Welcome to the Neogen second quarter fiscal year 2011 earnings results conference call. (Operator Instructions) I'll now turn the call over to James Herbert. Mr. Herbert, you may begin.

Good morning and welcome to our regular quarterly conference call for investors and analysts. Let me begin this morning by wishing each of you a prosperous and a happy new year. Though I'm sure we'll all see opportunities over the next calendar year, the one that we just finished was a pretty good one for Neogen Corporation. Though we don't report our business on a calendar year basis, I thought it'd be interesting to see how Neogen compared in the 12 months of 2010 to the 2009 year. And that consistency of performance was still intact, as over the past 12 months our earnings per share were up approximately 34%, with revenues up about 26%. The purpose of our call today is to report to you on Neogen's second quarter of our 2011 year, which ended on November 30. And I'll remind you that some of the statements that are made here today could be termed as forward-looking statements. These forward-looking statements, of course, are subject to certain risks and uncertainties and the actual results may differ from those that we discuss today. These risks associated with our business are covered in part in the company's Form 10-K as filed with the Securities and Exchange Commission. In addition to those of you who are joining us today by this live telephone conference, I'd also welcome those who may be joined by way of simulcast on the worldwide web. These comments along with some exhibits will be available on the web for approximately 90 days. Following our comments this morning, we'll entertain questions from participants who are joined by this live conference and I'm joined today by Lon Bohannon, Neogen's President; and unfortunately say to you that Rick Current who usually joins us at this time, our CFO, came down last evening with a stomach virus and we suggested that he stay home this morning. I suspect however that Lon and I can answer many of the questions that you might have for Rick. And those that we can't, well we'll get those responses back to you probably even later today. Earlier today, Neogen issued a press release announcing the results of our second quarter of this 2011 fiscal year. Once again, I am pleased to report another record-breaking quarter and I continue to give the credit to our team now of over 600 employees, they are located in several places around the world who have continued to remember that the toughest thing about success is that you have to keep on being a success. Our second quarter revenues climbed 25% over the same quarter last year. Revenues for the quarter were $43.9 million as compared to $35.2 million last year. There were no surprises in those revenues for the quarter with this actual coming in at about 99.4% of our budget that we had projected, despite the fact that we had some currency translation issues. Once again, these revenues added to the Neogen's stream of quarterly revenue successes, marking the 75th quarter in the past 80, in which we have shown increased revenue compared to a year earlier. Or stated another way, there's only been five quarters in the past 20 years that we've failed to beat previous year revenues. Our net income growth even surpassed our revenue growth of 33% from last year's second quarter. Net income for the quarter was about $6.1 million or $0.26 a share compared to last year's $0.20. As I said earlier that our revenues for the quarter were almost dead on what we had expected about eight months ago, when we put our budgets together. However, our profit from operations were about to a percent better than what we had budgeted. In a few minutes Lon will talk about a few of the things that we did to make that possible. On our year-to-date basis for the first six months of the fiscal year, our revenues are now up 28% to approximately $86.9 million from last year's $67.6. The year-to-date income for the same six month period increased to 33% to $11.9 million from $9 million in fiscal year 2010. So on a six-month basis, this translates to $0.51 per share for the first six months compared to the previous year's $0.39 a share. The outstanding performance for the quarter was real broad-based between both our Food Safety and our Animal Safety divisions and they were even within the various parts in marketing groups within each of those divisions. Growth in our international revenues for the quarter, I think is not worthy, is approximately 43% of the revenues were derived from international sources. Over the past several quarters we've been holding a constant of about 40% of revenues which, frankly I thought was pretty good because we'd been growing our domestic revenues pretty rapidly. But we were able to achieve the growth this quarter up to the 43%, even though currency translations detracted from the record. And those translations, some of you would like to know that translations accounted for about $434,000 reduction in revenue, it's compared to a year earlier and about $367,000 reduction in operating income. International sales came from numerous sources, but once again Neogen's subsidiary operations in certain key countries continued to be very promising. Neogen Europe operations showed a 41% increase in revenue, even after an adverse currency translation. Our Neogen Latinoamérica operations are located in Mexico City, showed a 33% increase in revenue for the quarter, and our Neogen do Brazil operations are now up and running strong and contributing to our total. Though there were a lot of great accomplishments from operations during the second quarter, let me save those for Lon's analysis. However, there are some issues that continue to develop in the economy, and with government regulations, both internationally as well as here in the U.S. that do bear us some discussion I think. Though there is a fair amount of uncertainty attached to many of these, they should all be Neogen growth drivers. Likely, the most publicized of these has been the Food Safety Modernization Act which had a tortured, zigzag course through the Congress for over a year, but was finally passed within hours at the time that the Congress headed home for the holidays and I understand it's on the President's desk, scheduled to be signed into law today perhaps. The chief focus of this legislation was the Food and Drug Administration. It is the intent or was the intent of Congress to pay some measure that will allow FDA to focus on preventing foodborne outbreaks, rather than reacting to those outbreaks after they occurred. Even though the bill is now passed into law or soon will be signed into law, it would take much to write the rules that will allow the agency to begin enforcing many of these aspects. Some aspects though will take immediate effect. For instance I believe that FDA now has the authority to order a food recall, whereas in the past the agency could only request a recall from the food processor. Like past legislation, this new legislation will not have an immediate impact but instead we think we'll see Neogen opportunities grow in a orderly fashion, as companies adopt the new regulations. As an example, companies will have 18 months to begin complying with the central measure of the bill. And this is a requirement that all food processing companies examine their processing systems to identify possible ways that food products could become contaminated, and that they develop detailed plans then to keep these from happening. More testing will be required in order to validate these plans. This will be almost a twin to what's been done in USDA in the development of their Hazard Analysis Critical Control Points program you have heard us mention in the past. The difference however, between FDA and what's already happened at USDA is one or two orders of magnitude bigger in terms of food processing facilities. Frankly, I am not sure that we even know how many facilities will now fall under the new regulation at FDA. However, the Congressional Budget Office has estimated that 50,000 foreign and domestic food facilities will be inspected by the year 2015 by FDA and/or some other official agency acting on FDA's behalf, and I suspect that any of those 50,000 are currently being inspected today. Likely, the greatest impact at least initially will be on foreign imports of food, where FDA will be required to test more food at U.S. ports, as well as inspect food processing plants in the countries outside the U.S. The risk is, facilities are expected to be first in line. This will also allow the FDA to be more proactive, back at the farm production level where food's being produced. We have already seen a taste of that that the FDA has stepped up enforcement on Salmonella (inaudible) all the way back to the chicken farm level that we talked to you about three, four months ago. Our strategic locations in Brazil, Mexico, and China, I think should benefit from this increased international emphasis from FDA. From the international front it is also going to be interesting to watch economic events unfold over the course of the next year as it relates to food production and demand for raw material such as corn. All of this will likely have some impact both positively and negatively on many of our customers. Corn right now is getting the lion's share of the attention because of its various competitive uses. The recent congressional support for corn-based ethanol production will continue to put upward pressures on corn prices. China could emerge as the world's largest importer of corn, which would reshape the whole global grain market. In the past, China has imported soybeans, but practically no corn. In 2010, we don't know those numbers exactly yet but it is estimated that China imported about 50 million bushels of corn. But that could easily jump all the way to 1 billion bushels of corn some people believe about 2015 which is just four years away. During 2010, corn prices increased about 60%, and this increase in demand is draining the U.S. reserves to the lowest levels that we have seen in about 15 years now. This export surge would be mostly beneficial to U.S. farmers who currently control about half of the world's corn trade. However, the increased demand and increase in pricing is clearly going to put more pressure on U.S. companies who need corn to produce animal proteins or to make food ingredients. Talking about producing animal protein and based on the figures that I'm seeing, it appears that the U.S. beef cowherd continues to strengthen during 2010 and that these numbers might be down as much as 2%. This reduction, though it would be helpful to cow-calf producers, but the supply along with increased feeding costs will undoubtedly push beef prices higher as we look at the coming calendar year. Pork producers increased their supply by about 1% during 2010, but corn prices will certainly impact their profitability in the year ahead. And (both) suppliers are forecast to be up about 2% to 3% in 2011, and these producers are large users of the nation's corn crop. I think what's not been weighed-in in all of this is consumer economics, where and when will buying resistance develop. Neogen watches the impact of all of these shifts not out of fear, but instead to make sure that both our food safety and our animal safety groups are focused in the right place. Food consumption is not going to drop, and safety of food is going to continue to gain in emphasis and the producer and the processor challenges are going to continue to grow. Our job is to make certain that we have the right solutions and are in the right place to be of help. With those comments, let me stop at this point and turn the conference over to Lon Bohannon to talk more about some of the real color of the various areas of the quarter. And then I'll come back for a few minutes to give you my thoughts on what I see might happen over the next few quarters. Lon.

Thank you, Jim, and welcome to our listeners on the conference call as well as those joining us via internet access. Like Jim, I'd like to begin by first wishing all of our listeners a very prosperous New Year. And all of us at Neogen are looking forward with great enthusiasm to 2011 calendar year. As Jim mentioned, Neogen issued a press release earlier today reporting our operating results for the second quarter and first six months of our 2011 fiscal year. Neogen's percentage growth in sales and net income for the three months ended November 30, 2010 was very similar to our exceptional first quarter results. And as you heard, the second quarter set new quarterly records for Neogen in terms of sales, net income and earnings per share and continued our remarkable track record for consistent growth in sales and profitability. Neogen's revenue growth for the second quarter and actually for the first six months of our current fiscal year was broad-based across a number of market segments in many product lines. Our acquisitions have made a significant contribution to overall sales growth this fiscal year, where organic growth has also been very strong. Adjusting for currency translation, organic sales growth came in at 10% the second quarter and stands at 13% on a year-to-date basis. I would like to take just a few minutes to discuss some of the many highlights in the second quarter. Our Food Safety Division experienced a strong second quarter with overall growth of 16%. This division achieved solid growth in most all of the market segments we serve, including grocery products, meat and poultry, nutraceutical market and pet food. One exception to Food Safety's quarter-to-quarter growth performance came in the area of sales to the milling and grain market. Sales for this market segment actually declined in the second quarter compared to the prior year. Those of you who have listened in on these calls remember that last year's corn harvest experienced widespread mold contamination, resulting in a very high level of testing for the mycotoxin, DON. That mold growth was not repeated in this year's corn harvest to the same extent. And lower levels of DON testing relative to last year's unusually high volume of testing will continue in the milling and grain segment for the rest of this fiscal year. Fortunately, one of the Neogen's strength is its broad-based line of diagnostic products that serve many market segments, which more than offsets the impact of an unfavorable comparison in the single market or product line like we will experience this year in the area of mycotoxin testing in the milling and grain market. For example, sales of diagnostic tests to detect specific foodborne pathogens like Salmonella and Listeria increased 12% in the second quarter. Sales of Neogen's proprietary Soleris system used for the detection of spoilage organisms such as yeast and molds were up 17%. Even more impressive was our growth in sales of test kits for various allergenic compounds, which increased 87% in the quarter. This overall growth was a combination of last year's acquisition of the BioKits line of allergen test from Gen-Probe and continued organic growth of Neogen's existing food allergen test kit line. Other Food Safety product lines that achieved strong growth in the quarter included the company's line of tests for dairy antibiotics, which were up 9% despite unfavorable currency adjustments, and Neogen's line of dehydrated culture media which was up 20% compared to the prior year. The Animal Safety Division also experienced an exceptional second quarter with overall sales up 34% compared to last year. Revenues recorded by GeneSeek, the genetic service laboratory that was required by Neogen in April of 2010 contributed significantly to the overall sales growth for the Animal Safety group. GeneSeek business continues to exhibit strong growth domestically and internationally by providing genetic test services related to animal breeding, identity verification and disease management. The diagnostic product lines, a part of the Animal Safety group, also experienced an exceptional second quarter, led by sales to the forensic market for test kits for drugs of abuse, which increased 30%. We also saw 28% growth in sales of reagent substrates sold to other diagnostic test kit manufacturers. The venerable Ideal veterinary instrument sales were up 25% and specialty needle sales to large OEM accounts rebounded from a relatively slow first quarter to achieve 93% growth in the second quarter. The only other product line for Animal Safety that I'd mention were our sales of rodenticides, which increased 15% this quarter as a result of strong growth in the agronomics market segment, a successful fall marketing promotion and continued gain of market share with animal protein producers and processors. As Jim mentioned, Neogen's International sales exhibited especially strong performance in the second quarter representing 43% of total revenues. Neogen Europe group once again overcame unfavorable currency headwinds to post an outstanding 41% increase in sales for the quarter. Jim talked about Neogen Latinoamérica, which had solid growth of sales up 33%. And with the addition of our BetaStar dairy antibiotic test, the Neogen do Brasil group is now selling Neogen's complete line of food safety products and they have also filed the necessary documents to add important Animal Safety products like rodenticides and disinfectants for sale into Brazil. In today's economy, those international markets continue to gain importance and they provide some of the best opportunities for future growth for Neogen. Now looking at operating margins, our operating margin for Neogen continued to outperform our internal objective, coming in at 21.9% and 22.1% respectively for the second quarter and first six months of the current fiscal year. Any operating profit over 20% is above expectations, and our outstanding performance thus far in fiscal year '11 reflects a favorable product mix as well as our ongoing efforts to reduce cost and increase productivity. Direct labor overhead sales and marketing and G&A were all below the prior year when expressed as a percent of sales. Over the course of the last couple of years, on occasion I have mentioned the fact that we have a number of ongoing projects that are specifically aimed at either improving productivity or increasing our operating efficiencies or even reducing the cost of our raw materials. And I am particularly proud of a number of our operations teams in several areas where they've had great success, which has helped drive that operating margin number. I don't think I need to go into the specific projects that we've got, but I think it's important for you to understand that that is a culture at Neogen Corporation that we'll continue to promote. And a big reason that we have seen those increases in operating margins to above 20% is because we've had success in some programs that were initiated as much as a year-and-a-half ago. So we will continue to do that, and I think that bodes well for the operating margins going forward. Equally impressive is Neogen's strong balance sheet and cash flow from operations. Cash has increased approximately $22 million in the first two quarters, and virtually all of that increase was provided from operations. Over the same period, our investment in accounts receivable and inventory has increased approximately 1% despite a significant increase in sales. As you know, stockholders' equity has increased almost $19 million or 12.4%, during the first six months of the current fiscal year. So obviously Neogen has a very strong foundation for future growth. And I think in terms of a comment about growth, it's a nice segue for me to offer some thoughts on what I see for the quarters and years ahead. As I look at the next two quarters, I guess I would characterize my outlook as cautiously optimistic. Obviously Neogen has good sales momentum. We have a great product portfolio and a balance sheet that has never been better. I'm not worried about our ability to meet user demand with quality products or maintaining what I consider to be an industry-leading customer service and support, all of which adds to my overall optimism. But I don't think it's prudent to totally ignore an economy that remains somewhat uncertain with a stubbornly high rate of unemployment. On December 10, The Wall Street Journal reported that big U.S. food manufacturers are approaching 2011 warily with lower earnings expectations and some tepid outlooks. Rising cost for commodities that Jim talked about such as corn could squeeze large food companies like ConAgra and Kellogg in addition to dampening outlooks for companies involved in animal protein production like Tyson and Smithfield where feed is a significant cost ingredient. In addition, Neogen did see some scattered indications that we're still in the midst of a slow recovery, at least domestically, as a couple of distributors fail to place normal stocking orders in November as part of their overall efforts to hold down their investments in inventory. And although we have seen improvement in terms of customers willing to make capital expenditures, we did have a few customers that continued to hold off approving capital expenditures to purchase things like our Soleris reader instruments. So all of these factors caused me to maintain an appropriate level of short-term caution regarding the overall economic conditions surrounding food production from inside the farm gate and food plate. However, I've never been more excited about Neogen's longer-term prospects, especially as it relates to opportunities and rapidly growing international markets and our growing pipeline of research projects associated with new and improved products. In addition, I do believe the overall U.S economy is improving and that Neogen should be able to gain market share with industry elite and multinational accounts that help us overcome many obstacles associated with a sluggish economy. Accordingly, I continue to believe that the overall outlook for Neogen has never been better. That concludes my comments for the day, and I'll turn it back over to Jim for some closing remarks.

Thank you, Lon. I am sure you can tell from Lon's comments that the real key to our success has been this group taking the advantage of our growth strategy by that converting this into topline and bottomline successes. I believe that Lon has set the right tone for our operating group to continue to be optimistic, aside of the fact that economic recovery is continuing at a slow pace not just here in the U.S., but in many of the other countries that are important to our business. I am very optimistic about Neogen's growth in revenue and profitability over these next 12 months as we look out over the calendar year. We'll still keep our basic plan of growing the company through our expanded products to our current customer base. We will continue to record synergistic acquisitions. We'll make sure that the areas of growth or that we participate in are applicable to international markets and not just domestic. And for the fourth piece of this strategy, we'll continue to work to gain market share. As I announced to you last quarter, I am pleased with our new products that are coming through the pipeline. Though we don't have an acquisition to announce to you today, there are good opportunities that continue. I spent some time earlier here this morning talking about our international growth and feel good that we're now pushing those revenues along at a little faster clip than we had been over the last two, three quarters. I do think however that we can put some additional emphasis on market share and will begin to make some significant strategic shifts in that area over the next several months. As some of you know, Neogen management spends a great deal of time prior to the beginning of each year in the planning and the budgeting process. This process serves us well and has set the course of where we're going for the year that's ahead of us and what we need to do in order to achieve those results. Though we often make mid-course corrections, they're generally pretty minor. As I said in my earlier comments, the revenues for the first two quarters have been in keeping with what we'd forecasted in this annual plan; however, our operating profits and the cash flow generation has exceeded our earlier expectations. This is a result of a lot of efficiency moves that Lon discussed along with a good job that the team has done in holding down our operating capital that's devoted to accounts receivable and inventories. As Lon pointed out, even though we've increased revenues significantly, we've increased accounts receivable and inventories by only about 1% compared to where we were at the beginning of the year. This has pushed cash up to approximately $44 million at the end of the second quarter, and I am sure somebody is wondering what's going to happen to that K. This has given us more expansion capital than we anticipated that we'd have when we developed the annual plan for this year. Back to several months, I challenged our operating managers to identify expansion opportunities that they'd not focused on earlier with a caveat that the use of extra capital needs to be accretive as both the top and the bottomline. I've asked where they could use the money that would bring in increased revenue in the next couple of quarters and would make a contribution to our operating profit. Both our Food Safety and Animal Safety groups have accepted this challenge and we're now reviewing a number of proposals that I'd expect that we'd begin to implement in the next couple of months. We know that the markets we serve are growing, and I believe that based on our revenue increases we're getting some increased share of those markets. However, I believe that we have the necessary financial resources and the talent to put more emphasis behind market share growth, and I expect this use of available cash will help us step up that organic growth. Now I'd say to you don't worry, we're not planning to do anything stupid, nor are we planning to step outside of our regular mission for the company. Furthermore, we'll closely monitor these new activities to make certain that we're achieving the results that have been anticipated. As part of the changes that is coming up, it's also my pleasure this morning to introduce to you a new member of our senior management, Mr. Steve Quinlan. You'll be hearing more from Steve in the coming months as he assumes the role of Neogen's Chief Financial Officer replacing Rick Current. Rick is not leaving us on a permanent basis. He's not here this morning either. This was certainly not expected, his absence this morning. But furthermore, Rick is not leaving us on a permanent basis. But he did tell us several months ago that he'd like to start to slow down and begin to try to get himself acclimated to an eventual retirement. And of course, it's a consideration that Rick has certainly earned. When Rick joined us 10 years ago to replace Lon Bohannon as Chief Financial Officer, we had total revenues of about $22 million in a market cap of about $50 million. That of course now compares to revenues in the last 12 months of $160 million in a market cap now of over $900 million. Rick has certainly earned the opportunities to spend some time in one of his two Florida condominiums, especially at this time of the year when the white stuff on the ground is sand and not know and doesn't need to be shoveled. Because of our desire to have a strong and experienced CFO, we spent a number of months in the selection process and we're very pleased to welcome Steve Quinlan to that spot after having spent several months in discussion and all of us getting to know each other better. We'd be issuing a more detailed press release on Steve later this week, but I can give you a quick thumbnail sketch. He is a CPA, started his career with Pricewaterhouse. For the last 19 years, he's been with Detrex Corporation, a publicly traded company in the Detroit area, and since 2002 has served as that company's Chief Financial Officer. In conclusion, we are pleased with the success that we are able to report to you this morning, but continue to follow the title that we've put on this year's annual report that we are better but never satisfied This concludes our prepared comments for the morning, and we now open the conference call for any questions.

(Operator Instructions) Our first question comes from Steve Crowley of Craig-Hallum Capital.

In terms of a couple of questions, you mentioned success with a couple of businesses you brought into the fold over the past year. I'm wondering if you can give us a little more in the way of detail as to what the contribution was from GeneSeek and the BioKits business, and maybe a little color about where the success is coming from.

Let me open that up and then I'm going to let Lon give you in terms of particulars. I think what we see so often in our acquisition is not just what they brought in as a result of purchase, but the growth of that business. As an example, GeneSeek, I see that one almost daily, so it's right off the top of my head. When you look back at that business, back about 3 years ago, before we had touched it, it was doing about $3 million in revenues; jumped to $6 million in revenues, it jumped to $12 million in revenues year over year over year in the year we bought it. We looked at it and said, well, what can we do? We knew we can increase it, but we wouldn't be able to take it from $12 million to $24 million and we are not going to. But if you look at what came in there, Steve, that was about $12 million that was added as a result of the GeneSeek acquisition if you looked at what the revenues have been the year before we bought it. This year, I'll go back to my recent comments, what I am predicting may not come true, so I'm covered under the right disclaimers. But I think its (going) to push over 15 million. Well, how much of that is the result of what we have done with the business as compared to what we have bought. And I think it certainly isn't true with Tepnel. And that acquisition, if you look at what's happened in domestic territories in the U.S. principally, I think you see that the sales of those diagnostic test kits for the detection of food allergens have increased considerably over what Tepnel had in the U.S. However, we might see that there has been some reduction in what our Other product line was. So what might look to be was strictly as a result of an acquisition, has also allowed organic growth and often gets into those based on what we are able to do as a business under our management plus the fact that how those get blended. Lon, I don't know whether you've got specific numbers that can add to that or not.

Yes, I do, and I'd reiterate Jim's comments. In the case of both of those acquisitions, the BioKits product line and the GeneSeek acquisition, both of them are running in excess of what we had put in our budgets for this year. Their performance has been very strong. The GeneSeek Group had another strong second quarter, coming in more than $4.5, maybe close to $4.6 million following a similar type number almost in the first quarter and that puts some them over $9 million on a year-to-date basis. So they run very, very strong. We had some particularly strong growth in GeneSeek in the second quarter from international opportunities that we realized that I think may have been mentioned in terms of countries in the press release. So that group continues to do well and we feel very good about that for the long term because of the kinds of technology that they have and how that can be used to meet the growing demand, an increasing demand for food that's going to be needed over the next 20 to 30 years. Tepnel is a harder, that BioKits product line is a little harder to get at because a lot of it's sold out of Neogen Europe and also here domestically, but we have estimated that in total that group is, on a year-to-date basis between $2.2 million and $2.3 million I think. And once again, we are particularly pleased that our sales teams have been to take that and actually expand sales from what the previous owners were doing prior to the time that we acquired it. So, both of the acquisitions have been very good. All of those numbers are reported as acquisition are not included in the organic growth numbers that I said, even though I believe that it's been our sales force and our team that has helped drive some of that sales growth this fiscal year.

It sounds like some of the success you've had internationally with GeneSeek wasn't necessarily episodic. You've established some relationships that should be sustainable where you can continue to harvest those over the longer-term?

I think Steve that's true with almost all of our GeneSeek business. Of course that business is still in its early days as far as overall market and the maturity of the market, and it is kind of interesting to see what competition looks like out there now and where we stack up with competition. I'd like to say that I am not sure that we are in a dominant position today, but I would like to think that we can get in a dominant position there pretty quick considering where our competition is, our resources as compared to theirs. And I'd again stress that what we do at GeneSeek currently is, we'll do some things and are doing some things going forward as far as R&D, but what we doing there today currently is helping the animal industry in the selective breeding programs to improve performance primarily of food animals as well as reduce disease stress and all those issues that sooner or later come back to be food safety issues So it's very synergistic to what we are doing. Our number one competitor is right now in some financial difficulties. We don't know exactly what may happen there. They currently are in bankruptcy and have a lawsuit or two pending against them. And that business has however impacted our business at GeneSeek. Now that business has been transferred to us. And are we wishing them any ill-will? But there are some things that are happening that could make GeneSeek even more interesting going forward.

Coming off that strong first quarter, we have some questions and maybe some conservatism around there potentially being some seasonality to that business that made it typically strong in the August quarter. It seems like it hung around that level. Maybe we should disperse some of those concerns about seasonality, or is there something as we get into the heart of winter here that we should think about the way that business will perform?

Well, I think it's still early; the pattern of business has really, probably not developed. I think there was clearly some seasonality if you look back two to three years ago. Now maybe the seasonality is still there; it's just camouflaged by the fact that our overall business is growing. Part of the seasonality is, if we look at the cattle population, or particularly if you look at the beef population is that we are not working those beef cattle this winter. That's sort of a spring and ball kind of a situation. So aided by this, doing genomic work, including two of our top customers, both Merial and Pfizer, where their customers are looking at breeding programs that tend to be at the time that they are working those cattle. They got those cattle up in (inaudible) and they are able to do some things. They are not doing that now. We are still trying to determine what that pattern is. We started off; looks like good going into beginning of the third quarter. But it may not be; there may be some seasonality show up. By the same token, we're doing some business in the southern hemisphere, which kind of offset this. Our business in New Zealand and Australia are both good. And we are doing business overall in the swine side which is a little less affected by the climates and the time of year and the seasons. Having said all that, I sound like a politician. Damned if I know Steve, what the seasonality is going to be.

All right. One more question from me and I'll hop back in the queue. You mentioned looking at some projects by folks on both sides of your business to accelerate market share gains and growth. I'm trying to get a little sense, without you disclosing details that could compromise your ability to be successful, are we talking about adding sales people, marketing or advertising programs? I'm trying to get a sense for the types of things you could do. Thanks for taking my questions. I'll hop back in the queue.

The answer to your question is, yes. I think that there are things on the sales and marketing side I think that become obvious. There are also some opportunities that we see in some of things that we are doing and the way we process orders and our throughput that could give us some distinct advantages in cost and the manufacturing side, which one might still be able to hold margins but use pricing as a competitive tool. I think there are several opportunities.

Our next question comes from Scott Gleason with Stephens.

I guess, Jim, you guys have a pretty strong balance sheet here with quite a bit of cash, and also your stock is trading at a pretty strong premium from a valuation standpoint. I guess when you guys think about acquisitions here, is there any, I guess, desire by the Company maybe to take on any larger projects? And I guess also, can you maybe give us a little bit more color just on maybe the potential timing of some of those deals, whether the pipeline is pretty robust here for the next couple of quarters?

Well, I think there are two questions. First is, I think you are asking whether we consider using stock as a currency versus cash. And the second is when might we announce the next acquisition and how big will it be. Those are pretty good questions. I'm not sure I can or will answer them exactly as you ask them. First of all, looking at the currency, the answer is admittedly good. I mean we've got cash that's far in excess of what we need for our regular operations. I'd try to cover some of that by talking about using that cash in addition to where we might use it from a standpoint of acquisitions or we can use it and see some opportunities to ratchet up our market share growth. Our stock is certainly a good currency to use. My feeling the market as it stands today, I don't think we're going to see that price fall, but still a decent nautical based on what we're doing out there. At the same time, cash is cheap. Cash is much cheaper than equity is today. So I would not see as using any stock from the standpoint of doing stock based acquisitions, given the fact that cash is so cheap, I'm not sure on what our current borrowing rate would be. But in an around under 2% we can go borrowing more money probably than we can bring back under 2%. And we're sitting on a significant amount of cash. So I would not think that we'd be using stock as a currency. When will we announce the next one and how big will it be? We don't have a letter of intent to place today. I'd like to be doing bigger acquisitions than we're doing. But if you look at our track record, we done, I think 18 over the last 10 year's now and none of those have been real big. So we're pretty accomplished in taking reasonable size companies in merging them in and many of them is built on acquisitions. We've developed a process and we're doing that. And I think each time we do it, we get a little bit better at it. Do we have $100 million acquisition standing in the wings today? No. If there was one, would we be interested? Yes. But I can say that something may change tomorrow, Scott, but that's not where we are today.

I guess if we're to look at the impact of whether in the quarter, is there anyway to breakout kind of the year-over-year change and I guess mycotoxin test kits. So is there a way that we can think about maybe what the impact of whether it was on a year-over-year basis?

I don't know that it's easy to look at that. I specifically mentioned DON overall, we break it down in terms of sales and natural toxin area, and actually those sales were still above last year in the second quarter. So you've got a specific product and a specific group like milling and grain that was impacted by having less DON testing this year. But you got a product like histamine that's in that that group and stops it, and it continues to grow very nicely and it has solid growth. I think we just noted that we took that into consideration and developing our budgets this year. And we're very much on track and we continue to believe that overall we'll see opportunities for growth in those food safety products. It's just the nature of the beast in terms of those naturally occurring toxins where you've got harvest and whether that can impact sales from year-to-year. This is a more typical year in terms of the crop or the 2010 harvest was where it was just more sold that the 2009 crop was abnormally high levels of mold growth and particularly in corn that produced that DON mycotoxin.

Lon, what was the percent of sales from international this quarter?

The total revenues of international sales were 43% of our total revenues in the second quarter.

And then there's one last question. Could you guys give the GeneSeek and BioKits actual revenues on a quarterly basis for calculating out the organic growth rates, what the actual revenues tied to those two deals were?

That's one we'd probably have to get back to you.

Our next question comes from Tony Brenner of Roth Capital Partners.

Lon, you reeled off a whole list of businesses with strong double-digit growth rates, and the end point is a 10% organic sales growth rate. Surely milling and grain mycotoxin testing can't be the only weak spot in there.

Well, I mean it was only up 3% and it's a significant junk of revenues and the General Sanitation Group was up 5%, had nice solid growth and stuff, more order in patterns and anything else, still up 12% on a year-to-date basis. Those were the two in Food Safety. In Animal Safety, I think I mentioned in the comment about couple of distributors. So we had some soft spots in some of our ethical sales of those products. But most of the groups are all up; it's just some of them weren't up and we had a couple big winners like allergens.

And some of that Tony gets camouflaged, as I tried to indicate earlier. Whereas we might have sales of diagnostic tests to detect peanuts or gluten or milk or eggs, it might have been down compared to that same product compared to prior year, but the product that replaced it over on the Tepnel side was up. So it's kind of hard to say, with the substitution of products that are going on, it's sometimes kind of hard to separate revenues from acquisitions versus revenues from the organic growth.

The new FDA regulations, which don't actually exist, but when they do exist would mostly affect what, your food pathogen test kit business or other businesses?

I think its going to be pretty broad. Food pathogens are going to be in the forefront. However, one of the ways to control food pathogens is in sanitation. So there won't be a regulation setting forth the sanitation, but I think we will continue to see that product line as a strong tool as people are working towards complying with the regulations. And there is no question that the natural toxins though, they don't often kill people on the spot like an E. Coli would, are important and are concerns because of their carcinogenic effects. And there are currently FDA regulations related to, for instance Alfatoxin that are not being enforced very rapidly around the world, particularly on food products and probably more enforced on animal products because we can tell what happens to an animal when it eats a corn that's got Alfatoxin in it. When you or I eat something that's got Alfatoxin in it, it may be working on our liver but it doesn't show up the next month as to what's happened. So I think, FDA for instance, there is an FDA regulation in this country that it is against the law to sell a product that's got more than 20 parts per billion of Alfatoxin. I suspect that's not been very heavily enforced. I think we might see that enforcement occur more, and that will be obviously from a cereal grain standpoint, people were to make in cereals and other grain products. So, it will be interesting. I think you are right. The lion's share of the immediate attention is going to be aimed at those foodborne illnesses that happen rapidly which will be the food pathogens, the microbiological side.

Okay. You mentioned that international in total was 43% of the business. Europe was up 41%. Do you have an increase in the second quarter for the total international business?

I am not sure.

We've got a percentage increase. We might be able to calculate it here and give it you; otherwise we'll have to give it to you later today.

Okay.

Yes, that was kind of widespread going from 40% to 43% was total. And as we can tell from the numbers we've got here and the quick calculation that we did, it looks like the international sales were up more than 30%, maybe as much as 38% in the second quarter this year compared to the same quarter last year.

Okay. And last question, could you talk a little about what happened in gross margins in the second quarter? Why they declined and what the outlook there would be?

It's a good question and one that comes up periodically. There was nothing unique about the second quarter. It's directly a matter of the product mix in terms of how they fall in an individual quarter. I think you remember when we did. That's why we kind of focus on the operating profit line. And GeneSeek would be a good example. There is a product line that's been added in this year that has proportionately a higher cost of sales and therefore a lower gross margin than some of the diagnostic products, but the operating margin support is very high. So it had an impact of probably bringing down the gross margin line a little bit in those product sales but actually contributed to helping the operating profit to go up as a percentage of sales. So it really is all product mix. There is no price erosion in terms of ASP's; there are no cost increases for raw materials that's running away or anything like that. We keep a very close eye on that and monitor that actually each month in terms of our cost, and it's all associated with just the product mix for the quarter.

And that will vary quarter by quarter, or with the GeneSeek acquisition, it is going to be a little higher than it was previously?

It can vary quarter-by-quarter, and I think has in the past. If you go back and look historically, you'll see that we've had some percentage swings of up 2% to 3% even sometimes depending on the mix.

As an example, I've talked about the grain situation. Remember that we are a commodity grain buyer for all of our rodenticide business. So we are buying corn to feed rats and mice just like Tyson buys it to feed chicken. So the outcome is a bit different. But we are somewhat a victim of what commodity prices might do. Not going to move the needle very much, but what they might do in terms of gross margins.

Our next question comes from Marco Rodriguez of Stonegate Securities.

Thank you for taking my questions. Most of them have actually been asked, but I do have a couple of quick ones. I don't know if I missed this in your prepared remarks, but do you have the organic growth rates for the Food Safety and Animal Safety?

The answer is, yes, we do. We are trying to look at it to adjust for the currency translation.

Okay.

Food Safety was up 12% for the quarter organically, Animal Safety was up 7%. So both groups had a very solid quarter in terms of organic growth. On a year-to-date basis those numbers are like 18% to 7%. So organic growth as I indicated, 13% overall excluding currency translation, very strong so far this year.

So the 12% and 7%, that is including the ForEx headwind or excluding it?

That excludes the impact of the currency translation.

And then on the operating expenses, looking back at the last three to five years of your reported results, it seems like this was the first quarter or the second quarter where you saw a sequential decline, sales and marketing kind of flat, G&A down, R&D down. Can you talk a little bit about what might have driven those results? And then also, in your last 10-K you guys talk about maintaining at least your sales and marketing line item at roughly 20% of revenue, and we're currently running around 17%. So should we be thinking about that a little bit differently?

Well in terms of the individual operating expenses, this was a quarter where we experienced the leverage of having continued strong growth in sales without having to add proportionately variable cost in those areas like G&A and sales and marketing particularly. I think that the R&D projects depends on what kind of third party payments that we have, some contract payments that sometimes come into play there that can affect quarterly comparisons. I will say that in the area of both R&D and sales and marketing it is our intention to continue to make investments there because we think that's the best way to build the growth going forward. It is true that in this individual quarter, they are down sequentially and we've benefited from that. And that has helped improve operating margins. But as Jim indicated in his comments, we are really looking to do some things, particularly in the sales and marketing area where we might make some additional investments there so we can enhance organic growth, particularly going forward because we think there are opportunities that exist out there that we should be taking advantage of. So I'd be hesitant to move that number down going forward. And I think we have already stated that we want to maintain that effort in R&D for us to continue to do the things we need to do to have a business that will get even now beyond $200 million in sales. We are going to have a strong R&D program, and we are going to continue to make investments both from a personnel standpoint as well as actively working on new projects. So I'd actually think that in the quarters ahead both of those might move up a little bit from what you saw in the second quarter.

To further elaborate on that as far as R&D is concerned. Remembering back to this time a year ago, if you just look at the quarter, as Lon says there are some third party payments that go in there other than just staff and materials and people that we have in our own laboratories. I think that was a little bit higher. Our approvals for AOAC, there are third-party validations, and some of those expenses appropriately go into R&D. So there was a difference there. But I think on a year-to-date basis for the first six months as I remember our expenditures or investment R&D is probably up in the 9% to 10% range. So we don't look at just one individual quarter.

Okay. And then lastly, in regard to your commentary on implementing new programs here to capture more market share and drive growth, do you envision those particular projects as somewhat bucking the normal seasonality that you have here from Q2 to Q3?

Well, we can't change the seasonality. The seasonality becomes less and less important as we move from southern, having more business in both northern and southern hemispheres and involved in more lines of business in which the cycles of seasons and weather are not as great. But I guess I really don't know the answer to that. I would hope that based on some of the things that we are looking at that we should be able to push revenues and commensurate operating profit up over the next two quarters. But I'm not sure that it's going to, as you position it, actually bunk seasonality. I don't think we're going to be able to offset the seasonality in some of our sales.

Yes, I don't think that we're focusing on programs that are specifically aimed at trying to be counter-seasonable to what we have currently. I think we're more looking at it from a strategic standpoint in terms of what opportunities are out there in markets that we think we have an opportunity to increase our market share or excess markets that we are not penetrating as far as we should when we know the opportunity is there. We've asked our sales and marketing teams to look at it from that standpoint.

It gives us a chance to bring in a little extra in the last two quarters of the year, but probably more importantly, it puts us well positioned to kick off the New Year with a little more critical mass than we might have otherwise.

Our next question comes from Steve O'Neil of Hilliard Lyons. Steve O'Neil: Just a couple of quick housekeeping questions, and this may be the same answer as in the first quarter. Your large swing in other income to a minus-$119,000, I just wonder what was the reason for that?

I think we did talk about this in the first quarter. And Rick is in a better position to elaborate on this when he gets back. We talked about GeneSeek earlier, because they are doing so well. We do have some contingent consideration that's based on their performance. And so we are taking a conservative approach and making sure we're accruing those as we go along, because their performance has exceeded what we had in our budget. And that's the biggest impact on that line. Steve O'Neil: You talked about Soleris and some of the food-borne pathogens. Just to clear it up, how did AccuPoint perform?

I don't have that specific product broken out. On a year-to-date basis, our general sanitation group is up 12%, and they were up 5% in the second quarter. I think they've been running very solid around that double-digit organic growth for a number of years now. And they've had an individual quarter here and there like that like we saw in the second quarter, just pretty much ordering patterns or timing of when we bring our new customers. I know there are lots of opportunities out there, gets mentioned in every monthly operating meeting we have. And we continue to feel good about the opportunities that exist overall for AccuPoint and in general for that ongoing growth in that general sanitation line. Steve O'Neil: And when you refer to general sanitation, is that just Soleris and AccuPoint?

It's not Soleris. It would be primarily AccuPoint. There might be a few other things in there. That's why I said I don't have specifics. Of course, the AccuPoint includes a number of different disposable sampler products that we have in addition to the readers. And it depends on the readers in terms of whether they're sold on reagent rental agreements or whether they're sold outright as instruments, and that impacts an individual quarter. Steve O'Neil: Lastly, you referred to a 28% increase in veterinary instruments in the quarter. Did that include the OTC as well? And you talked about some nice numbers in your prepared remarks as well.

You're talking about 28% overall for veterinary instruments that would include sales of needles and syringes that are going into the OEM account. Steve O'Neil: And the farm retail stores?

Yes.

Our next question comes from Greg Halter of Great Lakes Review.

A quick one for you regarding the company's plan for capital spending. I think we'd been looking for about $6 million for the full year. Is that still where you are on, on pace for?

That one is going to be tough for us to answer without Rick here. I don't know that we're doing anything different than what was included in our plan as we stand here today. Our big CapEx is unanticipated that are going to be brought in.

Our year-to-date number for purchases of assets, most of which would be capital expenditures, is $3.4 million. So it looks like we're pretty much on track. I am not aware of any big CapEx numbers that are coming in that would cause us to go aux. I would say we're pretty much on plan.

Regarding Rick and Steve, when does Steve officially start with the company?

Steve officially started yesterday. He's been issued a pass to the front door and he knows where his office is. He'll catch pretty fast. Give him a week or two worth of honeymoon and then he would be ready to go. As I mentioned, it's unfortunate Rick is not here this morning. It's totally unrelated to this announcement. But Rick will continue to be around. He is ready to help Steve get started. It's going to be extremely worthwhile. And he's willing and Steve is willing, and this thing is going to work pretty good. It is a change in that when we started the business, we didn't have any money to hire CFO, so I served that role until I could no longer keep up with things. Then we got Lon, and then he did a yeoman's job for us. And then the next one was Rick. So the CFO's part in this company has been extraordinarily important in our overall growth and keeping up what we're doing. So we were very cautious in who we hired and in the selection of Steve Quinlan.

Our next question comes from Steve Crowley of Craig-Hallum Capital.

Just a couple of quick follow-ups, given Rick's disappearing act today. In terms of the other income line, you guys have historically done a pretty good job on the hedging side of the equation to offset some of the operating margin hit from FX swings. Do you know if there was anything that was served as a bit of an offset this quarter?

I'd have to go back and look. I don't remember, because when you go back now, we are talking all the way back to September, so where we were hedging the Euro and of course currency hedges were concerned, the euro hedge versus our receivables that we have been doing. Without doing a little research, I can't tell you.

Or maybe I can come back to you, just because you mentioned the operating income hit. My thinking is there might be some offset there to that operating hit that might have lessened its impact on the ultimate bottomline. But I can come back to you on that. In terms of your comment about having seen some distributors reluctant to place stocking orders at the end of November, I am wondering what subsequent election returns you've had on their mindset and their activities. Have they come back into the more normal mode of activity or showing signs of doing so? What can you tell us about that?

We had a couple of distributors and one specifically that comes to mind. Typically when you get to the end of a quarter, those guys are very open to working with us on promotions, making sure that they've got what it is, they need analysis going forward. I think overall they're just from a quarter-to-quarter basis, depending on what their cash situation is, is dependent upon and affecting their ordering patters. And some of those guys have been acquired in the last couple of years and got new owners that I'm sure keeping the cash ranges on a little tighter. Overall when you look at it over the course of the year, I think that stuff has pretty much worked its way through. It's just periodically sometimes at the end of the quarter we see and felt a pop-up like this. The ordering patter is overall year in and year out. Those guys who have brought their inventories down on an average to as low as they can, and they are pretty much ordering, predicated on what they need to feel their customers needs.

So it doesn't seem like it is kind of a growing, spreading problem, but something that periodically jumps in the equation.

It's just the nature of the beast in terms of this particular economy and in a particular situation that may be given in terms of timing in any end of any specific quarter for a particular customer.

And in terms of the lever that you guys have been planning to pull as it relates to manufacturing of some of the disinfectant products in Wisconsin and enhancing gross margin that way, is that something we've started to get into or is still in front of us, and how far in front of us do you think?

We have gotten into it and we are manufacturing, couple of those disinfectants ourselves and we have a program underway to continue to adding to that in-house manufacturing capability. And we've got the list in terms of which ones are going to go after next, there's two or three that we are doing now. We started off with largest one. And we're going to continue to look at that to enhance our gross margins and bottoms lines for that disinfectant product line.

As a part of that, we are building a significant new warehouse in Randolph with some support from the Economic Development of the State of Wisconsin as well as the local municipalities. We needed extra space in order to be able to expand out there. So this new warehouse on the same site is where all the manufacturing is and this will help us move on a little faster there.

Do you think most of the benefits of that bringing the manufacturing in-house are still in front of us in terms of impact to the income statement? Or are we a third of the way there or two thirds of the way there? I don't want to be waiting for some extra gifts under the tree and Christmas has already come and gone.

I don't know that I have a specific number for you. We have not done all of it that we want to do. At this juncture it's not going to be the kind of thing that's going to move. When you're talking about a single product line of all (inaudible 25-00:14) and it's not going to move to gross margin line by 100 basis points. We're picking up 5 basis points here and there, depending on the size of the product that we bring in-house. So there is still more to come, but you're not going to see some huge change as a result of us starting to manufacture disinfectant in-house in a particular quarter on the gross margin line.

We have no further questions at this time. Do you have any closing remarks?

Thank you all for your continued interest in the company and how we're doing and where we're going. And as both Lon and I have indicated, we're very optimistic about where we're going and we're optimistic that the value the company will continue to grow as it has as we move into this current quarter. And with that, have a good day.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.