CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

 

On March 11, 2005, we entered into an agreement with HCSS, LLC and eTelenext, Inc. to enable NeoGenomics to use eTelenext’s 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, our Chairman. By becoming the first customer of HCSS in the small laboratory network, the Company saved approximately $152,000 in up front licensing fees. Under the terms of the agreement, the Company paid $22,500 over three months to customize this software and will pay an annual membership fee of $6,000 per year and monthly transaction fees of between $2.50 - $10.00 per completed test, depending on the volume of tests performed. The eTelenext system is an elaborate laboratory information system (“LIS”) that is in use at many larger labs. By assisting in the formation of the small laboratory network, the Company will be able to increase the productivity of its technologists and have on-line links to other small labs in the network in order to better manage its workflow.

 

On March 23, 2005, Aspen Select Healthcare, LP (formerly known as MVP 3, LP) (“Aspen”) and the Company entered into an amended and restated loan agreement, which provided for a revolving credit facility in an amount of up to $1.5 million (which was subsequently increased to $1.7 million) (the “Aspen Credit Facility”). The Aspen Credit Facility was paid in full in June 2007 and it expired on September 30, 2007.

The Company, Michael Dent, Aspen, John Elliot, Steven Jones and Larry Kuhnert are parties to the Amended and Restated Shareholders’ Agreement dated March 21, 2005 (the “Shareholders Agreement”), that, among other provisions, gives Aspen, our largest stockholder, the right to elect three out of the seven directors authorized for our Board of Directors, and to nominate one mutually acceptable independent director.  In addition, Michael Dent and the executive management of the Company has the right to elect one director for our Board of Directors, until the earlier of (i) Dr. Dent’s resignation as an officer or director of the Company or (ii) the sale by Dr. Dent of 50% or more of the number of shares of our common stock that he held on March 21, 2005.

 

On January 18, 2006, the Company and Aspen entered into a letter agreement that, among other things, (i) granted Aspen five year warrants to purchase 150,000 shares of common stock at an exercise price of $0.26 per share in exchange for the waiver of certain preemptive rights, (ii) granted Aspen the right (which was subsequently exercised) to purchase 1,000,000 shares of common stock for $0.20 per share and to receive a five year warrant to purchase 450,000 shares of common stock at an exercise price of $0.26 per share, (iii) granted Aspen a five year warrant to purchase up to 450,000 shares of common stock with an exercise price of $0.26 per share in connection with the increase in the amount of the Aspen Credit Facility to $1.7 million, and (iv) provided that existing warrants held by Aspen to purchase 2,500,000 shares of common stock were fully vested and the exercise price per share was reset to $0.31 per share.

During the period from January 18 through January 21, 2006, the Company entered into agreements with four shareholders who are parties to the Shareholders Agreement, to exchange five year warrants to purchase an aggregate of 150,000 shares of stock at a purchase price of $0.26 per share for such stockholders’ waiver of their pre-emptive rights under the Shareholders Agreement.

 

On January 21, 2006, the Company entered into a subscription agreement (the “Subscription”) with SKL, whereby SKL purchased 2,000,000 shares (the “Subscription Shares”) of common stock at a purchase price of $0.20 per share for $400,000. Under the terms of the Subscription, the Subscription Shares are restricted for a period of 24 months and then carry piggyback registration rights to the extent that exemptions under Rule 144 are not available to SKL. In connection with the Subscription, the Company also issued a five year warrant to purchase 900,000 shares of the Company’s common stock at an exercise price of $0.26 per share.  SKL had no previous affiliation with the Company.

 

On May 14, 2007, the Board of Directors approved the grant of 100,000 warrants to each non-employee director.  There has not been any definitive agreement as to the terms but 25% will vest immediately and the remaining warrants will vest an additional 25% over each of the next three years.  The Board of Directors also approved an increase in its’ per board meeting fees to non-employee director’s from $600 to $1,000 for each meeting.

 

In consideration for its services and assistance with the sale of 2,666,667 shares of our common stock during the period from May 31, 2007 through June 6, 2007, Aspen Capital Advisors, LLC received: (i) warrants to purchase 250,000 shares of our common stock, and (ii) a cash fee equal to $52,375.  The warrants have a five year term, an exercise price equal to $1.50 per share, cashless exercise provisions, customary anti-dilution provisions and the same other terms, conditions, rights and preferences as those shares sold to the investors in the private placement. Mr. Steven Jones, a director of the Company, is a Managing Director of Aspen Capital Advisors.

 

60

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On September 30, 2008, the Company entered into a sale leaseback arrangement for approximately $130,000 of used laboratory equipment with Gulf Pointe Capital, LLC, which is a wholly-owned subsidiary of a private equity partnership managed by Steven Jones and Peter Peterson, who are each members of our board of directors. Marvin Jaffe, another member of our board of directors, is a limited partner in this partnership. This sale/leaseback transaction was entered into after it was determined that Leasing Technologies International Inc. was unable to consummate this transaction under its proposed lease line with the Company and Messrs Jones, Peterson and Jaffe recused themselves from all aspects of both sides of this transaction. The lease has a 30 month term and a lease rate factor of 0.0397/month, which equates to monthly payments of $5,154.88 during the term. Gulf Pointe Capital also received 32,475 warrants with an exercise price of $1.08, and a five year term. 25% of the warrants vested upfront and 75% vested on October 2, 2008 when the lease was funded. At the end of the term the Company 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.

 

c) Return not less than all the equipment at conclusion of the lease term.

 

During 2007, 2006 and 2005, Steven C. Jones, a director of the Company, earned $127,950, $71,000 and $51,000, respectively, for various consulting work performed in connection with his duties as Acting Principal Financial Officer. During the nine month period ended September 30, 2008, Mr. Jones earned $105,000 for such consulting work.

 

During 2007 and 2006, George O’Leary, a director of the Company, earned $9,500 and $20,900, respectively, for various consulting work performed for the Company.  During the nine month period ended September 30, 2008, Mr. O’Leary earned $9,500 in cash for various consulting work performed for the Company. On March 15, 2007, Mr. O’Leary was awarded 100,000 warrants for certain consulting services performed on behalf of the Company.  These warrants had an exercise price of $1.49/share and a five year term.  Half of these warrants were deemed vested on issuance and the other half vest ratably over a 24 month period.   On January 18, 2006, Mr. O’Leary was also awarded an option to purchase 50,000 shares of common stock in connection with his services to the Company related to renegotiating the Aspen Credit Facility and closing equity financing from a disinterested third party.

 

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DESCRIPTION OF CAPITAL STOCK

 

Common Stock

 

We are authorized to issue 100,000,000 shares of common stock, par value $0.001 per share, of which 32,117,237 shares were issued and outstanding as of December 31, 2008.

 

The securities being offered hereby are common stock. The outstanding shares of our common stock are fully paid and non-assessable. The holders of common stock are entitled to one vote per share for the election of directors and with respect to all other matters submitted to a vote of stockholders. Shares of our common stock do not have cumulative voting rights, which means that the holders of more than 50% of such shares voting for the election of directors can elect 100% of the directors if they choose to do so. Our common stock does not have preemptive rights, meaning that the common stockholders’ ownership interest in the Company would be diluted if additional shares of common stock are subsequently issued and the existing stockholders are not granted the right, at the discretion of the Board of Directors, to maintain their ownership interest in our Company.

 

Upon  liquidation, dissolution or winding-up of the Company, our assets, after the payment of debts and liabilities and any liquidation preferences of, and unpaid dividends on, any class of preferred stock then outstanding, will be distributed pro-rata to the holders of our common stock. The holders of our common stock do not have preemptive or conversion rights to subscribe for any of our securities and have no right to require us to redeem or purchase their shares.  The holders of common stock are entitled to share equally in dividends, if, as and when declared by our Board of Directors, out of funds legally available therefore, subject to the priorities given to any class of preferred stock which may be issued.

 

Preferred Stock

 

We are authorized to issue 10,000,000 shares of preferred stock, par value $0.001 per share (the “Preferred Stock”).  Preferred Stock may be issued from time to time in one or more series. The Board of Directors is authorized to fix or alter the dividend rights, dividend rate, conversion rights, voting rights, rights and terms of redemption (including sinking fund provisions), the redemption price or prices, the liquidation preferences of any wholly unissued series of Preferred Stock, and the number of shares constituting any such series and the designation thereof, or any of them; and to increase or decrease the number of shares of any series subsequent to the issue of shares of that series, but not below the number of shares of such series then outstanding and which the Company may be obligated to issue under options, warrants or other contractual commitments. In case the number of shares of any series shall be so decreased, the shares constituting such decrease shall resume the status which they had prior to the adoption of the resolution originally fixing the number of shares of such series.  As of the date of this prospectus, no such shares have been designated.

 

Warrants

 

As of December 31, 2008, warrants to purchase 5,837,838  shares of our common stock were outstanding,  5,604,505 of which were vested.  The exercise prices of these warrants range from $0.26 to $1.50 per share.

Options

 

As of December 31, 2008, options to purchase 3,755,126 shares of our common stock were outstanding.  The exercise prices of these options range from $0.16 to $1.82 per share.

 

Transfer Agent

 

The Company’s transfer agent is Standard Registrar & Transfer Company located at 12528 South 1840 East Draper, Utah, 84020.  The transfer agent’s telephone number is (801) 571-8844.

 

Reports To Stockholders

 

We intend to furnish our stockholders with annual reports which will describe the nature and scope of our business and operations for the prior year and will contain a copy of our audited financial statements for the most recent fiscal year.

 

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Indemnification Of Directors And Executive Officers And Limitation On Liability

 

Our Articles of Incorporation eliminate the liability of our directors and officers for breaches of fiduciary duties as directors and officers, except to the extent otherwise required by the Nevada Revised Statutes and where the breach involves intentional misconduct, fraud or a knowing violation of the law.

 

Nevada Revised Statutes 78.750, 78.751 and 78.7502 have similar provisions that provide for discretionary and mandatory indemnification of officers, directors, employees, and agents of a corporation. Under these provisions, such persons may be indemnified by a corporation against expenses, including attorney’s fees, judgment, fines and amounts paid in settlement, actually and reasonably incurred by him in connection with the action, suit or proceeding, if he acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation and with respect to any criminal action or proceeding had no reasonable cause to believe his conduct was unlawful.

 

To the extent that a director, officer, employee or agent has been successful on the merits or otherwise in defense of any action, suit or proceeding, or in defense of any claim, issue or matter, he must be indemnified by us against expenses, including attorney’s fees, actually and reasonably incurred by him in connection with the defense.

 

Any indemnification, unless ordered by a court or advanced by us, must be made only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances. The determination must be made:

 

·

By the stockholders;

 

·

By our Board of Directors by majority vote of a quorum consisting of directors who were not parties to that act, suit or proceeding;

 

·

If a majority vote of a quorum consisting of directors who were not parties to the act, suit or proceeding cannot be obtained, by independent legal counsel in a written opinion; or

 

·

If a quorum consisting of directors who were not parties to the act, suit or proceeding cannot be obtained, by independent legal counsel in a written opinion;

 

·

Expenses of officers and directors incurred in defending a civil or criminal action, suit or proceeding must be paid by us as they are incurred and in advance of the final disposition of the action, suit or proceeding, upon receipt of an undertaking by the director or officer to repay the amount if it is ultimately determined by a court of competent jurisdiction that he is not entitled to be indemnified by us.

 

·

To the extent that a director, officer, employee or agent has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in subsections 1 and 2, or in defense of any claim, issue or matter therein, we shall indemnify him against expenses, including attorneys’ fees, actually and reasonably incurred by him in connection with the defense.

 

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers, and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer, or controlling person in the successful defense of any action, suit, or proceeding) is asserted by such director, officer, or controlling person connected with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by us is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

 

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LEGAL MATTERS

 

The validity of the shares offered hereby has been opined on for us by Burton, Bartlett & Glogovac.

 

EXPERTS

 

Our consolidated financial statements as of  December 31, 2007 and 2006 and for the years then ended included or referred to in this prospectus have been audited by Kingery & Crouse, P.A., independent registered public accountants, and are included in this prospectus in reliance on this firm as experts in accounting and auditing.

 

AVAILABLE INFORMATION

 

We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the securities offered by this prospectus. This prospectus, which forms a part of the registration statement, does not contain all the information set forth in the registration statement, as permitted by the rules and regulations of the SEC. For further information with respect to us and the securities offered by this prospectus, reference is made to the registration statement.

 

Statements contained in this prospectus as to the contents of any contract or other document that we have filed as an exhibit to the registration statement are qualified in their entirety by reference to the exhibits for a complete statement of their terms and conditions. The registration statement and other information may be read and copied at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549.  The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.  The SEC maintains a web site at http://www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.

 

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CONSOLIDATED FINANCIAL STATEMENTS OF NEOGENOMICS, INC.

		PAGE
CONSOLIDATED FINANCIAL STATEMENTS—SEPTEMBER 30, 2008 (unaudited)
Condensed Consolidated Balance Sheets as of September 30, 2008 and December 31, 2007		F-1
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2008 and 2007		F-2
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2008 and 2007		F-3
Notes to Unaudited Condensed Consolidated Financial Statements as of September 30, 2008		F -4

		PAGE
CONSOLIDATED FINANCIAL STATEMENTS—DECEMBER 31, 2007 and 2006
Report of Independent Registered Public Accounting Firm		F-10
Consolidated Balance Sheets as of December 31, 2007 and 2006		F-11
Consolidated Statements of Operations for the Years Ended December 31, 2007 and 2006		F-12
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2007 and 2006		F-13
Consolidated Statements of Cash Flows for the Years Ended December 31, 2007 and 2006		F-14
Notes to Consolidated Financial Statements as of and for the years ended December 31, 2007 and 2006		F-15

F-i

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NEOGENOMICS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

---

		September 30, 2008			December 31, 2007
ASSETS
CURRENT ASSETS
Cash and cash equivalents		$	631,365		$	210,573
Accounts receivable (net of allowance for doubtful accounts of $283,111 and $414,548, respectively)			3,381,066			3,236,751
Inventories			344,608			304,750
Other current assets			900,146			400,168
Total current assets			5,257,185			4,152,242
PROPERTY AND EQUIPMENT (net of accumulated depreciation of $1,374,942 and $862,030,respectively)			2,495,146			2,108,083
OTHER ASSETS			275,087			260,575
TOTAL ASSETS		$	8,027,418		$	6,520,900
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable		$	1,904,694		$	1,799,159
Accrued expenses and other liabilities			955,405			1,319,580
Due to affiliates (net of discount of $39,285)			-			-
Revolving credit line			1,176,221			-
Short-term portion of equipment capital leases			449,776			242,966
Total current liabilities			4,486,096			3,361,705
LONG TERM LIABILITIES
Long-term portion of equipment capital leases			1,054,321			837,081
TOTAL LIABILITIES			5,540,417			4,198,786
STOCKHOLDERS’ EQUITY
Common stock, $.001 par value, (100,000,000 shares authorized; 31,686,355 and 31,391,660 shares issued and outstanding, respectively)			31,686			31,391
Additional paid-in capital			17,373,756			16,820,954
Deferred stock compensation			-			-
Accumulated deficit			(14,918,441	)		(14,530,231	)
Total stockholders’ equity			2,487,001			2,322,114
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	8,027,418		$	6,520,900

 

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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

F-1

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NEOGENOMICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

---

		For the Nine- Months Ended September 30, 2008			For the Nine- Months Ended September 30, 2007			For the Three- Months Ended September 30, 2008			For the Three- Months Ended September 30, 2007
NET REVENUE		$	14,094,959		$	7,709,408		$	5,050,796		$	3,122,714
COST OF REVENUE			6,577,549			3,623,860			2,535,318			1,521,313
GROSS PROFIT			7,517,410			4,085,548			2,515,478			1,601,401
OPERATING EXPENSES
General and administrative			7,706,284			5,664,053			2,635,608			2,178,339
Interest expense, net			199,336			205,806			74,995			14,325
Total operating expenses			7,905,620			5,869,859			2,710,603			2,192,664
NET INCOME (LOSS)		$	(388,210	)	$	(1,784,311	)	$	(195,125	)	$	(591,263	)
NET INCOME (LOSS) PER SHARE
- Basic		$	(0.01	)	$	(0.06	)	$	(0.01	)	$	(0.02	)
- Diluted		$	(0.01	)	$	(0.06	)	$	(0.01	)	$	(0.02	)
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
- Basic			31,414,065			29,221,778			31,440,327			31,309,353
- Diluted			31,414,065			29,221,778			31,440,327			31,309,353

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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

F-2

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NEOGENOMICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007

(unaudited)

---

		September 30, 2008			September 30, 2007
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss		$	(388,210	)	$	(1,784,311	)
Adjustments to reconcile net loss to net cash used in operating activities:
Provision for bad debts			1,095,387			506,286
Depreciation			512,913			295,297
Impairment of assets			-			2,235
Amortization of debt issue costs			35,321			15,615
Amortization of lease cap costs			4,080			2,516
Amortization of relocation costs			8,862			15,450
Amortization of credit facility warrants			-			39,285
Stock-based compensation			229,539			203,850
Non-cash consulting expenses			99,813			121,879
Changes in assets and liabilities, net:
(Increase) decrease in accounts receivable, net of write-offs			(1,239,702	)		(1,765,635	)
(Increase) decrease in inventories			(39,857	)		(299,269	)
(Increase) decrease in pre-paid expenses			(405,841	)		(191,434	)
(Increase) decrease in deposits			(14,512	)		(16,925	)
Increase (decrease) in accounts payable and other liabilities			(79,447	)		665,998
NET CASH USED IN OPERATING ACTIVITIES			(181,654	)		(2,189,163	)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment			(370,218	)		(406,747	)
Purchase of convertible debenture			-			(200,000	)
NET CASH USED IN INVESTING ACTIVITIES			(370,218	)		(606,747	)
CASH FLOWS FROM FINANCING ACTIVITIES
Advances / (repayments) to affiliates, net			-			(1,675,000	)
Advances / (repayments) on credit facility			1,176,221			-
Repayment of capital leases			(244,612	)		(110,000	)
Issuance of common stock and warrants for cash, net of transaction expenses			41,055			5,266,578
Repayment of notes payable			-			(2,000	)
NET CASH PROVIDED BY FINANCING ACTIVITIES			972,664			3,479,578
NET INCREASE IN CASH AND CASH EQUIVALENTS			420,792			683,668
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD			210,573			126,266
CASH AND CASH EQUIVALENTS, END OF PERIOD		$	631,365		$	809,934
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid		$	171,606		$	169,320
Income taxes paid		$	-		$	-
NON-CASH INVESTING AND FINANCING ACTIVITIES
Equipment leased under capital leases, including $140,000 in accrued expenses at December 31, 2007		$	538,761		$	464,811
Equipment purchased and included in accounts payable at September 30, 2008		$	126,227		$	-

 

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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

F-3

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NEOGENOMICS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AS OF SEPTEMBER 30, 2008

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, Inc., a Florida corporation, doing business as NeoGenomics Laboratories (“NEO”, “NeoGenomics” or the “Subsidiary”) (collectively referred to as “we”, “us”, “our”, or the “Company”) operates as a certified “high complexity” clinical laboratory in accordance with the federal government’s 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 Company’s 2007 Annual Report on Form 10-KSB. Therefore, the interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s annual report.

Net Income (Loss) Per Common Share

We compute net income (loss) per share in accordance with Financial Accounting Standards Statement No. 128 “Earnings per Share” (“SFAS 128”) and Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin No. 98 (“SAB 98”). Under the provisions of SFAS No. 128 and SAB 98, 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 during the period. Common equivalent shares outstanding as of September 30, 2008 and 2007, which consisted of employee stock options and certain warrants issued to consultants and other providers of financing to the Company, were excluded from diluted net loss per common share calculations as of such dates because they were anti-dilutive. For the three and nine months ended September 30, 2008 and 2007, we reported net loss per share and as such basic and diluted loss per share were equivalent.

Recently Issued Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 provides a new single authoritative definition of fair value and provides enhanced guidance for measuring the fair value of assets and liabilities and requires additional disclosures related to the extent to which companies measure assets and liabilities at fair value, the information used to measure fair value, and the effect of fair value measurements on earnings. SFAS 157 was effective for the Company as of January 1, 2008 for financial assets and financial liabilities within its scope and did not have a material impact on our consolidated financial statements.

In February 2008, the FASB issued FASB Staff Position No. FAS 157-2 “Effective Date of FASB Statement No. 157” (“FSP FAS 157-2”) which defers the effective date of SFAS 157 for all non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually), to fiscal years beginning after November 15, 2008 and interim periods within those fiscal years for items within the scope of FSP FAS 157-2. The Company is currently assessing the impact, if any, of SFAS 157 and FSP FAS 157-2 for non-financial assets and non-financial liabilities on its consolidated financial statements.

F-4

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In February 2007, the FASB issued SFAS No. 159 “The Fair Value Option for Financial Assets and Financial Liabilities – Including an Amendment of FASB Statement No. 115.” (“SFAS 159”).  SFAS 159 permits an entity to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. The Company adopted this Statement as of January 1, 2008 and has elected not to apply the fair value option to any of its financial instruments.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements – an amendment of ARB No. 51.” (“SFAS 160”). SFAS 160 requires all entities to report noncontrolling (minority) interests in subsidiaries as equity in the consolidated financial statements. Its intention is to eliminate the diversity in practice regarding the accounting for transactions between an entity and noncontrolling interests. This Statement is effective for the Company as of January 1, 2009 and currently, we do not expect it to have a material impact on the Company’s financial statements.

In May 2008, the FASB issued SFAS No. 162 (“SFAS 162”), “The Hierarchy of Generally Accepted Accounting Principles” (“SFAS 162”). This statement identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with GAAP. While this statement formalizes the sources and hierarchy of GAAP within the authoritative accounting literature, it does not change the accounting principles that are already in place. This statement will be effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles.” SFAS 162 is not expected to have a material impact on the Company’s financial statements.

NOTE B – DEBT OBLIGATION

Revolving Credit and Security Agreement

On February 1, 2008, our subsidiary, NeoGenomics, Inc., a Florida corporation (“Borrower”), entered into a Revolving Credit and Security Agreement (the “Credit Facility” or “Credit Agreement”) with CapitalSource Finance LLC (“CapitalSource”), the terms of which provide for borrowings based on eligible accounts receivable up to a maximum borrowing of $3,000,000, 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 (3) 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, 2008, the effective rate of interest was 6.50%.

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 our 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 September 30, 2008, the available credit under the Credit Facility was approximately $851,000 and the outstanding borrowing was $1,176,221 after netting of $66,857 in compensating cash on hand. Subsequent to September 30, 2008, the Company and CapitalSource signed a first amendment to the Credit Agreement, as further explained in Note G.

NOTE C – LIQUIDITY

 

Our condensed 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, 2008, we had stockholders’ equity of $2,487,001. On February 1, 2008, we entered into a revolving credit facility with CapitalSource Finance, LLC, which allows us to borrow up to $3,000,000 based on a formula which is based upon our eligible accounts receivable, as defined in the Credit Agreement. As of September 30, 2008, we had approximately $631,000 in cash on hand and $851,000 of availability under our Credit Facility. On November 5, 2008, we entered into a common stock purchase agreement with Fusion Capital Fund II, LLC (“Fusion”) that provides for future sales of our common stock to Fusion in amounts up to $8.0 million over the next 30 months in amounts and at times that are solely in our discretion as described in Footnote G. On November 5, 2008, we also entered into a master lease agreement with Leasing Technologies International, Inc which allows us to draw as much as $1.0 million over the next twelve months to purchase capital equipment as described in Footnote G. As such, we believe we have adequate resources to meet our operating commitments for the next twelve months and accordingly our condensed 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.

F-5

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NOTE D – COMMITMENTS AND CONTINGENCIES

 

US Labs Settlement

 

On October 26, 2006, Accupath Diagnostics Laboratories, Inc. d/b/a US Labs, a California corporation (“US Labs”) filed a complaint in the Superior Court of the State of California for the County of Los Angeles (entitled Accupath Diagnostics Laboratories, Inc. v. NeoGenomics, Inc., et al., Case No. BC 360985) (the “Lawsuit”) against the Company and Robert Gasparini, as an individual, and certain other employees and non-employees of NeoGenomics (the “Defendants”) with respect to claims arising from discussions with current and former employees of US Labs. On March 18, 2008, we reached a preliminary agreement to settle US Labs' claims, and in accordance with SFAS No. 5, Accounting For Contingencies, as of December 31, 2007 we accrued a $375,000 loss contingency, which consisted of $250,000 to provide for the Company's expected share of this settlement, and $125,000 to provide for the Company's share of the estimated legal fees up to the date of settlement.

 

On April 23, 2008, the Company and US Labs entered into a Settlement Agreement and Release (the "Settlement Agreement") whereby both parties agreed to settle and resolve all claims asserted in and arising out of the aforementioned lawsuit. Pursuant to the Settlement Agreement, the Defendants are required to pay $500,000 to US Labs, of which $250,000 was paid with funds from the Company's insurance carrier in May 2008 and the remaining $250,000 is being paid by the Company in equal installments of $31,250 commencing on May 31, 2008. Under the terms of the Settlement Agreement, there are certain provisions agreed to in the event of default. As of September 30, 2008, the remaining amount due was $93,750, and no events of default had occurred.

 

Private Placement of Common Stock and Related SEC Review

During 2007, we received a comment letter from the SEC Staff questioning certain matters disclosed in our Form 10-KSB as of and for the year ended December 31, 2006. As a result, we were unable to effectively complete the Registration Statement filed in connection with the June 2007 private placement (the “Private Placement”) of the Company’s common stock. As of December 31, 2007 and pursuant to the terms of the Private Placement, the Company accrued $282,000 in penalties as liquidated damages, which were expected to be incurred for the period commencing on the 120th day following the Private Placement through June 2008, the date we anticipated to be able to effectively complete the Registration Statement for the Private Placement shares.

On April 29, 2008, we filed an amended 2006 Form 10-KSB/A with the SEC, and on April 30, 2008 we received correspondence from the SEC that they have completed their review and that they had no further comments.

On June 3, 2008, we filed a Registration Statement on Form S-1/A, and received a notice of effectiveness for the Private Placement shares on July 1, 2008. In September, 2008 the Company paid $40,500 in cash and issued 170,088 shares of common stock at $1.00 per share for a value of $170,088 for a total of $210,588 to the holders of the Private Placement shares to settle the penalty amounts due. The remaining $71,412 in accrued penalties was reversed in September, 2008 as certain shareholders had previously sold their shares, thus forfeiting their rights to any penalties paid.

NOTE E – RELATED PARTY TRANSACTIONS

During the nine month periods ended September 30, 2008 and 2007, Steven C. Jones, a director of the Company, earned $105,000 and $50,000, respectively, for various consulting work performed in connection with his duties as Acting Principal Financial Officer.

F-6

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During the nine month periods ended September 30, 2008 and 2007, George O’Leary, a director of the Company, earned $9,500 and $9,500, respectively, in cash for various consulting work performed for the Company.

On September 30, 2008, the Company entered into a sale leaseback arrangement for approximately $130,000 of used laboratory equipment with Gulfpointe Capital, LLC. Three members of our board of directors Steven Jones, Peter Petersen and Marvin Jaffe are affiliated with Gulfpointe Capital, LLC. This sale/leaseback transaction was entered into after it was determined that Leasing Technologies International Inc. was unable to consummate this transaction under the lease line described in Footnote G and Messrs Jones, Peterson and Jaffe recused themselves from all aspects of both sides of this transaction. The lease has a 30 month term and a lease rate factor of 0.0397/month, which equates to monthly payments of $5,154.88 during the term. Gulfpointe Capital, LLC also received 32,475 warrants with an exercise price of $1.08, and a five year term. 25% of the warrants vested upfront and 75% vested on October 2, 2008 when the lease was funded. At the end of the term the Company options are as follows:

d)

Purchase not less than all of the equipment for its then Fair Market Value (“FMV”) not to exceed 15% of the original equipment cost.

e)

Extend the lease term for a minimum of six (6) months.

f)

Return not less than all the equipment at conclusion of the lease term.

NOTE F – POWER 3 MEDICAL PRODUCTS, INC.

On April 2, 2007, we entered into an agreement (the “Letter Agreement”) with Power3 Medical Products, Inc., a New York Corporation (“Power3”), regarding the formation of a joint venture Contract Research Organization (“CRO”) and the issuance of convertible debentures and related securities by Power3 to us. Power3 is an early stage company engaged in the discovery, development, and commercialization of protein biomarkers. Under the terms of the agreement, NeoGenomics and Power3 agreed to enter into a joint venture agreement pursuant to which the parties would jointly own a CRO and begin commercializing Power3’s intellectual property portfolio of seventeen patents pending by developing diagnostic tests and other services around one or more of the more than 500 differentially expressed protein biomarkers that Power3 believes it has discovered to date. Power3 has agreed to license all of its intellectual property on a non-exclusive basis to the CRO for selected commercial applications as well as provide certain management personnel. We will provide access to cancer samples, management and sales & marketing personnel, laboratory facilities and working capital. Subject to final negotiation, we will own a minimum of 60% and up to 80% of the new CRO venture.

 

As part of the agreement, we provided $200,000 of working capital to Power3 by purchasing a convertible debenture on April 17, 2007 pursuant to a Securities Purchase Agreement (the “Purchase Agreement”) between us and Power3. The debenture has a term of two years and a 6% per annum interest rate which is payable quarterly on the last calendar day of each quarter. We were also granted two options to increase our stake in Power3 to up to 60% of Power3’s fully diluted shares. The first option (the “First Option”) is a fixed option to purchase convertible preferred stock of Power3 that is convertible into such number of shares of Power3 Common Stock, in one or more transactions, up to 20% of Power3’s voting Common Stock at a purchase price per share, which will also equal the initial conversion price per share, equal to the lesser of (a) $0.20 per share, or (b) $20,000,000 divided by the fully-diluted shares outstanding on the date of the exercise of the First Option. This First Option is exercisable for a period starting on the date of purchase of the convertible debenture by NeoGenomics and extending until the day which is the later of (y) November 16, 2007 or (z) the date that certain milestones specified in the agreement have been achieved. As of September 30, 2008, the milestones described in the letter agreement had not been met. The First Option is exercisable in cash or NeoGenomics Common Stock at our option, provided, however, that we must include at least $1.0 million of cash in the consideration if we elect to exercise this First Option. The second option (the “Second Option”), which is only exercisable to the extent that we have exercised the First Option, provides that we will have the option to increase our stake in Power3 to up to 60% of fully diluted shares of Power3 over the twelve month period beginning on the expiration date of the First Option in one or a series of transactions by purchasing additional convertible preferred stock of Power3 that is convertible into voting Common Stock and the right to receive additional warrants. The purchase price per share, and the initial conversion price of the Second Option convertible preferred stock will, to the extent such Second Option is exercised within six months of exercise of the First Option, be the lesser of (a) $0.40 per share or (b) $40,000,000 divided by the fully diluted shares outstanding on the date of exercise of the Second Option. The purchase price per share, and the initial conversion price of the Second Option convertible preferred stock will, to the extent such Second Option is exercised after six months, but within twelve months of exercise of the First Option, be the lesser of (y) $0.50 per share or (z) an equity price per share equal to $50,000,000 divided by the fully diluted shares outstanding on the date of any purchase. The exercise price of the Second Option may be paid in cash or in any combination of cash and our Common Stock at our option.

F-7

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As of September 30, 2008, the parties were engaged in negotiations to clarify and amend certain terms of the Letter Agreement. Until such time as an agreement can be reached with Power3 modifying the original terms of the Letter Agreement, it is the position of NeoGenomics that Power3 has not yet met the milestones outlined in the original agreement and, as a result, the First Option and Second Option are still valid.

The convertible debenture, because it is convertible into restricted shares of stock, is recorded under the fair value method at its initial cost of $200,000 if the stock price of Power3 is less than $0.20 per share or at fair value if the stock price of Power3 is greater than $0.20 per share. As of September 30, 2008, the stock price of Power3 was less than $0.20 per share and, accordingly, the convertible debenture is carried at cost and is included in Other Assets.

NOTE G – SUBSEQUENT EVENTS

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 $280,000 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. 

 

Under the Stock Agreement, after the SEC has declared effective the registration statement related to the transaction, 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 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. 

Equipment Lease Line

On November 5, 2008, the Subsidiary entered into a master lease agreement with Leasing Technologies International, Inc. The master lease agreement establishes the general terms and conditions pursuant to which the Subsidiary may lease equipment pursuant to a $1,000,000 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:

(d)

Renew the lease with respect to such equipment for an additional 12 months at fair market value;

(e)

Purchase the equipment at fair market value, which price will not be less than 10% of cost nor more than 14% of cost;

(f)

Extend the term for an additional six months at 35% of the monthly rent paid by lessee during the initial term, equipment may then be purchased for the lesser of fair market value or 8% of cost; or

F-8

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(b)

Return the equipment subject to a remarketing charge equal to 6% of cost.

First Amendment to Revolving Credit and Security 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.

END OF FINANCIAL STATEMENTS.

F-9

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of NeoGenomics, Inc.:

 

We have audited the accompanying consolidated balance sheets of NeoGenomics, Inc. (the “Company”), as of December 31, 2007 and 2006, and the related consolidated statements of operations, stockholders’ equity and cash flows for the years then ended.  These financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States of America).  Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2007 and 2006, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

 

/s/ Kingery & Crouse, P.A

Tampa, FL

April 14, 2008

 

F-10

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NEOGENOMICS, INC.

CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2007 AND 2006

		2007				2006
ASSETS
CURRENT ASSETS
Cash and cash equivalents		$	210,573			$	126,266
Accounts receivable (net of allowance for doubtful accounts of $414,548 and $103,463, respectively)			3,236,751				1,549,758
Inventories			304,750				117,362
Other current assets			400,168				102,172
Total current assets			4,152,242				1,895,558
PROPERTY AND EQUIPMENT (net of accumulated depreciation of $862,030 and $494,942, respectively)			2,108,083				1,202,487
OTHER ASSETS			260,575				33,903
TOTAL ASSETS		$	6,520,900			$	3,131,948
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable		$	1,799,159			$	697,754
Accrued compensation			370,496				133,490
Accrued expenses and other liabilities			574,084				67,098
Due to affiliates (net of discount of $39,285)			-				1,635,715
Legal contingency (Note G)			375,000				-
Short-term portion of equipment capital leases			242,966				94,430
Total current liabilities			3,361,705				2,628,487
LONG TERM LIABILITIES
Long-term portion of equipment capital leases			837,081				448,947
TOTAL LIABILITIES		$	4,198,786			$	3,077,434
Commitments and contingencies
STOCKHOLDERS’ EQUITY
Common stock, $.001 par value, (100,000,000 shares authorized; 31,391,660 and 27,061,476 shares issued and outstanding, respectively)			31,391				27,061
Additional paid-in capital			16,820,954				11,177,512
Accumulated deficit			(14,530,231	)			(11,150,059	)
Total stockholders’ equity			2,322,114				54,514
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	6,520,900			$	3,131,948

See notes to consolidated financial statements.

F-11

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NEOGENOMICS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006

		2007			2006
NET REVENUE		$	11,504,725		$	6,475,996
COST OF REVENUE			5,522,775			2,759,190
GROSS MARGIN		$	5,981,950		$	3,716,806
OTHER OPERATING EXPENSE
General and administrative		$	9,122,922		$	3,576,812
INCOME / (LOSS) FROM OPERATIONS		$	(3,140,972	)	$	139,994
OTHER INCOME / (EXPENSE):
Other income		$	24,256		$	55,970
Interest expense			(263,456	)		(325,625	)
Other income / (expense) – net		$	(239,200	)	$	(269,655	)
NET LOSS			(3,380,172	)		(129,661	)
NET LOSS PER SHARE  - Basic and Diluted		$	(0.11	)	$	(0.00	)
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING – Basic and Diluted			29,764,289			26,166,031

See notes to consolidated financial statements.

 

F-12

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NEOGENOMICS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006

		Common			Common			Additional			Deferred
		Stock			Stock			Paid-In			Stock			Accumulated
		Shares			Amount			Capital			Compensation			Deficit			Total
Balances, December 31, 2005			22,836,754		$	22,836		$	10,005,308		$	(2,685	)	$	(11,020,398	)	$	(994,939	)
Common stock issuances for cash			3,530,819			3,531			1,099,469			-			-			1,103,000
Common stock issued for acquisition			100,000			100			49,900			-			-			50,000
Transaction fees and expenses			-			-			(80,189	)		-			-			(80,189	)
Adjustment of credit facility discount			-			-			2,365			-			-			2,365
Exercise of stock options and warrants			546,113			546			66,345			-			-			66,891
Warrants and stock issued for services			7,618			8			7,642			-			-			7,650
Payment of note on Yorkville Capital fee			-			-			(50,000	)		-			-			(50,000	)
Stock issued to settle accounts payable			40,172			40			15,627			-			-			15,667
Stock compensation expense			-			-			63,730			-			-			63,730
Reclassification of deferred compensation to additional paid in capital upon adoption of SFAS 123R			-			-			(2,685	)		2,685			-			-
Net loss			-			-			-			-			(129,661	)		(129,661	)
Balances, December 31, 2006			27,061,476		$	27,061		$	11,177,512			-		$	(11,150,059	)	$	54,514
Common stock issuances for cash			4,154,684			4,155			5,574,682			-			-			5,578,837
Transaction fees and expenses			-			-			(346,110	)		-			-			(346,110	)
Exercise of stock options and warrants			175,500			175			53,619			-			-			53,794
Warrants issued for services			-			-			159,153			-			-			159,153
Stock compensation expense			-			-			202,098			-			-			202,098
Net loss			-			-			-			-			(3,380,172	)		(3,380,172	)
Balances, December 31, 2007			31,391,660		$	31,391		$	16,820,954		$	-		$	(14,530,231	)	$	2,322,114

 

See notes to consolidated financial statements.

F-13

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NEOGENOMICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006

		2007			2006
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss		$	(3,380,172	)	$	(129,661	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization			451,459			233,632
Impairment of assets			2,235			53,524
Amortization of credit facility warrants and debt issue costs			54,900			72,956
Stock based compensation			202,098			63,730
Non-cash consulting			159,153			7,650
Other non-cash expenses			29,423			59,804
Provision for bad debts			1,013,804			444,133
Changes in assets and liabilities, net:
(Increase) decrease in accounts receivable, net of write-offs			(2,700,797	)		(1,442,791	)
(Increase) decrease in inventory			(187,388	)		(57,362	)
(Increase) decrease in prepaid expenses			(343,032	)		(101,805	)
(Increase) decrease in other current assets			(26,671	)		(31,522	)
Increase (decrease) in deferred revenues			-			(100,000	)
Increase (decrease) in legal contingency			375,000			-
Increase (decrease) in accounts payable and other liabilities			1,707,397			233,930
NET CASH USED IN OPERATING ACTIVITIES			(2,642,591	)		(693,782	)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment			(516,144	)		(398,618	)
Investment in other assets (Power 3)			(200,000	)		-
NET CASH USED IN INVESTING ACTIVITIES			(716,144	)		(398,618	)
CASH FLOWS FROM FINANCING ACTIVITIES
Advances (repayments)  from/to  affiliates, net			(1,675,000	)		175,000
Notes payable			(2,000	)		2,000
Repayment of capital lease obligations			(166,479	)		(58,980	)
Issuance of common stock and warrants for cash , net of transaction expenses			5,286,521			1,089,702
NET CASH PROVIDED BY FINANCING ACTIVITIES			3,443,042			1,207,722
NET CHANGE IN CASH AND CASH EQUIVALENTS			84,307			115,322
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR			126,266			10,944
CASH AND CASH EQUIVALENTS, END OF YEAR		$	210,573		$	126,266
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid		$	204,670		$	269,316
Equipment leased under capital leases		$	703,145		$	602,357
Income taxes paid		$	-		$	-
Common stock issued for acquisition		$	-		$	50,000
Common stock issued in settlement of financing fees		$	-		$	50,000

See notes to consolidated financial statements.

F-14

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NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2007 and 2006

 

NOTE A – Nature of Business and Basis of Presentation

 

NeoGenomics, Inc., a Nevada Company, was formed in 1998 under the name of American Communications Enterprises, Inc. (“ACE”, the “Parent”, or the “Parent Company”).

 

NeoGenomics, Inc., a Florida company, doing business as NeoGenomics Laboratories (“NEO”, “NeoGenomics” or  ”Subsidiary”) was formed in June 2001, and agreed to be acquired by ACE in a reverse acquisition in November 2001.  NeoGenomics operates as a certified “high complexity” clinical laboratory in accordance with the federal government’s 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.

 

ACE succeeded to NEO’s name in January, 2002, and NeoGenomics remains a wholly-owned subsidiary of the Parent Company. (NEO and ACE are collectively referred to as “we”, “us”, “our” or the “Company”).

 

The accompanying consolidated financial statements include the accounts of the Parent and the Subsidiary.  All significant intercompany accounts and balances have been eliminated in consolidation.

 

Certain amounts in the prior year’s consolidated financial statements have been reclassified to conform to the current year presentation.

 

NOTE B – Summary of Significant Accounting Policies

 

Use of Estimates

The Company prepares its consolidated financial statements in conformity with accounting principles generally accepted in the United States of America.  These principles require management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, together with amounts disclosed in the related notes to the consolidated financial statements.  Actual results and outcomes may differ from management’s estimates, judgments and assumptions.  Significant estimates, judgments and assumptions used in these consolidated financial statements include, but are not limited to, those related to revenues, accounts receivable and related reserves, contingencies, useful lives and recovery of long-term assets, income and other taxes, and the fair value of stock-based compensation.  These estimates, judgments, and assumptions are reviewed periodically and the effects of material revisions in estimates are reflected in the consolidated financial statements prospectively from the date of the change in estimate.

 

Revenue Recognition

 

The Company recognizes revenues in accordance with the Securities and Exchange Commission’s (the “Commission”) Staff Accounting Bulletin No. 104, “Revenue Recognition”, when the price is fixed or determinable, persuasive evidence of an arrangement exists, the service is performed and collectability of the resulting receivable is reasonably assured.

The Company’s specialized diagnostic services are performed based on a written test requisition form and revenues are recognized once the diagnostic 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. These diagnostic services are billed to various payors, including Medicare, commercial insurance companies, other directly billed healthcare institutions such as hospitals and clinics, and individuals. The Company reports 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. The Company reports 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, the Company reviews its historical collection experience for non-contracted payors and adjusts its expected revenues for current and subsequent periods accordingly.

 

F-15

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NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS –

AS OF DECEMBER 31, 2007 and 2006 (Continued)

 

Costs of Revenues

 

Costs of revenues consists primarily of lab related materials and supplies, salaries related to laboratory personnel, allocated facility costs, and depreciation of equipment used to deliver the Company’s services.

 

Accounting for Contingencies

 

When involved in litigation or claims, in the normal course of our business, we follow the provisions of SFAS No. 5, Accounting for Contingencies, to record litigation or claim-related expenses. We evaluate, among other factors, the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss. We accrue for settlements when the outcome is probable and the amount or range of the settlement can be reasonably estimated. In addition to our judgments and use of estimates, there are inherent uncertainties surrounding litigation and claims that could result in actual settlement amounts that differ materially from estimates.  With respect to the agreement to settle the claims brought against the Company by US Labs, as of December 31, 2007 we have accrued a $375,000 loss contingency, which consists of $250,000 to provide for the Company’s expected portion of this settlement, and $125,000 to provide for the Company’s portion of the estimated legal fees up to the date of settlement.

 

Accounts Receivable and Allowance for Doubtful Accounts

 

Accounts receivable are reported at realizable value, net of allowance for doubtful accounts (the “Allowance”), which is estimated and recorded in the period the related revenue is recorded based on the historical collection experience for each type of payor.  In addition, the Allowance is adjusted periodically, based upon an evaluation of historical collection experience with specific payors, payor types, and other relevant factors, including regularly assessing the state of our billing operations in order to identify issues which may impact the collectability of receivables or reserve estimates.  Revisions to the Allowance are recorded as an adjustment to bad debt expense within general and administrative expenses.  After appropriate collection efforts have been exhausted, specific receivables deemed to be uncollectible are charged against the Allowance in the period they are deemed uncollectible.  Recoveries of receivables previously written-off are recorded as credits to the Allowance.

 

Statement of Cash Flows

 

For purposes of the statement of cash flows, we consider all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.

 

Fair Value of Financial Instruments and Concentrations of Credit Risk

 

The carrying value of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and liabilities and other current assets and liabilities are considered reasonable estimates of their respective fair values due to their short-term nature.  The Company maintains its cash and cash equivalents with domestic financial institutions that the Company believes to be of high credit standing.  The Company believes that, as of December 31, 2007 and 2006, its concentration of credit risk related to cash and cash equivalents was not significant.

 

F-16

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NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS –

AS OF DECEMBER 31, 2007 and 2006 (Continued)

Concentrations of credit risk with respect to revenue and accounts receivable are primarily limited to certain customers to whom the Company provides a significant volume of its services to, and to specific payors of our services such as Medicare, and individual insurance companies.  The Company’s customer base consists of a large number of geographically dispersed customers diversified across various customer types.  The Company continues to focus its sales efforts to decrease the dependency on any given source of revenue and decrease its credit risk from any one large customer or payor type, these efforts have led to the significant decrease of our credit risk from the previous year.  Accordingly, for the year ended December 31, 2007 one customer accounted for 25% of total revenue and all others were less than 10% of total revenue individually.  During the year ended December 31, 2006, three customers accounted for 26%, 18% and 17% of total revenue, respectively.  In the event that we lost one of these customers, we would potentially lose a significant percentage of our revenues.  As of December 31, 2007 and 2006, Medicare accounted for 44% and 49% of the Company’s total accounts receivable balance, respectively. As of December 31, 2007, one insurance provider accounted for 10% of the Company’s total accounts receivable balance.

 

The Company orders the majority of its FISH probes from one vendor and as a result of their dominance of that marketplace and the absence of any competitive alternatives, if they were to have a disruption and not have inventory available it could have a material effect on our business.  This risk cannot be completely offset due to the fact that they have patent protection which limits other vendors from supplying these probes.

 

Inventories

 

Inventories, which consist principally of testing supplies, are valued at the lower of cost or market, using the first-in, first-out method (FIFO)

 

Property and Equipment

 

Property and equipment are recorded at cost, net of accumulated depreciation and amortization.  Property and equipment generally includes purchases of items with a cost greater than $1,000 and a useful life greater than one year.  Depreciation and amortization are computed on a straight line basis over the estimated useful lives of the assets.

 

Leasehold improvements are amortized over the shorter of the related lease terms or their estimated useful lives.  Property and equipment acquired under capital leases are depreciated over the shorter of the related lease terms or the useful lives of the assets.  The Company periodically reviews the estimated useful lives of property and equipment. Changes to the estimated useful lives are recorded prospectively from the date of the change.  Upon retirement or sale, the cost of the assets disposed of and the related accumulated depreciation are removed from the accounts and any resulting gain or loss is included in income (loss) from operations.  Repairs and maintenance costs are expensed as incurred.

 

Income Taxes

 

We compute income taxes in accordance with Financial Accounting Standards Statement No. 109 “Accounting for Income Taxes” (“SFAS 109”).  Under SFAS 109, deferred taxes are recognized for the tax consequences of temporary differences by applying enacted statutory rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities.  Also, the effect on deferred taxes of a change in tax rates is recognized in income in the period that included the enactment date.  Temporary differences between financial and tax reporting arise primarily from the use of different depreciation methods for property and equipment as well as impairment losses and the timing of recognition of bad debts.

F-17

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NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS –

AS OF DECEMBER 31, 2007 and 2006 (Continued)

Stock-Based Compensation

 

For the years ended December 31, 2006 and 2005, the Company maintained a stock option plan covering potential equity grants including primarily the issuance of stock options.  In addition, effective January 1, 2007, the Company began sponsoring an Employee Stock Purchase Plan (“ESPP”), whereby eligible employees are entitled to purchase Common Stock monthly, by means of limited payroll deductions, at a 5% discount from the fair market value of the Common Stock as of specific dates.  The Company’s ESPP plan is considered exempt from fair value accounting under SFAS No. 123R since the discount offered to employees is only 5%.  See Note F for a detailed description of the Company’s plans.

 

Effective January 1, 2006, we adopted Statement of Financial Accounting Standards No. 123(R), “Share-Based Payment” (“SFAS 123(R)”), which is a revision of Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”). SFAS 123(R) supersedes our previous accounting under Accounting Principles Board Opinion No. 25“Accounting for Stock Issued to Employees” (“APB 25”) and disclosure under SFAS 123.  In March 2005, the SEC issued Staff Accounting Bulletin No. 107 (“SAB 107”) relating to SFAS 123(R).  We have applied the provisions of SAB 107 in our adoption of SFAS 123(R).  Under SFAS 123(R), compensation cost for all stock-based awards, including grants of employee stock options, restricted stock and other equity awards, is measured at fair value at grant date and recognized as compensation expense on a straight line basis over the employees’ expected requisite service period.  In addition, SFAS 123(R) requires the benefits of tax deductions in excess of recognized compensation expense to be reported as a financing cash flow, rather than as an operating cash flow as prescribed under previous accounting rules.  The Company selected the modified prospective method of adoption, which recognizes compensation expense for the fair value of all share-based payments granted after January 1, 2006 and for the fair value of all awards granted to employees prior to January 1, 2006 that remain unvested on the date of adoption.  This method does not require a restatement of prior periods.  However, awards granted and still unvested on the date of adoption are attributed to expense under SFAS 123(R), including the application of forfeiture rates on a prospective basis.  Our forfeiture rate represents the historical rate at which our stock-based awards were surrendered prior to vesting. SFAS 123(R) requires forfeitures to be estimated at the time of grant and revised on a cumulative basis, if necessary, in subsequent periods if actual forfeitures differ from those estimates.  Prior to fiscal year 2006, the Company accounted for forfeitures as they occurred, for the purposes of pro forma information under SFAS 123.

 

Tax Effects of Stock-Based Compensation

 

We will only recognize a tax benefit from windfall tax deductions for stock-based awards in additional paid-in capital if an incremental tax benefit is realized after all other tax attributes currently available have been utilized.

 

Net Loss Per Common Share

 

We compute loss per share in accordance with Financial Accounting Standards Statement No. 128 “Earnings per Share” (“SFAS 128”) and SEC Staff Accounting Bulletin No. 98 (“SAB 98”).  Under the provisions of SFAS No. 128 and SAB 98, basic net loss per share is computed by dividing the net loss available to common stockholders by the weighted average number of common shares outstanding during the period.  Diluted net loss per share is computed by dividing the net loss for the period by the weighted average number of common and common equivalent shares outstanding during the period.  Common equivalent shares outstanding as of December 31, 2007 and 2006, which consisted of employee stock options and certain warrants issued to consultants and other providers of financing to the Company, were excluded from diluted net loss per common share calculations as of such dates because they were anti-dilutive.  During the years ended December 31, 2007 and 2006, we reported net loss per share and as such basic and diluted loss per share were equivalent.

F-18

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NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS –

AS OF DECEMBER 31, 2007 and 2006 (Continued)

 

Recent Pronouncements

 

In February 2007, the FASB issued SFAS No. 159 “The Fair Value Option for Financial Assets and Financial Liabilities” (SFAS 159”).  SFAS 159 provides companies with an option to irrevocably elect to measure certain financial assets and financial liabilities at fair value on an instrument-by-instrument basis with the resulting changes in fair value recorded in earnings.  The objective of SFAS 159 is to reduce both the complexity in accounting for financial instruments and the volatility in earnings caused by using different measurement attributes for financial assets and financial liabilities.  SFAS 159 is effective for the Company as of January 1, 2008 and as of this effective date, the Company has elected not to apply the fair value option to any of its financial assets for financial liabilities.

 

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 provides a new single authoritative definition of fair value and provides enhanced guidance for measuring the fair value of assets and liabilities and requires additional disclosures related to the extent to which companies measure assets and liabilities at fair value, the information used to measure fair value, and the effect of fair value measurements on earnings.  SFAS 157 is effective for the Company as of January 1, 2008 for financial assets and financial liabilities within its scope and it is not expected to have a material impact on its consolidated financial statements.  In February 2008, the FASB issued FASB Staff Position No. FAS 157-2 “Effective Date of FASB Statement No. 157” (“FSP FAS 157-2”) which defers the effective date of SFAS 157 for all non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually), for fiscal years beginning after November 14, 2008 and interim periods within those fiscal years for items within the scope of FSP FAS 157-2.  The Company is currently assessing the impact, if any, of SFAS 157 and FSP FAS 157-2 for non-financial assets and non-financial liabilities on its consolidated financial statements.

 

NOTE C – LIQUIDITY

 

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 December 31, 2007, we had stockholders’ equity of approximately $2,322,000.  On February 1, 2008, we entered into a revolving credit facility with CapitalSource Finance, LLC, 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 (See Note L).  As of March 31, 2008 we had approximately $283,000 in cash on hand and $983,000 of availability under our Credit Facility.  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.

F-19

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NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS –

AS OF DECEMBER 31, 2007 and 2006 (Continued)

 

NOTE D – PROPERTY AND EQUIPMENT, NET

 

Property and equipment consisted of the following at December 31, 2007 and 2006:

 

		2007				2006				Estimated Useful Lives in Years
Equipment		$	2,319,601			$	1,566,330				3-7
Leasehold Improvements			51,989				12,945				3-5
Furniture & Fixtures			163,324				118,154				7
Computer Hardware			152,405				-				3
Computer Software			209,134				-				3
Assets not yet placed in service			73,660				-				-
Subtotal			2,970,113				1,697,429
Less accumulated depreciation and amortization			(862,030	)			(494,942	)
Furniture and Equipment, net		$	2,108,083			$	1,202,487

Depreciation and amortization expense on property and equipment, including leased assets, for the years ended December 31, 2007 and 2006, was $451,459 and $233,632, respectively.

 

Property and equipment under capital leases, included above, consists of the following at December 31, 2007 and 2006:

 

		2007				2006
Equipment		$	1,127,889			$	585,131
Furniture & Fixtures			22,076				17,226
Computer Hardware			49,086				-
Computer Software			94,963				-
Subtotal			1,294,014				602,357
Less accumulated depreciation and amortization			(248,711	)			(43,772	)
Property and Equipment under capital leases, net		$	1,045,303			$	558,585

 

NOTE E – INCOME TAXES

 

We recognized losses for financial reporting purposes for the years ended December 31, 2007 and 2006, in the accompanying consolidated statements of operations.  Accordingly, no provisions for income taxes and/or deferred income taxes payable have been provided in the accompanying consolidated financial statements.

 

At December 31, 2007, we have net operating loss carryforwards of approximately $4,700,000, the significant difference between this amount, and our accumulated deficit arises primarily from certain stock based compensation that is considered to be a permanent difference.  Assuming our net operating loss carryforwards are not disallowed because of certain “change in control” provisions of the Internal Revenue Code, these net operating loss carryforwards expire in various years through the year ended December 31, 2027.  However, we have established a valuation allowance to fully reserve our deferred income tax assets as such assets did not meet the required asset recognition standard established by SFAS 109. Our valuation allowance increased by $1,014,110 during the year ended December 31, 2007.

 

F-20

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NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS –

AS OF DECEMBER 31, 2007 and 2006 (Continued)

At December 31, 2007, our current and non-current deferred income tax assets (assuming an effective income tax rate of approximately 39%) consisted of the following:

 

Net current deferred income tax asset:
Allowance for doubtful accounts		$	159,900
Less valuation allowance			(159,900	)
Total		$	-

Net non-current deferred income tax asset:
Net operating loss carryforwards		$	1,830,450
Accumulated depreciation and impairment			(166,000	)
Subtotal			1,664,450
Less valuation allowance			(1,664,450	)
Total		$	-

 

At December 31, 2006, we have net operating loss carryforwards of approximately $2,100,000 (the significant difference between this amount, and our accumulated deficit of approximately $11,150,000 arises primarily from certain stock based compensation that is considered to be a permanent difference).  Assuming our net operating loss carryforwards are not disallowed because of certain “change in control” provisions of the Internal Revenue Code, these net operating loss carryforwards expire in various years through the year ended December 31, 2026.  However, we have established a valuation allowance to fully reserve our deferred income tax assets as such assets did not meet the required asset recognition standard established by SFAS 109. Our valuation allowance decreased by $200 during the year ended December 31, 2006.

At December 31, 2006, our current and non-current deferred income tax assets (assuming an effective income tax rate of approximately 40%) consisted of the following:

Net current deferred income tax asset:
Allowance for doubtful accounts		$	39,900
Less valuation allowance			(39,900	)
Total		$	-

Net non-current deferred income tax asset:
Net operating loss carryforwards		$	816,500
Accumulated depreciation and impairment			(75,600	)
Subtotal			740,900
Less valuation allowance			(740,900	)
Total		$	-

 

NOTE F – INCENTIVE STOCK OPTIONS AND AWARDS

 

Stock Option Plan

 

On October 31, 2006, our shareholders and Board of Directors amended and restated the NeoGenomics Equity Incentive Plan, which was originally approved in October 2003 (the “Plan”).  The Plan permits the grant of stock awards and stock options to officers, directors, employees and consultants.  Options granted under the Plan are either outright stock awards, Incentive Stock Options (“ISOs”) or Non-Qualified Stock Options (“NQSO’s).  As part of this amendment and restatement, the shareholders and Board of Directors approved an increase in the shares reserved under the Plan from 10% of our outstanding common stock at any given time to 12% of our Adjusted Diluted Shares Outstanding, which equated to 4,463,643 shares of our common stock as of December 31, 2007.  Adjusted Diluted Shares Outstanding are defined as basic common shares outstanding on the measurement date plus that number of shares that would be issued if all convertible debt, convertible preferred equity securities and warrants were assumed to be converted into common stock on the measurement date.  The definition of Adjusted Diluted Shares Outstanding specifically excludes any unexercised stock options that may be outstanding under either the Stock Option Plan or the ESPP on any measurement date.  As of December 31, 2007, option and stock awards totaling 2,796,044 shares were outstanding and 497,549 option and stock awards had been exercised, leaving a total of 1,170,050 options and stock awards available for future issuance.  Options typically have a 5-10 year life and vest over 3 or 4 years but each grant’s vesting and exercise price provisions are determined at the time the awards are granted by the Compensation Committee of the Board of Directors or by the President by virtue of authority delegated to him by the Compensation Committee.

 

F-21

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NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS –

AS OF DECEMBER 31, 2007 and 2006 (Continued)

Adoption of SFAS 123(R)

 

Effective January 1, 2006, we adopted SFAS 123(R), which requires the measurement and recognition of compensation expense in the Company’s statement of operations for all share-based payment awards made to our employees and directors, including employee stock options and employee stock purchases related to all our stock-based compensation plans based on estimated fair values.

 

SFAS 123(R) requires companies to estimate the fair value of stock-based compensation on the date of grant using an option-pricing model.  The fair value of the award is recognized as expense over the requisite service periods in our consolidated statement of operations using the straight-line method consistent with the methodology used under SFAS 123.  Under SFAS 123(R) the attributed stock-based compensation expense must be reduced by an estimate of the annualized rate of stock option forfeitures.  For grants prior to the January 1, 2006 adoption date of SFAS 123(R), The unrecognized expense of awards not yet vested at the date of adoption is recognized in net income (loss) in the periods after the date of adoption, using the same valuation method and assumptions determined under the original provisions of SFAS 123.

 

We estimate the fair value of stock-based awards using the trinomial lattice model.  This model determines the fair value of stock-based compensation and is affected by our stock price on the date of the grant as well as assumptions regarding a number of highly complex and subjective variables.  These variables include expected term, expected risk-free rate of return, expected volatility, and expected dividend yield, each of which is more fully described below.  The assumptions for expected term and expected volatility are the two assumptions that significantly affect the grant date fair value.

 

Expected Term:  The expected term of an option is the period of time that such option is expected to be outstanding.  The average expected term is determined using the trinomial lattice simulation model.

 

Risk-free Interest Rate:  We base the risk-free interest rate used in the trinomial lattice valuation method on the implied yield at the grant date of the U.S. Treasury zero-coupon issue with an equivalent term to the stock-based award being valued.  Where the expected term of a stock-based award does not correspond with the term for which a zero coupon interest rate is quoted, we used the nearest interest rate from the available maturities.

 

Expected Stock Price Volatility:  Effective January 1, 2006, we evaluated the assumptions used to estimate volatility and determined that, under SAB 107, we should use a blended average of our volatility and the volatility of the nearest peer companies.  We believe that the use of this blended average peer volatility is more reflective of market conditions and a better indicator of our expected volatility due to the limited trading history available for our Company since its last change of control, prior to which we operated under a different business model.

 

Dividend Yield:  Since we have never paid a dividend and do not expect to begin doing so in the foreseeable future, we have assumed a 0% dividend yield in valuing our stock-based awards.

 

The fair value of stock option awards granted during the years ended December 31, 2007 and 2006 was estimated as of the grant date using the trinomial lattice model with the following weighted average assumptions:

 

		2007			2006
Expected term (in years)			4.7			5.4
Risk-free interest rate (%)			4.6	%		4.8	%
Expected volatility (%)			35	%		36	%
Dividend yield (%)			0	%		0	%
Weighted average fair value/share at grant date		$	0.45		$	0.23

 

F-22

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NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS –

AS OF DECEMBER 31, 2007 and 2006 (Continued)

The status of our stock options and stock awards are summarized as follows:

 

		Number of Shares			Weighted Average
					Exercise Price
Outstanding at December 31, 2005			1,735,000		$	0.27
Granted			1,011,897			0.68
Exercised			(211,814	)		0.30
Canceled			(428,083	)		0.42
Outstanding at December 31, 2006			2,107,000			0.43
Granted			1,232,583			1.48
Exercised			(175,500	)		0.31
Canceled			(368,039	)		1.14
Outstanding at December 31, 2007			2,796,044			0.81
Exercisable at December 31, 2007			1,721,874		$	0.55

The following table summarizes information about our options outstanding at December 31, 2007:

Options Outstanding Expected to Vest
Range of Exercise prices(s)		Number Outstanding			Weighted Average Remaining Contractual Life (yrs)			Weighted Average Exercise Price			Number Exercisable			Options Exercisable Weighted Average Remaining Contractual Life(Yrs)			Weighted Average Exercise price
			1,120,000			6.6		$	0.25			1,120,000			6.6		$	0.25
0.31-0.46			94,750			7.4			0.35			68,750			7.4			0.35
0.47-0.71			389,000			8.4			0.62			159,666			8.2			0.62
0.72-1.08			60,000			8.7			1.00			20,001			8.7			1.00
1.09-1.47			608,042			7.0			1.39			256,042			9.0			1.45
1.48-1.82			524,252			8.6			1.55			97,415			8.7			1.54
			2,796,044			7.4		$	0.81			1,721,874			7.3		$	0.55

 

As of December 31, 2007, the aggregate intrinsic value of all stock options outstanding and expected to vest was approximately $1.2 million and the aggregate intrinsic value of currently exercisable stock options was approximately $1.1 million.  The Intrinsic value of each option share is the difference between the fair market value of NeoGenomics common stock and the exercise price of such option share to the extent it is “in-the-money”.  Aggregate Intrinsic value represents the value that would have been received by the holders of in-the-money options had they exercised their options on the last trading day of the year and sold the underlying shares at the closing stock price on such day.  The intrinsic value calculation is based on the $1.08 closing stock price of NeoGenomics Common Stock on December 31, 2007, the last trading day of 2007.  The total number of in-the-money options outstanding and exercisable as of December 31, 2007 was 1,368,417.

 

F-23

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NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS –

AS OF DECEMBER 31, 2007 and 2006 (Continued)

Future minimum lease payments under capital lease obligations are:

 

Years ending December 31,
2008		$	373,344
2009			373,344
2010			344,728
2011			211,276
2012			78,507
Total future minimum lease payments			1,381,199
Less amount representing interest			(301,152	)
Present value of future minimum lease payments			1,080,047
Less current maturities			(242,966	)
Obligations under capital leases – long term		$	837,081

Property and equipment covered under the lease agreements (see Note D) is pledged as collateral to secure the performance of the future minimum lease payments above.

 

Litigation

 

On October 26, 2006, Accupath Diagnostics Laboratories, Inc. d/b/a US Labs, a California corporation (“US Labs”) filed a complaint in the Superior Court of the State of California for the County of Los Angeles (the “Court”) against the Company and Robert Gasparini, as an individual, and certain other employees and non-employees of NeoGenomics with respect to claims arising from discussions with current and former employees of US Labs.  On March 18, 2008, we reached a preliminary agreement to settle US Labs’ claims (see Note L).  As a result, as of December 31, 2007 we have accrued a $375,000 loss contingency, which consists of $250,000 to provide for the Company’s expected share of this settlement, and $125,000 to provide for the Company’s share of the estimated legal fees up to the date of settlement.

 

Ongoing SEC Review of our Form 10-KSB for the year ended December 31, 2006

 

As further explained in Note I, the Company received a comment letter in connection with its 2006 Form 10KSB.  As a result, we have not yet been able to go effective on the Registration Statement filed in connection with the June 2007 Private Placement of the Company’s common stock.  This has resulted in the Company accruing a $282,000 loss contingency as of December 31, 2007.

 

NOTE H – RELATED PARTY TRANSACTIONS

 

During 2007 and 2006, Steven C. Jones, a director of the Company, earned $127,950 and $71,000, respectively, for various consulting work performed in connection with his duties as Acting Principal Financial Officer.

 

During 2007 and 2006, George O’Leary, a director of the Company, earned $9,500 and $20,900, respectively, in cash for various consulting work performed for the Company.  On March 15, 2007, Mr. O’Leary was also awarded 100,000 warrants for certain consulting services performed on behalf of the Company.  These warrants had an exercise price of $1.49/share and a five year term.  Half of these warrants were deemed vested on issuance and the other half vest ratably over a 24 month period.   On January 18, 2006, Mr. O’Leary was awarded 50,000 non-qualified stock options in connection with his services to the Company related to renegotiating the Aspen Credit Facility and closing equity financing from a disinterested third party.

 

F-25

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NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS –

AS OF DECEMBER 31, 2007 and 2006 (Continued)

On February 18, 2005, we entered into a binding agreement with Aspen Select Healthcare, LP (formerly known as MVP 3, LP) (“Aspen”) to refinance our existing indebtedness of $740,000 owed to Aspen and provide for additional liquidity of up to $760,000 to the Company.  Under the terms of the agreement, Aspen agreed to make available to us up to $1.5 million (subsequently increased to $1.7 million, as described below) of debt financing in the form of a revolving credit facility (the “Aspen Credit Facility”) with an initial maturity of March 31, 2007.  Aspen is managed by its General Partner, Medical Venture Partners, LLC, which is controlled by a director of NeoGenomics.  As part of this agreement, we also agreed to issue to Aspen a five year warrant to purchase up to 2,500,000 shares of common stock at an initial exercise price of $0.50/share.  An amended and restated loan agreement for the Aspen Credit Facility and other ancillary documents, including the warrant agreement, which more formally implemented the agreements made on February 18, 2005 were executed on March 23, 2005.  All material terms were identical to the February 18, 2005 agreement.  We incurred $53,587 of transaction expenses in connection with refinancing the Aspen Credit Facility, which were capitalized and amortized to interest expense over the term of the agreement.  The Aspen Credit Facility was paid in full on June 7, 2007.

 

We recorded $131,337 for the value of such Warrant as of the February 18, 2005 measurement date as a discount to the face amount of the Credit Facility.  The Company is amortizing such discount to interest expense over the 24 months of the Credit Facility.  The fair value of the warrants issued to Aspen was determined using the Black Scholes option valuation model, based on the following factors, which were present on the measurement date for such warrants:

 

Strike price		$	0.50			Market price		$	0.35
Term			5 years			Volatility			22.7	%
Risk-free rate			4.50	%		Dividend yield			0	%
Warrant value		$	0.0525347			Number of warrants		$	2,500
Total value		$	131,337

In addition, as a condition to the Aspen Credit Facility , the Company, Aspen, and certain individual shareholders agreed to amend and restate their shareholders’ agreement to provide that Aspen will have the right to appoint up to three of seven of our directors and one mutually acceptable independent director.  We also entered into an amended and restated Registration Rights Agreement, dated March 23, 2005 with Aspen and certain individual shareholders, which grants to Aspen certain demand registration rights (with no provision for liquidated damages) and which grants to all parties to the agreement, piggyback registration rights.

On January 18, 2006, the Company entered into a binding letter agreement (the “Aspen Letter Agreement”) with Aspen, which provided, among other things, that:

(a) Aspen waived certain pre-emptive rights in connection with the sale of $400,000 of common stock at a purchase price of $0.20/share and the granting of 900,000 warrants with an exercise price of $0.26/share to SKL Limited Partnership, LP (“SKL” as more fully described below) in exchange for five year warrants to purchase 150,000 shares at an exercise price of $0.26/share (the “Waiver Warrants”).

 

(b) Aspen had the right, up to April 30, 2006, to purchase up to $200,000 of restricted shares of the Company’s common stock at a purchase price per share of $0.20/share (1,000,000 shares) and receive a five year warrant to purchase 450,000 shares of the Company’s common stock at an exercise price of $0.26/share in connection with such purchase (the “Equity Purchase Rights”). On March 14, 2006, Aspen exercised its Equity Purchase Rights.

 

(c) Aspen and the Company amended the loan agreement (the “Credit Facility Amendment”), dated March, 2005 to extend the maturity date until September 30, 2007, and to modify certain covenants.  In addition, Aspen had the right, until April 30, 2006, to provide the Company up to $200,000 of additional secured indebtedness to the Company under the Aspen Credit Facility Amendment and to receive a five year warrant to purchase up to 450,000 shares of the Company’s common stock with an exercise price of $0.26/share (the “New Debt Rights”).  On March 30, 2006, Aspen exercised its New Debt Rights and entered into the definitive transaction documentation for the Credit Facility Amendment and other such documents required under the Aspen Letter Agreement.

 

F-26

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NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS –

AS OF DECEMBER 31, 2007 and 2006 (Continued)

(d) The Company agreed to amend and restate the Initial Warrants, dated March 23, 2005, which more formally implemented the original agreement made on February 18, 2005 with respect to such warrants, to provide that all 2,500,000 warrant shares were vested and the exercise price was reset to $0.31 per share.  The difference, between the value of the warrants on the original February, 18, 2005 measurement date which was calculated using an exercise price of $0.50/share, and their value on the January 18, 2006 modification date which was calculated using an exercise price of $0.31/share, amounted to $2,365 and, was credited to additional paid-in capital and included in deferred financing fees.

 

(e) The Company agreed to amend the Registration Rights Agreement, dated March 23, 2005 (the “Registration Rights Agreement”), between the parties to incorporate the Initial Warrants, the Waiver Warrants and any new shares or warrants issued to Aspen in connection with the Equity Purchase Rights or the New Debt Rights.

 

(f) All Waiver Warrants, the Initial Warrants and all warrants issued to Aspen and SKL in connection with the purchase of equity or debt securities are exercisable at the option of the holder for a term of five years, and each such warrant contains provisions that allow for a physical exercise, a net cash exercise or a net share settlement.  We used the Black-Scholes pricing model to estimate the fair value of all such warrants as of the date of issue for each, using the following approximate assumptions: dividend yield of 0%, expected volatility of 14.6 – 19.3% (depending on the date of agreement), risk-free interest rate of 4.5%, and an expected term of 3 - 5 years.

 

The Aspen Credit Facility was paid in full in June 2007 and it expired on September 30, 2007.

 

During the period from January 18 - 21, 2006, the Company entered into agreements with four other shareholders who are parties to the certain Shareholders’ Agreement dated March 23, 2005, to exchange five year warrants to purchase an aggregate of 150,000 shares of stock at an exercise price of $0.26/share for such shareholders’ waiver of their pre-emptive rights under the Shareholders’ Agreement.

 

On January 21, 2006 the Company entered into a subscription agreement (the “Subscription”) with SKL Family Limited Partnership, LP, a New Jersey limited partnership, whereby SKL purchased 2.0 million shares (the “Subscription Shares”) of the Company’s common stock at a purchase price of $0.20/share for $400,000. Under the terms of the Subscription, the Subscription Shares are restricted for a period of 24 months and then carry piggyback registration rights to the extent that exemptions under Rule 144 are not available to SKL. In connection with the Subscription, the Company also issued a five year warrant to purchase 900,000 shares of the Company’s common stock at an exercise price of $0.26/share.  SKL has no previous affiliation with the Company.

 

On March 11, 2005, we entered into an agreement with HCSS, LLC and eTelenext, Inc. to enable NeoGenomics to use eTelenext, Inc’s Accessioning Application, AP Anywhere Application and CMQ Application.  HCSS, LLC is a holding company created to build a small laboratory network for the 50 small commercial genetics laboratories in the United States.  HCSS, LLC is owned 66.7% by Dr. Michael T. Dent, our Chairman.  Under the terms of the agreement, the Company paid $22,500 over three months to customize this software and will pay an annual membership fee of $6,000 per year and monthly transaction fees of between $2.50 - $10.00 per completed test, depending on the volume of tests performed.  The eTelenext system is an elaborate laboratory information system (LIS) that is in use at many larger laboratories.  By assisting in the formation of the small laboratory network, the Company will be able to increase the productivity of its technologists and have on-line links to other small laboratories in the network in order to better manage its workflow.

 

On June 7, 2007, we paid Aspen Capital Advisors, LLC (“ACA”), a company affiliated with one of our directors, a cash fee of $52,375 and issued to ACA a five year warrant to purchase 250,000 shares of common stock in consideration for ACA’s assistance with the June 2007 Private Placement described in Note I below.

 

F-27

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NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS –

AS OF DECEMBER 31, 2007 and 2006 (Continued)

 

NOTE I – EQUITY FINANCING TRANSACTIONS

 

On June 6, 2005, we entered into a Standby Equity Distribution Agreement (the “S.E.D.A.”) with Yorkville Advisors, LLC (“Yorkville” f/k/a Cornell Capital Partners, LP).  Pursuant to the S.E.D.A., the Company could, at its discretion, periodically sell to Yorkville shares of common stock for a total purchase price of up to $5.0 million.  On June 6, 2006 as a result of not terminating our S.E.D.A. with Yorkville, a short-term note payable in the amount of $50,000 became due to Yorkville and was subsequently paid in July 2006 from the proceeds of a $53,000 advance under the S.E.D.A.  On August 1, 2007, the S.E.D.A expired and we decided not to renew it.

 

The following sales of common stock were made under our S.E.D.A. with Yorkville since it was first declared effective on August 1, 2005 through its termination date of August 1, 2007.

Request Date		Completion Date			Shares of Common Stock			Gross Proceeds			Yorkville Fee			Escrow Fee			Net Proceeds			ASP(1)
8/29/2005			9/8/2005			63,776		$	25,000		$	1,250		$	500		$	23,250
12/10/2005			12/18/2005			241,779			50,000			2,500			500			47,000
Subtotal – 2005						305,555		$	75,000		$	3,750		$	1,000		$	70,250		$	0.25
7/19/2006			7/28/2006			83,491			53,000			2,500			500			50,000
8/8/2006			8/16/2006			279,486			250,000			12,500			500			237,000
10/18/2006			10/23/2006			167,842			200,000			10,000			500			189,500
Subtotal – 2006						530,819		$	503,000		$	25,000		$	1,500		$	476,500		$	0.95
12/29/2006			1/10/2007			98,522			150,000			7,500			500			142,000
1/16/2007			1/24/2007			100,053			150,000			7,500			500			142,000
2/1/2007			2/12/2007			65,902			100,000			5,000			500			94,500
2/19/2007			2/28/2007			166,611			250,000			12,500			500			237,000
2/28/2007			3/7/2007			180,963			250,000			12,500			500			237,000
4/5/2007			4/16/2007			164,777			250,000			12,500			500			237,000
4/20/2007			4/30/2007			173,467			250,000			12,500			500			237,000
Subtotal – 2007						950,295		$	1,400,000		$	70,000		$	3,500		$	1,326,500		$	1.48
Total Since Inception						1,786, 669		$	1,978,000		$	98,750		$	6,000		$	1,873,250		$	1.19

 

(1)  Average Selling Price of shares issued

 

In March 2005 and January 2006, the Company entered into various agreements with Aspen Select Healthcare, LP, as described in Note H.

 

During the period from January 18 - 21, 2006, the Company entered into agreements with four other shareholders who are parties to that certain Shareholders’ Agreement, dated March 23, 2005, to exchange five year warrants to purchase an aggregate of 150,000 shares of stock at an exercise price of $0.26/share for such shareholders’ waiver of their pre-emptive rights under the Shareholders’ Agreement.

 

F-28

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NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS –

AS OF DECEMBER 31, 2007 and 2006 (Continued)

On January 21, 2006, the Company entered into a subscription agreement (the “Subscription”) with SKL Family Limited Partnership, LP, a New Jersey limited partnership, whereby SKL purchased 2.0 million shares (the “Subscription Shares”) of the Company’s common stock at a purchase price of $0.20/share for $400,000. Under the terms of the Subscription, the Subscription Shares are restricted for a period of 24 months and then carry piggyback registration rights to the extent that exemptions under Rule 144 are not available to SKL. In connection with the Subscription, the Company also issued a five year warrant to purchase 900,000 shares of the Company’s common stock at an exercise price of $0.26/share.  SKL has no previous affiliation with the Company.

 

During the period from May 31, 2007 through June 6, 2007, we sold 2,666,667 shares of our common stock to ten unaffiliated accredited investors at a price of $1.50 per share in a private placement of our common stock (the “Private Placement”).  The Private Placement generated gross proceeds to the Company of $4.0 million, and after estimated transaction costs, the Company received net cash proceeds of approximately $3.8 million.  The Company also issued warrants to purchase 98,417 shares of our Common Stock to Noble International Investments, Inc., or Noble, in consideration for its services as a placement agent for the Private Placement and paid Noble a cash fee of $147,625.  Additionally, the Company issued to Aspen Capital Advisors, LLC, or ACA, warrants to purchase 250,000 shares at $1.50 per share and paid ACA a cash fee of $52,375 in consideration for ACA’s services to the Company in connection with the Private Placement.   The Private Placement involved the issuance of the aforementioned unregistered securities in transactions that we believed were exempt from registration under Rule 506 promulgated under the Securities Act.  All of the aforementioned stockholders received registration rights (“Registration Rights”) for the Private Placement shares so purchased and we filed a registration statement on Form SB-2 on July 12, 2007 to register these shares (the “Registration Statement”).  Certain of the Investors also purchased 1,500,000 shares and 500,000 warrants from Aspen Select Healthcare, LP in a separate transaction that occurred simultaneously with the Private Placement and the Company agreed to an assignment of Aspen’s registration rights for such shares and warrants, and those shares and warrants were included in the Registration Statement.

 

The Registration Rights contained a provision that if the Registration Statement was not declared effective within 120 days of the Private Placement, we would be responsible for partial relief of the damages resulting from a holder’s inability to sell the shares covered by the Registration Statement.  Beginning after 120 days from the date that the Private Placement was consummated, the Company is obligated to pay as liquidated damages to each holder of shares covered by the Registration Statement (“Registered Securities”) an amount equal to one half percent (0.5%) of the purchase price of the Registered Securities for each thirty (30) day period that the Registration Statement is not effective after the required effective date specified in the Registration Rights Agreement. Such liquidated damages may be paid, at the holder’s option, either in cash or shares of our Common Stock, after demand therefore has been made.

 

In August, 2007, we received a comment letter from the Accounting Staff of the SEC regarding certain disclosure and accounting questions with respect to our 2006 annual report filed on Form 10-KSB.  In September 2007, we responded to the SEC Staff and filed an amended Form 10-KSB/A that responded to the matters raised by the Staff.  In October 2007, we received a follow up comment letter from the Staff that continued to question the accounting we use in connection with non-cash employee stock-based compensation and warrants issued under the newly adopted SFAS 123(R).   We responded to the Staff’s October 2007 letter in March 2008, and currently anticipate resolving all open issues by the end of April 2008 and being able to proceed with registering the Private Placement shares in May 2008.

 

As a result of the aforementioned SEC correspondence, the Company was not able to register the securities issued in the Private Placement within the allowed 120 period, and was thus responsible for damages.  Accordingly, as of December 31, 2007, in accordance with FASB Staff Position 00-19-2, “Accounting for Registration Payment Arrangements” we have accrued approximately $282,000 in penalties as liquidated damages for the period from the end of the 120 day period through May 2008 when we expect to be able to go effective on the Registration Statement for the Private Placement shares.  Such penalties are included in Accrued Expenses and Other Liabilities.

 

On June 6, 2007, the Company issued to Lewis Asset Management (“LAM”) 500,000 shares of Common Stock at a purchase price of $0.26 per share and received gross proceeds of $130,000 upon the exercise by LAM of 500,000 warrants which were purchased by LAM from Aspen Select Healthcare, LP on that day.

 

On June 7, 2007, we used part of the net proceeds of the Private Placement to pay off the $1.7 million principal balance of the Credit Facility with Aspen, as further discussed in Note H.

 

F-29

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NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS –

AS OF DECEMBER 31, 2007 and 2006 (Continued)

On August 15, 2007 our Board of Directors voted to issue warrants to purchase 533,334 shares of our Common Stock to the investors who purchased shares in the Private Placement.  Such warrants have an exercise price of $1.50 per share and are exercisable for a period of two years.  Such warrants also have a provision for piggyback registration rights in the first year and demand registration rights in the second year.

 

NOTE J – POWER 3 MEDICAL PRODUCTS, INC.

 

On April 2, 2007, we entered into an agreement (the “Letter Agreement”) with Power3 Medical Products, Inc., a New York Corporation (“Power3”) regarding the formation of a joint venture Contract Research Organization (“CRO”) and the issuance of convertible debentures and related securities by Power3 to us. Power3 is an early stage company engaged in the discovery, development, and commercialization of protein biomarkers. Under the terms of the agreement, NeoGenomics and Power3 agreed to enter into a joint venture agreement pursuant to which the parties will jointly own a CRO and begin commercializing Power3’s intellectual property portfolio of seventeen patents pending by developing diagnostic tests and other services around one or more of the more than 500 differentially expressed protein biomarkers that Power3 believes it has discovered to date. Power3 has agreed to license all of its intellectual property on a non-exclusive basis to the CRO for selected commercial applications as well as provide certain management personnel. We will provide access to cancer samples, management and sales & marketing personnel, laboratory facilities and working capital. Subject to final negotiation, we will own a minimum of 60% and up to 80% of the new CRO venture which is anticipated to be launched in 2008.

 

As part of the agreement, we provided $200,000 of working capital to Power3 by purchasing a convertible debenture on April 17, 2007 pursuant to a Securities Purchase Agreement (the “Purchase Agreement”) between us and Power3.  The debenture has a term of two years and a 6% per annum interest rate which is payable quarterly on the last calendar day of each quarter.  We were also granted two (2) options to increase our stake in Power3 to up to 60% of Power3’s fully diluted shares.  The first option (the “First Option”) is a fixed option to purchase convertible preferred stock of Power3 that is convertible into such number of shares of Power3 Common Stock, in one or more transactions, up to 20% of Power3’s voting Common Stock at a purchase price per share, which will also equal the initial conversion price per share, equal to the lesser of (a) $0.20 per share, or (b) $20,000,000 divided by the fully-diluted shares outstanding on the date of the exercise of the First Option. This First Option is exercisable for a period starting on the date of purchase of the convertible debenture by NeoGenomics and extending until the day which is the later of (y) November 16, 2007 or (z) the date that certain milestones specified in the agreement have been achieved. As of March 31, 2008, the milestones described in the letter agreement had not been met.  The First Option is exercisable in cash or NeoGenomics Common Stock at our option, provided, however, that we must include at least $1.0 million of cash in the consideration if we elect to exercise this First Option. In addition to purchasing convertible preferred stock as part of the First Option, we are also entitled to receive such number of warrants to purchase Power3 Common Stock that will permit us to maintain our ownership percentage in Power3 on a fully diluted basis.  Such warrants will have a purchase price equal to the initial conversion price of the convertible preferred stock that was purchased pursuant to the First Option and will have a five year term.

 

The second option (the “Second Option”), which is only exercisable to the extent that we have exercised the First Option, provides that we will have the option to increase our stake in Power3 to up to 60% of fully diluted shares of Power3 over the twelve month period beginning on the expiration date of the First Option in one or a series of transactions by purchasing additional convertible preferred stock of Power3 that is convertible into voting Common Stock and the right to receive additional warrants. The purchase price per share, and the initial conversion price of the Second Option convertible preferred stock will, to the extent such Second Option is exercised within six months of exercise of the First Option, be the lesser of (a) $0.40 per share or (b) $40,000,000 divided by the fully diluted shares outstanding on the date of exercise of the Second Option. The purchase price per share, and the initial conversion price of the Second Option convertible preferred stock will, to the extent such Second Option is exercised after six months, but within twelve months of exercise of the First Option, be the lesser of (y) $0.50 per share or (z) an equity price per share equal to $50,000,000 divided by the fully diluted shares outstanding on the date of any purchase. The exercise price of the Second Option may be paid in cash or in any combination of cash and our Common Stock at our option. In addition to purchasing convertible preferred stock as part of the Second Option, we are also entitled to receive such number of warrants to purchase Power3 Common Stock that will permit us to maintain our ownership percentage in Power3 on a fully diluted basis.  Such warrants will have an exercise price equal to the initial conversion price of the convertible preferred stock being purchased on that date and will have a five year term.

 

F-30

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NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS –

AS OF DECEMBER 31, 2007 and 2006 (Continued)

The purchase agreement granted us (1) a right of first refusal with respect to future issuances of Power3 capital stock and (2) the right to appoint a member of the Power3 board of directors so long as we own ten percent (10%) or more of Power3’s outstanding voting securities.

 

As of March 31, 2008, the parties were engaged in good faith negotiations to clarify and amend certain terms of the original Letter Agreement.  As these negotiations have not yet been concluded the parties have agreed to extend any deadlines in the Original Agreement until such time as they reach an agreement on a more comprehensive amendment to the original Letter Agreement or otherwise conclude that they are unable to do so.

 

The convertible debenture, since it is convertible into restricted shares of stock, is recorded under the fair value method at its initial cost of $200,000 if the stock price of Power3 is less than $0.20 per share or at fair value if the stock price of Power3 is greater than $0.20 per share. As of December 31, 2007, the stock price of Power3 was less than $0.20 per share so the convertible debenture is reflected at cost.

 

NOTE K – RETIREMENT PLAN

 

We maintain a defined-contribution 401(k) retirement plan covering substantially all employees (as defined).  Our employees may make voluntary contributions to the plan, subject to limitations based on IRS regulations and compensation.  In addition, we match any employees’ contributions on a dollar to dollar basis up to 1% of the respective employee’s salary.  We made matching contributions of approximately $23,000 and $16,200 during the years ended December 31, 2007 and 2006, respectively. 

 

NOTE L – SUBSEQUENT EVENTS

 

Revolving Credit and Security Agreement

 

On February 1, 2008, our operating subsidiary, NeoGenomics, Inc., a Florida Company (“Borrower”), entered into a Revolving Credit and Security Agreement (the “Credit Facility” or “Credit Agreement”) with CapitalSource Finance LLC (the “Lender”) pursuant to which the Lender shall make available to us a revolving credit facility in a maximum principal amount at any time outstanding of up to Three Million Dollars ($3,000,000) (the “Facility Cap”). Subject to the provisions of the Credit Agreement, the Lender shall make advances to us from time to time during the three (3) year term following the closing date and the revolving Credit Facility may be drawn, repaid and redrawn from time to time as permitted under the Credit Agreement. Interest on outstanding advances under the revolving facility shall be payable monthly in arrears on the first day of each calendar month at an annual rate of one-month LIBOR plus 3.25% in accordance with the terms of the Credit Agreement, subject to a LIBOR floor of 3.14%.  As of March 31, 2008, the effective annual interest rate of the Agreement was 6.39%.  To secure the payment and performance in full of the Obligations (as defined in the Credit Agreement), we granted to the Lender a continuing security interest in and lien upon, all rights, title and interest in and to the Accounts (as such term is defined in the Agreement), which primarily consist of accounts receivable.  Furthermore, pursuant to the Credit Agreement, the Parent Company guaranteed the punctual payment when due, whether at stated maturity, by acceleration or otherwise, of all obligations of the Borrower. The Parent Company’s 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 Agreement.

 

US Labs Settlement

 

On March 18, 2008, we reached a preliminary agreement to settle US Labs’ claims against the Company and certain of its officers and employees. Under the terms of the agreement, NeoGenomics, on behalf of all defendants, will make a $250,000 payment to US Labs within thirty days and pay another $250,000 over the remaining nine months of this year. It is expected that approximately 50% of these payments will be covered by our insurance policies. As a result, our fourth quarter financials include an accrual of $375,000 for this loss contingency, of which $250,000 provides for the Company’s expected share of this settlement and an additional $125,000 to provide for the Company’s share of the estimated legal fees incurred in Q1 2008 up to the date of settlement.

 

F-31

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NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS –

AS OF DECEMBER 31, 2007 and 2006 (Continued)

Employment Contracts

 

On March 12, 2008, we entered into an employment agreement with Robert Gasparini, our President and Chief Scientific Officer, to extend his employment with the Company for an additional four year term.  This employment agreement was retroactive to January 1, 2008 and provides that it will automatically renew after the initial four year term for one year increments unless either party provides written notice to the other party of their intention to terminate the agreement 90 days before the end of the initial term.  The employment agreement specifies an initial base salary of $225,000/year with specified salary increases tied to hitting revenue goals.  Mr. Gasparini is also entitled to receive cash bonuses for any given fiscal year in an amount equal to 30% of his base salary if he meets certain targets established by the Board of Directors. In addition, Mr. Gasparini was granted 784,000 stock options that have a seven year term so long as Mr. Gasparini remains an employee of the Company.  These options are scheduled to vest according to the passage of time and the meeting of certain performance-based milestones.  Mr. Gasparini’s employment agreement also specifies that he is entitled to four weeks of paid vacation per year and other insurance benefits. In the event that Mr. Gasparini is terminated without cause by the Company, the Company has agreed to pay Mr. Gasparini’s base salary and maintain his benefits for a period of twelve months.

 

END OF FINANCIAL STATEMENTS.

F-32

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PART II

 

INFORMATION NOT REQUIRED IN PROSPECTUS

 

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

 

The following table sets forth estimated expenses expected to be incurred in connection with the issuance and distribution of the securities being registered. The Company will pay all expenses in connection with this offering.

 

Securities and Exchange Commission Registration Fee		$	179
Printing and Engraving Expenses		$	1,000
Accounting Fees and Expenses		$	10,000
Legal Fees and Expenses		$	50,000
Miscellaneous		$	3,821
TOTAL		$	65,000

 

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

 

Our Articles of Incorporation eliminate liability of our directors and officers for breaches of fiduciary duties as directors and officers, except to the extent otherwise required by the Nevada Revised Statutes and where the breach involves intentional misconduct, fraud or a knowing violation of the law.

 

Nevada Revised Statutes 78.750, 78.751 and 78.7502 have similar provisions that provide for discretionary and mandatory indemnification of officers, directors, employees, and agents of a corporation. Under these provisions, such persons may be indemnified by a corporation against expenses, including attorney’s fees, judgment, fines and amounts paid in settlement, actually and reasonably incurred by him in connection with the action, suit or proceeding, if he acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation and with respect to any criminal action or proceeding had no reasonable cause to believe his conduct was unlawful.

 

To the extent that a director, officer, employee or agent has been successful on the merits or otherwise in defense of any action, suit or proceeding, or in defense of any claim, issue or matter, he must be indemnified by us against expenses, including attorney’s fees, actually and reasonably incurred by him in connection with the defense.

 

Any indemnification, unless ordered by a court or advanced by us, must be made only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances. The determination must be made:

 

·

By the stockholders;

 

·

By our Board of Directors by majority vote of a quorum consisting of directors who were not parties to that act, suit or proceeding;

 

·

If a majority vote of a quorum consisting of directors who were not parties to the act, suit or proceeding cannot be obtained, by independent legal counsel in a written opinion; or

 

·

If a quorum consisting of directors who were not parties to the act, suit or proceeding cannot be obtained, by independent legal counsel in a written opinion;

 

·

Expenses of officers and directors incurred in defending a civil or criminal action, suit or proceeding must be paid by us as they are incurred and in advance of the final disposition of the action, suit or proceeding, upon receipt of an undertaking by the director or officer to repay the amount if it is ultimately determined by a court of competent jurisdiction that he is not entitled to be indemnified by us.

 

---

·

To the extent that a director, officer, employee or agent has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in subsections 1 and 2, or in defense of any claim, issue or matter therein, we shall indemnify him against expenses, including attorneys’ fees, actually and reasonably incurred by him in connection with the defense.

 

Insofar as indemnification for liabilities arising under the Securities Act, as amended, may be permitted to directors, officers, and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer, or controlling person in the successful defense of any action, suit, or proceeding) is asserted by such director, officer, or controlling person connected with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

 

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

 

Except as otherwise noted, all of the following shares were issued and options and warrants granted pursuant to the exemption provided for under Section 4(2) of the Securities Act as a “transaction not involving a public offering”.  No commissions were paid, and no underwriter participated, in connection with any of these transactions. Each such issuance was made pursuant to individual contracts which are discrete from one another and are made only with persons who were sophisticated in such transactions and who had knowledge of and access to sufficient information about the Company to make an informed investment decision. Among this information was the fact that the securities were restricted securities.

 

During 2004, we sold 3,040,000 shares of our common stock in a series of private placements at $0.25 per share to unaffiliated third party investors. These transactions generated net proceeds to the Company of approximately $740,000 after deducting certain transaction expenses. These transactions involved the issuance of unregistered stock to accredited investors in transactions that we believed were exempt from registration under Rule 506 promulgated under the Securities Act. All of these shares were subsequently registered on a SB-2 Registration Statement, which was declared effective by the SEC on August 1, 2005.

 

During the period from January 1, 2005 to May 31, 2005, we sold 450,953 shares of our common stock in a series of private placements at $0.30 - $0.35/share to unaffiliated third party investors. These transactions generated net proceeds to the Company of approximately $146,000. These transactions involved the issuance of unregistered stock to accredited investors in transactions that we believed were exempt from registration under Rule 506 promulgated under the Securities Act. All of these shares were subsequently registered in a registration statement on Form SB-2, which was declared effective by the SEC on August 1, 2005.

 

On March 23, 2005, the Company entered into a Loan Agreement with Aspen Select Healthcare, LP (“Aspen”) to provide up to $1.5 million of indebtedness pursuant to a Credit Facility. As part of the Credit Facility transaction, the Company also issued to Aspen a five year warrant to purchase up to 2,500,000 shares of our common stock at an original exercise price of $0.50 per share. Steven C. Jones, our Acting Principal Financial Officer and a director of the Company, is a general partner of Aspen. On January 18, 2006, the Company agreed to amend and restate this warrant to provide that all 2,500,000 warrant shares were vested and the exercise price per share was reset to $0.31 per share.

 

On June 6, 2005, we entered into a Standby Equity Distribution Agreement (“SEDA”) with Cornell Capital Partners pursuant to which the Company could, at its discretion, periodically sell to Cornell Capital Partners shares of our common stock for a total purchase price of up to $5.0 million.  Upon execution of the Standby Equity Distribution Agreement, Cornell received 381,888 shares of our common stock as a commitment fee under the Standby Equity Distribution Agreement. The Company also issued 27,278 shares of our common stock to Spartan Securities under a placement agent agreement relating to the Standby Equity Distribution Agreement. On August 1, 2007, the SEDA expired and we decided not to renew it.

 

On January 18, 2006, the Company issued a warrant to Aspen to purchase 150,000 shares of our common stock at an exercise price of $0.26 per share. The warrant has a five year term.

 

On March 14, 2006, Aspen purchased 1,000,000 shares of our common stock for $0.20 per share and received a warrant to purchase 450,000 shares of our common stock at an exercise price of $0.26 per share. The warrant has a five year term.

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Aspen had the right, through April 30, 2006, to provide up to $200,000 of additional secured indebtedness to the Company and to receive a five (5) year warrant to purchase up to 450,000 shares of our common stock with an exercise price of $0.26 per share (the “New Debt Rights”).  On March 30, 2006, Aspen exercised its New Debt Rights.

 

During the period from January 18 to January 21, 2006, the Company entered into agreements with four other stockholders who are parties to a Shareholders’ Agreement dated March 23, 2005, to exchange five year warrants to purchase an aggregate of 150,000 shares of stock at an exercise price of $0.26 per share for such stockholders’ waiver of their pre-emptive rights under the Shareholders’ Agreement.

 

On January 21, 2006 the Company entered into a subscription agreement (the “Subscription”) with SKL Limited Family Partnership, LP (“SKL”), whereby SKL purchased 2.0 million shares (the “Subscription Shares”) of our common stock at a purchase price of $0.20 per share for $400,000. Under the terms of the Subscription, the Subscription Shares are restricted for a period of 24 months and then carry piggyback registration rights to the extent that exemptions under Rule 144 are not available to SKL. In connection with the Subscription, the Company also issued a five year warrant to purchase 900,000 shares of our common stock at an exercise price of $0.26 per share. SKL has no previous affiliation with the Company.

 

During the period from May 31, 2007 through June 6, 2007, we sold 2,666,667 shares of our common stock to unaffiliated accredited investors (the “Investors”) under in a private placement (the “Private Placement”) at $1.50 per share. The Private Placement generated gross proceeds to the Company of $4 million, and after estimated transaction costs, the Company received net cash proceeds of $3.75 million.  The Company also issued warrants to purchase 98,417 shares of our common stock to Noble International Investments, Inc. (“Noble”) in consideration for its services as exclusive placement agent under the Private Placement.  Additionally, the Company issued to Aspen warrants to purchase 250,000 shares at $1.50 per share in consideration for Aspen’s services in the fund raising process of the Private Placement.  The Private Placement involved the issuance of the aforementioned unregistered securities in transactions that we believed were exempt from registration under Rule 506 promulgated under the Securities Act.

 

On June 6, 2007, the Company issued to Lewis Asset Management (“LAM”) 500,000 shares of common stock at an exercise price of $0.26 per share and received gross proceeds equal to $130,000 upon the exercise by LAM of warrants which had been previously purchased from Aspen on June 6, 2007.

 

On August 31, 2007 the Company issued warrants to purchase 533,334 shares of its common stock to the investors who purchased shares in the Private Placement.  Such warrants have an exercise price of $1.50 per share and are exercisable for a period of two years.  Such warrants also have a provision for piggyback registration rights in the first year and demand registration right in the second year.  No shares underlying are being registered hereunder.

 

On September 30, 2008, the Company issued a warrant to Gulf Pointe Capital LLC to purchase up to 32,475 shares of our common stock. The warrant has an exercise price of $1.08 per share and a five year term.

 

On October 10, 2008, the Company issued to Fusion Capital Fund II, LLC (“Fusion Capital”) 17,500 shares of our common stock as a due diligence expense reimbursement. In addition, pursuant to the terms of a common stock purchase agreement between the Company and Fusion Capital, on November 5, 2008, we issued to Fusion Capital 400,000 shares of our common stock as a commitment fee.

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ITEM 16. EXHIBITS

 

Exhibit No.		Description of Exhibit		Location
3.1		Articles of Incorporation, as amended		Incorporated by reference to the Company’s Registration Statement on Form SB-2 as filed with the SEC on February 10, 1999
3.2		Amendment to Articles of Incorporation filed with the Nevada Secretary of State on January 3, 2002		Incorporated by reference to the Company’s Annual Report on Form 10-KSB as filed with the SEC on May 20, 2003
3.3		Amendment to Articles of Incorporation filed with the Nevada Secretary of State on April 11, 2003		Incorporated by reference to the Company’s Annual Report on Form 10-KSB as filed with the SEC on May 20, 2003
3.4		Amended and Restated Bylaws, dated October 14, 2003		Incorporated by reference to the Company’s Quarterly Report on Form 10-QSB as filed with the SEC on November 14, 2003
3.5		NeoGenomics, Inc. 2003 Equity Incentive Plan		Incorporated by reference to the Company’s Quarterly Report on Form 10-QSB as filed with the United States SEC on November 14, 2003
3.6		Amended and Restated NeoGenomics Equity Incentive Plan, dated October 31, 2006		Incorporated by reference to the Company’s Quarterly Report on Form 10-QSB for the quarter ended September 30, 2006, as filed with the SEC on November 17, 2006
5.1		Opinion of Counsel		Provided herewith.
10.1		Loan Agreement between NeoGenomics, Inc. and Aspen Select Healthcare, L.P. dated March 23, 2005		Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the SEC on March 30, 2005
10.2		Amended and Restated Registration Rights Agreement between NeoGenomics, Inc. and Aspen Select Healthcare, L.P. and individuals dated March 23, 2005		Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the SEC on March 30, 2005
10.3		Guaranty of NeoGenomics, Inc., dated March 23, 2005		Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the SEC on March 30, 2005
10.4		Stock Pledge Agreement between NeoGenomics, Inc. and Aspen Select Healthcare, L.P., dated March 23, 2005		Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the SEC on March 30, 2005
10.5		Warrants issued to Aspen Select Healthcare, L.P., dated March 23, 2005		Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the SEC on March 30, 2005
10.6		Security Agreement between NeoGenomics, Inc. and Aspen Select Healthcare, L.P., dated March 23, 2005		Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the SEC on March 30, 2005

 

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Exhibit No.		Description of Exhibit		Location
10.7		Amended and Restated Shareholders’ Agreement dated March 23, 2005 among Neogenomics, Inc., a Nevada corporation, Michael Dent, Aspen Select Healthcare, LP, John Elliot, Steven Jones and Larry Kuhnert		Incorporated by reference to the Company’s Registration Statement on Form S-1 as filed with the SEC on November 28, 2008
10.8		Standby Equity Distribution Agreement with Cornell Capital Partners, L.P. dated June 6, 2005		Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the SEC on June 8, 2005
10.9		Registration Rights Agreement with Cornell Capital Partners, L.P. related to the Standby Equity Distribution dated June 6, 2005		Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the SEC on June 8, 2005
10.10		Placement Agent Agreement with Spartan Securities Group, Ltd., related to the Standby Equity Distribution dated June 6, 2005		Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the SEC on June 8, 2005
10.11		Amended and Restated Loan Agreement between NeoGenomics, Inc. and Aspen Select Healthcare, L.P., dated March 30, 2006		Incorporated by reference to the Company’s Annual Report on Form 10-KSB as filed with the SEC on April 1, 2006
10.12		Amended and Restated Warrant Agreement between NeoGenomics, Inc. and Aspen Select Healthcare, L.P., dated January 21, 2006		Incorporated by reference to the Company’s Annual Report on Form 10-KSB as filed with the SEC on April 1, 2006
10.13		Amended and Restated Security Agreement between NeoGenomics, Inc. and Aspen Select Healthcare, L.P., dated March 30, 2006		Incorporated by reference to the Company’s Annual Report on Form 10-KSB as filed with the SEC on April 1, 2006
10.14		Registration Rights Agreement between NeoGenomics, Inc. and Aspen Select Healthcare, L.P., dated March 30, 2006		Incorporated by reference to the Company’s Annual Report on Form 10-KSB as filed with the SEC on April 1, 2006
10.15		Warrant Agreement between NeoGenomics, Inc. and SKL Family Limited Partnership, L.P. issued January 23, 2006		Incorporated by reference to the Company’s Annual Report on Form 10-KSB as filed with the SEC on April 1, 2006
10.16		Warrant Agreement between NeoGenomics, Inc. and Aspen Select Healthcare, L.P. issued March 14, 2006		Incorporated by reference to the Company’s Annual Report on Form 10-KSB as filed with the SEC on April 1, 2006
10.17		Warrant Agreement between NeoGenomics, Inc. and Aspen Select Healthcare, L.P. issued March 30, 2006		Incorporated by reference to the Company’s Annual Report on Form 10-KSB as filed with the SEC on April 1, 2006
10.18		Agreement with Power3 Medical Products, Inc. regarding the Formation of Joint Venture & Issuance of Convertible Debenture and Related Securities		Incorporated by reference to the Company’s Annual Report on Form 10-KSB, as filed with the SEC on April 2, 2007

 

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Exhibit No.		Description of Exhibit		Location
10.19		Securities Purchase Agreement, dated April 17, 2007, by and between NeoGenomics, Inc. and Power3 Medical Products, Inc.		Incorporated by reference to the Company’s Quarterly Report on Form 10-QSB, as filed with the SEC on May 15, 2007
10.20		Convertible Debenture, dated April 17, 2007, issued by Power3 Medical Products, Inc. to NeoGenomics, Inc. in the principal amount of $200,000		Incorporated by reference to the Company’s Quarterly Report on Form 10-QSB, as filed with the SEC on May 15, 2007
10.21		Letter Agreement, by and between NeoGenomics, Inc. and Noble International Investments, Inc.		Incorporated by reference to the Company’s Registration Statement on Form SB-2 as filed with the SEC on July 6, 2007
10.22		Subscription Documents		Incorporated by reference to the Company’s Registration Statement on Form SB-2 as filed with the SEC on July 6, 2007
10.23		Investor Registration Right Agreement		Incorporated by reference to the Company’s Registration Statement on Form SB-2 as filed with the SEC on July 6, 2007
10.24		Credit Agreement, dated February 1, 2008, by and between NeoGenomics, Inc., the Nevada corporation, NeoGenomics, Inc., the Florida corporation, and CapitalSource Finance LLC		Incorporated by reference to the Company’s Report on Form 8-K for the SEC filed February 7, 2008.
10.25		Employment Agreement, dated March 12, 2008, between Neogenomics, Inc. and Mr. Robert P. Gasparini		Incorporated by reference to the Company’s Annual Report on Form 10-KSB as filed with the SEC on April 14, 2008
10.26		Employment Agreement, dated June 24, 2008, between Neogenomics, Inc. and Mr. Jerome Dvonch		Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2008, filed August 14, 2008
10.27		Common Stock Purchase Agreement, dated November 5, 2008, between Neogenomics, Inc., a Nevada corporation, and Fusion Capital Fund II, LLC		Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2008, filed November 7, 2008
10.28		Registration Rights Agreement, dated November 5, 2008, between Neogenomics, Inc., a Nevada corporation, and Fusion Capital Fund II, LLC		Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2008, filed November 7, 2008
10.29		Master Lease Agreement, dated November 5, 2008, between Neogenomics, Inc., a Florida corporation, and Leasing Technologies International Inc.		Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2008, filed November 7, 2008
10.30		Guaranty Agreement, dated November 5, 2008, between Neogenomics, Inc., a Nevada corporation, and Leasing Technologies International, Inc.		Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2008, filed November 7, 2008

 

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Exhibit No.		Description of Exhibit		Location
10.31		First Amendment to Revolving Credit and Security Agreement, dated November 3, 2008, among Neogenomics, Inc., a Florida corporation, Neogenomics, Inc., a Nevada corporation, and CapitalSource Finance LLC		Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2008, filed November 7, 2008
14.1		NeoGenomics, Inc. Code of Ethics for Senior Financial Officers and the Principal Executive Officer		Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the SEC on April 15, 2005
21.1		Subsidiaries of Neogenomics, Inc., a Nevada corporation		Incorporated by reference to the Company's Registration Statement on Form S-1 as filed with the SEC on November 28, 2008.
23.1		Consent of Kingery & Crouse, P.A.		Provided herewith
23.2		Consent of Burton, Bartlett & Glogovac		Included in Exhibit 5.1
24.1		Power of Attorney		Included in the signature pages to the Registration Statement.

ITEM 17. UNDERTAKINGS

 

The undersigned registrant hereby undertakes:

 

1. To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:

 

(a) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;

 

(b) To reflect in the prospectus any facts or events arising after the effective date of this registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in this registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospects filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in the volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; and

 

(c) To include any material information with respect to the plan of distribution not previously disclosed in this registration statement or any material change to such information in the registration statement.

 

2. That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered herein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

 

3. To remove from registration by means of a post-effective amendment any of the securities being registered hereby which remain unsold at the termination of the offering.

 

4. For determining liability of the undersigned registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities, the undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:

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(a) Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424 (Sec. 230.424);

 

(b) Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;

 

(c) The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and

 

(d) Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.

 

Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer, or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer, or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act, and will be governed by the final adjudication of such issue.

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SIGNATURES

 

Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Fort Myers, state of Florida, on January 22, 2009.

 

	NEOGENOMICS, INC.
	By:	/s/ Robert P. Gasparini
	Name:	Robert P. Gasparini
	Title:	President

 

Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.

 

Signatures		Title(s)		Date
*		Chairman of the Board		January 22, 2009
Michael T. Dent, M.D.
/s/ Robert P. Gasparini		President and Director		January 22, 2009
Robert P. Gasparini		(Principal Executive Officer)
/s/ Steven C. Jones		Acting Principal Financial Officer and Director		January 22, 2009
Steven C. Jones		(Principal Financial Officer)
/s/ Jerome J. Dvonch		Director of Finance		January 22, 2009
Jerome J. Dvonch		(Principal Accounting Officer)
*		Director		January 22, 2009
George G. O’Leary
*		Director		January 22, 2009
Peter M. Peterson
*		Director		January 22, 2009
William J. Robison
*		Director		January 22, 2009
Marvin E. Jaffe

 

*By:	/s/Robert P. Gasparini				January 22, 2009
	Robert P. Gasparini
	As Attorney-in-Fact

 

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