10QSB: Optional form for quarterly and transition reports of small business issuers
Published on May 17, 2004
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 March 31, 2004.
( ) 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.
(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)
12701 Commonwealth Drive, Suite 9, Fort Myers, FL 33913
(Address of principal executive offices)
(239) 768-0600
(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 May 14, 2004.
18,749,416
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 March 31, 2004................... 4
Consolidated Statements of Operations for the three months
ended March 31, 2004 and 2003..................................... 5
Consolidated Statements of Cash Flows for the three months
ended March 31, 2004 and 2003..................................... 6
Notes to Consolidated Financial Statements........................ 7
Management's Discussion and Analysis of Financial Condition
Item 2. and Results of Operations (including cautionary statement)........ 11
Item 3. Controls and Procedures 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................................. 15
Item 2. Changes in Securities............................................. 15
Item 3. Defaults Upon Senior Securities................................... 15
Item 4. Submission of Matters to a Vote of Securities Holders............. 15
Item 5. Other Information................................................. 15
Item 6. Exhibits and Reports on Form 8-K.................................. 15
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
March 31, 2004
(unaudited)
________________________________________________________________________________
ASSETS
CURRENT ASSETS:
Cash $ 55,132
Accounts receivable (net of allowance for doubtful
accounts of $5,325) 68,073
Inventories 9,287
Other current assets 229
Total current assets 132,721
PROPERTY AND EQUIPMENT (net of accumulated depreciation
of $100,934) 395,929
OTHER ASSETS - Deposits 2,221
TOTAL $ 530,871
============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable $ 76,882
Deferred revenue 110,000
Accrued and other liabilities 60,300
Due to affiliates 58,666
Total current liabilities 305,848
LONG TERM LIABILITIES-
Due to affiliates 715,000
Total Liabilities 1,020,848
STOCKHOLDERS' DEFICIT:
Common stock, $.001 par value, 100,000,000 shares
authorized; 18,649,416 shares issued and outstanding 18,649
Additional paid-in capital 8,865,236
Deficit (9,373,862)
Total stockholders' deficit (489,977)
TOTAL $ 530,871
============
________________________________________________________________________________
See notes to consolidated financial statements.
4
NeoGenomics, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
________________________________________________________________________________
For the For the
Three-Months Three-Months
Ended Ended
March 31, 2004 March 31, 2003
NET REVENUE $ 178,863 $ 70,169
COST OF REVENUE 145,986 97,043
GROSS (DEFICIT) PROFIT 32,877 (26,874)
OPERATING EXPENSES:
General and administrative 181,770 83,663
Interest expense 20,716 4,269
Total operating expenses 202,486 87,932
NET INCOME (LOSS) $ (169,609) $ (114,806)
============== ==============
NET INCOME (LOSS) PER SHARE -
Basic and Diluted $ (0.01) $ (0.03)
============== ==============
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING -
Basic and Diluted 18,449,416 4,482,354
============== ==============
________________________________________________________________________________
See notes to consolidated financial statements.
5
NeoGenomics, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
___________________________________________________________________________________
For the For the
Three-Months Three-Months
Ended Ended
March 31, 2004 March 31, 2003
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (169,609) $ (114,806)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 15,194 11,864
Provision for bad debts 5,382 7,406
Non-cash expenses - 11,504
Changes in assets and liabilities, net:
(Increase) decrease in accounts receivables,
net of write-offs (9,594) (40,846)
(Increase) decrease in inventories 1,306 (5,398)
(Increase) decrease in pre-paid expenses 1,375 -
(Increase) decrease in other current assets 1,023 2,000
(Increase) decrease in deposits 5,000 (3,400)
Increase (decrease) in due to bank - (13,518)
Increase (decrease) in accounts payable and
other liabilities 21,007 16,708
NET CASH USED IN OPERATING ACTIVITIES (128,916) (121,686)
CASH FLOWS FROM INVESTING ACTIVITIES -
Purchases of property and equipment (13,437) (8,573)
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances from affiliates, net 125,000 132,000
Issuances of common stock, net of transaction
expenses 47,434 -
NET CASH PROVIDED BY FINANCING ACTIVITIES 172,434 132,000
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 30,081 1,741
CASH, BEGINNING OF PERIOD 25,051 -
CASH, END OF PERIOD $ 55,132 $ 1,741
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 6,987 $ -
=========== ===========
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 of our common stock, (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 January 1, 2003.
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 three months ended March 31, 2004 are
not necessarily indicative of the results that may be expected for the year
ended December 31, 2004. 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, 2003 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
7
with any payers that are not adequately provided for in the accompanying
consolidated financial statements.
Accounts Receivable and Allowance for Doubtful Accounts
We record accounts receivable net of estimated and contractual discounts. 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. Bad debts are charged off to the allowance account at the
time they are deemed uncollectible.
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.
Reclassifications
Certain amounts in the 2003 financial statements have been reclassified to conform
with the 2004 presentation.
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 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 C, 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. While we have recently begun to ramp up our laboratory
operations and generate operating revenues, 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
During 2003, we paid $72,500 to one of our Directors for various consulting work
in connection with helping to organize and manage our financial affairs. During
the three months ended March 31, 2004, we incurred $20,000 to this same Director
for his continued services, and such amounts were included in accounts payable
at March 31, 2004.
8
During 2002, we borrowed funds from the Naples Women's Center ("NWC"), a company
owned by our Chairman, to meet our short-term cash needs. These amounts were
advanced to us with a stated interest rate of 8% and are due in October of 2004.
At March 31, 2004, we owed NWC approximately $58,700.
In late 2002 and early 2003, in order to meet short term cash needs, we borrowed
$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 below). These amounts, having a stated
interest rate of 8%, were repaid in April 2003 in connection with the financing
transaction described below.
On April 15, 2003, we entered into debt and equity financing agreements with
Medical Venture Partners and its principals. Under the terms of the agreements,
affiliates of Medical Venture Partners purchased approximately 75% of our
outstanding common stock and agreed to make available up to $1.5 million of debt
financing in the form of a revolving credit facility (the "Credit Facility"),
with a stated interest rate of prime + 8%. The debt financing and approximately
50.4% of the equity investment are being made through MVP 3, LP, a fund
controlled by Medical Venture Partners. The remainder of the equity investment
was made by the three principals of Medical Venture Partners acting
individually.
Under the terms of the Credit Facility, we are able to borrow up to $500,000 on
an unsecured basis, plus an amount not exceeding 80% of our "eligible" accounts
receivable (as defined) and 50% of our net furniture and equipment balance. At
March 31, 2004 we owed MVP 3, LP $715,000 under the Credit Facility and had
approximately $38,500 of due, but unpaid interest in our accounts payable
balance. Advances are secured by substantially all of the assets in the
accompanying consolidated balance sheet; however such security interest is
subordinate to the first security interest we granted to Fifth Third Bank, an
unrelated financial institution that has entered into a separate loan agreement
with MVP 3, LP and its principals. The Company is also a guarantor of certain
parts of this indebtedness with Fifth Third Bank. The Credit Facility matures on
March 31, 2005 and all amounts outstanding thereunder (including any unpaid
interest) are due at that time.
With respect to this agreement, we are subject to the following restrictive
covenants: (i) we are not to incur indebtedness outside of this agreement in
excess of $50,000 without written authorization of MVP 3, L.P., (ii) we cannot
declare or pay any dividend on our common stock, and (iii) we are also subject
to other general covenants typical of an instrument of this kind. In addition,
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.
NOTE D - FINANCING TRANSACTION
On March 31, 2004, we sold 200,000 shares of our common stock in a private
placement at $0.25/share to an unaffiliated third party in the first in a series
of equity transactions (see Note E - Subsequent Events). This transaction
generated net proceeds to the Company of approximately $47,500 after deducting
for certain transaction expenses. Under the terms of the stock purchase
agreement used in this transaction, the Company has agreed to use its best
efforts to register such shares with the SEC within six months of the date of
the transaction.
NOTE E - SUBSEQUENT EVENTS
9
Between April 1 and May 14, 2004, we sold 100,000 shares of our common in stock
in a private placement at $0.25/share to an unaffiliated third party who is a
passive investor. This transaction generated gross proceeds to the Company of
$25,000. Under the terms of the stock purchase agreement used in this
transaction, the Company has agreed to use its best efforts to register such
shares with the SEC within six months of the date of the transaction. In
addition, we are in the process of closing equity transactions with a number of
unaffiliated third parties under the same terms as listed above, which we expect
will generate gross proceeds of an additional $425,000 by June 30, 2004.
On April 7, 2004, Dr. Michael T. Dent, our President and Chief Medical Officer
notified the Company that he would not be renewing his employment agreement,
which expired April 15, 2004. Dr. Dent remains as our Chairman of the Board.
End of Financial Statements
10
Item 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
NeoGenomics, Inc. operates a medical testing laboratory and research facility
based in Fort Myers, 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
11
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
involved in performing these tests, we believe that genetic/molecular testing
typically has the highest average revenue/test of the medical laboratory 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/
Other Professionals Req. 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 (1) $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
(1) Estimated Revenue/Test is for the technical component of such tests and does
not include revenue for the professional component or interpretation of such
tests.
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 turn-around times are 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 months ended March 31, 2004, 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
12
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, 2003 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.
Results of Operations for the Three Months ended March 31, 2004 as Compared to
the Three Months ended March 31, 2003
During the three months ended March 31, 2004, we generated revenues and costs of
revenues of approximately $179,000 and $146,000, respectively, versus revenues
and costs of revenues of approximately $70,000 and $97,000, respectively for the
three months ended March 31, 2003. This resulted in a gross profit of
approximately $33,000 for the three months ended March 31, 2004, versus a gross
margin deficit of $27,000 reported for the three months ended September 30,
2002. This change is primarily attributable to our 155% increase in revenues
during the most recent period. We believe our gross margin will continue to
improve as we perform more tests. During the most recent quarter, we further
increased our penetration into existing referral sources for cytogentics tests
and added a number of new referral sources.
Our operating expenses for the most recent quarter were approximately $202,000,
which was a 130% increase from the approximately $88,000 of operating expenses
reported for the three months ended March 31, 2003. This increase was primarily
due to the increased expense of additional personnel, including sales personnel
and our CEO, as well as increases in other general and administrative expenses
associated with our new laboratory facility. Interest expense for the most
recent quarter was approximately $21,000, compared to approximately $4,000 of
interest reported for the three months ended March 31, 2003. 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 three months ended March 31, 2004, our operating activities used
approximately $129,000 in cash. This amount primarily represented cash used to
pay general and administrative expenses associated with our operations. We also
spent approximately $13,000 on new equipment. We were able to finance operations
and equipment purchases primarily through the sale of equity securities and net
advances under our Credit Facility, which together provided approximately
$172,000 over the three month period ended March 31, 2004. At March 31, 2004, we
had cash and cash equivalents of approximately $55,000.
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 common stock for $0.01 per 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
13
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 March 31, 2004,
we had approximately $715,000 in principal amount outstanding under the Credit
Facility.
Between March 31 and May 14, 2004, we sold 300,000 shares of our common in stock
in a private placement at $0.25/share to various unaffiliated passive
individuals. These transactions generated gross proceeds to the Company of
$75,000. Under the terms of the stock purchase agreements used in this
transactions, the Company has agreed to use its best efforts to register such
shares with the SEC within six months of the date of the transaction. In
addition, we are in the process of closing equity transactions with a number of
unaffiliated third parties who are passive investors under the same terms as
listed above, which we expect will generate gross proceeds of an additional
$425,000 by June 30, 2004.
Over the next twelve months, we plan to finance our operations through the cash
raised from the above-mentioned equity transactions and borrowings under the
Credit Facility with MVP 3. While we believe that, based on our current business
plan, our cash on hand plus amounts available under our Credit Facility will be
sufficient to finance our operations over the next twelve months, there can be
no assurance that such amounts will cover all of our operating needs. In
addition, to the extent our needs for operating capital exceed our current
estimates, there can be no assurance that we will be eligible to obtain all of
our working capital funding needs from the Credit Facility 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 our 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 seven 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. In addition, we intend to continue building
our sales force in an effort to sustain our sales growth, as well as add
personnel in management, accounting, and administrative functions.
Item 3 - CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures designed to ensure that
information required to be disclosed in reports filed under the Securities
Exchange Act of 1934, as amended, is recorded, processed, summarized and
reported within the specified time periods. As of the end of the period covered
by this report, our Chief Executive and Principle Financial Officer evaluated
the effectiveness of our disclosure controls and procedures. Based on the
evaluation, which disclosed no significant deficiencies or material weaknesses,
our Chief Executive and Principle Financial Officer concluded that our
disclosure controls and procedures are effective as of the end of the period
covered by this report. There were no changes in our internal control over
financial reporting that occurred during the most recent fiscal quarter that
have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
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PART II. - OTHER INFORMATION
Item 1. Legal Proceedings
NONE
Item 2. Changes in Securities
On March 31, 2004, we issued 200,000 shares of our common stock in exchange for
$50,000 of gross proceeds to the Company pursuant to a board resolution duly
adopted by the Board of Directors.
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
None
(b) Reports on Form 8-K.
No reports on Form 8-K were filed with the SEC during the period covered by
this report.
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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.
Date: May 14, 2004 /s/ Thomas H. White
Thomas H. White
Chief Executive and
Principle Financial Officer
16