<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For quarterly period ended: AUGUST 31, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
---------------- ----------------
Commission File Number: 0-17988
NEOGEN CORPORATION
(Exact name of small business issuer as specified in its charter)
MICHIGAN 38-2367843
(State or other jurisdiction of (IRS employer
incorporation or organization) Identification No.)
620 LESHER PLACE, LANSING, MICHIGAN 48912
(Address of principal executive offices)
(517)372-9200
(Issuer's telephone number)
NONE
(Former name, former address and former
fiscal year, if changed since last report.)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the
past 90 days.
Yes X No
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Check whether the registrant filed all documents and reports required to
be filed by Section 12, 13, or 15(d) of the Securities Exchange Act of 1934
after distribution of securities under a plan confirmed by a court.
Yes No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practical date.
6,155,808 SHARES WERE OUTSTANDING ON OCTOBER 3, 1997
<PAGE> 2
INDEX
NEOGEN CORPORATION AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. Interim Financial Statements (unaudited)
Consolidated balance sheets--August 31, 1997 and May 31, 1997.
Consolidated statements of income--Three months ended August 31,
1997 and 1996.
Consolidated statements of stockholders' equity--Three months ended
August 31, 1997 and 1996.
Consolidated statements of cash flows--Three months ended August 31,
1997 and 1996.
Notes to consolidated financial statements--August 31, 1997.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. INTERIM FINANCIAL STATEMENTS
<PAGE> 4
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
NEOGEN CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
ASSETS August 31 May 31
1997 1997
------------ ------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 1,198,544 $ 718,864
Marketable securities 10,603,756 12,324,913
Net accounts receivable 2,524,763 2,024,161
Inventories 3,812,300 3,620,200
Other current assets 348,670 353,437
------------ ------------
TOTAL CURRENT ASSETS 18,488,033 19,041,575
NET PROPERTY AND EQUIPMENT 1,812,174 1,564,552
INTANGIBLE AND OTHER ASSETS
Goodwill, net of accumulated amortization 2,886,144 2,012,195
Other assets, net of accumulated amortization 623,396 530,151
------------ ------------
$ 23,809,747 $ 23,148,473
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable and current maturities
of long-term notes payable $ 71,147 $ 71,147
Accounts payable 722,119 842,985
Accrued compensation and benefits 594,248 607,052
Other accrued liabilities 314,801 255,414
------------ ------------
TOTAL CURRENT LIABILITIES 1,702,315 1,776,598
LONG-TERM NOTES PAYABLE 205,559 207,770
OTHER LONG-TERM LIABILITIES 150,904 150,905
STOCKHOLDERS' EQUITY
Common stock:
Per value $.16 per share, 10,000,000
shares authorized, 6,150,208 shares
issued at August 31, 1997; 6,110,608
shares issued at May 31, 1997 984,033 977,697
Additional paid in capital 24,038,235 23,937,397
Retained-earnings (deficit) (3,271,299) (3,901,894)
------------ ------------
21,750,969 21,013,200
------------ ------------
$ 23,809,747 $ 23,148,473
============ ============
</TABLE>
See notes to consolidated financial statements.
<PAGE> 5
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
NEOGEN CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Three Months Ended August 31
1997 1996
----------- -----------
<S> <C> <C>
REVENUES
Sales $ 4,427,082 $ 4,034,923
EXPENSES
Cost of goods sold 1,942,394 1,546,190
Sales and marketing 1,167,568 1,169,641
General and administrative 586,178 555,046
Research and development 294,261 348,074
----------- -----------
3,990,401 3,618,951
----------- -----------
INCOME FROM OPERATIONS 436,681 415,972
OTHER INCOME (EXPENSE)
Interest income 165,622 22,458
Interest expense (6,454) (30,968)
Other 54,446 5,000
----------- -----------
213,614 (3,510)
----------- -----------
INCOME BEFORE INCOME TAXES 650,295 412,462
INCOME TAXES 19,700 11,703
----------- -----------
NET INCOME $ 630,595 $ 400,759
=========== ===========
NET INCOME PER SHARE - (NOTE B) $ 0.10 $ 0.08
=========== ===========
</TABLE>
See notes to consolidated financial statements
<PAGE> 6
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
NEOGEN CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Common Stock
--------------------------- Additional Retained-
Number Paid-In Earnings
of Shares Amount Capital (Deficit)
----------- ---------- ------------ -------------
<S> <C> <C> <C> <C>
Balance at June 1, 1997 6,110,608 $ 977,697 $ 23,937,397 $ (3,901,894)
Exercise of options 39,600 6,336 100,838
Net income for the
three months ended
August 31, 1997 630,595
Balance at August 31, 1997 6,150,208 $ 984,033 $ 24,038,235 $ (3,271,299)
=========== ========== ============ =============
Balance at June 1, 1996 4,559,260 $ 729,482 $ 13,841,617 $ (5,713,395)
Exercise of options 37,000 5,920 82,119
Exercise of warrants 1,782 285 8,304
Net income for the
three months ended
August 31, 1996 400,759
----------- ---------- ------------ -------------
Balance August 31, 1996 4,598,042 $ 735,687 $ 13,932,040 $ (5,312,636)
=========== ========== ============ =============
</TABLE>
See notes to consolidated financial statements.
<PAGE> 7
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NEOGEN CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Three Months Ended August 31
--------------------------------------
1997 1996
------------ -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 630,595 $ 400,759
Adjustments to reconcile net income to net cash
provided from operating activities:
Depreciation and amortization 157,063 139,202
Changes in operating assets and
liabilities:
Accounts receivable (321,253) (484,741)
Inventories (72,817) (9,236)
Other current assets 5,967 (37,916)
Accounts payable (120,866) 154,411
Other accrued expenses 46,583 173,888
------------ -----------
NET CASH PROVIDED FROM OPERATING ACTIVITIES 325,272 336,367
------------ -----------
INVESTING ACTIVITIES:
Sales of marketable securities 6,049,958 1,577,550
Purchase of marketable securities (4,328,801) (1,953,983)
Purchase of property and equipment
and other assets (273,080) (140,990)
Acquisition of business (1,398,632) (53,122)
------------ -----------
NET CASH PROVIDED FROM (USED IN) INVESTING ACTIVITIES 49,445 (570,545)
------------ -----------
FINANCING ACTIVITIES:
Payments on short-term borrowings 0 (15,000)
Payments on long-term borrowings (2,211) (17,787)
Proceeds from issuance of common stock 107,174 96,628
------------ -----------
NET CASH PROVIDED FROM FINANCING ACTIVITIES 104,963 63,841
------------ -----------
INCREASE (DECREASE) IN CASH 479,680 (170,337)
Cash at beginning of period 718,864 625,992
------------ -----------
CASH AT END OF PERIOD $ 1,198,544 $ 455,655
============ ===========
</TABLE>
See notes to consolidated financial statements.
<PAGE> 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NEOGEN CORPORATION AND SUBSIDIARIES
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form-10QSB and Item
310 of Regulation S-B. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting only of normal recurring accruals) considered necessary for a fair
presentation have been included. The results of operations for the three
months ended August 31, 1997 are not necessarily indicative of the results to
be expected for the fiscal year ending May 31, 1998. For more complete
financial information, these consolidated financial statements should be read
in conjunction with the May 31, 1997 audited consolidated financial statements
and the notes thereto included in the Company's annual report on Form 10-KSB
for the year ended May 31, 1997.
NOTE B - NET INCOME PER SHARE
The net income per share amounts for 1997 and 1996 are based on the weighted
average number of common shares outstanding adjusted to reflect the assumed
exercise of outstanding stock options and warrants, to the extent these items
had a dilutive effect on the computations.
<PAGE> 9
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
THREE MONTHS ENDED AUGUST 31, 1997 COMPARED TO THREE MONTHS ENDED
AUGUST 31, 1996.
Total revenues for the quarter ended August 31, 1997 were $392,000 or 10%
higher than the same quarter in 1996. Sales of diagnostic products were up
$371,000 in the first quarter representing an increase of 11% and sales of
veterinary instruments increased $21,000 or 3%.
The increase in diagnostic product sales was due to several factors. The
acquisition of certain assets of W.J. Bartus, Inc. ("Triple Crown") effective
July 1, 1997 resulted in increased sales of $326,000 for the quarter. Greater
demand for test kits and other products sold to the professional equine market
contributed $213,000 in higher sales. Sales of test kits and reagents for
pharmacologics were $71,000 higher than the prior year. Sales of diagnostic
test kits to detect microorganisms increased $149,000 or 69% in the first
quarter compared to the same period last year.
The aforementioned increases in diagnostic product sales were offset by a 30%
decrease in sales of test kits to detect vomitoxin during the first quarter.
As discussed in the company's 10-KSB for the year ended May 31, 1997, last
year's midwest winter wheat crop contained high levels of vomitoxin and
management believed sales of test kits for this harmful residue would decline
in the current fiscal year. Although sales of vomitoxin test kits in the first
quarter were below the prior year, they did exceed management's internal
budgets.
The increase in veterinary instrument sales was due to an overall increase in
domestic demand and $56,000 in sales of new specialty needles. These increases
were partially offset by lower international sales, which management believes
is primarily due to the timing of orders placed by distributors.
Cost of goods sold increased $396,000 in the first quarter, mostly as a result
of the overall increase in product sales. In addition, raw material expense
increased substantially due to a change in sales mix. Sales of products sold
to the professional equine market, which may carry a higher material cost,
increased significantly while sales of diagnostic test kits to detect
vomitoxin, which have a much lower material cost, declined in the quarter.
Management expects raw material cost to continue to run higher in the current
fiscal year than in the prior year due to sales mix.
<PAGE> 10
There was virtually no change in sales and marketing expenses in the first
quarter compared to the prior year. Increases in salaries, fringe,
commissions, royalties, printing, advertising and promotions related to
increases in sales of professional equine products, including the acquisition
of Triple Crown, were completely offset by lower royalties, advertising and
promotion expenses associated with sales of diagnostic test kits for natural
toxins.
The $31,000 increase in general and administrative expense, compared to the
first quarter last year, is the result of higher recruiting and relocation
expense and higher legal and professional fees. The increase in both of these
categories occurred at the company's Lexington, Kentucky operation and was
associated with the acquisition of Triple Crown and/or the sale of professional
equine products.
Although research and development expense declined $54,000 in the first quarter
this year compared to the first quarter last year due to lower staffing levels,
management believes that research and development is critical to the Company's
future. Accordingly, the Company expects its annual research and development
expense for the current fiscal year to approximate the same levels, expressed
as a percentage of revenue, as experienced in prior years.
Other income (expense) was $217,000 higher in the first quarter than last year.
In October 1996, the Company completed a public offering of common stock . A
portion of the proceeds was used to pay down short-term bank borrowings,
resulting in lower interest expense. The remaining proceeds were invested in
short-term marketable securities, which has resulted in higher interest income.
In addition, the Company's share of royalties, paid to an affiliated
partnership, increased significantly in the first quarter compared to the prior
year.
FINANCIAL CONDITION AND LIQUIDITY
At August 31, 1997 the Company had $11,802,000 in cash and marketable
securities, working capital of $16,786,000 and stockholders' equity of
$21,751,000. In addition, the Company has bank lines of credit totaling
$2,500,000 with nothing borrowed against these lines as of August 31, 1997.
Cash and marketable securities decreased $1,242,000 during the first quarter
primarily as a result of the acquisition of certain assets of W.J. Bartus, Inc.
Effective July 1, 1997 the Company acquired substantially all of the assets of
Triple Crown Pharmaceuticals, a division of W.J. Bartus, Inc. of Ft. Pierce,
Florida. The initial purchase price consisted of a cash payment of
approximately $1,400,000 paid in July, 1997.
Accounts receivable are higher at August 31, 1997 than at May 31, partially as
a result of the acquisition of Triple Crown, partially because of the
significant increase in sales volume in the first quarter for professional
equine and pharmacologic products and also, as a result of higher receivables
for sales to the grain, nuts and spice market. Inventories are higher at
August 31, 1997 than at May 31 as a result of the acquisition of Triple
Crown, to support increases in sales of professional equine products and in
anticipation of future increases in sales volume.
<PAGE> 11
The increase in goodwill and other non-current assets at August 31, 1997
compared to May 31, 1997 is due to the acquisition of Triple Crown. Accounts
payable declined $121,000 between May 31 and August 31 due primarily to the
timing of month-end cut-offs and scheduled payment dates for trade payables.
Other accrued liabilities were $59,000 higher at August 31 due in part to the
acquisition of Triple Crown and as a result of increases in accruals for a
number of areas including recruiting expenses and royalties.
The Company did not borrow any additional funds during the first quarter and
made scheduled payments on long-term debt totaling $2,211. Neogen expended
approximately $273,000 in the first quarter for additions to property,
equipment and other assets. At August 31, 1997, the Company had no material
commitments for capital expenditures. Inflation and changing prices are not
expected to have a material effect on the Company's operations.
Neogen has been profitable for seventeen of its last eighteen quarters and has
generated positive cash flows from operations during this period. Management
believes that the Company's existing cash and marketable securities at August
31, 1997, along with its available bank lines of credit and cash expected to be
generated from future operations, will be sufficient to fund activities for the
foreseeable future. However, existing cash and marketable securities may not
be sufficient to meet the Company's cash requirements to commercialize products
currently under development or its plans to acquire additional technology and
products that fit within the Company's mission statement. Accordingly, the
Company may be required to issue equity securities or enter into other
financing arrangements for a portion of the Company's future capital needs.
<PAGE> 12
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit Index
Exhibit 4 - Instruments defining the rights of security holders -
incorporated by reference from Exhibit 3 (a) (2) of the Second
Amendment to the Form S-18 Registration Statement filed on
August 22, 1989.
Exhibit 11 - Statement regarding computation of earnings per share.
Exhibit 27 - Financial Data Schedule
(b) Reports On Form 8-K Filed In Quarterly Period Ended August 31, 1997.
The Company did not file any reports on Form 8-K in the quarterly
period ended August 31, 1997.
<PAGE> 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NEOGEN CORPORATION
October 13, 1997 /S/ James L. Herbert
- ---------------- ----------------------------------------
Date James L. Herbert
President
October 13, 1997 /S/ Lon M. Bohannon
- ---------------- ----------------------------------------
Date Lon M. Bohannon
Vice President - Chief Financial Officer
<PAGE> 14
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
11 STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
27 FINANCIAL DATA SCHEDULE
</TABLE>
<PAGE> 1
EXHIBIT 11
11 - STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
NEOGEN CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Three months ended August 31
1997 1996
----------- -----------
<S> <C> <C>
Weighted average common and common
equivalent shares outstanding:
Average shares outstanding 6,120,671 4,587,436
Net effect of dilutive stock
warrants based on the treasury
stock method using quarter-end
market price which is greater
than average market price 26,548 40,658
Net effect of dilutive stock
options-based on the treasury
stock method using quarter-end
market price which is greater
than average market price 187,596 142,189
----------- -----------
TOTALS 6,334,815 4,770,283
=========== ===========
Net income $ 630,595 $ 400,759
----------- -----------
Net income per share $ 0.10 $ 0.08
----------- -----------
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE NEOGEN
CORPORATION FORM 10-QSB FOR THE QUARTER ENDED AUGUST 31, 1997 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-QSB
</LEGEND>
<CIK> 0000711377
<NAME> NEOGEN CORPORATION
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> JUN-01-1997
<PERIOD-END> AUG-31-1997
<CASH> 1,198,544
<SECURITIES> 10,603,756
<RECEIVABLES> 2,869,369
<ALLOWANCES> 344,606
<INVENTORY> 3,812,300
<CURRENT-ASSETS> 18,488,033
<PP&E> 4,885,522
<DEPRECIATION> 3,073,348
<TOTAL-ASSETS> 23,809,747
<CURRENT-LIABILITIES> 1,702,315
<BONDS> 0
0
0
<COMMON> 984,033
<OTHER-SE> 20,766,936
<TOTAL-LIABILITY-AND-EQUITY> 23,809,747
<SALES> 4,427,082
<TOTAL-REVENUES> 4,427,082
<CGS> 1,942,394
<TOTAL-COSTS> 3,990,401
<OTHER-EXPENSES> (220,068)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,454
<INCOME-PRETAX> 650,295
<INCOME-TAX> 19,700
<INCOME-CONTINUING> 630,595
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 630,595
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
</TABLE>
