e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2009.
or
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o |
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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: 333-72097
NEOGENOMICS, INC.
(Exact name of registrant as specified in its charter)
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Nevada
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74-2897368 |
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer Identification No.) |
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12701 Commonwealth Drive, Suite 9, Fort Myers, Florida
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33913 |
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(Address of principal executive offices)
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(Zip Code) |
(239) 768-0600
(Registrants telephone number, including area code)
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 such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act:
Large accelerated filer o |
Accelerated filer o |
Non-accelerated filer o (Do not check if a smaller reporting company) |
Smaller reporting company þ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
As of
November 20, 2009, the registrant had 37,178,575 shares of Common Stock, par value $0.001 per
share outstanding.
FORWARD-LOOKING STATEMENTS
The information in this Quarterly Report on Form 10-Q contains forward-looking statements
relating to NeoGenomics, Inc., a Nevada corporation (referred to individually as the Parent
Company or collectively with all of its subsidiaries as NeoGenomics or the Company) within the
meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act), and
Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act), which are
subject to the safe harbor created by those sections. These forward looking statements
represent the Companys current expectations or beliefs including, but not limited to, statements
concerning the Companys operations, performance, financial condition and growth. For this purpose,
any statements contained in this Form 10-Q that are not statements of historical fact are
forward-looking statements. Without limiting the generality of the foregoing, words such as
anticipates, believes, estimates, expects, intends, may, plans, projects, will,
would or the negative or other comparable terminology are intended to identify forward-looking
statements, although not all forward-looking statements contain these identifying words. These
statements by their nature involve substantial risks and uncertainties, such as credit losses,
dependence on management and key personnel, variability of quarterly results, competition and the
ability of the Company to continue its growth strategy, certain of which are beyond the Companys
control. Should one or more of these risks or uncertainties materialize or should the underlying
assumptions prove incorrect, actual outcomes and results could differ materially from those
indicated in the forward-looking statements.
Any forward-looking statement speaks only as of the date on which such statement is made, and the
Company undertakes no obligation to update any forward-looking statement or statements to reflect
events or circumstances after the date on which such statement is made or to reflect the occurrence
of unanticipated events. New factors emerge from time to time and it is not possible for management
to predict all of such factors, nor can it assess the impact of each such factor on the business or
the extent to which any factor, or combination of factors, may cause actual results to differ
materially from those contained in any forward-looking statements.
3
PART I FINANCIAL INFORMATION
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Item 1. |
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Financial Statements |
NEOGENOMICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
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September 30, 2009 |
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December 31, 2008 |
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ASSETS |
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CURRENT ASSETS |
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Cash and cash equivalents |
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$ |
3,128,047 |
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$ |
468,171 |
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Accounts receivable (net of allowance for doubtful accounts of $551,914
and $358,642, respectively) |
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4,174,624 |
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2,913,531 |
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Inventories |
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613,631 |
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491,459 |
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Other current assets |
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714,278 |
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482,408 |
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Total current assets |
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8,630,580 |
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4,355,569 |
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PROPERTY AND EQUIPMENT (net of accumulated depreciation of $2,416,445
and $1,602,594,respectively) |
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4,180,162 |
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2,875,297 |
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OTHER ASSETS |
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106,737 |
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64,509 |
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TOTAL ASSETS |
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$ |
12,917,479 |
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$ |
7,295,375 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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CURRENT LIABILITIES |
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Accounts payable |
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$ |
2,106,696 |
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$ |
1,512,427 |
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Accrued expenses and other liabilities |
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1,200,988 |
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1,094,817 |
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Revolving credit line |
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1,146,850 |
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Short-term portion of equipment capital leases |
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995,932 |
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636,900 |
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Total current liabilities |
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4,303,616 |
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4,390,994 |
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LONG TERM LIABILITIES |
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Long-term portion of equipment capital leases |
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1,566,344 |
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1,403,271 |
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TOTAL LIABILITIES |
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5,869,960 |
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5,794,265 |
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STOCKHOLDERS EQUITY |
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Common stock, $.001 par value, (100,000,000 shares authorized; 37,160,639
and 32,117,008 shares issued and outstanding, respectively) |
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37,160 |
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32,117 |
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Additional paid-in capital |
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23,637,244 |
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17,381,810 |
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Accumulated deficit |
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(16,626,885 |
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(15,912,817 |
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Total stockholders equity |
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7,047,519 |
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1,501,110 |
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TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |
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$ |
12,917,479 |
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$ |
7,295,375 |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
NEOGENOMICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
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For the three months |
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For the nine months |
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ended September 30, |
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ended September 30, |
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2009 |
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2008 |
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2009 |
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2008 |
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NET REVENUE |
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$ |
7,296,800 |
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$ |
5,050,796 |
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$ |
21,669,645 |
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$ |
14,094,959 |
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COST OF REVENUE |
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3,672,289 |
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2,535,318 |
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10,146,766 |
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6,577,549 |
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GROSS PROFIT |
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3,624,511 |
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2,515,478 |
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11,522,879 |
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7,517,410 |
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OPERATING EXPENSES |
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General and administrative |
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2,457,978 |
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1,831,829 |
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7,013,326 |
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5,357,936 |
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Sales and marketing |
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1,792,955 |
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803,779 |
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4,849,470 |
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2,348,348 |
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Interest (income) expense, net |
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128,883 |
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74,995 |
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374,151 |
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199,336 |
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Total operating expenses |
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4,379,816 |
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2,710,603 |
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12,236,947 |
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7,905,620 |
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NET INCOME (LOSS) |
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$ |
(755,305 |
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$ |
(195,125 |
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$ |
(714,068 |
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$ |
(388,210 |
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NET INCOME (LOSS) PER SHARE |
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Basic |
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$ |
(0.02 |
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$ |
(0.01 |
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$ |
(0.02 |
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$ |
(0.01 |
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Diluted |
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$ |
(0.02 |
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$ |
(0.01 |
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$ |
(0.02 |
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$ |
(0.01 |
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WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING |
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Basic |
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36,000,083 |
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31,440,327 |
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33,782,925 |
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31,414,065 |
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Diluted |
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36,000,083 |
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31,440,327 |
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33,782,925 |
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31,414,065 |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
NEOGENOMICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
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For the Nine Months Ended September 30, |
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2009 |
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2008 |
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CASH FLOWS FROM OPERATING ACTIVITIES |
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Net income (loss) |
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$ |
(714,068 |
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$ |
(388,210 |
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Adjustments to reconcile net income (loss) to net cash used in provided by
operating activities: |
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Provision for bad debts |
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1,358,744 |
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1,095,387 |
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Depreciation |
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813,851 |
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512,913 |
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Amortization of debt issue costs |
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46,554 |
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35,321 |
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Stock-based compensation |
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295,429 |
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229,539 |
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Non-cash consulting expenses |
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49,042 |
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99,813 |
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Changes in assets and liabilities, net: |
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(Increase) decrease in accounts receivable, net of write-offs |
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(2,619,838 |
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(1,239,702 |
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(Increase) decrease in inventories |
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(122,171 |
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(39,857 |
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(Increase) decrease in pre-paid expenses |
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(232,928 |
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(392,900 |
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(Increase) decrease in deposits |
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(42,228 |
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(14,512 |
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Increase (decrease) in accounts payable and other liabilities |
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121,713 |
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(79,446 |
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NET CASH USED IN OPERATING ACTIVITIES |
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(1,045,900 |
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(181,654 |
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CASH FLOWS FROM INVESTING ACTIVITIES |
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Purchases of property and equipment |
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(432,182 |
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(370,218 |
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NET CASH USED IN INVESTING ACTIVITIES |
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(432,182 |
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(370,218 |
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CASH FLOWS FROM FINANCING ACTIVITIES |
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Proceeds from capital lease obligations |
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96,890 |
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Advances on credit facility |
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(1,146,850 |
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1,176,221 |
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Repayment of capital leases |
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(542,088 |
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(244,612 |
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Issuance of common stock and warrants for cash, net of transaction expenses |
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5,730,006 |
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41,055 |
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NET CASH PROVIDED BY FINANCING ACTIVITIES |
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4,137,958 |
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972,664 |
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NET INCREASE IN CASH AND CASH EQUIVALENTS |
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2,659,876 |
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420,792 |
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CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD |
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468,171 |
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210,573 |
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CASH AND CASH EQUIVALENTS, END OF PERIOD |
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$ |
3,128,047 |
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$ |
631,365 |
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION |
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Interest paid |
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$ |
335,242 |
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$ |
171,606 |
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Income taxes paid |
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$ |
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$ |
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NON-CASH INVESTING AND FINANCING ACTIVITIES |
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Equipment leased under capital leases |
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$ |
1,064,194 |
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$ |
538,761 |
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Equipment purchased and included in accounts payable at September 30 |
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$ |
680,021 |
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$ |
126,227 |
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Equipment purchased and payables settled with issuance of restricted common stock |
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$ |
186,000 |
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$ |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6
NEOGENOMICS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2009
NOTE A NATURE OF BUSINESS AND BASIS OF FINANCIAL STATEMENT PRESENTATION
Nature of Business
NeoGenomics, Inc., a Nevada corporation (the Parent), and its subsidiary, NeoGenomics
Laboratories, Inc. (formerly known as NeoGenomics, Inc.), a Florida corporation (NEO,
NeoGenomics Laboratories or the Subsidiary) (collectively referred to as we, us, our,
NeoGenomics, or the Company), operates as a certified high complexity clinical laboratory in
accordance with the federal governments Clinical Laboratory Improvement Amendments of 1988
(CLIA), and is dedicated to the delivery of clinical diagnostic services to pathologists,
oncologists, urologists, hospitals, and other laboratories throughout the United States.
Basis of Presentation
The accompanying condensed consolidated financial statements include the accounts of the Parent and
the Subsidiary. All significant intercompany accounts and balances have been eliminated in
consolidation.
The accompanying condensed consolidated financial statements of the Company are unaudited and
include all adjustments, in the opinion of management, which are necessary to make the financial
statements not misleading. Except as otherwise disclosed, all such adjustments are of a normal
recurring nature. Interim results are not necessarily indicative of results for a full year.
The interim condensed consolidated financial statements and notes are presented in accordance with
the rules and regulations of the Securities and Exchange Commission and do not contain certain
information included in the Companys Annual Report on Form 10-K for the year ended December 31,
2008. Therefore, the interim condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto contained in the Companys
annual report.
In June 2009, the Financial Accounting Standards Board (FASB) Accounting Standards Codification
(Codification) became the single source of authoritative US GAAP. The Codification did not
create any new GAAP standards but incorporated existing accounting and reporting standards into a
new topical structure with a new referencing system to identify authoritative accounting standards,
replacing the prior references to Statement of Financial Accounting Standards (SFAS), Emerging
Issues Task Force (EITF), FASB Staff Position (FSP), etc. Authoritative standards included in
the Codification are designated by their Accounting Standards Codification (ASC) topical
reference, and new standards will be designated as Accounting Standards Updates (ASU), with a
year and assigned sequence number. Beginning with this interim report for the third quarter of
2009, references to prior standards have been updated to reflect the new referencing system.
Net Income (Loss) Per Common Share
We compute net income (loss) per share in accordance with ASC 260, Earnings per Share (ASC 260)
Under the provisions of ASC 260, basic net income (loss) per share is computed by dividing the net
income (loss) available to common stockholders by the weighted average number of common shares
outstanding during the period. Diluted net income (loss) per share is computed by dividing the net
income (loss) for the period by the weighted average number of common and common equivalent shares
outstanding, using the treasury stock method, during the period. Equivalent shares consist of
employee stock options and certain warrants issued to consultants and other providers of financing
to the Company that are in-the-money based on the weighted average closing share price for the
period. Under the treasury stock method, the number of in-the-money shares that are considered
outstanding for this calculation is reduced by the number of common shares that theoretically could
have been re-purchased by the Company with the aggregate exercise proceeds of such warrant and
option exercises if such shares were re-purchased at the average market price for the period.
7
There were no common equivalent shares included in the calculation of diluted earnings per share
for the three and nine month periods ended September 30, 2009 and 2008 because the Company had a
net loss for such periods and therefore such common equivalent shares were anti-dilutive.
NOTE B REVOLVING CREDIT AND SECURITY AGREEMENT
On February 1, 2008, our subsidiary, NeoGenomics Laboratories, Inc., a Florida corporation
(Borrower), entered into a Revolving Credit and Security Agreement (the Credit Facility or
Credit Agreement) with CapitalSource, the terms of which provide for borrowings based on eligible
accounts receivable up to a maximum borrowing of $3.0 million, as defined in the Credit Agreement.
Subject to the provisions of the Credit Agreement, CapitalSource shall make advances to us from
time to time during the three year term, and the Credit Facility may be drawn, repaid and redrawn
from time to time as permitted under the Credit Agreement.
Interest on outstanding advances under the Credit Facility are payable monthly in arrears on the
first day of each calendar month at an annual rate based on the one-month LIBOR plus 3.25%, subject
to a LIBOR floor of 3.14%. At September 30, 2009, the effective rate of interest was 6.39%.
To secure the payment and performance in full of the Obligations (as defined in the Credit
Agreement), we granted CapitalSource a continuing security interest in and lien upon, all of our
rights, title and interest in and to our Accounts (as defined in the Credit Agreement), which
primarily consist of accounts receivable and cash balances held in lock box accounts. Furthermore,
pursuant to the Credit Agreement, the Parent guaranteed the punctual payment when due, whether at
stated maturity, by acceleration or otherwise, of all of the Obligations. The Parent guaranty is a
continuing guarantee and shall remain in force and effect until the indefeasible cash payment in
full of the Guaranteed Obligations (as defined in the Credit Agreement) and all other amounts
payable under the Credit Agreement.
On November 3, 2008, the Company and CapitalSource signed a first amendment to the Credit
Agreement. This amendment increased the amount allowable under the Credit Agreement to pay towards
the settlement of the US Labs lawsuit to $250,000 from $100,000 and documented other administrative
agreements between NeoGenomics and CapitalSource.
On April 14, 2009, the Parent Company, NeoGenomics Laboratories, Inc. (the wholly owned subsidiary
of the Parent Company) (Borrower) and CapitalSource (as agent for CapitalSource Bank) entered
into a Second Amendment to Revolving Credit and Security Agreement (the Second Amendment). The
Second Amendment, among other things, amends that certain Revolving Credit and Security Agreement
dated February 1, 2008 as amended by that certain First Amendment to Revolving Credit and Security
Agreement dated November 3, 2008 (as amended, the Loan Agreement) to (i) provide that through
December 31, 2009, the Borrower must maintain Minimum Liquidity (as defined in the Loan Agreement)
of not less than $500,000, (ii) amend the definitions of Fixed Charge Coverage Ratio and Fixed
Charges, (iii) amend the definition of Permitted Indebtedness to increase the amount of
permitted capitalized lease obligations and indebtedness incurred to purchase goods secured by
certain purchase money liens and (iv) amend and update certain representations, warranties and
schedules. In addition, pursuant to the Second Amendment, CapitalSource waived the following
events of default under the Loan Agreement: (i) the failure of the Borrower to comply with the
fixed charge coverage ratio covenant for the test period ending December 31, 2008, (ii) the failure
of the Borrower to notify CapitalSource of the change of Borrowers name to NeoGenomics
Laboratories, Inc. and to obtain CapitalSources prior consent to the related amendment to
Borrowers Articles of Incorporation, (iii) the failure of the Parent Company and the Borrower to
obtain CapitalSources prior written consent to the amendment of the Parent Companys bylaws to
allow for the size of the Parent Companys Board of Directors to be increased to eight members and
(iv) the failure of the Borrower to notify CapitalSource of the filing of an immaterial complaint
by the Borrower against a former employee of the Borrower. The Company paid CapitalSource Bank a
$25,000 amendment fee in connection with the Second Amendment.
On September 30, 2009, we had no outstanding amount due on the Credit Facility and the available
credit under the Credit Facility was approximately $3.0 million.
8
NOTE C EQUIPMENT LEASE LINE
On November 5, 2008, the Subsidiary entered into a Master Lease Agreement (the Lease
Agreement) with Leasing Technologies International, Inc (LTI). The Lease Agreement establishes
the general terms and conditions pursuant to which the Subsidiary may lease equipment pursuant to a
$1.0 million lease line. Advances under the lease line may be made for one year by executing
equipment schedules for each advance. The lease term of any equipment schedules issued under the
lease line will be for 36 months. The lease rate factor applicable for each equipment schedule is
0.0327/month. If the Subsidiary makes use of the entire lease line, the monthly rent would be
$32,700. Monthly rent for the leased equipment is payable in advance on the first day of each
month. The obligations of the Subsidiary are guaranteed by the Parent Company. At the end of the
term of each equipment schedule the Subsidiary may: (a) renew the lease with respect to such
equipment for an additional 12 months at fair market value; (b) purchase the equipment at fair
market value, which price will not be less than 10% of cost nor more than 14% of cost; (c) extend
the term for an additional six months at 35% of the monthly rent paid by the lessee during the
initial term, after which the equipment may be purchased for the lesser of fair market value or 8%
of cost; or (d) return the equipment subject to a remarketing charge equal to 6% of cost.
On December 31, 2008, the Company entered into Lease Schedule No. 1 of the Lease Agreement with LTI
for $437,300 which was funded to two vendors for lab equipment, which is included in the amount of
equipment capital lease obligations in the accompanying consolidated balance sheet.
On May 22, 2009, the Company entered into Lease Schedule No. 2 of the Lease Agreement with LTI for
$442,300 which was funded to two vendors for lab and computer equipment, which is included in the
amount of equipment capital lease obligations in the accompanying consolidated balance sheet.
On July 29, 2009, the Company entered into Lease Schedule No. 3 of the Lease Agreement with LTI for
$40,066 which was funded to two vendors for lab equipment, which is included in the amount of
equipment capital lease obligations in the accompanying consolidated balance sheet.
On September 22, 2009, the Company entered into Lease Schedule No. 4 of the Lease Agreement with
LTI for $29,218 which was funded to one vendor for lab equipment, which is included in the amount
of equipment capital lease obligations in the accompanying consolidated balance sheet.
As of September 30, 2009, we had the ability to receive additional advances of $51,116 under the
Lease Agreement.
NOTE D COMMON STOCK PURCHASE AGREEMENT
On November 5, 2008, we entered into a common stock purchase agreement (the Stock Agreement)
with Fusion Capital Fund II, LLC an Illinois limited liability company (Fusion). The Stock
Agreement, which has a term of 30 months, provides for the future funding of up to $8.0 million
from sales of our common stock to Fusion on a when and if needed basis as determined by us in our
sole discretion. In consideration for entering into this Stock Agreement, on October 10, 2008, we
issued to Fusion 17,500 shares of our common stock (valued at $14,700 on the date of issuance) and
$17,500 as a due diligence expense reimbursement. In addition, on November 5, 2008, we issued to
Fusion 400,000 shares of our common stock (valued at $288,000 on the date of issuance) as a
commitment fee. Concurrently with entering into the Stock Agreement, we entered into a
registration rights agreement with Fusion. Under the registration rights agreement, we agreed to
file a registration statement with the SEC covering the 417,500 shares that have already been
issued to Fusion and at least 3.0 million shares that may be issued to Fusion under the Stock
Agreement. Presently, we expect to sell no more than the initial 3.0 million shares to Fusion
during the term of this Stock Agreement. The Company filed a registration statement on Form S-1 on
November 28, 2008 and on February 5, 2009 the registration statement became effective and on April
28, 2009, we filed Post Effective Amendment No 1 to the registration statement which became
effective on May 8, 2009.
Under the Stock Agreement we have the right to sell to Fusion shares of our common stock from time
to time in amounts between $50,000 and $1.0 million, depending on the market price of our common
stock. The purchase price of the shares related to any future funding under the Stock Agreement
will be based on the prevailing market prices of our stock at the time of such sales
9
without any fixed discount, and the
Company will control the timing and amount of any sales of shares to Fusion. Fusion shall not have
the right or the obligation to purchase any shares of our common stock on any business day that the
price of our common stock is below $0.45 per share. The Stock Agreement may be terminated by us at
any time at our discretion without any cost to us. There are no negative covenants, restrictions
on future funding from other sources, penalties, further fees or liquidated damages in the
agreement.
Given our current liquidity position from cash on hand and our availability under our Credit
Facility with CapitalSource, we have no immediate plans to issue common stock under the Stock
Agreement. If and when we do elect to sell shares to Fusion under this agreement, we expect to do
so opportunistically and only under conditions deemed favorable by the Company. Any proceeds
received by the Company from sales under the Stock Agreement will be used for general corporate
purposes, working capital, and/or for expansion activities.
NOTE E RELATED PARTY TRANSACTIONS
During the nine months ended September 30, 2009 and 2008, Steven C. Jones, a director of the
Company, earned approximately $149,000 and $140,000, respectively, for various consulting work
performed in connection with his duties as Acting Principal Financial Officer.
During the nine months ended September 30, 2009 and 2008, George OLeary, a director of the
Company, earned $30,000 and $9,500, respectively, for various consulting work performed for the
Company.
On March 11, 2005, we entered into an agreement with HCSS, LLC (HCSS) and eTelenext, Inc.
(eTelenext) to enable NeoGenomics to use eTelenexts Accessioning Application, AP Anywhere
Application and CMQ Application. HCSS is a holding company created to build a small laboratory
network for the 50 small commercial genetics laboratories in the United States. HCSS is owned
66.7% by Dr. Michael T. Dent, a member of our Board of Directors.
On June 18, 2009 HCSS and the Company entered into a new Software Development, License and Support
Agreement to use recently upgraded applications. The estimated costs for the development and
migration phase are anticipated to be between $66,000 and $75,000 and are expected to be completed
by December 31, 2009. This agreement has an initial term of 5 years from the date of acceptance
and calls for monthly fees of $8,000-$12,000 during the term. During the nine months ended
September 30, 2009 and 2008, HCSS earned approximately $85,000 and approximately $73,000,
respectively, for transaction fees related to completed tests.
On September 30, 2008, the Company entered into a master lease agreement (the Master Lease) with
Gulf Pointe Capital, LLC (Gulf Pointe) which allows us to obtain lease capital from time to time
up to an aggregate of $130,000 of lease financing. The Company entered into the Master Lease after
it was determined that the lease facility with LTI described in Note C would not allow for the
leasing of certain used and other types of equipment. The terms under this lease are consistent
with the terms of our other lease arrangements. Three members of our Board of Directors Steven
Jones, Peter Petersen and Marvin Jaffe, are affiliated with Gulf Pointe and recused themselves from
both sides of all negotiations concerning this transaction. In consideration for entering into the
Master Lease with Gulf Pointe, the Company issued a warrant to purchase 32,475 shares of common
stock to Gulf Pointe with an exercise price of $1.08 per share and a five year term. Such warrant
vests 25% on issuance and then on a pro rata basis as amounts are drawn under the Master Lease.
The warrant was valued at approximately $11,000 using the Black-Scholes option pricing model, and
the warrant cost is being expensed as it vests. At the end of the term of any lease schedule under
the Master Lease, the Companys options are as follows: (a) purchase not less than all of the
equipment for its then fair market value not to exceed 15% of the original equipment cost, (b)
extend the lease term for a minimum of six months, or (c) return not less than all the equipment at
the conclusion of the lease term. On September 30, 2008, we also entered into the first lease
schedule under the Master Lease which provided for the sale/leaseback of approximately $130,000 of
used laboratory equipment (Lease Schedule No. 1). Lease Schedule No. 1 has a 30 month term and
a lease rate factor of 0.0397/month, which equates to monthly payments of $5,155 during the term.
10
On February 9, 2009, we amended our Master Lease with Gulf Pointe to increase the maximum size of
the facility to $250,000. As part of this amendment, we terminated the original warrant
agreement, dated September 30, 2008, and replaced it with a new warrant to purchase 83,333 shares
of our common stock. Such new warrant has a five year term, an exercise price of $0.75 per share
and the same vesting schedule as the original warrant. The replacement warrant was valued using
the Black-Scholes option pricing model and the value did not materially differ from the valuation
of the original warrant it replaced. On February 9, 2009, we also entered into a second schedule
under the Master Lease for the sale/leaseback of approximately $118,000 of used laboratory
equipment (Lease Schedule No. 2). Lease Schedule No. 2 was entered into after it was determined
that LTI was unable to consummate this transaction under the lease facility described in Note C.
Lease Schedule No. 2 has a 30 month term at the same lease rate factor per month as Lease Schedule
No. 1, which equates to monthly payments of $4,690 during the term.
NOTE F STRATEGIC SUPPLY AGREEMENT
On July 24, 2009, NeoGenomics Laboratories and Abbott Molecular Inc., a Delaware corporation
(Abbott Molecular), entered into a Strategic Supply Agreement (the Supply Agreement). The
Supply Agreement, among other things, provides for Abbott Molecular to supply materials with which
NeoGenomics intends to develop its own FISH (fluorescence in situ hybridization)-based test for the
diagnosis of malignant melanoma in skin biopsy specimens (the Melanoma LDT).
Pursuant to the terms of the Supply Agreement, Abbott Molecular has agreed to supply NeoGenomics
with such of Abbott Moleculars analyte specific reagents (ASRs) that NeoGenomics may request for
the purpose of NeoGenomics evaluation and determination as to which ASRs to include in its
Melanoma LDT. Once the ASRs have been identified by NeoGenomics, Abbott Molecular has agreed to
supply such ASRs (subject to certain limitations) to NeoGenomics. If NeoGenomics identifies for
inclusion in the Melanoma LDT one or more ASRs that are not currently marketed or sold commercially
by Abbott Molecular as individual stand-alone products, then the Supply Agreement provides that
Abbott Molecular will supply such ASRs to NeoGenomics on an exclusive basis in the United States
and Puerto Rico (the Exclusive ASRs), provided that Abbott Molecular may also supply such
exclusive ASRs to certain of its academic collaborators for research and limited clinical purposes.
Abbott Moleculars obligation to supply the Exclusive ASRs on an exclusive basis is subject to
NeoGenomics meeting certain revenue thresholds with respect to the Melanoma LDT. Except for the
ASRs supplied for evaluation purposes (which are to be supplied at no cost), the Supply Agreement
provides that the price of the ASRs supplied by Abbott Molecular will include both a base and a
premium component.
In the event that Abbott Molecular obtains FDA approval for its own in vitro diagnostic test for
aid in diagnosis of malignant melanoma in skin biopsy specimens (excluding subtyping), the Supply
Agreement contemplates a means by which NeoGenomics may offer such FDA-approved test to its
customers instead of the Melanoma LDT.
Pursuant to the Supply Agreement, Abbott Molecular also granted to NeoGenomics a first right to
develop two additional laboratory developed tests relating to certain specified disease states
using Abbott Molecular ASRs or other products.
The initial term of the Supply Agreement expires on December 31, 2019. The Supply Agreement also
contemplates two year renewal terms under certain circumstances. The parties may terminate the
Supply Agreement prior to the expiration of the term under certain circumstances.
The Supply Agreement provides (subject to certain limitations) that Abbott Molecular may convert
the Supply Agreement into a non-exclusive agreement or terminate the Supply Agreement if
NeoGenomics does not develop and launch the Melanoma LDT within six (6) months after the date on
which Abbott Molecular supplies ASRs (other than ASRs supplied for evaluation purposes) to
NeoGenomics.
Abbott Molecular may terminate the Supply Agreement following a change of control involving
NeoGenomics and certain designated companies. In such event Abbott Molecular would pay to
NeoGenomics (or its successor) a termination payment based upon a pre-defined formula.
11
NOTE G COMMON STOCK PURCHASE AGREEMENT AND REGISTRATION RIGHTS AGREEMENT
On July 24, 2009, NeoGenomics, Inc. entered into a Common Stock Purchase Agreement (the
Common Stock Purchase Agreement) with Abbott Laboratories, an Illinois corporation (Abbott),
and consummated the issuance and sale to Abbott, for an aggregate purchase price of $4,767,000, of
3,500,000 shares of common stock, $0.001 par value per share (the Shares). Pursuant to the terms
of the Common Stock Purchase Agreement, Abbott is prohibited from selling or otherwise transferring
the Shares until January 20, 2010.
On July 24, 2009, NeoGenomics, Inc. and Abbott also entered into a Registration Rights Agreement
(the Registration Rights Agreement) that, among other things, grants certain demand and piggyback
registration rights to Abbott with respect to the Shares.
NOTE H SUBSEQUENT EVENTS
Wells Fargo Lease Agreement
On October 2, 2009, the Subsidiary and Wells Fargo Equipment Finance, Inc. (Wells Fargo), entered
into a Master Lease Agreement (the Wells Fargo Lease). The Wells Fargo Lease establishes the
general terms and conditions pursuant to which the Subsidiary may lease $750,000 in equipment.
Advances under the lease line may be made for 180 days by executing supplemental schedules for each
advance, which would have a 60 month term.
On October 2, 2009, the Company entered into Lease Supplement No. 1 of the Wells Fargo Lease for
$265,200 which was funded to one vendor for lab equipment. Supplement No. 1 has a term of 60
months with monthly payments of $5,396.36 and a $1.00 final purchase payment at termination.
Supplement No. 1 is being accounted for as a capital lease.
Suntrust Lease Agreement
On
October 28, 2009, the Subsidiary and Suntrust Equipment Finance & Leasing Corp. (Suntrust),
entered into an equipment lease agreement (the Suntrust Lease). The Suntrust Lease establishes
the general terms and conditions pursuant to which the Subsidiary may lease up to $1.5 million in
equipment and other property.
On
November 12, 2009, the Company entered into Lease Schedule No. 1 of the Suntrust lease for
$428,465 which was funded to several vendors for lab equipment, computer hardware and furniture and
fixtures. Schedule 1 has a term of 60 months with monthly payments of $8,433.67 and a $1.00 final
purchase payment at termination. Schedule No. 1 is being accounted for as a capital lease.
Employment Agreement
On October 28, 2009, the Company appointed Douglas M. VanOort, to the position of Chief Executive
Officer and amended and restated his employment agreement, as previously disclosed, pursuant to a
Current Report on Form 8-K filed with the Securities and Exchange Commission on November 3, 2009.
Mr. VanOort previously held the position of Executive Chairman and Interim Chief Executive Officer
of the Company from March 16, 2009 until October 28, 2009. Mr. VanOort also serves as the Chairman of
the Companys Board of Directors.
END OF FINANCIAL STATEMENTS.
12
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ITEM 2. |
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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
NeoGenomics, Inc., a Nevada corporation (referred to individually as the Parent Company or
collectively with all of its subsidiaries as NeoGenomics or the Company in this Form 10-Q) is
the registrant for SEC reporting purposes. Our common stock is listed on the OTC Bulletin Board
under the symbol NGNM.
Introduction
The following discussion and analysis should be read in conjunction with the unaudited condensed
consolidated financial statements, and the notes thereto included herein. The information contained
below includes statements of the Companys or managements beliefs, expectations, hopes, goals and
plans that, if not historical, are forward-looking statements subject to certain risks and
uncertainties that could cause actual results to differ materially from those anticipated in the
forward-looking statements. For a discussion on forward-looking statements, see the information set
forth in the introductory note to this Quarterly Report on Form 10-Q under the caption Forward
Looking Statements, which information is incorporated herein by reference.
Overview
NeoGenomics operates a network of cancer-focused testing laboratories whose mission is to improve
patient care through exceptional cancer genetic diagnostic, prognostic and predictive testing
services. Our vision is to become Americas premier cancer testing laboratory by delivering
uncompromising quality, exceptional service and innovative products and solutions. The Companys
laboratory network currently offers the following types of testing services:
|
a) |
|
cytogenetics testing, which analyzes human chromosomes; |
|
|
b) |
|
Fluorescence In-Situ Hybridization (FISH) testing, which analyzes
abnormalities at the chromosomal and gene levels; |
|
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c) |
|
flow cytometry testing, which analyzes gene expression of specific markers
inside cells and on cell surfaces; |
|
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d) |
|
immunohistochemistry testing, which analyzes the distribution of tumor
antigens in specific cell and tissue types, and |
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e) |
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molecular testing which involves analysis of DNA and RNA to diagnose and
predict the clinical significance of various genetic sequence disorders. |
All of these testing services are widely utilized in the diagnosis, prognosis, and prediction for
response to therapy of various types of cancers.
Our Focus
NeoGenomics primary focus is to provide high complexity laboratory testing for community-based
pathology, oncology and urology markets in the United States. We focus on community-based
practitioners for two reasons: First, academic pathologists and associated clinicians tend to have
their testing needs met within the confines of their university affiliation. Secondly, most of the
cancer care in the United States is administered by community based practitioners due to ease of
local access. We currently provide our services to pathologists and oncologists that perform bone
marrow and/or peripheral blood sampling for the diagnosis of blood and lymphoid tumors (leukemias
and lymphomas) and archival tissue referred for analysis of solid tumors such as breast cancer. We
also serve community-based urologists by providing a FISH-based genetic test for the diagnosis of
bladder cancer and early detection of recurrent disease.
The high complexity cancer testing services we offer to community-based pathologists are designed
to be a natural extension of and complementary to the services that our pathologist clients perform
within their own practices. Since fee-for-service pathologists derive a significant portion of
their annual revenue from the interpretation of cancer biopsy specimens, they represent an
important market segment to us. We believe our relationship as a non-competitive partner to the
community-based pathologist
13
empowers
these pathologists to expand their testing breadth and provide a menu of services that matches or exceeds
the level of service found in academic centers of excellence around the country.
We also believe that we can provide a competitive choice to those larger oncology practices that
prefer to have a direct relationship with a laboratory for cancer genetic testing services. Our
regionalized approach allows us strong interactions with clients and our innovative Genetic
Pathology Solutions (GPS TM) report summarizes all relevant case data on one page.
Seasonality
The majority of our testing volume is dependent on patients being treated by hematology/oncology
professionals and other healthcare providers. Volume of testing generally declines during the
vacation seasons, year-end holiday periods and other major holidays, particularly when those
holidays fall during the middle of the week. In addition, volume of testing tends to decline due to
adverse weather conditions, such as excessively hot or cold spells or hurricanes or tornados in
certain regions, consequently reducing revenues and cash flows in any affected period. Therefore,
comparison of the results of successive periods may not accurately reflect trends for future
periods.
Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles generally accepted
in the United States requires us to make estimates and assumptions and select accounting policies
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements, as well as the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from those estimates.
While many operational aspects of our business are subject to complex federal, state and local
regulations, the accounting for our business is generally straightforward with net revenues
primarily recognized upon completion of the testing process. Our revenues are primarily comprised
of laboratory tests, and approximately one-half of total operating costs and expenses consist of
employee compensation and benefits. Due to the nature of our business, several of our accounting
policies involve significant estimates and judgments. These accounting policies have been described
in our Annual Report on Form 10-K for the year ended December 31, 2008, and there have been no
material changes in the nine months ended September 30, 2009.
Results of Operations for the Three and Nine Months Ended September 30, 2009 as Compared to the
Three and Nine Months Ended September 30, 2008
The following table presents the condensed consolidated statements of operations as a percentage of
revenue:
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|
|
|
|
|
|
|
|
For the three months ended |
|
For the nine months ended |
|
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September 30. |
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September 30, |
|
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2009 |
|
2008 |
|
2009 |
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET REVENUE |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
COST OF REVENUE |
|
|
50 |
% |
|
|
50 |
% |
|
|
47 |
% |
|
|
47 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT |
|
|
50 |
% |
|
|
50 |
% |
|
|
53 |
% |
|
|
53 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative |
|
|
33 |
% |
|
|
36 |
% |
|
|
32 |
% |
|
|
38 |
% |
Sales and marketing |
|
|
25 |
% |
|
|
16 |
% |
|
|
22 |
% |
|
|
17 |
% |
Interest (income) expense, net |
|
|
2 |
% |
|
|
2 |
% |
|
|
2 |
% |
|
|
1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL OPERATING EXPENSES |
|
|
60 |
% |
|
|
54 |
% |
|
|
56 |
% |
|
|
56 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) |
|
|
(10 |
)% |
|
|
(4 |
)% |
|
|
(3 |
)% |
|
|
(3 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
Revenue
The Companys specialized testing services are performed based on a written test requisition form
and revenues are recognized once the testing services have been performed, the results have been
delivered to the ordering physician, the payor has been identified and eligibility and insurance
have been verified. Our testing services are billed to various payors, including Medicare,
commercial insurance companies, other directly billed healthcare institutions such as hospitals and
clinics, and individuals. We report revenues from contracted payors, including Medicare, certain
insurance companies and certain healthcare institutions, based on the contractual rate, or in the
case of Medicare, published fee schedules. We report revenues from non-contracted payors,
including certain insurance companies and individuals, based on the amount expected to be
collected. The difference between the amount billed and the amount expected to be collected from
non-contracted payors is recorded as a contractual allowance to arrive at the reported revenues.
The expected revenues from non-contracted payors are based on the historical collection experience
of each payor or payor group, as appropriate. In each reporting period, we review our historical
collection experience for non-contracted payors and adjust our expected revenues for current and
subsequent periods accordingly.
Revenues increased approximately 45%, or $2.2 million, to $7.3 million for the three months ended
September 30, 2009 as compared to $5.1 million for the three months ended September 30, 2008. For
the nine months ended September 30, 2009, revenues increased approximately 54%, or $7.6 million, to
$21.7 million as compared to $14.1 million for the nine months ended September 30, 2008. The
revenue increases for the three and nine months ended September 30, 2009, respectively, as compared
to the comparable periods in 2008, were primarily driven by increases in the number of tests
performed and to a lesser extent by increases in the average revenue/test.
Test
volume increased approximately 33% for the three months ended September 30, 2009. For the
nine months ended September 30, 2009, test volume increased approximately 43%. Increases in test
volumes were primarily driven by the substantial increases in sales and marketing activities by the
Company over the past twelve months.
Revenues per test are a function of both the type of the test (e.g. FISH, cytogenetics, flow
cytometry, etc.) and the payer (e.g., Medicare, Medicaid, third party insurer, institutional client
etc.). Average revenue per test is primarily driven by our test type mix and our payer mix. The
increase in average revenue per test for the three and nine months ended September 30, 2009 is
primarily the result of increases in higher priced tests in our test type mix and to a lesser
extent from certain Medicare fee schedule increases in 2009 for a number of our tests.
We have established a reserve for uncollectible amounts based on estimates of what we will collect
from: a) third-party payers with whom we do not have a contractual arrangement or sufficient
experience to accurately estimate the amount of reimbursement we will receive, b) payments directly
from patients, and c) those procedures that are not covered by insurance or other third party
payers. The Companys allowance for doubtful accounts increased 54%, or approximately $193,000 to
$552,000, as compared to $359,000 at December 31, 2008. The allowance for doubtful accounts was
approximately 11.7% and 11.0% of accounts receivable on September 30, 2009 and December 31, 2008,
respectively.
Cost of Revenue
Cost of revenue includes payroll and payroll related costs for performing tests, depreciation of
laboratory equipment, rent for laboratory facilities, laboratory reagents, probes and supplies, and
delivery and courier costs relating to the transportation of specimens to be tested.
Cost of
revenue increased approximately 45%, or $1.2 million, to $3.7 million for the three months
ended September 30, 2009 as compared to $2.5 million for the three months ended September 30, 2008.
For the nine months ended September 30, 2009, cost of revenue increased approximately 54%, or $3.5
million, to $10.1 million as compared to $6.6 million for the nine months ended September 30, 2008.
The increase was primarily attributable to increases in all areas of costs of revenue as the
Company scaled its operations in order to meet increasing demand. Cost of revenue as a percentage
of revenue was approximately 50% for
15
the three months ended September 30, 2009 and September 30, 2008. For the nine months ended
September 30, 2009 and September 30, 2008, cost of revenue as a percentage of revenue was
approximately 47%.
Accordingly, gross margin was approximately 50% for the three months ended September 30, 2009 and
September 30, 2008. For the nine months ended September 30, 2009 and September 30, 2008, gross
margin was approximately 53%.
Sales and Marketing
Sales and marketing expenses relate primarily to the employee related costs of our sales
management, sales representatives, marketing, and customer service personnel.
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|
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|
|
For the three months ended |
|
|
|
|
|
For the nine months ended |
|
|
|
|
September 30. |
|
|
|
|
|
September 30, |
|
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
% |
|
|
2009 |
|
2008 |
|
Change |
|
2009 |
|
2008 |
|
Change |
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
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|
Sales and marketing
|
|
$ |
1,792,955 |
|
|
$ |
803,779 |
|
|
|
123 |
% |
|
$ |
4,849,470 |
|
|
$ |
2,348,348 |
|
|
|
107 |
% |
As a % of revenue
|
|
|
25 |
% |
|
|
16 |
% |
|
|
|
|
|
|
22 |
% |
|
|
17 |
% |
|
|
|
|
Sales and marketing expenses increased approximately 123%, or $989,000 to $1.8 million for the
three months ended September 30, 2009 as compared to $804,000 for the three months ended September
30, 2008. For the nine months ended September 30, 2009 sales and marketing expenses increased
approximately 107%, or $2.5 million, to $4.8 million as compared to $2.3 million for the nine
months ended September 30, 2008. The increase in sales and marketing expenses is primarily a
result of adding substantial numbers of sales and marketing personnel in 2009 versus 2008 to
generate additional revenue growth.
Sales and marketing expenses as a percentage of revenue increased to approximately 25% and 22% for
the three and nine months ended September 30, 2009, respectively, as compared to approximately 16%
and 17% for the three and nine months ended September 30, 2008.
We expect our sales and marketing expenses to increase as we hire additional sales management,
sales representatives, and marketing personnel as part of our growth strategy. However, we expect
these expenses to decline as a percentage of revenue as our case volumes increase and we develop
more economies of scale in our sales and marketing activities.
General and Administrative Expenses
General and administrative expenses relate to billing, finance, human resources, information
technology, and other administrative functions. They primarily consist of employee related costs
(such as salaries, fringe benefits, and stock-based compensation expense), professional services,
facilities expense, and depreciation and administrative-related costs allocated to general and
administrative expenses. In addition, the provision for doubtful accounts is included in general
and administrative expenses.
|
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|
For the three months ended |
|
|
|
|
|
For the nine months ended |
|
|
|
|
September 30. |
|
|
|
|
|
September 30, |
|
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
% |
|
|
2009 |
|
2008 |
|
Change |
|
2009 |
|
2008 |
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
$ |
2,457,978 |
|
|
$ |
1,831,829 |
|
|
|
34 |
% |
|
$ |
7,013,326 |
|
|
$ |
5,357,936 |
|
|
|
31 |
% |
As a % of revenue
|
|
|
33 |
% |
|
|
36 |
% |
|
|
|
|
|
|
32 |
% |
|
|
38 |
% |
|
|
|
|
General and administrative expenses increased approximately 34%, or $626,000 to $2.5 million
for the three months ended September 30, 2009 as compared to $1.8 million for the three months
ended September 30, 2008. For the nine months ended September 30, 2009 general and administrative
expenses increased
approximately 31%, or $1.7 million, to $7.0 million as compared to $5.3 million for the nine months
ended September 30, 2008. The increase in general and administrative expenses is primarily a
result of adding additional management, information technology, and billing personnel to support
the increase in our revenue.
16
General and administrative expenses as a percentage of revenue decreased to approximately 33% and
32%, respectively, for the three and nine months ended September 30, 2009 as compared to
approximately 36% and 38%, respectively, for the three and nine months ended September 30, 2008.
This decrease as compared to the same period last year was primarily a result of greater economies
of scale in our business from spreading our administrative costs over a greater revenue base.
Bad debt expense increased by approximately 51%, or $144,000, to $424,000 for the three months
ended September 30, 2009 as compared to $280,000 for the three months ended September 30, 2008.
For the nine months ended September 30, 2009 bad debt expense increased by approximately 24%, or
$263,000 to $1,359,000 as compared to $1,096,000 for the nine months ended September 30, 2008. This
increase was a result of the significant increases in revenue. Bad debt expense as a percentage of
revenue was 5.8% and 6.3%, respectively, for the three and nine months ended September 30, 2009, as
compared to 5.6% and 7.8%, respectively, for the three and nine months ended September 30, 2008.
The decrease in bad debt expense as a percentage of revenue for the three and nine months ended
September 30, 2009 as compared to the three and nine months ended September 30, 2008 is the result
of changes we made in our billing practices as well as the implementation of a more effective
billing system in 2008.
We expect our general and administrative expenses to increase as we add personnel; increase our
billing and collections activities; incur additional expenses associated with the expansion of our
facilities and backup systems; and continue to build our physical infrastructure to support our
anticipated growth. However, we expect general and administrative expenses to continue to decline
as a percentage of our revenue as our case volumes increase and we develop more operating leverage
in our business.
Interest Expense, net
Interest expense net, which represents the interest expense we incur on our borrowing arrangements
offset by the interest income we earn on cash deposits. Interest expense, net increased
approximately 71%, or $54,000 to $129,000 for the three months ended September 30, 2009 as compared
to $75,000 for the three months ended September 30, 2008. For the nine months ended September 30,
2009 interest expense, net increased approximately 88%, or $175,000 to $374,000 as compared to
$199,000 for the nine months ended September 30, 2008. Interest expense is primarily related to
the amount of our capital leases outstanding and to a lesser extent to the borrowing under our
credit facility with CapitalSource Finance, LLC (CapitalSource). Interest expense increased over
the same period in the prior year primarily as a result of the higher capital lease balances as of
September 30, 2009 as compared to September 30, 2008.
Net Income (Loss)
As a result of the foregoing, we reported a net loss of $755,000, or $(0.02)/share, for the three
months ended September 30, 2009 as compared to a net loss of $195,000, or $(0.01)/share, for the
three months ended September 30, 2008. For the nine months ended September 30, 2009, we reported a
net loss of $714,000, or $(0.02)/share, as compared to a net loss of $388,000.or $(0.01)/share, for
the nine months ended September 30, 2008.
Liquidity and Capital Resources
The following table presents a summary of our cash flows provided by (used in) operating, investing
and finance activities for the nine months ended September 30, 2009 and 2008 as well as the period
ending cash and cash equivalents and working capital.
17
|
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|
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|
|
For the nine months ended |
|
|
|
September 30. |
|
|
|
2009 |
|
|
2008 |
|
Net cash provided by (used in): |
|
|
|
|
|
|
|
|
Operating activities |
|
$ |
(1,045,900 |
) |
|
$ |
(181,654 |
) |
Investing activities |
|
|
(432,182 |
) |
|
|
(370,219 |
) |
Financing activities |
|
|
4,137,958 |
|
|
|
972,664 |
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
|
2,659,876 |
|
|
|
420,792 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of period |
|
|
468,171 |
|
|
|
210,573 |
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
3,128,047 |
|
|
$ |
631,365 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working Capital (1), end of period |
|
$ |
4,326,964 |
|
|
$ |
771,089 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Defined as current assets - current liabilities. |
During the nine months ended September 30, 2009, our operating activities used approximately
$1,046,000 of cash compared with approximately $182,000 used in the nine months ended September 30,
2008. This use of cash consisted primarily of increases in our accounts receivable balance as a
result of increased revenue. We invested approximately $432,000 for new equipment during the nine
months ended September 30, 2009, compared with approximately $370,000 for the nine months ended
September 30, 2008.
Net cash flow provided by financing activities was approximately $4,138,000 for the nine months
ended September 30, 2009 which was primarily derived from the sale of 3.5 million shares of common
stock to Abbott Laboratories (see Note G in the notes to our unaudited financial statements), and
the exercises of options and warrants, offset by payments made on our revolving credit facility and
capital lease obligations. For the nine months ended September 30, 2008, our net cash flow
provided by financing activities was approximately $973,000 which was primarily from amounts
borrowed from our revolving credit facility, offset by payments made on capital lease obligations.
At September 30, 2009, we had cash and cash equivalents of approximately $3,128,000.
Our consolidated financial statements are prepared using accounting principles generally accepted
in the United States of America applicable to a going concern, which contemplate the realization of
assets and liquidation of liabilities in the normal course of business. At September 30, 2009, we
had stockholders equity of $7,047,519.
On November 5, 2008, we entered into a common stock purchase agreement (the Stock Agreement) with
Fusion Capital Fund II, LLC an Illinois limited liability company (Fusion). The Stock Agreement,
which has a term of 30 months, provides for the future funding of up to $8.0 million from sales of
our common stock to Fusion on a when and if needed basis as determined by us in our sole
discretion, depending on, among other things, the market price of our common stock. As of
September 30, 2009, we had not drawn on any amounts under the
Fusion Stock Agreement.
On February 1, 2008, we entered into a revolving credit facility with CapitalSource, which allows
us to borrow up to $3,000,000 based on a formula which is tied to our eligible accounts receivable
that are aged less than 150 days.
On July 24, 2009, NeoGenomics entered into a Common Stock Purchase Agreement with Abbott
Laboratories, an Illinois corporation (Abbott), and consummated the issuance and sale to Abbott,
for an aggregate purchase price of $4,767,000, of 3,500,000 shares of common stock, $0.001 par
value per share. See Note G to the financial statements.
As of September 30, 2009, we had approximately $3,128,000 in cash on hand, $3,000,000 of
availability under our credit facility, and up to $8.0 million under the Fusion Stock Agreement.
As such, we believe we have adequate resources to meet our operating commitments for the next
twelve months, and accordingly our consolidated financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset amounts or the amounts and
classification of liabilities that might be necessary should we be unable to continue as a going
concern.
18
Capital Expenditures
We currently forecast capital expenditures in order to execute on our business plan. The amount and
timing of such capital expenditures will be determined by the volume of business, but we currently
anticipate that we will need to purchase approximately $2.0 million to $2.5 million of additional
capital equipment during the next twelve months. We plan to fund these expenditures with cash,
through bank loan facilities, and through capital lease financing arrangements. If we are unable
to obtain such funding, we will need to pay cash for these items or we will be required to curtail
our equipment purchases, which may have an impact on our ability to continue to grow our revenues.
Subsequent Events
Wells Fargo Lease Agreement
On October 2, 2009, the Subsidiary and Wells Fargo Equipment Finance, Inc. (Wells Fargo), entered
into a Master Lease Agreement (the Wells Fargo Lease). The Wells Fargo Lease establishes the
general terms and conditions pursuant to which the Subsidiary may lease $750,000 in equipment.
Advances under the lease line may be made for 180 days by executing supplemental schedules for each
advance, which would have a 60 month term.
On October 2, 2009, the Company entered into Lease Supplement No. 1 of the Wells Fargo Lease for
$265,200 which was funded to one vendor for lab equipment. Supplement No. 1 has a term of 60
months with monthly payments of $5,396.36 and a $1.00 final purchase payment at termination.
Supplement No. 1 is being accounted for as a capital lease.
Suntrust Lease Agreement
On
October 28, 2009, the Subsidiary and Suntrust Equipment Finance & Leasing Corp. (Suntrust),
entered into an equipment lease agreement (the Suntrust Lease). The Suntrust Lease establishes
the general terms and conditions pursuant to which the Subsidiary may lease up to $1.5 million in
equipment and other property.
On
November 12, 2009, the Company entered into Lease Schedule No. 1 of the Suntrust lease for
$428,465 which was funded to several vendors for lab equipment, computer hardware and furniture and
fixtures. Schedule 1 has a term of 60 months with monthly payments of $8,433.67 and a $1.00 final
purchase payment at termination. Schedule No. 1 is being accounted for as a capital lease.
Employment Agreement
On October 28, 2009, the Company appointed Douglas M. VanOort, to the position of Chief Executive
Officer and amended and restated his employment agreement, as previously disclosed, pursuant to a
Current Report on Form 8-K filed with the Securities and Exchange Commission on November 3, 2009.
Mr. VanOort previously held the position of Executive Chairman and Interim Chief Executive Officer
of the Company from March 16, 2009 until October 28, 2009. Mr. VanOort also serves as the Chairman
of the Companys Board of Directors.
19
ITEM 3 Quantitative and Qualitative Disclosures About Market Risk
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934
and are not required to provide information under this item.
ITEM 4 Controls and Procedures
Not applicable.
ITEM 4T Controls and Procedures
Disclosure Controls and Procedures
We maintain disclosure controls and procedures designed to ensure that information required to be
disclosed in reports filed under the Securities Exchange Act of 1934, as amended, is recorded,
processed, summarized, and reported within the time periods specified in the SECs rules and forms,
and that such information is accumulated and communicated to our management, including our
principal executive officer, principal financial officer, and principal accounting officer, as
appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating
our disclosure controls and procedures, management recognized that any controls and procedures, no
matter how well designed and operated, can provide only reasonable assurance of achieving the
desired control objectives.
As required by SEC Rule 15d-15(e), our management carried out an evaluation, under the supervision
and with the participation of our principal executive officer, principal financial officer, and
principal accounting officer, of the effectiveness of our disclosure controls and procedures as of
the end of the period covered by this report. Based on that evaluation, our principal executive
officer, principal financial officer, and principal accounting officer concluded that our
disclosure controls and procedures were not effective at a reasonable assurance level as of the end
of the period covered by this report due to the material weakness that was originally described
more fully in our Annual Report on Form 10-K for the fiscal year ended December 31, 2008 relating
to our failure to maintain proper spreadsheet controls.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the
three months ended September 30, 2009 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
20
PART II OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
A civil lawsuit is currently pending between the Company and its liability insurer, FCCI Commercial
Insurance Company (FCCI) in the 20th Judicial Circuit Court in and for Lee County, Florida (Case
No. 07-CA-017150). FCCI filed the suit on December 12, 2007 in response to the Companys demands
for insurance benefits with respect to an underlying action involving US Labs (a settlement
agreement has since been reached in the underlying action, and thus that case has now concluded).
Specifically, the Company maintains that the underlying plaintiffs allegations triggered the
subject insurance policys personal and advertising injury coverage. In the lawsuit, FCCI seeks a
court judgment that it owes no obligation to the Company regarding the underlying action (FCCI does
not seek monetary damages). The Company has counterclaimed against FCCI for breach of the subject
insurance policy, and seeks recovery of defense costs incurred in the underlying matter, amounts
paid in settlement thereof, and fees and expenses incurred in litigating with FCCI. The court
previously denied a motion by FCCI for judgment on the pleadings, rejecting FCCIs contention that
the underlying complaint did not trigger the insurers duty to defend as a matter of law. A motion
for summary judgment is currently pending. We intend to aggressively pursue all remedies in this
matter and believe that the courts will ultimately find that FCCI had a duty to provide coverage in
the US Labs litigation.
On
November 9th, 2009, the Company was notified by the Civil Division of the U.S. Department of
Justice (DOJ) that a Qui Tam Complaint (Complaint) had been filed under seal by a private
individual against a number of health care companies, including the Company. The Complaint is an
action to recover damages and civil penalties arising from alleged false or fraudulent claims and
statements submitted or caused to be submitted by the defendants to Medicare. The DOJ has not made
any decision whether to join the action. The Company believes the allegations in the Complaint are
without merit and intends to vigorously defend itself if required to do so.
ITEM 1A RISK FACTORS
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not
required to provide information under this item.
ITEM 2 UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Not Applicable
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5 OTHER INFORMATION
None
21
ITEM 6 EXHIBITS
|
|
|
|
|
EXHIBIT |
|
|
NO. |
|
DESCRIPTION |
|
|
|
|
|
31.1 |
|
|
|
Certification by Principal Executive Officer pursuant to Rule
13a-14(a)/ 15d-14(a), as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002 |
|
|
|
|
|
31.2 |
|
|
|
Certification by Principal Financial Officer pursuant to Rule
13a-14(a)/ 15d-14(a), as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002 |
|
|
|
|
|
31.3 |
|
|
|
Certification by Principal Accounting Officer pursuant to Rule
13a-14(a)/ 15d-14(a), as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002 |
|
|
|
|
|
32.1 |
|
|
|
Certification by Principal Executive Officer, Principal
Financial Officer and Principal Accounting Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 |
22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
|
|
|
Date: November 23, 2009 |
NEOGENOMICS, INC.
|
|
|
By: |
/s/ Douglas M. VanOort
|
|
|
|
Name: |
Douglas M. VanOort |
|
|
|
Title: |
Executive Chairman and Chief Executive
Officer |
|
|
|
|
|
|
By: |
/s/ Steven C. Jones
|
|
|
|
Name: |
Steven C. Jones |
|
|
|
Title: |
Acting Principal Financial Officer |
|
|
|
|
|
|
By: |
/s/ Jerome J. Dvonch
|
|
|
|
Name: |
Jerome J. Dvonch |
|
|
|
Title: |
Director of Finance and Principal
Accounting Officer |
|
|