10QSB: Optional form for quarterly and transition reports of small business issuers
Published on August 13, 2003
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, 2003.
( ) 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)
1726 Medical Blvd, Suite 101, Naples, FL 34110
(Address of principal executive offices)
(239) 513-1992
(Registrant's Telephone Number, Including Area Code)
Check whether the registrant: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.
YES (X) NO ( )
State the number of shares outstanding of each of the issuer's classes of common
equity, as of July 31, 2003.
18,449,416
Transitional Small Business Disclosure Format:
YES ( ) NO (X)
1
NeoGenomics, Inc.
INDEX TO FORM 10-QSB
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (unaudited)
Consolidated Balance Sheet as of June 30, 2003............... 4
Consolidated Statements of Operations for the three
and six months ended June 30, 2003 and the three and
six months ended June 30, 2002.............................. 5
Consolidated Statements of Cash Flows for the six months
ended June 30, 2003 and the six months ended 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).. 10
Item 3. Controls and Procedures 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................ 14
Item 2. Changes in Securities........................................ 14
Item 3. Defaults Upon Senior Securities.............................. 14
Item 4. Submission of Matters to a Vote of Securities Holders........ 14
Item 5. Other Information............................................ 14
Item 6. Exhibits and Reports on Form 8-K............................. 14
Signatures 16
2
PART I
FORWARD-LOOKING STATEMENTS
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; Section 21E of the Securities
Exchange Act of 1934; and the Private Securities Litigation Reform Act of 1995.
The words "may", "would", "could", "will", "expect", "estimate", "anticipate",
"believe", "intend", "plan", "goal", and similar expressions and variations
thereof are intended to specifically identify forward-looking statements. 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 the intent,
belief or current expectations of us, our directors or our officers, with
respect to, among other things: (i) our liquidity and capital resources; (ii)
our financing opportunities and plans; (iii) trends affecting our future
financial condition or results of operations; (iv) our growth strategy and
operating strategy; and (v) the declaration and payment of dividends.
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) we have incurred significant losses since our inception, and
have experienced and continue to experience negative operating margins and
negative cash flows from operations (see Note B to the financial statements);
(ii) any material inability of us to successfully internally develop our
products; (iii) any adverse effect or limitations caused by Governmental
regulations; (iv) any adverse effect on our cash flow or on our ability to
obtain acceptable financing in connection with our growth plans; (v) any
increased competition in our business; (vi) any inability of us to successfully
conduct our business in new markets; and (vii) 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.
3
NeoGenomics, Inc.
CONSOLIDATED BALANCE SHEET AS OF
June 30, 2003
(unaudited)
________________________________________________________________________________
ASSETS
CURRENT ASSETS:
Cash $ 13,838
Accounts receivable (net of allowance for doubtful
accounts of $9,934) 68,513
Inventory 24,868
Other current assets 7,948
Total current assets 115,167
PROPERTY AND EQUIPMENT (net of accumulated depreciation
of $62,242) 373,229
OTHER ASSETS - Deposits 516
TOTAL $ 488,912
=============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable $ 54,292
Deferred revenue 100,000
Accrued and other liabilities 56,016
Total current liabilities 210,308
LONG TERM LIABILITIES:
Due to affiliates 373,666
Total Liabilities 583,974
STOCKHOLDERS' DEFICIT:
Common stock, $.001 par value, 100,000,000 shares
authorized; 18,449,416 shares issued and outstanding 18,449
Additional paid-in capital 8,808,581
Deficit accumulated during the development stage (8,668,490)
Deficit (253,602)
Total stockholders' deficit (95,062)
TOTAL $ 488,912
=============
________________________________________________________________________________
See notes to consolidated financial statements.
4
NeoGenomics, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
_____________________________________________________________________________________________________
For the For the For the For the
Six-Months Six-Months Three-Months Three-Months
Ended Ended Ended Ended
June 30, 2003 June 30, 2002 June 30, 2003 June 30, 2002
REVENUE $ 143,178 $ 8,484 $ 73,009 $ 8,484
COST OF REVENUE 208,216 76,769 111,173 70,894
GROSS (DEFICIT) PROFIT (65,038) (68,285) (38,164) (62,410)
OPERATING EXPENSES:
Stock based compensation - 1,043,832 - 521,916
General and administrative 175,341 205,274 91,678 152,223
Interest expense 13,223 3,698 8,954 3,698
Total operating expenses 188,564 1,252,804 100,632 677,837
NET INCOME (LOSS) $ (253,602) $(1,321,089) $ (138,796) $ (740,247)
============ ============ ============ ===========
NET INCOME (LOSS) PER SHARE - Basic and
Diluted $ (0.02) $ (0.33) $ (0.01) $ (0.18)
============ ============ ============ ===========
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING -
Basic and Diluted 10,253,236 4,061,934 15,960,702 4,073,736
============ ============ ============ ===========
_____________________________________________________________________________________________________
See notes to consolidated financial statements.
5
NeoGenomics, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
__________________________________________________________________________________________
For the For the
Six-Months Six-Months
Ended Ended
June 30, 2003 June 30, 2002
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (253,602) $ (1,321,089)
Adjustments to reconcile net loss to net cash
provided by(used in) operating activities:
Depreciation 23,878 15,716
Amortization of deferred stock compensation - 983,832
Stock-based compensation and consulting - 60,000
Provision for bad debts 9,596 -
Non-cash expenses 20,925 -
Changes in assets and liabilities, net:
(Increase) decrease in accounts receivables, net
of write-offs (38,028) (7,598)
(Increase) decrease in inventory (5,562) (20,016)
(Increase) decrease in pre-paid expenses (7,948) -
(Increase) decrease in other receivables 2,000 -
(Increase) decrease in deposits 3,400 (49,216)
Increase (decrease) in due to bank (13,518) -
Increase (decrease) in deferred revenues - -
Increase (decrease) in accounts payable and other
liabilities (58,335) 77,365
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (317,194) (261,006)
CASH FLOWS FROM INVESTING ACTIVITIES-
Purchases of property and equipment (14,573) (135,997)
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances from affiliates, net 231,334 355,178
Issuances of common stock, net of transaction expenses 114,271 -
NET CASH PROVIDED BY FINANCING ACTIVITIES 345,605 355,178
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 13,838 (41,825)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD - 77,216
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 13,838 $ 35,391
=========== =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 2,623 $ 643
=========== =============
Income taxes paid $ - $ -
=========== =============
__________________________________________________________________________________________
See notes to consolidated financial statements.
6
NeoGenomics, Inc.
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., a Nevada corporation ("ACE"). As a
result of the acquisition, NEO became the operating subsidiary of ACE. ACE was
formed in 1998 and succeeded to NEO's name on January 3, 2002 (collectively NEO
and ACE are referred to as "NeoGenomics", the "Company", "we", "us", or "our"
throughout this Form 10-QSB).
On April 4, 2003, we amended our articles of incorporation to (1) effect a
one-for-100 reverse split, (2) reduce the authorized number of common shares
from 500,000,000 to 100,000,000, and (3) authorize 10,000,000 shares of
preferred stock for future issuance, with such terms, restrictions and
limitations as may be established by the Board of Directors.
As a result of the above, all references to the number of shares and par value
in the accompanying consolidated financial statements and notes thereto have
been adjusted to reflect the April 2003 reverse stock split as though it had
been completed as of June 1, 2001.
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
been included. Operating results for the six months ended June 30, 2003 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 2003. 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, 2002 contained in
our Form 10-KSB.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of NEO
and ACE. All significant intercompany accounts and balances have been eliminated
in consolidation.
Revenue Recognition
Net revenues are recognized in the period when tests are performed and consist
primarily of net patient revenues that are recorded based on established billing
rates less estimated discounts for contractual allowances principally for
patients covered by Medicare, Medicaid and managed care and other health plans.
These revenues also are subject to review and possible audit by the payers. We
believe that adequate provision has been made for any adjustments that may
result from final determination of amounts earned under all the above
arrangements. There are no known material claims, disputes or unsettled matters
with any payers that are not adequately provided for in the accompanying
consolidated financial statements.
7
Allowance for Doubtful Accounts
We provide for accounts receivable that could become uncollectible in the future
by establishing an allowance to reduce the carrying value of such receivables to
their estimated net realizable value. We estimate this allowance based on the
aging of our accounts receivable and our historical collection experience for
each type of payer.
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. Estimates that are critical to the accompanying consolidated
financial statements include estimates related to contractual adjustments, and
the allowance for doubtful accounts. It is at least reasonably possible that our
estimates could change in the near term with respect to these matters.
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. Since our inception, our operations
have been funded through private equity and debt, and we expect to continue to
seek additional funding through private or public equity and debt. As discussed
in Note D, in connection with this matter, in April 2003, we secured a
commitment from a related entity to provide us with $1.5 million of debt
financing in the form of a revolving credit facility (the "Credit Facility"). In
addition, we are in the process of moving and expanding our laboratory
facilities in order to accommodate a greater number of cytogenetics and
molecular biology tests, which we expect will lead to an increase in revenues.
However, there can be no assurance that we will be successful in these efforts,
or that the Credit Facility will be adequate to meet our needs. These factors,
among others, indicate that we may be unable to continue as a going concern for
a reasonable period of time.
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.
NOTE C - RELATED PARTY TRANSACTIONS
Prior to the establishment of the Credit Facility, we occasionally borrowed
funds from the Naples Women's Center ("NWC"), a company owned by our president,
to meet our short-term cash needs. In total, approximately $117,300 was advanced
to us during 2002 with a stated interest rate of 8% and was due upon demand.
Approximately half of this amount was repaid in April 2003 in connection with
the financing transaction described in Note D, and we executed an agreement that
called for the remaining half to be repaid in 18 months with accrued interest at
a stated rate of 8.0% per annum.
In addition, in order to meet short term cash needs during late 2002 and early
2003 prior to the establishment of the Credit Facility, we borrowed
approximately $177,000 from three individuals who are affiliates of Medical
Venture Partners, LLC ("Medical Venture Partners"), a venture capital firm with
whom we were negotiating a financing transaction (see Note D). These amounts,
plus accrued interest at a stated interest rate of 8% per annum, were repaid in
April 2003 in connection with the consummation of the financing transaction
described in Note D.
8
NOTE D - FINANCING TRANSACTION
On April 15, 2003, we entered into equity and debt financing agreements with
Medical Venture Partners and its principals. Under the terms of the equity
agreements, affiliates of Medical Venture Partners purchased 13,927,062 shares
of our commons stock for $0.01/share which resulted in net proceeds to the
company of $114,271 after deducting transaction expenses of approximately
$25,000. As a result of these equity transactions, the Company experienced a
change of control and Medical Venture Partners and its affiliates, in the
aggregate, own approximately 75% of our outstanding common stock. Under the
terms of the debt financing agreements, MVP 3, LP, a partnership controlled by
Medical Venture Partners, agreed to make available up to $1.5 million of debt
financing in the form of a revolving credit facility (the "Credit Facility").
Under the terms of the Credit Facility, NEO will be able to borrow up to 80% of
"eligible" accounts receivable, 50% of the net property, plant and equipment
balance, and up to $500,000 on an unsecured basis. As a condition to these
transactions, the Company, our President, MVP 3 LP and the principals of Medical
Venture Partners entered into a shareholders agreement that provides that MVP 3,
LP will have the right to appoint up to four of seven of our directors. We also
entered into a Registration Rights Agreement with MVP 3 LP and the principals of
Medical Venture Partners granting them certain demand and piggyback registration
rights.
At the time of the closing of this transaction, we entered into a one year
employment agreement with our President. The agreement, which renews
automatically for an unlimited number of terms of one year (unless a "Notice of
Termination" is delivered), provides for a base salary equal to 20% of the net
cash provided by operations of NEO (subject to a monthly cap of $20,000). In
addition, the agreement provides for a bonus of 10% of any amount by which our
quarterly net revenues exceed certain targets as established by our Board of
Directors.
________________________________________________________________________________
End of Financial Statements
9
Item 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
NeoGenomics, Inc. owns and operates a medical testing laboratory and research
facility based in Naples, Florida that is targeting the rapidly growing genetic
and molecular testing segment of the medical laboratory market. Our common stock
is listed on the NASDAQ Bulletin Board (OTCBB) under the symbol "NGNM." Our
business plan features two concurrent objectives:
1. Development of a clinical laboratory to offer routine cytogenetics and
molecular biology testing services; and
2. Development of a research laboratory to offer sponsored research
services to other companies that are seeking to develop genomic
products that will determine the genetic basis for female and neonatal
diseases, cancers and other forms of disease (See "Research and
Development").
The vision of NeoGenomics is to merge a high-end genetic and molecular testing
laboratory with ongoing research activities to help bridge the gap between
clinical medicine and genomic research. We believe that this combination will
allow the Company to speed the process of discovery and innovation and develop
new advanced testing methods to identify the genetic and molecular causes of
disease. Over the last 2-3 years, advances in technology and genetic research,
including the complete sequencing of the human genome, have made possible a
whole new set of tools to diagnose and treat diseases. This has opened up a vast
opportunity for laboratory companies that are positioned to address this growing
market segment.
The medical testing laboratory market can be broken down into three primary
segments:
o clinical lab testing,
o anatomic pathology testing, and
o genetic/molecular testing.
Clinical labs typically are engaged in high volume, high automation tests on
blood and urine. Clinical lab tests often involve testing of a less urgent
nature, for example, cholesterol testing and testing associated with routine
physical exams. This type of testing yields relatively low average revenue per
test. Anatomic pathology ("AP") testing involves evaluation of tissue, as in
surgical pathology, or cells as in cytopathology. AP testing typically seeks to
answer the question: is it cancer? The most widely known AP tests are Pap
smears, skin biopsies, and tissue biopsies. AP tests are typically more labor
and technology intensive than clinical lab tests and thus typically have higher
average revenue per test than clinical lab tests.
We believe genetic/molecular testing is the newest and fastest growing subset of
the laboratory market. Genetic testing or "cytogenetics" involves analyzing
chromosomes taken from the nucleus of cells for abnormalities in a process
called karyotyping. A karyotype evaluates the entire 46 human chromosomes by
number, and banding patterns to identify abnormalities associated with diseases.
Examples of cytogenetics testing include amniocentesis testing of pregnant women
to screen for genetic anomalies such as Down's syndrome in a fetus and bone
marrow testing to screen for types of leukemia. Molecular biology involves
testing for even more specific causes of diseases based on very small
alterations in cellular biology and DNA. Examples of common molecular biology
testing include screening for paternity, cystic fibrosis or Tay-Sachs disease.
Both cytogenetics and molecular biology have become important and accurate
diagnostic tools over the last five years and new tests are being developed
rapidly, thus this market segment is expanding rapidly. Genetic/molecular
testing requires very specialized equipment and credentialed individuals
(typically PhD level) to certify the results. As a result of the sophistication
10
involved in performing these tests, we believe that genetic/molecular testing
typically has the highest average revenue/test of the medical testing sub
segments.
Comparison of the Medical Testing Laboratory Market Segments:
Attributes Clinical Anatomic Pathology Genetic/Molecular
Testing Performed On Blood, Urine Tissue/cells Chromosomes/
molecules
Volume High Low Low
Physician Involvement Low High - Pathologist Low
Malpractice Insur. Required Low High Low
Other Professionals Req. None None Cyto Geneticist/
Molecular Geneticist
Level of Automation High None Moderate
Diagnostic in Nature Usually Not Yes Yes
Types of Diseases Tested Many Possible Primarily Cancer Rapidly Growing
Estimated Revenue/Test $5 - $35/Test $25 - $100/Test $200 - $800/Test
Estimated Size of Market $25 - $30 Billion $6.0 - $7.0 Billion $1.0 - $2.0 Billion
Estimated Annual Growth Rate of
Market 4.0 -5.0% 6.0 - 7.0% 25.0 - 40+%
Source: Research Analysts and Company Estimates
We compete in the marketplace based on the quality and accuracy of our test
results, our turn-around times and our ability to provide after-test support to
those physicians requesting consultation. We believe our average three day
turn-around times on oncology-related cytogenetics tests is among the best in
the industry and is helping to increase the usage patterns of cytogenetics tests
by our referring oncologists and hematopathologists. Based on anecdotal
information, we believe that most competing cytogenetics labs typically have
7-21 day turn-around times on average. Traditionally, longer turn-around times
for cytogenetics tests have resulted in fewer tests being ordered since there is
an increased chance that the test results will not be returned within an
acceptable diagnostic window when other adjunctive diagnostic test results are
available. We believe our average three day turn-around times is resulting in
our referring physicians requesting more of our testing services in order to
augment or confirm other diagnostic tests, thereby giving us a significant
competitive advantage in marketing our services against those of other competing
laboratories.
The cytogenetics and molecular biology testing markets in general are seasonal
and the volumes of such tests tend to decline somewhat in the summer months as
referring physicians and their patients are vacationing. In southern Florida,
currently our primary referral market for lab tests, this seasonality is further
exacerbated because a meaningful percentage of the population returns to homes
in the Northern U.S. to avoid the hot summer months. We estimate that our growth
rates during the second and third quarter of each year will be somewhat impacted
by these seasonality factors.
The following discussion and analysis should be read in conjunction with the
financial statements for the three and six months ended June 30, 2003, included
with this Form 10-QSB. Readers are also referred to the cautionary statement,
which addresses forward-looking statements made by us.
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, 2002 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 revenue and expense
recognition. Management does not believe that our operations to date have
involved uncertainty of accounting treatment, subjective judgment, or estimates,
to any significant degree.
11
Results of Operations for the Three Months ended June 30, 2003 as Compared to
the Three Months ended June 30, 2002
During the three months ended June 30, 2003, we generated revenues and costs of
revenues of approximately $73,000 and $111,200, respectively, and we incurred a
gross margin deficit of approximately $38,200, a 39% improvement over the gross
margin deficit of $62,400 reported for the three months ended June 30, 2002.
This improvement is primarily attributable to our increase in testing volumes.
We believe our gross margin will continue to improve as we add more testing
volume to our business. Since we did not begin laboratory testing operations
until May 2002, and testing volumes were minimal in the three months ended June
30, 2002, revenue comparisons with the three months ended June 30, 2002 are not
relevant. However, our revenues and cost of goods sold for the three months
ending June 30, 2003, increased by approximately 4.0% and 15%, respectively, and
our testing volumes increased by approximately 2.3% as compared to the three
months ending March 31, 2003. During the most recent quarter, we landed several
new accounts to help offset the reduction in testing volumes as a result of
normal seasonality in our existing accounts and we added one additional
full-time laboratory technician.
Our general and administrative expenses for the most recent quarter were
approximately $91,700, which was an 86% reduction from the approximately
$674,000 of general and administrative expenses reported for the three months
ended June 30, 2002. This reduction was due primarily to the elimination of
certain stock based compensation as well as other cost-savings initiatives.
Interest expense for the most recent quarter was approximately $9,000, which is
a 142% increase from the approximately $3,700 of interest reported for the three
months ended June 30, 2002. Interest expense is primarily comprised of interest
payable on advances under our Credit Facility as well as interest payable on
advances from other related parties and the increase is primarily a result of
our increased borrowing.
Results of Operations for the Six Months ended June 30, 2003 as Compared to the
Six Months ended June 30, 2002
During the six months ended June 30, 2003, we generated revenues and costs of
revenues of approximately $143,200 and $208,200, respectively, and we incurred a
gross margin deficit of approximately $65,000. Since we did not begin laboratory
testing operations until May 2002, revenue and gross margin comparisons with the
six months ended June 30, 2002 are not relevant.
Our general and administrative expenses for the six months ended June 30, 2003
were approximately $175,300, which was an 86% reduction from the approximately
$1,249,000 of general and administrative expenses reported for the six months
ended June 30, 2002. This reduction was due primarily to the elimination of
certain stock based compensation as well as other cost-savings initiatives.
Interest expense for the six months ended June 30, 2003 was approximately
$13,200, which is a 258% increase from the approximately $3,700 of interest
reported for the six months ended June 30, 2002. Interest expense is primarily
comprised of interest payable on advances under our Credit Facility as well as
interest payable on advances from other related parties and the increase is
primarily a result of our increased borrowing.
Liquidity and Capital Resources
During the six months ended June 30, 2003, our operating activities used
approximately $317,200 in cash. This amount primarily represented cash used to
pay general and administrative expenses associated with our operations. We also
spent $14,600 on new equipment and leasehold improvements. We were able to
finance operations and equipment purchases primarily through net advances and
equity purchases of approximately $345,600 received from affiliates. At June 30,
2003, we had cash and cash equivalents of approximately $13,800.
12
On April 15, 2003, we entered into equity and debt financing agreements with
Medical Venture Partners and its principals. Under the terms of the equity
agreements, affiliates of Medical Venture Partners purchased 13,927,062 shares
of our commons stock for $0.01/share which resulted in net proceeds to the
company of $114,271 after deducting transaction expenses of approximately
$25,000. As a result of these equity transactions, the Company experienced a
change of control and Medical Venture Partners and its affiliates, in the
aggregate, own approximately 75% of our outstanding common stock. Under the
terms of the debt financing agreements, MVP 3, LP, a partnership controlled by
Medical Venture Partners, agreed to make available up to $1.5 million of debt
financing in the form of a revolving credit facility (the "Credit Facility").
Under the terms of the Credit Facility, our advances are limited, at any given
time, to the sum of i) 50% of our net property, plant and equipment; (ii) 80% of
our accounts receivable that are less than 90 days old; and (iii) $500,000 that
is not tied to any specific collateral. Interest under the revolving credit
agreement is payable monthly at the prime rate plus 8.0%. As of June 30, 2003,
we had approximately $315,000 in principal amount outstanding under the Credit
Facility.
Over the next twelve months, we plan to finance our operations through
borrowings under the Credit Facility with MVP 3. While we believe that, based on
our current business plan, the Credit Facility will be sufficient to finance our
operations over the next twelve months, advances under this Credit Facility are
limited, at any given time, based on a formula contained in the loan agreement.
There can be no assurance that we will be eligible to obtain all of our working
capital funding needs from MVP 3, LP or another source. If we are unable to
obtain such funding, we will be required to curtail or discontinue operations.
Capital Expenditures
We currently forecast capital expenditures for the coming year in order to
execute on our business plan. We plan to fund these expenditures through
borrowings under our Credit Facility with MVP 3, LP and through traditional
lease financing from equipment lessors. There can be no assurance that we will
be eligible to obtain all of its capital equipment funding needs from MVP 3, LP
or another source. If we are unable to obtain such funding, we will be required
to curtail our equipment purchases which may have an impact on our ability to
generate revenues.
Staffing
We plan to increase our work force. Currently, we have five full-time and two
part-time employees. We plan to add additional laboratory technicians and
research scientists to assist us in handling a greater volume of tests and to
perform sponsored research projects. We also plan to continue building our sales
force to continue to increase our sales to customers and we intend to add
personnel in the management, accounting, and administrative areas. We added six
employees during 2002 and expects to add further personnel during the remainder
of 2003.
Item 3 - CONTROLS AND PROCEDURES
Within 90 days prior to the date of filing of this report, we carried out an
evaluation, under the supervision and with the participation of our management,
including our President and an individual providing financial management
functions, of the design and operation of our disclosure controls and
procedures. Based on this evaluation, our President concluded that our
disclosure controls and procedures are effective for the gathering, analyzing
and disclosing the information we are required to disclose in the reports we
file under the Securities Exchange Act of 1934, within the time periods
specified in the SEC's rules and forms. There have been no significant changes
in our internal controls or in other factors that could significantly affect
internal controls subsequent to the date of this evaluation.
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PART II. - OTHER INFORMATION
Item 1. Legal Proceedings
NONE
Item 2. Changes in Securities
On April 16, 2003 we issued 13,972,062 shares of our common stock to affiliates
of Medical Venture Partners, LLC in exchange for $139,721 in cash. On June 30,
2003, we issued 40,000 shares of our common stock to Technology Capital Group,
LLC in satisfaction of a $2,800 finder's fee agreement for introducing the
Company to Medical Venture Partners.
The foregoing were private issuances of securities in transactions not involving
a public offering and which were exempt from the registration provisions of the
Securities Act pursuant to Section 4(2) thereof. Each of these sales was made
without the use of an underwriter.
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
(a) Exhibits
The following exhibits are filed as part of this Form 10-QSB.
Exhibit
Number Description
31 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K.
The following reports on Form 8-K were filed with the SEC during the period
covered by this report.
1) On April 4, 2003, we filed a Report of Form 8-K announcing that a majority
of our shareholders had consented to amending our articles of incorporation
to reduce the authorized number of shares of common stock from 500,000,000
shares to 100,000,000 shares and to authorize 10,000,000 shares of a new
class of preferred stock. The shareholders also consented to effecting a
1:100 reverse stock split of our common stock.
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2) On April 17, we filed a Report of Form 8-K announcing that the Company had
experienced a change of control by virtue of the fact that MVP 3, LP and
its affiliates had purchased 13,927,062 shares of our stock at a price of
$0.01 per share.
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, M.D. August 11, 2003
Michael T. Dent, M.D.
President, Chief Medical Officer and
Principal Accounting Officer
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