SB-2/A: Optional form for registration of securities to be sold to the public by small business issuers
Published on September 14, 2007
As
filed
with the U.S. Securities and Exchange Commission on September 14,
2007
Registration
No. 333-126754
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
AMENDMENT
NO. 2
TO
FORM
SB-2
REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933
|
Nevada
|
NeoGenomics,
Inc.
|
74-2897368
|
|
(State
or Other Jurisdiction of
Incorporation
or Organization)
|
(Name
of Registrant in Our
Charter)
|
(I.R.S.
Employer
Identification
No.)
|
|
Robert
P. Gasparini
|
||
|
12701
Commonwealth Drive, Suite 9
|
12701
Commonwealth Drive, Suite 9
|
|
|
Fort
Myers, Florida 33913
|
Fort
Myers, Florida 33913
|
|
|
(239)
768-0600
|
8731
|
(239)
768-0600
|
|
(Address
and telephone number of Principal Executive Offices
and
Principal Place of Business)
|
(Primary
Standard Industrial Classification Code Number)
|
(Name,
address and telephone number
of
agent for service)
|
|
With
a copy to:
Clayton
E. Parker, Esq.
Kirkpatrick
& Lockhart Preston Gates Ellis LLP
201
S. Biscayne Boulevard, Suite 2000
Miami,
Florida 33131
Telephone:
(305) 539-3300
Facsimile:
(305) 358-7095
|
||
Approximate
date of commencement of proposed sale to the public: As soon
as practicable after this registration statement becomes
effective.
If
any of
the securities being registered on this Form are to be offered on a delayed
or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, as
amended, check the following box. /X/
If
this
Form is filed to register additional securities for an offering pursuant to
Rule
462(b) under the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. /_/
If
this
Form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act of 1933, as amended, check the following box and list the
Securities Act of 1933, as amended registration statement number of the earlier
effective registration statement for the same offering. /_/
If
delivery of the prospectus is expected to be made pursuant to Rule 434, please
check the following box. /_/
CALCULATION
OF REGISTRATION FEE
|
Proposed
Maximum
|
||||
|
Title
Of Each Class
Of
Securities To Be Registered
|
Amount
To
Be Registered
|
Proposed
Maximum Offering Price
Per
Share(1)
|
Aggregate
Offering
Price(1)
|
Amount
Of
Registration Fee
|
|
Common
Stock, par value $0.001 per share
|
7,000,000
shares
|
$1.16
|
$8,120,000
|
$884.27(2)
|
|
TOTAL
|
7,000,000
shares
|
$1.16
|
$8,120,000
|
$884.27
|
|
|
|
|
|
|
MI-234690 v3 0437575-0201
|
(1) Estimated
solely for the purpose of calculating the registration fee pursuant
to
Rule 457(c) under the Securities Act of 1933. For the purposes of
this
table, we have
used
the average of the closing bid and asked prices as of a recent
date.
(2)
Proceeds
paid on July 12,
2007.
|
The
Registrant hereby amends this Registration Statement on such date or dates
as
may be necessary to delay its effective date until the Registrant shall file
a
further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
MI-234690 v1 0437575-0201
PROSPECTUS
NEOGENOMICS,
INC.
7,000,000
shares of Common Stock
This
prospectus relates to the sale of up to 7,000,000 shares of the Common Stock,
par value $0.001 per share (“Common Stock”) of NeoGenomics, Inc.
(referred to individually as the “Parent Company” or, collectively with
all of its subsidiaries, as the “Company”, “NeoGenomics”, or “we”,
“us”, or “our”) by certain persons who are stockholders of the Parent
Company. The selling stockholders consist of:
|
|
·
|
Those Investors
set forth in the section herein entitled “Selling Stockholders” who intend
to sell up to 2,666,667 shares of Common Stock previously issued
and sold
by the Parent Company to the Investors for a purchase price
equal to $1.50 per share during the period from May 31, 2007 through
June
6, 2007 pursuant to a private equity transaction (the “Private
Placement”). The Investors received registration
rights with their shares and therefore, such shares are being registered
hereunder;
|
|
|
·
|
Those
Investors set forth in the section herein entitled “Selling Stockholders”
who intend to sell up to 1,500,000 shares of Common Stock previously
sold
by Aspen Select Healthcare,
L.P.(Aspen) to the Investors during the period from June
1, 2007 through June 5, 2007 in connection with the Private
Placement. The Investors received registration
rights with their shares and therefore, such shares are being registered
hereunder;
|
|
|
·
|
Nobel
International Investments, Inc. (Noble)
which intends to sell up to 98,417 shares of Common Stock underlying
warrants previously issued by the Parent Company to Nobel on June
5, 2007
in consideration for Noble’s services as placement agent in connection
with the Private Placement. Nobel received piggy back
registration rights with its shares and therefore, such shares are
being
registered hereunder;
|
|
|
·
|
Dr.
Michael Dent, Chairman of the Board who intends to sell up to 345,671
shares of Common Stock previously issued and sold by the Company
to
Michael Dent as founder shares;
|
|
|
·
|
Aspen,
which intends to sell up to 1,889,245 shares of Common Stock previously
issued and sold by the Company to Aspen on April 15,
2003. Aspen received registration rights with
respect to these 1,889,245 shares and therefore,
such shares are being registered hereunder;
and
|
|
|
·
|
Lewis
Opportunity Fund and LAM Opportunity Fund are managed by Lewis Asset
Management (LAM), which intends to sell up to 500,000 shares of Common
Stock previously issued to LAM by the Company on June 6,
2007 upon conversion of certain warrants previously
sold by Aspen to LAM on June 6, 2007. The Company issued these
shares at an exercise price of $0.26 per share and
received gross proceeds equal to $130,000. LAM
received registration rights with its warrants and therefore,
such shares underlying such warrants are being registered
hereunder.
|
Please
refer to “Selling
Stockholders” beginning on page 15.
The
Company is not selling any shares of Common Stock in this offering and therefore
will not receive any proceeds from this offering. All costs associated with
this
registration will be borne by the Company.
Shares
of
Common Stock are being offered for sale by the selling stockholders at prices
established on the Over-the-Counter Bulletin Board (the “OTCBB”) during the
term of this offering. On September 10, 2007, the last reported sale
price of our Common Stock was $1.16 per share. Our Common Stock is
quoted on the OTCBB under the symbol “NGMN.OB”. These prices will
fluctuate based on the demand for the shares of our Common Stock.
Brokers
or dealers effecting transactions in these shares should confirm that the shares
are registered under the applicable state law or that an exemption from
registration is available.
These
securities are speculative and involve a high degree of
risk.
Please
refer to “Risk Factors” beginning on page 8.
The
information in this prospectus is not complete and may be changed. We and the
selling stockholders may not sell these securities until the registration
statement filed with the U.S. Securities and Exchange Commission (the
“SEC”) is effective. This prospectus is not an offer to sell these securities
and is not soliciting an offer to buy these securities in any state where the
offer or sale is not permitted.
No
underwriters or persons have been engaged to facilitate the sale of shares
of
our Common Stock in this offering. None of the proceeds from the sale of stock
by the selling stockholders will be placed in escrow, trust or any similar
account.
The
SEC and state securities regulators have not approved or disapproved of these
securities, or determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
The
date
of this prospectus is________, 2007.
The
following is only a summary of the information, Financial Statements and the
Notes thereto included in this prospectus. You should read the entire prospectus
carefully, including “Risk Factors” and our Financial Statements and the Notes
thereto before making any investment decision.
Our
Company
NeoGenomics
operates cancer-focused testing laboratories that specifically target the
rapidly growing genetic and molecular testing segment of the medical laboratory
industry. Headquartered in Fort Myers, Florida, the Company’s growing network of
laboratories currently offers the following types of testing services to
pathologists, oncologists, urologists, hospitals, and other laboratories
throughout the United States:
|
|
·
|
cytogenetics
testing, which analyzes human
chromosomes;
|
|
|
·
|
Fluorescence
In-Situ Hybridization (FISH) testing, which analyzes abnormalities
at the
chromosomal and gene levels;
|
|
|
·
|
flow
cytometry testing, which analyzes gene expression of specific markers
inside cells and on cell surfaces;
and
|
|
|
·
|
molecular
testing which involves analysis of DNA and RNA to diagnose and predict
the
clinical significance of various genetic sequence
disorders.
|
All
of
these testing services are widely utilized in the diagnosis and prognosis of
various types of cancer.
The
genetic and molecular testing segment of the medical laboratory industry is
the
most rapidly growing niche of the market. Approximately six years ago, the
World
Health Organization reclassified cancers as genetic anomalies. This growing
awareness of the genetic root behind most cancers combined with 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 (3) primary
segments:
|
|
·
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clinical
lab testing,
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|
|
·
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anatomic
pathology testing, and
|
|
|
·
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genetic
and molecular testing.
|
Clinical
laboratories are typically engaged in high volume, highly automated, lower
complexity tests on easily procured specimens such as 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. The most widely performed AP procedures
include the preparation and interpretation of pap smears, skin biopsies, and
tissue biopsies. The higher complexity AP tests typically involve more labor
and
are more technology intensive than clinical lab tests. Thus AP tests generally
result in higher average revenue per test than clinical lab tests.
Genetic
and molecular testing typically involves analyzing chromosomes, genes or base
pairs of DNA or RNA for abnormalities. Genetic and molecular testing have become
important and highly accurate diagnostic tools over the last five years. New
tests are being developed at an accelerated pace, thus this market niche
continues to expand rapidly. Genetic and molecular testing requires highly
specialized equipment and credentialed individuals (typically MD or PhD level)
to certify results and typically yields the highest average revenue per test
of
the three market segments. The following chart shows the differences between
the
genetic and molecular niche and other segments of the medical laboratory
industry. Up until approximately five years ago, the genetic and molecular
testing niche was considered to be part of the AP segment, but given its rapid
growth, it is now more routinely broken out and accounted for as its own
segment.
1
COMPARISON
OF THE MEDICAL LABORATORY MARKET SEGMENTS(1)
|
Attributes
|
Clinical
|
Anatomic
Pathology
|
Genetic/Molecular
|
|
Testing
Performed On
|
Blood,
Urine
|
Tissue/Cells
|
Chromosomes/Genes/DNA
|
|
Testing
Volume
|
High
|
Low
|
Low
|
|
Physician
Involvement
|
Low
|
High
- Pathologist
|
Low
- Medium
|
|
Malpractice
Ins. Required
|
Low
|
High
|
Low
|
|
Other
Professionals Req.
|
None
|
None
|
Cyto/Molecular
geneticist
|
|
Level
of Automation
|
High
|
Low-Moderate
|
Moderate
|
|
Diagnostic
in Nature
|
Usually
Not
|
Yes
|
Yes
|
|
Types
of Diseases Tested
|
Many
Possible
|
Primarily
to Rule out Cancer
|
Rapidly
Growing
|
|
Typical
per Price/Test
|
$5
- $35/Test
|
$25
- $500/Test
|
$200
- $1,000/Test
|
|
Estimated
Size of Market
|
$25
- $30 Billion
|
$10
- $12 Billion
|
$4
- $5 Billion (2)
|
|
Estimated
Annual Growth Rate
|
4%
-5%
|
6%
- 7%
|
25+%
|
|
EstablishedCompetitors
|
Quest
Diagnostics
|
Quest
Diagnostics
|
Genzyme
Genetics
|
|
LabCorp
|
LabCorp
|
Quest
Diagnostics
|
|
|
Bio
Reference Labs
|
Genzyme
Genetics
|
LabCorp
|
|
|
DSI
Laboratories
|
Ameripath
|
Major
Universities
|
|
|
Hospital
Labs
|
Local
Pathologists
|
||
|
Regional
Labs
|
|||
|
(1) Derived
from
industry analyst reports.
(2) Includes
flow cytometry testing, which historically has been classified under
anatomic pathology.
|
|||
Our
primary focus is to provide high complexity laboratory testing for the
community-based pathology and oncology marketplace. Within these key market
segments, we currently provide our services to pathologists and oncologists
in
the United States that perform bone marrow and/or peripheral blood sampling
for
the diagnosis of liquid tumors (leukemias and lymphomas) and archival tissue
referral for analysis of solid tumors such as breast cancer. A secondary
strategic focus targets community-based urologists due to the availability
of
UroVysion®, a
FISH-based test for the initial diagnosis of bladder cancer and early detection
of recurrent disease. We focus on community-based practitioners for two (2)
reasons: First, academic pathologists and associated clinicians tend to have
their testing needs met within the confines of their university affiliation.
Secondly, most of the cancer care in the United States is administered by
community based practitioners, not in academic centers, due to ease of local
access. Moreover, within the community-based pathologist segment it
is not our intent to willingly compete with our customers for testing services
that they may seek to perform themselves. Fee-for-service pathologists for
example, derive a significant portion of their annual revenue from the
interpretation of biopsy specimens. Unlike other larger laboratories, which
strive to perform 100% of such testing services themselves, we do not intend
to
compete with our customers for such specimens. Rather, our high complexity
cancer testing focus is a natural extension of and complementary to many of
the
services that our community-based customers often perform within their own
practices. As such, we believe our relationship as a non-competitive consultant,
empowers these physicians to expand their testing breadth and provide a menu
of
services that matches or exceeds the level of service found in academic centers
of excellence around the country.
We
continue to make progress growing our testing volumes and revenue beyond our
historically focused effort in Florida due to our expanding field sales
footprint. As of June 30, 2007, NeoGenomics’ sales organization totaled
nine (9) individuals. Recent key hires included our Vice President of Sales
& Marketing and various sales managers and representatives in the
Northeastern, Southeastern and Western states. We intend to continue adding
sales representatives on a quarterly basis throughout the year. As
more sales representatives are added, the base of our business outside of
Florida will continue to grow and ultimately eclipse that which is generated
within the state.
2
We
are
successfully competing in the marketplace based on the quality and
comprehensiveness of our test results, and our innovative flexible levels of
service, industry-leading turn-around times, regionalization of laboratory
operations and ability to provide after-test support to those physicians
requesting consultation. 2006 saw the introduction of our Genetic Pathology
Solutions (GPS) product that provides summary interpretation of multiple testing
platforms all in one consolidated report. Response from clients has been very
favorable and provides another option for those customers that require a higher
degree of customized service.
Another
important service was initiated in December 2006 when we became the first
laboratory to offer technical-component only (tech-only) FISH testing to the
key
community-based pathologist market segment. NeoFISH has been enthusiastically
received and has provided our sales team with another differentiating product
to
meet the needs of our target community-based pathologists. With NeoFISH these
customers are able to retain a portion of the overall testing revenue from
such
FISH specimens themselves, which serves to much better align their interests
with those of NeoGenomics than what might otherwise be possible with larger
laboratory competitors.
We
believe NeoGenomics average 3-5 day turn-around time for our cytogenetics
services remains an industry-leading benchmark. The timeliness of results
continues to increase the usage patterns of cytogenetics and act as a driver
for
other add-on testing requests by our referring physicians. Based on anecdotal
information, we believe that typical cytogenetics labs have 7-14 day turn-around
times on average with some labs running as high as twenty-one (21) days.
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 result 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.
In
2006
we began an aggressive campaign to form new laboratories around the country
that
will allow us to regionalize our operations to be closer to our customers.
High
complexity laboratories within the cancer testing niche have frequently operated
a core facility on one or both coasts to service the needs of their customers
around the country. Informal surveys of customers and prospects uncovered a
desire to do business with a laboratory with national breadth but with a more
local presence. In such a scenario, specimen integrity, turnaround-time of
results, client service support, and interaction with our medical staff are
all
enhanced. In 2006, NeoGenomics achieved the milestone of opening two (2)
other laboratories to complement our headquarters in Fort Myers,
Florida. NeoGenomics facilities in Nashville, Tennessee and Irvine,
California received the appropriate state and CLIA licensure and are now
receiving live specimens. As situations dictate and opportunities arise, we
will
continue to develop and open new laboratories, seamlessly linked together by
our
optimized Laboratory Information System (LIS), to better meet the regionalized
needs of our customers.
2006
also
saw the initial establishment of the NeoGenomics Contract Research Organization
(“CRO”) division based at our Irvine, CA facility. This division was created to
take advantage of our core competencies in genetic and molecular high complexity
testing and act as a vehicle to compete for research projects and clinical
trial
support contracts in the biotechnology and pharmaceutical industries. The CRO
division will also act as a development conduit for the validation of new tests
which can then be transferred to our clinical laboratories and be offered to
our
clients. We envision the CRO as a way to infuse some intellectual property
into
the mix of our services and in time create a more “vertically integrated”
laboratory that can potentially offer additional clinical services of a more
proprietary nature. Our agreement with Power3 further expanded the
scope of this entity and provides us with joint venture partner. We
will launch this venture in the fourth quarter of FY 2007.
As
NeoGenomics grows, we anticipate offering additional tests that broaden our
focus from genetic and molecular testing to more traditional types of anatomic
pathology testing that are complementary to our current test offerings. At
no
time do we expect to intentionally compete with fee-for-service pathologists
for
services of this type and Company sales efforts will operate under a strict
“right of first refusal” philosophy that supports rather than undercuts the
practice of community-based pathology. We believe that by adding additional
types of tests to our product offering we will be able to capture increases
in
our testing volumes through our existing customer base as well as more easily
attract new customers via the ability to package our testing services more
appropriately to the needs of the market.
Historically,
the above approach has borne out well for the Company. For most of FY
2004, we only performed one type of test in-house, cytogenetics, which resulted
in only one test being performed per customer requisition for most of the year
and average revenue per requisition of approximately $490. With the
subsequent addition of FISH testing in FY 2005 and flow cytometry to our
pre-existing cytogenetics testing in FY 2006, the number of tests we performed
per requisition increased, which in turn drove an increase in our average
revenue/requisition by 29% in FY 2005 to approximately $632 and by a further
7%
in FY 2006 to approximately $677/requisition. The following is a
summary of our key operating metrics for the twelve months
ended December 31, 2006 and December 31, 2005 and for the three and six months
ended June 30, 2007 and June 30, 2006, respectively:
3
|
FY
2006
|
FY
2005
|
%
Inc (Dec)
|
||||||||||
|
Customer
Requisitions Rec’d (Cases)
|
9,563
|
2,982
|
220.7 | % | ||||||||
|
Number
of Tests Performed
|
12,838
|
4,082
|
214.5 | % | ||||||||
|
Average
Number of Tests/Requisition
|
1.34
|
1.37
|
(2.1 | %) | ||||||||
|
Total
Testing Revenue
|
$ |
6,475,996
|
$ |
1,885,324
|
243.5 | % | ||||||
|
Average
Revenue/Requisition
|
$ |
677.19
|
$ |
623.23
|
7.1 | % | ||||||
|
Average
Revenue/Test
|
$ |
504.44
|
$ |
461.86
|
9.2 | % | ||||||
|
For
the
Six-Months
Ended
June
30, 2007
|
For
the
Six-Months
Ended
June
30, 2006
|
%
Inc (Dec)
|
For
the
Three-
Months
Ended
June
30, 2007
|
For
the
Three-
Months
Ended
June
30, 2006
|
%
Inc (Dec)
|
|||||||||||||||||||
|
Requisitions
Received (cases)
|
6,551
|
4,420
|
48.2 | % |
3,468
|
2,472
|
40.3 | % | ||||||||||||||||
|
Number
of Tests Performed
|
8,678
|
6,139
|
41.4 | % |
4,482
|
3,475
|
29.0 | % | ||||||||||||||||
|
Avg.
# of Tests / Requisition
|
1.32
|
1.39
|
(4.6 | )% |
1.29
|
1.41
|
(8.5 | )% | ||||||||||||||||
|
Total
Testing Revenue
|
$ |
4,586,694
|
$ |
3,111,293
|
47.4 | % | $ |
2,344,032
|
$ |
1,767,492
|
32.6 | % | ||||||||||||
|
Avg
Revenue/Requisition
|
$ |
700.15
|
$ |
703.91
|
(0.5 | )% | $ |
675.90
|
$ |
715.00
|
(5.5 | )% | ||||||||||||
|
Avg
Revenue/Test
|
$ |
528.54
|
$ |
506.81
|
4.3 | % | $ |
522.99
|
$ |
508.63
|
2.8 | % | ||||||||||||
We
believe this bundled approach to
testing represents a clinically sound practice. In addition, as the average
number of tests performed per requisition increases, this should drive large
increases in our revenue and afford the Company significant synergies and
efficiencies in our operations and sales and marketing activities. For instance,
initial testing for many hematologic cancers may yield total revenue ranging
from approximately $1,800 - $3,600/requisition and is generally comprised of
a
combination of some or all of the following tests: cytogenetics, fluorescence
in-situ hybridization (FISH), flow cytometry and, per client request, morphology
testing. Whereas in FY 2004, we only addressed approximately $500 of this
potential revenue per requisition; in FY 2005 we addressed approximately $1,200
- $1,900 of this potential revenue per requisition; and in FY 2006, we could
address this revenue stream (see below), dependent on medical necessity criteria
and guidelines:
|
Average
Revenue/Test
|
||||
|
Cytogenetics
|
$ |
400-$500
|
||
|
Fluorescence
In Situ Hybridization (FISH)
|
||||
|
-
Technical component
|
$ |
300-$1000
|
||
|
-
Professional component
|
$ |
200-$500
|
||
|
Flow
cytometry
|
||||
|
-
Technical component
|
$ |
400-$700
|
||
|
-
Professional component
|
$ |
100-$200
|
||
|
Morphology
|
$ |
400-$700
|
||
|
Total
|
$ |
1,800-$3,600
|
||
About
Us
Our
principal executive offices are located at 12701 Commonwealth Drive, Suite
9,
Fort Myers, Florida 33913. Our telephone number is (239)
768-0600. Our website can be accessed at
www.neogenomics.org.
4
This
prospectus relates to the sale of
up to 7,000,000 shares of the Common Stock, par value $0.001 per share
(“Common Stock”) of NeoGenomics, Inc. (referred to individually as the
“Parent Company” or, collectively with all of its subsidiaries, as the
“Company”, “NeoGenomics”, or “we”, “us”, or “our”) by certain
persons who are stockholders of the Parent Company. The selling
stockholders consist of:
|
|
·
|
Those Investors
set forth in the section herein entitled “Selling Stockholders” who intend
to sell up to 2,666,667 shares of Common Stock previously issued
and sold
by the Parent Company to the Investors for a purchase price
equal to $1.50 per share during the period from May 31, 2007 through
June
6, 2007 pursuant to a private equity transaction (the “Private
Placement”). The Investors received registration
rights with their shares and therefore, such shares are being registered
hereunder;
|
|
|
·
|
Those
Investors set forth in the section herein entitled “Selling Stockholders”
who intend to sell up to 1,500,000 shares of Common Stock previously
sold
by Aspen Select Healthcare,
L.P.(Aspen) to the Investors during the period from June
1, 2007 through June 5, 2007 in connection with the Private
Placement. The Investors received registration
rights with their shares and therefore, such shares are being registered
hereunder;
|
|
|
·
|
Noble
International Investments, Inc. (Noble)
which intends to sell up to 98,417 shares of Common Stock underlying
warrants previously issued by the Parent Company to Noble on June
5, 2007
in consideration for Noble’s services as placement agent in connection
with the Private Placement. Noble received piggy-back
registration rights with its shares and therefore, such shares are
being
registered hereunder;
|
|
|
·
|
Dr.
Michael Dent, Chairman of the Board who intends to sell up to 345,671
shares of Common Stock previously issued and sold by the Company
to
Michael Dent as founder shares;
|
|
|
·
|
Aspen,
which intends to sell up to 1,889,245 shares of Common Stock previously
issued and sold by the Company to Aspen on April 15,
2003. Aspen received registration rights with
respect to these 1,889,245 shares and therefore,
such shares are being registered hereunder;
and
|
|
|
·
|
Lewis
Opportunity Fund and LAM Opportunity Fund are managed by Lewis Asset
Management (LAM), which intends to sell up to 500,000 shares of Common
Stock previously issued to LAM by the Company on June 6,
2007 upon conversion of certain warrants previously
sold by Aspen to LAM on June 6, 2007. The Company issued these
shares at an exercise price of $0.26 per share and
received gross proceeds equal to $130,000. LAM
received registration rights with its warrants and therefore,
such shares underlying such warrants are being registered
hereunder.
|
Please
refer to “Selling
Stockholders” beginning on page 15.
The
Company is not selling any shares of Common Stock in this offering and therefore
will not receive any proceeds from this offering. All costs associated with
this
registration will be borne by the Company.
Shares
of
Common Stock are being offered for sale by the selling stockholders at prices
established on the Over-the-Counter Bulletin Board (the “OTCBB”) during the
term of this offering. On September 10, 2007, the last reported sale
price of our Common Stock was $1.16 per share. Our Common Stock is
quoted on the OTCBB under the symbol “NGMN.OB”. These prices will
fluctuate based on the demand for the shares of our Common Stock.
The
Company engaged Noble, an unaffiliated registered broker-dealer, to advise
us as
our exclusive placement agent in connection with the Private Placement pursuant
to that certain Letter Agreement, dated May 21, 2007, by and between the Parent
Company and Noble. In consideration for its services, Noble received
(a) warrants to purchase 98,417 shares of our Common Stock, which such warrants
have a five (5) year term, an exercise price equal to $1.50 per share, cashless
exercise provisions, customary anti-dilution provisions and the same other
terms, conditions, rights and preferences as those shares sold to
the Investors in the Private Placement, and (b) a cash fee equal to
five percent (5%) of the gross proceeds from each sale made to
the Investors introduced by Noble to the Company, or
$147,625.
5
In
connection with the capital raising services of Aspen Capital Advisors for
this
offering, they received: (a) warrants to purchase 250,000 shares of
our Common Stock, which such warrants have a five (5) year term, an exercise
price equal to $1.50 per share, cashless exercise provisions, customary
anti-dilution provisions and the same other terms, conditions, rights and
preferences as those shares sold to the Investors in the Private Placement,
and
(b) a cash fee equal to $52,375.
On
August
31, 2007 the Company issued warrants to purchase 533,334 shares of it's Common
Stock to the investors who purchased shares in the private placement. Such
warrants have an exercise price of $1.50 per share and are exercisable for
a
period of two years. Such warrants also have a provision for piggyback
registration rights in the first year and demand registration rights in the
second year. No shares underlying are being registered
hereunder.
|
Common
Stock Offered
|
7,000,000
shares by selling stockholders
|
|
Offering
Price
|
Market
price
|
|
Common
Stock Currently Outstanding
|
31,310,743 shares
as of September 10, 2007
|
|
Use
of Proceeds
|
We
will not receive any proceeds of the shares offered by the selling
stockholders. See “Use of Proceeds”.
|
|
Risk
Factors
|
The
securities offered hereby involve a high degree of risk. See “Risk
Factors”.
|
|
Over-the-Counter
Bulletin Board Symbol
|
NGNM.OB
|
6
The
Summary Consolidated Financial Information set forth below was excerpted from
the Company’s Annual Reports on Form 10-KSB for the years ended December 31,
2006 and 2005, as filed with the SEC on April 2, 2007 and April 3, 2006
respectively.
|
For
the Years Ended
December
31,
|
||||||||
|
2006
|
2005
|
|||||||
|
Statement
of Operations Data:
|
||||||||
|
Net
revenue
|
$ |
6,475,996
|
$ |
1,885,324
|
||||
|
Cost
of revenue
|
2,759,190
|
1,132,671
|
||||||
|
Gross
margin
|
3,716,806
|
752,653
|
||||||
|
Other
operating expense
|
3,576,812
|
1,553,017
|
||||||
|
Other
income/expense
|
269,655
|
196,796
|
||||||
|
Net
income (loss)
|
$ | (129,661 | ) | $ | (997,160 | ) | ||
|
Net
income (loss) per share - basic and diluted
|
$ | (0.00 | ) | $ | (0.04 | ) | ||
|
Weighted
average number of shares outstanding – basic and diluted
|
26,166,031
|
22,264,435
|
||||||
|
As
of December 31,
|
||||||||
|
2006
|
2005
|
|||||||
|
Balance
Sheet Data:
|
||||||||
|
Assets:
|
||||||||
|
Cash
and cash equivalents
|
$ |
126,266
|
$ |
10,944
|
||||
|
Accounts
receivable (net of allowance for doubtful accounts of $103,463
as of
December 31, 2006 and $37,807 as of December 31, 2005)
|
1,549,758
|
551,099
|
||||||
|
Inventories
|
117,362
|
60,000
|
||||||
|
Other
current assets
|
102,172
|
58,509
|
||||||
|
Total
current assets
|
1,895,558
|
680,552
|
||||||
|
Furniture
and equipment (net of accumulated depreciation of $494,942 as
of December
31, 2006 and $261,311 as of December 31, 2005)
|
1,202,487
|
381,556
|
||||||
|
Other
assets
|
33,903
|
17,996
|
||||||
|
Total
assets
|
$ |
3,131,948
|
$ |
1,080,104
|
||||
|
Liabilities
& Stockholders’ Equity (Deficit):
|
||||||||
|
Total
current liabilities
|
$ |
2,628,487
|
$ |
665,849
|
||||
|
Long
term liabilities:
Long
term portion of equipment capital leases at December 31, 2006
and due
to
affiliates
(net of discount of $90,806) at December 31, 2005
|
448,947
|
1,409,194
|
||||||
|
Total
liabilities
|
$ |
3,077,434
|
$ |
2,075,043
|
||||
|
Common
Stock, $0.001 par value, 100,000,000 shares authorized; 27,061,476
shares
issued and outstanding as of December31, 2006; 22,836,754 shares
issued
and outstanding as of December 31, 2005
|
27,061
|
22,836
|
||||||
|
Additional
paid-in capital
|
11,300,135
|
10,005,308
|
||||||
|
Deferred
stock compensation
|
(122,623 | ) | (2,685 | ) | ||||
|
Accumulated
deficit
|
(11,150,059 | ) | (11,020,398 | ) | ||||
|
Total
stockholders’ equity (deficit)
|
$ |
54,514
|
$ | (994,939 | ) | |||
|
Total
Liabilities and Stockholders’ Equity
|
$ |
3,131,948
|
$ |
1,080,104
|
||||
|
For
the Periods Ended
June
30,
|
||||||||
|
2007
|
2006
|
|||||||
|
Statement
of Operations Data:
|
||||||||
|
Revenue
|
$ |
4,586,694
|
$ |
3,111,292
|
||||
|
Cost
of Revenue
|
2,102,546
|
1,302,614
|
||||||
|
Gross
Profit
|
2,484,148
|
1,808,678
|
||||||
|
Other
Operating Expenses
|
3,677,193
|
1,540,990
|
||||||
|
Net
Income (Loss)
|
$ | (1,193,045 | ) | $ |
267,688
|
|||
|
Net
Income (Loss) Per Share – Basic
|
$ | (0.04 | ) | $ |
0.01
|
|||
|
Net
Income (Loss) Per Share – Diluted
|
$ | (0.04 | ) | $ |
0.01
|
|||
|
Weighted
Average Number of Shares Outstanding – Basic
|
28,160,643
|
25,531,132
|
||||||
|
Diluted
|
28,160,643
|
27,951,298
|
||||||
|
As
of June 30,
|
||||||||
|
2007
|
2006
|
|||||||
|
Balance
Sheet Data:
|
||||||||
|
Assets:
|
||||||||
|
Cash
and cash equivalents
|
$ |
1,621,878
|
$ |
274,353
|
||||
|
Accounts
receivable (net of allowance for doubtful accounts of $145,830
as of June
30, 2007 and $51,555 as of June 30, 2006)
|
2,271,904
|
1,032,674
|
||||||
|
Inventories
|
362,470
|
76,299
|
||||||
|
Other
current assets
|
231,985
|
81,665
|
||||||
|
Total
current assets
|
4,488,237
|
1,464,991
|
||||||
|
Furniture
and Equipment (net of accumulated depreciation of $591,026 as
of June 30,
2007 and $354,939 as of June 30, 2006)
|
1,773,876
|
839,225
|
||||||
|
Other
Assets
|
251,190
|
19,186
|
||||||
|
Total
assets
|
$ |
6,513,303
|
$ |
2,323,402
|
||||
|
Liabilities
& Stockholders’ Equity:
|
||||||||
|
Total
current liabilities
|
$ |
1,563,731
|
$ |
788,077
|
||||
|
Long
term liabilities:
(Long
term portions of equipment leases)
|
599,112
|
1,639,837
|
||||||
|
Total
liabilities
|
$ |
2,162,843
|
$ |
2,427,914
|
||||
|
Common
Stock, $0.001 par value, 100,000,000 shares authorized; 31,285,986
shares
issued and outstanding as of June 30, 2007; 26,218,843 shares
issued and
outstanding as of June 30, 2006
|
31,286
|
26,328
|
||||||
|
Additional
paid-in capital
|
16,883,249
|
10,700,948
|
||||||
|
Deferred
stock compensation
|
(220,969 | ) | (79,078 | ) | ||||
|
Accumulated
deficit
|
(12,343,106 | ) | (10,752,710 | ) | ||||
|
Total
stockholders’ equity (deficit)
|
$ |
4,350,460
|
$ | (104,512 | ) | |||
|
Total
Liabilities and Stockholders’ Equity
|
$ |
6,513,303
|
$ |
2,323,402
|
||||
7
We
are subject to various risks that
may materially harm our business, financial condition and results of operations.
An investor should carefully consider the risks and uncertainties described
below and the other information in this filing before deciding to purchase
our
Common Stock. If any of these risks or uncertainties actually occurs, our
business, financial condition or operating results could be materially harmed.
In that case, the trading price of our Common Stock could decline or we may
be
forced to cease operations.
Risks
Related To Our Business
We
Have A Limited Operating History Upon Which You Can Evaluate Our
Business
We
commenced revenue operations in 2002 and are just beginning to generate
meaningful revenue. Accordingly, we have a limited operating history upon which
an evaluation of us and our prospects can be based. We and our prospects must
be
considered in light of the risks, expenses and difficulties frequently
encountered by companies in the rapidly evolving market for healthcare and
medical laboratory services. To address these risks, we must, among other
things, respond to competitive developments, attract, retain and motivate
qualified personnel, implement and successfully execute our sales strategy,
develop and market additional services, and upgrade our technological and
physical infrastructure in order to scale our revenues. We may not be successful
in addressing such risks. Our limited operating history makes the prediction
of
future results of operations difficult or impossible.
We
May Not Be Able To Implement Our Business Strategies Which Could Impair Our
Ability to Continue Operations
Implementation
of our business strategies will depend in large part on our ability to (i)
attract a significant number of customers; (ii) effectively introduce acceptable
products and services to our customers; (iii) obtain adequate financing on
favorable terms to fund our business strategies; (iv) maintain appropriate
procedures, policies, and systems; (v) hire, train, and retain skilled
employees; (vi) continue to operate with increasing competition in the medical
laboratory industry; (vii) establish, develop and maintain name recognition;
and
(viii) establish and maintain beneficial relationships with third-party
insurance providers and other third party payers. Our inability to obtain or
maintain any or all these factors could impair our ability to implement our
business strategies successfully, which could have material adverse affect
on
our results of operations and financial condition.
We
May Be Unsuccessful In Managing Our Growth Which Could Prevent the Company
From
Being Profitable
Our
recent growth has placed, and is expected to continue to place, a significant
strain on our managerial, operational and financial resources. To
manage our potential growth, we continue to implement and improve our
operational and financial systems and to expand, train and manage our employee
base. We may not be able to effectively manage the expansion of our
operations and our systems, procedures or controls may not be adequate to
support our operations. Our management may not be able to achieve the
rapid execution necessary to fully exploit the market opportunity for our
products and services. Any inability to manage growth could have a material
adverse effect on our business, results of operations, potential profitability
and financial condition.
Part
of
our business strategy may be to acquire assets or other companies that will
complement our business. At this time, we are unable to predict
whether or when any material transaction will be completed should negotiations
commence. If we proceed with any such transaction, we may not
effectively integrate the acquired operations with our own
operations. We may also seek to finance any such acquisition by debt
financings or issuances of equity securities and such financing may not be
available on acceptable terms or at all.
We
May Incur Greater Costs Than Anticipated, Which Could Result in Sustained
Losses
We
used
reasonable efforts to assess and predict the expenses necessary to pursue our
business plan. However, implementing our business plan may require more
employees, capital equipment, supplies or other expenditure items than
management has predicted. Similarly, the cost of compensating additional
management, employees and consultants or other operating costs may be more
than
we estimate, which could result in sustained losses.
8
We
May Face Fluctuations in Results of Operations Which Could Negatively Affect
Our
Business Operations and We are Subject to Seasonality in our
Business
As
a
result of our limited operating history and the relatively limited information
available on our competitors, we may not have sufficient internal or
industry-based historical financial data upon which to calculate anticipated
operating expenses. Management expects that our results of operations may also
fluctuate significantly in the future as a result of a variety of factors,
including, but not limited to: (i) the continued rate of growth,
usage and acceptance of our products and services; (ii) demand for our products
and services; (iii) the introduction and acceptance of new or enhanced products
or services by us or by competitors; (iv) our ability to anticipate and
effectively adapt to developing markets and to rapidly changing technologies;
(v) our ability to attract, retain and motivate qualified personnel; (vi) the
initiation, renewal or expiration of significant contracts with our major
clients; (vii) pricing changes by us, our suppliers or our competitors; (viii)
seasonality; and (ix) general economic conditions and other
factors.
Accordingly,
future sales and operating results are difficult to forecast. Our expenses
are
based in part on our expectations as to future revenues and to a significant
extent are relatively fixed, at least in the short-term. We may not be able
to
adjust spending in a timely manner to compensate for any unexpected revenue
shortfall. Accordingly, any significant shortfall in relation to our
expectations would have an immediate adverse impact on our business, results
of
operations and financial condition. In addition, we may determine from time
to
time to make certain pricing or marketing decisions or acquisitions that could
have a short-term material adverse affect on the our business, results of
operations and financial condition and may not result in the long-term benefits
intended. Furthermore, in Florida, currently our primary referral market for
lab
tests, a meaningful percentage of the population returns to homes in the
Northern U.S. for the spring and summer months. This results in
seasonality in our business. We estimate that our operating results during
the
second and third quarter of each year will be somewhat impacted by these
seasonality factors until such time as we can generate more clients from outside
of Florida. Because of all of the foregoing factors, our operating results
could
be less than the expectations of investors in future periods.
We
Substantially Depend Upon Third Parties for Payment of Services, Which Could
Have A Material Adverse Affect On Our Cash Flows And Results Of
Operations
The
Company is a clinical medical laboratory that provides medical testing services
to doctors, hospitals, and other laboratories on patient specimens that are
sent
to the Company. In the case of most specimen referrals that are
received for patients that are not in-patients at a hospital or institution
or
otherwise sent by another reference laboratory, the Company generally has to
bill the patient’s insurance company or a government program for its
services. As such it relies on the cooperation of numerous third
party payers, including but not limited to Medicare, Medicaid and various
insurance companies, in order to get paid for performing services on behalf
of
the Company’s clients. Wherever possible, the amount of such third
party payments is governed by contractual relationships in cases where the
Company is a participating provider for a specified insurance company or by
established government reimbursement rates in cases where the Company is an
approved provider for a government program such as Medicare. However,
the Company does not have a contractual relationship with many of the insurance
companies with whom it deals, nor is it necessarily able to become an approved
provider for all government programs. In such cases, the Company is
deemed to be a non-participating provider and there is no contractual assurance
that the Company is able to collect the amounts billed to such insurance
companies or government programs. Currently, the Company is not a
participating provider with the majority of the insurance companies it bills
for
its services. Until such time as the Company becomes a participating
provider with such insurance companies, there can be no contractual assurance
that the Company will be paid for the services it bills to such insurance
companies, and such third parties may change their reimbursement policies for
non-participating providers in a manner that may have a material adverse affect
on the Company’s cash flow or results of operations.
Our
Business Is Subject To Rapid Scientific Change, Which Could Have A Material
Adverse Affect On Our Operations
The
market for genetic and molecular biology testing products and services is
characterized by rapid scientific developments, evolving industry standards
and
customer demands, and frequent new product introductions and
enhancements. Our future success will depend in significant part on
our ability to continually improve our offerings in response to both evolving
demands of the marketplace and competitive product offerings, and we may be
unsuccessful in doing so.
9
The
Market For Our Services Is Highly Competitive, Which Could Have A Material
Adverse Affect On Our Business, Results Of Operations And Financial
Condition
The
market for genetic and molecular biology testing services is highly competitive
and competition is expected to continue to increase. We compete with other
commercial medical laboratories in addition to the in-house laboratories of
many
major hospitals. Many of our existing competitors have significantly greater
financial, human, technical and marketing resources than we do. Our competitors
may develop products and services that are superior to ours or that achieve
greater market acceptance than our offerings. We may not be able to compete
successfully against current and future sources of competition and competitive
pressures faced by us may have a material adverse affect on our business,
results of operations and financial condition.
We
Face The Risk of Capacity Constraints, Which Could Have A Material Adverse
Affect On Our Business, Results Of Operations And Financial
Condition
We
compete in the market place primarily on three (3) factors: (a) the quality
and
accuracy of our test results; (b) the speed or turn-around times of our testing
services; and (c) our ability to provide after-test support to those physicians
requesting consultation. Any unforeseen increase in the volume of customers
could strain the capacity of our personnel and systems, which could lead to
inaccurate test results, unacceptable turn-around times, or customer service
failures. In addition, as the number of customers and cases increases, our
products, services, and infrastructure may not be able to scale
accordingly. Any failure to handle higher volume of requests for our
products and services could lead to the loss of established customers and have
a
material adverse affect on our business, results of operations and financial
condition.
If
we
produce inaccurate test results, our customers may choose not to use us in
the
future. This could severally harm our operations. In addition, based on the
importance of the subject matter of our tests, inaccurate results could result
in improper treatment of patients, and potential liability for us.
The
Steps Taken By Us To Protect Our Proprietary Rights May Not Be Adequate, Which
Could Have A Material Adverse Affect On Our Business, Results Of Operations
And
Financial Condition
We
regard
our copyrights, trademarks, trade secrets and similar intellectual property
as
critical to our success, and we rely upon trademark and copyright law, trade
secret protection and confidentiality and/or license agreements with our
employees, customers, partners and others to protect our proprietary rights.
The
steps taken by us to protect our proprietary rights may not be adequate and
third parties could infringe on or misappropriate our copyrights, trademarks,
trade dress and similar proprietary rights, which could have a material adverse
affect on our business, results of operations and financial condition. In
addition, other parties may assert infringement claims against us.
We
are Dependent On Key Personnel And Need To Hire Additional Qualified
Personnel
Our
performance is substantially dependent on the performance of our senior
management and key technical personnel. In particular, our success depends
substantially on the continued efforts of our senior management team. We do
not
carry key person life insurance on any of our senior management personnel.
The
loss of the services of any of our executive officers, our laboratory director
or other key employees could have a material adverse affect on the business,
results of operations and our financial condition. Our future success also
depends on our continuing ability to attract and retain highly qualified
technical and managerial personnel. Competition for such personnel is intense
and we may not be able to retain our key managerial and technical employees
or
that it will be able to attract and retain additional highly qualified technical
and managerial personnel in the future. The inability to attract and retain
the
necessary technical and managerial personnel could have a material and adverse
affect upon our business, results of operations and financial
condition.
The
Failure to Obtain Necessary Additional Capital to Finance Growth and Capital
Requirements, Could Adversely Affect Our Business, Financial Condition and
Results of Operations
We
may
seek to exploit business opportunities that require more capital than what
is
currently planned. We may not be able to raise such capital on
favorable terms or at all. If we are unable to obtain such additional
capital, we may be required to reduce the scope of our anticipated expansion,
which could adversely affect our business, financial condition and results
of
operations.
10
Our
Net Revenue Will Be Diminished If Payers Do Not Adequately Cover Or Reimburse
Our Services
There
has
been and will continue to be significant efforts by both federal and state
agencies to reduce costs in government healthcare programs and otherwise
implement government control of healthcare costs. In addition, increasing
emphasis on managed care in the U.S. may continue to put pressure on the pricing
of healthcare services. Uncertainty exists as to the coverage and reimbursement
status of new applications or services. Third party payers, including
governmental payers such as Medicare and private payers, are scrutinizing new
medical products and services and may not cover or may limit coverage and the
level of reimbursement for our services. Third party insurance coverage may
not
be available to patients for any of our existing assays or assays we discover
and develop. However, a substantial portion of the testing for which we bill
our
hospital and laboratory clients is ultimately paid by third party payers. Any
pricing pressure exerted by these third party payers on our customers may,
in
turn, be exerted by our customers on us. If government and other third party
payers do not provide adequate coverage and reimbursement for our assays, our
operating results, cash flows or financial condition may decline.
Third
Party Billing Is Extremely Complicated And Will Result In Significant Additional
Costs To Us
Billing
for laboratory services is extremely complicated. The customer refers the tests;
the payer is the party that pays for the tests, and the two are not always
the
same. Depending on the billing arrangement and applicable law, we need to bill
various payers, such as patients, insurance companies, Medicare, Medicaid,
doctors and employer groups, all of which have different billing requirements.
Additionally, our billing relationships require us to undertake internal audits
to evaluate compliance with applicable laws and regulations as well as internal
compliance policies and procedures. Insurance companies also impose routine
external audits to evaluate payments made. This adds further complexity to
the
billing process.
Among
many other factors complicating billing are:
|
|
·
|
pricing
differences between our fee schedules and the reimbursement rates
of the
payers;
|
|
|
·
|
disputes
with payers as to which party is responsible for payment;
and
|
|
|
·
|
disparity
in coverage and information requirements among various
carriers.
|
We
incur
significant additional costs as a result of our participation in the Medicare
and Medicaid programs, as billing and reimbursement for clinical laboratory
testing are subject to considerable and complex federal and state regulations.
The additional costs we expect to incur include those related to: (1) complexity
added to our billing processes; (2) training and education of our employees
and customers; (3) implementing compliance procedures and oversight;
(4) collections and legal costs; and (5) costs associated with, among other
factors, challenging coverage and payment denials and providing patients with
information regarding claims processing and services, such as advanced
beneficiary notices.
Our
Operations are Subject to Strict Laws Prohibiting Fraudulent Billing and Other
Abuse, and our Failure to Comply with Such Laws could Result in Substantial
Penalties
Of
particular importance to our operations are federal and state laws prohibiting
fraudulent billing and providing for the recovery of non-fraudulent
overpayments, as a large number of laboratories have been forced by the federal
and state governments, as well as by private payers, to enter into substantial
settlements under these laws. In particular, if an entity is determined to
have
violated the federal False Claims Act, it may be required to pay up to three
(3)
times the actual damages sustained by the government, plus civil penalties
of
between $5,500 to $11,000 for each separate false claim. There are many
potential bases for liability under the federal False Claims Act. Liability
arises, primarily, when an entity knowingly submits, or causes another to
submit, a false claim for reimbursement to the federal government. Submitting
a
claim with reckless disregard or deliberate ignorance of its truth or falsity
could result in substantial civil liability. A trend affecting the healthcare
industry is the increased use of the federal False Claims Act and, in
particular, actions under the False Claims Act’s “whistleblower” or “qui tam”
provisions to challenge providers and suppliers. Those provisions allow a
private individual to bring actions on behalf of the government alleging that
the defendant has submitted a fraudulent claim for payment to the federal
government. The government must decide whether to intervene in the lawsuit
and
to become the primary prosecutor. If it declines to do so, the individual may
choose to pursue the case alone, although the government must be kept apprised
of the progress of the lawsuit. Whether or not the federal government intervenes
in the case, it will receive the majority of any recovery. In addition, various
states have enacted laws modeled after the federal False Claims
Act.
11
Government
investigations of clinical laboratories have been ongoing for a number of years
and are expected to continue in the future. Written “corporate compliance”
programs to actively monitor compliance with fraud laws and other regulatory
requirements are recommended by the Department of Health and Human Services’
Office of the Inspector General.
The
Failure to Comply With Significant Government Regulation and Laboratory
Operations May Subject the Company to Liability, Penalties or Limitation of
Operations
As
discussed in the Government Regulation section of our business description,
the
Company is subject to extensive state and federal regulatory oversight. Our
laboratory locations may not pass inspections conducted to ensure compliance
with CLIA `88 or with any other applicable licensure or certification laws.
The
sanctions for failure to comply with CLIA `88 or state licensure requirements
might include the inability to perform services for compensation or the
suspension, revocation or limitation of a laboratory location’s CLIA `88
certificate or state license, as well as civil and/or criminal penalties. In
addition, any new legislation or regulation or the application of existing
laws
and regulations in ways that we have not anticipated could have a material
adverse effect on the Company’s business, results of operations and financial
condition.
Existing
federal laws governing Medicare and Medicaid, as well as some other state and
federal laws, also regulate certain aspects of the relationship between
healthcare providers, including clinical and anatomic laboratories, and their
referral sources, including physicians, hospitals and other laboratories.
Certain provisions of these laws, known as the “anti-kickback law” and the
“Stark Laws” contain extremely broad proscriptions. Violation of these laws may
result in criminal penalties, exclusion from Medicare and Medicaid, and
significant civil monetary penalties. We will seek to structure our arrangements
with physicians and other customers to be in compliance with the anti-kickback,
Stark and state laws, and to keep up-to-date on developments concerning their
application by various means, including consultation with legal counsel.
However, we are unable to predict how these laws will be applied in the future
and the arrangements into which we enter may become subject to scrutiny
thereunder.
Furthermore,
the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) and
other state laws contains provisions that affect the handling of claims and
other patient information that are, or have been, transmitted electronically
and
regulate the general disclosure of patient records and patient health
information. These provisions, which address security and confidentiality of
patient information as well as the administrative aspects of claims handling,
have very broad applicability and they specifically apply to healthcare
providers, which include physicians and clinical laboratories. Although we
believe we have complied with the Standards, Security and Privacy rules under
HIPAA and state laws, an audit of our procedures and systems could find
deficiencies. Such deficiencies, if found, could have a material adverse effect
on the Company’s business, results of operations and financial condition and
subject us to liability.
We
Are Subject to Security Risks Which Could Harm Our
Operations
Despite
the implementation of various security measures by us, our infrastructure is
vulnerable to computer viruses, break-ins and similar disruptive problems caused
by our customers or others. Computer viruses, break-ins or other security
problems could lead to interruption, delays or cessation in service to our
customers. Further, such break-ins whether electronic or physical could also
potentially jeopardize the security of confidential information stored in our
computer systems of our customers and other parties connected through us, which
may deter potential customers and give rise to uncertain liability to parties
whose security or privacy has been infringed. A significant security breach
could result in loss of customers, damage to our reputation, direct damages,
costs of repair and detection, and other expenses. The occurrence of any of
the
foregoing events could have a material adverse affect on our business, results
of operations and financial condition.
We
Are Controlled by Existing Stockholders And Therefore Other Stockholders Will
Not Be Able to Direct Our Company
The
majority
of our shares and thus voting control of the Company is held by a relatively
small group of stockholders. Because of such ownership, those
stockholders will effectively retain control of our Board of Directors and
determine all of our corporate actions. In addition, the Company and
stockholders owning 11,562,579 shares, or approximately 36.9% of our Common
Stock outstanding as of September 10, 2007, have executed a Shareholders’
Agreement that, among other provisions, gives Aspen, our largest stockholder,
the right to designate three (3) out of the seven (7) Directors authorized
for
our Board of Directors, and to nominate one (1) mutually acceptable independent
Director. Accordingly, it is anticipated that Aspen and other parties
to the Shareholders’ Agreement will continue to have the ability to elect a
controlling number of the members of our Board of Directors and the minority
stockholders of the Company may not be able to elect a representative to our
Board of Directors. Such concentration of ownership may also have the
effect of delaying or preventing a change in control. The shareholders’
agreement was filed with a current report on form 8-K on March 30, 2005 as
Exhibit 99.2-Amended Restated Registration Rights Agreement.
12
No
Foreseeable Dividends
We
do not
anticipate paying dividends on our Common Stock in the foreseeable future.
Rather, we plan to retain earnings, if any, for the operation and expansion
of
our business.
Risks
Related To This Offering
Future
Sales By Our Stockholders May Adversely Affect Our Stock Price And Our Ability
To Raise Funds In New Stock Offerings
Sales
of
our Common Stock in the public market following this offering could lower the
market price of our Common Stock. Sales may also make it more difficult for
us
to sell equity securities or equity-related securities in the future at a time
and price that our management deems acceptable or at all. Of the
31,310,743 shares of Common Stock outstanding as of
September 10, 2007, 13,419,796 shares are freely tradable
without restriction, unless held by our “affiliates”. The remaining
17,890,947 shares of our Common Stock which are held by
existing stockholders, including the officers and Directors, are “restricted
securities” and may be resold in the public market only if registered or
pursuant to an exemption from registration. Some of these shares may be resold
under Rule 144.
The
Selling Stockholders Intend To Sell Their Shares Of Common Stock In The Market,
Which Sales May Cause Our Stock Price To Decline
The
selling stockholders intend to sell in the public market 7,000,000 shares of
our
Common Stock being registered in this offering. That means that up to 7,000,000
shares may be sold pursuant to this Registration Statement. Such sales may
cause
our stock price to decline. Our Officers and Directors and those stockholders
who are significant stockholders as defined by the SEC will continue to be
subject to the provisions of various insider trading and Rule 144
regulations.
The
Price You Pay In This Offering Will Fluctuate And May Be Higher Or Lower Than
The Prices Paid By Other People Participating In This
Offering
The
price
in this offering will fluctuate based on the prevailing market price of our
Common Stock on the OTCBB. Accordingly, the price you pay in this
offering may be higher or lower than the prices paid by other people
participating in this offering.
Our
Common Stock Is Deemed To Be “Penny Stock”, Which May Make It More Difficult For
Investors To Sell Their Shares Due To Suitability
Requirements
Our
Common Stock is deemed to be “penny stock” as that term is defined in Rule
3a51-1 promulgated under the Securities Exchange Act of 1934, as
amended (the “Exchange Act”). Penny stocks are
stocks:
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·
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With
a price of less than $5.00 per
share;
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·
|
That
are not traded on a “recognized” national
exchange;
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·
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Whose
prices are not quoted on the Nasdaq automated quotation
system;
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·
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Nasdaq
stocks that trade below $5.00 per share are deemed a “penny stock” for
purposes of Section 15(b)(6) of the Exchange
Act;
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·
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In
issuers with net tangible assets less than $2.0 million (if the issuer
has
been in continuous operation for at least three (3) years) or $5.0
million
(if in continuous operation for less than three (3) years), or with
average revenues of less than $6.0 million for the last three (3)
years.
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·
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Broker/dealers
dealing in penny stocks are required to provide potential investors
with a
document disclosing the risks of penny stocks. Moreover, broker/dealers
are required to determine whether an investment in a penny stock
is a
suitable investment for a prospective investor. These requirements
may
reduce the potential market for our Common Stock by reducing the
number of
potential investors. This may make it more difficult for investors
in our
Common Stock to sell shares to third parties or to otherwise dispose
of
them. This could cause our stock price to
decline.
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13
Information
included or incorporated by reference in this prospectus may contain
forward-looking statements. This information may involve known and unknown
risks, uncertainties and other factors which may cause our actual results,
performance or achievements to be materially different from the future results,
performance or achievements expressed or implied by any forward-looking
statements. Forward-looking statements, which involve assumptions and describe
our future plans, strategies and expectations, are generally identifiable by
use
of the words “may”, “should”, “expect”, “anticipate”, “estimate”, “believe”,
“intend” or “project” or the negative of these words or other variations on
these words or comparable terminology.
This
prospectus contains forward-looking statements, including statements regarding,
among other things, (a) our projected sales and profitability, (b) our growth
strategies, (c) anticipated trends in our industry, (d) our future financing
plans and (e) our anticipated needs for working capital. These statements may
be
found under “Management’s Discussion and Analysis or Plan of Operations” and
“Description of Business”, as well as in this prospectus generally. Actual
events or results may differ materially from those discussed in forward-looking
statements as a result of various factors, including, without limitation, the
risks outlined under “Risk Factors” and matters described in this prospectus
generally. In light of these risks and uncertainties, there can be no assurance
that the forward-looking statements contained in this prospectus will in fact
occur.
14
The
following table presents information regarding our selling stockholders who
intend to sell up to 7,000,000 shares of our Common Stock. A
description of each stockholder’s relationship to the Company and how each
selling stockholder acquired or will acquire shares to be sold in this offering
is detailed in the information immediately following this table.
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Selling
Stockholders
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Shares
Beneficially Owned Before Offering(1)
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Percentage
of Outstanding Shares Beneficially Owned Before Offering(1)
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Shares
To Be Sold In The Offering
|
Percentage
of Outstanding Shares Beneficially Owned After The
Offering
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||||||||||||
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James
R. Rehak & Joann M. Rehak JTWROS
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390,300
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1.25 | % |
33,333
|
1.14 | % | ||||||||||
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Leonard
Samuels IRA
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132,000
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*
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110,000
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*
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||||||||||||
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A.
Scott Logan Revocable Living Trust
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3,500,000 | (2) | 10.83 | % |
500,000
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9.43 | % | |||||||||
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William
J. Robison
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66,000
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*
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55,000
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*
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||||||||||||
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Mosaic
Partners Fund
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313,140
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1.00 | % |
177,500
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*
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|||||||||||
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Mosaic
Partners Fund (US), LP
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133,629
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*
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72,500
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*
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||||||||||||
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Ridgecrest
Ltd.
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63,600
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*
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53,000
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*
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||||||||||||
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Ridgecrest
Partners QP, LP
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246,000
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*
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205,000
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*
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||||||||||||
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Ridgecrest,
LP
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14,400
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*
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12,000
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*
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||||||||||||
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Leviticus
Partners, LP
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240,000
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*
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200,000
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*
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||||||||||||
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1837
Partners, L.P.
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1,766,049
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5.63 | % | 886,000 | (3) | 2.89 | % | |||||||||
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1837
Partners QP, L.P.
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426,568
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1.36 | % | 228,200 | (4) |
*
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||||||||||
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1837
Partners, Ltd.
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446,983
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1.43 | % | 235,500 | (5) |
*
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||||||||||
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Lewis
Opportunity Fund, LP
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1,293,140
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4.10 | % | 1,077,617 | (6) |
*
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||||||||||
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LAM
Opportunity Fund, Ltd.
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264,860
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*
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220,717 | (7) |
*
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|||||||||||
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Mark
G. Egan IRA Rollover
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720,000
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2.29 | % | 600,000 | (8) |
*
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||||||||||
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Aspen
Select Healthcare, L.P.
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11,941,577
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34.85 | % |
1,889,245
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31.05 | % | ||||||||||
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Dr.
Michael T. Dent
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2,756,492
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8.67 | % |
345,671
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7.66 | % | ||||||||||
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Noble
International Investments, Inc.
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98,417 | (9) |
*
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98,417 | (9) |
*
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||||||||||
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Total:
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24,813,155
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67.90 | % |
7,000,000
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60.30 | % | ||||||||||
15
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* Less
than one percent (1%).
(1) Applicable
percentage of ownership is based on 31,310,743 shares of our Common
Stock
outstanding as of September 10, 2007, together with securities exercisable
or convertible into shares of Common Stock within sixty (60) days
of
September 10, 2007 for each stockholder. Beneficial ownership
is determined in accordance with the rules of the SEC and generally
includes voting or investment power with respect to
securities. Shares of Common Stock are deemed to be
beneficially owned by the person holding such securities for the
purpose
of computing the percentage of ownership of such person, but are
not
treated as outstanding for the purpose of computing the percentage
ownership of any other person. Note that affiliates are subject
to Rule 144 and Insider trading regulations - percentage computation
is
for form purposes only.
(2) SKL
Family Limited Partnership has direct ownership of 2,000,000 shares
and
currently exercisable warrants to purchase 1,000,000 shares. A.
Scott Logan Revocable Living Trust has direct ownership of 500,000
shares. A. Scott Logan is the general partner SKL Limited
Family Partnership and trustee for A. Scott Logan Revocable Living
Trust. A. Scott Logan has only 1% of the assets of SKL Family
Limited Partnership. An additional 1% of asset is
owned by A. Scott Logan son’s, and 98% of asserts is owned by a grantor
retained annuity trust.
(3) Of
these shares, 383,100 were acquired by 1837 Partners, L.P. as
an Investor from the Company and 502,900 were acquired as a
Investor from Aspen in connection with the Private Placement.
(4) Of
these shares, 108,000 were acquired by 1837 Partners QP, L.P. as
an
Investor from the Company and 120,500 were acquired as an Investor
from
Aspen in connection with the Private Placement.
(5) Of
these shares, 108,900 were acquired by 1837 Partners Ltd. as an Investor
from the Company and 126,600 were acquired as an Investor from Aspen
in
connection with the Private Placement.
(6) Of
these shares, 455,117 were acquired by Lewis Opportunity Fund, LP
as an
Investor from the Company, 207,500 were acquired as an Investor from
Aspen
in connection with the Private Placement and 415,000 were issued
by the
Company upon the conversion of warrants previously purchased from
Aspen.
(7) Of
these shares, 93,217 were acquired by Lewis Opportunity Fund, Ltd.
as an
Investor from the Company, 42,500 were acquired as an Investor from
Aspen
in connection with the Private Placement and 85,000 were issued by
the
Company upon the conversion of warrants previously purchased from
Aspen.
(8) Of
these shares, 100,000 were acquired by Mark G. Egan IRA Rollover
as an
Investor from the Company and 500,000 were acquired from Aspen
in connection with the Private Placement.
(9) These
shares represent shares of our Common Stock issuable to Noble upon
conversion of currently exercisable warrants issued by the Company
in
connection with the Private Placement for Noble’s service as placement
agent.
|
The
following information contains a description of each selling stockholder’s
relationship to us and how each selling stockholder acquired or will acquire
shares to be sold in this offering is detailed below. None of the selling
stockholders have held a position or office, or had any other material
relationship, with us, except as follows:
Shares
Acquired In Connection With Private Placement
During
the period from May 31, 2007
through June 6, 2007, the Company sold 2,666,667 shares of Common Stock to
the
Investors who are listed herein below pursuant to the Private Placement at
a
price equal to $1.50 per share. This resulted in the Company
receiving gross proceeds of $4 million in cash. After estimated
transaction costs, the Parent Company received net cash proceeds of $3.75
million. The Investors received registration rights with their
shares, and therefore all of those 2,666,667 shares are being registered
hereunder. Each of the Investors listed below are accredited
investors.
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·
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James
R. Rehak & Joann M. Rehak JTWROS
(“Rehaks”). The Rehaks purchased 33,333 shares of
our Common Stock at a purchase price of $1.50 per share, and the
Company
in turn received $50,000 as part of the Private Placement. The
Rehaks received registration rights with the shares and therefore,
we are
registering these 33,000 shares in this offering. All
investment decisions of the Rekaks are made
by James. R. Rehak
and Joann M. Rehak.
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·
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Leonard
Samuels IRA (“LSI”). LSI purchased 110,000 shares of our
Common Stock at a purchase price of $1.50 per share, and the Company
in
turn received $165,000 as part of the Private Placement. LSI
received registration rights with the shares and therefore, we are
registering these 110,000 shares in this offering. All
investment decisions of LSI are made by Charles Schwab & Co. Inc., as
Custodian for Leonard Samuels IRA.
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·
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A.
Scott Logan Revocable Living Trust (SL Trust). SL Trust
purchased 500,000 shares of our Common Stock at a purchase price
of $1.50
per share, and the Company in turn received $750,000 as part of the
Private Placement. SL Trust received registration rights with
the shares and therefore, we are registering these 500,000 shares
in this
offering. All investment decisions of SL Trust are made by A.
Scott Logan, Trustee.
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16
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·
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William
J. Robison (Mr. Robison). Mr. Robison, who serves
as a member of the Board of Directors of the Company, purchased 55,000
shares of our Common Stock at a purchase price of $1.50 per share,
and the
Company in turn received $82,500 as part of the Private
Placement. Mr. Robison received registration rights with the
shares and therefore, we are registering these 55,000 shares in this
offering.
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·
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1837
Partners, L.P. (1837P1). 1837P1 purchased 383,100
shares of our Common Stock from the Company at a purchase price of
$1.50
per share, and the Company in turn received $574,650 as part of the
Private Placement. 1837P1 received registration rights with the
shares and therefore, we are registering these 383,100 shares in
this
offering. All investment decisions of 1837P1 are made by
Francis Tuite.
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·
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1837
Partners QP, L.P. (1837P2). 1837P2 purchased
108,000 shares of our Common Stock from the Company at a purchase
price of
$1.50 per share, and the Company in turn received $162,000 as part
of the
Private Placement. 1837P2 received registration
rights with the shares and therefore, we are registering these 108,000
shares in this offering. All investment decisions of 1837P2 are
made by Francis Tuite.
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·
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1837
Partners, Ltd. (1837P3). 1837P3 purchased 108,900
shares of our Common Stock from the Company at a purchase price of
$1.50
per share, and the Company in turn received $163,350 as part of the
Private Placement. 1837P3 received registration rights with the
shares and therefore, we are registering these 383,100 shares in
this
offering. All investment decisions of 1837P3 are made by
Francis Tuite.
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·
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Lewis
Opportunity Fund, LP (LOF). LOF purchased 455,117
shares of our Common Stock from the Company at a purchase price of
$1.50
per share, and the Company in turn received $682,676 as part of the
Private Placement. LOF received registration rights with the
shares and therefore, we are registering these 455,117 shares in
this
offering. All investment decisions of LOF are made by Austin
Lewis.
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·
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LAM
Opportunity Fund, Ltd. (LAMOF). LAMOF purchased
93,217 shares of our Common Stock from the Company at a
purchase price of $1.50 per share, and the Company in turn
received $139,826 as part of the Private Placement. LAMOF
received registration rights with the shares and therefore, we are
registering these 93,217 shares in this offering. All
investment decisions of LAMOF are made by Austin
Lewis.
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·
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Mark
G. Egan IRA Rollover (MGE). MGE purchased 100,000
shares of our Common Stock from the Company at a purchase price of
$1.50
per share, and the Company in turn received $150,000 as part of the
Private Placement. MGE received registration rights with the
shares and therefore, we are registering these 100,000 shares in
this
offering. All investment decisions of MGE are made by Marlin
Capital.
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·
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Mosaic
Partners Fund (Mosaic). Mosaic purchased 177,500
shares of our Common Stock from the Company at a purchase price of
$1.50
per share, and the Company in turn received $266,250 as part of the
Private Placement. Mosaic received registration
rights with the shares and therefore, we are registering these 177,500
shares in this offering. All investment decisions of Mosaic are
made by Ajay Sekhand.
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·
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Mosaic
Partners Fund (US), LP (MPF). MPF purchased
72,500 shares of our Common Stock from the Company at a purchase
price of
$1.50 per share, and the Company in turn received $108,750 as part
of the
Private Placement. MPF received registration rights with the
shares and therefore, we are registering these 72,500 shares in this
offering. All investment decisions of MPF are made Ajay
Sekhand.
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·
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Ridgecrest
Ltd. (Ridgecrest). Ridgecrest purchased 53,000
shares of our Common Stock from the Company at a purchase price of
$1.50
per share, and the Company in turn received $79,500 as part of the
Private
Placement. Ridgecrest received registration rights with the
shares and therefore, we are registering these 53,000 shares in this
offering. All investment decisions of Ridgecrest are made by
Todd McElroy.
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·
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Ridgecrest
Partners QP, LP (Ridgecrest
II). Ridgecrest II purchased 205,000 shares of
our Common Stock from the Company at a purchase price of $1.50 per
share,
and the Company in turn received $307,500 as part of the Private
Placement. Ridgecrest II received registration rights with the
shares and therefore, we are registering these 205,000 shares in
this
offering. All investment decisions of Ridgecrest II are made by
Todd McElroy.
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|
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·
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Ridgecrest,
LP (Ridgecrest III). Ridgecrest III purchased
12,000 shares of our Common Stock from the Company at a purchase
price of
$1.50 per share, and the Company in turn received $18,000 as part
of the
Private Placement. Ridgecrest III received registration rights
with the shares and therefore, we are registering these 12,000 shares
in
this offering. All investment decisions of Ridgecrest III are
made by Todd McElroy.
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·
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Leviticus
Partners, LP (Leviticus). Leviticus purchased
200,000 shares of our Common Stock from the Company at a purchase
price of
$1.50 per share, and the Company in turn received $300,000 as part
of the
Private Placement. Leviticus received registration rights with
the shares and therefore, we are registering these 200,000 shares
in this
offering. All investment decisions of Leviticus are made by
Adam M. Hutt.
|
During
the period from June 1, 2007
through June 5, 2007, the Investors purchased 1,500,000 shares of Common Stock
from Aspen in connection with the Private Placement. The Investors
received registration rights with their shares, and therefore all of
those 1,500,000 shares are being registered hereunder. Each of the
Investors is an accredited investor.
17
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·
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1837
Partners, L.P. (1837P1). 1837P1 purchased 502,900
shares of our Common Stock from Aspen on June 1, 2007 and
received registration rights with the shares and therefore, we
are registering these 502,900 shares in this
offering.
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·
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1837
Partners QP, L.P. (1837P2). 1837P2 purchased
120,500 shares of our Common Stock on June 1, 2007 and received
registration rights with the shares and therefore, we are registering
these 108,000 shares in this
offering.
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·
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1837
Partners, Ltd. (1837P3). 1837P3 purchased 126,600
shares of our Common Stock from Aspen on June 1, 2007 and received
registration rights with the shares and therefore, we are registering
these 126,600 shares in this
offering
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·
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Lewis
Opportunity Fund, LP (LOF). LOF purchased 207,500
shares of our Common Stock from Aspen on June 5, 2007 and
received registration rights with the shares and therefore, we
are registering these 207,500 shares in this offering. All
investment decisions of LOF are made by
LAM.
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·
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LAM
Opportunity Fund, Ltd. (LAMOF). LAMOF purchased
42,500 shares of our Common Stock from Aspen on June 5, 2007 and
received
registration rights with the shares and therefore, we are registering
these 42,500 shares in this
offering.
|
|
|
·
|
Lewis
Opportunity Fund, LP (LOF). LOF purchased from
Aspen a warrant to purchase 415,000 shares of our Common Stock on
June 6,
2007 and received registration rights for the shares underlying
the warrant. On June 6, 2007, 2007, LOF exercised the warrant
whereby the Company issued and sold to LOF 415,000 shares at $0.26
per
share. As a result, the Company received
$107,900. We are registering these 415,000 shares in this
offering. All investment decisions of LOF are made by Austin
Lewis.
|
|
|
·
|
LAM
Opportunity Fund, Ltd. (LAMOF). LAMOF purchased
from Aspen a warrant to purchase 85,000 shares of our Common Stock
on June
6, 2007 and received registration rights for the shares underlying
the
warrant. On June 6, 2007, LAMOF exercised the warrant whereby
the Company issued and sold to LOF 85,000 shares at $0.26 per
share. As a result, the Company received $22,100. We
are registering these 85,000 shares in this offering. All
investment decisions of LAMOF are made by Austin
Lewis.
|
|
|
·
|
Mark
G. Egan IRA Rollover (MGE). MGE purchased 500,000
shares of our Common Stock from Aspen on June 5, 2007 and received
registration rights with the shares and therefore, we are registering
these 500,000 shares in this
offering
|
Other
Selling Stockholders
|
|
·
|
Noble
International Investments, Inc.
(Noble). The Company engaged Noble,
an unaffiliated registered broker-dealer, to advise us as our placement
agent in connection with the Private Placement pursuant to that certain
Letter Agreement, dated May 21, 2007, by and between the Parent Company
and Noble. In consideration for its services, Noble received
(a) warrants to purchase 98,417 shares of our Common Stock, which
such
warrants have a five (5) year term, a purchase price equal to
$1.50 per share, cashless exercise provisions, customary anti-dilution
provisions and the same other terms, conditions, rights and preferences
as
those shares sold to the Investors by the Company in the Private
Placement, and (b) an additional cash fee equal to five percent (5%)
of
the gross proceeds from each sale made to the Investors by the Company,
or
$147,625.50. Noble received piggy-back registration rights with
its shares, and therefore we are registering 98,417 shares for Noble
hereunder. All investment decisions for Noble are made by Shaun
Titcomb.
|
Aspen
Select Healthcare, L.P. (Aspen). In April 2003, we
conducted a private placement to Aspen and its affiliates in which we received
net proceeds of $114,271 (after deducting certain transaction expenses) through
the issue of 13,927,062 shares of Common Stock. In the April 2003
transaction, Aspen purchased 9,303,279 shares, of which 1,300,000 were
subsequently transferred to other entities. All investment decisions
of Aspen are made by Mr. Steven C. Jones, a member of our Board of Directors
and
our Acting Principal Financial Officer. We are registering 1,889,245
of these shares in this offering.
Certain
Funds of Lewis Asset Management, Inc. (LAM). The
following funds of LAM received shares of our Common Stock issued by the Company
upon the exercise of warrants on June 6, 2007. These warrants had
been previously purchased by the funds from Aspen on June 6, 2007.
18
This
prospectus relates to shares of
our Common Stock that may be offered and sold from time to time by certain
selling stockholders. There will be no proceeds to us from the sale of shares
of
Common Stock in this offering.
The
selling stockholders have advised us that the sale or distribution of our Common
Stock owned by the selling stockholders may be effected directly to purchasers
by the selling stockholders as principals or through one or more underwriters,
brokers, dealers or agents from time to time in one or more transactions (which
may involve crosses or block transactions) (i) on the over-the-counter market
or
in any other market on which the price of our shares of Common Stock are quoted
or (ii) in transactions otherwise than on the over-the-counter market or in
any
other market on which the price of our shares of Common Stock are quoted. Any
of
such transactions may be effected at market prices prevailing at the time of
sale, at prices related to such prevailing market prices, at varying prices
determined at the time of sale or at negotiated or fixed prices, in each case
as
determined by the selling stockholders or by agreement between the selling
stockholders and underwriters, brokers, dealers or agents, or purchasers. If
the
selling stockholders effect such transactions by selling their shares of our
Common Stock to or through underwriters, brokers, dealers or agents, such
underwriters, brokers, dealers or agents may receive compensation in the form
of
discounts, concessions or commissions from the selling stockholders or
commissions from purchasers of Common Stock for whom they may act as agent
(which discounts, concessions or commissions as to particular underwriters,
brokers, dealers or agents may be in excess of those customary in the types
of
transactions involved).
Under
the
securities laws of certain states, the shares of our Common Stock may be sold
in
such states only through registered or licensed brokers or dealers.
The
selling stockholders are advised to ensure that any underwriters, brokers,
dealers or agents effecting transactions on behalf of the selling stockholders
are registered to sell securities in all fifty (50) states. In
addition, in certain states shares of our Common Stock may not be sold unless
the shares have been registered or qualified for sale in such state or an
exemption from registration or qualification is available and is complied
with.
We
will
pay all expenses incident to the registration, offering and sale of the shares
of our Common Stock to the public hereunder other than commissions, fees and
discounts of underwriters, brokers, dealers and agents. If any of these other
expenses exists, we expect the selling stockholders to pay these
expenses.
We
estimate that the expenses of the offering to be borne by us will be
approximately $85,000. The offering expenses consisted of: a SEC
registration fee of approximately $884.27, printing expenses of $2,500;
accounting fees of $15,000; legal fees of $30,000 and miscellaneous expenses
of
$36,616. We will not receive any proceeds from the sale of any of the
shares of our Common Stock by the selling stockholders.
The
selling stockholders are subject to applicable provisions of the Exchange Act
and its regulations, including, Regulation M. Under Regulation M, the
selling stockholders or their agents may not bid for, purchase, or attempt
to
induce any person to bid for or purchase, shares of our Common Stock while
such
selling stockholders are distributing shares covered by this prospectus.
Pursuant to the requirements of Item 512 of Regulation S-B and as stated in
Part
II of this Registration Statement, we must file a post-effective amendment
to
the accompanying Registration Statement once informed of a material change
from
the information set forth with respect to the Plan of Distribution.
19
Introduction
The
following discussion and analysis should be read in conjunction with the
Consolidated Financial Statements and the Notes thereto included herein. The
information contained below includes statements of the Company’s or management’s
beliefs, expectations, hopes, goals and plans that, if not historical, are
forward-looking statements subject to certain risks and uncertainties that
could
cause actual results to differ materially from those anticipated in the
forward-looking statements. For a discussion on forward-looking statements,
see
the information set forth in the Introductory Note to this Annual Report under
the caption “Forward Looking Statements”, which information is incorporated
herein by reference.
Overview
NeoGenomics
operates cancer-focused testing laboratories that specifically target the
rapidly growing genetic and molecular testing segment of the medical laboratory
industry. We currently operate in three laboratory locations: Fort Myers,
Florida, Nashville, Tennessee and Irvine, California. We currently
offer throughout the United States the following types of testing services
to
oncologists, pathologists, urologists, hospitals, and other
laboratories: (a) cytogenetics testing, which analyzes human
chromosomes, (b) Fluorescence In-Situ Hybridization (FISH) testing, which
analyzes abnormalities at the chromosome and gene levels, (c) flow cytometry
testing services, which analyzes gene expression of specific markers inside
cells and on cell surfaces, (d) morphological testing, which analyzes cellular
structures and (e) molecular testing which involves analysis of DNA and RNA
and
predict the clinical significance of various genetic sequence disorders. All
of
these testing services are widely used in the diagnosis and prognosis of various
types of cancer.
Our
Common Stock is listed on the OTCBB under the symbol “NGNM.OB”.
The
genetic and molecular testing segment of the medical laboratory industry is
the
most rapidly growing segment of the medical laboratory market. Approximately
six
(6) years ago, the World Health Organization reclassified cancers as being
genetic anomalies. This growing awareness of the genetic root behind most
cancers combined with 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.
Critical
Accounting Policies
The
preparation of financial statements in conformity with United States generally
accepted accounting principles requires our management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Our
management routinely makes judgments and estimates about the effects of matters
that are inherently uncertain.
Our
critical accounting policies are those where we have made difficult, subjective
or complex judgments in making estimates, and/or where these estimates can
significantly impact our financial results under different assumptions and
conditions. Our critical accounting policies are:
|
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·
|
Revenue
Recognition
|
|
|
·
|
Accounts
Receivable
|
Revenue
Recognition
Revenue
is recognized for services rendered when test results are reported to the
ordering physician and the testing process is complete. The Company’s
sales are generally billed to three types of payers – clients, patients and
third parties, such as managed care companies, Medicare and
Medicaid. For clients, sales are recorded at the negotiated fee for
service rate for each client. Patient sales are recorded at the
Company’s patient fee schedule less any estimated discounts that we deem
appropriate for such “self-pay” individuals. Third party sales are
recorded based on established billing rates less estimated discounts and/or
contractual allowances.
20
While
we
use all available information in the estimation of our net revenues, including
our contractual status and historical collection experience with payers, by
their nature, adjustments to previously recorded estimated net revenue amounts
arise from time-to-time, and are recorded as an adjustment to current period
net
revenue when such amounts are both probable and estimable. In almost
all cases, such adjustments are not made until the time of final settlement
because, until that point, we usually do not have sufficient information that
would indicate that an adjustment is warranted. We continually refine
our estimated discounts and contractual allowances on a prospective basis to
take new information and/or new payment experiences into consideration in order
to make our prospective estimated net revenue as accurate as
possible. As a result, current period adjustments to prior period
revenue estimates are not material to the Company’s results of operations or our
financial condition in any period presented. Our 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 of 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.
Accounts
Receivable
We
record
accounts receivable net of estimated discounts and contractual allowances at
the
time services are performed. We provide for accounts receivable that
could become uncollectible in the future by establishing an allowance to reduce
the carrying value of such receivables. We estimate this allowance
based on the aging and composition of our accounts receivable and our historical
collection experience for each type of payer. Receivables are charged
off to the allowance account at the time they are deemed
uncollectible.
The
following table presents the dollars and % of the Company’s net accounts
receivable from customers outstanding by aging category at December 31, 2006
and
2005:
|
Days
Outstanding
|
2006
|
%
2006
|
2005
|
%
2005
|
||||||||||||||
|
1-30
|
$ |
573,096
|
36.3 | % | $ |
246,457
|
43.1 | % | ||||||||||
|
31-60
|
541,334
|
34.3 | % |
167,170
|
29.2 | % | ||||||||||||
|
61-90
|
212,102
|
13.4 | % |
61,828
|
10.8 | % | ||||||||||||
|
91-120
|
126,284
|
8.0 | % |
51,296
|
9.0 | % | ||||||||||||
|
>120
|
125,672
|
8.0 | % |
62,155
|
7.9 | % | ||||||||||||
The
table
above does not contain approximately $75,000 of accounts receivable from
non-customers as of December 31, 2006. Accounts receivable from
customers classified as “self-pay” customers are not material to the total
accounts receivable in any period presented.
Results
Of Operations For The Twelve (12) Months Ended December 31, 2006 As Compared
With The Twelve (12) Months Ended December 31, 2005 And For the Three (3)
and Six (6) Months Ended June 30, 2007 As Compared With The Three (3) and Six
(6) Months Ended June 30, 2006
Revenue
During
the fiscal year ended December 31, 2006, our revenues increased approximately
244% to $6,476,000 from $1,885,000 during the fiscal year ended December 31,
2005. This was the result of an increase in testing volume of 214% and a 9%
increase in average revenue per test. This volume increase is the result of
wide acceptance of our bundled testing product offering and our industry leading
turnaround times resulting in new customers. The increase in average revenue
per
test is a direct result of restructuring arrangements with certain existing
customers that increased average revenue per test and realigning our pricing
policies with new customers.
During
the twelve (12) months ended December 31, 2006, our average revenue per customer
requisition increased by approximately 7% to $677.19 from $632.23 in 2005.
Our
average revenue per test, increased by approximately 9% to $504.44 from $461.86
in 2005. This was primarily as a result of price increases to certain customers
as well as product and payer mix changes. Revenues per test are a function
of
both the nature of the test and the payer (Medicare, Medicaid, third party
insurer, institutional client etc.). Our policy is to record as revenue the
amounts that we expect to collect based on published or contracted amounts
and/or prior experience with the payer. We have established a reserve for
uncollectible amounts based on estimates of what we will collect from (a)
third-party payers with whom we do not have a contractual arrangement or
sufficient experience to accurately estimate the amount of reimbursement we
will
receive, (b) co-payments directly from patients, and (c) those procedures that
are not covered by insurance or other third party payers. On
December 31, 2006, our Allowance for Doubtful Accounts was approximately
$103,500, a 174% increase from our balance at December 31, 2005 of $37,800.
The
21
allowance
for doubtful accounts was approximately 6% of accounts receivables on December
31, 2006 and December 31, 2005.
For
the
three months ended June 30, 2007 our revenues increased 33% to approximately
$2,344,000 from approximately $1,768,000 for the comparable period in 2006.
This
was the result of a 29% increase in testing volume and a 3% increase in average
revenue per test. For the six months ended June 30, 2007 our revenues
increased 47% to approximately $4,587,000 from approximately $3,111,000 for
the
comparable period in 2006. This was the result of an increase in testing volume
of 41% and a 4% increase in average revenue per test. The testing
volume increases are the result of wide acceptance of our bundled testing
product offering and our industry leading turnaround times, which has resulted
in new customers. The increases in average revenue per test are a
result of our revenue mix continuing to evolve toward higher priced FISH and
flow cytometry tests over time.
Cost
of Revenue
During
2006, our cost of revenue increased approximately 144% to $2,759,000 from
$1,133,000 in 2005, primarily as a result of the 214% increase in testing
volumes as well as increased costs from opening new lines of business and is
explained further as follows:
· Increase
of approximately 234% in employee labor and benefit related costs;
· Increase
of approximately 136% in supply costs; and
· Increase
of approximately 183% in postage and delivery costs.
For
the three months ended June 30,
2007 our cost of revenue increased 61% to approximately $1,166,000 from
approximately $726,000 in 2006. This increase was driven by the increase in
testing volumes for the period and was primarily the result of the
following:
· Increase
of approximately 84% in employee and benefit related costs
· Increase
of approximately 352% in facility costs;
· Increase
of approximately 64% in supply costs; and
· Increase
of approximately 157% in postage and delivery costs.
For
the six months ended June 30, 2007
our cost of revenue increased 61% to approximately $2,103,000 from approximately
$1,303,000 for the comparable period in 2006. This increase was
driven by the increase in testing volumes for the period and was primarily
the
result of the following:
· Increase
of approximately 85% in employee labor and benefit related costs
· Increase
of approximately 404% in facility costs;
· Increase
of approximately 70% in supply costs; and
· Increase
of approximately 146% in postage and delivery costs
Gross
Profit
As
a
result of the 244% increase in revenue and 144% increase in cost of revenue,
our
gross profit increased 394% to $3,717,000 in 2006, from a gross profit of
$753,000 in 2005. When expressed as a percentage of revenue, our gross margins
increased from 39.9% in 2005 to 57.4% in 2006. This increase in gross profit
and
gross profit margin was largely a result of higher testing volumes in 2006
and
the economies of scale related to such higher volumes.
As
a
result of these increases in cost of revenue which was greater than the increase
in revenue, our gross profit percentage for the three months ended June 30,
2007
decreased to approximately 50% from approximately 59% for the three months
ended
June 30, 2006. Our gross profit percentage for the six months ended
June 30, 2007 decreased for similar reasons to approximately 54% from
approximately 58% for the six months ended June 30, 2006.
22
General
and Administrative Expenses
During
2006, our general and administrative expenses increased by approximately 130%
to
$3,577,000 from approximately $1,553,000 in 2005. This increase was primarily
a
result of higher personnel and personnel-related expenses associated with the
increase in management, sales and administrative headcount that was necessary
to
manage the significant increases in test volumes described above. In addition
to
management, sales, and administrative personnel, our general and administrative
expenses also include all overhead and technology expenses as well, which have
also increased as a result of higher test volumes. Finally we had an increase
in
bad debt expense as a result of increased revenue.
During
the three months ended June 30, 2007, our selling, general and administrative
(“SG&A”) expenses increased by approximately 157% to approximately
$2,059,000 from approximately $802,000 for the three months ended June 30,
2006.
For the six months ended June 30, 2007, our SG&A expenses increased by
approximately 150% to approximately $3,486,000 from approximately $1,392,800
during the six months ended June 30, 2006. This increase was
primarily the result of higher personnel and personnel-related expenses,
associated with the increase in management, sales and administrative headcount
that was necessary to manage the significant increases in test volumes described
above. In addition, our SG&A expenses also include all of our overhead and
technology expenses and bad debt reserves, which also had to increase as a
result of higher test volumes and increased revenue. SG&A
expenses for the three months ended June 30, 2007 also included approximately
$170,000 of litigation-related legal expenses, whereas no such legal expenses
were included in SG&A for the three months ended June 30,
2006. SG&A for the three months ended June 30, 2007 also included
approximately $102,000 of non-recurring, non-cash expenses related to the early
retirement of our long-term debt and the granting of certain stock-based
compensation in connection with expanding and re-electing our Board of Directors
in May, whereas no such expenses were incurred for the three months ended June
30, 2006.
Other
Income/Expense
Other
income for the twelve (12) months ended December 31, 2006 consisted of
approximately $56,000 related to the settlement on December 29, 2006 of our
2002
research and license agreement with Ciphergen Biosystems. We paid Ciphergen
$34,000 to discharge our required performance under the research and license
agreement. We had approximately $90,000 of deferred revenue related to that
agreement which was reversed and resulted in other income. However, the Company
also recorded in General and Administrative expenses a $53,000 impairment
related to the write-off of the remaining undepreciated book value of the
Ciphergen protein chip mass spectrometer.
Interest
expense for 2006 increased approximately 65% to approximately $326,000 from
approximately $197,000 for 2005. Interest expense is primarily comprised of
interest payable on advances under our Credit Facility with Aspen Select
Healthcare, LP (Aspen), which has increased as a result of our increased
borrowing to fund operations and increases in the prime interest rate during
2006, and to a lesser extent interest on capital leases entered into during
2006.
Interest
expense for the three months ended June 30, 2007 increased approximately 18%
to
approximately $92,600 from approximately $78,300 for the comparable period
in
2006. Interest expense for the six months ended June 30, 2007
increased approximately 29% to approximately $191,000 from approximately
$148,000 for the comparable period in 2006. Interest expense is
primarily comprised of interest payable on advances under our Credit Facility
from Aspen, which increased as a result of our increased borrowing to fund
operations, and to a lesser extent interest on capital leases entered into
during 2006 and early 2007. The Credit Facility from Aspen was
paid off on June 7, 2007.
Net
Loss
As
a
result of the foregoing, our net loss decreased by approximately 87% to $130,000
in 2006 from $997,000 in 2005.
As
a result of the foregoing, our net
loss for the three months-ended June 30, 2007 expanded to approximately $974,000
from net income of approximately $161,000 during the three months-ended June
30,
2006. For the six months-ended June 30, 2007 net loss expanded to
approximately $1,194,000 from net income of approximately $268,000 during the
six months-ended June 30, 2006.
23
Liquidity
and Capital Resources
During
the fiscal year ended December 31, 2006, our operating activities used
approximately $694,000 in cash compared with $902,000 used in 2005. This amount
primarily represented cash tied-up in receivables as a result of increased
revenues and to a lesser extent cash used to pay the expenses associated with
our operations as well as fund our other working capital. We also spent
approximately $399,000 on new equipment in 2006 compared with $118,000 in 2005.
We were able to finance operations and equipment purchases primarily through
the
sale of equity securities which provided approximately $1,090,000 and to a
lessor extent with borrowings on the Credit Facility with Aspen. This
resulted in net cash provided by financing activities of approximately
$1,208,000 in 2006 compared to $918,000 in 2005. At December 31, 2006 and
December 31, 2005, we had cash and cash equivalents of approximately $126,000,
and $11,000 respectively.
During
the six months ended June 30, 2007, our operating activities used approximately
$1,568,000 in cash compared to cash used of approximately $256,000 for the
six
months ending on June 30, 2006. This amount primarily resulted from a
$1,193,000 net loss and the need to fund a significant increase in accounts
receivable in the six months ended June 30, 2007 compared to having net income
of 268,000 and the need to fund a much smaller increase in accounts receivable
during the six months ended June 30, 2006. Cash used in investing
activities primarily increased as a result of our purchase of a convertible
debenture for $200,000 during the three months ended June 30,
2007. We also used cash of approximately $221,000 to purchase new
equipment for the six months ended June 30, 2007 compared to approximately
$234,000 for the six months ended June 30, 2006. Our financing
activities provided approximately $3,485,000 of cash for the six month period
ended June 30, 2007 compared to approximately $753,000 for the six month period
ended June 30, 2006.
During
the period from January 1, 2005 to May 31, 2005, we sold 450,953 shares of
our
Common Stock in a series of private placements at $0.30 - $0.35/share to
unaffiliated third party investors. These transactions generated net proceeds
to
the Company of approximately $146,000. These transactions involved the issuance
of unregistered stock to accredited investors in transactions that we believed
were exempt from registration under Rule 506 promulgated under the Securities
Act. All of these shares were subsequently registered in a registration
statement on Form SB-2, which was declared effective by the SEC on August 1,
2005.
On
January 18, 2006, the Company entered into a binding letter agreement with
Aspen
(the “Aspen Agreement”), which provided, among other things, that:
(a)
Aspen
waived certain pre-emptive rights in connection with the sale of $400,000 of
our
Common Stock at a purchase price of $0.20 per share and the granting of 900,000
warrants with a purchase price of $0.26 per share to SKL Limited Partnership,
LP
(“SKL”) in exchange for five (5) year warrants to purchase 150,000 shares
at a purchase price of $0.26 per share (the “Waiver Warrants”), as is more fully
described below;
(b)
Aspen
had the right, up to April 30, 2006, to purchase up to $200,000 of restricted
shares of our Common Stock at a purchase price per share of $0.20 per share
(1,000,000 shares) and receive a five (5) year warrant to purchase 450,000
shares of our Common Stock at a purchase price of $0.26 per share in connection
with such purchase (the “Equity Purchase Rights”). On March 14, 2006,
Aspen exercised its Equity Purchase Rights (as such term is defined in the
Aspen Agreement);
(c)
Aspen
and the Company amended the Loan Agreement, dated March 23, 2005 (the “Loan
Agreement”), by and between the parties, to extend the maturity date until
September 30, 2007 and to modify certain covenants (such Loan Agreement as
amended, the “Credit Facility Amendment”);
(d)
Aspen
had the right, through April 30, 2006, to provide up to $200,000 of additional
secured indebtedness to the Company under the Credit Facility Amendment and
to
receive a five (5) year warrant to purchase up to 450,000 shares of the
Company’s Common Stock with a purchase price of $0.26 per share (the “New Debt
Rights”). On March 30, 2006, Aspen exercised its New Debt Rights and
entered into the definitive transaction documentation for the Credit Facility
Amendment and other such documents required under the Aspen
Agreement;
(e)
The
Company agreed to amend and restate the warrant agreement, dated March 23,
2005,
to provide that all 2,500,000 warrant shares (the “Existing Warrants”) were
vested and the exercise price per share was reset to $0.31 per share;
and
(f)
The
Company agreed to amend the Registration Rights Agreement, dated March 23,
2005
(the “Registration Rights Agreement”), by and between the parties,
to incorporate the Existing Warrants, the Waiver Warrants and any new shares
or
warrants issued to Aspen in connection with the Equity Purchase Rights or the
New Debt Rights.
(g)
All Waiver
Warrants, the Existing Warrants and all warrants issued to Aspen and SKL in
connection with the purchase of equity or debt securities are exercisable at
the
option of the holder and each such warrant contains provisions that allow for
a
physical exercise, a net cash exercise or a net share settlement. We
used the Black-Scholes pricing model to estimate the fair value of all such
warrants as of the commitment date for each, using the
following approximate assumptions: dividend yield of 0 %, expected
volatility of 14.6 – 19.3%, risk-free interest rate of 4.5%, and a term of 3 - 5
years.
24
We
borrowed
an additional $100,000 from the Aspen Credit Facility in May 2006, $25,000
in
September 2006 and $50,000 in December 2006. At December 31, 2006, $1,675,000
was outstanding on the Credit Facility, which bears interest at prime plus
6%,
and $25,000 remained available. Subsequent to December 31, 2006 we borrowed
the
remaining $25,000 available under the Aspen Facility.
During
the period from January 18 through 21, 2006, the Company entered into agreements
with four (4) other shareholders who are parties to a Shareholders’
Agreement, dated March 23, 2005, to exchange five (5) year warrants to
purchase an aggregate of 150,000 shares of stock at a purchase price of $0.26
per share for such shareholders’ waiver of their pre-emptive rights under the
Shareholders’ Agreement.
On
January 21, 2006 the Company entered into a subscription agreement with SKL
(the
“Subscription”), whereby SKL purchased 2.0 million shares (the “Subscription
Shares”) of the Company’s Common Stock at a purchase price of $0.20 per
share for $400,000. Under the terms of the Subscription, the Subscription Shares
are restricted for a period of twenty-four (24) months and then carry
piggyback registration rights to the extent that exemptions under Rule 144
are
not available to SKL. In connection with the Subscription, the Company also
issued a five (5) year warrant to purchase 900,000 shares of the Company’s
Common Stock at a purchase price of $0.26 per share. SKL has no previous
affiliation with the Company.
On
June
6, 2006, we entered into our Standby Equity Distribution Agreement with Cornell
Capital Partners pursuant to which the Company may, at its discretion,
periodically sell to Cornell Capital Partners shares of its Common Stock for
a
total purchase price of up to $5.0 million.
On
June
6, 2006 as a result of not terminating the SEDA with Cornell Capital Partners,
a
short-term note payable in the amount of $50,000 became due to Cornell and
was
subsequently paid in July 2006. The following sales of our Common Stock have
been made under our SEDA with Cornell Capital Partners since it was first
declared effective on August 1, 2005:
|
Request
Date
|
Completion
Date
|
Shares
of Common Stock Issued/Sold
|
Gross
Proceeds Received
|
Cornell
Fee
|
Escrow
Fee
|
Net
Proceeds
|
ASP(1)
|
||||||||||||||||||
|
8/29/2005
|
9/8/2005
|
63,776
|
$ |
25,000
|
$ |
1,250
|
$ |
500
|
$ |
23,250
|
|||||||||||||||
|
12/10/2005
|
12/18/2005
|
241,779
|
50,000
|
2,500
|
500
|
47,000
|
|||||||||||||||||||
|
Subtotal
- 2005
|
305,555
|
$ |
75,000
|
$ |
3,750
|
$ |
1,000
|
$ |
70,250
|
$ |
0.25
|
||||||||||||||
|
7/19/2006
|
7/28/2006
|
83,491
|
53,000
|
2,500
|
500
|
50,000
|
|||||||||||||||||||
|
8/8/2006
|
8/16/2006
|
279,486
|
250,000
|
12,500
|
500
|
237,000
|
|||||||||||||||||||
|
10/18/2006
|
10/23/2006
|
167,842
|
200,000
|
10,000
|
500
|
189,500
|
|||||||||||||||||||
|
Subtotal
- 2006
|
530,819
|
$ |
503,000
|
$ |
25,000
|
$ |
1,500
|
$ |
476,500
|
$ |
0.95
|
||||||||||||||
|
12/29/2006
|
1/10/2007
|
98,522
|
150,000
|
7,500
|
500
|
142,000
|
|||||||||||||||||||
|
1/16/2007
|
1/24/2007
|
100,053
|
150,000
|
7,500
|
500
|
142,000
|
|||||||||||||||||||
|
2/1/2007
|
2/12/2007
|
65,902
|
100,000
|
5,000
|
500
|
94,500
|
|||||||||||||||||||
|
2/19/2007
|
2/28/2007
|
166,611
|
250,000
|
12,500
|
500
|
237,000
|
|||||||||||||||||||
|
2/28/2007
|
3/7/2007
|
180,963
|
250,000
|
12,500
|
500
|
237,000
|
|||||||||||||||||||
|
4/5/2007
|
4/16/2007
|
164,777
|
250,000
|
12,500
|
500
|
237,000
|
|||||||||||||||||||
|
4/20/2007
|
4/30/2007
|
173,467
|
250,000
|
12,500
|
500
|
237,000
|
|||||||||||||||||||
|
Subtotal
- 2007
|
To
Date
|
950,295
|
$ |
1,400,000
|
$ |
70,000
|
$ |
3,500
|
$ |
1,326,500
|
$ |
1.48
|
|||||||||||||
|
Total
Since Inception
|
1,786,669
|
$ |
1,978,000
|
$ |
98,750
|
$ |
6,000
|
$ |
1,873,250
|
$ |
1.19
|
||||||||||||||
|
Remaining
|
$ |
3,022,000
|
|||||||||||||||||||||||
|
Total
Facility
|
$ |
5,000,000
|
|||||||||||||||||||||||
|
(1) Average
Selling Price of shares issued.
|
|||||||||||||||||||||||||
During
the period from May 31, 2007 through June 6, 2007, we sold 2,666,667 shares
of
our Common Stock to ten unaffiliated accredited investors (the “Investors”) at a
price of $1.50 per share in a private placement of our Common Stock (the
“Private Placement”). The Private Placement generated gross proceeds
to the Company of $4 million, and after estimated transaction costs, the Company
received net cash proceeds of approximately $3.75 million. The
Company also issued warrants to purchase 98,417 shares of our Common Stock
to
Noble International Investments, Inc. (“Noble”), in consideration for its
services as a placement agent for the Private
Placement. Additionally, the Company issued to
Aspen Capital Advisors, LLC
(“ACA”) warrants to purchase
250,000 shares at $1.50 per share in consideration for
ACA’s services to the Company in connection with the Private
Placement. The Private Placement involved the issuance of the
aforementioned unregistered securities in transactions that we believed were
exempt from registration under Rule 506 promulgated under the Securities
Act. All of the aforementioned stockholders received registration
rights for the Private Placement shares so purchased and we filed a registration
statement on Form SB-2 on July 12, 2007 to register these shares (the
“Registration Statement”). Certain of the Investors also purchased
1,500,000 shares and 500,000 warrants from Aspen Select Healthcare, LP in a
separate transaction that occurred simultaneously with the Private Placement
and
the Company agreed to an assignment of Aspen’s registration rights for such
shares and warrants, and thus were included in the Registration
Statement.
On
June
6, 2007, the Company issued to Lewis Asset Management (LAM) 500,000 shares
of
Common Stock at a purchase price of $0.26 per share and received gross proceeds
equal to $130,000 upon the exercise by LAM of 500,000 warrants which were
purchased by LAM from Aspen Select Healthcare, LP on that day.
25
On
June
7, 2007, we used part of the net proceeds of the Private Placement to pay off
the $1,700,000 principal balance of the Aspen Credit Facility.
On
August 31, 2007 the Company issued warrants to
purchase 533,334 shares of it's Common Stock to the investors who purchased
shares in the private placement. Such warrants have an exercise price of
$1.50 per share and are exercisable for a period of two years.
Such warrants also have a provision for piggyback registration rights in
the first year and demand registration rights in the second year. No
shares underlying are being registered hereunder.
At
the
present time, we anticipate that based on our current business plan that we
have
sufficient cash to fund our business operations for at least the next six
months. In June, we agreed on a non-binding term sheet for a $4
million credit facility with Wachovia Bank (the “Wachovia Credit
Facility”). The Wachovia Credit Facility, if consummated, will be
comprised of two parts; a $2 million working capital facility based on eligible
accounts receivable and a $2 million capital expenditures
facility. As of the date hereof, definitive agreements for the
Wachovia Credit Facility have not been consummated, and the Company does not
expect that such agreements will be executed before the fourth quarter of FY
2007, if they are consummated at all. If the Wachovia Credit
Facility does not close for any reason we plan to attempt to setup a working
capital facility with another institution. We also rely on equipment
lessors to fund our purchases of capital equipment from time to
time. This estimate of our cash needs does not include any additional
funding which may be required for growth in our business beyond that which
is
planned, strategic transactions or acquisitions. In the event that the Company
grows faster than we currently anticipate or we engage in strategic transactions
or acquisitions, or we do not close on the Wachovia Credit Facility, or we
are
unable to line up equipment financing from equipment lessors in an amount
sufficient to cover our planned capital expenditures, and our cash on hand
is
not sufficient to meet our financing needs, we may need to raise additional
capital from other resources. In such event, the Company may not be
able to obtain such funding on attractive terms or at all and the Company may
be
required to curtail its operations. On September 10, 2007 we had approximately
$804,000 in cash on hand.
Capital
Expenditures
We
currently forecast capital expenditures for 2007 in order to execute on our
business plan. The amount and timing of such capital expenditures will be
determined by the volume of business, but we currently anticipate that we will
need to purchase approximately $1,500,000 to $2,000,000 of additional capital
equipment during the next twelve (12) months. We plan to fund
these expenditures via capital leases with equipment lessors. If we are unable
to obtain such funding, we will need to pay cash for these items or we will
be
required to curtail our equipment purchases, which may have an impact on our
ability to continue to grow our revenues.
Commitments
Operating
Leases
In
August
2003, we entered into a three (3) year lease for 5,200 square feet at our
laboratory facility in Fort Myers, Florida. On June 29, 2006 we
signed an amendment to the original lease which extended the lease through
June
30, 2011. The amendment included the rental of an additional 4,400 square feet
adjacent to our current facility. This space will allow for future expansion
of
our business. The lease was further amended on January 17, 2007 but this
amendment did not materially alter the terms of the lease, which has total
payments of approximately $653,000 over the remaining life of the lease,
including annual increases of rental payments of 3% per year. Such amount
excludes estimated operating and maintenance expenses and property
taxes.
As
part
of the acquisition of The Center for CytoGenetics, Inc. by the Company on April
18, 2006, we assumed the lease of an 850 square foot facility in Nashville,
Tennessee. The lease expires on August 31, 2008. The average monthly rental
expense is approximately $1,350 per month. This space was not adequate for
our
future plans and the Company is currently not using the facility and is actively
trying to sublease this facility. On June 15, 2006, we entered into a lease
for
a new facility totaling 5,386 square feet of laboratory space in Nashville,
Tennessee. This space will be adequate to accommodate our current plans for
the
Tennessee laboratory. As part of the lease, we have the right of first refusal
on an additional 2,420 square feet, if needed, directly adjacent to the
facility. The lease is a five (5) year lease and results in total payments
by us
of approximately $340,000.
26
On
August
1, 2006, the Company entered into a lease for 1,800 square feet of laboratory
space in Irvine, California. The lease is a nine (9) month lease and
results in total payments by the Company of approximately $23,000. This lease
expired on May 1, 2007. Future minimum lease payments under these leases as
of
December 31, 2006 are as follows:
|
Years
ending December 31,
|
Amounts
|
|||
|
2007
|
$ |
227,082
|
||
|
2008
|
219,471
|
|||
|
2009
|
214,015
|
|||
|
2010
|
219,907
|
|||
|
2011
|
105,710
|
|||
|
Total
minimum lease payments
|
$ |
986,185
|
||
On
April 5, 2007, we entered into a lease for 8,195 square feet of laboratory
space
in Irvine, California. The lease is a five year lease and results in total
payments by the Company of approximately $771,000 including estimated operating
and maintenance expenses and property taxes. This lease will expire
on April 30, 2012.
On
May
17, 2007, we entered into a sublease for approximately 9,000 square feet in
Fort
Myers. The lease is a 7 month lease with the option to extend the
lease for an additional 3 years by September 30, 2007 and results in total
payments of approximately $45,000. The space will allow the Company
to expand its operations to support further growth.
Capital
Leases
During
2006, we entered into the following capital leases:
|
Date
|
Type
|
Months
|
Cost
|
Monthly
Payment
|
Balance
at December 31, 2006
|
||||||||||||
|
March
2006
|
Laboratory
Equipment
|
60
|
$ |
134,200
|
$ |
2,692
|
$ |
117,117
|
|||||||||
|
August
2006
|
Laboratory
Equipment
|
60
|
48,200
|
1,200
|
43,724
|
||||||||||||
|
August
2006
|
Laboratory
Equipment
|
60
|
98,400
|
2,366
|
90,140
|
||||||||||||
|
August
2006
|
Laboratory
Equipment
|
60
|
101,057
|
2,316
|
89,630
|
||||||||||||
|
August
2006
|
Laboratory
Equipment
|
60
|
100,200
|
2,105
|
86,740
|
||||||||||||
|
November
2006
|
Laboratory
Equipment
|
60
|
19,900
|
434
|
19,348
|
||||||||||||
|
November
2006
|
Computer
Equipment
|
60
|
9,700
|
228
|
9,366
|
||||||||||||
|
December
2006
|
Computer
Equipment
|
48
|
19,292
|
549
|
17,742
|
||||||||||||
|
December
2006
|
Computer
Equipment
|
48
|
25,308
|
718
|
24,003
|
||||||||||||
|
December
2006
|
Office
Equipment
|
60
|
46,100
|
994
|
45,567
|
||||||||||||
|
Total
|
$ |
602,357
|
$ |
13,602
|
$ |
543,377
|
|||||||||||
Future
minimum lease payments under these leases as of December 31, 2006 are as
follows:
|
Years
ending December 31,
|
Amounts
|
|||
|
2007
|
$ |
163,219
|
||
|
2008
|
163,219
|
|||
|
2009
|
163,219
|
|||
|
2010
|
161,951
|
|||
|
2011
|
89,582
|
|||
|
Total
future minimum lease payments
|
741,190
|
|||
|
Less
amount representing interest
|
197,813
|
|||
|
Present
value of future minimum lease payments
|
543,377
|
|||
|
Less
current maturities
|
94,430
|
|||
|
Obligations
under capital leases - long term
|
$ |
448,947
|
||
The
equipment covered under the lease agreements is pledged as collateral to secure
the performance of the future minimum lease payments above.
27
For
the
Six months ended June 30, 2007, we entered into the following capital
leases:
|
Monthly
|
Obligation
at
|
||||||||||||||||
|
Date
|
Type
|
Months
|
Cost
|
Payment
|
March
31, 2007
|
||||||||||||
|
Feb
2007
|
Computer
Hardware
|
36
|
$ |
3,618
|
$ |
127
|
$ |
3,289
|
|||||||||
|
Feb
2007
|
Computer
Hardware
|
36
|
4,508
|
153
|
4,202
|
||||||||||||
|
Feb
2007
|
Lab
Equipment
|
48
|
80,015
|
2,289
|
75,181
|
||||||||||||
|
Mar
2007
|
Lab
Equipment
|
60
|
135,655
|
2,746
|
135,646
|
||||||||||||
|
Mar
2007
|
Computer
Software
|
36
|
15,783
|
527
|
14,693
|
||||||||||||
|
April
2007
|
Computer
Hardware
|
36
|
11,204
|
354
|
9,399
|
||||||||||||
|
May
2007
|
Furniture
|
60
|
19,820
|
441
|
18,527
|
||||||||||||
|
Totals
|
|
$ |
272,265
|
$ |
6,698
|
$ |
251,526
|
||||||||||
POWER
3 MEDICAL PRODUCTS,
INC.
On
April
2, 2007, we concluded an agreement with Power3 Medical Products, Inc., a New
York Corporation (“Power3”) regarding the formation of a joint venture
Contract Research Organization (“CRO”) and the issuance of convertible
debentures and related securities by Power3 to us. Power3 is an early stage
company engaged in the discovery, development, and commercialization of protein
biomarkers. Under the terms of the agreement, NeoGenomics and Power3 agreed
to
enter into a joint venture agreement pursuant to which the will jointly own
a
CRO and begin commercializing Power3’s intellectual property portfolio of
seventeen (17) patents pending by developing diagnostic tests and other
services around one (1) or more of the 523 protein biomarkers that Power3
believes it has discovered to date. Power3 has agreed to license all of its
intellectual property on a non-exclusive basis to the CRO for selected
commercial applications as well as provide certain management personnel. We
will
provide access to cancer samples, management and sales & marketing
personnel, laboratory facilities and working capital. Subject to final
negotiation, we will own a minimum of 60% and up to 80% of the new CRO venture
which is anticipated to be launched in the fourth quarter of FY
2007.
As
part
of the agreement, we provided $200,000 of working capital to Power3 by
purchasing a convertible debenture on April 17, 2007 pursuant to a Securities
Purchase Agreement (the Purchase Agreement”) between us and
Power3. We were also granted two (2) options to increase our stake in
Power3 to up to 60% of the Power3 fully diluted shares
outstanding. The first option (the “First Option”) is a fixed
option to purchase convertible preferred stock of Power3 that is convertible
into such number of shares of Power3 Common Stock, in one or more transactions,
up to 20% of Power3’s voting Common Stock at a purchase price per share, which
will also equal the initial conversion price per share, equal to the lesser
of
(a) $0.20/share, or (b) $20,000,000 divided by the fully-diluted shares
outstanding on the date of the exercise of the First Option. This First Option
is exercisable for a period starting on the date of purchase of the convertible
debenture by NeoGenomics and extending until the day which is the later of
(y)
November 16, 2007 or (z) the date that certain milestones specified in the
agreement have been achieved. The First Option is exercisable in cash or
NeoGenomics Common Stock at our option, provided, however, that we must include
at least $1.0 million of cash in the consideration if we elect to exercise
this
First Option. In addition to purchasing convertible preferred stock as part
of
the First Option, we are also entitled to receive such number of warrants to
purchase Power3 Common Stock that will permit us to maintain our current
ownership percentage in Power3 on a fully diluted basis. Such
warrants will have a purchase price equal to the initial conversion price of
the
convertible preferred stock that was purchased pursuant to the First Option
and
will have a five (5) year term.
The
second option (the “Second Option”), which is only exercisable to the extent
that we have exercised the First Option, provides that we will have the option
to increase our stake in Power3 to up to 60% of fully diluted shares of Power3
over the twelve month period beginning on the expiration date of the First
Option in one or a series of transactions by purchasing additional convertible
preferred stock of Power3 that is convertible into voting Common Stock and
receiving additional warrants. The purchase price per share, and the initial
conversion price of the Second Option convertible preferred stock will, to
the
extent such Second Option is exercised within six (6) months of exercise of
the
First Option, be the lesser of (a) $0.40/share or (b) $40,000,000 divided by
the
fully diluted shares outstanding on the date of any purchase. The purchase
price
per share, and the initial conversion price of the Second Option convertible
preferred stock will, to the extent such Second Option is exercised after six
(6) months, but within twelve (12) months of exercise of the First Option,
be
the lesser of (y) $0.50/share or (z) an equity price per share equal to
$50,000,000 divided by the fully diluted shares outstanding on the date of
any
purchase. The exercise price of the Second Option may be paid in cash or in
any
combination of cash and our Common Stock
at
our option. In addition to purchasing convertible preferred stock as part of
the
Second Option, we are also entitled to receive such number of warrants to
purchase Power3 Common Stock that will permit us to maintain our current
ownership percentage in Power3 on a fully diluted bases. Such
warrants will have an exercise price equal to the initial conversion price
of
the convertible preferred stock being purchased on that date and will have
a
five (5) year term.
28
The
purchase Agreement granted us (1) a right of first refusal with respect to
future issuances of Power3 capital stock and (2) the right to appoint a member
of the Power3 board of directors so long as we own ten percent (10%) or more
of
Power3’s outstanding voting securities.
Legal
Contingency
On
October 26, 2006, Accupath Diagnostics Laboratories, Inc. d/b/a US Labs, a
California corporation (“US Labs”) filed a complaint in the Superior Court of
the State of California for the County of Los Angeles (the “court”) against the
Company and Robert Gasparini, as an individual, and certain other employees
and
non-employees of NeoGenomics with respect to claims arising from discussions
with current and former employees of the US Labs. US labs alleges,
among other things, that NeoGenomics engaged in unfair competition because
it
was provided with access to certain salary information of four recently hired
sales personnel prior to the time of hire. We believe that US Labs’
claims against NeoGenomics lack merit, and that there are well-established
laws
that affirm the rights of employees to seek employment with any company they
desire and employers to offer such employment to anyone they
desire. US Labs seeks unspecified monetary relief. As part
of the complaint, US Labs also sought preliminary injunctive relief against
NeoGenomics, and requested that the Court bar NeoGenomics from, among other
things: (a) inducing any US labs’ employees to resign employment with
US Labs; (b) soliciting, interviewing or employing US Labs’ employees for
employment; (c) directly or indirectly soliciting US Labs’ customers with whom
the four new employees of NeoGenomics did business while employed at US Labs;
and (d) soliciting, initiating and/or maintaining economic
relationships with US Labs’ customers that are under contract with US
Labs.
On
November 15, 2006 the Court heard arguments on US Labs’ request for a
preliminary injunction and denied the majority of US Labs’ request on the
grounds that US Labs had not demonstrated a likelihood of success on the merits
of their claims. The Court did, however, issue a much narrower
preliminary injunction that prevents NeoGenomics from “soliciting” the US Labs’
customers of such new sales personnel until the issues are resolved at the
trial. The preliminary injunction is limited only to the “soliciting”
of the US Labs’ customers of the sales personnel in question, and does not in
any way prohibit NeoGenomics from doing business with any such customers to
the
extent they have sought or seek a business relationship with NeoGenomics on
their own initiative. Furthermore, NeoGenomics is not enjoined from
recruiting any additional personnel from US Labs through any lawful
means. We believe that US labs’ claims will not be affirmed at the
trial; however, even if they were, NeoGenomics does not believe such claims
would result in a material impact to our business. NeoGenomics
further believes that this lawsuit is nothing more that a blatant attempt by
a
large corporation to impede the progress of a smaller and more nimble
competitor, and we intend to vigorously defend ourselves.
Discovery
commenced in December 2006 and discovery and motion filing is ongoing. While
the
Company received unsolicited and inaccurate salary information for three
individuals that were ultimately hired, no evidence of misappropriation of
trade
secrets has been adduced by either side. As such, the Company is currently
contemplating filing pre-trial motions to narrow or end the
litigation.
The
Company is also a defendant in one lawsuit from a former employee relating
to
compensation related claims. The Company does not believe this
lawsuit is material to its operations or financial results and intends to
vigorously pursue its defense of the matter.
The
Company expects none of the aforementioned claims to be affirmed at trial;
however, even if they were, NeoGenomics does not believe such claims would
result in a material impact to our business. At this time we cannot accurately
predict our legal fees but if these cases were to proceed to trial, we estimate
that our legal fees could be as much as $600,000 to $750,000 in FY
2007.
29
Purchase
Commitment
On
June
22, 2006, we entered into an agreement to purchase three (3) automated FISH
signal detection and analysis systems over the next twenty-four (24) months
for
a total of $420,000. We agreed to purchase two (2) systems immediately and
to
purchase a third system in the next fifteen (15) months if the vendor is able
to
make certain improvements to the system. As of December 31, 2006, the Company
had purchased and installed two (2) of the systems.
Subsequent
Event
On
August 31, 2007 the Company issued warrants to
purchase 533,334 shares of it's Common Stock to the investors who purchased
shares in the private placement. Such warrants have an exercise $1.50 per
share and are exercisable for a period of two years. Such
warrants also have a provision for piggyback registration rights in
the first year and demand registration rights in the second year. No
shares underlying are being registered hereunder.
Employment
Contracts
On
December 14, 2004, we entered into an employment agreement with Robert P.
Gasparini to serve as our President and Chief Science Officer. The employment
agreement has an initial term of three (3) years, effective January 3, 2005;
provided, however that either party may terminate the agreement by giving the
other party sixty (60) days written notice. The employment agreement
specifies an initial base salary of $150,000/year, with specified salary
increases to $185,000/year over the first eighteen (18) months of the contract.
Mr. Gasparini is also entitled to receive cash bonuses for any given fiscal
year
in an amount equal to 15% of his base salary if he meets certain targets
established by our Board of Directors. In addition, Mr. Gasparini was granted
1,000,000 Incentive Stock Options that have a ten (10) year term so long as
Mr.
Gasparini remains an employee of the Company (these options, which vest
according to the passage of time and other performance-based milestones,
resulted in us recording stock based compensation expense under SFAS 123(R)
beginning in 2006. Mr. Gasparini’s employment agreement also specifies that he
is entitled to four (4) weeks of paid vacation per year and other health
insurance and relocation benefits. In the event that Mr. Gasparini is terminated
without cause by the Company, the Company has agreed to pay Mr. Gasparini’s base
salary and maintain his employee benefits for a period of six (6)
months.
Recent
Accounting Pronouncements
SFAS
159 - ‘The Fair Value Option for Financial Assets and Financial
Liabilities—Including an amendment of FASB Statement No.
115’
In
February 2007, the FASB issued Financial Accounting
Standard No. 159 The Fair Value Option for Financial Assets and Financial
Liabilities—Including an amendment of FASB Statement No. 115 or FAS 159.
This Statement permits entities to choose to measure many financial instruments
and certain other items at fair value. Most of the provisions of this Statement
apply only to entities that elect the fair value option.
The
following are eligible items for the measurement option established by this
Statement:
1. Recognized
financial assets and financial liabilities except:
(a) An
investment in a subsidiary that the entity is required to
consolidate.
(b) An
interest in a variable interest entity that the entity is required to
consolidate.
(c) Employers’
and plans’ obligations (or assets representing net over funded positions) for
pension benefits, other postretirement benefits (including health care and
life
insurance benefits), post-employment benefits, employee stock option and stock
purchase plans, and other forms of deferred compensation
arrangements.
(d) Financial
assets and financial liabilities recognized under leases as defined in FASB
Statement No. 13, Accounting for Leases.
(e) Deposit
liabilities, withdrawable on demand, of banks, savings and loan associations,
credit unions, and other similar depository institutions.
(f) Financial
instruments that are, in whole or in part, classified by the issuer as a
component of shareholder’s equity (including “temporary equity”). An example is
a convertible debt security with a noncontingent beneficial conversion
feature.
2. Firm
commitments that would otherwise not be recognized at inception and that involve
only financial instruments.3.Nonfinancial insurance contracts and warranties
that the insurer can settle by paying a third party to provide those goods
or
services.
4. Host
financial instruments resulting from separation of an embedded nonfinancial
derivative instrument from a nonfinancial hybrid instrument.
The
fair
value option:
1. May
be applied instrument by instrument, with a few exceptions, such as investments
otherwise accounted for by the equity method.
2. Is
irrevocable (unless a new election date occurs).
3. Is
applied only to entire instruments and not to portions of
instruments.
The
Statement is effective as of the beginning of an entity’s first fiscal year that
begins after November 15, 2007. Early adoption is permitted as of the beginning
of a fiscal year that begins on or before November 15, 2007, provided the entity
also elects to apply the provisions of FASB Statement No. 157, Fair Value
Measurements. We have not yet determined what effect, if any, adoption of
this Statement will have on our financial position or results of
operations.
SFAS
158 - ‘Employers’ Accounting for Defined Benefit Pension and Other
Postretirement Plans, an amendment of FASB Statement Nos. 87, 88, 106, and
132(R)’
In
September 2006, the FASB issued Financial Accounting Standard No. 158,
Employers’ Accounting for Defined Benefit Pension and Other Postretirement
Plans, an amendment of FASB Statement Nos. 87, 88, 106, and 132(R), or FAS
158. This Statement requires an employer that is a business entity and sponsors
one or more single-employer defined benefit plans to (a) recognize the funded
status of a benefit plan—measured as the difference between plan assets at fair
value (with limited exceptions) and the benefit obligation—in its statement of
financial position; (b) recognize, as a component of other comprehensive income,
net of tax, the gains or losses and prior service costs or credits that arise
during the period but are not recognized as components of net periodic benefit
cost pursuant to FAS 87, Employers’ Accounting for Pensions, or FAS
106, Employers’ Accounting for Postretirement Benefits Other Than
Pensions; (c) measure defined benefit plan assets and obligations as of the
date of the employer’s fiscal year-end statement of financial position (with
limited exceptions); and (d) disclose in the notes to financial statements
additional information about certain effects on net periodic benefit cost for
the next fiscal year that arise from delayed recognition of the gains or losses,
prior service costs or credits, and transition assets or obligations. An
employer with publicly traded equity securities is required to initially
recognize the funded status of a defined benefit postretirement plan and to
provide the required disclosures as of the end of the fiscal year ending after
December 15, 2006. This statement is not expected to have a significant effect
on our financial statements.
SFAS
157 - ‘Fair Value Measurements’
In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”. This
standard establishes a standard definition for fair value, establishes a
framework under generally accepted accounting principles for measuring fair
value and expands disclosure requirements for fair value measurements. This
standard is effective for financial statements issued for fiscal years beginning
after November 15, 2007. Adoption of this statement is not expected to have
any
material effect on our financial position or results of operations.
SAB
108 - ‘Considering the Effects of Prior Year
Misstatements when Quantifying Misstatements in Current Year Financial
Statements’
In
September 2006, the SEC issued Staff Accounting Bulletin No. 108 (SAB 108),
Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements. SAB 108 provides guidance
on
the consideration of the effects of prior year unadjusted errors in quantifying
current year misstatements for the purpose of a materiality assessment. Adoption
of this statement is not expected to have any material effect on our financial
position or results of operations.
30
FIN
48 - ‘Accounting for Uncertainty in Income Taxes’
In
June
2006, the FASB issued Interpretation No. 48 (“FIN 48”), “Accounting for
Uncertainty in Income Taxes”, an interpretation of SFAS No. 109. FIN 48
prescribes a comprehensive model for how companies should recognize, measure,
present and disclose uncertain tax positions taken or expected to be taken
on a
tax return. Under FIN 48, we shall initially recognize tax positions in the
financial statements when it is more likely than not the position will be
sustained upon examination by the tax authorities. We shall initially and
subsequently measure such tax positions as the largest amount of tax benefit
that is greater than 50% likely of being realized upon ultimate settlement
with
the tax authority assuming full knowledge of the position and all relevant
facts. FIN 48 also revises disclosure requirements to include an annual tabular
roll-forward of unrecognized tax benefits. We will adopt this interpretation
as
required in 2007 and will apply its provisions to all tax positions upon initial
adoption with any cumulative effect adjustment recognized as an adjustment
to
retained earnings. Adoption of this statement is not expected to have any
material effect on our financial position or results of operations.
SFAS
156 - ‘Accounting for Servicing of Financial Assets’
In
March
2006, the FASB issued SFAS 156 “Accounting for Servicing of Financial Assets.”
This Statement amends FASB Statement No. 140, “Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities,” with respect
to the accounting for separately recognized servicing assets and servicing
liabilities. This statement:
(a) Requires
an entity to recognize a servicing asset or servicing liability each time it
undertakes an obligation to service a financial asset by entering into a
servicing contract.
(b) Requires
all separately recognized servicing assets and servicing liabilities to be
initially measured at fair value, if practicable.
(c) Permits
an entity to choose “Amortization method” or “Fair value measurement method” for
each class of separately recognized servicing assets and servicing
liabilities.
(d) At
its initial adoption, permits a one-time reclassification of available-for-sale
securities to trading securities by entities with recognized servicing rights,
without calling into question the treatment of other available-for-sale
securities under Statement 115, provided that the available-for-sale securities
are identified in some manner as offsetting the entity’s exposure to changes in
fair value of servicing assets or servicing liabilities that a servicer elects
to subsequently measure at fair value.
(e) Requires
separate presentation of servicing assets and servicing liabilities subsequently
measured at fair value in the statement of financial position and additional
disclosures for all separately recognized servicing assets and servicing
liabilities.
This
statement is effective as of the beginning of the Company’s first fiscal year
that begins after September 15, 2006. Adoption of this statement is
not expected to have any material effect on our financial position or results
of
operations.
SFAS
155 - ‘Accounting for Certain Hybrid Financial Instruments—an
amendment of FASB Statements No. 133 and 140’
This
Statement, issued in February 2006, amends FASB Statements No. 133,
Accounting for Derivative Instruments and Hedging Activities, and No.
140, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities. This Statement resolves issues addressed in
Statement 133 Implementation Issue No. D1, “Application of Statement 133 to
Beneficial Interests in Securitized Financial Assets.”
This
Statement:
(a) Permits
fair value remeasurement for any hybrid financial instrument that contains
an
embedded derivative that otherwise would require bifurcation.
(b) Clarifies
which interest-only strips and principal-only strips are not subject to the
requirements of Statement 133.
31
(c) Establishes
a requirement to evaluate interests in securitized financial assets to identify
interests that are freestanding derivatives or that are hybrid financial
instruments that contain an embedded derivative requiring
bifurcation.
(d) Clarifies
that concentrations of credit risk in the form of subordination are not embedded
derivatives.
(e) Amends
Statement 140 to eliminate the prohibition on a qualifying special-purpose
entity from holding a derivative financial instrument that pertains to a
beneficial interest other than another derivative financial
instrument.
This
Statement is effective for all financial instruments acquired or issued after
the beginning of our first fiscal year that begins after September 15,
2006.
The
fair
value election provided for in paragraph 4(c) of this Statement may also be
applied upon adoption of this Statement for hybrid financial instruments that
had been bifurcated under paragraph 12 of Statement 133 prior to the adoption
of
this Statement. Earlier adoption is permitted as of the beginning of our fiscal
year, provided we have not yet issued financial statements, including financial
statements for any interim period, for that fiscal year. Provisions of this
Statement may be applied to instruments that we hold at the date of adoption
on
an instrument-by-instrument basis. Adoption of this statement is not expected
to
have any material effect on our financial position or results of
operations.
Recently
Adopted Accounting Standards
Effective
January 1, 2006, we adopted the provisions of Statement of Financial
Accounting Standards No. 123 (revised 2004), “Share-Based Payment”
(“SFAS 123R”) requiring that compensation cost relating to share-based payment
transactions be recognized in our financial statements. The cost is measured
at
the grant date, based on the calculated fair value of the award, and is
recognized as an expense over the employee’s requisite service period (generally
the vesting period of the equity award). We adopted SFAS 123R using the modified
prospective method and, accordingly, did not restate prior periods to reflect
the fair value method of recognizing compensation cost. Under the modified
prospective approach,
SFAS
123R
applies to new awards and to awards that were outstanding on January 1,
2006 that are subsequently modified, repurchased or cancelled.
The
shareholders of the Company have approved our Equity Incentive Plan, as amended
and restated on October 31, 2006 (the “Plan”), that permits the grant of stock
awards and stock options to officers, directors, employees and consultants.
Options granted under the plan are either Incentive Stock Options (“ISOs”) or
Non-Qualified Stock Options (“NQSOs”). Under this Plan, we are authorized to
grant awards for up to 12% of our Adjusted Diluted Shares Outstanding (as
defined in the Plan), which equated to 3,819,890 shares of our Common Stock
as
of December 31, 2006. As of December 31, 2006, option and stock awards totaling
2,116,667 shares were outstanding. Options typically have a 10 year life and
vest over 3 or 4 years but each grant’s vesting and exercise price provisions
are determined by the Board of Directors at the time the awards are
granted.
As
a
result of adopting SFAS 123R on January 1, 2006, we recorded compensation
cost related to stock options of approximately $64,000 for the year ended
December 31, 2006. As of December 31, 2006, there was approximately $123,000
of
total unrecognized compensation costs related to outstanding stock options,
which is expected to be recognized over a weighted average period of
1.52 years.
Prior
to
January 1, 2006, we applied Accounting Principles Board
(“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” and
related interpretations which required compensation costs to be recognized
based
on the difference, if any, between the quoted market price of the stock on
the
grant date and the exercise price. As all options granted to employees under
such plans had an exercise price at least equal to the market value of the
underlying Common Stock on the date of grant, and given the fixed nature of
the
equity instruments, no stock-based employee compensation cost relating to stock
options was reflected in net income (loss). If we had expensed stock options
for
the year ended December 31, 2005 our net loss and pro forma net loss per share
amounts would have been reflected as follows:
32
|
2005
|
||||
|
Net
loss:
|
||||
|
As
reported
|
$ | (997,160 | ) | |
|
Pro
forma
|
$ | (1,022,550 | ) | |
|
Loss
per share:
|
||||
|
As
reported
|
$ | (0.04 | ) | |
|
Pro
forma
|
$ | (0.05 | ) | |
We
use
the Black-Scholes option-pricing model to estimate fair value of stock-based
awards. The fair value of options granted during 2006 was estimated on the
date
of the grants using the following approximate assumptions: dividend yield of
0%,
expected volatility of 12 - 44% (depending on the date of issue), risk-free
interest rate of 4.5 - 4.6% (depending on the date of issue), and an expected
life of 3 or 4 years.
SEC
Staff
Accounting Bulletin 107 (SAB 107) requires that the estimate of fair value
used
in valuing employee equity options should reflect the assumptions marketplace
participants would use in determining how much to pay for an instrument on
the
date of the measurement (generally the grant date for equity awards). We
calculate expected volatility for stock options by taking the standard deviation
of the stock price for the 3 months preceding the option grant and dividing
it
by the average stock price for the same 3 month period. We believe that since
the Company’s financial condition and prospects continue to improve
significantly on a quarterly and annual basis, no reasonable market participants
would value NeoGenomics stock options, if there were any such options that
traded on a public exchange, by using expected future volatility estimates
based
on anything other than recent market information. This conclusion is based
on
our Principal Financial Officer’s previous experience as a senior executive in
one of the largest over the counter options trading firms in the U.S. and his
intimate knowledge of how professional investors value exchange traded options.
As such we do not believe that using historical volatility information from
anything other than the most recent 3 month period prior to a grant date as
the
basis for estimating future volatility is consistent with the provisions of
SAB
107. Therefore, over the last four years we have consistently estimated future
volatility in determining the fair value of employee options based on the three
month period prior to any given grant date. The risk-free interest rate we
use
in determining the fair value of equity awards under the Black Scholes model
is
the equivalent U.S. Treasury yield in effect at the time of grant for an
instrument with a similar expected life as the option.
The
status of our stock options and stock awards are summarized as
follows:
|
Number
of Shares
|
Weighted
Average Exercise Price
|
|||||||
|
Outstanding
at December 31, 2004
|
882,329
|
$ |
0.16
|
|||||
|
Granted
|
1,442,235
|
0.27
|
||||||
|
Exercised
|
(42,235 | ) |
0.00
|
|||||
|
Canceled
|
(482,329 | ) |
0.09
|
|||||
|
Outstanding
at December 31, 2005
|
1,800,000
|
0.27
|
||||||
|
Granted
|
1,010,397
|
0.69
|
||||||
|
Exercised
|
(211,814 | ) |
0.31
|
|||||
|
Canceled
|
(481,916 | ) |
0.41
|
|||||
|
Outstanding
at December 31, 2006
|
2,116,667
|
0.43
|
||||||
|
Exercisable
at December 31, 2006
|
1,155,166
|
$ |
0.28
|
|||||
33
The
following table summarizes information about our options outstanding at December
31, 2006:
|
Exercise
Price
|
Number
Outstanding
|
Weighted
Average Remaining Contractual Life (In
Years)
|
Options
Exercisable
|
Weighted
Average Exercise Price
|
||||||||||||||
| $ |
0.00-0.30
|
1,289,000
|
7.9
|
1,032,500
|
$ |
0.25
|
||||||||||||
| $ |
0.31-0.46
|
188,417
|
7.4
|
73,916
|
$ |
0.34
|
||||||||||||
| $ |
0.47-0.71
|
406,250
|
9.5
|
28,750
|
$ |
0.62
|
||||||||||||
| $ |
0.72-1.08
|
85,000
|
9.7
|
0
|
$ |
0.00
|
||||||||||||
| $ |
1.09-1.64
|
148,000
|
9.9
|
20,000
|
$ |
1.30
|
||||||||||||
|
2,116,667
|
1,155,166
|
|||||||||||||||||
The
weighted average fair value of options granted during 2006 was approximately
$130,000 or $0.13 per option share. The total intrinsic value of options (which
is the amount by which the stock price exceeded the exercise price of the
options on the date of exercise) exercised during 2006 was approximately
$214,000 or $1.03 per option share exercised. During the year ended December
31,
2006, the amount of cash received from the exercise of stock options was
$64,000. The total fair value of shares vested during the year is
$37,000.
SFAS
154 ‘Accounting Changes and Error Corrections--a replacement of APB Opinion No.
20 and FASB Statement No. 3
In
May
2005, the Financial Accounting Standards Board (“FASB”) issued Statement No.
154. This Statement replaces APB Opinion No. 20, Accounting Changes, and FASB
Statement No. 3, Reporting Accounting Changes in Interim Financial Statements,
and changes the requirements for the accounting for, and reporting of, a change
in accounting principle. This Statement applies to all voluntary changes in
accounting principle. It also applies to changes required by an accounting
pronouncement in the unusual instance that the pronouncement does not include
specific transition provisions. When a pronouncement includes specific
transition provisions, those provisions should be followed.
SFAS
154
is effective for accounting changes and corrections of errors made in fiscal
years beginning after December 15, 2005. Adoption of this Statement did not
have any material impact on our financial statements.
34
NeoGenomics
was founded by Dr. Michael T. Dent in June of 2001. Dr. Dent is the founder
and
primary physician of an OB/GYN practice in Southwest Florida. In
November of 2001, NeoGenomics became a publicly-traded company by reverse
merging into American Communications Enterprises, Inc, which was a shell
corporation at the time. During 2002, we assembled our initial staff
and began clinical testing operations. In 2003, we obtained new venture capital
sponsorship through Medical Venture Partners, LLC, a related entity, and moved
to a much larger, state-of-the art laboratory facility in Fort Myers,
Florida. In January 2005, we hired our President, Robert
Gasparini. Mr. Gasparini has considerable experience in building
genetic and molecular laboratory companies.
NeoGenomics
operates cancer-focused testing laboratories that specifically target the
rapidly growing genetic and molecular testing segment of the medical laboratory
industry. Headquartered in Fort Myers, Florida, the Company’s growing network of
laboratories currently offers the following types of testing services to
pathologists, oncologists, urologists, hospitals, and other laboratories
throughout the United States:
|
|
·
|
cytogenetics
testing, which analyzes human
chromosomes;
|
|
|
·
|
Fluorescence
In-Situ Hybridization (FISH) testing, which analyzes abnormalities
at the
chromosomal and gene levels;
|
|
|
·
|
flow
cytometry testing, which analyzes gene expression of specific markers
inside cells and on cell surfaces;
and
|
|
|
·
|
molecular
testing which involves analysis of DNA and RNA to diagnose and predict
the
clinical significance of various genetic sequence
disorders.
|
All
of
these testing services are widely utilized in the diagnosis and prognosis of
various types of cancer.
The
genetic and molecular testing segment of the medical laboratory industry is
the
most rapidly growing niche of the market. Approximately six years ago, the
World
Health Organization reclassified cancers as genetic anomalies. This growing
awareness of the genetic root behind most cancers combined with 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 (3) primary
segments:
|
|
·
|
clinical
lab testing,
|
|
|
·
|
anatomic
pathology testing, and
|
|
|
·
|
genetic
and molecular testing.
|
Clinical
laboratories are typically engaged in high volume, highly automated, lower
complexity tests on easily procured specimens such as 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. The most widely performed AP procedures
include the preparation and interpretation of pap smears, skin biopsies, and
tissue biopsies. The higher complexity AP tests typically involve more labor
and
are more technology intensive than clinical lab tests. Thus AP tests generally
result in higher average revenue per test than clinical lab tests.
Genetic
and molecular testing typically involves analyzing chromosomes, genes or base
pairs of DNA or RNA for abnormalities. Genetic and molecular testing have become
important and highly accurate diagnostic tools over the last five years. New
tests are being developed at an accelerated pace, thus this market niche
continues to expand rapidly. Genetic and molecular testing requires highly
specialized equipment and credentialed individuals (typically MD or PhD level)
to certify results and typically yields the highest average revenue per test
of
the three market segments. The following chart shows the differences between
the
genetic and molecular niche and other segments of the medical laboratory
industry. Up
35
until
approximately five years ago, the genetic and molecular testing niche was
considered to be part of the AP segment, but given its rapid growth; it is
now
more routinely broken out and accounted for as its own segment.
COMPARISON
OF THE MEDICAL LABORATORY MARKET SEGMENTS(1)
|
Attributes
|
Clinical
|
Anatomic
Pathology
|
Genetic/Molecular
|
|
Testing
Performed On
|
Blood,
Urine
|
Tissue/Cells
|
Chromosomes/Genes/DNA
|
|
Testing
Volume
|
High
|
Low
|
Low
|
|
Physician
Involvement
|
Low
|
High
- Pathologist
|
Low
Medium
|
|
Malpractice
Ins. Required
|
Low
|
High
|
Low
|
|
Other
Professionals Req.
|
None
|
None
|
Cyto/Molecular
geneticist
|
|
Level
of Automation
|
High
|
Low-Moderate
|
Moderate
|
|
Diagnostic
in Nature
|
Usually
Not
|
Yes
|
Yes
|
|
Types
of Diseases Tested
|
Many
Possible
|
Primarily
to Rule out Cancer
|
Rapidly
Growing
|
|
Typical
per Price/Test
|
$5
- $35/Test
|
$25
- $500/Test
|
$200
- $1,000/Test
|
|
Estimated
Size of Market
|
$25
- $30 Billion
|
$10
- $12 Billion
|
$4
- $5 Billion (2)
|
|
Estimated
Annual Growth Rate
|
4%
-5%
|
6%
- 7%
|
25+%
|
|
Established
Competitors
|
Quest
Diagnostics
|
Quest
Diagnostics
|
Genzyme
Genetics
|
|
LabCorp
|
LabCorp
|
Quest
Diagnostics
|
|
|
Bio
Reference Labs
|
Genzyme
Genetics
|
LabCorp
|
|
|
DSI
Laboratories
|
Ameripath
|
Major
Universities
|
|
|
Hospital
Labs
|
Local
Pathologists
|
||
|
Regional
Labs
|
|||
|
(1)
Derived
from
industry analyst reports.
(2) Includes
flow cytometry testing,
which historically has been classified under anatomic
pathology.
|
|||
Our
primary focus is to provide high complexity laboratory testing for the
community-based pathology and oncology marketplace. Within these key market
segments, we currently provide our services to pathologists and oncologists
in
the United States that perform bone marrow and/or peripheral blood sampling
for
the diagnosis of liquid tumors (leukemias and lymphomas) and archival tissue
referral for analysis of solid tumors such as breast cancer. A secondary
strategic focus targets community-based urologists, due to the availability
of
UroVysion®, a
FISH-based test for the initial diagnosis of bladder cancer and early detection
of recurrent disease. We focus on community-based practitioners for two (2)
reasons: First, academic pathologists and associated clinicians tend to have
their testing needs met within the confines of their university affiliation.
Secondly, most of the cancer care in the United States is administered by
community based practitioners, not in academic centers, due to ease of local
access. Moreover, within the community-based pathologist segment it
is not our intent to willingly compete with our customers for testing services
that they may seek to perform themselves. Fee-for-service pathologists for
example, derive a significant portion of their annual revenue from the
interpretation of biopsy specimens. Unlike other larger laboratories, which
strive to perform 100% of such testing services themselves, we do not intend
to
compete with our customers for such specimens. Rather, our high complexity
cancer testing focus is a natural extension of and complementary to many of
the
services that our community-based customers often perform within their own
practices. As such, we believe our relationship as a non-competitive consultant,
empowers these physicians to expand their testing breadth and provide a menu
of
services that matches or exceeds the level of service found in academic centers
of excellence around the country.
We
continue to make progress growing our testing volumes and revenue beyond our
historically focused effort in Florida due to our expanding field sales
footprint. As of June 30, 2007, NeoGenomics’ sales organization totaled
eleven (11) individuals. Recent, key hires included our Vice President of
Sales & Marketing and various sales managers and representatives in the
Northeastern, Southeastern and Western states. We intend to continue adding
sales representatives on a quarterly basis throughout the year. As
more sales representatives are added, the base of our business outside of
Florida will continue to grow and ultimately eclipse that which is generated
within the state.
We
are
successfully competing in the marketplace based on the quality and
comprehensiveness of our test results, and our innovative flexible levels of
service, industry-leading turn-around times, regionalization of laboratory
operations and ability to provide after-test support to those physicians
requesting consultation. 2006 saw the introduction of our Genetic Pathology
Solutions (GPS) product that provides summary interpretation of multiple testing
platforms all in one consolidated report. Response from clients has been very
favorable and provides another option for those customers that require a higher
degree of customized service.
36
Another
important service was initiated in December 2006 when we became the first
laboratory to offer technical-component only (tech-only) FISH testing to the
key
community-based pathologist market segment. NeoFISH has been enthusiastically
received and has provided our sales team with another differentiating product
to
meet the needs of our target community-based pathologists. With NeoFISH these
customers are able to retain a portion of the overall testing revenue from
such
FISH specimens themselves, which serves to much better align their interests
with those of NeoGenomics than what might otherwise be possible with larger
laboratory competitors.
We
believe NeoGenomics average 3-5 day turn-around time for our cytogenetics
services remains an industry-leading benchmark. The timeliness of results
continues to increase the usage patterns of cytogenetics and act as a driver
for
other add-on testing requests by our referring physicians. Based on anecdotal
information, we believe that typical cytogenetics labs have 7-14 day turn-around
times on average with some labs running as high as twenty-one (21) days.
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 result in our referring physicians requesting more of our testing services
in order to augment or confirm other diagnostic tests, thereby we believe giving
us a significant competitive advantage in marketing our services against those
of other competing laboratories.
In
2006
we began an aggressive campaign to form new laboratories around the country
that
will allow us to regionalize our operations to be closer to our customers.
High
complexity laboratories within the cancer testing niche have frequently operated
a core facility on one or both coasts to service the needs of their customers
around the country. Informal surveys of customers and prospects uncovered a
desire to do business with a laboratory with national breadth but with a more
local presence. In such a scenario, specimen integrity, turnaround-time of
results, client service support, and interaction with our medical staff are
all
enhanced. In 2006, NeoGenomics achieved the milestone of opening two (2)
other laboratories to complement our headquarters in Fort Myers,
Florida. NeoGenomics facilities in Nashville, Tennessee and Irvine,
California received the appropriate state and CLIA licensure and are now
receiving live specimens. As situations dictate and opportunities arise, we
will
continue to develop and open new laboratories, seamlessly linked together by
our
optimized Laboratory Information System (LIS), to better meet the regionalized
needs of our customers.
2006
also
saw the initial establishment of the NeoGenomics Contract Research Organization
(“CRO”) division based at our Irvine, CA facility. This division was created to
take advantage of our core competencies in genetic and molecular high complexity
testing and act as a vehicle to compete for research projects and clinical
trial
support contracts in the biotechnology and pharmaceutical industries. The CRO
division will also act as a development conduit for the validation of new tests
which can then be transferred to our clinical laboratories and be offered to
our
clients. We envision the CRO as a way to infuse some intellectual property
into
the mix of our services and in time create a more “vertically integrated”
laboratory that can potentially offer additional clinical services of a more
proprietary nature. Our agreement with Power3 further expanded the
scope of this entity and provides us with joint venture partner. We
will launch this venture in the fourth quarter of FY 07.
As
NeoGenomics grows, we anticipate offering additional tests that broaden our
focus from genetic and molecular testing to more traditional types of anatomic
pathology testing that are complementary to our current test offerings. At
no
time do we expect to intentionally compete with fee-for-service pathologists
for
services of this type and Company sales efforts will operate under a strict
“right of first refusal” philosophy that supports rather than undercuts the
practice of community-based pathology. We believe that by adding additional
types of tests to our product offering we will be able to capture increases
in
our testing volumes through our existing customer base as well as more easily
attract new customers via the ability to package our testing services more
appropriately to the needs of the market.
37
Historically,
the above approach has borne out well for the Company. For most of FY
2004, we only performed one type of test in-house, cytogenetics, which resulted
in only one test being performed per customer requisition for most of the year
and average revenue per requisition of approximately $490. With the
subsequent addition of FISH testing in FY 2005 and flow cytometry to our
pre-existing cytogenetics testing in FY 2006, the number of tests we performed
per requisition increased, which in turn drove an increase in our average
revenue/requisition by 29% in FY 2005 to approximately $632 and by a further
7%
in FY 2006 to approximately $677/requisition. The following is a
summary of our key operating metrics for the twelve months ended December 31,
2006 and December 31, 2005 and for the three and six months ended June 30,
2007
and June 30, 2006, respectively:
|
FY
2006
|
FY
2005
|
%
Inc (Dec)
|
||||||||||
|
Customer
Requisitions Rec’d (Cases)
|
9,563
|
2,982
|
220.7 | % | ||||||||
|
Number
of Tests Performed
|
12,838
|
4,082
|
214.5 | % | ||||||||
|
Average
Number of Tests/Requisition
|
1.34
|
1.37
|
(2.1 | %) | ||||||||
|
Total
Testing Revenue
|
$ |
6,475,996
|
$ |
1,885,324
|
243.5 | % | ||||||
|
Average
Revenue/Requisition
|
$ |
677.19
|
$ |
632.23
|
7.1 | % | ||||||
|
Average
Revenue/Test
|
$ |
504.44
|
$ |
461.86
|
9.2 | % | ||||||
|
For
the
Six-Months
Ended
June
30, 2007
|
For
the
Six-Months
Ended
June
30, 2006
|
%
Inc (Dec)
|
For
the
Three-
Months
Ended
June
30, 2007
|
For
the
Three-
Months
Ended
June
30, 2006
|
%
Inc (Dec)
|
|||||||||||||||||||
|
Requisitions
Received (cases)
|
6,551
|
4,420
|
48.2 | % |
3,468
|
2,472
|
40.3 | % | ||||||||||||||||
|
Number
of Tests Performed
|
8,678
|
6,139
|
41.4 | % |
4,482
|
3,475
|
29.0 | % | ||||||||||||||||
|
Avg.
# of Tests / Requisition
|
1.32
|
1.39
|
(4.6 | )% |
1.29
|
1.41
|
(8.5 | )% | ||||||||||||||||
|
Total
Testing Revenue
|
$ |
4,586,694
|
$ |
3,111,293
|
47.4 | % | $ |
2,344,032
|
$ |
1,767,492
|
32.6 | % | ||||||||||||
|
Avg
Revenue/Requisition
|
$ |
700.15
|
$ |
703.91
|
(0.5 | )% | $ |
675.90
|
$ |
715.00
|
(5.5 | )% | ||||||||||||
|
Avg
Revenue/Test
|
$ |
528.54
|
$ |
506.81
|
4.3 | % | $ |
522.99
|
$ |
508.63
|
2.8 | % | ||||||||||||
We
believe this bundled approach to testing represents a clinically sound practice.
In addition, as the average number of tests performed per requisition increases,
this should drive large increases in our revenue and afford the Company
significant synergies and efficiencies in our operations and sales and marketing
activities. For instance, initial testing for many hematologic cancers may
yield
total revenue ranging from approximately $1,800 - $3,600/requisition and is
generally comprised of a combination of some or all of the following tests:
cytogenetics, fluorescence in-situ hybridization (FISH), flow cytometry and,
per
client request, morphology testing. Whereas in FY 2004, we only addressed
approximately $500 of this potential revenue per requisition; in FY 2005 we
addressed approximately $1,200 - $1,900 of this potential revenue per
requisition; and in FY 2006, we could address this revenue stream (see below),
dependent on medical necessity criteria and guidelines:
|
Average
Revenue/Test
|
||||
|
Cytogenetics
|
$ |
400-$500
|
||
|
Fluorescence
In Situ Hybridization (FISH)
|
||||
|
-
Technical component
|
$ |
300-$1000
|
||
|
-
Professional component
|
$ |
200-$500
|
||
|
Flow
cytometry
|
||||
|
-
Technical component
|
$ |
400-$700
|
||
|
-
Professional component
|
$ |
100-$200
|
||
|
Morphology
|
$ |
400-$700
|
||
|
Total
|
$ |
1,800-$3,600
|
||
38
Business
of NeoGenomics
Services
We
currently offer four (4) primary types of testing services: cytogenetics, flow
cytometry, FISH testing and molecular testing.
Cytogenetics
Testing. Cytogenetics testing involves analyzing
chromosomes taken from the nucleus of cells and looking for abnormalities in
a
process called karyotyping. A karyotype evaluates the entire
forty-six (46) human chromosomes by number and banding patterns to identify
abnormalities associated with disease. In cytogenetics testing, we
typically analyze the chromosomes of twenty (20) different
cells. Examples of cytogenetics testing include bone marrow aspirate
or peripheral blood analysis to diagnose various types of leukemia and lymphoma,
and amniocentesis testing of pregnant women to diagnose genetic anomalies such
as Down syndrome in a fetus.
Cytogenetics
testing by large national reference laboratories and other competitors has
historically taken anywhere from 10-14 days on average to obtain a complete
diagnostic report. We believe that as a result of this timeframe,
many practitioners have refrained to some degree from ordering such tests
because the results traditionally were not returned within an acceptable
diagnostic window. NeoGenomics has designed our laboratory operations
in order to complete cytogenetics tests for most types of biological samples,
produce a final diagnostic report and make it available via fax or online
viewing within 3-5 days. These turnaround times are among the best in
the industry and we believe that, with further demonstration of our consistency
in generating results, more physicians will incorporate cytogenetics testing
into their diagnostic regimens and thus drive incremental growth in our
business.
Flow
Cytometry Testing. Flow cytometry testing analyzes
clusters of differentiation on cell surfaces. Gene expression of many
cancers creates protein-based clusters of differentiation on the cell surfaces
that can then be traced back to a specific lineage or type of
cancer. Flow cytometry is a method of separating liquid specimens or
disaggregated tissue into different constituent cell types. This
methodology is used to determine which of these cell types is abnormal in a
patient specific manner. Flow cytometry is important in developing an
accurate diagnosis, defining the patient’s prognosis, and clarifying what
treatment options may be optimal. Flow cytometry testing is performed
using sophisticated lasers and will typically analyze over 100,000 individual
cells in an automated fashion. Flow cytometry testing is highly
complementary with cytogenetics and the combination of these two testing
methodologies allows the results from one test to complement the findings of
the
other methodology, which can lead to a more accurate snapshot of a patient’s
disease state.
FISH
Testing. As an adjunct to traditional chromosome
analysis, we offer Fluorescence In Situ Hybridization (FISH) testing to
extend our capabilities beyond routine cytogenetics. FISH testing
permits identification of the most frequently occurring numerical chromosomal
abnormalities in a rapid manner by looking at specific genes that are implicated
in cancer. FISH was originally used as an additional staining
methodology for metaphase analysis (cells in a divided state after they have
been cultured), but the technique is now routinely applied to interphase
analysis (non-dividing quiescent cells). During the past 5 years,
FISH testing has begun to demonstrate its considerable diagnostic
potential. The development of molecular probes by using DNA sequences
of differing sizes, complexity, and specificity, coupled with technological
enhancements (direct labeling, multicolor probes, computerized signal
amplification, and image analysis) make FISH a powerful investigative and
diagnostic tool.
Molecular
Testing. Molecular testing primarily involves the
analysis of DNA to screen for and diagnose single gene disorders such as cystic
fibrosis and Tay-Sachs disease as well as abnormalities in liquid and solid
tumors. There are approximately 1.0 - 2.0 million base pairs of DNA
in each of the estimated 25,000 genes located across the 46 chromosomes in
the
nucleus of every cell. Molecular testing allows us to look for
variations in this DNA that are associated with specific types of
diseases. Today there are molecular tests for about 500 genetic
diseases. However, the majority of these tests remain available under
the limited research use only designation and are only offered on a restricted
basis to family members of someone who has been diagnosed with a genetic
condition. About 50 molecular tests are now available for the
diagnosis, prognosis or monitoring of various types of cancers and physicians
are becoming more comfortable ordering such adjunctive tests. We
currently provide these tests on an outsourced basis. We anticipate
in the near future performing some of the more popular tests within our
facilities as the number of requests continues to increase. Although
reimbursement rates for these new molecular tests still need to improve, we
believe that molecular testing is an important and growing market segment with
many new diagnostic tests being developed every year. We are
committed to providing the latest and most accurate testing to clients and
we
will invest accordingly when market demand warrants.
39
Distribution
Methods
The
Company currently performs its testing services at each of its three (3) main
clinical laboratory locations: Fort Myers, FL, Nashville, TN and Irvine, CA,
and
then produces a report for the requesting physician. The Company currently
out
sources all of its molecular testing to third parties, but expects to validate
some of this testing in-house during the next several years to meet client
demand.
Competition
We
are
engaged in segments of the medical testing laboratory industry that are highly
competitive. Competitive factors in the genetic and molecular testing business
generally include reputation of the laboratory, range of services offered,
pricing, convenience of sample collection and pick-up, quality of analysis
and
reporting and timeliness of delivery of completed reports.
Our
competitors in the United States are numerous and include major medical testing
laboratories and biotechnology research companies. Many of these competitors
have greater financial resources and production capabilities. These companies
may succeed in developing service offerings that are more effective than any
that we have or may develop and may also prove to be more successful than we
are
in marketing such services. In addition, technological advances or different
approaches developed by one or more of our competitors may render our products
obsolete, less effective or uneconomical.
We
estimate that the United States market for genetics and molecular testing is
divided among approximately 300 laboratories. However, approximately 80% of
these laboratories are attached to academic institutions and only provide
clinical services to their affiliate university hospitals. We further believe
that less than 20 laboratories market their services nationally. We believe
that
the industry as a whole is still quite fragmented, with the top 20 laboratories
accounting for approximately 50% of market revenues.
We
intend
to continue to gain market share by offering industry leading turnaround times,
a broad service menu, high-quality test reports, and enhanced post-test
consultation services. In addition, we have a fully integrated and interactive
virtual Laboratory Information System that enables us to report real time
results to customers in a secure environment.
Suppliers
The
Company orders its laboratory and research supplies from large national
laboratory supply companies such as Fisher Scientific, Inc., Invitrogen and
Beckman Coulter and does not believe any disruption from any one of these
suppliers would have a material effect on its business. The Company orders
the
majority of its FISH probes from Abbott Laboratories and as a result of their
dominance of that marketplace and the absence of any competitive alternatives,
if they were to have a disruption and not have inventory available it could
have
a material effect on our business. This risk cannot be completely offset due
to
the fact that Abbott Laboratories has patent protection which limits other
vendors from supplying these probes.
Dependence
on Major Customers
We
currently market our services to pathologists, oncologists, urologists,
hospitals and other clinical laboratories. During 2006, we performed 12,838
individual tests. Ongoing sales efforts have decreased dependence on any given
source of revenue. Notwithstanding this fact, several key customers still
account for a disproportionately large case volume and revenues. In 2005, four
customers accounted for 65% of our total revenue. For 2006, 3 customers
represented 61% of our revenue with each party representing greater than 15%
of
such revenues. However, as a result of our rapid increase in revenues from
other
customers, these 3 customers only represented 41% of our monthly revenue in
December 2006. Given the substantial increase in customers in the first quarter
of 2007, we expect this percentage to continue to decline. In the event that
we
lost one of these customers, we would potentially lose a significant percentage
of our revenues.
Trademarks
The
“NeoGenomics” name and logo has been trademarked with the United States Patent
and Trademark Office.
40
Number
of Employees
As
of
December 31, 2006, we had 48 full-time employees. In addition, our Acting
Principal Financial Officer and a pathologist serve as consultants to the
Company on a part-time basis. On December 31, 2005, we had 23 employees. Our
employees are not represented by any union and we believe our employee relations
are good.
As
of
June 30, 2007, we had 77 full-time employees. During the remainder of FY 2007,
we plan to add additional laboratory technologists and laboratory assistants
to
assist us in handling a greater volume of tests and to perform sponsored
research projects.
Government
Regulation
Our
business is subject to government regulation at the federal, state and local
levels, some of which regulations are described under “Clinical Laboratory
Operations,” “Anti-Fraud and Abuse Laws”, “The False Claims Act”,
“Confidentiality of Health Information” and “Food and Drug Administration”
below.
Clinical
Laboratory Operations
Genetics
and Molecular Testing. The Company operates clinical
laboratories in Fort Myers, FL, Nashville, TN, and Irvine, CA. All
locations have obtained CLIA certification under the federal Medicare program,
the Clinical Laboratories Improvement Act of 1967 and the Clinical Laboratory
Amendments of 1988 (collectively “CLIA ‘88”) as well as state licensure as
required in FL, TN, and CA. CLIA ‘88 provides for the regulation of
clinical laboratories by the U.S. Department of Health and Human
Services (“HHS”). Regulations promulgated under the federal Medicare
guidelines, CLIA ‘88 and the clinical laboratory licensure laws of the various
states affect our genetics laboratories. The federal and state certification
and
licensure programs establish standards for the operation of clinical
laboratories, including, but not limited to, personnel and quality
control. Compliance with such standards is verified by periodic
inspections by inspectors employed by federal or state regulatory
agencies. In addition, federal regulatory authorities require
participation in a proficiency testing program approved by HHS for many of
the
specialties and subspecialties for which a clinical laboratory seeks approval
from Medicare or Medicaid and certification under CLIA
`88. Proficiency testing programs involve actual testing of specimens
that have been prepared by an entity running an approved program for testing
by
a clinical laboratory.
A
final
rule implementing CLIA `88, published by HHS on February 28, 1992, became
effective September 1, 1992. This rule has been revised on several
occasions and further revision is expected. The CLIA `88 rule applies
to virtually all clinical laboratories in the United States, including our
clinical laboratory locations. We have reviewed our operations as
they relate to CLIA `88, including, among other things, the CLIA `88 rule’s
requirements regarding clinical laboratory administration, participation in
proficiency testing, patient test management, quality control, quality assurance
and personnel for the types of testing we undertake, and believe that all of
our
clinical laboratory locations are in compliance with these
requirements. Our clinical laboratory locations may not pass
inspections conducted to ensure compliance with CLIA `88 or with any other
applicable licensure or certification laws. The sanctions for failure
to comply with CLIA `88 or state licensure requirements might include the
inability to perform services for compensation or the suspension, revocation
or
limitation of any clinical laboratory locations, CLIA `88 certificate or state
license, as well as civil and/or criminal penalties.
Regulation
of Genetic Testing. In 2000, the Secretary of Health
and Human Services Advisory Committee on Genetic Testing published
recommendations for increased oversight by the Centers for Disease Control
and
the FDA for all genetic testing. This committee continues to meet and
discuss potential regulatory changes, but final recommendations have not been
issued.
With
respect to genetic therapies, which may become part of our business in the
future, in addition to FDA requirements, the National Institutes of Health
(“NIH”) has established guidelines providing that transfers of recombinant DNA
into human subjects at NIH laboratories or with NIH funds must be approved
by
the NIH Director. The NIH has established the Recombinant DNA
Advisory Committee to review gene therapy protocols. Although we do
not currently offer any gene therapy services, if we decide to enter this
business in the future, we would expect that all of our gene therapy protocols
will be subject to review by the Recombinant DNA Advisory
Committee.
41
Anti-Fraud
and Abuse Laws
Existing
federal laws governing Medicare and Medicaid, as well as some other state and
federal laws, also regulate certain aspects of the relationship between
healthcare providers, including clinical and anatomic laboratories, and their
referral sources, including physicians, hospitals and other laboratories. One
provision of these laws, known as the “anti-kickback law,” contains extremely
broad proscriptions. Violation of this provision may result in criminal
penalties, exclusion from participation in Medicare and Medicaid programs,
and
significant civil monetary penalties.
In
January 1990, following a study of pricing practices in the clinical laboratory
industry, the Office of the Inspector General (“OIG”) of HHS issued a report
addressing how these pricing practices relate to Medicare and Medicaid. The
OIG
reviewed the industry’s use of one fee schedule for physicians and other
professional accounts and another fee schedule for patients/third-party payers,
including Medicare, in billing for testing services, and focused specifically
on
the pricing differential when profiles (or established groups of tests) are
ordered.
Existing
federal law authorizes the Secretary of HHS to exclude providers from
participation in the Medicare and Medicaid programs if they charge state
Medicaid programs or Medicare fees “substantially in excess” of their “usual and
customary charges.” On September 2, 1998, the OIG issued a final rule in which
it indicated that this provision has limited applicability to services for
which
Medicare pays under a Prospective Payment System or a fee schedule, such as
anatomic pathology services and clinical laboratory services. In several
Advisory Opinions, the OIG has provided additional guidance regarding the
possible application of this law, as well as the applicability of the
anti-kickback laws to pricing arrangements. The OIG concluded in a 1999 Advisory
Opinion that an arrangement under which a laboratory offered substantial
discounts to physicians for laboratory tests billed directly to the physicians
could potentially trigger the “substantially in excess” provision and might
violate the anti-kickback law, because the discounts could be viewed as being
provided to the physician in exchange for the physician’s referral to the
laboratory of non-discounted Medicare business, unless the discounts could
otherwise be justified. The Medicaid laws in some states also have prohibitions
related to discriminatory pricing.
Under
another federal law, known as the “Stark” law or “self-referral prohibition”,
physicians who have an investment or compensation relationship with an entity
furnishing clinical laboratory services (including anatomic pathology and
clinical chemistry services) may not, subject to certain exceptions, refer
clinical laboratory testing for Medicare patients to that entity.Similarly,
laboratories may not bill Medicare or Medicaid or any other party for services
furnished pursuant to a prohibited referral. Violation of these provisions
may
result in disallowance of Medicare and Medicaid claims for the affected testing
services, as well as the imposition of civil monetary penalties and application
of False Claims submissions penalties. Some states also have laws similar to
the
Stark law.
The
False Claims Act
The
Civil False Claims Act enacted in 1864, pertains to any federally funded
program and defines “Fraudulent” as: knowingly submitting a false claim, i.e.
actual knowledge of the falsity of the claim, reckless disregard or deliberate
ignorance of the falsity of the claim. These are the claims to which criminal
penalties are applied. Penalties include permissive exclusion in federally
funded programs by Center for Medicare Services (“CMS”) as well as
$11,500 plus treble damages per false claim submitted, and can include
imprisonment. High risk areas include but are not limited to accurate use and
selection of CPT codes, ICD-9 codes provided by the ordering physician, billing
calculations, performance and billing of reported testing, use of reflex
testing, and accuracy of charges at fair market value.
We
will
seek to structure our arrangements with physicians and other customers to be
in
compliance with the Anti-Kickback Statute, Stark law, State laws, and the Civil
False Claims Act and to keep up-to-date on developments concerning their
application by various means, including consultation with legal counsel.
However, we are unable to predict how these laws will be applied in the future,
and the arrangements into which we enter could become subject to scrutiny there
under.
In
February 1997 (as revised in August 1998), the OIG released a model compliance
plan for laboratories that is based largely on corporate integrity agreements
negotiated with laboratories that had settled enforcement action brought by
the
federal government related to allegations of submitting false claims. We believe
that we comply with the aspects of the model plan that we deem appropriate
to
the conduct of our business.
42
Confidentiality
of Health Information
The
Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) contains
provisions that affect the handling of claims and other patient information
that
are, or have been used or disclosed by healthcare providers. These provisions,
which address security and confidentiality of PHI (Protected Health Information
or “patient information”) as well as the administrative aspects of claims
handling, have very broad applicability and they specifically apply to
healthcare providers, which include physicians and clinical laboratories. Rules
implementing various aspects of HIPAA are continuing to be
developed.
The
HIPAA
Rules include the following components which have already been implemented
at
our locations and industry wide: The Privacy Rule which granted patients rights
regarding their information also pertains to the proper uses and disclosures
of
PHI by healthcare providers in written and verbal formats required
implementation no later than April 14, 2003 for all covered entities except
small health plans which had another year for implementation. The Electronic
Health Care Transactions and Code Sets Standards which established standard
data
content and formats for submitting electronic claims and other administrative
healthcare transactions required implementation no later than October 16, 2003
for all covered entities. On April 20, 2005, CMS required compliance with the
Security Standards which established standards for electronic uses and
disclosures of PHI for all covered entities except small health plans who had
an
additional year to meet compliance. Currently, the industry, including all
of
our locations, is working to comply with the National Provider Identification
number to replace all previously issued provider (organizational and individual)
identification numbers. This number is being issued by CMS and must be used
on
all covered transactions no later than May 24, 2007 by all covered entities
except small health plans which have an additional year to meet compliance
with
this rule.
In
addition to the HIPAA rules described above, we are subject to state laws
regarding the handling and disclosure of patient records and patient health
information. These laws vary widely, and many states are passing new laws in
this area. Penalties for violation include sanctions against a
laboratory’s licensure as well as civil or criminal penalties. We believe we are
in compliance with current state law regarding the confidentiality of health
information and continue to keep abreast of new or changing state laws as they
become available.
Food
and Drug Administration
In
January 1998, the FDA issued a revised draft Compliance Policy Guide (“CPG”)
that sets forth the FDA’s intent to undertake a heightened enforcement effort
with respect to the improper Commercialization of In Vitro Diagnostic Devices
prior to receipt of FDA premarket clearance or approval. During September,
2006,
the FDA issued the Draft Guidance for Industry, Clinical Laboratories, and
FDA
Staff on In Vitro Diagnostic Multivariate Index Assays (IVDMIAs) as a
current initiative of the FDA to regulate test systems that employ data, derived
in part from one or more in vitro assays, and an algorithm that usually, but
not
necessarily, runs on software to generate a result that diagnoses a disease
or
condition or is used in the cure, mitigation, treatment, or prevention of
disease. In the future, we plan to perform some testing services using test
kits
purchased from manufacturers for which FDA premarket clearance or approval
for
commercial distribution in the United States has not been obtained by the
manufacturers (“investigational test kits”). Under current FDA regulations and
policies, such investigational test kits may be sold by manufacturers for
investigational use only if certain requirements are met to prevent commercial
distribution. The manufacturers of these investigational test kits are
responsible for marketing them under conditions meeting applicable FDA
requirements. That draft CPG as well as the current Draft Guidance on IVDMIAs
is
not presently in effect but, if implemented as written, would place greater
restrictions on the distribution of such investigational test kits or devices.
If we were to be substantially limited in or prevented from purchasing
investigational test kits or devices by reason of the FDA finalizing these
guidelines, there could be an adverse effect on our ability to access new
technology, which could have a material adverse effect on our
business.
We
also
perform some testing services using reagents, known as analyte specific reagents
(“ASRs”), purchased from companies in bulk rather than as part of a test kit. In
November 1997, the FDA issued a new regulation placing restrictions on the
sale,
distribution, labeling and use of ASRs. Most ASRs are treated by the FDA as
low
risk devices, requiring the manufacturer to register with the agency, its ASRs
(and any other devices), conform to good manufacturing practice requirements,
and comply with medical device reporting of adverse events.
43
Other
Our
operations currently are, or may be in the future, subject to various federal,
state and local laws, regulations and recommendations relating to data
protection, safe working conditions, laboratory and manufacturing practices
and
the purchase, storage, movement, use and disposal of hazardous or potentially
hazardous substances used in connection with our research work and manufacturing
operations, including radioactive compounds and infectious disease agents.
Although we believe that our safety procedures comply with the standards
prescribed by federal, state and local regulations, the risk of contamination,
injury or other accidental harm cannot be eliminated completely. In the event
of
an accident, we could be held liable for any damages that result and any
liabilities could exceed our resources. Failure to comply with such laws could
subject an entity covered by these laws to fines, criminal penalties and/or
other enforcement actions.
Pursuant
to the Occupational Safety and Health Act, laboratories have a general duty
to
provide a work place to their employees that is safe from hazard. Over the
past
few years, the Occupational Safety and Health Administration (“OSHA”) has issued
rules relevant to certain hazards that are found in the laboratory. In addition,
OSHA has promulgated regulations containing requirements healthcare providers
must follow to protect workers from blood borne pathogens. Failure to comply
with these regulations, other applicable OSHA rules or with the general duty
to
provide a safe work place could subject employers, including a laboratory
employer such as the Company, to substantial fines and penalties.
Properties
In
August
2003, we entered into a three (3) year lease for 5,200 square feet at our
laboratory facility in Fort Myers, Florida. On June 29, 2006 we
signed an amendment to the original lease which extended the lease through
June
30, 2011. The amendment included the rental of an additional 4,400 square feet
adjacent to our current facility. This space will allow for future expansion
of
our business. The lease was further amended on January 17, 2007 but this
amendment did not materially alter the terms of the lease, which has total
payments of approximately $653,000 over the remaining life of the lease,
including annual increases of rental payments of 3% per year. Such amount
excludes estimated operating and maintenance expenses and property
taxes.
As
part
of the acquisition of The Center for CytoGenetics, Inc. by the Company on April
18, 2006, we assumed the lease of an 850 square foot facility in Nashville,
Tennessee. The lease expires on August 31, 2008. The average monthly rental
expense is approximately $1,350 per month. This space was not adequate for
our
future plans and the Company is currently not using the facility and is actively
trying to sublease this facility. On June 15, 2006, we entered into a lease
for
a new facility totaling 5,386 square feet of laboratory space in Nashville,
Tennessee. This space will be adequate to accommodate our current plans for
the
Tennessee laboratory. As part of the lease, we have the right of first refusal
on an additional 2,420 square feet, if needed, directly adjacent to the
facility. The lease is a five year lease and results in total payments by us
of
approximately $340,000.
On
August
1, 2006, the Company entered into a lease for 1,800 square feet of laboratory
space in Irvine, California. The lease is a nine month lease and
results in total payments by the Company of approximately $23,000. This lease
will expire on May 1, 2007.
On
April
5, 2007, we entered into a lease for 8,195 square feet of laboratory space
in
Irvine, California. The lease is a five year lease and results in total payments
by the Company of approximately $771,000 including estimated operating and
maintenance expenses and property taxes. This lease will expire on
April 30, 2012.
On
May
17, 2007, we entered into a sublease for approximately 9,000 square feet in
Fort
Myers. The lease is a 7 month lease with the option to extend the
lease for an additional 3 years by September 30, 2007 and results in total
payments of approximately $45,000. The space will allow the Company
to expand its operations to support further growth.
Legal
Proceedings
On
October 26, 2006, Accupath Diagnostics Laboratories, Inc. d/b/a US Labs, a
California corporation (“US Labs”) filed a complaint in the Superior Court of
the State of California for the County of Los Angeles (the “Court”) against the
Company and Robert Gasparini, as an individual, and certain other employees
and
non-employees of NeoGenomics with respect to claims arising from discussions
with current and former employees of US Labs. US Labs alleges, among other
things, that NeoGenomics engaged in unfair competition because it was provided
with access to certain salary information of four recently hired sales personnel
prior to the time of hire. We believe that US Labs’ claims against NeoGenomics
lack merit, and that there are well-established laws that affirm the rights
of
employees to seek employment with any company they desire and employers to
offer
such employment to anyone they desire. US Labs seeks unspecified monetary
relief. As part of the complaint, US Labs also sought preliminary injunctive
relief against NeoGenomics and requested that the Court bar NeoGenomics from,
among other things: (a) inducing any US Labs’ employees to resign
employment with US Labs; (b) soliciting, interviewing or employing US Labs’
employees for employment; (c) directly or indirectly soliciting US Labs’
customers with whom the four new employees of NeoGenomics did business while
employed at US Labs; and (d) soliciting, initiating and/or maintaining economic
relationships with US Labs’ customers that are under contract with US
Labs.
On
November 15, 2006, the Court heard arguments on US Labs request for a
preliminary injunction and denied the majority of US Labs’ requests for such
injunction on the grounds that US Labs was not likely to prevail at trial.
The
Court did, however, issue a much narrower preliminary injunction which prevents
NeoGenomics from “soliciting” the US Labs’ customers of such new sales personnel
until such time as a full trial could be held. This preliminary injunction
is
limited only to the “solicitation” of the US Labs’ customers of the sales
personnel in question and does not in any way prohibit NeoGenomics from doing
business with any such customers to the extent they have sought or seek a
business relationship with NeoGenomics on their own initiative. Furthermore,
NeoGenomics is not in any way prohibited from recruiting any additional
personnel from US Labs through any lawful means. We believe that none of US
Labs’ claims will be affirmed at trial; however, even if they were, NeoGenomics
does not believe such claims would result in a material impact to our business.
NeoGenomics further believes that this lawsuit is nothing more than a blatant
attempt by a large corporation to impede the progress of a smaller and more
nimble competitor, and we intend to vigorously defend ourselves.
Discovery
commenced in December 2006 and discovery and motion filing is ongoing. While
the
Company received unsolicited and inaccurate salary information for three
individuals that were ultimately hired, no evidence of misappropriation of
trade
secrets has been discovered by either side. As such, the Company is currently
contemplating filing motions to narrow or end the litigation, and expects to
ultimately prevail at trial.
The
Company is also a defendant in one lawsuit from a former employee relating
to
compensation related claims. The Company does not believe this lawsuit is
material to its operations or financial results and intends to vigorously pursue
its defense of the matter.
The
Company expects none of the aforementioned claims to be affirmed at trial;
however, even if they were, NeoGenomics does not believe such claims would
result in a material impact to our business. At this time, we cannot
accurately predict our legal fees, but if these cases were to proceed to trial,
we estimate that our legal fees could be as much as $600,000 to $750,000 in
FY
2007.
44
MANAGEMENT
Officers
And Directors
The
following table sets forth the names, ages, and titles of each of our directors
and executive officers and employees expected to make a significant contribution
to us.
|
Name
|
Age
|
Position
|
|
Board
of Directors:
|
||
|
Robert
P. Gasparini
|
52
|
President
and Principal Executive Officer, Board Member
|
|
Steven
C. Jones
|
44
|
Acting
Principal Financial Officer, Board Member
|
|
Michael
T. Dent
|
42
|
Chairman
of the Board
|
|
George
G. O’Leary
|
44
|
Board
Member
|
|
Peter
M. Peterson
|
50
|
Board
Member
|
|
William
J. Robison
|
71
|
Board
Member
|
|
Marvin
E. Jaffe
|
70
|
Board
Member
|
|
Other
Executives:
|
||
|
Robert
J. Feeney
|
39
|
Vice-President
of Sales and Marketing
|
|
Jerome
J. Dvonch
|
38
|
Principal
Accounting Officer
|
|
Matthew
William Moore
|
33
|
Vice-President
of Research and Development
|
Family
Relationships
There
are
no family relationships between or among the members of the Board of Directors
or other executives. With the exception of Mr. Robison, Dr. Jaffe and Mr.
O’Leary, the directors and other executives of the Company are not directors
or
executive officers of any company that files reports with the
SEC. Mr. Robison also serves on the Board of MWI Veterinary (NASDAQ
GM: MWIV) Supply Inc. and Dr. Jaffe serves on the board of Immunomedics, Inc.
(NASDAQ GM: IMMU). Mr. O’Leary also serves on the Boards of NeoMedia
(OTC:NEOM.OB), Smartire (OTC:SMTR.OB), NS8 (OTC:NSEO.OB) and Futuremedia
(NASDAQ: FMDA)
Legal
Proceedings
None
of
the members of the Board of Directors or other executives has been involved
in
any bankruptcy proceedings, criminal proceedings, any proceeding involving
any
possibility of enjoining or suspending members of our Board of Directors or
other executives from engaging in any business, securities or banking
activities, and have not been found to have violated, nor been accused of having
violated, any federal or state securities or commodities laws.
Elections
Members
of our Board of Directors are elected at the annual meeting of stockholders
and
hold office until their successors are elected. Our officers
are appointed by the Board of Directors and serve at the pleasure of the Board
and are subject to employment agreements, if any, approved and ratified by
the
Board.
Robert
P. Gasparini, M.S. - President and Chief Science Officer, Board
Member
Mr.
Gasparini is the President and Chief Science Officer of NeoGenomics. Prior
to
assuming the role of President and Chief Science Officer, Mr. Gasparini was
a
consultant to the Company since May 2004. Prior to NeoGenomics, Mr. Gasparini
was the Director of the Genetics Division for US Pathology Labs, Inc. (US Labs)
from January 2001 to December 2004. During this period, Mr. Gasparini started
the Genetics Division for US Labs and grew annual revenues of this division
to
$30 million over a 30 month period. Prior to US Labs, Mr. Gasparini was the
Molecular Marketing Manager for Ventana Medical Systems from 1999 to 2001.
Prior
to Ventana, Mr. Gasparini was the Assistant Director of the Cytogenetics
Laboratory for the Prenatal Diagnostic Center from 1993 to 1998 an affiliate
of
Mass General Hospital and part of Harvard University. While at the Prenatal
Diagnostic Center, Mr. Gasparini was also an Adjunct Professor at Harvard
University. Mr. Gasparini is a licensed Clinical Laboratory Director and an
accomplished author in the field of Cytogenetics. He received his BS degree
from
The University of Connecticut in Biological Sciences and his Master of Health
Science degree from Quinnipiac University in Laboratory
Administration.
Steven
C. Jones - Acting Principal Financial Officer, Board
Member
Mr.
Jones
has served as Acting Principal Financial Officer and Director since October
2003. He is a Managing Director in Medical Venture Partners, LLC, a venture
capital firm established in 2003 for the purpose of making investments in the
healthcare industry. Mr. Jones is also the co-founder and Chairman of the Aspen
Capital Group and has been President and Managing Director of Aspen Capital
Advisors since January 2001. Prior to that Mr. Jones was a chief financial
officer at various public and private companies and was a Vice President in
the
Investment Banking Group at Merrill Lynch & Co. Mr. Jones received his B.S.
degree in Computer Engineering from the University of Michigan in 1985 and
his
MBA from the Wharton School of the University of Pennsylvania in 1991. He is
also Chairman of the Board of Quantum Health Systems, LLC and
T3 Communications, LLC.
45
Michael
T. Dent M.D. - Chairman of the Board
Dr.
Dent
is our founder and Chairman of the Board. Dr. Dent was our President and Chief
Executive Officer from June 2001, when he founded NeoGenomics, to April 2004.
From April 2004 until April 2005, Dr. Dent served as our President and Chief
Medical Officer. Dr. Dent founded the Naples Women’s Center in 1996 and
continues his practice to this day. He received his training in Obstetrics
and
Gynecology at the University of Texas in Galveston. He received his M.D. degree
from the University of South Carolina in Charleston, S.C. in 1992 and a B.S.
degree from Davidson College in Davidson, N.C. in 1986. He is a member of the
American Association of Cancer Researchers and a Diplomat and fellow of the
American College of Obstetricians and Gynecologists. He sits on the Board of
the
Florida Life science Biotech Initiative.
George
G. O’Leary - Board Member
Mr.
O’Leary is a Director of NeoGenomics and is currently running his own consulting
firm, SKS Consulting of South Florida Corp. where he consults for NeoGenomics
as
well as several other companies. Prior to that he was President of US Medical
Consultants, LLC. Prior to assuming his duties with US Medical, he was a
consultant to the company and acting Chief Operating Officer. Prior to
NeoGenomics, Mr. O’Leary was the President and CFO of Jet Partners, LLC from
2002 to 2004. During that time he grew annual revenues from $12 million to
$17.5
million. Prior to Jet Partners, Mr. O’Leary was CEO and President of
Communication Resources Incorporated (CRI) from 1996 to 2000. During that time
he grew annual revenues from $5 million to $40 million. Prior to CRI, Mr.
O’Leary held various positions including VP of Operations for Cablevision
Industries from 1987 to 1996. Mr. O’Leary was a CPA with Peat Marwick Mitchell
from 1984 to 1987. Mr. O’Leary also serves on the Boards of NeoMedia
(OTC:NEOM.OB), Smartire (OTC:SMTR.OB), NS8 (OTC:NSEO.OB) and Futuremedia
(NASDAQ: FMDA) He received his BBA in Accounting from Siena College in Albany,
New York.
Peter
M. Peterson - Board Member
Mr.
Peterson is a Director of NeoGenomics and is the founder of Aspen Capital
Partners, LLC which specializes in capital formation, mergers &
acquisitions, divestitures, and new business start-ups. Mr. Peterson is also
the
Chairman and Founder of CleanFuel USA and the Chairman of Innovative Software
Technologies (OTCBB: INIV). Prior to forming Aspen Capital Partners, Mr.
Peterson was Managing Director of Investment Banking with H. C. Wainwright
&
Co. Prior to Wainwright, Mr. Peterson was president of First American Holdings
and Managing Director of Investment Banking. Previous to First American, he
served in various investment banking roles and was the co-founder of ARM
Financial Corporation. Mr. Peterson was one of the key individuals responsible
for taking ARM Financial public on the OTC market and the American Stock
Exchange. Under Mr. Peterson’s financial leadership, ARM Financial Corporation
was transformed from a diversified holding company into a national clinical
laboratory company with 14 clinical laboratories and ancillary services with
over $100 million in assets. He has also served as an officer or director for
a
variety of other companies, both public and private. Mr. Peterson earned a
Bachelor of Science degree in Business Administration from the University of
Florida.
William
J. Robison – Board Member
Mr.
Robison, who is retired, spent his entire forty-one (41) year career with
Pfizer, Inc. At Pfizer, he rose through the ranks of the sales
organization and became Senior Vice President of Pfizer Labs in
1986. In 1990, he became General Manager of Pratt Pharmaceuticals, a
then-new division of the U.S. Pharmaceuticals Group, and in 1992 he became
the
President of the Consumer Health Care Group. In 1996 he became a
member of Pfizer’s Corporate Management Committee and was promoted to the
position of Executive Vice President and head of Worldwide Corporate Employee
Resources. Mr. Robison retired from Pfizer in 2001 and currently
serves as a consultant and board member to various companies. Mr.
Robison is a board member and an executive committee member of the USO of
Metropolitan New York, Inc. He is also on the board of directors of
the Northeast Louisiana University foundation, a member of the Human Resources
Roundtable Group, the Pharmaceutical Human Resource
Council, the Personnel Round Table, and on the Employee Relations Steering
Committee for The Business Round Table. He also serves on the Board
of Directors of Pericor Therapeutics, Inc. and MWI Supply Veterinary Inc.
(NASDAQ GM: MWIV)
46
Marvin
E. Jaffe – Board Member
Dr.
Jaffe, who is also retired, spent his entire working career in the
pharmaceutical industry and has been responsible for the pre-clinical and
clinical development of new drugs and biologics in nearly every therapeutic
area. He began his career at Merck & Co and spent eighteen
(18) years with Merck, rising to the position of Senior Vice-President of
Medical Affairs. After leaving Merck, Dr. Jaffe became the founding
President of the R.W. Johnson Pharmaceutical Research Institute (PRI), a Johnson
& Johnson Company. PRI was established for the purpose of
providing globally integrated research and development support to several
companies within the J&J pharmaceutical sector including Ortho
Pharmaceutical, McNeil Pharmaceutical, Ortho Biotech and Cilag. Dr.
Jaffe retired from Johnson & Johnson in 1994 and currently serves as a
consultant and board member to various companies in the biopharmaceutical and
biotechnology industries. He is currently a Director of Immunomedics,
Inc. (NASDAQ Global Market: IMMU). He was also on the Boards of
Genetic Therapy, Inc., Vernalis Group, plc., Celltech Group, plc. and Matrix
Pharmaceuticals which were acquired by other companies. He is on the
Scientific Advisory Boards of Health Care Ventures, Endpoint Merchant Group,
Newron Pharmaceuticals and PenWest Pharmaceuticals.
Robert
J. Feeney, Ph.D - Vice President of Sales and
Marketing
Mr.
Feeney has served as Vice President of Sales and Marketing since January 3,
2007. Prior to NeoGenomics, he served in a dual capacity as the Director of
Marketing and the Director of Scientific & Clinical Affairs for US Labs, a
division of Laboratory Corporation of America (LabCorp). Prior to that, Dr.
Feeney held a variety of roles including the National Manager of Clinical
Affairs and the Central Regional Sales Manager position where he managed up
to
33% of the sales force. In his first full year with US Labs, he grew revenue
from $1 million to $17 million in this geography. Prior to US Labs, Dr. Feeney
was employed with Eli Lilly and Company as an Associate Marketing Manager and
with Impath Inc., now a wholly owned division of Genzyme Genetics, where he
held
various positions including Regional Sales Manager and District Sales Manager
assignments. Dr. Feeney has over 14 years of sales and marketing experience
with
17 years in the medical industry. Dr. Feeney received his Bachelors of Science
degree in Biology from Dickinson College and his doctoral degree in Cellular
and
Developmental Biology from the State University of New York.
Matthew
William Moore, Ph.D. - Vice President of Research and
Development
Mr.
Moore
has served as Vice President of Research and Development since July 2006. Prior
to that he served as Vice President of Research and Development for Combimatrix
Molecular Diagnostics, a subsidiary of Combimatrix Corporation, a biotechnology
company, developing novel microarray, Q-PCR and Comparative Genomic
Hybridization based diagnostics. Prior to Combimatrix Molecular Diagnostics,
he
served as a senior scientist with US Labs, a division of Laboratory Corporation
of America (LabCorp) where he was responsible for the initial implementation
of
the Molecular in Situ Hybridization and Molecular Genetics programs.
Mr. Moore received his Bachelors of Science degree in Biotechnology, where
he
graduated with honors and his doctoral degree from the University of New South
Wales, Australia.
Jerome
J. Dvonch - Director of Finance, Principal Accounting
Officer
Mr.
Dvonch has served as director of finance since August 2005 and as acting
principal accounting officer since August 2006. From June 2004 through July
2005, Mr. Dvonch was Associate Director of Financial Planning and Analysis
with
Protein Design Labs, a bio-pharmaceutical company. From September 2000 through
June 2004, Mr. Dvonch held positions of increasing responsibility including
Associate Director of Financial Analysis and Reporting with Exelixis, Inc.,
a
biotechnology company. He also was Manager of Business Analysis for Pharmchem
Laboratories, a drug testing laboratory. Mr. Dvonch has extensive experience
in
strategic planning, SEC reporting and accounting in the life science industry.
He also has experience in mergers and acquisitions and with debt/equity
financing transactions. Mr. Dvonch is a Certified Public Accountant and received
his M.B.A. from the Simon School of Business at the University of Rochester.
He
received his B.B.A. in accounting from Niagara University.
47
Audit
Committee
Currently,
the Company’s Audit Committee of the Board of Directors is comprised of Steven
C. Jones and George O’Leary. The Board of Directors believes that both Mr. Jones
and Mr. O’Leary are “financial experts” (as defined in Regulation 228.401(e) (1)
(i) (A) of Regulation S-B). Mr. Jones is a Managing Member of Medical Venture
Partners, LLC, which serves as the general partner of Aspen Select Healthcare
LP, a partnership which controls approximately 34.85% of the voting stock of
the
Company. Thus Mr. Jones would not be considered an “independent” director under
Item 7(d) (3) (iv) of Schedule 14A of the Exchange Act. However, Mr. O’Leary
would be considered an “independent” director under Item 7(d) (3) (iv) of
Schedule 14A of the Exchange Act.
Compensation
Committee
Currently,
the Company’s Compensation Committee of the Board of Directors is comprised of
the Board Members except for Mr. Gasparini.
Code
of Ethics
We
adopted a Code of Ethics for our senior financial officers and the principal
executive officer during 2004, which was filed with the SEC as an exhibit to
the
Company’s Annual Report on Form 10KSB dated April 15, 2005.
Executive
Compensation
The
following table provides certain summary information concerning compensation
paid by the Company to or on behalf of our most highly compensated executive
officers for the fiscal years ended December 31, 2006, 2005, and
2004:
Summary
Compensation Table
|
Name
and Principal Capacity
|
Year
|
Salary
|
Other
Compensation
|
||||||
|
Robert
P. Gasparini
|
2006
|
$ |
183,500
|
$ | 87,900 | (1) | |||
|
President
& Chief Science Officer
|
2005
|
$ |
162,897
|
$ | 28,128 | (2) | |||
|
2004
|
$ | 22,500 | (3) |
--
|
|||||
|
Jerome
Dvonch
|
2005
|
$ |
92,846
|
$ | 20,850 | (4) | |||
|
Principal
Accounting Officer
|
2004
|
$ |
35,890
|
$ | 13,441 | (5) | |||
|
2003
|
-
|
-
|
|||||||
|
Steven
Jones
|
2006
|
$ | 71,000 | (6) |
-
|
||||
|
Acting
Principal Financial Officer and Director
|
2005
|
$ | 51,000 | (6) |
-
|
||||
|
2004
|
$ | 72,500 | (6) |
-
|
|||||
|
(1)
|
Mr.
Gasparini had other income from the exercise of 90,000 stock
options.
|
|
(2)
|
Mr.
Gasparini moved to Florida from California during 2005 and this represents
his relocation expenses paid by the
Company.
|
|
(3)
|
Mr.
Gasparini was appointed as President and Chief Science Officer on
January
3, 2005. During 2004, he acted as a consultant to the Company and
the
amounts indicated represent his consulting
income.
|
|
(4)
|
Mr.
Dvonch had other income from the exercise of 15,000 stock
options.
|
|
(5)
|
Mr.
Dvonch moved to Florida from California during 2005 and this represents
his relocation expenses paid by the
Company.
|
|
(6)
|
Mr.
Jones has acted as a consultant to the Company and the amounts indicated
represent his consulting income.
|
Employment
Agreements
Robert
P. Gasparini
We
entered into an employment agreement with Robert P. Gasparini on December 14,
2004 (the “Gasparini Employment Agreement”), to serve as our President and Chief
Science Officer. The Gasparini Employment Agreement has an initial
term of three years, effective January 3, 2005, provided, however that either
party may terminate the agreement by giving the other party sixty (60) days
written notice. It also specifies an initial base salary of
$150,000/year, with specified salary increases to $185,000/year over the first
eighteen (18) months of the contract. Mr. Gasparini is also entitled to receive cash bonuses for
any given fiscal year in
an amount equal to 15% of his base salary if he meets certain targets
established by the
48
Board
of
Directors. In addition, Mr. Gasparini was granted 1,000,000 Incentive
Stock Options that have a ten (10) year term so long as Mr. Gasparini remains
an
employee of the Company. Such options vest according to the following
schedule:
|
Time-Based
Vesting:
|
||
|
75,000
|
on
the Effective Date;
|
|
100,000
|
on
the first anniversary of the Effective Date;
|
|
|
125,000
|
on
the second anniversary of the Effective Date;
|
|
|
12,500
|
per
month from the 25th to 36th month from the Effective
Date;
|
|
|
Performance-Based
Vesting:
|
||
|
25,000
|
revenues
generated from FISH by December 15, 2004;
|
|
|
25,000
|
revenues
generated from FLOW by January 31, 2005;
|
|
|
25,000
|
revenues
generated from Amniocentesis by January 31, 2005;
|
|
|
25,000
|
hiring
a lab director by September 30, 2005;
|
|
|
25,000
|
bringing
in 4 new clients to the lab by June 30, 2005;
|
|
|
25,000
|
closing
on first acquisition by December 31, 2005;
|
|
|
In
Addition:
|
||
|
50,000
|
if
the Company achieves the consolidated revenue for FY 2005 outlined
by the
Board of Directors as part of the FY 2005 budget;
|
|
|
50,000
|
if
the Company achieves the net income projections for FY 2005 outlined
by
the Board of Directors as part of the FY 2005 budget;
|
|
|
50,000
|
if
the Company achieves the consolidated revenue goal for FY 2006 outlined
by
the Board of Directors as part of the Employee’s FY 2006 bonus
plan;
|
|
|
50,000
|
if
the Company achieves the consolidated net income goal for FY 2006
outlined
by the Board of Directors as part of the Employee’s FY 2006 bonus
plan;
|
|
|
50,000
|
if
the Company achieves the consolidated revenue goal for FY 2007 outlined
by
the Board of Directors as part of the Employee’s FY 2007 bonus
plan;
|
|
|
50,000
|
if
the Company achieves the consolidated net income goal for FY 2007
outlined
by the Board of Directors as part of the Employee’s FY 2007 bonus
plan;
|
|
|
50,000
|
when
the Company’s stock maintains an average closing bid price (as quoted on
NASDAQ Bulletin Board) of $0.75/share over the previous 30 trading
days;
|
|
|
50,000
|
when
the Company’s stock maintains an average closing bid price (as quoted on
NASDAQ Bulletin Board) of $1.50/share over the previous 30 trading
days.
|
|
The
Gasparini Employment Agreement also specifies that he is entitled to four (4)
weeks of paid vacation per year and other health insurance and relocation
benefits. In the event that Mr. Gasparini is terminated without cause by us,
we
have agreed to pay Mr. Gasparini’s base salary and maintain his employee
benefits for a period of six (6) months.
Securities
Authorized for Issuance Under Equity Compensation Plans(1)
|
Plan
Category
|
Number
of securities to be issued upon exercise of outstanding options,
warrants
and rights
|
Weighted
average exercise price of outstanding options, warrants and
rights
|
Number
of securities remaining available for future
issuance
|
|||||||||
|
Equity
compensation plans approved by security holders (2)
|
2,865,833
|
$ |
0.80
|
1,184,580
|
||||||||
|
Equity
compensation plans not approved by security holders (3)
|
N/A
|
N/A
|
N/A
|
|||||||||
|
Total
|
2,865,833
|
$ |
0.80
|
1,184,580
|
||||||||
|
(1)As
of September 10, 2007.
(2)Currently
the Company’s 2003 Equity Incentive Plan and the Stock Purchase Plan are
the only equity compensation plans in effect
|
||||||||||||
49
The
following table sets forth information as of September 10, 2007, with respect
to
each person known by the Company to own beneficially more than five percent
(5%)
of the Company’s outstanding Common Stock, each director and officer of the
Company and all directors and executive officers of the Company as a group.
The
Company has no other class of equity securities outstanding other than Common
Stock.
|
Title
of Class
|
Name
And Address Of Beneficial Owner
|
Amount
and Nature Of Beneficial Ownership
|
Percent
Of Class(1)
|
||||||
|
Common
|
Aspen
Select Healthcare, LP (2)
|
||||||||
|
1740
Persimmon Drive
|
|||||||||
|
Naples,
Florida 34109
|
11,153,279
|
32.84 | % | ||||||
|
Common
|
Aspen
Capital Advisors (3)
|
||||||||
|
1740
Persimmon Drive
|
|||||||||
|
Naples,
Florida 34109
|
250,000
|
*
|
|||||||
|
Common
|
Steven
C. Jones (4)
|
||||||||
|
1740
Persimmon Drive
|
|||||||||
|
Naples,
Florida 34109
|
11,941,577
|
34.85 | % | ||||||
|
Common
|
Michael
T. Dent M.D.(5)
|
||||||||
|
1726
Medical Blvd.
|
|||||||||
|
Naples,
Florida 34110
|
2,756,492
|
8.67 | % | ||||||
|
Common
|
George
O’Leary (6)
|
||||||||
|
6506
Contempo Lane
|
|||||||||
|
Boca
Raton, Florida 33433
|
225,000
|
*
|
|||||||
|
Common
|
Robert
P. Gasparini (7)
|
||||||||
|
20205
Wildcat Run
|
|||||||||
|
Estero,
FL 33928
|
795,000
|
2.48 | % | ||||||
|
Common
|
Peter
M. Peterson (8)
|
||||||||
|
2402
S. Ardson Place
|
|||||||||
|
Tampa,
FL 33629
|
11,178,279
|
32.89 | % | ||||||
|
Common
|
William
Robison (9)
|
||||||||
|
2601
Osprey Nest Ct.
|
|||||||||
|
Bonita
Springs, FL 34134
|
86,000
|
*
|
|||||||
|
Common
|
Marvin
Jaffe (10)
|
||||||||
|
71
Shoal Drive
|
|||||||||
|
Skillman,
NJ 08558
|
75,000
|
*
|
|||||||
|
Common
|
Robert
J. Feeney (11)
|
||||||||
|
7359
Fox Hollow Ridge
|
|||||||||
|
Zionsville,
IN 46077
|
15,625
|
*
|
|||||||
|
Common
|
Matthew
W. Moore (12)
|
||||||||
|
3751
Pine Street
|
|||||||||
|
Irvine,
Ca 92606
|
30,000
|
*
|
|||||||
50
|
Common
|
Jerome
J. Dvonch (13)
|
||||||||
|
11169
Lakeland Circle
|
|||||||||
|
Fort
Myers, FL 33913
|
49,914
|
*
|
|||||||
|
Common
|
Directors
and Officers as a Group (2 persons)
|
16,353,685
|
45.11 | % | |||||
|
Common
|
SKL
Family Limited Partnership and A. Scott Logan Revocable Living
Trust (14)
|
||||||||
|
984
Oyster Court
|
|||||||||
|
Sanibel,
FL 33957
|
3,500,000
|
10.83 | % | ||||||
|
Common
|
1837
Partners, LP., 1837 Partners, QP, LP. And 1837 Partner Ltd. (RMB
Capital)(15)
|
||||||||
|
10
S. Wacher Drive
|
|||||||||
|
Chicago,
IL 60606
|
2,789,600
|
8.83 | % | ||||||
|
|
* Less
than one percent (1%).
|
|
(1)
|
Beneficial
ownership is determined in accordance within the rules of the SEC
and
generally includes voting of investment power with respect to securities.
Shares of Common Stock subject to securities exercisable or convertible
into shares of Common Stock that are currently exercisable or exercisable
within sixty (60) days of September 10, 2006 are deemed to be beneficially
owned by the person holding such options for the purpose of computing
the
percentage of ownership of such persons, but are not treated as
outstanding for the purpose of computing the percentage ownership
of any
other person.
|
|
(2)
|
Aspen
Select Healthcare, LP (Aspen) has direct ownership of 8,503,279 shares
and
has certain warrants to purchase 2,650,000 shares. The general partner
of
Aspen is Medical Venture Partners, LLC, an entity controlled by Steven
C.
Jones.
|
|
(3)
|
Aspen
Capital Advisors has warrants to purchase 250,000 shares. Aspen
Capital Advisors is an entity controlled by Steven C.
Jones.
|
|
(4)
|
Steven
C. Jones, acting principal financial officer and director of the
Company,
has direct ownership of 486,000 shares and currently exercisable
warrants
to purchase an additional 52,298 shares, but as a member of the general
partner of Aspen, he has the right to vote all shares held by Aspen,
thus
8,989,279 shares and 2,952,298 currently exercisable warrant shares
have
been added to his total.
|
|
(5)
|
Michael
T. Dent, a director of the Company, has direct ownership of 2,258,535
shares, currently exercisable warrants to purchase 97,992 shares,
and
currently exercisable options to purchase 400,000
shares.
|
|
(6)
|
George
O’Leary, a director of the Company, has direct ownership of 300,000
warrants, of which 175,000 are currently exercisable. He also has
options
to purchase 50,000 shares, of which 50,000 shares are currently
exercisable.
|
|
(7)
|
Robert
Gasparini, President and Principal Executive Officer of the Company,
has
direct ownership of 10,000 shares, and has 855,000 options to purchase
shares, of which 785,500 are currently
exercisable.
|
|
(8)
|
Peter
M. Peterson is a member of the general partner of Aspen and has the
right
to vote all shares held by Aspen. Thus 10,003,279 shares and 3,550,000
currently exercisable warrant shares have been added to his total.
Mr.
Peterson has currently exercisable warrants to purchase an additional
25,000 shares.
|
|
(9)
|
William
J. Robison has direct ownership of 55,000 shares and warrants to
purchase
86,000 shares, of which 11,000 are currently
exercisable.
|
|
(10)
|
Marvin
Jaffe has warrants to purchase 75,000 shares of which none are currently
exercisable.
|
|
(11)
|
Robert
J. Feeney, Vice President of Sales and Marketing, has 275,000 options
to
purchase shares, of which 15,625 are currently
exercisable.
|
|
(12)
|
Matthew
W. Moore, Vice President of Research and Development, has 105,000
options
to purchase shares, of which 30,000 are currently
exercisable.
|
|
(13)
|
Jerome
J. Dvonch, Principal Accounting Officer, has direct ownership of
3,000
shares and 145,000 options to purchase shares, of which 46,914 shares
are
currently exercisable.
|
|
(14)
|
SKL
Family Limited Partnership has direct ownership of 2,000,000 shares
and
currently exercisable warrants to purchase 1,000,000 shares. A.
Scott Logan living revocable trust has direct ownership of 500,000
shares. A. Scott Logan is the general partner SKL Limited
Family Partnership and trustee for A. Scott Logan Living Revocable
Trust. A. Scott Logan has only 1% of the assets of SKL Family
Limited Partnership. An additional 1% of asset is owned by A.
Scott Logan sons and 98% of asserts is owned by a grantor retained
annuity
trust
|
|
(15)
|
1837
Partners, L.P. has direct ownership of 1,766,049 shares, 1837 Partners,
QP
L.P. has direct ownership of 426,568 shares and 1837 Partners, LTD
has
direct ownership of 446,983 shares. RMB Capital makes all the
investment decisions for these
funds.
|
51
ON
THE REGISTRANT’S COMMON EQUITY AND OTHER STOCKHOLDER
MATTERS
Our
Common Stock is currently listed on the OTCBB under the symbol “NGMN.OB”. Set
forth below is a table summarizing the high and low bid quotations for our
Common Stock during its last two fiscal years.
|
YEAR
2007
|
High
Bid
|
Low
Bid
|
|
2nd
Quarter
2007
|
$1.70
|
$1.38
|
|
1st
Quarter
2007
|
$1.83
|
$1.45
|
|
YEAR
2006
|
High
Bid
|
Low
Bid
|
|
4th
Quarter
2006
|
$2.05
|
$0.94
|
|
3rd
Quarter
2006
|
$1.25
|
$0.60
|
|
2nd
Quarter
2006
|
$0.78
|
$0.45
|
|
1st
Quarter
2006
|
$0.72
|
$0.12
|
|
YEAR
2005
|
High
Bid
|
Low
Bid
|
|
4th
Quarter
2005
|
$0.35
|
$0.18
|
|
3rd
Quarter
2005
|
$0.59
|
$0.24
|
|
2nd
Quarter
2005
|
$0.60
|
$0.26
|
|
1st
Quarter
2005
|
$0.70
|
$0.25
|
The
above
table is based on over-the-counter quotations. These quotations reflect
inter-dealer prices, without retail mark-up, markdown or commissions, and may
not represent actual transactions. All historical data was obtained from the
www.BigCharts.com web site.
As
of
June 30, 2007, there were 410 stockholders of record of our Common Stock,
excluding shareholders who hold their shares in brokerage accounts in “street
name”. We have never declared or paid cash dividends on our Common
Stock. We intend to retain all future earnings to finance future growth and
therefore we do not anticipate paying any cash dividends in the foreseeable
future.
Dividend
Policy
We
have
never declared or paid cash dividends on our Common Stock. We intend to retain
all future earnings to finance future growth and therefore, do not anticipate
paying any cash dividends in the foreseeable future.
Sales
of Unregistered Securities
Except
as
otherwise noted, all of the following shares were issued and options and
warrants granted pursuant to the exemption provided for under Section 4 (2)
of
the Securities Act as a “transaction not involving a public
offering”. No commissions were paid, and no underwriter participated,
in connection with any of these transactions. Each such issuance was made
pursuant to individual contracts which are discrete from one another and are
made only with persons who were sophisticated in such transactions and who
had
knowledge of and access to sufficient information about the Company to make
an
informed investment decision. Among this information was the fact that the
securities were restricted securities.
During
2004, we sold 3,040,000 shares of our Common Stock in a series of private
placements at $0.25 per share to unaffiliated third party investors. These
transactions generated net proceeds to the Company of approximately $740,000
after deducting certain transaction expenses. These transactions involved the
issuance of unregistered stock to accredited investors in transactions that
we
believed were exempt from registration under Rule 506 promulgated under the
Securities Act. All of these shares were subsequently registered on a SB-2
Registration Statement, which was declared effective by the SEC on August 1,
2005.
During
the period January 1, 2005 to May 31, 2005, we sold 450,953 shares of our Common
Stock in a series of private placements at $0.30 - $0.35/share to unaffiliated
third party investors. These transactions generated net proceeds to the Company
of approximately $146,000. These transactions involved the issuance of
unregistered stock to accredited investors intransactions that we believed
were
exempt from registration under Rule 506 promulgated under the Securities Act.
All of these shares were subsequently registered in a registration statement
on
Form SB-2, which was declared effective by the SEC on August 1,
2005.
On
March
23, 2005, the Company entered into a Loan Agreement with Aspen to provide up
to
$1.5 million of indebtedness pursuant to a Credit Facility. As part of the
Credit Facility transaction, the Company also issued to Aspen a five (5) year
Warrant to purchase up to 2,500,000 shares of our Common Stock at an original
exercise price of $0.50 per share. Steven C. Jones, our Acting Principal
Financial Officer and a Director of the Company, is a general partner of
Aspen.
On
June
6, 2005, we entered into a Standby Equity Distribution Agreement with Cornell
Capital Partners pursuant to which the Company may, at its discretion,
periodically sell to Cornell Capital Partners shares of our Common Stock for
a
total purchase price of up to $5.0 million. Upon execution of the Standby
Equity Distribution Agreement, Cornell received 381,888 shares of our Common
Stock as a commitment fee under the Standby Equity Distribution Agreement.
The
Company also issued 27,278 shares of the Company’s Common Stock to Spartan
Securities under a placement agent agreement relating to the Standby Equity
Distribution Agreement.
On
January 18, 2006, the Company entered into a binding letter agreement with
Aspen
which provided, among other things, that:
(a)
Aspen
waived certain pre-emptive rights in connection with the sale of $400,000 of
Common Stock at a purchase price of $0.20 per share and the granting of 900,000
warrants with an exercise price of $0.26 per share to SKL Limited Partnership,
LP, a New Jersey limited partnership (SKL), in exchange for five (5) year
warrants to purchase 150,000 shares at an exercise price of $0.26 per share
(the
Waiver Warrants).
(b)
Aspen
had the right, up to April 30, 2006, to purchase up to $200,000 of restricted
shares of our Common Stock at a purchase price per share of $0.20 per share
(1,000,000 shares) and receive a five (5) year warrant to purchase 450,000
shares of our Common Stock at an exercise price of $0.26 per share in connection
with such purchase (the Equity Purchase Rights). On March 14, 2006, Aspen
exercised its Equity Purchase Rights.
(c)
Aspen
and the Company amended the Loan Agreement, dated March 23, 2005 (the Loan
Agreement) by and between the parties to extend the maturity date until
September 30, 2007 and to modify certain covenants (such Loan Agreement as
amended, the “Credit Facility Amendment”).
(d)
Aspen
had the right, until April 30, 2006, to provide up to $200,000 of additional
secured indebtedness to the Company under the Credit Facility Amendment and
to
receive a five (5) year warrant to purchase up to 450,000 shares of our Common
Stock with an exercise price of $0.26 per share (the New Debt
Rights). On March 30, 2006, Aspen exercised its New Debt Rights and
entered into the definitive transaction documentation for the Credit Facility
Amendment and other such documents required under the Aspen
Agreement.
(e)
The
Company agreed to amend and restate the warrant agreement, dated March 23,
2005,
to provide that all 2,500,000 warrant shares (the Existing Warrants) were vested
and the exercise price per share was reset to $0.31 per share.
(f)
The
Company agreed to amend the Registration Rights Agreement, dated March 23,
2005
(the Registration Rights Agreement), between the parties to incorporate the
Existing Warrants, the Waiver Warrants and any new shares or warrants issued
to
Aspen in connection with the Equity Purchase Rights or the New Debt
Rights.
(g)
All
Waiver Warrants, the Existing Warrants and all warrants issued to Aspen and
SKL
in connection with the purchase of equity or debt securities are exercisable
at
the option of the holder and each such warrant contains provisions that allow
for a physical exercise, a net cash exercise or a net share
settlement. We used the Black-Scholes pricing model to estimate the
fair value of all such warrants as of the commitment date for each, using the
following approximate assumptions: dividend yield of 0 %, expected volatility
of
14.6 – 19.3%, risk-free interest rate of 4.5%, and a term of 3 - 5
years.
During
the period from January 18 - 21, 2006, the Company entered into agreements
with
four (4) other shareholders who are parties to a Shareholders’ Agreement, dated
March 23, 2005, to exchange five (5) year warrants to purchase an aggregate
of
150,000 shares of stock at an exercise price of $0.26 per share for such
shareholders’ waiver of their pre-emptive rights under the Shareholders’
Agreement.
52
On
January 21, 2006 the Company entered into a subscription agreement (the
Subscription) with SKL whereby SKL purchased 2.0 million shares (the
Subscription Shares) of our Common Stock at a purchase price of $0.20 per share
for $400,000. Under the terms of the Subscription, the Subscription Shares
are
restricted for a period of twenty-four (24) months and then carry piggyback
registration rights to the extent that exemptions under Rule 144 are not
available to SKL. In connection with the Subscription, the Company also issued
a
five (5) year warrant to purchase 900,000 shares of our Common Stock at an
exercise price of $0.26 per share. SKL has no previous affiliation with the
Company.
During
the period from May 31, 2007 through June 6, 2007, we sold 2,666,667 shares
of
our Common Stock to unaffiliated accredited investors (the Investors) under
the
Private Placement at $1.50 per share. The Private Placement generated gross
proceeds to the Company of $4 million, and after estimated transaction costs,
the Company received net cash proceeds of $3.75 million. The Company
also issued warrants to purchase 98,417 shares of our Common Stock to Noble
in
consideration for its services as exclusive placement agent under the Private
Placement. Additionally, the Company issued to
Aspen warrants to purchase
250,000 shares at $1.50 per share in consideration for
Aspen’s services in the fund raising process of the Private
Placement. The Private Placement involved the issuance of the
aforementioned unregistered securities in transactions that we believed were
exempt from registration under Rule 506 promulgated under the Securities Act.
All of the aforementioned stockholders received registration rights and
therefore, all of the aforementioned shares issued in connection with the
Private Placement are being registered hereunder.
On
June
6, 2007, the Company issued to LAM 500,000 shares of Common Stock at an exercise
price of $0.26 per share and received gross proceeds equal to $130,000 upon
the
exercise by LAM of warrants which had been previously purchased from Aspen
on
June 6, 2007.
On
August 31, 2007 the Company issued warrants to
purchase 533,334 shares of it's Common Stock to the investors who purchased
shares in the private palcement. Such warrants have an exercise price of
$1.50 per share and are exercisable for a period of two years.
Such warrants also have a provision for piggyback registration rights in
the first year and denamd registration right in the second year. No
shares underlying are being registered hereunder.
Securities
Authorized for Issuance Under Equity Compensation Plans
|
Plan
Category
|
Number
of securities to be issued upon exercise of outstanding options,
warrants
and rights
|
Weighted
average exercise price of outstanding options, warrants and
rights
|
Number
of securities remaining available for future
issuance
|
|||||||||
|
Equity
compensation plans approved by security holders
|
2,865,833
|
$ |
0.80
|
1,184,580
|
||||||||
|
Equity
compensation plans not approved by security holders
|
N/A
|
N/A
|
N/A
|
|||||||||
|
Total
|
2,865,833
|
$ |
0.80
|
1,184,580
|
||||||||
(a)
As of
September 10, 2007. Currently, the Company’s Equity Incentive Plan, as amended
and restated on October 31, 2006 is the only equity compensation plan in effect.
The Company’s Employee Stock Purchase Plan, dated October 31, 2006 started on
January 1, 2007.
53
During
2006 and 2005, Steven C. Jones, Acting Principal Financial Officer and a
Director of the Company, earned approximately $71,000 and $51,000, respectively,
in cash for various consulting work performed connection with his duties as
Acting Principal Financial Officer.
During
2006, George O’Leary, a Director of the Company, earned $20,900 in cash for
various management consulting work performed for the Company.
On
January 18, 2006, Mr. O’Leary received from the Company 50,000 incentive stock
options at $0.26 per share in compensation for services related to the equity
and debt financing the Company completed in January 2006.
On
April
15, 2003, we entered into a revolving credit facility with MVP 3, LP (“MVP 3”),
a partnership controlled by certain of our shareholders. Under the terms of
the
agreement MVP 3, LP agreed to make available up to $1.5 million of debt
financing with a stated interest rate of prime + 8% and such credit facility
had
an initial maturity of March 31, 2005. At December 31, 2004, we owed MVP 3,
approximately $740,000 under this loan agreement. This obligation was repaid
in
full through a refinancing on March 23, 2005.
On
March
23, 2005, we entered into an agreement with Aspen Select Healthcare, LP
(formerly known as MVP 3, LP) (“Aspen”) to refinance our existing indebtedness
of $740,000 and provide for additional liquidity of up to $760,000 to the
Company. Under the terms of the agreement, Aspen, a Naples,
Florida-based private investment fund made available to us up to $1.5 million
(subsequently increased to $1.7 million, as described below) of debt financing
in the form of a revolving credit facility (the “Credit Facility”) with an
initial maturity of March 31, 2007. Aspen is managed by its General
Partner, Medical Venture Partners, LLC, which is controlled by a director of
NeoGenomics. We incurred $53,587 of transaction expenses in
connection with establishing the Credit Facility, which have been capitalized
and are being amortized to interest expense over the term of the
agreement. As part of this transaction, we issued a five year warrant
to Aspen to purchase up to 2,500,000 shares of common stock at an initial
exercise price of $0.50/share, all of which are currently vested. We
estimated the fair value of this warrant to be $131,337 as of the original
commitment date by using the Black-Scholes pricing model using the following
approximate assumptions: spot price of $0.35/share, dividend yield of 0 %,
expected volatility of 22.7%, risk-free interest rate of 4.5%, and a term of
5
years. We recorded this $131,337 value of such Warrant as a discount
to the face amount of the Credit Facility. The Company is amortizing
such discount to interest expense over the 24 months of the Credit
Facility. As of December 31, 2006, $1,700,000 was available for use
and $1,675,000 had been drawn.
On
January 18, 2006, the Company entered into a binding letter agreement (the
Aspen
Agreement) with Aspen Select Healthcare, LP, which provided, among other things,
that:
(a)
Aspen
waived certain pre-emptive rights in connection with the sale of $400,000 of
Common Stock at a purchase price of $0.20/share and the granting of 900,000
warrants with an exercise price of $0.26/share to SKL in exchange for five
year
warrants to purchase 150,000 shares at an exercise price of $0.26/share (the
Waiver Warrants).
(b)
Aspen
had the right, up to April 30, 2006, to purchase up to $200,000 of restricted
shares of the Company’s Common Stock at a purchase price per share of
$0.20/share (1,000,000 shares) and receive a five year warrant to purchase
450,000 shares of the Company’s Common Stock at an exercise price of $0.26/share
in connection with such purchase (the Equity Purchase Rights). On March 14,
2006, Aspen exercised its Equity Purchase Rights.
(c)
Aspen
and the Company amended the Loan Agreement, dated March 23, 2005 (the Loan
Agreement), by and between the parties to extend the maturity date until
September 30, 2007 and to modify certain covenants (such Loan Agreement as
amended, the Credit Facility Amendment).
(d)
Aspen
had the right, until April 30, 2006, to provide up to $200,000 of additional
secured indebtedness to the Company under the Credit Facility Amendment and
to
receive a five year warrant to purchase up to 450,000 shares of the Company’s
Common Stock with an exercise price of $0.26/share (the New Debt
Rights). On March 30, 2006, Aspen exercised its New Debt Rights and
entered into the definitive transaction documentation for the Credit Facility
Amendment and other such documents required under the Aspen
Agreement.
(e)
The
Company agreed to amend and restate the warrant agreement, dated March 23,
2005,
to provide that all 2,500,000 warrant shares (the “Existing Warrants”) were
vested and the exercise price per share was reset to $0.31 per share.(f) The
Company agreed to amend the Registration Rights Agreement, dated March 23,
2005
(the “Registration Rights Agreement”), between the parties to incorporate the
Existing Warrants, the Waiver Warrants and any new shares or warrants issued
to
Aspen in connection with the Equity Purchase Rights or the New Debt
Rights.
(g)
All
Waiver Warrants, the Existing Warrants and all warrants issued to Aspen and
SKL
in connection with the purchase of equity or debt securities are exercisable
at
the option of the holder and each such warrant contains provisions that allow
for a physical exercise, a net cash exercise or a net share
settlement. We used the Black-Scholes pricing model to estimate the
fair value of all such warrants as of the commitment date for each, using the
following approximate assumptions: dividend yield of 0 %, expected volatility
of
14.6 – 19.3%, risk-free interest rate of 4.5%, and a term of 3 - 5
years.
54
We
borrowed an additional $100,000 from the Aspen credit facility in May 2006,
$25,000 in September 2006 and $50,000 in December 2006. At December 31, 2006,
$1,675,000 was outstanding on the credit facility, which bears interest at
prime
plus 6%, and $25,000 remained available. Subsequent to December 31, 2006 we
borrowed the remaining $25,000 available under the Aspen Facility.
During
the period from January 18 - 21, 2006, the Company entered into agreements
with
four other shareholders who are parties to a Shareholders’ Agreement, dated
March 23, 2005, to exchange five year warrants to purchase an aggregate of
150,000 shares of stock at an exercise price of $0.26/share for such
shareholders’ waiver of their pre-emptive rights under the Shareholders’
Agreement.
On
January 21, 2006 the Company entered into a subscription agreement (the
Subscription) with SKL whereby SKL purchased 2.0 million shares (the
Subscription Shares) of the Company’s Common Stock at a purchase price of
$0.20/share for $400,000. Under the terms of the Subscription, the Subscription
Shares are restricted for a period of twenty-four (24) months and then carry
piggyback registration rights to the extent that exemptions under Rule 144
are
not available to SKL. In connection with the Subscription, the Company also
issued a five (5) year warrant to purchase 900,000 shares of our Common Stock
at
an exercise price of $0.26 per share. SKL has no previous affiliation with
the
Company.
On
March
11, 2005, we entered into an agreement with HCSS, LLC and eTelenext, Inc. to
enable NeoGenomics to use eTelenext, Inc’s Accessioning Application, AP Anywhere
Application and CMQ Application. HCSS, LLC is a holding company created to
build
a small laboratory network for the 50 small commercial genetics laboratories
in
the United States. HCSS, LLC is owned 66.7% by Dr. Michael T. Dent, our
Chairman. By becoming the first customer of HCSS in the small laboratory
network, the Company saved approximately $152,000 in up front licensing fees.
Under the terms of the agreement, the Company paid $22,500 over three months
to
customize this software and will pay an annual membership fee of $6,000 per
year
and monthly transaction fees of between $2.50 - $10.00 per completed test,
depending on the volume of tests performed. The eTelenext system is an elaborate
laboratory information system (LIS) that is in use at many larger labs. By
assisting in the formation of the small laboratory network, the Company will
be
able to increase the productivity of its technologists and have on-line links
to
other small labs in the network in order to better manage its
workflow.
On
May 14,
2007 the Board of Director’s approved the grant of 100,000 warrants to each
non-employee director. There has not been any definitive agreement as
to the terms but 25% will vest immediately and the remaining warrants will
vest
an additional 25% over each of the next three years. The board also
approved an increase in its’ per board meeting fees to non-employee director’s
from $600 to $1,000 for each meeting.
In
connection
with the capital raising services of Aspen Capital Advisors for this offering,
they received: (a) warrants to purchase 250,000 shares of our Common
Stock, which such warrants have a five (5) year term, an exercise price equal
to
$1.50 per share, cashless exercise provisions, customary anti-dilution
provisions and the same other terms, conditions, rights and preferences as
those
shares sold to the Investors in the Private Placement, and (b) a cash
fee equal to $52,375. Steven Jones is general partner for Aspen
Capital Advisors.
The
following
director’s of NeoGenomics are independent: George O’Leary, William J.
Robison and Marvin Jaffe. The following directors are not
independent: Robert Gasparini, Michael Dent and Steven Jones.
The
audit
committee is comprised of two director’s, Steven Jones and George
O’Leary. Steven Jones is not considered an independent director but
is part of the committee.
The
compensation committee is comprised of all director’s except for Robert
Gasparini. Michael Dent, Steven Jones and Peter Peterson are not
independent director’s but are part of the committee.
55
Common
Stock
We
are
authorized to issue 100,000,000 shares of Common Stock, par value $0.001 per
share, of which 31,310,743 shares were issued and outstanding as of the date
of
this Post-Effective Amendment No. 2.
The
securities being offered hereby are Common Stock. The outstanding shares of
our
Common Stock are fully paid and non-assessable. The holders of Common Stock
are
entitled to one (1) vote per share for the election of Directors and with
respect to all other matters submitted to a vote of stockholders. Shares of
our
Common Stock do not have cumulative voting rights, which means that the holders
of more than 50% of such shares voting for the election of directors can elect
one hundred percent (100%) of the Directors if they choose to do so. Our Common
Stock does not have preemptive rights, meaning that the common shareholders’
ownership interest in the Company would be diluted if additional shares of
Common Stock are subsequently issued and the existing shareholders are not
granted the right, at the discretion of the Board of Directors, to maintain
their ownership interest in our Company.
Upon liquidation,
dissolution or winding-up of the Company, our assets, after the payment of
debts
and liabilities and any liquidation preferences of, and unpaid dividends on,
any
class of preferred stock then outstanding, will be distributed pro-rata to
the
holders of our Common Stock. The holders of our Common Stock do not have
preemptive or conversion rights to subscribe for any our securities and have
no
right to require us to redeem or purchase their shares. The holders
of Common Stock are entitled to share equally in dividends, if, as and when
declared by our Board of Directors, out of funds legally available therefore,
subject to the priorities given to any class of preferred stock which may be
issued.
Preferred
Stock
We
are
authorized to issue 10,000,000 shares of preferred stock, par value $0.001
per
share (the “Preferred Stock”). Preferred Stock may be issued
from time to time in one (1) or more series. The Board of Directors is
authorized to fix or alter the dividend rights, dividend rate, conversion
rights, voting rights, rights and terms of redemption (including sinking
fund provisions), the redemption price or prices, the liquidation preferences
of
any wholly unissued series of Preferred Stock, and the number of shares
constituting any such series and the designation thereof, or any of them; and
to
increase or decrease the number of shares of any series subsequent to the issue
of shares of that series, but not below the number of shares of such series
then
outstanding and which the Company may be obligated to issue under options,
warrants or other contractual commitments. In case the number of shares of
any
series shall be so decreased, the shares constituting such decrease shall resume
the status which they had prior to the adoption of the resolution originally
fixing the number of shares of such series. As of April 30,
2007, no such shares have been designated.
Warrants
As
of
September 10, 2007, we had 5,805,363 warrants outstanding, 5,305,363 of which
were vested. The exercise price of these warrants range from $0.01 to
$1.76 per share.
Options
As
of
September 10, 2007, we had 2,865,833 options outstanding. The
exercise price of these options range from $0.16 to $1.82 per
share.
Transfer
Agent
The
Company’s transfer agent is Standard Registrar & Transfer Company located at
12528 South 1840 East Draper, Utah, 84020. The
transfer agent’s telephone number is (801) 571-8844.
Reports
To Stockholders
We
intend
to furnish our stockholders with annual reports which will describe the nature
and scope of our business and operations for the prior year and will contain
a
copy of our audited financial statements for the most recent fiscal
year.
Indemnification
Of Directors And Executive Officers And Limitation On
Liability
Our
Articles of Incorporation eliminate the liability of our Directors and officers
for breaches of fiduciary duties as Directors and officers, except to the extent
otherwise required by the Nevada Revised Statutes and where the breach involves
intentional misconduct, fraud or a knowing violation of the law.
Nevada
Revised Statutes 78.750, 78.751 and 78.752 have similar provisions that provide
for discretionary and mandatory indemnification of officers, Directors,
employees, and agents of a corporation. Under these provisions, such persons
may
be indemnified by a corporation against expenses, including attorney’s fees,
judgment, fines and amounts paid in settlement, actually and reasonably incurred
by him in connection with the action, suit or proceeding, if he acted in good
faith and in a manner which he reasonably believed to be in or opposed to the
best interests of the corporation and with respect to any criminal action or
proceeding, had no reasonable cause to any action, suit or proceeding, had
no
reasonable cause to believe his conduct was unlawful.
To
the
extent that a Director, officer, employee or agent has been successful on the
merits or otherwise in defense of any action, suit or proceeding, or in defense
of any claim, issue or matter, he must be indemnified by us against expenses,
including attorney’s fees, actually and reasonably incurred by him in connection
with the defense.
Any
indemnification, unless ordered by a court or advanced by us, must be made
only
as authorized in the specific case upon a determination that indemnification
of
the Director, officer, employee or agent is proper in the circumstances. The
determination must be made:
|
|
·
|
By
the stockholders;
|
|
|
·
|
By
our Board of Directors by majority vote of a quorum consisting of
Directors who were not parties to that act, suit or
proceeding;
|
|
|
·
|
If
a majority vote of a quorum consisting of Directors who were not
parties
to the act, suit or proceeding cannot be obtained, by independent
legal
counsel in a written opinion; or
|
|
|
·
|
If
a quorum consisting of Directors who were not parties to the act,
suit or
proceeding cannot be obtained, by independent legal counsel in a
written
opinion;
|
|
|
·
|
Expenses
of officers and Directors incurred in defending a civil or criminal
action, suit or proceeding must be paid by us as they are incurred
and in
advance of the final disposition of the action, suit or proceeding,
upon
receipt of an undertaking by the Director or officer to repay the
amount
if it is ultimately determined by a court of competent jurisdiction
that
he is not entitled to be indemnified by
us.
|
|
|
·
|
To
the extent that a Director, officer, employee or agent has been successful
on the merits or otherwise in defense of any action, suit or proceeding
referred to in subsections 1 and 2, or in defense of any claim, issue
or
matter therein, we shall indemnify him against expenses, including
attorneys’ fees, actually and reasonably incurred by him in connection
with the defense.
|
Insofar
as indemnification for liabilities arising under the Securities Act, as amended,
may be permitted to Directors, officers, and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred
or
paid by a Director, officer, or controlling person in the successful defense
of
any action, suit, or proceeding) is asserted by such Director, officer, or
controlling person connected with the securities being registered, we will,
unless in the opinion of our counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by us is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such
issue.
56
The
validity of the shares offered hereby has been opined on for us by Burton,
Bartlett & Glogovac.
AVAILABLE
INFORMATION
We
have
filed with the SEC a registration statement on Form SB-2 under the Securities
Act with respect to the securities offered by this prospectus. This prospectus,
which forms a part of the registration statement, does not contain all the
information set forth in the registration statement, as permitted by the rules
and regulations of the SEC. For further information with respect to us and
the
securities offered by this prospectus, reference is made to the registration
statement.
Statements
contained in this prospectus as to the contents of any contract or other
document that we have filed as an exhibit to the registration statement are
qualified in their entirety by reference to the exhibits for a complete
statement of their terms and conditions. The registration statement and other
information may be read and copied at the SEC’s Public Reference Room at 100 F
Street, N.E., Washington, D.C. 20549. The public may obtain
information on the operation of the Public Reference Room by calling the SEC
at
1-800-SEC-0330. The SEC maintains a web site at http://www.sec.gov
that contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC.
57
|
PAGE(S)
|
|
|
FINANCIAL
STATEMENTS AS OF DECEMBER 31, 2006 AND FOR THE YEARS ENDED DECEMBER
31,
2006 AND 2005
|
|
|
Report
of Independent Registered Public Accounting Firm
|
F-1
|
|
Consolidated
Balance Sheet as of December 31, 2006
|
F-2
|
|
Consolidated
Statements of Operations for the years ended December 31, 2006
and
2005
|
F-3
|
|
Consolidated
Statements of Stockholders’ Equity for the years ended December 31, 2006
and 2005
|
F-4
|
|
Consolidated
Statements of Cash Flows for the years ended December 31, 2006
and
2005
|
F-5
|
|
Notes
to Consolidated Financial Statements
|
F-6
|
[Letterhead
of Kingery & Crouse P.A.]
REPORT
OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the
Board of Directors and Stockholders of NeoGenomics, Inc. and
subsidiary:
We
have
audited the accompanying consolidated balance sheet of NeoGenomics,
Inc. and subsidiary (collectively the “Company”), as of December 31,
2006, and the related consolidated statements of operations, stockholders’
equity and cash flows for the years ended December 31, 2006 and
2005. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States of America). Those
standards require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial
reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An
audit includes examining, on a test basis, evidence supporting the amounts
and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis
for our opinion.
In
our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of the Company as of December 31,
2006, and the results of its operations and its cash flows for the years ended
December 31, 2006 and 2005, in conformity with accounting principles generally
accepted in the United States of America.
/s/
Kingery & Crouse, P.A.
Tampa,
FL
April
2,
2007
F-1
NEOGENOMICS,
INC.
CONSOLIDATED
BALANCE SHEET AS OF DECEMBER 31, 2006
|
ASSETS
|
||||
|
CURRENT
ASSETS:
|
||||
|
Cash
and cash equivalents
|
$ |
126,266
|
||
|
Accounts
receivable (net of allowance for doubtful accounts of
$103,463)
|
1,549,758
|
|||
|
Inventories
|
117,362
|
|||
|
Other
current assets
|
102,172
|
|||
|
Total
current assets
|
1,895,558
|
|||
|
FURNITURE
AND EQUIPMENT (net of accumulated depreciation of
$494,942)
|
1,202,487
|
|||
|
OTHER
ASSETS
|
33,903
|
|||
|
TOTAL
ASSETS
|
$ |
3,131,948
|
||
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
||||
|
CURRENT
LIABILITIES:
|
||||
|
Accounts
payable
|
$ |
697,754
|
||
|
Accrued
compensation
|
133,490
|
|||
|
Accrued
expenses and other liabilities
|
67,098
|
|||
|
Due
to affiliates (net of discount of $39,285)
|
1,635,715
|
|||
|
Short-term
portion of equipment capital leases
|
94,430
|
|||
|
Total
current liabilities
|
2,628,487
|
|||
|
LONG
TERM LIABILITIES:
|
||||
|
Long-term
portion of equipment capital leases
|
448,947
|
|||
|
TOTAL
LIABILITIES
|
3,077,434
|
|||
|
STOCKHOLDERS’
EQUITY:
|
||||
|
Common
Stock, $.001 par value, (100,000,000 shares authorized;
27,061,476
|
||||
|
shares
issued and outstanding)
|
27,061
|
|||
|
Additional
paid-in capital
|
11,300,135
|
|||
|
Deferred
stock compensation
|
(122,623 | ) | ||
|
Accumulated
deficit
|
(11,150,059 | ) | ||
|
Total stockholders’ equity
|
54,514
|
|||
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
$ |
3,131,948
|
||
See
notes to consolidated financial statements.
F-2
NEOGENOMICS,
INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
FOR
THE YEARS ENDED DECEMBER 31, 2006 AND 2005
|
2006
|
2005
|
|||||||
|
NET
REVENUE
|
$ |
6,475,996
|
$ |
1,885,324
|
||||
|
COST
OF REVENUE
|
2,759,190
|
1,132,671
|
||||||
|
GROSS
MARGIN
|
3,716,806
|
752,653
|
||||||
|
OTHER
OPERATING EXPENSE
|
||||||||
|
General
and administrative
|
3,576,812
|
1,553,017
|
||||||
|
OTHER
(INCOME)/EXPENSE:
|
||||||||
|
Other
income
|
(55,970 | ) | (42 | ) | ||||
|
Interest
expense
|
325,625
|
196,838
|
||||||
|
Other
(income)/expense - net
|
269,655
|
196,796
|
||||||
|
NET
LOSS
|
$ | (129,661 | ) | $ | (997,160 | ) | ||
|
NET
LOSS PER SHARE - Basic and Diluted
|
$ | (0.00 | ) | $ | (0.04 | ) | ||
|
|
||||||||
|
WEIGHTED
AVERAGE NUMBER
|
||||||||
|
OF
SHARES OUTSTANDING - Basic and Diluted
|
26,166,031
|
22,264,435
|
||||||
See
notes to consolidated financial statements.
F-3
NEOGENOMICS,
INC.
CONSOLIDATED
STATEMENT OF STOCKHOLDERS’ EQUITY
FOR
THE YEARS ENDED DECEMBER 31, 2006 AND 2005
|
Common
|
Common
|
Additional
|
Deferred
|
|||||||||||||||||||||
|
Stock
|
Stock
|
Paid-In
|
Stock
|
Accumulated
|
||||||||||||||||||||
|
Shares
|
Amount
|
Capital
|
Compensation
|
Deficit
|
Total
|
|||||||||||||||||||
|
Balances,
December 31, 2004
|
21,539,416
|
$ |
21,539
|
$ |
9,603,664
|
$ | (28,620 | ) | $ | (10,023,238 | ) | $ | (426,655 | ) | ||||||||||
|
Common
Stock issuances
|
1,237,103
|
1,237
|
394,763
|
-
|
-
|
396,000
|
||||||||||||||||||
|
Transaction
fees and expenses
|
-
|
-
|
(191,160 | ) |
-
|
-
|
(191,160 | ) | ||||||||||||||||
|
Options
issued to Scientific Advisory Board members
|
-
|
-
|
-
|
2,953
|
-
|
2,953
|
||||||||||||||||||
|
Value
of non-qualified stock options
|
-
|
-
|
5,638
|
(5,638 | ) |
-
|
-
|
|||||||||||||||||
|
Warrants
issued for services
|
-
|
-
|
187,722
|
-
|
-
|
187,722
|
||||||||||||||||||
|
Stock
issued for services
|
60,235
|
60
|
15,475
|
-
|
-
|
15,535
|
||||||||||||||||||
|
Deferred
stock compensation related to warrants issued for services
|
-
|
-
|
(10,794 | ) |
10,794
|
-
|
-
|
|||||||||||||||||
|
Amortization
of deferred stock compensation
|
-
|
-
|
-
|
17,826
|
-
|
17,826
|
||||||||||||||||||
|
Net
loss
|
-
|
-
|
-
|
-
|
(997,160 | ) | (997,160 | ) | ||||||||||||||||
|
Balances,
December 31, 2005
|
22,836,754
|
22,836
|
10,005,308
|
(2,685 | ) | (11,020,398 | ) | (994,939 | ) | |||||||||||||||
|
Common
Stock issuances for cash
|
3,530,819
|
3,531
|
1,099,469
|
-
|
-
|
1,103,000
|
||||||||||||||||||
|
Common
Stock issued for acquisition
|
100,000
|
100
|
49,900
|
-
|
-
|
50,000
|
||||||||||||||||||
|
Transaction
fees and expenses
|
-
|
-
|
(80,189 | ) |
-
|
-
|
(80,189 | ) | ||||||||||||||||
|
Adjustment
of credit facility discount
|
-
|
-
|
2,365
|
-
|
-
|
2,365
|
||||||||||||||||||
|
Exercise
of stock options and warrants
|
546,113
|
546
|
66,345
|
-
|
-
|
66,891
|
||||||||||||||||||
|
Warrants
and stock issued for services
|
7,618
|
8
|
7,642
|
-
|
-
|
7,650
|
||||||||||||||||||
|
Payment
of Note on Cornell Capital fee
|
-
|
-
|
(50,000 | ) |
-
|
-
|
(50,000 | ) | ||||||||||||||||
|
Stock
issued to settle accounts payable
|
40,172
|
40
|
15,627
|
-
|
-
|
15,667
|
||||||||||||||||||
|
Value
of stock option grants
|
-
|
-
|
183,668
|
(183,668 | ) |
-
|
||||||||||||||||||
|
Stock
compensation expense
|
-
|
-
|
-
|
63,730
|
-
|
63,730
|
||||||||||||||||||
|
Net
loss
|
-
|
-
|
-
|
-
|
(129,661 | ) | (129,661 | ) | ||||||||||||||||
|
Balances,
December 31, 2006
|
27,061,476
|
$ |
27,061
|
$ |
11,300,135
|
(122,623 | ) | $ | (11,150,059 | ) | $ |
54,514
|
||||||||||||
See
notes to consolidated financial statements.
F-4
NEOGENOMICS,
INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
FOR
THE YEARS ENDED DECEMBER 31, 2006 AND 2005
|
2006
|
2005
|
|||||||
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
|
Net
loss
|
$ | (129,661 | ) | $ | (997,160 | ) | ||
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
||||||||
|
Depreciation
|
233,632
|
123,998
|
||||||
|
Impairment
of fixed assets
|
53,524
|
50,000
|
||||||
|
Amortization
of credit facility discounts and debt issue costs
|
72,956
|
57,068
|
||||||
|
Stock
based compensation
|
63,730
|
-
|
||||||
|
Non-cash
consulting and bonuses
|
7,650
|
85,877
|
||||||
|
Provision
for bad debts
|
444,133
|
132,633
|
||||||
|
Other
non-cash expenses
|
59,804
|
29,576
|
||||||
|
Changes
in current assets and liabilities, net:
|
||||||||
|
Accounts
receivable, net
|
(1,442,791 | ) | (627,241 | ) | ||||
|
Inventory
|
(57,362 | ) | (44,878 | ) | ||||
|
Other
current assets
|
(101,805 | ) | (54,529 | ) | ||||
|
Deposits
|
(31,522 | ) |
300
|
|||||
|
Deferred
revenues
|
(100,000 | ) | (10,000 | ) | ||||
|
Accounts
payable and accrued expenses
and
other liabilities
|
233,930
|
352,305
|
||||||
|
NET
CASH USED IN OPERATING ACTIVITIES:
|
(693,782 | ) | (902,051 | ) | ||||
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
|
Purchases
of property and equipment
|
(398,618 | ) | (117,628 | ) | ||||
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
|
Advances
from affiliates, net
|
175,000
|
760,000
|
||||||
|
Notes
payable
|
2,000
|
-
|
||||||
|
Repayments
of capital leases
|
(58,980 | ) |
-
|
|||||
|
Debt
issue costs
|
-
|
(53,587 | ) | |||||
|
Issuances
of common stock for cash, net of transaction expenses
|
1,089,702
|
211,662
|
||||||
|
NET
CASH PROVIDED BY FINANCING ACTIVITIES
|
1,207,722
|
918,075
|
||||||
|
NET
CHANGE IN CASH AND CASH EQUIVALENTS
|
115,322
|
(101,604 | ) | |||||
|
CASH
AND CASH EQUIVALENTS, BEGINNING OF YEAR
|
10,944
|
112,548
|
||||||
|
CASH
AND CASH EQUIVALENTS, END OF YEAR
|
$ |
126,266
|
$ |
10,944
|
||||
|
SUPPLEMENTAL
DISCLOSURE OF CASH FLOW INFORMATION:
|
||||||||
|
Interest
paid
|
$ |
269,316
|
$ |
136,936
|
||||
|
Income
taxes paid
|
$ |
-
|
$ |
-
|
||||
|
SUPPLEMENTAL
DISCLOSURE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
|
||||||||
|
Equipment
leased under capital leases
|
$ |
602,357
|
$ |
-
|
||||
|
Common
stock issued for acquisition
|
$ |
50,000
|
$ |
-
|
||||
|
Common
stock issued in settlement of financing fees
|
$ |
50,000
|
$ |
143,208
|
||||
__________________________________________________________________________________
See
notes
to consolidated financial statements.
F-5
NEOGENOMICS,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
AS
OF DECEMBER 31, 2006 AND FOR THE YEARS ENDED DECEMBER 31, 2006 AND
2005
NOTE
A - FORMATION AND OPERATIONS OF THE COMPANY
NeoGenomics,
Inc. (“NEO” or the “Subsidiary”) 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”, or the “Parent”). ACE was
formed in 1998 and succeeded to NEO’s name on January 3, 2002 (NEO and ACE are
collectively referred to as “we”, “us”, “our” or the “Company”).
Principles
of Consolidation
The
accompanying consolidated financial statements include the accounts of the
Parent and the Subsidiary. All significant intercompany accounts and balances
have been eliminated in consolidation.
Reclassification
Certain
amounts in the prior year’s consolidated financial statements have been
reclassified to conform to the current year presentation.
Revenue
Recognition
Revenue
is recognized for services rendered when test results are reported to the
ordering physician and the testing process is complete. The Company’s
sales are generally billed to three types of payers – clients, patients and
third parties, such as managed care companies, Medicare and
Medicaid. For clients, sales are recorded at the negotiated fee for
service rate for each client. Patient sales are recorded at the
Company’s patient fee schedule less any estimated discounts that we deem
appropriate for such “self-pay” individuals. Third party sales are
recorded based on established billing rates less estimated discounts and/or
contractual allowances.
While
we
use all available information in the estimation of our net revenues, including
our contractual status and historical collection experience with payers, by
their nature, adjustments to previously recorded estimated net revenue amounts
arise from time-to-time, and are recorded as an adjustment to current period
net
revenue when such amounts are both probable and estimable. In almost
all cases, such adjustments are not made until the time of final settlement
because, until that point, we usually do not have sufficient information that
would indicate that an adjustment is warranted. We continually refine
our estimated discounts and contractual allowances on a prospective basis to
take new information and/or new payment experiences into consideration in order
to make our prospective estimated net revenue as accurate as
possible. As a result, current period adjustments to prior period
revenue estimates are not material to the Company’s results of operations or our
financial condition in any period presented. Our 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 of 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.
Accounts
Receivable
We
record
accounts receivable net of estimated discounts and contractual allowances at
the
time services are performed. We provide for accounts receivable that
could become uncollectible in the future by establishing an allowance to reduce
the carrying value of such receivables. We estimate this allowance
based on the aging and composition of our accounts receivable and our historical
collection experience for each type of payer. Receivables are charged
off to the allowance account at the time they are deemed
uncollectible.
F-6
The
following table presents the dollars and % of the Company’s net accounts
receivable from customers outstanding by aging category at December 31, 2006
and
2005:
|
Days
Outstanding
|
2006
|
%
2006
|
2005
|
%
2005
|
||||||||||||||
|
1-30
|
$ |
573,096
|
36.3 | % | $ |
246,457
|
43.1 | % | ||||||||||
|
31-60
|
541,334
|
34.3 | % |
167,170
|
29.2 | % | ||||||||||||
|
61-90
|
212,102
|
13.4 | % |
61,828
|
10.8 | % | ||||||||||||
|
91-120
|
126,284
|
8.0 | % |
51,296
|
9.0 | % | ||||||||||||
|
>120
|
125,672
|
8.0 | % |
62,155
|
7.9 | % | ||||||||||||
The
table
above does not contain approximately $75,000 of accounts receivable from
non-customers as of December 31, 2006. Accounts receivable from
customers classified as “self-pay” customers are not material to the total
accounts receivable in any period presented.
Concentrations
of Credit Risk
We
currently market our services to pathologists, oncologists, urologists,
hospitals and other clinical laboratories. During 2006, we performed 12,838
individual tests. Ongoing sales efforts have decreased dependence on any given
source of revenue. Notwithstanding this fact, several key customers still
account for a disproportionately large case volume and revenues. In 2005, four
customers accounted for 65% of our total revenue. For the year ended December
31, 2006, three customers represented 61% of our revenue with each party
representing greater than 15% of such revenues. As revenue continues to
increase, these concentrations are expected to decease. In the event that we
lost one of these customers, we would potentially lose a significant percentage
of our revenues.
Financial
instruments that potentially subject us to significant concentrations of credit
risk consist principally of cash and cash equivalents. We maintain all of our
cash and cash equivalents in deposit accounts with several high quality
financial institutions, which accounts may at times exceed federally insured
limits. We have not experienced any losses in such accounts.
Inventories
Inventories,
which consist principally of supplies, are valued at the lower of cost (first
in, first out method) or market.
Use
of Estimates
The
preparation of consolidated 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 consolidated 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 the allowances discussed under Accounts Receivable above as well as
estimating depreciation periods of tangible assets, and long-lived impairments,
among others. The markets for our services are characterized by intense price
competition, evolving standards and changes in healthcare regulations, all
of
which could impact the future realizability of our assets. Estimates and
assumptions are reviewed periodically and the effects of revisions are reflected
in the consolidated financial statements in the period they are determined
to be
necessary. It is at least reasonably possible that our estimates could change
in
the near term with respect to these matters.
Financial
Instruments
We
believe the book value of our financial instruments included in our current
assets and liabilities approximates their fair values due to their short-term
nature.
We
also
believe the book value of our long-term liabilities approximates their fair
value as the consideration (i.e. interest and, in certain cases, warrants)
on
such obligations approximate the consideration at which similar types of
borrowing arrangements could be currently obtained.
F-7
Furniture
and Equipment
Furniture
and equipment are stated at cost. Major additions are capitalized, while minor
additions and maintenance and repairs, which do not extend the useful life
of an
asset, are expensed as incurred. Depreciation is provided using the
straight-line method over the assets’ estimated useful lives, which range from 3
to 7 years.
Long-Lived
Assets
Statement
of Financial Accounting Standards (SFAS) 144, “Accounting for the Impairment or
Disposal of Long-Lived Assets” requires that long-lived assets, including
certain identifiable intangibles, be reviewed for impairment whenever events
or
changes in circumstances indicate that the carrying value of the assets in
question may not be recoverable. As a result of experiencing losses from
operations, we evaluated our long-lived assets during 2006 and 2005 and
determined that certain equipment had a remaining net book value in excess
of
their fair value (as determined by our management). Accordingly, we recorded
an
impairment loss of approximately $54,000 during the year ended December 31,
2006
and $50,000 during the year ended December 31, 2005.
Income
Taxes
We
compute income taxes in accordance with Financial Accounting Standards Statement
No. 109 “Accounting for Income Taxes” (“SFAS 109”). Under SFAS 109, deferred
taxes are recognized for the tax consequences of temporary differences by
applying enacted statutory rates applicable to future years to differences
between the financial statement carrying amounts and the tax bases of existing
assets and liabilities. Also, the effect on deferred taxes of a change in tax
rates is recognized in income in the period that included the enactment date.
Temporary differences between financial and tax reporting arise primarily from
the use of different depreciation methods for furniture and equipment as well
as
impairment losses and the timing of recognition of bad debts.
Stock-Based
Compensation
Prior
to
January 2006, we used Statement of Financial Accounting Standards No. 148
“Accounting for Stock-Based Compensation - Transition and Disclosure” (SFAS No.
148) to account for our stock based compensation arrangements. This statement
amended the disclosure provision of FASB statement No. 123 to require prominent
disclosure about the effects on reported net income of an entity’s accounting
policy decisions with respect to stock-based employee compensation. As permitted
by SFAS No. 123 and amended by SFAS No. 148, we continued to apply the intrinsic
value method under Accounting Principles Board (“APB”) Opinion No. 25,
“Accounting for Stock Issued to Employees,” to account for our stock-based
employee compensation arrangements.
In
December 2004, the Financial Accounting Standards Board issued Statement
Number 123 (R) (“SFAS 123 (R)”), Share-Based Payments, which is effective for
the reporting period beginning on January 1, 2006. The statement requires us
to
recognize compensation expense in an amount equal to the fair value of
share-based payments such as stock options granted to employees. We had the
option to either apply SFAS 123 (R) on a modified prospective method or to
restate previously issued financial statements, and chose to utilize the
modified prospective method. Under this method, we are required to record
compensation expense (as previous awards continue to vest) for the unvested
portion of previously granted awards that remain outstanding at the date of
adoption.
In
January 2006, we adopted the expense recognition provisions of SFAS 123 (R),
and
for the year ended December 31, 2006 we recorded approximately $64,000 in stock
compensation expense. If we had expensed stock options for the year ended
December 31, 2005 the stock compensation expense would have been approximately
$25,000.
Statement
of Cash Flows
For
purposes of the statement of cash flows, we consider all highly liquid
investments purchased with an original maturity of three months or less to
be
cash equivalents.
F-8
Unamortized
Discount
Unamortized
discount resulting from transaction expenses incurred in the establishment
of
the Credit Facility (see Note G) is being amortized to interest expense over
the
contractual life of the Credit Facility (24 months) using the straight line
method.
Net
Loss Per Common Share
We
compute loss per share in accordance with Financial Accounting Standards
Statement No. 128 “Earnings per Share” (“SFAS 128”) and SEC Staff
Accounting Bulletin No. 98 (“SAB 98”). Under the provisions of SFAS No. 128 and
SAB 98, basic net loss per share is computed by dividing the net loss available
to Common Stockholders by the weighted average number of common shares
outstanding during the period. Diluted net loss per share is computed by
dividing the net loss for the period by the weighted average number of common
and common equivalent shares outstanding during the period. Common equivalent
shares outstanding as of December 31, 2006 and 2005, which consisted of employee
stock options and certain warrants issued to consultants and other providers
of
financing to the Company, were excluded from diluted net loss per common share
calculations as of such dates because they were anti-dilutive.
Recent
Pronouncements
SFAS
159 - ‘The Fair Value Option for Financial Assets and Financial
Liabilities—Including an amendment of FASB Statement No.
115’
In
February 2007, the FASB issued Financial Accounting
Standard No. 159 The Fair Value Option for Financial Assets and Financial
Liabilities—Including an amendment of FASB Statement No. 115 or FAS 159.
This Statement permits entities to choose to measure many financial instruments
and certain other items at fair value. Most of the provisions of this Statement
apply only to entities that elect the fair value option.
The
following are eligible items for the measurement option established by this
Statement:
1. Recognized
financial assets and
financial liabilities except:
a. An
investment in a subsidiary that the
entity is required to consolidate
b. An
interest in a variable interest entity that the entity is required to
consolidate
c. Employers’
and
plans’ obligations (or
assets representing net overfunded positions) for pension benefits, other
postretirement benefits (including health care and life insurance benefits),
postemployment benefits, employee stock option and stock purchase plans, and
other forms of deferred compensation arrangements.
d. Financial
assets and financial
liabilities recognized under leases as defined in FASB Statement No. 13,
Accounting for
Leases.
e. Deposit
liabilities, withdrawable on
demand, of banks, savings and loan associations, credit unions, and other
similar depository institutions
f. Financial
instruments that are, in
whole or in part, classified by the issuer as a component of shareholder’s
equity (including “temporary equity”). An example is a convertible debt security
with a noncontingent beneficial conversion feature.
2. Firm
commitments that would otherwise
not be recognized at inception and that involve only financial
instruments
3. Nonfinancial
insurance contracts and
warranties that the insurer can settle by paying a third party to provide those
goods or services
4. Host
financial instruments resulting from separation of an embedded nonfinancial
derivative instrument from a nonfinancial hybrid instrument.
F-9
The
fair
value option:
1. May
be applied instrument by
instrument, with a few exceptions, such as investments otherwise accounted
for
by the equity method
2. Is
irrevocable (unless a new election
date occurs)
3. Is
applied only to entire instruments
and not to portions of instruments.
The
Statement is effective as of the beginning of an entity’s first fiscal year that
begins after November 15, 2007. Early adoption is permitted as of the beginning
of a fiscal year that begins on or before November 15, 2007, provided the entity
also elects to apply the provisions of FASB Statement No. 157, Fair Value
Measurements. We have not yet determined what effect, if any, adoption of
this Statement will have on our financial position or results of
operations.
SFAS
158
- ‘Employers’ Accounting for Defined Benefit Pension and Other Postretirement
Plans, an amendment of FASB Statement Nos. 87, 88, 106, and 132(R)’
In
September 2006, the FASB issued Financial Accounting Standard No. 158,
Employers’ Accounting for Defined Benefit Pension and Other Postretirement
Plans, an amendment of FASB Statement Nos. 87, 88, 106, and 132(R), or FAS
158.
This Statement requires an employer that is a business entity and sponsors
one
or more single-employer defined benefit plans to (a) recognize the funded status
of a benefit plan—measured as the difference between plan assets at fair value
(with limited exceptions) and the benefit obligation—in its statement of
financial position; (b) recognize, as a component of other comprehensive income,
net of tax, the gains or losses and prior service costs or credits that arise
during the period but are not recognized as components of net periodic benefit
cost pursuant to FAS 87, Employers’ Accounting for Pensions, or FAS 106,
Employers’ Accounting for Postretirement Benefits Other Than Pensions; (c)
measure defined benefit plan assets and obligations as of the date of the
employer’s fiscal year-end statement of financial position (with limited
exceptions); and (d) disclose in the notes to financial statements additional
information about certain effects on net periodic benefit cost for the next
fiscal year that arise from delayed recognition of the gains or losses, prior
service costs or credits, and transition assets or obligations. An employer
with
publicly traded equity securities is required to initially recognize the funded
status of a defined benefit postretirement plan and to provide the required
disclosures as of the end of the fiscal year ending after December 15, 2006.
Adoption of this statement is not expected to have any material effect on our
financial position or results of operations.
SFAS
157 - ‘Fair Value Measurements’
In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements.
This standard establishes a standard definition for fair value, establishes
a
framework under generally accepted accounting principles for measuring fair
value and expands disclosure requirements for fair value measurements. This
standard is effective for financial statements issued for fiscal years beginning
after November 15, 2007. Adoption of this statement is not expected to have
any
material effect on our financial position or results of operations.
SAB
108 - ‘Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements’
In
September 2006, the SEC issued Staff Accounting Bulletin No. 108 (SAB 108),
Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements. SAB 108 provides
guidance on the consideration of the effects of prior year unadjusted errors
in
quantifying current year misstatements for the purpose of a materiality
assessment. Adoption of this statement is not expected to have any material
effect on our financial position or results of operations.
FIN
48 - ‘Accounting for Uncertainty in Income Taxes’
In
June
2006, the FASB issued Interpretation No. 48 (“FIN 48”), Accounting for
Uncertainty in Income Taxes, an interpretation of SFAS No. 109. FIN 48
prescribes a comprehensive model for how companies should recognize, measure,
present and disclose uncertain tax positions taken or expected to be taken
on a
tax return. Under FIN 48, we shall initially recognize tax positions in the
financial statements when it is more likely than not the position will be
sustained upon examination by the tax authorities. We shall initially and
subsequently measure such tax positions as the largest amount of tax benefit
that is greater
F-10
than
50%
likely of being realized upon ultimate settlement with the tax authority
assuming full knowledge of the position and all relevant facts. FIN 48 also
revises disclosure requirements to include an annual tabular roll forward of
unrecognized tax benefits. We will adopt this interpretation as required in
2007
and will apply its provisions to all tax positions upon initial adoption with
any cumulative effect adjustment recognized as an adjustment to retained
earnings. Adoption of this statement is not expected to have any material effect
on our financial position or results of operation.
SFAS
156 - ‘Accounting for Servicing of Financial Assets’
In
March
2006, the FASB issued SFAS 156, Accounting for Servicing of Financial Assets.
This Statement amends FASB Statement No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities, with respect
to the accounting for separately recognized servicing assets and servicing
liabilities. This statement:
a. Requires
an entity to recognize a
servicing asset or servicing liability each time it undertakes an obligation
to
service a financial asset by entering into a servicing
contract.
b. Requires
all separately recognized servicing assets and servicing liabilities to be
initially measured at fair value, if practicable.
c. Permits
an entity to choose
“Amortization method” or “Fair value measurement method” for each class of
separately recognized servicing assets and servicing
liabilities.
d. At
its initial adoption, permits a
one-time reclassification of available-for-sale securities to trading securities
by entities with recognized servicing rights, without calling into question
the
treatment of other available-for-sale securities under Statement 115, provided
that the available-for-sale securities are identified in some manner as
offsetting the entity’s exposure to changes in fair value of servicing assets or
servicing liabilities that a servicer elects to subsequently measure at fair
value.
e. Requires
separate presentation of
servicing assets and servicing liabilities subsequently measured at fair value
in the statement of financial position and additional disclosures for all
separately recognized servicing assets and servicing
liabilities.
This
statement is effective as of the beginning of the Company’s first fiscal year
that begins after September 15, 2006. Adoption of this statement is not expected
to have any material effect on our financial position or results of
operations.
SFAS
155 - ‘Accounting for Certain Hybrid Financial Instruments—an amendment of FASB
Statements No. 133 and 140’
This
Statement, issued in February 2006, amends FASB Statements No. 133, Accounting
for Derivative Instruments and Hedging Activities, and No. 140, Accounting
for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.
This Statement resolves issues addressed in Statement 133 Implementation Issue
No. D1, “Application of Statement 133 to Beneficial Interests in Securitized
Financial Assets.”
This
Statement:
a. Permits
fair value remeasurement for
any hybrid financial instrument that contains an embedded derivative that
otherwise would require bifurcation
b. Clarifies
which interest-only strips
and principal-only strips are not subject to the requirements of Statement
133
c. Establishes
a requirement to evaluate
interests in securitized financial assets to identify interests that are
freestanding derivatives or that are hybrid financial instruments that contain
an embedded derivative requiring bifurcation
d. Clarifies
that concentrations of credit
risk in the form of subordination are not embedded
derivatives
e. Amends
Statement 140 to eliminate the prohibition on a qualifying special-purpose
entity from holding a derivative financial instrument that pertains to a
beneficial interest other than another derivative financial
instrument.
F-11
This
Statement is effective for all financial instruments acquired or issued after
the beginning of our first fiscal year that begins after September 15,
2006.
The
fair
value election provided for in paragraph 4(c) of this Statement may also be
applied upon adoption of this Statement for hybrid financial instruments that
had been bifurcated under paragraph 12 of Statement 133 prior to the adoption
of
this Statement. Earlier adoption is permitted as of the beginning of our fiscal
year, provided we have not yet issued financial statements, including financial
statements for any interim period, for that fiscal year. Provisions of this
Statement may be applied to instruments that we hold at the date of adoption
on
an instrument-by-instrument basis.
Adoption
of this statement is not expected to have any material effect on our financial
position or results of operations.
Recently
Adopted Accounting Standards
SFAS
154 ‘Accounting Changes and Error Corrections--A Replacement of APB Opinion No.
20 and FASB Statement No. 3’
In
May
2005, the Financial Accounting Standards Board (“FASB”) issued Statement No.
154. This Statement replaces APB Opinion No. 20, Accounting Changes,
and FASB Statement No. 3, Reporting Accounting Changes in Interim Financial
Statements, and changes the requirements for the accounting for, and
reporting of, a change in accounting principle. This Statement applies to all
voluntary changes in accounting principle. It also applies to changes required
by an accounting pronouncement in the unusual instance that the pronouncement
does not include specific transition provisions. When a pronouncement includes
specific transition provisions, those provisions should be
followed.
SFAS
154
is effective for accounting changes and corrections of errors made in fiscal
years beginning after December 15, 2005. Adoption of this Statement did not
have
any material impact on our financial statements.
Effective
January 1, 2006, we adopted the provisions of Statement of Financial
Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (“SFAS
123R”) requiring that compensation cost relating to share-based payment
transactions be recognized in our financial statements. The specific information
on share-based payments are contained in Note E to the financial
statements.
NOTE
B - LIQUIDITY
Our
consolidated financial statements are prepared using accounting principles
generally accepted in the United States of America applicable to a going
concern, which contemplate the realization of assets and liquidation of
liabilities in the normal course of business. At December 31, 2006, we had
stockholders’ equity of approximately $54,000. Subsequent to December 31, 2006,
we enhanced our working capital by issuing 612,051 shares of Common Stock for
$900,000. We also have the ability to draw up to $3,522,000 available under
our
Standby Equity Distribution Agreement with Cornell Capital. As such, we believe
we have adequate cash resources to meet our operating commitments for the next
twelve months and accordingly our consolidated financial statements do not
include any adjustments relating to the recoverability and classification of
recorded asset amounts or the amounts and classification of liabilities that
might be necessary should we be unable to continue as a going
concern.
F-12
NOTE
C - FURNITURE AND EQUIPMENT, NET
Furniture
and equipment consists of the following at December 31, 2006:
|
Equipment
|
$ |
1,566,330
|
||
|
Leasehold
Improvements
|
12,945
|
|||
|
Furniture
& Fixtures
|
118,154
|
|||
|
Subtotal
|
1,697,429
|
|||
|
Less
accumulated depreciation and amortization
|
(494,942 | ) | ||
|
Furniture
and Equipment,
net
|
$ |
1,202,487
|
||
Equipment
under capital leases, included above, consists of the following at December
31,
2006:
|
Equipment
|
$ |
585,131
|
||
|
Furniture
& Fixtures
|
17,226
|
|||
|
Subtotal
|
602,357
|
|||
|
Less
accumulated depreciation and amortization
|
(43,772 | ) | ||
|
Equipment
under Capital Leases,
net
|
$ |
558,585
|
||
NOTE
D - INCOME TAXES
We
recognized losses for both financial and tax reporting purposes during 2005,
and
for financial reporting purposes during 2006 in the accompanying consolidated
statements of operations. As we have significant loss carryforwards for tax
purposes, no provisions for income taxes and/or deferred income taxes payable
have been provided in the accompanying consolidated financial
statements.
At
December 31, 2006, we have net operating loss carryforwards of approximately
$2,100,000 (the significant difference between this amount, and our accumulated
deficit of approximately $11,150,000 arises primarily from certain stock based
compensation that is considered to be a permanent difference). Assuming our
net
operating loss carryforward are not disallowed because of certain “change in
control” provisions of the Internal Revenue Code, these net operating loss
carryforwards expire in various years through the year ended December 31,
2026. However, we have established a valuation allowance to fully reserve our
deferred income tax assets as such assets did not meet the required asset
recognition standard established by SFAS 109. Our valuation allowance decreased
by $200 during the year ended December 31, 2006.
At
December 31, 2006, our current and non-current deferred income tax assets
(assuming an effective income tax rate of approximately 40%) consisted of the
following:
|
Net
current deferred income tax asset:
|
||||
|
Allowance
for doubtful accounts
|
$ |
39,900
|
||
|
Less
valuation allowance
|
(39,900 | ) | ||
|
Total
|
$ |
-
|
||
|
Net
non-current deferred income tax asset:
|
||||
|
Net
operating loss carryforwards
|
$ |
816,500
|
||
|
Accumulated
depreciation and impairment
|
(75,600 | ) | ||
|
Subtotal
|
740,900
|
|||
|
Less
valuation allowance
|
(740,900 | ) | ||
|
Total
|
$ |
-
|
||
F-13
NOTE
E - INCENTIVE STOCK OPTIONS AND AWARDS
Effective
January 1, 2006, we adopted the provisions of Statement of Financial
Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (“SFAS
123R”) requiring that compensation cost relating to share-based payment
transactions be recognized in our financial statements. The cost is measured
at
the grant date, based on the calculated fair value of the award, and is
recognized as an expense over the employee’s requisite service period (generally
the vesting period of the equity award). We adopted SFAS 123R using the modified
prospective method and, accordingly, did not restate prior periods to reflect
the fair value method of recognizing compensation cost. Under the modified
prospective approach, SFAS 123R applies to new awards and to awards that were
outstanding on January 1, 2006 that are subsequently modified, repurchased
or cancelled.
The
shareholders of the Company have approved our Equity Incentive Plan, as amended
and restated on October 31, 2006 (the “Plan”), that permits the grant of stock
awards and stock options to officers, directors, employees and consultants.
Options granted under the plan are either Incentive Stock Options (“ISOs”) or
Non-Qualified Stock Options (“NQSOs”). Under this Plan, we are authorized to
grant awards for up to 12% of our Adjusted Diluted Shares Outstanding (as
defined in the Plan), which equated to 3,819,890 shares of our Common Stock
as
of December 31, 2006. As of December 31, 2006, option and stock awards totaling
2,116,667 shares were outstanding. Options typically have a 10 year life and
vest over 3 or 4 years but each grant’s vesting and exercise price provisions
are determined by the Board of Directors at the time the awards are
granted.
As
a
result of adopting SFAS 123R on January 1, 2006, we recorded compensation
cost related to stock options of approximately $64,000 for the year ended
December 31, 2006. As of December 31, 2006, there was approximately $123,000
of
total unrecognized compensation costs related to outstanding stock options,
which is expected to be recognized over a weighted average period of
1.52 years.
Prior
to
January 1, 2006, we applied Accounting Principles Board (APB) Opinion
No. 25, “Accounting for Stock Issued to Employees,” and related interpretations
which required compensation costs to be recognized based on the difference,
if
any, between the quoted market price of the stock on the grant date and the
exercise price. As all options granted to employees under such plans had an
exercise price at least equal to the market value of the underlying Common
Stock
on the date of grant, and given the fixed nature of the equity instruments,
no
stock-based employee compensation cost relating to stock options was reflected
in net income (loss). If we had expensed stock options for the year ended
December 31, 2005 our net loss and pro forma net loss per share amounts would
have been reflected as follows:
|
2005
|
||||
|
Net
loss:
|
||||
|
As
reported
|
$ | (997,160 | ) | |
|
Pro
forma
|
$ | (1,022,550 | ) | |
|
Loss
per share:
|
||||
|
As
reported
|
$ | (0.04 | ) | |
|
Pro
forma
|
$ | (0.05 | ) | |
We
use
the Black-Scholes option-pricing model to estimate fair value of stock-based
awards. The fair value of options granted during 2006 was estimated on the
date
of the grants using the following approximate assumptions: dividend yield of
0%,
expected volatility of 12% - 44% (depending on the date of issue), risk-free
interest rate of 4.5% - 4.6% (depending on the date of issue), and an expected
life of 3 or 4 years.
SEC
Staff
Accounting Bulletin 107 (SAB 107) requires that the estimate of fair value
used
in valuing employee equity options should reflect the assumptions marketplace
participants would use in determining how much to pay for an instrument on
the
date of the measurement (generally the grant date for equity
awards). We calculate expected volatility for our employee stock
options by first looking at the range of implied volatilities embedded within
the option contracts of the larger companies in our industry that have listed
exchange-traded option contracts outstanding on their common
stock. We believe this range of implied volatilities comprises the
upper and lower limits of what a marketplace participant would use in valuing
our employee stock options if such options were transferable and not subject
to
the vesting requirements of employee stock options. Then, in order to
factor in developments that are specific to NeoGenomics, we measure the recent
volatility of our own stock price over the 3 month period preceding the option
grant date by taking the standard deviation of the stock price for such period
and dividing it by the average stock price for the same period to arrive at
a
measure of recent volatility. If this measure of volatility is within
the reference range, we use it as our estimate of future volatility in the
Black-Scholes option pricing model. If it is below or
F-14
above
the
reference range, we use the minimum or the maximum of the reference range,
accordingly, as our estimate of future volatility.
We
believe that since the Company’s financial condition and prospects continue to
improve significantly on a quarterly and annual basis, no reasonable market
participants would value NeoGenomics stock options, if there were any such
options that traded on a public exchange, by using expected future volatility
estimates based on anything other than recent market
information. This conclusion is based on our Principal Financial
Officer’s previous experience as a senior executive in one of the largest over
the counter options trading firms in the U.S. and his intimate knowledge of
how
professional investors value exchange-traded options. As such we do
not believe that using historical volatility information from anything other
than the most recent 3 month period prior to a grant date as the basis for
estimating future volatility is consistent with the provisions of SAB
107. Therefore, over the last four years we have consistently
estimated future volatility in determining the fair value of employee options
based on the three month period prior to any given grant date. The
risk-free interest rate we use in determining the fair value of equity awards
under the Black Scholes model is the equivalent U.S. Treasury yield in effect
at
the time of grant for an instrument with a similar expected life as the
option.
The
status of our stock options and stock awards are summarized as
follows:
|
Number
Of Shares
|
Weighted
Average Exercise
Price
|
|||||||
|
Outstanding
at December 31, 2004
|
882,329
|
$ |
0.16
|
|||||
|
Granted
|
1,442,235
|
0.27
|
||||||
|
Exercised
|
(42,235 | ) |
0.00
|
|||||
|
Canceled
|
(482,329 | ) |
0.09
|
|||||
|
Outstanding
at December 31, 2005
|
1,800,000
|
0.27
|
||||||
|
Granted
|
1,010,397
|
0.69
|
||||||
|
Exercised
|
(211,814 | ) |
0.31
|
|||||
|
Canceled
|
(481,916 | ) |
0.41
|
|||||
|
Outstanding
at December 31, 2006
|
2,116,667
|
0.43
|
||||||
|
Exercisable
at December 31, 2006
|
1,155,166
|
$ |
0.28
|
|||||
The
following table summarizes information about our options outstanding at December
31, 2006:
|
Exercise
Price
|
Number
Outstanding
|
Weighted
Average Remaining Contractual Life
(in
years)
|
Options
Exercisable
|
Weighted
Average Exercise Price
|
||||||||||||||
| $ |
0.00-0.30
|
1,289,000
|
7.9
|
1,032,500
|
$ |
0.25
|
||||||||||||
| $ |
0.31-0.46
|
188,417
|
7.4
|
73,916
|
$ |
0.34
|
||||||||||||
| $ |
0.47-0.71
|
406,250
|
9.5
|
28,750
|
$ |
0.62
|
||||||||||||
| $ |
0.72-1.08
|
85,000
|
9.7
|
0
|
$ |
0.00
|
||||||||||||
| $ |
1.09-1.64
|
148,000
|
9.9
|
20,000
|
$ |
1.30
|
||||||||||||
|
2,116,667
|
1,155,166
|
|||||||||||||||||
The
weighted average fair value of options granted during 2006 was approximately
$130,000 or $0.13. The total intrinsic value of options (which is the amount
by
which the stock price exceeded the exercise price of the options on the date
of
exercise) exercised during 2006 was approximately $214,000 or $1.03 per option
share exercised. During the year ended December 31, 2006, the amount of cash
received from the exercise of stock options was approximately $64,000. The
total
fair value of shares vested during the year is $37,000.
F-15
NOTE
F - COMMITMENTS AND CONTINGENCIES
Operating
Leases
In
August
2003, we entered into a three year lease for 5,200 square feet at our laboratory
facility in Fort Myers, Florida. On June 29, 2006 we signed an amendment to
the
original lease which extended the lease through June 30, 2011. The amendment
included the rental of an additional 4,400 square feet adjacent to our current
facility. This space will allow for future expansion of our business. The lease
was further amended on January 17, 2007 but this amendment did not materially
alter the terms of the lease, which has total payments of approximately $653,000
over the remaining life of the lease, including annual increases of rental
payments of 3% per year. Such amount excludes estimated operating and
maintenance expenses and property taxes.
As
part
of the acquisition of The Center for CytoGenetics, Inc. by the Company on April
18, 2006, we assumed the lease of an 850 square foot facility in Nashville,
Tennessee. The lease expires on August 31, 2008. The average monthly rental
expense is approximately $1,350 per month. This space was not adequate for
our
future plans and the Company is currently not using the facility and is actively
trying to sublease this facility. On June 15, 2006, we entered into a lease
for
a new facility totaling 5,386 square feet of laboratory space in Nashville,
Tennessee. This space will be adequate to accommodate our current plans for
the
Tennessee
laboratory. As part of the lease, we have the right of first refusal on an
additional 2,420 square feet, if needed, directly adjacent to the facility.
The
lease is a five year lease and results in total payments by us of approximately
$340,000.
On
August
1, 2006, the Company entered into a lease for 1,800 square feet of laboratory
space in Irvine, California. The lease is a nine month lease and results in
total payments by the Company of approximately $23,000. This lease will expire
on May 1, 2007. We are currently in negotiations on a new larger facility,
which
can accommodate our future growth.
Future
minimum lease payments under these leases as of December 31, 2006 are as
follows:
|
Years
ending December 31,
|
Amounts
|
|||
|
2007
|
$ |
227,082
|
||
|
2008
|
219,471
|
|||
|
2009
|
214,015
|
|||
|
2010
|
219,907
|
|||
|
2011
|
105,710
|
|||
|
Total
minimum lease payments
|
$ |
986,185
|
||
Capital
Leases
During
2006, we entered into the following capital leases:
|
Date
|
Type
|
Months
|
Cost
|
Monthly
Payment
|
Balance
at December 31, 2006
|
||||||||||||
|
March
2006
|
Laboratory
Equipment
|
60
|
$ |
134,200
|
$ |
2,692
|
$ |
117,117
|
|||||||||
|
August
2006
|
Laboratory
Equipment
|
60
|
48,200
|
1,200
|
43,724
|
||||||||||||
|
August
2006
|
Laboratory
Equipment
|
60
|
98,400
|
2,366
|
90,140
|
||||||||||||
|
August
2006
|
Laboratory
Equipment
|
60
|
101,057
|
2,316
|
89,630
|
||||||||||||
|
August
2006
|
Laboratory
Equipment
|
60
|
100,200
|
2,105
|
86,740
|
||||||||||||
|
November
2006
|
Laboratory
Equipment
|
60
|
19,900
|
434
|
19,348
|
||||||||||||
|
November
2006
|
Computer
Equipment
|
60
|
9,700
|
228
|
9,366
|
||||||||||||
|
December
2006
|
Computer
Equipment
|
48
|
19,292
|
549
|
17,742
|
||||||||||||
|
December
2006
|
Computer
Equipment
|
48
|
25,308
|
718
|
24,003
|
||||||||||||
|
December
2006
|
Office
Equipment
|
60
|
46,100
|
994
|
45,567
|
||||||||||||
|
Total
|
$ |
602,357
|
$ |
13,602
|
$ |
543,377
|
|||||||||||
F-16
Future
minimum lease payments under these leases as of December 31, 2006 are as
follows:
|
Years
ending December 31,
|
Amounts
|
|||
|
2007
|
$ |
163,219
|
||
|
2008
|
163,219
|
|||
|
2009
|
163,219
|
|||
|
2010
|
161,951
|
|||
|
2011
|
89,582
|
|||
|
Total
future minimum lease payments
|
741,190
|
|||
|
Less
amount representing interest
|
197,813
|
|||
|
Present
value of future minimum lease payments
|
543,377
|
|||
|
Less
current maturities
|
94,430
|
|||
|
Obligations
under capital leases - long term
|
$ |
448,947
|
||
The
furniture and equipment covered under the lease agreements (see Note C) is
pledged as collateral to secure the performance of the future minimum lease
payments above.
Legal
Contingency
On
October 26, 2006, Accupath Diagnostics Laboratories, Inc. d/b/a US Labs (“US
Labs”) filed a complaint in the Superior Court of the State of California for
the County of Los Angeles naming as defendants the Company and its president,
Robert Gasparini. Also individually named are Company employees Jeffrey
Schreier, Maria Miller, Douglas White and Gary Roche.
The
complaint alleges the following causes of action: 1) Misappropriation of Trade
Secrets; 2) Tortious Interference with Prospective Economic Advantage; 3) Unfair
Competition (Common Law); and 4) Unfair Competition (Cal. Bus. & Prof. Code
section 17200). The allegations are the result of the Company’s hiring four
salespeople who were formerly employed by US Labs. Specifically, US Labs alleges
that the Company had access to the US Labs salaries of the new hires, and was
therefore able to obtain them as employees.
US
Labs
also sought broad injunctive relief against NeoGenomics preventing the Company
from doing business with its customers. US Labs requests were largely denied,
but the court did issue a much narrower preliminary injunction that prevents
NeoGenomics from soliciting the four new employees’ former US Labs customers
until trial.
Discovery
commenced in December 2006. While the Company received unsolicited and
inaccurate salary information for three individuals that were ultimately hired,
no evidence of misappropriation of trade secrets has been discovered by either
side. As such, the Company is currently contemplating filing motions to narrow
or end the litigation, and expects to ultimately prevail at trial.
We
believe that none of US Labs’ claims will be affirmed at trial; however, even if
they were, NeoGenomics does not believe such claims would result in a material
impact to our business.
Purchase
Commitment
On
June
22, 2006, we entered into an agreement to purchase three automated FISH signal
detection and analysis systems over the next 24 months for a total of $420,000.
We agreed to purchase two systems immediately and to purchase a third system
in
the next 15 months if the vendor is able to make certain improvements to its
system. As of December 31, 2006, the Company had purchased and installed 2
of
the systems.
Employment
Contracts
On
December 14, 2004, we entered into an employment agreement with Robert P.
Gasparini to serve as our President and Chief Science Officer. The employment
agreement has an initial term of three years, effective January 3, 2005;
provided, however that either party may terminate the agreement by giving the
other party sixty days written notice. The employment agreement specifies an
initial base salary of $150,000/year, with specified salary increases to
$185,000/year over the first 18 months of the
F-17
contract.
Mr. Gasparini is also entitled to receive cash bonuses for any given fiscal
year
in an amount equal to 15% of his base salary if he meets certain targets
established by the Board of Directors. In addition, Mr. Gasparini was granted
1,000,000 Incentive Stock Options that have a ten year term so long as Mr.
Gasparini remains an employee of the Company (these options, which vest
according to the passage of time and other performance-based milestones,
resulted in us recording stock based compensation expense beginning in 2005).
Mr. Gasparini’s employment agreement also specifies that he is entitled to four
weeks of paid vacation per year and other health insurance and relocation
benefits. In the event that Mr. Gasparini is terminated without cause by
the Company, the Company has agreed to pay Mr. Gasparini’s base salary and
maintain his employee benefits for a period of six months.
NOTE
G- OTHER RELATED PARTY TRANSACTIONS
During
2006 and 2005, Steven C. Jones, a director of the Company, earned $71,000 and
$51,000, respectively, in cash for various consulting work performed in
connection with his duties as Acting Principal Financial Officer.
During
2006, George O’Leary, a director of the Company, earned $20,900 in cash for
various management consulting work performed for the Company.
On
April
15, 2003, we entered into a revolving credit facility with MVP 3, LP (“MVP 3”),
a partnership controlled by certain of our shareholders. Under the terms of
the
agreement MVP 3, LP agreed to make available to us up to $1.5 million of debt
financing with a stated interest rate of prime + 8% and such credit facility
had
an initial maturity of March 31, 2005. At December 31, 2004, we owed MVP 3,
approximately $740,000 under this loan agreement. This obligation was repaid
in
full through a refinancing on March 23, 2005.
On
March
23, 2005, we entered into an agreement with Aspen Select Healthcare, LP
(formerly known as MVP 3, LP) (“Aspen”) to refinance our existing indebtedness
of $740,000 and provide for additional liquidity of up to $760,000 to the
Company. Under the terms of the agreement, Aspen, a Naples,
Florida-based private investment fund made available to us up to $1.5 million
(subsequently increased to $1,700,000, as described below) of debt financing
in
the form of a revolving credit facility (the “Credit Facility”) with an initial
maturity of March 31, 2007. Aspen is managed by its General Partner,
Medical Venture Partners, LLC, which is controlled by a director of
NeoGenomics. We incurred $53,587 of transaction expenses in
connection with establishing the Credit Facility, which have been capitalized
and are being amortized to interest expense over the term of the
agreement. As part of this transaction, we issued a five year warrant
to Aspen to purchase up to 2,500,000 shares of Common Stock at an initial
exercise price of $0.50/share, all of which are currently vested. We
estimated the fair value of this warrant to be $131,337 as of the original
commitment date by using the Black-Scholes pricing model using the following
approximate assumptions: spot price of $0.35/share, dividend yield of 0 %,
expected volatility of 22.7%, risk-free interest rate of 4.5%, and a term of
5
years. We recorded this $131,337 value of such Warrant as a discount
to the face amount of the Credit Facility. The Company is amortizing
such discount to interest expense over the 24 months of the Credit
Facility. As of December 31, 2006, $1,700,000 was available for use
and $1,675,000 had been drawn.
In
addition, as a condition to these transactions, the Company, Aspen and certain
individual shareholders agreed to amend and restate their shareholders’
agreement to provide that Aspen will have the right to appoint up to three
of
seven of our directors and one mutually acceptable independent director. We
also
entered into an amended and restated Registration Rights Agreement, dated March
23, 2005 with Aspen and certain individual shareholders, which grants to Aspen
certain demand registration rights (with no provision for liquidated damages)
and which grants to all parties to the agreement, piggyback registration
rights.
On
January 18, 2006, the Company entered into a binding letter agreement (the
“Aspen Agreement”) with Aspen Select Healthcare, LP, which provided, among other
things, that:
(a) Aspen
waived certain pre-emptive rights in connection with the sale of $400,000 of
Common Stock at a purchase price of $0.20/share and the granting of 900,000
warrants with an exercise price of $0.26/share to SKL Limited Partnership,
LP
(“SKL” as more fully described below) in exchange for five year warrants to
purchase 150,000 shares at an exercise price of $0.26/share (the “Waiver
Warrants”).
(b) Aspen
had the right, up to April 30, 2006, to purchase up to $200,000 of restricted
shares of the Company’s Common Stock at a purchase price per share of
$0.20/share (1,000,000 shares) and receive a five year warrant to purchase
450,000 shares of the Company’s Common Stock at an exercise price of $0.26/share
in connection with such purchase (the “Equity Purchase Rights”). On March 14,
2006, Aspen exercised its Equity Purchase Rights.
F-18
(c) Aspen
and the Company amended the Loan Agreement, dated March 23, 2005 (the “Loan
Agreement”) between the parties to extend the maturity date until September 30,
2007 and to modify certain covenants (such Loan Agreement as amended, the
“Credit Facility Amendment”).
(d) Aspen
had the right, until April 30, 2006, to provide up to $200,000 of additional
secured indebtedness to the Company under the Credit Facility Amendment and
to
receive a five year warrant to purchase up to 450,000 shares of the Company’s
Common Stock with an exercise price of $0.26/share (the “New Debt Rights”).On
March 30, 2006, Aspen exercised its New Debt Rights and entered into the
definitive transaction documentation for the Credit Facility Amendment and
other
such documents required under the Aspen Agreement.
(e) The
Company agreed to amend and restate the warrant agreement, dated March 23,
2005,
to provide that all 2,500,000 warrant shares (the “Existing Warrants”) were
vested and the exercise price per share was reset to $0.31 per
share.
(f) The
Company agreed to amend the Registration Rights Agreement, dated March 23,
2005
(the “Registration Rights Agreement”), between the parties to incorporate the
Existing Warrants, the Waiver Warrants and any new shares or warrants issued
to
Aspen in connection with the Equity Purchase Rights or the New Debt
Rights.
(g) All
Waiver Warrants, the Existing Warrants and all warrants issued to Aspen and
SKL
in connection with the purchase of equity or debt securities are exercisable
at
the option of the holder and each such warrant contains provisions that allow
for a physical exercise, a net cash exercise or a net share
settlement. We used the Black-Scholes pricing model to estimate the
fair value of all such warrants as of the commitment date for each, using the
following approximate assumptions: dividend yield of 0 %, expected volatility
of
14.6 – 19.3%, risk-free interest rate of 4.5%, and a term of 3 - 5
years.
During
the period from January 18 - 21, 2006, the Company entered into agreements
with
four other shareholders who are parties to the certain Shareholders’ Agreement
dated March 23, 2005, to exchange five year warrants to purchase an aggregate
of
150,000 shares of stock at an exercise price of $0.26/share for such
shareholders’ waiver of their pre-emptive rights under the Shareholders’
Agreement.
On
January 21, 2006 the Company entered into a subscription agreement (the
“Subscription”) with SKL Family Limited Partnership, LP, a New Jersey limited
partnership, whereby SKL purchased 2.0 million shares (the “Subscription
Shares”) of the Company’s Common Stock at a purchase price of $0.20/share for
$400,000. Under the terms of the Subscription, the Subscription Shares are
restricted for a period of 24 months and then carry piggyback registration
rights to the extent that exemptions under Rule 144 are not available to SKL.
In
connection with the Subscription, the Company also issued a five year warrant
to
purchase 900,000 shares of the Company’s Common Stock at an exercise price of
$0.26/share. SKL has no previous affiliation with the Company.
On
March
11, 2005, we entered into an agreement with HCSS, LLC and eTelenext, Inc. to
enable NeoGenomics to use eTelenext, Inc’s Accessioning Application, AP Anywhere
Application and CMQ Application. HCSS, LLC is a holding company created to
build
a small laboratory network for the 50 small commercial genetics laboratories
in
the United States. HCSS, LLC is owned 66.7% by Dr. Michael T. Dent, our
Chairman. Under the terms of the agreement, the Company paid $22,500 over three
months to customize this software and will pay an annual membership fee of
$6,000 per year and monthly transaction fees of between $2.50 - $10.00 per
completed test, depending on the volume of tests performed. The eTelenext system
is an elaborate laboratory information system (LIS) that is in use at many
larger laboratories. By assisting in the formation of the small laboratory
network, the Company will be able to increase the productivity of its
technologists and have on-line links to other small laboratories in the network
in order to better manage its workflow.
NOTE
H - EQUITY FINANCING TRANSACTIONS
On
January 3, 2005, we issued 27,288 shares of Common Stock under the Company’s
2003 Equity Incentive Plan to two employees of the Company in satisfaction
of
$6,822 of accrued, but unpaid, vacation.
During
the period from January 1, 2005 to May 31, 2005, we sold 522,382 shares of
our
Common Stock in a series of private placements at $0.30 per share and $0.35
per
share to unaffiliated third party investors. These transactions generated net
proceeds to the Company of approximately $171,000.
On
June
6, 2005, we entered into a Standby Equity Distribution Agreement with Cornell
Capital Partners, LP (“Cornell”). Pursuant to the Standby Equity Distribution
Agreement, the Company may, at its discretion, periodically sell to Cornell
shares of Common Stock for a total purchase price of up to $5.0 million. For
each share of Common Stock purchased under the Standby Equity Distribution
Agreement, Cornell will pay the Company 98% of the lowest volume weighted
average price (“VWAP”) of the Company’s Common Stock as quoted by Bloomberg, LP
on the Over-the-Counter Bulletin Board or other principal market on which the
Company’s Common Stock is traded for the 5 days immediately following the notice
date (the “Purchase Price”). The total number of shares issued to Cornell under
each advance request will be equal to the total dollar amount of the advance
request divided by the Purchase Price determined during the five day pricing
period. Cornell will also retain 5% of each advance under the Standby Equity
Distribution Agreement. Cornell’s obligation to purchase shares of the Company’s
Common Stock under the Standby Equity Distribution Agreement is subject to
certain conditions, including the Company maintaining an effective registration
statement for shares of Common Stock sold under the Standby Equity Distribution
Agreement and is limited to $750,000 per weekly advance. The amount and timing
of all advances under the Standby Equity Distribution Agreement are at the
discretion of the Company and the Company is not obligated to issue and sell
any
securities to Cornell, unless and until it decides to do so. Upon execution
of
the Standby Equity Distribution Agreement, Cornell received 381,888 shares
of
the Company’s Common Stock as a commitment fee under the Standby Equity
Distribution Agreement. The Company also issued 27,278 shares of the Company’s
Common Stock to Spartan Securities Group, Ltd. under a placement agent agreement
relating to the Standby Equity Distribution Agreement.
On
July
28, 2005, we filed an amended SB-2 registration statement with the Securities
and Exchange Commission to register 10,000,000 shares of our Common Stock
related to the Standby Equity Distribution Agreement. Such registration
statement became effective as of August 1, 2005.
On
June
6, 2006 as a result of not terminating our Standby Equity Distribution Agreement
with Cornell, a short-term note payable in the amount of $50,000 became due
to
Cornell and was subsequently paid in July 2006.
F-19
The
following sales of Common Stock have been made under our Standby Equity
Distribution Agreement with Cornell since it was first declared effective on
August 1, 2005.
|
Request
Date
|
Completion
Date
|
Shares
of Common Stock Issued/Sold
|
Gross
Proceeds Received
|
Cornell
Fee
|
Escrow
Fee
|
Net
Proceeds
|
ASP(1)
|
||||||||||||||||||
|
8/29/2005
|
9/8/2005
|
63,776
|
$ |
25,000
|
$ |
1,250
|
$ |
500
|
$ |
23,250
|
|||||||||||||||
|
12/10/2005
|
12/18/2005
|
241,779
|
50,000
|
2,500
|
500
|
47,000
|
|||||||||||||||||||
|
Subtotal
- 2005
|
305,555
|
$ |
75,000
|
$ |
3,750
|
$ |
1,000
|
$ |
70,250
|
$ |
0.25
|
||||||||||||||
|
7/19/2006
|
7/28/2006
|
83,491
|
53,000
|
2,500
|
500
|
50,000
|
|||||||||||||||||||
|
8/8/2006
|
8/16/2006
|
279,486
|
250,000
|
12,500
|
500
|
237,000
|
|||||||||||||||||||
|
10/18/2006
|
10/23/2006
|
167,842
|
200,000
|
10,000
|
500
|
189,500
|
|||||||||||||||||||
|
Subtotal
- 2006
|
530,819
|
$ |
503,000
|
$ |
25,000
|
$ |
1,500
|
$ |
476,500
|
$ |
0.95
|
||||||||||||||
|
12/29/2006
|
1/10/2007
|
98,522
|
150,000
|
7,500
|
500
|
142,000
|
|||||||||||||||||||
|
1/16/2007
|
1/24/2007
|
100,053
|
150,000
|
7,500
|
500
|
142,000
|
|||||||||||||||||||
|
2/1/2007
|
2/12/2007
|
65,902
|
100,000
|
5,000
|
500
|
94,500
|
|||||||||||||||||||
|
2/19/2007
|
2/28/2007
|
166,611
|
250,000
|
12,500
|
500
|
237,000
|
|||||||||||||||||||
|
2/28/2007
|
3/7/2007
|
180,963
|
250,000
|
12,500
|
500
|
237,000
|
|||||||||||||||||||
|
4/5/2007
|
4/16/2007
|
164,777
|
250,000
|
12,500
|
500
|
237,000
|
|||||||||||||||||||
|
4/20/2007
|
4/30/2007
|
173,467
|
250,000
|
12,500
|
500
|
237,000
|
|||||||||||||||||||
|
Subtotal
- 2007
|
To
Date
|
950,295
|
$ |
1,400,000
|
$ |
70,000
|
$ |
3,500
|
$ |
1,326,500
|
$ |
1.48
|
|||||||||||||
|
Total
Since Inception
|
1,786,669
|
$ |
1,978,000
|
$ |
98,750
|
$ |
6,000
|
$ |
1,873,250
|
$ |
1.19
|
||||||||||||||
|
Remaining
|
$ |
3,022,000
|
|||||||||||||||||||||||
|
Total
Facility
|
$ |
5,000,000
|
|||||||||||||||||||||||
(1) Average
Selling Price of shares issued
On
July
1, 2005, we issued 14,947 shares of our Common Stock under the Company’s 2003
Equity Incentive Plan to two employees of the Company in satisfaction of $4,933
of accrued, but unpaid vacation.
On
December 15, 2005, we issued 18,000 shares of Common Stock under the Company’s
2003 Equity Incentive Plan to employees of the Company as part of a year-end
bonus program. The shares were issued at a price of $0.21/share and resulted
in
an expense to the Company of $3,780.
On
January 18, 2006, the Company entered into a binding letter agreement (the
“Aspen Agreement”) with Aspen Select Healthcare, LP, as described in Note
G.
During
the period from January 18 - 21, 2006, the Company entered into agreements
with
four other shareholders who are parties to that certain Shareholders’ Agreement,
dated March 23, 2005, to exchange five year warrants to purchase an aggregate
of
150,000 shares of stock at an exercise price of $0.26/share for such
shareholders’ waiver of their pre-emptive rights under the Shareholders’
Agreement.
On
January 21, 2006 the Company entered into a subscription agreement (the
“Subscription”) with SKL Family Limited Partnership, LP, a New Jersey limited
partnership, whereby SKL purchased 2.0 million shares (the “Subscription
Shares”) of the Company’s Common Stock at a purchase price of $0.20/share for
$400,000. Under the terms of the Subscription, the Subscription Shares are
restricted for a period of 24 months and then carry piggyback registration
rights to the extent that exemptions under Rule 144 are not available to SKL.
In
connection with the Subscription, the Company also issued a five year warrant
to
purchase 900,000 shares of the Company’s Common Stock at an exercise price of
$0.26/share. SKL has no previous affiliation with the Company.
F-20
NOTE
I -
SUBSEQUENT EVENT
On
April
2, 2007, we concluded an agreement with Power3 Medical Products, Inc., a New
York Corporation (“Power3”) regarding the formation of a joint venture Contract
Research Organization (“CRO”) and the issuance of convertible debentures and
related securities by Power3 to us. Power3 is an early stage company engaged
in
the discovery, development, and commercialization of protein biomarkers. Under
the terms of the agreement, NeoGenomics and Power3 will jointly own a CRO and
begin commercializing Power3’s intellectual property portfolio of 17 patents
pending by developing diagnostic tests and other services around one or more
of
the 523 protein biomarkers that Power3 believes it has discovered to date.
Power3 has agreed to license all of its intellectual property on a non-exclusive
basis to the CRO for selected commercial applications as well as provide certain
management personnel. We will provide access to cancer samples, management
and
sales & marketing personnel, laboratory facilities and working capital.
Subject to final negotiation, we will own a minimum of 60% and up to 80% of
the
new CRO venture which is anticipated to be launched in the third or fourth
quarter of FY 2007.
As
part
of the agreement, we will provide $200,000 of working capital to Power3 by
purchasing a convertible debenture on or before April 16, 2007. We were also
granted two options to increase our stake in Power3 to up to 60% of the Power3
fully diluted shares outstanding. The first option (the “First Option”) is a
fixed option to purchase convertible preferred stock of Power3 that is
convertible into such number of shares of Power3 Common Stock, in one or more
transactions, up to 20% of Power3’s voting Common Stock at a purchase price per
share, which will also equal the initial conversion price per share, equal
to
the lesser of a) $0.20/share, or b) an equity valuation of $20,000,000 divided
by the fully-diluted shares outstanding on the date of the exercise of the
First
Option. This First Option is exercisable for a period starting on the date
of
purchase of the convertible debenture by NeoGenomics and extending until the
day
which is the later of a) November 16, 2007 or b) the date that certain
milestones specified in the agreement have been achieved. The First Option
is
exercisable in cash or NeoGenomics Common Stock at our option, provided,
however, that we must include at least $1.0 million of cash in the consideration
if we elect to exercise this First Option. In addition to purchasing convertible
preferred stock as part of the First Option, we are also entitled to receive
that number of warrants which is equal to the same percentage as the percentage
of convertible preferred stock being purchased on such day of Power3’s warrants
and options. Such warrants will have an exercise price equal to the initial
conversion price of the convertible preferred stock that was purchased and
will
have a five year term.
The
second option (the “Second Option”), which is only exercisable to the
extent that we have exercised the First Option, provides that we will have
the
option to increase our stake in Power3 to up to 60% of fully diluted shares
of
Power3 over the twelve month period beginning on the expiration date of the
First Option in one or a series of transactions by purchasing additional
convertible preferred stock of Power3 that is convertible into voting Common
Stock and receiving additional warrants. The purchase price per share, and
the
initial conversion price of the Second Option convertible preferred stock will,
to the extent such Second Option is exercised within six (6) months of exercise
of the First Option, be the lesser of a) $0.40/share or b) an equity price
per
share equal to $40,000,000 divided by the fully diluted shares outstanding
on
the date of any purchase. The purchase price per share, and the initial
conversion price of the Second Option convertible preferred stock will, to
the
extent such Second Option is exercised after six (6) months, but within twelve
(12) months of exercise of the First Option, be the lesser of a) $0.50/share
or
b) an equity price per share equal to $50,000,000 divided by the fully diluted
shares outstanding on the date of any purchase. The exercise price of the Second
Option may be paid in cash or in any combination of cash and our Common Stock
at
our option. In addition to purchasing convertible preferred stock as part of
the
Second Option, we are also entitled to receive that number of warrants which
is
equal to the same percentage as the percentage of convertible preferred stock
being purchased on such day of Power3’s warrants and options. Such warrants will
have an exercise price equal to the initial conversion price of the convertible
preferred stock being purchased that date and will have a five year
term.
End
of notes to consolidated financial statements
F-21
FINANCIAL
STATEMENTS
OF
NEOGENOMICS, INC.
|
PAGE(S)
|
|
|
FINANCIAL
STATEMENTS AS OF June 30, 2007 and 2006
|
|
|
Consolidated
Balance Sheet as of June 30, 2007.
|
F-24
|
|
Consolidated
Statements of Operations for the three months ended June 30, 2007
and
2006.
|
F-25
|
|
Consolidated
Statements of Cash Flows for the three months ended June, 2007 and
2006.
|
F-26
|
|
Notes
to Consolidated Financial Statements
|
F-27
|
F-22
NeoGenomics,
Inc.
CONSOLIDATED
BALANCE SHEET AS OF
June
30, 2007
(unaudited)
|
ASSETS
|
||||
|
CURRENT
ASSETS:
|
||||
|
Cash
and cash equivalents
|
$ |
1,621,878
|
||
|
Accounts
receivable (net of allowance for doubtful accounts of
$145,830)
|
2,271,904
|
|||
|
Inventories
|
362,470
|
|||
|
Other
current assets
|
231,985
|
|||
|
Total
current assets
|
4,488,237
|
|||
|
PROPERTY
AND EQUIPMENT (net of accumulated depreciation of
$591,026)
|
1,773,876
|
|||
|
OTHER
ASSETS
|
251,190
|
|||
|
TOTAL
|
$ |
6,513,303
|
||
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
||||
|
CURRENT
LIABILITIES:
|
||||
|
Accounts
payable
|
$ |
949,296
|
||
|
Accrued
compensation
|
216,715
|
|||
|
Accrued
and other liabilities
|
244,297
|
|||
|
Short-term
portion of equipment leases
|
153,423
|
|||
|
Total
current liabilities
|
1,563,731
|
|||
|
LONG
TERM LIABILITIES -
|
||||
|
Long-term
portion of equipment leases
|
599,112
|
|||
|
TOTAL
LIABILITIES
|
2,162,843
|
|||
|
STOCKHOLDERS’
EQUITY:
|
||||
|
Common
Stock, $.001 par value, 100,000,000 shares authorized;
|
||||
|
31,285,986
shares issued and outstanding
|
31,286
|
|||
|
Additional
paid-in capital
|
16,883,249
|
|||
|
Deferred
stock compensation
|
(220,969 | ) | ||
|
Accumulated
deficit
|
(12,343,106 | ) | ||
|
Total
stockholders’ equity
|
4,350,460
|
|||
|
TOTAL
|
$ |
6,513,303
|
||
See
notes
to consolidated financial statements.
F-23
NeoGenomics,
Inc.
CONSOLIDATED
STATEMENTS OF OPERATIONS
(Unaudited)
|
For
the
Six-Months
Ended
June
30, 2007
|
For
the
Six-Months
Ended
June
30, 2006
|
For
the
Three-Months
Ended
June
30, 2007
|
For
the
Three-Months
Ended
June
30, 2006
|
|||||||||||||
|
REVENUE
|
$ |
4,586,694
|
$ |
3,111,292
|
$ |
2,344,032
|
$ |
1,767,492
|
||||||||
|
COST
OF REVENUE
|
2,102,546
|
1,302,614
|
1,165,813
|
725,816
|
||||||||||||
|
GROSS
PROFIT
|
2,484,148
|
1,808,678
|
1,178,219
|
1,041,676
|
||||||||||||
|
OTHER
OPERATING EXPENSES:
|
||||||||||||||||
|
Selling,
general and administrative
|
3,485,713
|
1,392,784
|
2,059,166
|
802,100
|
||||||||||||
|
Interest
expense-(net)
|
191,480
|
148,206
|
92,556
|
78,321
|
||||||||||||
|
Total
other operating expenses
|
3,677,193
|
1,540,990
|
2,151,722
|
880,421
|
||||||||||||
|
NET
INCOME (LOSS)
|
(1,193,045 | ) | $ |
267,688
|
$ | (973,503 | ) | $ |
161,255
|
|||||||
|
NET
INCOME (LOSS) PER SHARE - Basic
|
$ | (0.04 | ) | $ |
0.01
|
$ | (0.03 | ) | $ |
0.01
|
||||||
|
Diluted
|
$ | (0.04 | ) | $ |
0.01
|
$ | (0.03 | ) | $ |
0.01
|
||||||
|
WEIGHTED
AVERAGE NUMBER
OF
SHARES OUTSTANDING –
Basic
|
28,160,643
|
25,531,132
|
28,941,466
|
26,301,619
|
||||||||||||
|
Diluted
|
28,160,643
|
27,951,298
|
28,941,466
|
29,709,673
|
||||||||||||
See
notes
to consolidated financial statements.
F-24
NeoGenomics,
Inc.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Unaudited)
|
For
the
Six-Months
Ended
June
30, 2007
|
For
the
Six-Months
Ended
June
30, 2006
|
|||||||
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
|
Net
income (loss)
|
$ | (1,193,045 | ) | $ |
267,688
|
|||
|
Adjustments
to reconcile net income (loss) to net cash used in operating
activities:
|
||||||||
|
Depreciation
|
180,455
|
93,629
|
||||||
|
Impairment
of fixed assets
|
2,235
|
-
|
||||||
|
Equity-based
compensation
|
140,240
|
20,114
|
||||||
|
Provision
for bad debts
|
278,000
|
143,058
|
||||||
|
Amortization
of debt issue costs
|
15,615
|
10,717
|
||||||
|
Amortization
of credit facility discounts
|
39,285
|
26,943
|
||||||
|
Amortization
of relocation expenses
|
15,450
|
23,316
|
||||||
|
Amortization
of lease cap costs
|
1,619
|
-
|
||||||
|
Amortization
of deferred stock compensation
|
84,608
|
3,563
|
||||||
|
Other
non-cash expenses
|
19,817
|
-
|
||||||
|
Changes
in assets and liabilities, net:
|
||||||||
|
Accounts
receivables, net of write-offs
|
(1,000,147 | ) | (624,633 | ) | ||||
|
Inventory
|
(245,108 | ) | (16,299 | ) | ||||
|
Pre-paid
expenses
|
(138,533 | ) | (46,472 | ) | ||||
|
Other
current assets
|
(6,729 | ) |
-
|
|||||
|
Deposits
|
(17,286 | ) | (11,907 | ) | ||||
|
Accounts
payable and other liabilities
|
255,703
|
(145,442 | ) | |||||
|
NET
CASH USED IN OPERATING ACTIVITIES
|
(1,767,821 | ) | (255,725 | ) | ||||
|
CASH
FLOWS USED IN INVESTING ACTIVITIES -
|
||||||||
|
Purchases
of property and equipment
|
(221,264 | ) | (233,528 | ) | ||||
|
Purchase
of convertible debenture
|
(200,000 | ) |
-
|
|||||
|
NET
CASH USED IN INVESTING ACTIVITIES
|
(421,264 | ) | (233,528 | ) | ||||
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
|
Advances
from (Repayments to) affiliates, net
|
(1,675,000 | ) |
100,000
|
|||||
|
Issuance
or (repayment) of notes payable
|
(2,000 | ) |
61,100
|
|||||
|
Repayment
of capital leases
|
(63,157 | ) | (5,134 | ) | ||||
|
Issuances
of common stock, net of transaction expenses
|
5,224,856
|
596,696
|
||||||
|
NET
CASH PROVIDED BY FINANCING ACTIVITIES
|
3,484,699
|
752,662
|
||||||
|
NET
INCREASE IN CASH AND CASH EQUIVALENTS
|
1,495,614
|
263,409
|
||||||
|
CASH
AND CASH EQUIVALENTS, BEGINNING OF PERIOD
|
126,264
|
10,944
|
||||||
|
CASH
AND CASH EQUIVALENTS, END OF PERIOD
|
$ |
1,621,878
|
$ |
274,353
|
||||
|
SUPPLEMENTAL
DISCLOSURE OF CASH FLOW INFORMATION:
|
||||||||
|
Interest
paid
|
$ |
163,282
|
$ |
106,627
|
||||
|
Income
taxes paid
|
$ |
-
|
$ |
-
|
||||
|
SUPPLEMENTAL
DISCLOSURE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
|
||||||||
|
Equipment
leased under capital lease
|
$ |
272,265
|
$ |
128,635
|
||||
|
Common
Stock issued for acquisition
|
$ |
-
|
$ |
50,000
|
||||
See
notes
to consolidated financial statements.
F-25
NeoGenomics,
Inc.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE
A –FORMATION AND OPERATIONS OF THE
COMPANY
NeoGenomics,
Inc. (“NEO” or the “Subsidiary”) 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”, or the “Parent”) in a reverse
merger transaction. ACE was formed in 1998 and succeeded to NEO’s
name on January 3, 2002 (NEO and ACE are collectively referred to as “we”, “us”,
“our” or the “Company”).
Basis
of Presentation
Our
accompanying unaudited consolidated condensed financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information and pursuant to
the
instructions to Form 10-QSB and Article 10 of Regulation S-X of the Securities
and Exchange Commission ("SEC"). Accordingly, they do not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In our opinion
all adjustments (consisting of normal recurring adjustments) considered
necessary for a fair statement of the results
for the fiscal period have been included. Operating results for the
three month period ended March 31, 2007 are not necessarily indicative of the
results that may be expected for the year ending December 31, 2007, or for
any
future period. These financial statements
and notes should be read in conjunction with our
audited consolidated financial
statements and notes thereto for the year ended
December 31, 2006 included in our
Annual Report on Form 10-KSB, as
amended.
Certain
amounts in the prior years’ consolidated financial statements have been
reclassified to conform to the current year presentation.
Accounts
Receivable
We
record
accounts receivable net of estimated discounts and contractual allowances at
the
time services are performed. We provide for accounts receivable that
could become uncollectible in the future by establishing an allowance to reduce
the carrying value of such receivables. We estimate this allowance
based on the aging and composition of our accounts receivable and our historical
collection experience for each type of payer. Receivables are charged
off to the allowance account at the time they are deemed
uncollectible.
Net
Income (Loss) Per Common Share
We
compute net income (loss) per share in accordance with Financial Accounting
Standards Statement No. 128 “Earnings per Share” (“SFAS 128”) and SEC Staff
Accounting Bulletin No. 98 (“SAB 98”). Under the provisions of SFAS
No. 128 and SAB 98, basic net income (loss) per share is computed by dividing
the net income (loss) available to Common Stockholders by the weighted average
number of common shares outstanding during the period. Diluted
earnings per share are calculated by dividing net income by potentially dilutive
common shares, which include stock options and warrants.
Net
loss
per share is calculated by dividing net loss by the weighted average number
of
common shares outstanding during the period. The impact of conversion of
dilutive securities, such as stock options and warrants, is not considered
where
a net loss is reported as the inclusion of such securities would be
anti-dilutive. As a result, basic loss per share is the same as diluted loss
per
share.
NOTE
B – EQUITY AND DEBT FINANCING TRANSACTIONS
On
January 18, 2006, the Company entered into a binding letter agreement (the
"Aspen Agreement") with Aspen Select Healthcare, LP, which provided, among
other
things, that:
(a)
Aspen
waived certain pre-emptive rights in connection with the sale of $400,000 of
Common Stock at a purchase price of $0.20/share and the granting of 900,000
warrants with an exercise price of $0.26/share to a SKL Limited
Partnership,
LP ("SKL" as more fully described below) in exchange for five year warrants
to
purchase 150,000 shares at an exercise price of $0.26/share;
(b)
Aspen
had the right, up to April 30, 2006, to purchase up to $200,000 of restricted
shares of our Common Stock at a purchase price per share of $0.20/share (1.0
million shares) and receive a five year warrant to purchase up to 450,000 shares
of our Common Stock at an exercise price of $0.26/share in connection with
such
purchase (the "Equity Purchase Rights"). On March 14, 2006, Aspen exercised
its
Equity Purchase Rights
(c)
Aspen
and the Company amended the Loan Agreement, dated March 23, 2005 (the “Loan
Agreement”) between the parties to extend the maturity date until September 30,
2007 and to modify certain covenants (such Loan Agreement as amended, the
“Credit Facility Amendment”).
(d)
Aspen
had the right, until April 30, 2006, to provide up to $200,000 of additional
secured indebtedness to us under the Credit Facility Amendment and receive
a
five year warrant to purchase up to 450,000 shares of our Common Stock with
an
exercise price of $0.26/share (the "New Debt Rights"). On March 30, 2006, Aspen
exercised its New Debt Rights and entered into the definitive transaction
documentation for the Credit Facility Amendment and other such documents
required under the Aspen Agreement.
(e)
The
Company agreed to amend and restate that certain warrant agreement, dated March
23, 2005 to provide that all 2,500,000 warrant shares (the "Existing Warrants")
were vested and the exercise price per share of such warrants was reset to
$0.31
per share; and
(f)
The
Company agreed to amend that certain Registration Rights Agreement, dated March
23, 2005 (the "Registration Rights Agreement"), between the parties to
incorporate the Existing Warrants and any new shares or warrants issued to
Aspen
in connection with the Equity Purchase Rights or the New Debt
Rights.
(g)
All
Waiver Warrants, the Existing Warrants and all warrants issued to Aspen and
SKL
in connection with the purchase of equity or debt securities are exercisable
at
the option of the holder and each such warrant contains provisions that allow
for a physical exercise, a net cash exercise or a net share
settlement. We used the Black-Scholes pricing model to estimate the
fair value of all such warrants as of the commitment date for each, using the
following approximate assumptions: dividend yield of 0 %, expected
volatility of 14.6 – 19.3%, risk-free interest rate of 4.5%, and a term of 3 - 5
years.
We
borrowed an additional $100,000 from the Aspen credit facility in May 2006,
$25,000 in September 2006 and $50,000 in December 2006. At December 31, 2006,
$1,675,000 was outstanding on the credit facility, which bears interest at
prime
plus 6%, and $25,000 remained available. Subsequent to December 31, 2006 we
borrowed the remaining $25,000 available under the Aspen facility.
During
the period from January 18 - 21, 2006, the Company entered into agreements
with
four other shareholders who are parties to that certain Shareholders’ Agreement,
dated March 23, 2005, to exchange five year warrants to purchase 150,000 shares
of stock in the aggregate at an exercise price of $0.26/share for such
shareholders’ waiver of their pre-emptive rights under the Shareholders’
Agreement.
On
January 21, 2006 the Company entered into a subscription agreement (the
"Subscription") with SKL Family Limited Partnership, LP, a New Jersey limited
partnership, whereby SKL purchased 2.0 million shares (the "Subscription
Shares") of the Company's Common Stock at a purchase price of $0.20/share for
$400,000. Under the terms of the Subscription, the Subscription Shares are
restricted for a period of 24 months and then carry piggyback registration
rights to the extent that exemptions under Rule 144 are not available to SKL.
In
connection with the Subscription, the Company also issued a five year warrant
to
purchase 900,000 shares of the Company's Common Stock at an exercise price
of
$0.26/share. SKL has no previous affiliation with the
Company.
On
June
6, 2006 as a result of not terminating our Standby Equity Distribution Agreement
(“SEDA”) with Cornell Capital Partners, L.P. (“Cornell Capital”) a short-term
note payable in the amount of $50,000 became due to Cornell and was subsequently
paid in July 2006 from the proceeds of a $53,000 advance under the
SEDA.
F-26
The
following sales of Common Stock have been made under our SEDA with Cornell
since
it was first declared effective on August 1, 2005.
|
Request
Date
|
Completion
Date
|
Shares
of Common Stock Issued/Sold
|
Gross
Proceeds Received
|
Cornell
Fee
|
Escrow
Fee
|
Net
Proceeds
|
ASP(1)
|
||||||||||||||||||
|
8/29/2005
|
9/8/2005
|
63,776
|
$ |
25,000
|
$ |
1,250
|
$ |
500
|
$ |
23,250
|
|||||||||||||||
|
12/10/2005
|
12/18/2005
|
241,779
|
50,000
|
2,500
|
500
|
47,000
|
|||||||||||||||||||
|
Subtotal
- 2005
|
305,555
|
$ |
75,000
|
$ |
3,750
|
$ |
1,000
|
$ |
70,250
|
$ |
0.25
|
||||||||||||||
|
7/19/2006
|
7/28/2006
|
83,491
|
53,000
|
2,500
|
500
|
50,000
|
|||||||||||||||||||
|
8/8/2006
|
8/16/2006
|
279,486
|
250,000
|
12,500
|
500
|
237,000
|
|||||||||||||||||||
|
10/18/2006
|
10/23/2006
|
167,842
|
200,000
|
10,000
|
500
|
189,500
|
|||||||||||||||||||
|
Subtotal
- 2006
|
530,819
|
$ |
503,000
|
$ |
25,000
|
$ |
1,500
|
$ |
476,500
|
$ |
0.95
|
||||||||||||||
|
12/29/2006
|
1/10/2007
|
98,522
|
150,000
|
7,500
|
500
|
142,000
|
|||||||||||||||||||
|
1/16/2007
|
1/24/2007
|
100,053
|
150,000
|
7,500
|
500
|
142,000
|
|||||||||||||||||||
|
2/1/2007
|
2/12/2007
|
65,902
|
100,000
|
5,000
|
500
|
94,500
|
|||||||||||||||||||
|
2/19/2007
|
2/28/2007
|
166,611
|
250,000
|
12,500
|
500
|
237,000
|
|||||||||||||||||||
|
2/28/2007
|
3/7/2007
|
180,963
|
250,000
|
12,500
|
500
|
237,000
|
|||||||||||||||||||
|
4/5/2007
|
4/16/2007
|
164,777
|
250,000
|
12,500
|
500
|
237,000
|
|||||||||||||||||||
|
4/20/2007
|
4/30/2007
|
173,467
|
250,000
|
12,500
|
500
|
237,000
|
|||||||||||||||||||
|
Subtotal
- 2007
|
To
Date
|
950,295
|
$ |
1,400,000
|
$ |
70,000
|
$ |
3,500
|
$ |
1,326,500
|
$ |
1.48
|
|||||||||||||
|
Total
Since Inception
|
1,786,669
|
$ |
1,978,000
|
$ |
98,750
|
$ |
6,000
|
$ |
1,873,250
|
$ |
1.19
|
||||||||||||||
|
Remaining
|
$ |
3,022,000
|
|||||||||||||||||||||||
|
Total
Facility
|
$ |
5,000,000
|
|||||||||||||||||||||||
|
(1) Average
Selling Price of shares issued.
|
|||||||||||||||||||||||||
NOTE
C – OTHER RELATED PARTY TRANSACTIONS
During
the three and six months ended June 30, 2007, we paid Steven Jones, a
director of the Company and our acting Principal Financial Officer, of $28,500
and $11,000, respectively, for work performed in connection with acting as
our
Principal Financial Officer. During the three and six months ending
June 30, 2006, we paid Mr. Jones $14, 000 and $19, 650, respectively, for
consulting work performed in connection with acting as the Principal Financial
Officer.
During
the three and six months ended June 30, 2007, we incurred consulting expense
of
$0 and $9,500 from George O’Leary a director of the Company for general
consulting work. During the three and six months ended June 30, 2006,
we incurred no consulting expenses from Mr. O’Leary.
NOTE
D –COMMITMENTS
Operating
Leases
On
April
5, 2007, we entered into a lease for 8,195 square feet of laboratory space
in
Irvine, California. The lease is a five year lease and results in total payments
by the Company of approximately $771,000 including estimated operating and
maintenance expenses and property taxes. This lease will expire on
April 30, 2012.
On
June
1, 2007, we entered into a lease for 9,000 square feet of office space in Ft
Myers, Florida. The lease is a seven month lease and results in total payments
by the Company of approximately $45,000 including estimated operating and
maintenance expenses and property taxes. This lease will expire on
December 31, 2007 and is subject to a sub-lease option period January 2008
through December 2010.
Capital
Leases
During
2007, we entered into the following capital leases:
|
Monthly
|
Obligation
at
|
||||||||||||||||
|
Date
|
Type
|
Months
|
Cost
|
Payment
|
March
31, 2007
|
||||||||||||
|
Feb
2007
|
Computer
Hardware
|
36
|
$ |
3,618
|
$ |
127
|
$ |
3,289
|
|||||||||
|
Feb
2007
|
Computer
Hardware
|
36
|
4,508
|
153
|
4,202
|
||||||||||||
|
Feb
2007
|
Lab
Equipment
|
48
|
80,015
|
2,289
|
75,181
|
||||||||||||
|
Mar
2007
|
Lab
Equipment
|
60
|
135,655
|
2,746
|
135,646
|
||||||||||||
|
Mar
2007
|
Computer
Software
|
36
|
15,783
|
527
|
14,693
|
||||||||||||
|
April
2007
|
Computer
Hardware
|
36
|
11,204
|
354
|
9,399
|
||||||||||||
|
May
2007
|
Furniture
|
60
|
19,820
|
441
|
18,527
|
||||||||||||
|
Totals
|
|
$ |
272,265
|
$ |
6,698
|
$ |
251,526
|
||||||||||
F-27
NOTE
E – POWER 3 MEDICAL PRODUCTS, INC.
On
April
2, 2007, we concluded a definitive agreement with Power3 Medical Products,
Inc.,
a New York Corporation (“Power3”) regarding the formation of a joint venture
Contract Research Organization (“CRO”) and the issuance of convertible
debentures and related securities by Power3 to us. Power3 is an early stage
company engaged in the discovery, development, and commercialization of protein
biomarkers. Under the terms of the agreement, we agreed to enter into a joint
venture agreement with Power3 pursuant to which the parties will jointly own
a
CRO and begin commercializing Power3’s intellectual property portfolio of
seventeen patents pending by developing diagnostic tests and other services
around one or more of the over 500 protein biomarkers that Power3 believes
it
has discovered to date. Power3 has agreed to license all of its intellectual
property on a non-exclusive basis to the CRO for selected commercial
applications as well as provide certain management personnel. We will provide
access to cancer samples, management and sales & marketing personnel,
laboratory facilities and working capital. Subject to final negotiation of
the
joint venture agreement, we will own a minimum of 60% and up to 80% of the
new
CRO venture which is anticipated to be launched in the third or fourth quarter
of FY 2007.
As
part
of the definitive agreement, we provided $200,000 of working capital to Power3
by purchasing a convertible debenture on April 17, 2007 pursuant to a Securities
Purchase Agreement (the “Purchase Agreement”) between us and Power3. We were
also granted two irrevocable options to increase our stake in Power3 to up
to
60% of the Power3 fully diluted shares outstanding. The first option
(the “First Option”) is a fixed option to purchase convertible preferred stock
of Power3 that is convertible into such number of shares of Power3 Common Stock,
in one or more transactions, up to 20% of Power3’s voting Common Stock at a
purchase price per share, which will also equal the initial conversion price
per
share, equal to the lesser of (a) $0.20/share, or (b) $20,000,000 divided by
the
fully-diluted shares outstanding on the date of the exercise of the First
Option. This First Option became exercisable on April 17, 2007 and continues
to
be exercisable until the day which is the later of (c) November 16, 2007 or
(d)
the date that certain milestones specified in the agreement have been achieved.
The First Option is exercisable in cash or NeoGenomics Common Stock at our
option, provided, however, that we must include at least $1.0 million of cash
in
the consideration if we elect to exercise this First Option. In addition to
purchasing convertible preferred stock as part of the First Option, we are
also
entitled to receive such number of warrants to purchase Power3 common tock
that
will permit us to maintain our current ownership percentage in Power3 on a
fully
diluted basis. Such warrants will have an exercise price equal to the
initial conversion price of the convertible preferred stock that was purchased
pursuant to the First Option and will have a five year term.
The
second option (the “Second Option”), which is only exercisable if we have
exercised the First Option, provides that we will have the option to increase
our stake in Power3 to up to 60% of fully diluted shares of Power3 over the
twelve month period beginning on the expiration date of the First Option in
one
or a series of transactions by purchasing additional convertible preferred
stock
of Power3 that is convertible into voting Common Stock and receiving additional
warrants. The purchase price per share, and the initial conversion price of
the
Second Option convertible preferred stock will, to the extent such Second Option
is exercised within six months of exercise of the First Option, be the lesser
of
(a) $0.40/share or (b) $40,000,000 divided by the fully diluted shares
outstanding on the date of any purchase. The purchase price per share, and
the
initial conversion price of the Second Option convertible preferred stock will,
to the extent such Second Option is exercised after six months, but within
twelve months of exercise of the First Option, be the lesser of (y) $0.50/share
or (z) an equity price per share equal to $50,000,000 divided by the fully
diluted shares outstanding on the date of any purchase. The exercise price
of
the Second Option may be paid in cash or in any combination of cash and our
Common Stock at our option. In addition to purchasing convertible preferred
stock as part of the Second Option, we are also entitled to receive such number
of warrants to purchase
Power3
Common Stock that will permit us to maintain our current ownership percentage
in
Power3 on a fully diluted basis. Such warrants will have an exercise
price equal to the initial conversion price of the convertible preferred stock
being purchased that date and will have a five year term.
The
Purchase Agreement granted us (1) a right of first refusal with respect to
future issuances of Power3 capital stock and (2) the right to appoint a member
of the Power3 board of directors so long as we own 10% or more of Power3’s
outstanding voting securities.
NOTE
F – SUBSEQUENT EVENTS
On
August
15, 2007 our Board of Directors voted to issue warrants to purchase 533,334
shares of our Common Stock to the investors who purchased shares in the Private
Placement. Such warrants have an exercise price of $1.50/share and
are exercisable for a period of two years. Such warrants also have a
provision for piggyback registration rights in the first year and demand
registration rights in the second year.
End
of
Financial Statements
F-28
|
We
have not authorized any dealer, salesperson or other person to provide
any
information or make any representations about NeoGenomics, Inc. except
the
information or representations contained in this prospectus. You
should
not rely on any additional information or representations if
made.
This
prospectus does not constitute an offer to sell, or a solicitation
of an
offer to buy any securities:
· except
the Common Stock offered by this prospectus;
· in
any
jurisdiction in which the offer or solicitation is not
authorized;
· in
any
jurisdiction where the dealer or other salesperson is not
qualified to make the offer or solicitation;
· to
any person
to whom it is unlawful to make the offer or solicitation; or
· to
any person
who is not a United States resident or who is outside the jurisdiction
of
the United States.
The
delivery of this prospectus or any accompanying sale does not imply
that:
· there
have been no changes in the affairs of NeoGenomics, Inc. after the
date of
this prospectus; or
· the
information contained in this prospectus is correct after the date
of this
prospectus.
Until ----------2007,
all dealers effecting transactions in the registered securities,
whether
or not participating in this distribution, may be required to deliver
a
prospectus. This is in addition to the obligation of dealers to deliver
a
prospectus when acting as underwriters.
|
PROSPECTUS
7,000,000
Shares of Common Stock
NEOGENOMICS,
INC.
September–––
2007
|
INFORMATION
NOT REQUIRED IN PROSPECTUS
ITEM
24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our
Articles of Incorporation eliminate liability of our Directors and officers
for
breaches of fiduciary duties as Directors and officers, except to the extent
otherwise required by the Nevada Revised Statutes and where the breach involves
intentional misconduct, fraud or a knowing violation of the law.
Nevada
Revised Statutes 78.750, 78.751 and 78.752 have similar provisions that provide
for discretionary and mandatory indemnification of officers, Directors,
employees, and agents of a corporation. Under these provisions, such persons
may
be indemnified by a corporation against expenses, including attorney’s fees,
judgment, fines and amounts paid in settlement, actually and reasonably incurred
by him in connection with the action, suit or proceeding, if he acted in good
faith and in a manner which he reasonably believed to be in or opposed to the
best interests of the corporation and with respect to any criminal action or
proceeding, had no reasonable cause to any action, suit or proceeding, had
no
reasonable cause to believe his conduct was unlawful.
To
the
extent that a Director, officer, employee or agent has been successful on the
merits or otherwise in defense of any action, suit or proceeding, or in defense
of any claim, issue or matter, he must be indemnified by us against expenses,
including attorney’s fees, actually and reasonably incurred by him in connection
with the defense.
Any
indemnification, unless ordered by a court or advanced by us, must be made
only
as authorized in the specific case upon a determination that indemnification
of
the Director, officer, employee or agent is proper in the circumstances. The
determination must be made:
|
|
·
|
By
the stockholders;
|
|
|
·
|
By
our Board of Directors by majority vote of a quorum consisting of
Directors who were not parties to that act, suit or
proceeding;
|
|
|
·
|
If
a majority vote of a quorum consisting of Directors who were not
parties
to the act, suit or proceeding cannot be obtained, by independent
legal
counsel in a written opinion; or
|
|
|
·
|
If
a quorum consisting of Directors who were not parties to the act,
suit or
proceeding cannot be obtained, by independent legal counsel in a
written
opinion;
|
|
|
·
|
Expenses
of officers and Directors incurred in defending a civil or criminal
action, suit or proceeding must be paid by us as they are incurred
and in
advance of the final disposition of the action, suit or proceeding,
upon
receipt of an undertaking by the Director or officer to repay the
amount
if it is ultimately determined by a court of competent jurisdiction
that
he is not entitled to be indemnified by
us.
|
|
|
·
|
To
the extent that a Director, officer, employee or agent has been successful
on the merits or otherwise in defense of any action, suit or proceeding
referred to in subsections 1 and 2, or in defense of any claim, issue
or
matter therein, we shall indemnify him against expenses, including
attorneys’ fees, actually and reasonably incurred by him in connection
with the defense.
|
Insofar
as indemnification for liabilities arising under the Securities Act, as amended,
may be permitted to Directors, officers, and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred
or
paid by a Director, officer, or controlling person in the successful defense
of
any action, suit, or proceeding) is asserted by such Director, officer, or
controlling person connected with the securities being registered, we will,
unless in the opinion of our counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such
issue.
II-1
ITEM
25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The
following table sets forth estimated expenses expected to be incurred in
connection with the issuance and distribution of the securities being
registered. The Company will pay all expenses in connection with this
offering.
|
Securities
and Exchange Commission Registration Fee
|
$ |
884
|
||
|
Printing
and Engraving Expenses
|
$ |
2,500
|
||
|
Accounting
Fees and Expenses
|
$ |
15,000
|
||
|
Legal
Fees and Expenses
|
$ |
30,000
|
||
|
Miscellaneous
|
36,616
|
|||
|
TOTAL
|
$ |
85,000
|
||
ITEM
26. SALES OF UNREGISTERED SECURITIES
Except
as
otherwise noted, all of the following shares were issued and options and
warrants granted pursuant to the exemption provided for under Section 4(2)
of
the Securities Act as a “transaction not involving a public
offering”. No commissions were paid, and no underwriter participated,
in connection with any of these transactions. Each such issuance was made
pursuant to individual contracts which are discrete from one another and are
made only with persons who were sophisticated in such transactions and who
had
knowledge of and access to sufficient information about the Company to make
an
informed investment decision. Among this information was the fact that the
securities were restricted securities.
During
2004, we sold 3,040,000 shares of our Common Stock in a series of private
placements at $0.25 per share to unaffiliated third party investors. These
transactions generated net proceeds to the Company of approximately $740,000
after deducting certain transaction expenses. These transactions involved the
issuance of unregistered stock to accredited investors in transactions that
we
believed were exempt from registration under Rule 506 promulgated under the
Securities Act. All of these shares were subsequently registered on a SB-2
Registration Statement, which was declared effective by the SEC on August 1,
2005.
During
the period from January 1, 2005 to May 31, 2005, we sold 450,953 shares of
our
Common Stock in a series of private placements at $0.30 - $0.35/share to
unaffiliated third party investors. These transactions generated net proceeds
to
the Company of approximately $146,000. These transactions involved the issuance
of unregistered stock to accredited investors in transactions that we believed
were exempt from registration under Rule 506 promulgated under the Securities
Act. All of these shares were subsequently registered in a registration
statement on Form SB-2, which was declared effective by the SEC on August 1,
2005.
On
March
23, 2005, the Company entered into a Loan Agreement with Aspen to provide up
to
$1.5 million of indebtedness pursuant to a Credit Facility. As part of the
Credit Facility transaction, the Company also issued to Aspen a five (5) year
Warrant to purchase up to 2,500,000 shares of our Common Stock at an original
exercise price of $0.50 per share. Steven C. Jones, our Acting Principal
Financial Officer and a Director of the Company, is a general partner of
Aspen.
On
June
6, 2005, we entered into a Standby Equity Distribution Agreement with Cornell
Capital Partners pursuant to which the Company may, at its discretion,
periodically sell to Cornell Capital Partners shares of our Common Stock for
a
total purchase price of up to $5.0 million. Upon execution of the Standby
Equity Distribution Agreement, Cornell received 381,888 shares of our Common
Stock as a commitment fee under the Standby Equity Distribution Agreement.
The
Company also issued 27,278 shares of our Common Stock to Spartan Securities
under a placement agent agreement relating to the Standby Equity Distribution
Agreement.
II-2
On
January 18, 2006, the Company entered into a binding letter agreement with
Aspen
which provided, among other things, that:
(a)
Aspen
waived certain pre-emptive rights in connection with the sale of $400,000 of
our
Common Stock at a purchase price of $0.20 per share and the granting of 900,000
warrants with an exercise price of $0.26 per share to SKL Limited Partnership,
LP (“SKL”) in exchange for five (5) year warrants to purchase
150,000 shares at an exercise price of $0.26 per share (the “Waiver
Warrants”), as is more fully described below;
(b)
Aspen
had the right, up to April 30, 2006, to purchase up to $200,000 of restricted
shares of our Common Stock at a purchase price per share of $0.20 per share
(1,000,000 shares) and receive a five (5) year warrant to purchase 450,000
shares
of
our
Common Stock at an exercise price of $0.26 per share in connection with such
purchase (the “Equity Purchase Rights”). On March 14, 2006,
Aspen exercised its Equity Purchase Rights (as such term is defined in the
Aspen Agreement);
(c)
Aspen
and the Company amended the Loan Agreement, dated March 23, 2005 (the “Loan
Agreement”), by and between the parties, to extend the maturity date until
September 30, 2007 and to modify certain covenants (the Loan Agreement as
amended, is referred to herein as the “Credit Facility
Amendment”);
(d)
Aspen
had the right, through April 30, 2006, to provide up to $200,000 of additional
secured indebtedness to the Company under the Credit Facility Amendment and
to
receive a five (5) year warrant to purchase up to 450,000 shares of our
Common Stock with an exercise price of $0.26 per share (the “New Debt
Rights”). On March 30, 2006, Aspen exercised its New Debt Rights
and entered into the definitive transaction documentation for the Credit
Facility Amendment and other such documents required under the Aspen
Agreement;
(e)
The
Company agreed to amend and restate the warrant agreement, dated March 23,
2005,
to provide that all 2,500,000 warrant shares (the “Existing Warrants”)
were vested and the exercise price per share was reset to $0.31 per share;
and
(f)
The
Company agreed to amend the Registration Rights Agreement, dated March 23,
2005
(the “Registration Rights Agreement”), by and between the parties, to
incorporate the Existing Warrants, the Waiver Warrants and any new shares or
warrants issued to Aspen in connection with the Equity Purchase Rights or the
New Debt Rights.
II-3
(g)
All
Waiver Warrants, the Existing Warrants and all warrants issued to Aspen and
SKL
in connection with the purchase of equity or debt securities are exercisable
at
the option of the holder and each such warrant contains provisions that allow
for a physical exercise, a net cash exercise or a net share
settlement. We used the Black-Scholes pricing model to estimate the
fair value of all such warrants as of the commitment date for each, using the
following approximate assumptions: dividend yield of 0 %, expected volatility
of
14.6 – 19.3%, risk-free interest rate of 4.5%, and a term of 3 - 5
years.
During
the period from January 18 - 21, 2006, the Company entered into agreements
with
four (4) other stockholders who are parties to a Shareholders’ Agreement, dated
March 23, 2005, to exchange five (5) year warrants to purchase an aggregate
of
150,000 shares of stock at an exercise price of $0.26 per share for such
stockholders’ waiver of their pre-emptive rights under the Shareholders’
Agreement.
On
January 21, 2006 the Company entered into a subscription agreement (the
Subscription) with SKL whereby SKL purchased 2.0 million shares (the
Subscription Shares) of our Common Stock at a purchase price of $0.20 per share
for $400,000. Under the terms of the Subscription, the Subscription Shares
are
restricted for a period of twenty-four (24) months and then carry piggyback
registration rights to the extent that exemptions under Rule 144 are not
available to SKL. In connection with the Subscription, the Company also issued
a
five (5) year warrant to purchase 900,000 shares of our Common Stock at an
exercise price of $0.26 per share. SKL has no previous affiliation with the
Company.
During
the period from May 31, 2007 through June 6, 2007, we sold 2,666,667 shares
of
our Common Stock to unaffiliated accredited investors (the “Investors”) under
the Private Placement at $1.50 per share. The Private Placement generated gross
proceeds to the Company of $4 million, and after estimated transaction costs,
the Company received net cash proceeds of $3.75 million. The Company
also issued warrants to purchase 98,417 shares of our Common Stock to Noble
in
consideration for its services as exclusive placement agent under the Private
Placement. Additionally, the Company issued to
Aspen warrants to purchase
250,000 shares at $1.50 per share in consideration for
Aspen’s services in the fund raising process of the Private
Placement. The Private Placement involved the issuance of the
aforementioned unregistered securities in transactions that we believed were
exempt from registration under Rule 506 promulgated under the Securities Act.
All of the aforementioned stockholders received registration rights and
therefore, all of the aforementioned shares issued in connection with the
Private Placement are being registered hereunder.
On
June
6, 2007, the Company issued to LAM 500,000 shares of Common Stock at an exercise
price of $0.26 per share and received gross proceeds equal to $130,000 upon
the
exercise by LAM of warrants which had been previously purchased from Aspen
on
June 6, 2007.
Unless
otherwise specified above, the Company believes that all of the above
transactions were transactions not involving any public offering within the
meaning of Section 4(2) of the Securities Act, as amended, since (a) each of
the
transactions involved the offering of such securities to a substantially limited
number of persons; (b) each person took the securities as an investment for
his/her/its own account and not with a view to distribution; (c) each person
had
access to information equivalent to that which would be included in a
registration statement on the applicable form under the Securities Act, as
amended; (d) each person had knowledge and experience in business and financial
matters to understand the merits and risk of the investment; therefore no
registration statement needed to be in effect prior to such
issuances.
II-4
ITEM
26. EXHIBITS
|
Description
of Exhibit
|
Location
|
||
|
3.1
|
Articles
of Incorporation, as amended
|
Incorporated
by reference to the Company’s Registration Statement on Form SB-2 as filed
with the SEC on February 10, 1999
|
|
|
3.2
|
Amendment
to Articles of Incorporation filed with the Nevada Secretary of State
on
January 3, 2002
|
Incorporated
by reference to the Company’s Annual Report on Form 10-KSB as filed with
the SEC on May 20, 2003
|
|
|
3.3
|
Amendment
to Articles of Incorporation filed with the Nevada Secretary of State
on
April 11, 2003
|
Incorporated
by reference to the Company’s Annual Report on Form 10-KSB as filed with
the SEC on May 20, 2003
|
|
|
3.4
|
Amended
and Restated Bylaws, dated October 14, 2003
|
Incorporated
by reference to the Company’s Quarterly Report on Form 10-QSB as filed
with the SEC on November 14, 2003
|
|
|
3.5
|
NeoGenomics,
Inc. 2003 Equity Incentive Plan
|
Incorporated
by reference to the Company’s Quarterly Report on Form 10-QSB as filed
with the United States SEC on November 14, 2003
|
|
|
3.6
|
Amended
and Restated NeoGenomics Equity Incentive Plan, dated October 31,
2006
|
Incorporated
by reference to the Company’s Quarterly Report on Form 10-QSB for the
quarter ended September 30, 2006, as filed with the SEC on November
17,
2006
|
|
|
5.1
|
Opinion
of Counsel
|
Provided
herewith
|
|
|
10.1
|
Loan
Agreement between NeoGenomics, Inc. and Aspen Select Healthcare,
L.P.
dated March 23, 2005
|
Incorporated
by reference to the Company’s Current Report on Form 8-K as filed with the
SEC on March 30, 2005
|
|
|
10.2
|
Amended
and Restated Registration Rights Agreement between NeoGenomics, Inc.
and
Aspen Select Healthcare, L.P. and individuals dated March 23,
2005
|
Incorporated
by reference to the Company’s Current Report on Form 8-K as filed with the
SEC on March 30, 2005
|
|
|
10.3
|
Guaranty
of NeoGenomics, Inc., dated March 23, 2005
|
Incorporated
by reference to the Company’s Current Report on Form 8-K as filed with the
SEC on March 30, 2005
|
|
|
10.4
|
Stock
Pledge Agreement between NeoGenomics, Inc. and Aspen Select Healthcare,
L.P., dated March 23, 2005
|
Incorporated
by reference to the Company’s Current Report on Form 8-K as filed with the
SEC on March 30, 2005
|
|
|
10.5
|
Warrants
issued to Aspen Select Healthcare, L.P., dated March 23,
2005
|
Incorporated
by reference to the Company’s Current Report on Form 8-K as filed with the
SEC on March 30, 2005
|
|
|
10.6
|
Security
Agreement between NeoGenomics, Inc. and Aspen Select Healthcare,
L.P.,
dated March 23, 2005
|
Incorporated
by reference to the Company’s Current Report on Form 8-K as filed with the
SEC on March 30, 2005
|
|
|
10.7
|
Employment
Agreement, dated December 14, 2004, between Mr. Robert P. Gasparini
and the Company
|
Incorporated
by reference to the Company’s Annual Report on Form 10-KSB as filed with
the SEC on April 15, 2005
|
|
II-5
|
10.8
|
Standby
Equity Distribution Agreement with Cornell Capital Partners, L.P.
dated
June 6, 2005
|
Incorporated
by reference to the Company’s Current Report on Form 8-K as filed with the
SEC on June 8, 2005
|
|
|
10.9
|
Registration
Rights Agreement with Cornell Capital Partners, L.P. related to the
Standby Equity Distribution dated June 6, 2005
|
Incorporated
by reference to the Company’s Current Report on Form 8-K as filed with the
SEC on June 8, 2005
|
|
|
10.10
|
Placement
Agent Agreement with Spartan Securities Group, Ltd., related to the
Standby Equity Distribution dated June 6, 2005
|
Incorporated
by reference to the Company’s Current Report on Form 8-K as filed with the
SEC on June 8, 2005
|
|
|
10.11
|
Amended
and Restated Loan Agreement between NeoGenomics, Inc. and Aspen Select
Healthcare, L.P., dated March 30, 2006
|
Incorporated
by reference to the Company’s Annual Report on Form 10-KSB as filed with
the SEC on April 1, 2006
|
|
|
10.12
|
Amended
and Restated Warrant Agreement between NeoGenomics, Inc. and Aspen
Select
Healthcare, L.P., dated January 21, 2006
|
Incorporated
by reference to the Company’s Annual Report on Form 10-KSB as filed with
the SEC on April 1, 2006
|
|
|
10.13
|
Amended
and Restated Security Agreement between NeoGenomics, Inc. and Aspen
Select
Healthcare, L.P., dated March 30, 2006
|
Incorporated
by reference to the Company’s Annual Report on Form 10-KSB as filed with
the SEC on April 1, 2006
|
|
|
10.14
|
Registration
Rights Agreement between NeoGenomics, Inc. and Aspen Select Healthcare,
L.P., dated March 30, 2006
|
Incorporated
by reference to the Company’s Annual Report on Form 10-KSB as filed with
the SEC on April 1, 2006
|
|
|
10.15
|
Warrant
Agreement between NeoGenomics, Inc. and SKL Family Limited Partnership,
L.P. issued January 23, 2006
|
Incorporated
by reference to the Company’s Annual Report on Form 10-KSB as filed with
the SEC on April 1, 2006
|
|
|
10.16
|
Warrant
Agreement between NeoGenomics, Inc. and Aspen Select Healthcare,
L.P.
issued March 14, 2006
|
Incorporated
by reference to the Company’s Annual Report on Form 10-KSB as filed with
the SEC on April 1, 2006
|
|
|
10.17
|
Warrant
Agreement between NeoGenomics, Inc. and Aspen Select Healthcare,
L.P.
issued March 30, 2006
|
Incorporated
by reference to the Company’s Annual Report on Form 10-KSB as filed with
the SEC on April 1, 2006
|
|
|
10.18
|
Agreement
with Power3 Medical Products, Inc. regarding the Formation of Joint
Venture & Issuance of Convertible Debenture and Related
Securities
|
Incorporated
by reference to the Company’s Annual Report on Form 10-KSB, as filed with
the SEC on April 2, 2007
|
|
|
10.19
|
Securities
Purchase Agreement, dated April 17, 2007, by and between NeoGenomics,
Inc.
and Power3 Medical Products, Inc.
|
Incorporated
by reference to the Company’s Quarterly Report on Form 10-QSB, as filed
with the SEC on May 15, 2007
|
|
|
10.20
|
Convertible
Debenture, dated April 17, 2007, issued by Power3 Medical Products,
Inc.
to NeoGenomics, Inc. in the principal amount of $200,000
|
Incorporated
by reference to the Company’s Quarterly Report on Form 10-QSB, as filed
with the SEC on May 15, 2007
|
|
|
10.21
|
Letter
Agreement, by and between NeoGenomics, Inc. and Noble International
Investments, Inc.
|
Provided
herewith
|
|
|
10.22
|
Subscription
Documents
|
Provided
herewith
|
|
|
10.23
|
Investor
Registration Right Agreement
|
Provided
herewith
|
|
|
14.1
|
NeoGenomics,
Inc. Code of Ethics for Senior Financial Officers and the Principal
Executive Officer
|
Incorporated
by reference to the Company’s Current Report on Form 8-K as filed with the
SEC on April 15, 2005
|
|
|
23.1
|
Consent
of Kingery & Crouse, P.A.
|
Provided
herewith
|
|
II-6
ITEM
28. UNDERTAKINGS
The
undersigned of the Company hereby undertakes:
(1) To
file, during any period in which it offers or sells securities, a post-effective
amendment to this registration statement to:
(i) Include
any prospectus required by Section 10(a)(3) of the Securities Act;
(ii) Reflect
in the prospectus any facts or events which, individually or together, represent
a fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of securities offered
would not exceed that which was registered) and any deviation from the low
or
high end of the estimated maximum offering range may be reflected in the form
of
prospectus filed with the SEC pursuant to Rule 424(b) if, in the aggregate,
the
changes in volume and price represent no more than a twenty percent (20%)
change in the maximum aggregate offering price set forth in the “Calculation of
Registration Fee” table in the effective registration statement;
(iii) Include
any additional or changed information on the plan of distribution.
(2) For
determining liability under the Securities Act, the Company will treat each
such
post-effective amendment as a new registration statement of the securities
offered, and the offering of such securities at that time to be the initial
bona
fide offering.
(3) To
remove from registration by means of a post-effective amendment any of the
securities being registered which remain unsold at the termination of the
offering.
(4) For
determining liability of the undersigned small business issuer under the
Securities Act to any purchaser in the initial distribution of the securities,
the undersigned small business issuer undertakes that in a primary offering
of
securities of the undersigned small business issuer pursuant to this
registration statement, regardless of the underwriting method used to sell
the
securities to the purchaser, if the securities are offered or sold to such
purchaser by means of any of the following communications, the undersigned
small
business issuer will be a seller to the purchaser and will be considered to
offer or sell such securities to such purchaser:
(i) Any
preliminary prospectus or prospectus of the undersigned small business issuer
relating to the offering required to be filed pursuant to Rule 424;
(ii) Any
free writing prospectus relating to the offering prepared by or on behalf of
the
undersigned small business issuer or used or referred to by the undersigned
small business issuer;
(iii) The
portion of any other free writing prospectus relating to the offering containing
material information about the undersigned small business issuer or its
securities provided by or on behalf of the undersigned small business issuer;
and
(iv) Any
other communication that is an offer in the offering made by the undersigned
small business issuer to the purchaser.
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to our Director, officer and controlling persons of the small business
issuer pursuant to the foregoing provisions, or otherwise, the small business
issuer has been advised that in the opinion of the SEC such indemnification
is
against public policy as expressed in the Securities Act, and is,
therefore, unenforceable.
In
the
event that a claim for indemnification against such liabilities (other than
the payment by the small business issuer of expenses incurred or paid by a
Director, officer or controlling person of the small business issuer in the
successful defense of any action, suit or proceeding) is asserted by such
Director, officer or controlling person in connection with the securities being
registered, the small business issuer will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act, and will be governed
by the final adjudication of such issue.
II-7
In
accordance with the requirements of the Securities Act, the registrant certifies
that it has reasonable grounds to believe that it meets all of the requirements
for filing on Form SB-2 and authorized this Registration Statement on Form
SB-2
to be signed on our behalf by the undersigned, on September 14,
2007.
|
Date: September
14, 2007
|
NEOGENOMICS,
INC.
|
|
By: /s/
Robert P. Gasparini
|
|
|
Name: Robert
P. Gasparini
|
|
|
Title: President
and Principal Executive Officer
|
|
|
By: /s/
Steven C.
Jones
|
|
|
Name: Steven
C. Jones
|
|
|
Title:
Acting Principal Financial Officer and Director
|
|
|
By:/s/
Jerome J. Dvonch
|
|
|
Name:
Jerome J. Dvonch
|
|
|
Title: Principal
Accounting Officer
|
|
In
accordance with the Securities Act, this SB-2 has been signed below by the
following persons on behalf of the registrant and in the capacities and on
the
dates indicated.
|
Signatures
|
Title(s)
|
Date
|
|
/s/
Michael T. Dent
|
Chairman
of the Board
|
September
14, 2007
|
|
Michael
T. Dent, M.D.
|
||
|
/s/
Robert P. Gasparini
|
President,
Principal Executive Officer and Director
|
September
14, 2007
|
|
Robert
P. Gasparini
|
||
|
/s/
Steven C. Jones
|
Acting
Principal Financial Officer and Director
|
September
14, 2007
|
|
Steven
C. Jones
|
||
|
/s/
Jerome J. Dvonch
|
Principal
Accounting Officer
|
September
14, 2007
|
|
Jerome
J. Dvonch
|
||
|
/s/
George G. O’Leary
|
Director
|
September
14, 2007
|
|
George
G. O’Leary
|
||
|
/s/
Peter M. Peterson
|
Director
|
September
14, 2007
|
|
Peter
M. Peterson
|
||
|
/s/
William J. Robison
|
Director
|
September
14, 2007
|
|
William
J. Robison
|
||
|
/s/
Marvin E. Jaffe
|
Director
|
September
14, 2007
|
|
Marvin
E. Jaffe
|
II-8