<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended
November 30, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE EXCHANGE ACT
For the Transition Period From
_______________ to _______________
Commission file number 0-17988
NEOGEN CORPORATION
(Exact name of Registrant as specified in its charter)
Michigan 38-2367843
(State or other jurisdiction of (I.R.S. Employer Identification No.)
corporation or organization)
620 Lesher Place
Lansing, Michigan 48912
(517) 372-9200
(Address of principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the
preceding 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
As of January 1, 2001, there were 5,680,000 outstanding shares of Common Stock.
<PAGE>
INDEX
NEOGEN CORPORATION AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
------------------------------
ITEM 1. Interim Condensed Financial Statements (unaudited)
Consolidated Balance Sheets - November 30, 2000 and May 31, 2000
Consolidated Statements of Operations - Three months and six months
ended November 30, 2000 and 1999.
Consolidated Statements of Stockholders' Equity - Six months ended
November 30, 2000.
Consolidated Statements of Cash Flows - Six months ended November 30,
2000 and 1999.
Notes to Interim Consolidated Financial Statements - November 30, 2000.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk.
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
----------
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<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. Interim Condensed Financial Statements
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
NEOGEN CORPORATION AND SUBSIDIARIES
November 30 May 31
2000 2000
----------- -----------
ASSETS
CURRENT ASSETS
Cash $ 908,000 $ 2,198,000
Marketable securities 5,007,000 8,472,000
Accounts receivable, net 5,877,000 4,877,000
Inventories 5,846,000 5,393,000
Other current assets 673,000 662,000
----------- -----------
TOTAL CURRENT ASSETS 18,311,000 21,602,000
PROPERTY AND EQUIPMENT, NET 2,662,000 2,655,000
INTANGIBLE AND OTHER ASSETS
Goodwill, net 7,183,000 3,892,000
Other assets, net 1,595,000 1,379,000
----------- -----------
$29,751,000 $29,528,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,467,000 $ 1,743,000
Other accrued liabilities 1,110,000 1,546,000
Current maturities of long-term notes payable 48,000 48,000
----------- -----------
TOTAL CURRENT LIABILITIES 2,625,000 3,337,000
LONG-TERM NOTES PAYABLE 53,000 77,000
OTHER LONG-TERM LIABILITIES 310,000 310,000
STOCKHOLDERS' EQUITY
Preferred stock, $1.00 par value, 100,000
shares authorized, none issued and outstanding -- --
Common stock, $.16 par value,
20,000,000 shares authorized, 5,680,000
shares issued at November 30, 2000;
5,773,000 shares issued at May 31, 2000 909,000 924,000
Additional paid-in capital 20,647,000 21,205,000
Retained earnings 5,207,000 3,675,000
----------- -----------
26,763,000 25,804,000
----------- -----------
$29,751,000 $29,528,000
=========== ===========
See notes to interim consolidated financial statements.
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<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
NEOGEN CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Three Months Ended November 30 Six Months Ended November 30
2000 1999 2000 1999
------------------------------ ----------------------------
<S> <C> <C> <C> <C>
SALES $ 9,009,000 $ 5,425,000 $ 17,133,000 $ 10,765,000
Cost of goods sold 4,465,000 2,453,000 8,593,000 4,714,000
------------ ------------ ------------ ------------
GROSS MARGIN 4,544,000 2,972,000 8,540,000 6,051,000
OPERATING EXPENSES
Sales and marketing 1,789,000 1,475,000 3,636,000 2,833,000
General and administrative 1,139,000 814,000 2,067,000 1,524,000
Research and development 456,000 425,000 875,000 758,000
------------ ------------ ------------ ------------
3,384,000 2,714,000 6,578,000 5,115,000
------------ ------------ ------------ ------------
INCOME FROM OPERATIONS 1,160,000 258,000 1,962,000 936,000
OTHER INCOME
Interest income 86,000 148,000 197,000 280,000
Interest expense (11,000) (4,000) (21,000) (7,000)
Other 78,000 75,000 156,000 152,000
------------ ------------ ------------ ------------
153,000 219,000 332,000 425,000
------------ ------------ ------------ ------------
INCOME BEFORE TAXES ON INCOME 1,313,000 477,000 2,294,000 1,361,000
TAXES ON INCOME 453,000 139,000 762,000 215,000
------------ ------------ ------------ ------------
NET INCOME $ 860,000 $ 338,000 $ 1,532,000 $ 1,146,000
============ ============ ============ ============
NET INCOME PER SHARE:
Basic $ 0.15 $ 0.06 $ 0.27 $ 0.19
============ ============ ============ ============
Diluted $ 0.15 $ 0.06 $ 0.27 $ 0.19
============ ============ ============ ============
</TABLE>
See notes to interim consolidated financial statements.
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<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
NEOGEN CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Common Stock
---------------------------- Additional
Number Paid-In Retained
of Shares Amount Capital Earnings
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance at June 1, 2000 5,773,000 $ 924,000 $ 21,205,000 $ 3,675,000
Repurchase of shares (93,000) (15,000) (558,000)
Net income for the
six months ended
November 30, 2000 1,532,000
------------ ------------ ------------ ------------
BALANCE AT NOVEMBER 30, 2000 5,680,000 $ 909,000 $ 20,647,000 $ 5,207,000
============ ============ ============ ============
</TABLE>
See notes to interim consolidated financial statements.
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<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NEOGEN CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Six Months Ended November 30
2000 1999
----------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 1,532,000 $ 1,146,000
Adjustments to reconcile net income to net cash
provided from operating activities:
Depreciation and amortization 672,000 447,000
Changes in operating assets and
liabilities, net of acquisitions:
Accounts receivable (419,000) (263,000)
Inventories 8,000 (153,000)
Other current assets (11,000) 306,000
Accounts payable (276,000) 66,000
Other accrued liabilities (436,000) (418,000)
------------ ------------
NET CASH PROVIDED FROM
OPERATING ACTIVITIES 1,070,000 1,131,000
INVESTING ACTIVITIES:
Sales of marketable securities 4,712,000 16,337,000
Purchases of marketable securities (1,247,000) (17,594,000)
Purchases of property and equipment
and other assets (480,000) (474,000)
Acquisitions (4,748,000) --
------------ ------------
NET CASH USED IN
INVESTING ACTIVITIES (1,763,000) (1,731,000)
FINANCING ACTIVITIES:
Payments on long-term borrowings (24,000) (24,000)
Net payments for repurchase
of common stock (573,000) --
Net proceeds from sale
of common stock 285,000
------------ ------------
NET CASH (USED IN) PROVIDED
FROM FINANCING ACTIVITIES (597,000) 261,000
------------ ------------
DECREASE IN CASH (1,290,000) (339,000)
Cash at beginning of period 2,198,000 1,063,000
------------ ------------
CASH AT END OF PERIOD $ 908,000 $ 724,000
============ ============
</TABLE>
See notes to interim consolidated financial statements.
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<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NEOGEN CORPORATION AND SUBSIDIARIES
NOTE A - BASIS OF PRESENTATION
------------------------------
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting only of
normal recurring accruals) considered necessary for a fair presentation have
been included. The results of operations for the three and six month periods
ended November 30, 2000 are not necessarily indicative of the results to be
expected for the fiscal year ending May 31, 2001. For more complete financial
information, these consolidated financial statements should be read in
conjunction with the May 31, 2000 audited consolidated financial statements and
the notes thereto included in the Company's annual report on Form 10-K for the
year ended May 31, 2000.
NOTE B - EARNINGS PER SHARE
---------------------------
Earnings per share is calculated according to Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings per Share". The following table presents
the earnings per share calculations in conformance with SFAS No. 128.
<TABLE>
<CAPTION>
Three Months Six Months Ended
Ended November 30 November 30
2000 1999 2000 1999
----------------------- -----------------------
<S> <C> <C> <C> <C>
Basic and Diluted - Earnings per Share
Numerator - Net Income $ 860,000 $ 338,000 $1,532,000 $1,146,000
========== ========== ========== ==========
Denominator:
For basic earnings per share-
Weighted average shares 5,680,000 5,963,000 5,710,000 5,946,000
Effect of dilutive securities-
Stock options and warrants 85,000 23,000 41,000 27,000
---------- ---------- ---------- ----------
For diluted earnings per share-
Adjusted weighted average
shares and assumed conversions 5,765,000 5,986,000 5,751,000 5,973,000
========== ========== ========== ==========
Basic Earnings per Share $ 0.15 $ 0.06 $ 0.27 $ 0.19
========== ========== ========== ==========
Diluted Earnings per Share $ 0.15 $ 0.06 $ 0.27 $ 0.19
========== ========== ========== ==========
</TABLE>
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<PAGE>
NOTE C - STOCK REPURCHASE
-------------------------
The Company's board of directors has authorized the purchase of up to 1,000,000
shares of the Company's common stock. As of November 30, 2000, the Company had
purchased 627,000 shares in negotiated and open market transactions. Shares
purchased under this buy-back program will be retired and used to satisfy future
issuance of common stock upon the exercise of outstanding stock options and
warrants.
NOTE D - 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:
November 30, 2000 May 31, 2000
----------------- --------------
Raw Material $ 2,643,000 $ 2,207,000
Work-In-Process 871,000 678,000
Finished Goods 2,332,000 2,508,000
----------------- --------------
$ 5,846,000 $ 5,393,000
================= ==============
NOTE E - SEGMENT INFORMATION
----------------------------
The Company has two reportable segments: Food Safety and Animal Safety. The Food
Safety segment produces and markets diagnostic test kits and related products
used by food producers and processors to detect harmful natural toxins, drug
residues, foodborne bacteria, food allergens, pesticide residues, disease
infections and levels of general sanitation. The Animal Safety segment is
primarily engaged in the production and marketing of products dedicated to
animal health, including 250 different veterinary instruments and a complete
line of consumable products marketed to veterinarians and distributors serving
the professional equine industry.
These segments are managed separately because they represent strategic business
units that offer different products and require different marketing strategies.
The Company evaluates performance based on total sales and operating income of
the respective segments.
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<PAGE>
Segment information for the three months ended November 30, 2000 and 1999 was as
follows:
<TABLE>
<CAPTION>
Corporate
Food Animal and
Safety Safety Eliminations (1) Total
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
2000
Net sales from external customers $ 4,325,000 $ 4,684,000 $ - $ 9,009,000
Operating income 639,000 753,000 (232,000) 1,160,000
Total assets 9,920,000 14,843,000 4,988,000 29,751,000
---------------------------------------------------------------------------------------------------
1999
Net sales from external customers $ 2,871,000 $ 2,554,000 $ - $ 5,425,000
Operating income 395,000 90,000 (227,000) 258,000
Total assets 6,330,000 10,055,000 10,778,000 27,163,000
---------------------------------------------------------------------------------------------------
</TABLE>
Segment information for the six months ended November 30, 2000 and 1999 was as
follows:
<TABLE>
<CAPTION>
Corporate
Food Animal and
Safety Safety Eliminations (1) Total
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
2000
Net sales from external customers $ 8,714,000 $ 8,419,000 $ - $ 17,133,000
Operating income 1,331,000 1,042,000 (411,000) 1,962,000
Total assets 9,920,000 14,843,000 4,988,000 29,751,000
---------------------------------------------------------------------------------------------------
1999
Net sales from external customers $ 5,522,000 $ 5,243,000 $ - $ 10,765,000
Operating income 997,000 350,000 (411,000) 936,000
Total assets 6,330,000 10,055,000 10,778,000 27,163,000
---------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes corporate assets, consisting principally of marketable
securities, and overhead expenses not allocated to specific business
segments. Also includes the elimination of intersegment transactions
and minority interests.
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<PAGE>
NOTE F - ACQUISITIONS
---------------------
On February 17, 2000, the Company purchased 100% of the common stock of Acumedia
Manufacturers, Inc., an internationally recognized manufacturer of culture
media. The acquisition was accounted for using the purchase method.
Unaudited proforma financial information for the three and six months ended
November 30, 1999 as if the acquisition of Acumedia had taken place on June 1,
1999 follows:
Three Months Ended Six Months Ended
November 30, 1999 November 30, 1999
------------------ -----------------
Revenues $6,249,000 $12,558,000
Net Income 183,000 $861,000
Earnings Per Share - Basic and Diluted $0.03 $0.14
On June 2, 2000, the Company acquired substantially all of the assets of AmVet
Pharmaceuticals of Yaphank, New York. The purchase price, subject to certain
post closing adjustments, was $3,400,000 paid in cash, with provisions for up to
an additional $1,000,000 based upon specified levels of post closing revenues.
Sales of AmVet products are expected to approximate $3,500,000 in the year ended
May 31, 2001.
On September 1, 2000, the Company acquired Squire Laboratories. The purchase
price was $1,000,000 paid in cash. Sales of Squire products are expected to
approximate $1,000,000 over the 12 months following the acquisition.
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<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The information in this Management's Discussion and Analysis of Financial
Condition and Results of Operations contains both historical financial
information and forward-looking statements. Neogen does not provide forecasts of
future performance. While management is optimistic about the Company's long-term
prospects, historical financial information may not be indicative of future
financial performance.
The words "anticipate", "believe", "potential", "expect", and similar
expressions used herein are intended to identify forward-looking statements.
Forward-looking statements involve certain risks and uncertainties. Various
factors, including competition, recruitment and dependence on key employees,
impact of weather on agriculture and food production, identification and
integration of acquisitions, research and development risks, patent and trade
secret protection, government regulation and other risks detailed from time to
time in the Company's reports on file at the Securities and Exchange Commission
may cause actual results to differ materially from those contained in the
forward-looking statements.
Three Months and Six Months Ended November 30, 2000 Compared to Three Months and
--------------------------------------------------------------------------------
Six Months Ended November 30, 1999.
-----------------------------------
Total sales increased $3,584,000 or 66.1% in the November 2000 quarter compared
to the November 1999 quarter and were up $6,368,000 or 59.2% in the six months
ended November 2000 as compared to the first six months of 1999. Sales of
products dedicated to food safety were up 50.6% for the quarter and 57.8% for
the six-month period, and sales of animal safety products were up 83.4% for the
quarter and 60.6% for the six-month period.
The increase in food safety sales came from increases in sales of comparable
products of 21.0% for the quarter and 30.0% for the six months. Additionally,
sales of Acumedia Manufacturers, Inc, which was acquired in the third quarter of
fiscal 2000, and is reported as part of this segment, added $841,000 of
additional revenues for the quarter and $1,562,000 for the six-month period.
Sales of test kits for the detection of naturally occurring mycotoxins such as
Aflatoxin and DON (Vomitoxin) increased marginally for the quarter and for the
six-month period. These sales increases came during a year without the presence
of adverse weather conditions that in some years cause significant demand
fluctuations. It is believed that Company's investment in sales and marketing
has resulted in gains in market share. Sales of test kits to detect harmful
bacteria, such as E. coli 0157:H7, Salmonella and Listeria, increased 39.0% for
the quarter and 67.7% for the six-month period. The sales came as the Company
has continued to penetrate this rapidly growing market.
The increase in animal safety sales came from increases in sales of comparable
products of $711,000 or 27.8% for the quarter and $929,000 or 17.7% for the
six-month period. Sales of the products of AmVet Pharmaceuticals and Squire
Laboratories which were acquired on June 2, 2000 and September 1, 2000,
respectively, totaled $1,419,000 in the quarter and $2,247,000 for the six month
period. In the quarter sales for all animal safety product lines increased
compared to those of the prior year. In the six month period sales of all
product lines increased, with the exception of sales of EqStim(R), an
immunostimulent, which declined early in the period due to what are believed to
have been short-term market conditions. Sales increases in both periods resulted
from improved product availability and the continued maturation of the animal
safety distribution organization.
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<PAGE>
Gross margins in the November 2000 quarter declined to 50.4% from 54.8% in the
November 1999 quarter and to 49.8% in the six months ended November 2000 from
56.2% in 1999. This change in margins resulted principally from the acquisitions
of Acumedia, AmVet and Squires, which have lower margin product lines. To a
lesser extent margins decreased from the effect of changes in product sales mix.
Sales and marketing expenses increased $314,000 or 21.3% from the November 1999
quarter and $803,000 or 28.2% for the six-month period. These expenses rose in
partial relation to sales increases. However, because the distribution costs
related to Acumedia, AmVet and Squires are less than the distribution costs of
the Company's historical products, sales and marketing costs as a percentage of
sales decreased from 27.2% to 19.9% in the quarter and from 26.3% to 21.2% in
the six-month period.
General and administrative expenses increased $325,000 or 39.9% from the
November 1999 quarter and $543,000 or 35.6% for the six-month period. As a
percentage of revenue these costs decreased from 15.0% to 12.6% in the quarter
and from 14.2% to 12.1% in the six-month period. The increase in dollar costs
consisted principally of personnel additions and similar costs necessary to
provide accounting and other administrative functions for the significantly
greater level of operations.
Research and development expenses increased $31,000 or 7.3% from the November
quarter of 1999 and $117,000 or 15.5% for the six-month period. As a percentage
of revenues, research and development expenses decreased from 7.8% to 5.1% for
the quarter and from 7.0% to 5.1% for the six-month period. Acumedia, AmVet and
Squires do not require significant levels of research and development so it
should be expected that while absolute dollars will increase in support of the
Company's historical product lines, expenditures as a percentage of sales will
likely decrease.
Other income decreased in the November 2000 quarter and six-month period
principally as a result of the reduction in interest income from invested
balances following the acquisitions consummated over the past several quarters.
Beginning in the second quarter of the 1999 year, the Company reached a fully
taxable status for the first time. The changes in effective tax rates between
the periods are entirely related to this factor.
Financial Condition and Liquidity
---------------------------------
At November 30, 2000, the Company had $5,915,000 in cash and marketable
securities, working capital of $15,686,000 and stockholders' equity of
$26,763,000. In addition, the Company has unused bank lines totaling
$10,000,000. Cash and marketable securities decreased in the six months ended
November 30, 2000 with cash generated by operations of $1,070,000 offset by cash
expended for AmVet, Squires and other assets and for the repurchase of common
stock.
Accounts receivable were $1,000,000 higher at November 30, 2000 than at May 31
due primarily to the AmVet and Squire Acquisitions and significant increases in
sales during the period. Inventories increased $453,000 at November 30, 2000
compared to May 31. This resulted from continued strong management of this asset
despite the acquisitions and an increase in the level of operations. The
decrease in current liabilities results from timing of payments.
At November 30, 2000, 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.
-12-
<PAGE>
Management believes that the Company's existing cash and marketable securities
at November 30, 2000, 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.
PART I. FINANCIAL INFORMATION
ITEM 3. Quantitative and Qualitative Disclosures about Market Risks.
The Company's exposure to market risk for changes in interest rates relates to
its portfolio of marketable securities. The Company has no significant
borrowings. Interest rate risk is managed by investing in high-quality issuers
and seeking to avoid principal loss of invested funds by limiting default risk
and market risk. The Company manages default risks by investing in only
high-credit-quality securities and by responding appropriately to a significant
reduction in a credit rating of any investment issuer or guarantor. The
portfolio includes only marketable securities with active secondary or resale
markets to ensure portfolio liquidity.
-13-
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in several legal proceedings, none of which, in the
opinion of the management, is material to the financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of the Company was held on October 5, 2000. The matters voted
upon and the results of the vote follow:
1) Election of Directors
FOR
Herbert D. Doan 5,192,881
Gordon E. Guyer 5,150,456
Lon M. Bohannon 5,193,581
2) To approve an amendment to the Company's 1997 Stock
Option Plan increasing from 400,000 to 1,400,000 the
number of shares of the Company's common stock
authorized for issuance under the Plan.
FOR AGAINST ABSTAIN
2,909,684 518,674 46,557
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit Index
None
(b) Reports on Form 8-K Filed in Quarterly Period Ended November 30, 2000.
The Company did not file any reports on Form 8-K in the quarterly period ended
November 30, 2000.
-14-
<PAGE>
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
01/12/01 /s/ James L. Herbert
-------- --------------------
Date James L. Herbert
President
01/12/01 /s/ Richard R. Current
-------- ----------------------
Date Richard R. Current
Vice President & Chief Financial Officer
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