UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended February 28, 2006

or

¨ TRANSITION REPORT PURSUANT TO 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 registrant as specified in its charter)

Michigan	38-2364843
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification Number)

620 Lesher Place

Lansing, Michigan 48912

(Address of principal executive offices including zip code)

(517) 372-9200

(Registrant’s telephone number, including area code)

N/A

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer see definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  ¨    Accelerated filer  x    Non-accelerated filer  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):    YES  ¨    NO  x

As of April 1, 2006, there were 8,288,000 outstanding shares of Common Stock.

NEOGEN CORPORATION AND SUBSIDIARIES

TABLE OF CONTENTS

		Page No.
PART I. Financial Information
Item 1.	Interim Consolidated Financial Statements (unaudited)
	Consolidated Balance Sheets - February 28, 2006 and May 31, 2005	1
	Consolidated Statements of Income – Three months and nine months ended February 28, 2006 and 2005	2
	Consolidated Statements of Stockholders’ Equity – Nine months ended February 28, 2006	3
	Consolidated Statements of Cash Flows – Nine months ended February 28, 2006 and 2005	4
	Notes to Interim Consolidated Financial Statements – February 28, 2006	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	8
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	12
Item 4.	Controls and Procedures	12
PART II. Other Information
Item 1.	Legal Proceedings	13
Item 1A.	Risk Factors	13
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	13
Item 3.	Defaults Upon Senior Securities	13
Item 4.	Submission of Matters to a Vote of Security Holders	13
Item 5.	Other Information	13
Item 6.	Exhibits	13
Signatures

CEO Certification

CFO Certification

Section 906 Certification

PART I – FINANCIAL INFORMATION

ITEM 1. Interim Consolidated Financial Statements (Unaudited)

NEOGEN CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

	February 28, 2006		May 31, 2005
	(In thousands, except share and per share amounts)
ASSETS
CURRENT ASSETS
Cash	$	1,880	$	1,972
Accounts receivable, less allowance of $ 518 and $ 531		13,498		10,469
Inventories		17,077		13,796
Deferred income taxes		768		768
Prepaid expenses and other current assets		1,743		1,374
TOTAL CURRENT ASSETS		34,966		28,379
NET PROPERTY AND EQUIPMENT		14,027		12,193
OTHER ASSETS
Goodwill		30,591		18,599
Other non-amortizable intangible assets		2,076		2,076
Other non-current assets, net of accumulated amortization of $ 1,381 and $ 1,123		4,031		2,637
	$	85,691	$	63,884
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable	$	3,137	$	2,348
Accrued compensation		1,329		1,342
Income taxes		907		339
Other accruals		2,875		1,706
TOTAL CURRENT LIABILITIES		8,248		5,735
LONG TERM DEBT		12,800		—
DEFERRED INCOME TAXES AND OTHER LONG-TERM LIABILITIES		3,006		3,314
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, 8,282,000 shares issued and outstanding at February 28, 2006; 8,147,000 shares issued and outstanding at May 31, 2005		1,326		1,304
Additional paid-in capital		27,591		26,803
Accumulated other comprehensive income		143		136
Retained earnings		32,577		26,592
TOTAL STOCKHOLDERS’ EQUITY		61,637		54,835
	$	85,691	$	63,884

See notes to interim unaudited consolidated financial statements

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NEOGEN CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

	Three Months Ended February 28,						Nine Months Ended February 28,
	2006			2005			2006			2005
	(In thousands, except per share amounts)
Net sales	$	17,584		$	14,403		$	52,618		$	46,748
Cost of goods sold		9,062			7,445			25,765			24,191
GROSS MARGIN		8,522			6,958			26,853			22,557
OPERATING EXPENSES
Sales and marketing		3,753			3,308			11,369			9,987
General and administrative		1,545			1,169			4,235			3,849
Research and development		766			704			2,339			2,133
		6,064			5,181			17,943			15,969
OPERATING INCOME		2,458			1,777			8,910			6,588
OTHER INCOME (EXPENSE)
Interest income		19			2			62			6
Interest expense		(115	)		(23	)		(115	)		(75	)
Other		42			25			232			254
		(54	)		4			179			185
INCOME BEFORE INCOME TAXES		2,404			1,781			9,089			6,773
INCOME TAXES		772			567			3,104			2,302
NET INCOME	$	1,632		$	1,214		$	5,985		$	4,471
NET INCOME PER SHARE
Basic	$	.20		$	.15		$	.73		$	.55
Diluted	$	.19		$	.14		$	.70		$	.53

See notes to interim unaudited consolidated financial statements

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NEOGEN CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Income		Retained Earnings		Total
	Shares	Amount
	(In thousands)
Balance, June 1, 2005	8,147	$	1,304	$	26,803	$	136	$	26,592	$	54,835
Exercise of options and warrants	135		22		788						810
Comprehensive income:
Net income for the nine months ended February 28, 2006									5,985		5,985
Foreign currency translation adjustments							7				7
Total comprehensive income ($4,594 in the nine months ended February 28, 2005)											5,992
Balance, February 28, 2006	8,282	$	1,326	$	27,591	$	143	$	32,577	$	61,637

See notes to interim unaudited consolidated financial statements

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NEOGEN CORPORATION SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	Nine Months Ended February 28,
	2006			2005
	(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	5,985		$	4,471
Adjustments to reconcile net income to net cash provided by operating activities:		1,480			1,356
Depreciation and amortization
Changes in operating assets and liabilities:
Accounts receivable		(1,710	)		(1,146	)
Inventories		(1,347	)		(332	)
Prepaid expenses and other current assets
Accounts payable and accruals		2,309			(664	)
NET CASH PROVIDED BY OPERATING ACTIVITIES		6,717			3,685
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales of marketable securities		6,533			191
Purchases of marketable securities		(6,533	)		—
Purchases of property and equipment and other assets		(1,548	)		(2,341	)
Payments for business acquisitions		(18,546	)		(874	)
NET CASH USED IN INVESTING ACTIVITIES		(20,094	)		(3,024	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings (payments) on line of credit		12,800			(1,677	)
Reductions of other long-term liabilities		(325	)		—
Net proceeds from issuance of common stock		810			883
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES		13,285			(794	)
DECREASE IN CASH		(92	)		(133	)
CASH AT BEGINNING OF PERIOD		1,972			1,365
CASH AT END OF PERIOD	$	1,880		$	1,232

See notes to interim unaudited consolidated financial statements

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NEOGEN CORPORATION AND SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (generally accepted accounting principles) for interim financial information and with the instructions to Form 10-Q and Article 10 Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included. The results of operations for the nine month period ended February 28, 2006 are not necessarily indicative of the results to be expected for the fiscal year ending May 31, 2006. For more complete financial information, these consolidated financial statements should be read in conjunction with the May 31, 2005 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, 2005.

2. INVENTORIES

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

	February 28, 2006		May 31, 2005
	(In thousands)
Raw materials	$	5,643	$	5,529
Work-in-process		493		721
Finished goods		10,941		7,546
	$	17,077	$	13,796

3. NET INCOME PER SHARE

The calculation of net income per share follows:

	Three Months Ended February 28,				Nine Months Ended February 28,
	2006		2005		2006		2005
	(In thousands except per share amounts)
Numerator for basic and diluted net income per share:
Net income	$	1,632	$	1,214	$	5,985	$	4,471
Denominator:
Denominator for basic net income per share - weighted average shares		8,274		8,121		8,228		8,079
Effect of dilutive stock options and warrants		480		440		363		437
Denominator for diluted net income per share		8,754		8,561		8,591		8,516
Net income per share:
Basic	$	.20	$	.15	$	.73	$	.55
Diluted	$	.19	$	.14	$	.70	$	.53

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4. STOCK REPURCHASE

The Company’s Board of Directors has authorized the purchase of up to 1,250,000 shares of the Company’s Common Stock. As of February 28, 2006, the Company has cumulatively purchased 893,000 shares in negotiated and open market transactions. 2000 shares were purchased in 2006 and have been netted against net proceeds from sales of common stock in the Consolidated Financial Statements. Shares purchased under this buy-back program were retired.

5. SEGMENT INFORMATION

The Company has two reportable segments: Food Safety and Animal Safety. The Food Safety segment produces and markets diagnostic test kits and related products used by food producers and processors to detect harmful natural toxins, drug residues, foodborne bacteria, food allergens, pesticide residues, disease infections and levels of general sanitation. The Animal Safety segment is primarily engaged in the production and marketing of products dedicated to animal health, including veterinary instruments and a complete line of consumable products marketed to veterinarians and animal health product distributors. Additionally the Animal Safety segment produces and markets a line of rodenticides to assist in the control of rodents in and around agricultural, food production and other facilities.

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

Segment information for the three months ended February 28, 2006 and 2005 follows:

	Food Safety		Animal Safety		Corporate and Eliminations(1)			Total
	(In thousands)
Fiscal 2006
Net sales to external customers	$	8,862	$	8,722	$	—		$	17,584
Operating income		1,507		1,148		(197	)		2,458
Total assets		49,654		35,559		478			85,691
Fiscal 2005
Net sales to external customers	$	6,217	$	8,186	$	—		$	14,403
Operating income		626		1,126		25			1,777
Total assets		26,223		35,729		969			62,921
Segment information for the nine months ended February 28, 2006 and 2005 follows:
	Food Safety		Animal Safety		Corporate and Eliminations(1)			Total
	(In thousands)
Fiscal 2006
Net sales to external customers	$	24,357	$	28,261	$	—		$	52,618
Operating income		4,448		5,031		(569	)		8,910
Fiscal 2005
Net sales to external customers	$	20,893	$	25,855	$	—		$	46,748
Operating income		2,730		4,070		(212	)		6,588

(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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6. STOCK OPTIONS

In December 2004, the FASB issued a revision to Statement No. 123, Share-Based Payment. This revision supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and its related implementation guidance. This revision requires companies to recognize the cost of stock options, based on the grant date fair value, granted pursuant to their employees’ stock option plans over the period during which the recipient is required to provide services in exchange for the options, typically the vesting period. Pursuant to the requirements of the Statement, the Company plans to adopt the provisions of the statement during the first quarter of fiscal 2007. The Company has not presently determined a transition method of adoption. The pro forma effect of adopting this Statement is disclosed below and is not expected to have a material impact on the trend of net income per share.

	Three Months Ended February 28,						Nine Months Ended February 28,
	2006			2005			2006			2005
	(In thousands except per share amounts)
Net income:
As reported	$	1,632		$	1,214		$	5,985		$	4,471
Deduct-compensation expense based on fair value method		(235	)		(189	)		(586	)		(566	)
Pro forma	$	1,397		$	1,025		$	5,399		$	3,905
Basic net income per share:
As reported	$	.20		$	.15		$	.73		$	.55
Pro forma	$	.17		$	.13		$	.66		$	.48
Diluted net income per share:
As reported	$	.19		$	.14		$	.70		$	.53
Pro forma	$	.16		$	.12		$	.65		$	.46

7. LEGAL PROCEEDINGS

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

8. BUSINESS AND PRODUCT LINE ACQUISITIONS

As of October 1, 2004, Neogen Europe, Ltd., the Company’s subsidiary in Scotland, UK, acquired the distribution business of BiologischeAnalysensysteme GmbH (BAG), a privately held company based in Lich, Germany. BAG was a distributor of Neogen Corporation’s products in Germany. BAG’s revenues in the 12 months ended September 30, 2004 were approximately $600,000. Consideration for the acquisition was cash of $448,000. The allocation of the purchase price included inventory of $68,000, equipment of $21,000 and customer based intangibles of $359,000.

On October 13, 2004, the Company acquired the UriCon product line of Animal Health Ventures, Inc., a privately held company. UriCon is a product used for the treatment of urinary incontinence in dogs. Consideration for the purchase was cash of $200,000. The allocation of the purchase price included inventory of $23,000 and intangibles of $177,000. The acquisition adds to the Company’s product lines directed toward the treatment of medical disorders in companion animals.

During the second quarter of 2006 a secondary payment in the amount of $183,000 was paid to the former owners of Adgen Ltd. (now Neogen Europe, Ltd.). No additional amounts are contractually due under terms of the Asset Purchase Agreement.

On December 19, 2005, Neogen Corporation purchased certain assets of the dairy antibiotics business of UCB FD Bioproducts, a division of Belgium based UCB Group. The Consolidated Statements of Income reflect the results of operations of UCB FD Bioproducts since the date of purchase. Consideration for the sale, including transaction costs to date of $300,000, was $15,000,000 in cash, plus post closing adjustments and potential secondary payments of up to $4,300,000. The preliminary allocation of the purchase price, subject to finalization of asset valuations, included $1,000,000 of accounts receivable, $1,700,000 of inventory, $500,000 of other current assets, $1,300,000 of fixed assets and $8,900,000 of goodwill and $1,600,000 of other amortizable

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intangibles. Other amortizable intangibles have been assigned 10 year lives. The Company is believed to be a strong synergistic fit into Neogen’s overall strategy of providing food and animal safety solutions.

Unaudited pro forma financial information, as if the acquisition of the dairy antibiotics business had taken place on June 1, 2004 is as follows:

	Three Months Ended February 28,				Nine Months Ended February 28,
	2006		2005		2006		2005
	(In thousands except per share amounts)
Revenue	$	17,584	$	16,581	$	57,013	$	53,608
Net Income		1,632		1,498		6,564		5,390
Diluted net income per share	$	0.19	$	0.17	$	0.77	$	0.64

On February 17, 2006, Neogen Corporation purchased the common stock of Centrus International, Inc., a wholly owned subsidiary of Eastman Chemical Company, of Kingsport, Tennessee. The Consolidated Statements of Income reflect the results of operations of Centrus International, Inc. since the date of purchase. Consideration consisted of $3,300,000 in cash. The preliminary allocation of the purchase price included accounts receivable of $300,000, inventory of $200,000, fixed assets of $200,000 and intangible assets of $2,900,000 and assumed liabilities of $300,000. Centrus produces Soleris^™, a user-friendly, rapid optical testing system that accurately detects microbial contamination and represents a synergistic fit with Neogen’s Food Safety solutions. Centrus sales in the 12 month period ended December 31, 2005 (prior to the acquisition) was $2,800,000. On a pro forma basis Neogen net income prior to the acquisition would not be materially affected.

9. LONG TERM DEBT

On December 19, 2005, the Company executed a financing agreement with a bank ($12,800,000 drawn at February 28, 2006) providing for an unsecured revolving line of credit of $17,500,000. Interest is at LIBOR plus 95 basis points (rate under the terms of the agreement was 5.52% at February 28, 2006). Financial covenants include maintaining specified funded debt to EBITDA and debt service ratios as well as specified levels of tangible net worth, all of which are complied with at February 28, 2006. Maturity is December 1, 2007. The agreement replaced an existing credit facility with another bank.

10. GRANT FROM INGHAM COUNTY

The Company has a $500,000 grant from Ingham County that is restricted for the purchase of machinery and equipment at its location in Lansing, Michigan. The grant is repayable in cash plus interest to the extent not offset by allowances for new employees hired in Lansing over a period of 6 years. Grant monies received from the County for eligible purchases are recognized as a long-term liability. The liability is reduced and other income is recognized for the allowances granted as eligible new employees are hired. The Company recognized other income of $50,000 and $30,000 related to the grant in the three month periods and $90,000 and $250,000 in the nine month periods ended February 28, 2006 and 2005, respectively.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The information in this Management’s Discussion and Analysis of Financial Condition and Results of Operations contains both historical financial information and forward-looking statements. Neogen does not provide forecasts of future performance. While management is optimistic about the Company’s long-term prospects, historical financial information may not be indicative of future financial performance.

Safe Harbor and Forward-Looking Statements

Forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, are made throughout this Quarterly Report on

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Form 10-Q. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words “believes,” “anticipates,” “plans,” “expects,” “seeks,” “estimates,” and similar expressions are intended to identify forward-looking statements. There are a number of important factors, including competition, recruitment and dependence on key employees, impact of weather on agriculture and food production, identification and integration of acquisitions, research and development risks, patent and trade secret protection, government regulation and other risks detailed from time to time in the Company’s reports on file at the Securities and Exchange Commission, that could cause Neogen Corporation’s results to differ materially from those indicated by such forward-looking statements, including those detailed in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

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

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The discussion and analysis of the Company’s financial condition and results of operations are based on the consolidated financial statements that have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires that management make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, management evaluates the estimates, including those related to receivable allowances, inventories and intangible assets. These estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

The following critical accounting policies reflect management’s more significant judgments and estimates used in the preparation of the consolidated financial statements.

Revenue Recognition

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

Accounts Receivable Allowance

Management attempts to minimize credit risk by reviewing customers’ credit history before extending credit and by monitoring credit exposure on a regular basis. An allowance for possible losses on accounts receivable is established based upon factors surrounding the credit risk of specific customers, historical trends and other information, such as changes in overall changes in customer credit and general credit conditions. Actual collections can differ from historical experience, and if economic or business conditions deteriorate significantly, adjustments to these reserves could be required.

Inventory

A reserve for obsolescence is established based on an analysis of the inventory taking into account the current condition of the asset as well as other known facts and future plans. The amount of reserve required to record inventory at lower of cost or market may be adjusted as condition’s change. Product obsolescence may be caused by shelf life expiration, discontinuation of a product line, or replacement products in the market place or other competitive situations.

Valuation of Intangible Assets and Goodwill

Management assesses goodwill and other non-amortizable intangible assets for possible impairment on no less often than an annual basis. This test was performed in the fourth quarter of fiscal 2005 and it was determined that no impairment exists. In the event of changes in circumstances that indicate the carrying value of these assets may not be recoverable, management will make an assessment at any time. Factors that could cause an impairment review to take place would include:

• Significant underperformance relative to expected historical or projected future operating results.

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• Significant changes in the use of acquired assets or strategy of the Company.

• Significant negative industry or economic trends.

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

RESULTS OF OPERATIONS

Executive Overview

Total revenues increased 22% in the February 2006 quarter compared to the February 2005 quarter with Food Safety segment products increasing 43% and Animal Safety segment products increasing 7%. On a nine month year to date basis, total revenues increased 13% with 17% in the Food Safety segment and 9% in Animal Safety. Exclusive of the third quarter acquisitions of the dairy antibiotics business and of Centrus International, consolidated revenue was up 9% for the quarter and year to date. Exclusive of the acquisitions Food Safety revenues were up 13% for the February 2006 quarter and 8% for the nine months year to date. These increases represented continued improvements in sales of the Company’s products both domestically and internationally.

Gross margins for the February 2006 quarter were comparable with those of the February 2005 quarter. Margins, however, were down almost 400 basis points from the November quarter of the 2006 fiscal year. This decrease was due to the February 2006 quarter revenues that were less than the November quarter and the effects of integration costs of the acquisitions. On a nine month year to date basis, gross margins have increased to 51% from 48% in comparable period of the prior year. The margin increases result from the effects of consolidations made in the prior year and strong cost controls throughout the Company.

Net income increased 34% both in the February 2006 quarter compared to the February 2005 quarter and on a nine month year to date basis compared to the prior year. The February 2006 quarter represented the fourth consecutive quarter of increases in net income in excess of 30% when compared to the same quarter of the prior year. These increases in net income arose from additional sales, increases in gross margins and controls of other costs.

See the discussions below for more detailed analysis of the results of the Company’s operations for the three and nine month periods ended February 28, 2006 as compared to the same three and nine month periods of the prior year.

Three and Nine Months Ended February 28, 2006 Compared to Three and Nine Months Ended February 28, 2005

	Three Months Ended February 28,				Increase (Decrease) (Dollars in Thousands)					Nine Months Ended February 28,				Increase (Decrease)
	2006		2005							2006		2005
Food Safety
Natural Toxins & Allergens	$	4,838	$	2,430	$	2,408		99	%	$	11,375	$	8,256	$	3,119		38	%
Bacteria & General Sanitation		2,181		2,252		(71	)	(3	)%		7,036		7,436		(400	)	(5	)%
Dry Culture Media & Other		1,843		1,535		308		20	%		5,946		5,201		745		14	%
		8,862		6,217		2,645		43	%		24,357		20,893		3,464		17	%
Animal Safety
Life Sciences Drug Detections & Vaccines		1,694		1,524		170		11	%		5,326		4,852		474		10	%
Rodenticides & Disinfectants		2,135		2,342		(207	)	(9	)%		8,881		8,111		770		9	%
Veterinary Instruments & Other		4,893		4,320		573		13	%		14,054		12,892		1,162		9	%
		8,722		8,186		536		7	%		28,261		25,855		2,406		9	%
Total Sales	$	17,584	$	14,403	$	3,181		22	%	$	52,618	$	46,748	$	5,870		13	%

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Food Safety segment sales of natural toxin and allergen products increased 99% in the February 2006 quarter and 38% on a nine month year to date basis. Exclusive of sales of dairy antibiotic testing products from the business acquired in December 2005, this category of sales would have increased 23% for the quarter and 15% on a nine month year to date basis. These increases arose from increased customer utilization of allergen test kit products and from higher levels of test kit sales for natural toxins because of grain contamination resulting from unfavorable weather events. Product lines related to bacterial and general sanitation products decreased 3% in the February 2006 quarter and by 5% for the nine month year to date period as a result of continued competitive pressures in the bacteria testing markets. Revenues related to dehydrated culture media and other products increased 18% in the February quarter and 14% in the nine month year to date period as the company continued to increase market penetration in both domestic and international markets.

Animal Safety segment sales of life science, drug detection and vaccine products increased by 11% in the February 2006 quarter and by 10% on a nine month year to date basis, with strong increases in the life sciences and vaccine product groups in the quarter and in all product groups for the nine month year to date basis. Rodenticide and disinfectant product sales decreased by 9% in the February 2006 quarter, but increased by 9% on the nine month year to date basis. The decreases in the current quarter resulted from less usage due to the unusually mild winter in most of the USA. Nine month year to date sales were aided by revenues from products sold to assist in the control of an outbreak of voles in the northwest USA. Veterinary instrument and other sales increased by 13% for the February 2006 quarter and by 9% on a nine month year to date basis as a result of improvements in sales of over-the-counter veterinary products to farm and ranch retailers, and the Company’s OTC distributor network. Sales of the Company’s nitrofurazone topical wound treatment product, also included in this category, increased as a result of a key FDA approval.

Gross margins in the February 2006 quarter were unchanged at 48% when compared to the prior year and increased from 48% to 51% in the nine month year to date period. Food Safety segment margins decreased to 56% from 57% in the February quarter and increased to 58% from 56% in the nine month year to date period. Animal Safety segment margins decreased from 42% to 40% in the February quarter and increased from 42% to 44% in the nine month year to date period. The overall changes in gross margins both in the quarter and the nine month year to date periods were the result of better utilization of manufacturing facilities, changes in product mix and costs of integration of the dairy antibiotic business. In each of the two most recently completed fiscal years, the Company significantly expanded its Food and Animal Safety production capability with the objective of increasing operating efficiencies. The gross margins of the divisions were affected by the same factors identified as affecting the overall gross margins of the Company.

In the February 2006 quarter sales and marketing expenses increased by $445,000 but decreased to 21% of revenues from 23% in the prior year. On a nine month year to date basis these expenses increased $1,382,000 or to 22% of revenues from 21% in the prior year. Food Safety sales and marketing expenses increased $330,000 for the February 2006 quarter but decreased from 29% of revenues to 24% and increased $676,000 on a nine month year to date basis but decreased from 26% of revenues to 25%. Animal Safety sales and marketing expenses increased $116,000 for the February 2006 quarter and increased from 17% of revenues to 18% and increased $706,000 on a nine month year to date basis and increased from 18% of revenues to 19%. The levels of these expenditures tend to vary with levels of sales and are within the management’s expectations and historical relationship range.

General and administrative expenses increased $376,000 for the February 2006 quarter or to 9% of revenues from 8%. On a nine month year to date basis these expenses increased $386,000, but remained at 8% of revenues. General and administrative expenses are generally fixed in relation to revenues.

Research and development expense increased $62,000 for the February 2006 quarter but decreased to 4% of revenues from 5%. On a nine month year to date basis these expenses increased $206,000 but decreased to 4% of revenues from 5%. Management expects research and development expense to approximate 4% to 6% over time. These expenses approximate 8% to 10% of revenues from sales of products and product lines supported by research and development.

Other income as compared to the prior year quarter and nine month year to date periods is comparable. Other income is reported net of interest expense related to borrowing under the Company’s long term borrowing arrangements.

Federal and state income tax rates used in the computation of income tax expense in the periods are comparable to those of the prior year.

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Financial Condition and Liquidity

At February 28, 2006, the Company had $1,880,000 in cash, working capital of almost $27,000,000 and stockholders’ equity of over $61,000,000.

Accounts receivable were $3,000,000 greater than at May 31, 2005. Increases came from $1,300,000 of balances related to acquisitions and other increases related to greater levels of sales. Days outstanding in accounts receivable increased from 56 days at May 31, 2005 to 61 days at February 28, 2006. The number of days outstanding are effected by the relative percentage of foreign sales and the timing of domestic sales. Days outstanding are considered to be within the normal range when compared to days outstanding at Neogen Corporation over the past several years. Management believes that the recorded allowance is adequate to provide for accounts that may become uncollectable. Inventories at February 28, 2006 have increased by $3,300,000 as compared to May 31, 2005. Increases come from $1,900,000 of balances related to acquisitions and other increases related to the maintenance of higher levels of inventory for customer service. Inventory levels are considered to be adequate to service expected sales during the fourth quarter or fiscal 2006 and beyond. The increase in current liabilities is related to the timing of payments.

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

Management believes that the Company’s existing cash balances at February 28, 2006, along with available borrowings under its credit facility and cash expected to be generated from future operations, will be sufficient to fund activities for the foreseeable future. However, existing cash and borrowing capacity may not be sufficient to meet the Company’s cash requirements to commercialize products currently under development or its plans to acquire other organizations, technologies or products that fit within the Company’s mission statement. Accordingly, the Company may be required to issue equity securities or enter into other financing arrangements for a portion of the Company’s future financing needs.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company has minimal interest rate and foreign exchange rate risk exposure and no long-term fixed rate investments or borrowings. The Company’s primary interest rate risk is due to potential fluctuations of interest rates for variable rate borrowings.

Because Neogen markets and sells its products throughout the world, it could be significantly affected by weak economic conditions in foreign markets that could reduce demand for its products. Sales in certain foreign countries as well as certain expenses related to those sales are transacted in currencies other than the U.S. dollar. The Company’s operating results are primarily exposed to changes in exchange rates between the U.S. dollar and the British Pound and Euro. When the U.S. dollar weakens against foreign currencies, the dollar value of sales denominated in foreign currencies increases. When the U.S. dollar strengthens, the opposite situation occurs.

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

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures - An evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of February 28, 2006 was carried out under the supervision and with the participation of the Company’s management, including the President and Chief Executive Officer and the Vice President and Chief Financial Officer (“the Certifying Officers”). Based on that evaluation, the Certifying Officers concluded that the Company’s disclosure controls and procedures are effective to bring to the attention of the Company’s management the relevant information necessary to permit an assessment of the need to disclose material developments and risks pertaining to the Company’s business in its periodic filings with the Securities and Exchange Commission. There was no change to the Company’s internal control over financial reporting during the third quarter of fiscal 2006 that materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

Items 1A, 2, 3, 4 and 5 are not applicable and have been omitted.

ITEM 6. EXHIBITS

(a) Exhibit Index

31.1	–	Certification of Chief Executive Officer pursuant to Rule 13a – 14 (a).
31.2	–	Certification of Chief Financial Officer pursuant to Rule 13 a – 14 (a).
32.	–	Certification pursuant to 18 U.S.C. section 1350.

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SIGNATURES

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

	NEOGEN CORPORATION
	(Registrant)
Dated: April 10, 2006
	/s/ JAMES L. HERBERT
	James L. Herbert
	President and Chief Executive Officer
Dated: April 10, 2006
	/s/ RICHARD R. CURRENT
	Richard R. Current
	Vice President and Chief Financial Officer

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