10QSB: Optional form for quarterly and transition reports of small business issuers
Published on August 14, 2002
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D. C. 20549
FORM 10-QSB
(X) Quarterly report pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934.
For the quarterly period ended June 30, 2002.
( ) Transition report pursuant to Section 13 or 15(d) of the Exchange Act for
the transition period from _____ ____________ to ____________ .
Commission File Number: 333-72097
NeoGenomics, Inc.
(F/K/A American Communications Enterprises, Inc.)
(Exact name of registrant as specified in charter)
Nevada 74-2897368
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
355 Interstate Blvd., Sarasota, FL 34240
(Address of principal executive offices)
(941) 923-1949
(Registrant's Telephone Number, Including Area Code)
Check whether the registrant: (1) has filed all reports required to be filed by
Section by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
YES ( X ) NO ( )
State the number of shares outstanding of each of the issuer's classes of common
equity, as of July 23, 2002.
427,833,906
Transitional Small Business Disclosure Format:
YES ( ) NO (X)
1
NeoGenomics, Inc.
(A Development Stage Enterprise)
INDEX TO FORM 10-QSB
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (unaudited)
Consolidated Balance Sheet as of June 30, 2002........................ 4
Consolidated Statements of Operations for the three and six months
ended June 30, 2002, the period June 1, 2001 (date of incorporation)
to June 30, 2001 and the period June 1, 2001 (date of incorporation)
to June 30, 2002...................................................... 5
Consolidated Statements of Cash Flows for the six months ended June
30, 2002, the period June 1, 2001 (date of incorporation) to June 30,
2001 and the period June 1, 2001 (date of incorporation) to June 30,
2002.................................................................. 6
Notes to Consolidated Financial Statements............................ 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (including cautionary statement)................ 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................................... 12
Item 2. Changes in Securities................................................ 12
Item 3. Defaults Upon Senior Securities...................................... 12
Item 4. Submission of Matters to a Vote of Securities Holders................ 12
Item 5. Other Information.................................................... 12
Item 6. Exhibits and Reports on Form 8-K..................................... 12
Signatures 13
2
PART I
FORWARD-LOOKING STATEMENTS
Certain statements contained in this filing are "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995, such as statements relating to financial results and plans for future
business development activities, and are thus prospective. These statements
appear in a number of places in this Form 10-QSB and include all statements that
are not statements of historical fact regarding intent, belief or our current
expectations, with respect to, among other things: (i) our financing plans; (ii)
trends affecting our financial condition or results of operations; (iii) our
growth strategy and operating strategy; and (iv) the declaration and payment of
dividends. The words "may," "would," "could," "will," "expect," "estimate,"
"anticipate," "believe," "intend," "plan," and similar expressions and
variations thereof are intended to identify forward-looking statements.
Investors are cautioned that any such forward-looking statements are not
guarantees of future performance and involve risks and uncertainties, many of
which are beyond our ability to control. Actual results may differ materially
from those projected in the forward-looking statements as a result of various
factors. Among the key risks, assumptions and factors that may affect operating
results, performance and financial condition are changes in technology,
fluctuations in our quarterly results, ability to continue and manage our
growth, liquidity and other capital resources issues, competition and the other
factors discussed in detail in our filings with the Securities and Exchange
Commission.
3
NeoGenomics, Inc.
(A Development Stage Enterprise)
CONSOLIDATED BALANCE SHEET AS OF
JUNE 30, 2002
(unaudited)
_________________________________________________________________________________
ASSETS
CURRENT ASSETS:
Cash $ 35,391
Accounts receivable 7,598
Inventory 20,016
Deposits 50,516
Total current assets 113,521
PROPERTY AND EQUIPMENT (net of accumulated
depreciation of $15,789) 202,958
TOTAL $ 316,479
===============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable $ 114,567
Accrued expenses 138,704
Accrued payroll 7,845
Due to affiliates 197,493
Total current liabilities 458,609
STOCKHOLDERS' DEFICIT:
Common stock, $.001 par value, 500,000,000 shares
authorized; 414,000,000 shares issued and outstanding 414,000
Additional paid-in capital 11,649,994
Deferred stock compensation (2,807,070)
Deficit accumulated during the development stage (9,399,054)
Total stockholders' deficit (142,130)
TOTAL $ 316,479
===============
_________________________________________________________________________________
See notes to consolidated financial statements.
5
NeoGenomics, Inc.
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
___________________________________________________________________________________________________________________________________
For the Period For the For the Period For the Period
For the Six- June 1, 2001 Three- June 1, 2001 June 1, 2001
Months (date of Months (date of (date of
Ended incorporation) Ended incorporation) incorporation)
June 30, to June 30, June 30, to June 30, to June 30,
2002 2001 2002 2001 2002
REVENUE $ 8,484 $ - $ 8,484 $ - $ 9,484
COST OF REVENUES 76,769 - 70,894 - 76,769
GROSS (DEFICIT) (68,285) - (62,410) - (67,285)
OPERATING EXPENSES:
Stock based compensation 1,043,832 7,155,000 521,916 7,155,000 8,974,433
General and administrative 186,082 - 134,499 - 334,446
Research and development 19,192 - 17,724 - 19,192
Interest expense 3,698 - 3,698 - 3,698
Total operating expenses 1,252,804 7,155,000 677,837 7,155,000 9,331,769
NET LOSS $ (1,321,089) $(7,155,000) $ (740,247) $(7,155,000) $(9,399,054)
============= ============ ============ ============ ============
NET LOSS PER SHARE - Basic and
Diluted $ (0.003) $ (0.03) $ (0.002) $ (0.03)
============= ============ ============ ============
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING -
Basic and Diluted 406,193,400 238,500,000 407,373,600 238,500,000
============= ============ ============ ============
___________________________________________________________________________________________________________________________________
See notes to consolidated financial statements.
5
NeoGenomics, Inc.
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
________________________________________________________________________________________________________________________________
For the Period For the Period
June 1, 2001 June 1, 2001
For the (date of (date of
Six-Months incorporation) incorporation)
Ended to June 30, to June 30,
June 30, 2002 2001 2002
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,321,089) $ (7,155,000) $ (9,399,054)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation 15,716 - 15,789
Amortization of deferred stock compensation 983,832 - 1,229,430
Stock based compensation and consulting - 7,155,000 7,715,000
Non-cash expenses - - 26,500
Non-cash consulting expenses 60,000 - 60,000
Changes in assets and liabilities, net: - - -
Increase in deposits (49,216) - (50,516)
Increase in inventory (20,016) - (20,016)
Increase in receivables (7,598) - (7,598)
Increase in accounts payable and other liabilities 77,365 - 92,052
NET CASH USED IN OPERATING ACTIVITIES (261,006) - (338,413)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (135,997) - (138,897)
Cash acquired in acquisition - - 209
NET CASH USED IN INVESTING ACTIVITIES (135,997) - (138,688)
CASH FLOWS FROM FINANCING ACTIVITIES-
Advances from affiliates, net 355,178 - 512,492
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (41,825) - 35,391
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 77,216 - -
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 35,391 $ - $ 35,391
============== ============= =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 643 $ - $ 643
============== ============= =============
Income taxes paid $ - $ - $ -
============== ============= =============
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Stock issued in acquisition of American Communications
Enterprises:
Accounts payable $ - $ - $ 14,216
Advances from stockholder subsequently converted to common stock - - 156,916
Total $ - $ - $ 171,132
============== ============= =============
Stockholder advances converted to common stock $ 300,000 $ - $ 300,000
============== ============= =============
Equipment financed through payables $ 79,850 $ - $ 79,850
============== ============= =============
Deferred compensation on grants of stock options $ - $ - $ 4,036,500
============== ============= =============
________________________________________________________________________________________________________________________________
See notes to consolidated financial statements.
6
NeoGenomics, Inc.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
________________________________________________________________________________
NOTE A - ORGANIZATION AND DESCRIPTION OF BUSINESS
NeoGenomics, Inc. ("NEO") was incorporated under the laws of the state of
Florida on June 1, 2001 and on November 14, 2001, agreed to be acquired by
American Communications Enterprises, Inc. ("ACE"). ACE was formed in 1998 and
succeeded to NEO's name on January 14, 2002. As a result of this acquisition,
the accompanying consolidated financial statements include the accounts of NEO
and ACE (collectively referred to as "we", "us", "our"). All significant
intercompany accounts and balances have been eliminated in consolidation.
For financial statement purposes, the acquisition has been treated as a reverse
acquisition and a recapitalization with NEO being treated as the acquirer. In
connection therewith, ACE issued 238,500,000 shares of its common stock to NEO's
founder and sole stockholder in exchange for all of NEO's issued and outstanding
common shares. The value of these shares, which was based on the number, and
fair value of shares issued ($0.03 per share based on the price at which ACE's
shares were trading at that time), has been included in stock based compensation
and in the accompanying statement of operations. Immediately before the
acquisition, ACE had 131,733,896 shares outstanding and liabilities in excess of
assets of approximately $170,000. Since the transaction was accounted for as a
purchase the deficiency of $170,000 was reflected as an adjustment to
stockholders' equity as of the acquisition date.
As a result thereof, all references to the number of shares and par value in the
accompanying financial statements and notes thereto have been adjusted to
reflect the reverse acquisition, including the authorized number of shares of
our common stock and its par value as though all such changes had been completed
as of June 1, 2001.
We are considered to be a development stage (as defined in Financial Accounting
Standards Board Statement No. 7) biotech company organized for the principal
purpose of developing genomic tools for women's diseases, such as ovarian
cancer, and the early diagnosis of neonatal illness. We have not yet commenced a
significant level of operations, and most of our accounting policies and
procedures have not yet been established.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires us to make certain
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements. The reported amounts of revenues and expenses during
the reporting period may be affected by the estimates and assumptions we are
required to make. Actual results could differ from our estimates.
Basis of Presentation
Our accompanying unaudited consolidated financial statements have been prepared
in accordance with accounting principles generally accepted in the United States
of America for interim financial information and the instructions to Form 10-QSB
and Rule 10-1 of Regulation S-X of the Securities and Exchange Commission (the
"SEC"). Accordingly, these consolidated financial statements do not include all
of the footnotes required by accounting principles generally accepted in the
United States of America. In our opinion, all adjustments (consisting of normal
and recurring adjustments) considered necessary for a fair presentation have
7
been included. Operating results for the six months ended June 30, 2002 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 2002. The accompanying consolidated financial statements and the
notes thereto should be read in conjunction with our audited consolidated
financial statements as of and for the year ended December 31, 2001 contained in
our Form 10-KSB.
NOTE B - GOING CONCERN
Our consolidated financial statements were prepared using accounting principles
generally accepted in the United States of America applicable to a going
concern, which contemplates the realization of assets and liquidation of
liabilities in the normal course of business. We have incurred significant
losses since our inception, and have experienced and continue to experience
negative operating margins and negative cash flows from operations. In addition,
we expect to have ongoing requirements for substantial additional capital
investment to implement our business plan. We expect to seek additional funding
through the issuance of debt or equity securities. However, there can be no
assurance that we will be successful in these efforts. These factors, among
others, indicate that we may be unable to continue as a going concern.
Our 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.
NOTE C - RELATED PARTY TRANSACTIONS
Advances and Loans
During the second quarter of 2002, we received net advances from Tampa Bay
Financial, Inc. ("TBF"), one of our stockholders, of approximately $262,000. The
advances are non-interest bearing, unsecured and due on demand, and will be
converted to shares of our common stock at $0.0333 per share. During June 2002,
we converted $300,000 in advances to 9,000,000 shares of our common stock. At
June 30, 2002, we owed TBF approximately $119,000.
We occasionally borrow funds from the Naples Women's Center ("NWC"), a company
owned by our president, to meet our short-term cash needs. These amounts have
been advanced to us with a stated interest rate of 8% and are due upon demand.
During the second quarter of 2002, we received net advances of approximately
$18,000. At June 30, 2002 we owed NWC approximately $78,500.
Consulting Agreements
During November 2001, we entered into an agreement with TBF to provide us with
consulting services and pay certain of our expenses, including the salary of our
chief financial officer and costs incurred in preparing required filings under
securities laws. The term of this agreement is one year and may be extended, at
the option of TBF, for two additional one-year terms. The fee under this
agreement is $10,000 per month. During the six months ended June 30, 2002, we
incurred approximately $60,000 related to this agreement. Under certain
circumstances, these amounts may be repaid with issuances of our common stock.
TBF also has a right of first refusal to purchase securities we may offer at 50%
of their proposed purchase price. This right expires November 30, 2003.
NOTE D - COMMITMENT
During June 2002, we entered into an agreement to purchase an $187,000 piece of
laboratory equipment. We have paid a $50,000 deposit towards this equipment.
8
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
financial statements for the three and six months ended, and the period June
1, 2001 (date of incorporation) to June 30, 2002, included with this Form
10-QSB.
Information related to our predecessor entity, American Communications
Enterprises, Inc. ("ACE"), has been omitted. ACE was formed in 1998 for the
purpose of operating radio stations and businesses within the communications
industry. ACE later changed its focus to genomics, which included acquiring a
private company desiring to become public. In November, ACE and NeoGenomics,
Inc., a Florida Corporation ("NeoGenomics") entered into a Plan of Exchange
pursuant to which ACE acquired NeoGenomics. For financial statement purposes,
the merger has been treated as a reverse acquisition with NeoGenomics being
treated as the acquirer.
Readers are referred to the cautionary statement, which addresses
forward-looking statements made by us.
NeoGenomics, Inc. is considered to be in the development stage as defined in
Financial Accounting Standards Board Statement No. 7. It is currently in the process
of developing genomic tools for women's diseases.
Critical Accounting Policies
Our critical accounting policies, including the assumptions and judgments
underlying them, are disclosed in the Notes to the Financial Statements for the
fiscal year ended December 31, 2001 included in our Form 10-KSB. We have
consistently applied these policies in all material respects. At this stage of
our development, these policies primarily address matters of expense
recognition. Although we anticipate that revenue recognition issues will become
critical in future years, the small amount of revenue that we have earned at
this stage minimizes the impact of any judgments regarding revenue recognition.
Management does not believe that our operations to date have involved
uncertainty of accounting treatment, subjective judgment, or estimates, to any
significant degree.
Results of Operations for the three months ended June 30, 2002
We commenced operations on June 1, 2001. As a result we have not yet generated
any significant revenues.
During the three months ended June 30, 2002, we generated revenues and costs of
revenues of approximately $8,400, and we incurred a net loss of approximately
$740,000, which includes non-cash stock based compensation expense of
approximately $522,000. These expenses consist of the amortization of deferred
stock options, which were issued in November 2001 and stock based compensation
and consulting. We believe our gross margin will improve if we add additional
business. Our general and administrative expenses were approximately $135,000
and are mainly comprised of administrative services expenses, wages and
depreciation. Interest expenses were approximately $3,700 and are mainly
comprised of interest payable on advances from a related party.
During June 2002, we completed six cytogenic tests. Since that date, we have
gained the interest of area laboratories by performing trial tests in order to
demonstrate our ability to deliver faster test results than competitive
laboratories. After a successful trial test, one such laboratory has agreed to
use our laboratory for all their cytogenetic testing. This could result in an
additional 30 tests per
9
month. Since June 30, we have also experienced an increase in the number of
physician groups which are using our cytogenetic diagnostic services.
Results of Operations for the six months ended June 30, 2002
During the six months ended June 30, 2002, we generated revenues and costs of
revenues of approximately $8,400 and $76,800, and we incurred a net loss of
approximately $1,321,000 which includes non-cash stock based compensation
expense of approximately $1,044,000. These expenses consist of the amortization
of deferred stock options, which were issued in November 2001, and stock based
compensation and consulting. Our negative gross margin reflects costs incurred
to obtain certification and is expected to improve as our sales increase.
Our general and administrative expenses were approximately $186,000 and are
mainly comprised of administrative services expenses, wages and depreciation.
Interest expenses were approximately $3,700 and are mainly comprised of interest
payable on advances from a related party.
Results of Operations for the period from June 1, 2001 to June 30, 2002
During the period from June 1, 2001 to June 30, 2002, we generated revenues of
approximately $9,500, and we incurred a net loss of approximately $9,399,000.
Our net loss included non-cash stock based compensation expense of approximately
$8,974,000. This expense consisted of the amortization of deferred stock
options, which were issued in November 2001 and stock based compensation and
consulting. Our general and administrative expenses were approximately $430,000.
They were mainly comprised of administrative service expenses, wages and
depreciation. Interest expense was approximately $3,700, and was primarily
comprised of interest payable on advances from a related party.
Future Periods
Management expects that research expenses will increase substantially in 2002
and in future years, as we expand our research and development activities. We
also expect that our other operating expenses will grow over time in connection
with the expansion of our laboratory facility.
Liquidity and Capital Resources
During the six months ended June 30, 2002, our operating activities used
approximately $261,000 in cash. This amount primarily represented cash used to
pay general and administrative expenses associated with our operations. We spent
approximately $136,000 on new equipment. We were able to finance operations
primarily through net advances of approximately $355,000 received from a
significant shareholder and other affiliates. At June 30, 2002, we had cash and
cash equivalents of approximately $ 35,000.
At the present time, we have very limited cash resources. We do not anticipate
that we will generate a significant cash flow from operating activities until
the later half of 2002. As a result, we anticipate that we will require at least
$900,000 in additional working capital financing during the next 12 months in
order to meet our working capital requirements during this period. We currently
plan to finance our operations through the sale of shares of our common stock to
Tampa Bay Financial, Inc. In this connection, Tampa Bay Financial has agreed to
purchase $1,100,000 in shares of our common stock over the next 12 months. These
shares will be purchased at the price of $0.0333 per share.
Based upon our current plans and assumptions relating to our business plan, we
currently believe that the financing from Tampa Bay Financial will be sufficient
to meet our working capital requirements during the next 12 months. However, in
the event that Tampa Bay Financial does not provide this funding when scheduled,
or if our operating expenses are greater than anticipated, or if our plans
change or our assumptions prove to be inaccurate, we would need to obtain
working capital from other sources. At the present time, we have no commitments
from any other parties to provide such financing and there can be no assurance
10
that such financing would be available. If we are unable to obtain such
financing, we may not be able to implement our business plan.
Capital Expenditures
Management currently forecasts capital expenditures for the remainder of this
year to be approximately $375,000. We plan to fund these expenditures through
the sale of shares to Tampa Bay Financial.
Staffing
We plan to increase our work force. Currently, we have four full-time employees.
We plan to add additional research scientists to assist us in the development of
new products. Upon development of these products, we plan to build a sales force
to sell to end-users. We also intend to add personnel in the accounting,
administrative and investor relations areas. Management has added three
employees during 2002, and expects to add further personnel during the balance
of 2002. We expect the cost of these additional employees will be in excess of
$200,000 over the next 12 months.
CAUTIONARY STATEMENT
This Form 10-QSB, press releases and certain information provided periodically
in writing or orally by our officers or our agents contain statements which
constitute forward-looking statements within the meaning of Section 27A of the
Securities Act, as amended and Section 21E of the Securities Exchange Act of
1934. The words expect, anticipate, believe, goal, plan, intend, estimate and
similar expressions and variations thereof if used are intended to specifically
identify forward-looking statements. Those statements appear in a number of
places in this Form 10-QSB and in other places, particularly, Management's
Discussion and Analysis or Results of Operations, and include statements
regarding the intent, belief or current expectations us, our directors or our
officers with respect to, among other things: (i) our liquidity and capital
resources; (ii) our financing opportunities and plans and (iii) our future
performance and operating results. Investors and prospective investors are
cautioned that any such forward-looking statements are not guarantees of future
performance and involve risks and uncertainties, and that actual results may
differ materially from those projected in the forward-looking statements as a
result of various factors. The factors that might cause such differences
include, among others, the following: (i) any material inability of us to
successfully internally develop our products; (ii) any adverse effect or
limitations caused by Governmental regulations; (iii) any adverse effect on our
positive cash flow and abilities to obtain acceptable financing in connection
with our growth plans; (iv) any increased competition in business; (v) any
inability of us to successfully conduct our business in new markets; and (vi)
other risks including those identified in our filings with the Securities and
Exchange Commission. We undertake no obligation to publicly update or revise the
forward looking statements made in this Form 10-QSB to reflect events or
circumstances after the date of this Form 10-QSB or to reflect the occurrence of
unanticipated events.
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PART II. - OTHER INFORMATION
Item 1. Legal Proceedings
NONE
Item 2. Changes in Securities
In June 2002, the Company issued 9,000,000 shares of common stock in
exchange for the cancellation of $300,000 in cash advances. The stock was issued
to Tampa Bay Financial, Inc., an accredited investor, in a transaction that the
Company believes was exempt from registration under Rule 506 promulgated under
the Securities Act of 1933.
Item 3. Defaults Upon Senior Securities
NONE
Item 4. Submission of Matters to a Vote of Securities Holders
NONE
Item 5. Other Information
NONE
Item 6. Exhibits and Reports on Form 8-K
NONE
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SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
NeoGenomics, Inc.
By:/s/Michael T. Dent August 14, 2002
Michael T. Dent, M.D.
(President and Chief Executive Officer)
By:/s/Matthew A. Veal August 14, 2002
Matthew A. Veal
(Chief Accounting Officer)
Certification Required Under Section 906 of the Sarbanes-Oxley Act of 2002
The undersigned hereby certify that this report fully complies with the
requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of
1934 and that the information contained in this report fairly presents in all
material respects the financial condition and results of operations of the
Registrant as of and for the periods presented in this report.
August 14, 2002 /s/Michael T.Dent
Michael T. Dent, M.D.
(President and Chief Executive Officer)
August 14, 2002 /s/Matthew A. Veal
Matthew A. Veal
(Chief Accounting Officer)
13