnostics, Inc. (AMPCOR) and several
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
In preparing financial statements in conformity with
generally accepted accounting principles, management is
required to make estimates and assumptions that affect
(1) the reported amounts of 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.
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 customers'
credit history before extending credit and by monitoring
customers' 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.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and equivalents, accounts
receivable, accounts payable, and accrued expenses
approximate fair value because of the short maturity of
these items.
-24-
<PAGE> 26
NEOGEN CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
The carrying amounts of the notes payable and
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.
CASH EQUIVALENTS
Cash equivalents are short-term, highly liquid
investments consisting of primarily money market
funds, certificates of deposit and commercial paper.
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:
<TABLE>
<CAPTION>
1996 1995
----------------------------------------------------------------------------
<S> <C> <C>
Raw material $ 1,468,316 $ 1,624,271
Work-in-process 889,110 778,831
Finished goods 1,021,245 1,403,770
----------------------------------------------------------------------------
$ 3,378,671 $ 3,806,872
============================================================================
</TABLE>
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 $320,869 and $336,204
in 1996 and 1995, 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. The Company
reviews goodwill for impairment based upon undiscounted
cash flows over the remaining lives of the goodwill. If
necessary, impairment will be measured based on the
difference between undiscounted future cash flows and the
net book value of the related goodwill.
-25-
<PAGE> 27
NEOGEN CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
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.
REVENUE RECOGNITION
The Company recognizes product sales at the time of
shipment. Contract revenues are recognized as services
are performed using the percentage of completion method
and/or upon achievement of certain levels of performance
as specified in the contracts.
NET INCOME (LOSS) PER SHARE
Net income (loss) per share amounts are computed 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. Shares used
in the computation were 4,513,817 and 4,674,792 in 1996
and 1995, respectively.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board (FASB) has
issued Statement of Financial Accounting Standards
(SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets Being Disposed
Of," which provides guidance on how and when impairment
losses are recognized on long-lived assets. This
statement, when adopted, is not expected to have a
material impact on the Company.
The FASB has issued SFAS No. 123. "Accounting for
Stock-Based Compensation," which establishes a fair value
based method of accounting for stock-based
compensation plans. This statement provides a choice to
either adopt the fair value based method of accounting or
continue to apply APB Opinion No. 25, which would require
only disclosure of the proforma net income and earnings
per share, determined as if the fair value based method
had been applied. The Company plans to continue to apply
APB Opinion No. 25 when adopting this statement, and
accordingly, this statement is not expected to have a
material impact on the Company.
-26-
<PAGE> 28
NEOGEN CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
2. RESTRUCTURING In May 1996, the Company recorded charges of $695,500
CHARGES related to a restructuring program for certain of its
operations. The restructuring charges include $437,700
related to inventory valuation adjustments and writedowns
to exit its electronic instruments operations, $205,300
related to veterinary instrument sales group
reorganization and $52,500 of other costs. The
restructuring program resulted in liabilities of $217,794
at May 31, 1996. The majority of these liabilities are
expected to be paid or settled during the 1997 fiscal
year.
3. ACQUISITIONS Effective June 15, 1995, Neogen acquired certain assets
of International Diagnostic Systems Corp. (IDS) of St.
Joseph, Michigan. The acquisition was accounted for by
the purchase method and all acquired assets, consisting
of inventory and technology for 35 different diagnostic
tests used to detect drugs of abuse in animals, were
moved to the Company's ELISA Technologies division in
Lexington, Kentucky.
The purchase price consisted of initial consideration of
approximately $680,000 paid in cash at closing resulting
in goodwill of approximately $622,000. The Company
made a second and final cash payment of $53,000 in July
1996 based upon sales performance for the twelve month
period ended June 14, 1996.
Proforma results of operations are not presented as the
effect of the IDS acquisition was not material to
the consolidated results of operations of the Company for
the year ended May 31, 1996.
On August 17, 1994, Neogen Corporation, through its
wholly-owned subsidiary AMPCOR Diagnostics, Inc.,
acquired substantially all of the assets of AMPCOR,
Inc., a New Jersey-based company that develops and
manufactures diagnostic test kits to detect the presence
of harmful microorganisms.
The initial purchase price for the assets of AMPCOR was
$1,760,610, which consisted of $702,957 paid in
cash, assumption of liabilities totaling $732,653, and
issuance of 55,753 shares of Neogen restricted common
stock valued at $325,000. In addition, Neogen incurred
$110,000 of acquisition costs and organization expense in
connection with this asset purchase.
-27-
<PAGE> 29
NEOGEN CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
The acquisition was effective August 1, 1994, and has
been accounted for using the purchase method of
accounting. Accordingly, the results of operations of
AMPCOR have been included with those of Neogen for
periods beginning August 1, 1994. The excess acquisition
cost over the fair value of the acquired net assets
approximated $730,000.
The purchase agreement provides for the payment of
additional consideration, contingent upon the sales and
profit performance of AMPCOR for two consecutive twelve
month periods ending July 31, 1995 and 1996. The Company
did not pay any additional consideration on the basis of
AMPCOR's performance for the first twelve month period
ending July 31, 1995. Management expects any second year
payment to be minimal.
4. NOTES PAYABLE The Company and its subsidiaries have available
AND LONG-TERM lines-of-credit and borrowing arrangements with banks
DEBT totalling $2,500,000. At May 31, 1996 and 1995, there
were $1,043,946 and $1,058,946, respectively, of
borrowings outstanding. These borrowings bear interest at
.50% to .75% over the prime rate (8.75% to 9.00% at May
31, 1996), and are collateralized by substantially all
assets of the Company and its subsidiaries.
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
1996 1995
-------------------------------------------------------------------
<S> <C> <C>
Term note payable to bank $ 295,236 $ 352,380
Installment note payable 54,829 70,000
Other notes and contracts payable - 15,989
-------------------------------------------------------------------
350,065 438,369
Less current maturities 71,147 87,136
-------------------------------------------------------------------
TOTAL LONG-TERM DEBT $ 278,918 $ 351,233
===================================================================
</TABLE>
The term note is payable in eighty-four monthly
installments of $4,762 plus interest at .75% over
the prime rate (9.00% at May 31, 1996), and is
collateralized by substantially all the assets of Neogen
and AMPCOR.
The installment note is payable in sixty monthly
installments of $1,167 plus interest at .75% over
prime rate (9.00% at May 31, 1996) and is collateralized
by substantially all the assets of AMPCOR.
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: 1997 - $71,147; 1998 -
$71,148; 1999 - $71,148; 2000 - $69,961; 2001 - $57,144;
and 2002 - $9,517.
-28-
<PAGE> 30
NEOGEN CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
5. PREFERRED STOCK The Company has three classes of preferred stock as
follows:
Class A - $.40 par; 139,500 shares authorized
Class B - $.616 par; 519,481 shares authorized
Class C - $.10 par; 3,000,000 shares authorized
The above shares have voting rights and are convertible
into common stock on a one-to-one basis. At May 31,
1996 and 1995 there were no preferred shares issued or
outstanding.
6. STOCK OPTIONS AND The Company has a Stock Option Plan (the Plan) under
STOCK WARRANTS 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 Plan was adopted in 1987, and
the number of shares authorized for issuance under this
Plan is 1,059,375. At May 31, 1996, options have been
granted with three to five year vesting schedules and
196,266 shares were available for future grants under the
Plan.
The following table summarizes option activity for the
years ended May 31, 1996 and 1995.
<TABLE>
<CAPTION>
Option
Shares Price
--------- ---------------
<S> <C> <C>
Outstanding options at June 1, 1994
(108,234 exercisable) 323,125 $ .32 to 6.63
Options granted during the year 119,000 6.63 to 9.25
Options exercised during the year (34,525) .32 to 2.50
Options expired or canceled during the year (3,000) 2.25 to 7.25
--------- ---------------
Outstanding options at May 31, 1995
(140,472 exercisable) 404,600 1.38 to 9.25
Options granted during the year 99,500 6.50 to 7.13
Options exercised during the year (59,300) 1.38 to 6.50
Options expired or canceled during the year (2,000) 8.00
--------- ---------------
Outstanding options at May 31, 1996
(172,156 exercisable) 442,800 $ 1.88 to 9.25
========= ===============
</TABLE>
-29-
<PAGE> 31
NEOGEN CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
The following table summarizes warrant activity for
the years ended May 31, 1996 and 1995. All warrants
are exercisable for unregistered common stock
of the Company and expire between 1998 and 2000.
<TABLE>
<CAPTION>
Warrant
Shares Price
---------- -------------
<S> <C> <C>
Outstanding warrants at June 1, 1994 160,327 $2.63 to 4.82
Warrants exercised during the year (40,020) 3.90
---------- -------------
Outstanding warrants at May 31, 1995 120,307 $2.63 to 4.82
Warrants exercised during the year (39,933) 3.13
---------- -------------
Outstanding warrants at May 31, 1996 80,374 $2.63 to 4.82
========== =============
</TABLE>
7. COMMITMENTS The Company has agreements with related
research limited partnerships and 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 1996 and 1995
was $579,045 and $521,690, respectively.
The Company leases office and manufacturing facilities
under noncancelable operating leases. Rent expense for
1996 and 1995 was $221,000 and $202,000,
respectively. Future minimum rental payments for these
leases are as follows: 1997 - $211,000; 1998 -
$201,000; 1999 - $119,000; 2000 - $118,000; 2001 -
$30,000.
8. TAXES ON INCOME Income taxes are calculated using the liability method
specified by SFAS No. 1 "Accounting for Income Taxes."
As of May 31, 1996, the Company has net
operating loss carryforwards of approximately
$4,400,000 for income tax purposes which expire between
2002 and 2008. Due to changes in ownership of the
Company, utilization of $2,017,000 of the tax net
operating loss carryforward is limited to approximately
$730,000 per year. The remaining $2,383,000 may be
utilized without limitation. In addition, the Company
has approximately $250,000 of tax credit carryforwards,
the majority of which expire between 1998 and 2010.
Approximately $21,000 of the tax credit carryforwards
have no expiration.
-30-
<PAGE> 32
NEOGEN CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
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, 1996 and
1995 are as follows:
Deferred tax liabilities:
<TABLE>
<CAPTION>
1996 1995
===============================================================================
<S> <C> <C>
Depreciation and amortization $ 57,000 $ 43,000
Losses of affiliated partnerships 47,000 45,000
-------------------------------------------------------------------------------
TOTAL DEFERRED TAX LIABILITIES 104,000 88,000
-------------------------------------------------------------------------------
Deferred tax assets:
Net operating loss carryforwards 1,496,000 1,594,000
Tax credit carryforwards 250,000 204,000
Inventory reserves 216,000 83,000
Other 140,000 120,000
-------------------------------------------------------------------------------
2,102,000 2,001,000
VALUATION ALLOWANCE FOR DEFERRED
TAX ASSETS (1,998,000) (1,913,000)
-------------------------------------------------------------------------------
NET DEFERRED TAX ASSETS 104,000 88,000
-------------------------------------------------------------------------------
NET DEFERRED TAX $ - $ -
===============================================================================
</TABLE>
SFAS No. 109 requires that a valuation
allowance be recorded against tax assets which
are not likely to be realized. The Company's
carryforwards expire at specific future dates
and utilization of certain carryforwards
is limited to specific amounts each year. Due
to the uncertain nature of their ultimate
realization based upon past performance and the
difficulty predicting future results, the
Company has established a full valuation
allowance against these carryforward benefits
and is recognizing the benefits only as
reassessment demonstrates they are realizable.
The need for this valuation allowance is
subject to periodic review. If the allowance
is reduced, the tax benefits of the
carryforwards will be recorded in future
operations as a reduction of the Company's
income tax expense.
-31-
<PAGE> 33
NEOGEN CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
<TABLE>
<CAPTION>
The reconciliation of income taxes computed at the U.S. federal statutory tax
rates to income tax expense for the years ended May 31, 1996 and 1995 is as
follows:
==========================================================================
1996 1995
<S> <C> <C>
Tax at U.S. statutory rates $ (80,000) $ 239,000
Adjustment of valuation allowance 85,000 (221,000)
Alternative minimum tax 2,000 8,000
State income taxes, net of tax effect 4,800 14,000
Other (4,600) (15,700)
--------- ----------
$ 7,200 $ 24,300
==========================================================================
</TABLE>
9. DEFINED The Company maintains a defined contribution 401(k)
CONTRIBUTIONS benefit plan covering substantially all employees.
BENEFIT PLAN Employees are permitted to defer up to 15% of
compensation, with the Company matching 40% of the
first 5% deferred. The Company's expense under
this plan was $45,402 and $38,722 for the years ended
May 31, 1996 and 1995, respectively.
10. INDUSTRY The Company has two industry segments through which
INFORMATION it conducts its business -diagnostic products and
SEGMENT veterinary instruments. The diagnostic products
segment includes test kits to detect harmful, natural
toxins, pesticides, and microorganisms.
These products also include test kits for the
detection of drugs of abuse in race horses, test kits
used in research by universities and pharmaceutical
companies, and test kits to detect plant diseases in
ornamental plants, turf grasses, and horticulture
crops. In addition, this segment includes electronic
instruments which were primarily used to monitor
environmental conditions and predict the onset of
diseases or emergence of insects. In May 1996, the
Company decided to exit its electronic instruments
operations (Note 2).
The veterinary instrument segment includes veterinary
instruments to provide more precise and accurate
delivery of animal health products.
The following table summarizes Neogen's
industry segment information:
-32-
<PAGE> 34
NEOGEN CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
<TABLE>
<CAPTION>
1996 1995
-------------------------------------------------------------------
<S> <C> <C>
REVENUES
Diagnostic products
Sales of products $ 8,758,920 $ 7,329,962
Other revenues 162,308 357,583
-------------------------------------------------------------------
8,921,228 7,687,545
Veterinary instruments 3,569,183 4,038,710
-------------------------------------------------------------------
$12,490,411 $11,726,255
===================================================================
OPERATING INCOME (LOSS)
Diagnostic products $ 23,876 $ 553,925
Veterinary instruments (263,974) 76,067
-------------------------------------------------------------------
$ (240,098) $ 629,992
===================================================================
IDENTIFIABLE ASSETS
Diagnostic products $ 7,202,571 $ 7,185,958
Veterinary instruments 2,771,532 3,106,950
Corporate 1,557,041 1,245,698
-------------------------------------------------------------------
$11,531,144 $11,538,606
===================================================================
DEPRECIATION AND AMORTIZATION EXPENSE
Diagnostic products $ 437,030 $ 307,840
Veterinary instruments 100,202 180,750
-------------------------------------------------------------------
$ 537,232 $ 488,590
===================================================================
CAPITAL EXPENDITURES
Diagnostic products $ 274,496 $ 314,334
Veterinary instruments 138,027 237,638
-------------------------------------------------------------------
$ 412,523 $ 551,972
===================================================================
</TABLE>
-33-
<PAGE> 35
NEOGEN CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
Neogen has no significant foreign operations. Export
sales amounted to $2,580,128 or 21% of consolidated
sales in 1996 and $2,851,780 or 25% in 1995,
respectively, and were derived primarily in the
geographic areas of South and Latin America, Canada,
Europe, and the Far East. No export sales to any
single geographic area exceeded 10% of consolidated
sales.
11. SUPPLEMENTAL
DISCLOSURE OF 1996 1995
CASH FLOW -----------------------------------------------------
INFORMATION
CASH PAID DURING THE YEAR FOR
Interest $ 153,212 $ 90,823
Taxes on income 14,000 30,777
=====================================================
-34-
<PAGE> 36
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
_______________________________
-35-
<PAGE> 37
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 9. 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 six to ten 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.
<TABLE>
<CAPTION>
YEAR
NAME POSITION ELECTED
---- -------- -------
<S> <C> <C>
James L. Herbert. . . . . . . . . President, Chief Executive Officer, Director . . . . . . . . . . . . 1982
G. Bruce Papesh. . . . . . . . . Secretary, Director . . . . . . . . . . . . . . . . . . . . . . . . . 1993
Brinton M. Miller, Ph.D. . . . . Vice President, Scientific Affairs . . . . . . . . . . . . . . . . . 1984
Lon M. Bohannon. . . . . . . . . Vice President, Chief Financial Officer . . . . . . . . . . . . . . . 1985
Gerald S. Traynor. . . . . . . . Vice President . . . . . . . . . . . . . . . . . . . . . . . . . . . 1990
Donald W. Uglow. . . . . . . . . Vice President . . . . . . . . . . . . . . . . . . . . . . . . . . . 1990
Terri A. Juricic. . . . . . . . Vice President . . . . . . . . . . . . . . . . . . . . . . . . . . . 1992
Martin R. Gould. . . . . . . . . Vice President, AMPCOR Diagnostics, Inc. . . . . . . . . . . . . . . 1994
Sudhakar L. R. Vulimiri. . . . . Vice President, AMPCOR Diagnostics, Inc. . . . . . . . . . . . . . . 1994
David J. Ledden, Ph.D. . . . . . Vice President . . . . . . . . . . . . . . . . . . . . . . . . . . . 1994
Edward L. Bradley. . . . . . . . Vice President. . . . . . . . . . . . . . . . . . . . . . . . . . . .1995
John E. Cantlon, Ph.D. . . . . . Chairman, Scientific Review Council . . . . . . . . . . . . . . . . . 1990
Julius E. Johnson, Ph.D. . . . . Scientific Review Council . . . . . . . . . . . . . . . . . . . . . .1982
N. Edward Tolbert, Ph.D. . . . . Scientific Review Council . . . . . . . . . . . . . . . . . . . . . .1982
Robert Hollingworth, Ph.D. . . . Scientific Review Council . . . . . . . . . . . . . . . . . . . . . .1991
Gavin L. Meerdink, DVM. . . . . Scientific Review Council . . . . . . . . . . . . . . . . . . . . . .1992
Perry Gehring, Ph.D. . . . . . . Scientific Review Council . . . . . . . . . . . . . . . . . . . . . .1994
</TABLE>
-36-
<PAGE> 38
There are no family relationships among directors, officers, or other key
individuals of the Company.
Information concerning the officers and other key individuals of the Company
follows:
James L. Herbert, age 56, has been President, Chief Executive Officer, and a
director of the Company since he joined Neogen in June, 1982. 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.
G. Bruce Papesh, age 49, was elected to the Board of Directors in October, 1993
and became Corporate Secretary in October, 1994. Mr. Papesh is co-founder of
Dart, Papesh & Co., a Lansing, Michigan based company that provides investment
consulting and other financial services. He has served as President of Dart,
Papesh and Co. Inc., since 1987. Mr. Papesh is a graduate of the University of
Notre Dame and has gained 25 years of experience in investment services while
serving in stock broker, consulting, and executive management positions.
Dr. Brinton M. Miller, age 69, joined the Company in January, 1984 as Vice
President of Research and Development. He presently serves as the Company's
chief scientific officer. Prior to joining Neogen, he held numerous research
management positions during his 27-year career with Merck, Sharp and Dohme
Laboratories.
Lon M. Bohannon, age 43, joined the Company in October, 1985 as Vice President
of Finance and was promoted to Chief Financial Officer in June, 1987. 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.
Gerald S. Traynor, age 61, 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.
Donald W. Uglow, age 55, joined the Company in October, 1990 as Vice President
of Diagnostic Sales. He is responsible for all sales activities for the
Company's line of diagnostic products for food safety, the environment, plant
diseases, and for the EnviroCaster. Prior to joining Neogen, he served for
four years as Ag Chemical Sales and Marketing Manager for Great Lakes Chemical
Company. Prior to his experience at Great
-37-
<PAGE> 39
Lakes Chemical, he owned and operated a farm implement business and served in
sales and marketing management of Ciba-Geigy.
Terri A. Juricic, age 31, joined Neogen Corporation on September 1, 1992 as
part of the Company's acquisition of ELISA Technologies. She currently serves
as Vice President and General Manager of ELISA Technologies. Ms. Juricic
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 ELISA Technologies (formerly
WTT, Inc.) as President, the position she held at the time Neogen acquired the
business.
Martin R. Gould, age 45, joined the Company on August 17, 1994 in connection
with Neogen's acquisition of AMPCOR, Inc. He currently serves as Vice
President and General Manager for AMPCOR Diagnostics, Inc. Mr. Gould holds a
Master of Science degree in Biomedical Science from Drexel University. From
1974 to 1986 he served as manager of Research and Development and Production
Manager for E.M. Science, a division of Merck and Company. In 1987, Mr. Gould
joined AMPCOR, Inc. as President, a position he held at the time Neogen
acquired the business.
Sudhakar L. R. Vulimiri, age 41, also joined Neogen in August, 1994 as part of
the Company's acquisition of AMPCOR, Inc. His current responsibilities as Vice
President of AMPCOR Diagnostics, Inc. include manufacturing, engineering, and
product development. Sudhakar received a M.S. degree in Biomedical Engineering
from Drexel University. From 1983 to 1987 he worked for E.M. Diagnostic
Systems, a division of Merck and Company, serving in the positions of research
scientist and research engineer. In 1987, he joined AMPCOR as that firm's
Executive Vice President.
Dr. David J. Ledden, age 44, joined the company in December, 1994 as Vice
President of Research and Development responsible for overseeing all of
Neogen's research and development programs at all locations. From 1990 to his
arrival at Neogen, Dr. Ledden was Manager of Immunoreagents and Protein
Chemistry at Boehringer Mannheim in Indianapolis where he managed a 25 person R
& D group. Dr. Ledden has also held R & D management positions at 3M
Corporation and the Ames Division of Miles Laboratories. Dr. Ledden received
his B.S. and M.S. degrees in Biochemistry from Penn State University and his
Ph.D. in Biochemistry from the University of Louisville.
Edward L. Bradley, age 36, joined Neogen in February, 1995 as Vice President of
Sales and Marketing for AMPCOR Diagnostics, Inc. In May, 1996, Mr. Bradley was
made a Vice President of Neogen. He has specific responsibility for sales and
marketing programs directed at the nation's meat and poultry processing firms
and is responsible for all sales activities pertaining to veterinary
instruments. From 1988 to 1995, Mr. Bradley served in several sales and
marketing capacities for Mallinckrodt Animal Health, most recently holding the
position of National Sales Manager responsible for the company's 40 employees
in their Food Animal Products Division. He has graduate and undergraduate
degrees from the University of Tennessee.
-38-
<PAGE> 40
Dr. John E. Cantlon joined the Scientific Review Council in August, 1990 and
was elected chairman in 1992. He was a member of the faculty of Michigan State
University from June, 1954 until he retired in 1990. He served as Vice
President of Research and Graduate Studies for Michigan State University
beginning in 1975.
Dr. Julius E. Johnson has been a member of the Scientific Review Council since
January, 1982 and served as chairman from 1983 to 1992. He was formerly Vice
President for Research and Development for Dow Chemical Company. He has been a
consultant and managed his own investments for the past five years.
Dr. N. Edward Tolbert has been a member of the Scientific Review Council since
February, 1984. He has been a professor of biochemistry at Michigan State
University since June, 1958, is the former president of the Society of Plant
Physiology and a member of the National Academy of Sciences.
Dr. Robert Hollingworth joined the Scientific Review Council in July, 1991.
Since 1987, he has served as director of the Pesticide Research Center and
professor at Michigan State University. Prior to joining Michigan State
University, Dr. Hollingworth was a distinguished professor in the Department of
Entomology at Purdue University for over 20 years.
Dr. Gavin L. Meerdink joined the Scientific Review Council in October, 1992.
Dr. Meerdink has a distinguished twenty-year career as a diagnostician and
toxicologist with special interest in agricultural chemicals and mycotoxins.
Since 1989, he has served as Professor and Head of Clinical Toxicology in the
College of Veterinary Medicine at the University of Illinois. From 1983 to
1989 he was Chief Diagnostician and Research Scientist at the University of
Arizona and he has held associate professorships at Michigan State University
and Iowa State University. Early in his career, Dr. Meerdink spent four years
in private practice as a Doctor of Veterinary Medicine.
Dr. Perry Gehring joined the Scientific Review Council in April, 1994. Dr.
Gehring has served as Vice President for Research and Development of Dow Elanco
since 1989. His career has focused primarily on the study of toxicity of
chemical substances. Dr. Gehring received B.S., D.V.M., and doctorate degrees
from the University of Minnesota. In addition to his current position, he has
held various senior research and development executive positions for the Dow
Chemical Company.
ITEM 10. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to the
Company's Proxy Statement.
-39-
<PAGE> 41
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this Item is incorporated by reference to the
Company's Proxy Statement.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Martin R. Gould and Sudhakar L. R. Vulimiri, Vice Presidents of a wholly-owned
subsidiary of the Company owned 32% and 20%, respectively, of AMPCOR, Inc., a
New Jersey-based company which sells diagnostic test kits to detect
microorganisms. In August, 1994, Neogen acquired substantially all of the
assets of AMPCOR, Inc. The initial purchase price consisted of a payment of
cash, stock, and assumption of certain liabilities and a second payment of cash
and stock which resulted in total consideration of approximately $1,760,600
(see Note 3 to the Company's Consolidated Financial Statements). It is
estimated that Mr. Gould's share of this transaction, after deducting
liabilities of AMPCOR, Inc. not assumed by the Company, was approximately
$104,000 consisting of 17,840 shares of the Company's restricted Common Stock.
It is estimated that Mr. Vulimiri's share of this transaction, after deducting
liabilities of AMPCOR, Inc. not assumed by the Company, was approximately
$65,000 consisting of 11,150 shares of the Company's restricted Common Stock.
ITEM 13. EXHIBITS 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) No reports on Form 8-K were filed by the Company during the fiscal quarter
ended May 31, 1996.
-40-
<PAGE> 42
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
*
---------------------------
James L. Herbert, President
Chief Executive Officer
Dated: August 26, 1996
-41-
<PAGE> 43
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.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
* President, Chief Executive August 26, 1996
- ---------------------------------- Officer, Director (Principal
James L. Herbert Executive Officer)
* Vice President of Administration, August 26, 1996
- ---------------------------------- Chief Financial Officer
Lon M. Bohannon (Principal Financial and
Accounting Officer)
* Chairman, Board of Directors
- ----------------------------------
Herbert D. Doan
* Director
- ----------------------------------
R. William Caldwell
* Director
- ---------------------------------
Robert M. Book
* Director
- ---------------------------------
Jack Parnell
* Secretary and Director
- ---------------------------------
Bruce Papesh
* Director
- ---------------------------------
Gordon E. Guyer
* Director
- ---------------------------------
Roland M. Hendrickson
*By: * August 26, 1996
----------------------------
James L. Herbert
Attorney-in-Fact
</TABLE>
-42-
<PAGE> 44
NEOGEN CORPORATION
ANNUAL REPORT ON FORM 10-KSB
YEAR ENDED MAY 31, 1996
EXHIBIT INDEX
-------------
EXHIBIT NO. DESCRIPTION
- ----------- -----------
3(a) (4) Articles of Incorporation, as amended
3(b) (1) By-Laws, as amended
10(a) (1) Neogen Research Limited Partnership II
/Neogen Corporation Agreement for the
Sale of Patent Rights and Related
Know How dated October 14, 1988
10(b) (2) Neogen Research Limited Partnership IV/
Neogen Corporation Agreement for the
Sale of Copyrights and Related Know-
How dated July 31, 1989
10(d) (1) Neogen Corporation/Michigan Department
of Public Health Equine Botulism
Vaccine Agreement, as amended,
originally dated April 9, 1988
10(f) (4) Ideal Instruments, Inc. Lease Agreement
for 9355 West Byron Street, Schiller
Park, Illinois dated June 29, 1993
10(g) (1) Neogen Research Limited Partnership II
First Amended and Restated Partnership
Agreement dated December 30, 1985
10(h) (1) Neogen Research Limited Partnership II
First Amended and Restated Partnership
Agreement dated December 30, 1985
10(l) (3) Amended and Restated Incentive Stock Option
Plan II and Sample Individual Incentive
Stock Option Agreement
10(m) (6) Neogen/International Diagnostic Systems
Asset Purchase Agreement dated June 27, 1995
10(n) (4) ELISA Technologies Lease Agreement for space
at 628 East Third Street, Lexington, Kentucky
dated May 19, 1993
10(o) (5) Neogen/Agri-Sales Associates Marketing Agency
Agreement dated May 10, 1994
10(p) (6) Amendment to Neogen/Agri-Sales Marketing Agency
Agreement dated June 25, 1995
10(q) (6) Neogen/AMPCOR Asset Purchase Agreement dated
August 1, 1994
11 Computation of Earnings Per Share
-43-
<PAGE> 45
13 Annual Report to Shareholders for the
Year Ended May 31, 1996 (to be deemed
filed only to the extent required by
the instructions to exhibits for reports
on Form 10-KSB)
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
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.
(2) Incorporated by reference to the exhibit filed with the Registrant's
Annual Report on Form 10-K for the year ended May 31, 1990.
(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, 1994.
(6) Incorporated by reference to the exhibit filed with the Registrant's
Annual Report on Form 10-KSB for the year ended May 31, 1995.
-44-
<PAGE> 1
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
NEOGEN CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Year Ended May 31
1996 1994
---- ----
<S> <C> <C>
Weighted average common and common
equivalent shares outstanding:
Average shares outstanding 4,513,817 4,431,492
Net effect of dilutive stock
warrants-based on the treasury
stock method using average market
price which is greater than
quarter-end market price (Note 1) 60,825
Net effect of dilutive stock
options-based on the treasury
stock method using average
market price which is greater
than quarter-end
market price (Note 1) 182,475
--------- ---------
TOTALS 4,513,817 4,674,792
========== ==========
Net income (loss) $ (243,539) $ 678,707
========== ==========
Net income (loss) per share $ (0.05) $ 0.15
========== ==========
</TABLE>
Note 1 - Amounts for 1996 are not computed because the effect of outstanding
warrants and options is anti-dilutive.
-45-
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
NEOGEN CORPORATION AND SUBSIDIARIES
May 31, 1996
<TABLE>
<CAPTION>
PERCENTAGE
OWNED
STATE BY NEOGEN
INCORPORATED CORPORATION
------------ -----------
<S> <C> <C>
Neogen Research Corporation II Michigan 90%
Neogen Research Corporation IV Michigan 100%
Ideal Instruments. Inc. Michigan 100%
AMPCOR Diagnostics, Inc. Michigan 100%
</TABLE>
All of the subsidiaries listed above are included in the consolidated financial
statements of Neogen Corporation.
-46-
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Neogen Corporation
Lansing, Michigan
We hereby consent to the incorporation by reference in the Prospectus
constituting a part of the Registration Statement (Form S-8) of our report dated
July 18, 1996, relating to the consolidated financial statements of Neogen
Corporation and subsidiaries appearing in the Company's Annual Report on Form
10-KSB for the year ended May 31, 1996.
BDO SEIDMAN, LLP
Troy, Michigan
August 26, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE NEOGEN
CORPORATION FORM 10-KSB FOR THE YEAR ENDED MAY 31, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FORM 10-KSB.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-START> JUN-01-1995
<PERIOD-END> MAY-31-1996
<CASH> 2,183,033
<SECURITIES> 0
<RECEIVABLES> 1,643,181
<ALLOWANCES> 185,000
<INVENTORY> 3,378,671
<CURRENT-ASSETS> 7,523,767
<PP&E> 3,972,218
<DEPRECIATION> 2,590,430
<TOTAL-ASSETS> 11,531,144
<CURRENT-LIABILITIES> 2,289,055
<BONDS> 0
0
0
<COMMON> 729,482
<OTHER-SE> 8,128,222
<TOTAL-LIABILITY-AND-EQUITY> 11,531,144
<SALES> 12,328,103
<TOTAL-REVENUES> 12,490,411
<CGS> 5,484,524
<TOTAL-COSTS> 12,035,009
<OTHER-EXPENSES> 538,455
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 153,286
<INCOME-PRETAX> (236,339)
<INCOME-TAX> 7,200
<INCOME-CONTINUING> (243,539)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (243,539)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
</TABLE>
