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, 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(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

 

 

Large accelerated filer ¨	Accelerated filer ¨
Non-accelerated filer ¨ (Do not check if a smaller reporting company)	Smaller reporting company x

 

 

(1)	The shares of our common stock being registered hereunder are being registered for sale by the selling stockholders named in the prospectus.

 

(2)	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 January 21, 2009.

 

(3)	Previously paid.

 

SUBJECT TO COMPLETION, DATED JANUARY 22, 2009.

 

This prospectus relates to the sale of up to 6,500,000 shares of the common stock, par value $0.001 per share, of NeoGenomics, Inc., a Nevada corporation, by the selling stockholders named in this prospectus in the section “Selling Stockholders”. In this prospectus we refer to NeoGenomics, Inc., a Nevada corporation, individually as the “Parent Company” and collectively with all of its subsidiaries as "Company," "we," "us," "our" and "NeoGenomics".

 

 

 

One of the selling stockholders, Fusion Capital Fund II, LLC, is an "underwriter" within the meaning of the Securities Act of 1933, as amended (the “Securities Act”).

 

These securities are speculative and involve a high degree of risk. Please refer to “Risk Factors” beginning on page 10 for a discussion of these risks.

 

 

The date of this prospectus is________, 2009.

PROSPECTUS SUMMARY		1
THE OFFERING		4
SUMMARY CONSOLIDATED FINANCIAL INFORMATION		6
RISK FACTORS		10
FORWARD-LOOKING STATEMENTS		21
SELLING STOCKHOLDERS		22
THE FUSION TRANSACTION		23
USE OF PROCEEDS		26
PLAN OF DISTRIBUTION		27
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		28
DESCRIPTION OF BUSINESS		40
MANAGEMENT		49
PRINCIPAL STOCKHOLDERS		56
MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT’S COMMON EQUITY AND OTHER STOCKHOLDER MATTERS		59
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS		60
DESCRIPTION OF CAPITAL STOCK		62
LEGAL MATTERS		64
EXPERTS		64
AVAILABLE INFORMATION		64
CONSOLIDATED FINANCIAL STATEMENTS OF NEOGENOMICS, INC.		F-i

 

 

 

 

 

a)

cytogenetics testing, which analyzes human chromosomes;

 

b)

Fluorescence In-Situ Hybridization (“FISH”) testing, which analyzes abnormalities at the chromosomal and gene levels;

 

c)

flow cytometry testing, which analyzes gene expression of specific markers inside cells and on cell surfaces; and

 

d)

molecular testing which involves analysis of DNA and RNA to diagnose and predict the clinical significance of various genetic sequence disorders.

 

 

 

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.

 

 

 

 

 

 

2007 saw the refinement of our industry leading NeoFISHTM technical component-only FISH service offering.  Upon the suggestion of our installed customer base, we made numerous usability and technical enhancements throughout last year.  The result has been a product line for NeoGenomics that continues to resonate very well with our client pathologists.  Utilizing NeoFISHTM, such clients are empowered to extend the outreach efforts of their practices and exert a high level of sign out control over their referral work in a manner that was previously unobtainable.

 

NeoFLOWTM tech-only flow cytometry was launched as a companion service to NeoFISHTM in late 2007. NeoFLOWTM has been a key growth driver in 2008.  Moreover, the combination of NeoFLOWTM and NeoFISHTM serves to strengthen the market differentiation of each product line for NeoGenomics and allows us to compete more favorably against larger, more entrenched competitors in our testing niche.

 

We increased our professional level staffing for global requisitions requiring interpretation in 2007 and 2008.  We currently employ three full-time MDs as our medical directors and pathologists, two PhDs as our scientific directors and cytogeneticists, and three part-time MDs acting as consultants and backup pathologists for case sign out purposes.  We have plans to hire several more hematopathologists as our product mix continues to expand beyond tech-only services and more sales emphasis is focused on our ability to issue consolidated reporting with case interpretation under our Genetic Pathology Solutions (GPSTM) product line.

 

 

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.  We currently operate three laboratory locations in Fort Myers, Florida, Irvine, California and Nashville, Tennessee, each of which has received the appropriate state, Clinical Laboratory Improvement Amendments (“CLIA”), and College of American Pathologists (“CAP”) licenses and accreditations.  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.

 

2007 brought progress in the NeoGenomics Contract Research Organization (“CRO”) division based at our Irvine, California 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. 2007 brought the first revenue to NeoGenomics’ CRO division.  This initial revenue stream was small due to the size of the contracts closed. During 2008 we began to scale revenues from the CRO division and we currently expect to grow this business significantly during 2009.

 

 

 

 

For the twelve months ended December 31		FY 2007			FY 2006			% Inc (Dec)
Customer Requisitions Received (Cases)			16,385			9,563			71.3	%
Number of Tests Performed			20,998			12,838			63.6	%
Average Number of Tests/Requisition			1.28			1.34			(4.5	%)
Total Testing Revenue		$	11,504,725		$	6,475,996			77.7	%
Average Revenue/Requisition		$	702.15		$	677.19			3.7	%
Average Revenue/Test		$	547.90		$	504.44			8.6	%

 

For the nine months ended September 30		FY 2008			FY 2007			% Inc (Dec)
Customer Requisitions Received (Cases)			17,758			11,123			59.7	%
Number of Tests Performed			23,049			14,332			60.8	%
Average Number of Tests/Requisition			1.31			1.29			1.6	%
Total Testing Revenue		$	14,094,959		$	7,709,408			82.8	%
Average Revenue/Requisition		$	802.77		$	693.01			15.8	%
Average Revenue/Test		$	611.52		$	537.91			13.7	%

 

 

Our principal executive offices are located at 12701 Commonwealth Drive, Suite 5, Fort Myers, Florida 33913. Our telephone number is (239) 768-0600.  Our website can be accessed at www.neogenomics.org.

 

Fusion Capital

 

On November 5, 2008, the Company and Fusion Capital Fund II, LLC, an Illinois limited liability company (“Fusion Capital”), entered into a Common Stock Purchase Agreement (the “Purchase Agreement”), and a Registration Rights Agreement (the “Registration Rights Agreement”). Under the Purchase Agreement, Fusion Capital is obligated, under certain conditions, to purchase shares from us in an aggregate amount of $8.0 million from time to time over a thirty (30) month period. Under the terms of the Purchase Agreement, Fusion Capital has received a commitment fee consisting of 400,000 shares of our common stock. As of December 31, 2008, there were 32,117,237 shares outstanding (20,018,178 shares held by non-affiliates) excluding the 3,000,000 shares offered by Fusion Capital pursuant to this prospectus which it has not yet purchased from us. If all of such 3,000,000 shares offered hereby were issued and outstanding as of the date hereof, the 3,000,000 shares would represent 8.5% of the total common stock outstanding or 13.0% of the non-affiliates shares outstanding as of the date hereof.

 

 

 

Other Selling Stockholders

 

·

Aspen Select Healthcare, LP (“Aspen”), which intends to sell up to 2,130,364 shares of common stock previously issued and sold by the Company to Aspen on April 15, 2003 (the “2003 Aspen Placement”).  Aspen received  registration rights with respect to these shares and therefore, such shares are being registered hereunder.

 

·

Mary S. Dent, the spouse of Dr. Michael Dent, who is our Chairman of the Board and founder, who intends to sell up to 553,488 shares of common stock previously issued and sold by the Company to Dr. Dent as founder shares. Such shares were subsequently transferred to Mary Dent in February 2007. Dr. Dent received registration rights with respect to these shares and therefore, such shares are being registered hereunder.

 

 

·

Those shareholders other than Aspen and Mary Dent who are set forth in the section herein entitled “Selling Stockholders” who intend to sell up to an aggregate of 398,648 shares of common stock which they received in a distribution from Aspen in September 2007. All of such shares were originally purchased by Aspen in the 2003 Aspen Placement. Aspen received registration rights with respect to these shares and has assigned such rights to these selling stockholders and therefore, such shares are being registered hereunder.

 

 

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. The prices at which the selling stockholders may sell the shares will be determined by the prevailing market price for the shares or in negotiated transactions.

 

 

Common Stock Offered		6,500,000 shares by selling stockholders
Offering Price		Market price
Common Stock Currently Outstanding		32,122,382 shares as of January 21, 2009
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” beginning on page 10 for a discussion of these risks.
Over-the-Counter Bulletin Board Symbol		NGNM.OB

 

 

 

 

 

		For the Nine Months Ended
		September 30,			September 30,
		2008			2007
Net Revenue		$	14,094,959		$	7,709,408
Cost of Revenue			6,577,549			3,623,860
Gross Profit			7,517,410			4,085,548
Other Operating Expenses:
General and administrative			7,706,284			5,664,053
Interest expense, net			199,336			205,806
Total Operating Expenses			7,905,620			5,869,859
Net Loss		$	(388,210	)	$	(1,784,311	)
Net Loss Per Share - Basic And Fully Diluted		$	(0.01	)	$	(0.06	)
Weighted Average Number Of Shares Outstanding – Basic and Fully Diluted			31,414,065			29,221,778

 

 

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

 

 

 

		For the Years Ended  December 31,
		2007			2006
Net Revenue		$	11,504,725		$	6,475,996
Cost of Revenue			5,522,775			2,759,190
Gross Profit			5,981,950			3,716,806
Other Operating Expense:
General and administrative			9,122,922			3,576,812
Income / (Loss) from Operations			(3,140,972	)		139,994
Other Income / (Expense):
Other income			24,256			55,.970
Interest expense			(263,456	)		(325,625	)
Other income / (expense) – net			(239,200	)		(269,655	)
Net Loss		$	(3,380,172	)	$	(129,661	)
Net Loss Per Share – Basic and Diluted		$	(0.11	)	$	(0.00	)
Weighted Average Number of Shares Outstanding – Basic and
Diluted			29,764,289			26,166,031

 

		As of
		December 31, 2007			December 31, 2006
Assets:
Cash and cash equivalents		$	210,573		$	126,266
Accounts receivable (net of allowance for doubtful accounts of $414,548 and 103,463, respectively)			3,236,751			1,549,758
Inventories			304,750			117,362
Other current assets			400,168			102,172
Total current assets			4,152,242			1,895,558
Property and equipment (net of accumulated depreciation of $862,030 and $494,942, respectively)			2,108,083			1,202,487
Other assets			260,575			33,903
Total Assets		$	6,520,900		$	3,131,948
Liabilities & Stockholders’ Equity:
Current Liabilities
Account payable		$	1,799,159		$	697,754
Accrued compensation			370,496			133,490
Accrued expenses and other liabilities			574,084			67,098
Legal contingency			375,000			-
Due to affiliates (net of discount of $39,285)			-			1,635,715
Short-term portion of equipment capital leases			242,966			94,430
Total current liabilities			3,361,705			2,628,487
Long-Term Liabilities
Long-term portion of equipment capital leases			837,081			448,947
Total Liabilities:			4,198,786			3,077,434
Commitments and contingencies
Stockholders’ Equity:
Common Stock, $0.01 par value, (100,000,000 shares authorized; And 31,391,660 and 27,061,476 shares issued and outstanding at December 31, 2007 and 2006, respectively)			31,391			27,061
Additional paid-in capital			16,820,954			11,300,135
Deferred stock compensation			-			(122,623	)
Accumulated deficit			(14,530,231	)		(11,150,059	)
Total stockholders’ equity			2,322,114			54,514
Total Liabilities and Stockholders’ Equity		$	6,520,900		$	3,131,948

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

We rely on third parties for the manufacture and supply of some of our critical laboratory instruments, equipment and materials that we need to perform our specialized diagnostic services, and rely on a limited number of suppliers for certain laboratory materials and some of the laboratory equipment with which we perform our diagnostic services. We do not have long-term contracts with our suppliers and manufacturers that commit them to supply equipment and materials to us. Because we cannot ensure the actual production or manufacture of such critical equipment and materials, or the ability of our suppliers to comply with applicable legal and regulatory requirements, we may be subject to significant delays caused by interruption in production or manufacturing. If any of our third party suppliers or manufacturers were to become unwilling or unable to provide this equipment or these materials in required quantities or on our required timelines, we would need to identify and acquire acceptable replacement sources on a timely basis. While we have developed alternate sourcing strategies for the equipment and materials we use, we cannot be certain that these strategies will be effective and even if we were to identify other suppliers and manufacturers for the equipment and materials we need to perform our specialized diagnostic services, there can be no assurance that we will be able to enter into agreements with such suppliers and manufacturers or otherwise obtain such items on a timely basis or on acceptable terms, if at all. If we encounter delays or difficulties in securing necessary laboratory equipment or materials, including consumables, we would face an interruption in our ability to perform our specialized diagnostic services and experience other disruptions that would adversely affect our business, results of operations and financial condition.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

·

pricing differences between our fee schedules and the reimbursement rates of the payors;

 

·

disputes with payors as to which party is responsible for payment; and

 

·

disparity in coverage and information requirements among various carriers.

 

 

 

 

 

 

 

 

 

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.

 

 

 

 

 

 

 

 

 

Our Business Could Be Harmed By Future Interpretations Of Clinical Laboratory Mark-Up Prohibitions.

The HIPAA privacy and security regulations establish comprehensive federal standards with respect to the uses and disclosures of Protected Health Information, or PHI, by health plans and healthcare providers, in addition to setting standards to protect the confidentiality, integrity and availability of electronic PHI. The regulations establish a complex regulatory framework on a variety of subjects, including the circumstances under which uses and disclosures of PHI are permitted or required without a specific authorization by the patient, including but not limited to treatment purposes, activities to obtain payments for services and healthcare operations activities; a patient's rights to access, amend and receive an accounting of certain disclosures of PHI; the content of notices of privacy practices for PHI; and administrative, technical and physical safeguards required of entities that use or receive PHI electronically. We have implemented policies and procedures related to compliance with the HIPAA privacy and security regulations, as required by law. The privacy regulations establish a uniform federal "floor" and do not supersede state laws that are more stringent. Therefore, we are required to comply with both federal privacy regulations and varying state privacy laws. The federal privacy regulations restrict our ability to use or disclose patient identifiable laboratory data, without patient authorization, for purposes other than payment, treatment or healthcare operations (as defined by HIPAA), except for disclosures for various public policy purposes and other permitted purposes outlined in the privacy regulations. The privacy and security regulations provide for significant fines and other penalties for wrongful use or disclosure of PHI, including potential civil and criminal fines and penalties. Although the HIPAA statute and regulations do not expressly provide for a private right of damages, we also could incur damages under state laws to private parties for the wrongful use or disclosure of confidential health information or other private personal information.

 

 

 

 

 

 

 

 

 

The Market Price Of Our Common Stock Is Highly Volatile.

The market price of our common stock has been and is expected to continue to be highly volatile. Factors, including announcements of technological innovations by us or other companies, regulatory matters, new or existing products or procedures, concerns about our financial position, operating results, litigation, government regulation, developments or disputes relating to agreements, patents or proprietary rights, may have a significant impact on the market price of our common stock. In addition, potential dilutive effects of future sales of shares of common stock by stockholders and by the Company, including Fusion Capital and the other selling stockholders pursuant to this prospectus, and subsequent sale of common stock by the holders of warrants and options could have an adverse effect on the market price of our shares.

 

 

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:

 

·

With a price of less than $5.00 per share;

 

·

That are not traded on a “recognized” national exchange;

 

·

Whose prices are not quoted on the Nasdaq automated quotation system;

 

·

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;

 

·

In issuers with net tangible assets less than $2.0 million (if the issuer has been in continuous operation for at least three years) or $5.0 million (if in continuous operation for less than three years), or with average revenues of less than $6.0 million for the last three years.

 

·

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.

 

 

 

 

 

 

 

 

 

Selling Stockholders		Shares Beneficially Owned Before Offering(1)			Percentage of Outstanding Shares Beneficially Owned Before Offering(1)			Shares To Be Sold In The Offering			Percentage of Outstanding Shares Beneficially Owned After The Offering
Fusion Capital Fund II, LLC(2)			417,500			1.3	%		3,417,500			0.0	%
Aspen Select Healthcare, LP(3)			11,815,220			33.6	%		2,130,364			26.9	%
Mary S. Dent(4)			2,642,130			8.1	%		553,488			6.0	%
Steven C. Jones(5)			13,055,386			36.7	%		238,826			29.3	%
Jones Network, LP(6)			107,143			*			107,143			0.0	%
Marvin E. Jaffe(7)			63,096			*			21,429			*
Steven C. Jones ROTH IRA(8)			20,450			*			18,750			*
Peter M. Peterson(9)			11,926,862			33.8	%		12,500			25.6	%
Total(10):			16,257,280			44.9	%		6,500,000			35.7	%

 

 

On November 5, 2008, the Company and Fusion Capital Fund II, LLC, an Illinois limited liability company (“Fusion Capital”), entered into a Common Stock Purchase Agreement (the “Purchase Agreement”), and a Registration Rights Agreement (the “Registration Rights Agreement”). Under the Purchase Agreement, Fusion Capital is obligated, under certain conditions, to purchase shares from us in an aggregate amount of $8.0 million from time to time over a thirty (30) month period. Under the terms of the Purchase Agreement, Fusion Capital has received a commitment fee consisting of 400,000 shares of our common stock. As of December 31, 2008, there were 32,117,237 shares outstanding (20,018,178 shares held by non-affiliates) excluding the 3,000,000 shares offered by Fusion Capital pursuant to this prospectus which it has not yet purchased from us. If all of such 3,000,000 shares offered hereby were issued and outstanding as of the date hereof, the 3,000,000 shares would represent 8.5% of the total common stock outstanding or 13.0% of the non-affiliates shares outstanding as of the date hereof.

 

 

•

the lowest sale price of our common stock on the purchase date; or

•

the average of the three lowest closing sale prices of our common stock during the twelve consecutive business days prior to the date of a purchase by Fusion Capital.

 

 

 

In addition to purchases of up to $50,000 from time to time, we may also from time to time elect on any single business day selected by us to require Fusion Capital to purchase our shares in an amount up to $100,000 provided that our share price is not below $0.75 during the three business days prior to and on the purchase date. We may increase this amount to up to $250,000 if our share price is not below $1.20 during the three business days prior to and on the purchase date. This amount may also be increased to up to $500,000 if our share price is not below $2.40 during the three business days prior to and on the purchase date. This amount may also be increased to up to $1.0 million if our share price is not below $5.00 during the three business days prior to and on the purchase date. We may direct Fusion Capital to make multiple large purchases from time to time in our sole discretion; however, at least two business days must have passed since the most recent large purchase was completed. The price at which our common stock would be purchased in this type of larger purchases will be the lesser of (i) the lowest sale price of our common stock on the purchase date and (ii) the lowest purchase price (as described above) during the previous seven business days prior to the purchase date.

•

the effectiveness of the registration statement of which this prospectus is a part of lapses for any reason (including, without limitation, the issuance of a stop order) or is unavailable to Fusion Capital for sale of our common stock offered hereby and such lapse or unavailability continues for a period of 20 consecutive business days or for more than an aggregate of 60 business days in any 365-day period;

•

suspension by our principal market of our common stock from trading for a period of three consecutive business days;

•

the de-listing of our common stock from our principal market provided our common stock is not immediately thereafter trading on the American Stock Exchange, the Nasdaq Global Market, the Nasdaq Capital Market, the Nasdaq Global Select Market or the New York Stock Exchange;

•

the transfer agent‘s failure for five business days to issue to Fusion Capital shares of our common stock which Fusion Capital is entitled to under the Purchase Agreement;

•

any material breach of the representations or warranties or covenants contained in the Purchase Agreement or any related agreements which has or which could have a material adverse effect on us subject to a cure period of five business days; or

•

any participation or threatened participation in insolvency or bankruptcy proceedings by or against us; or

•

a material adverse change in our business;

 

 

All 3,417,500 shares registered in this offering are expected to be freely tradable. It is anticipated that shares registered in this offering will be sold over a period of up to 30 months from the date of this prospectus. The sale by Fusion Capital of a significant amount of shares registered in this offering at any given time could cause the market price of our common stock to decline and to be highly volatile. Fusion Capital may ultimately purchase all, some or none of the 3,000,000 shares of common stock not yet issued but registered in this offering. After it has acquired such shares, it may sell all, some or none of such shares. Therefore, sales to Fusion Capital by us under the Purchase Agreement may result in substantial dilution to the interests of other holders of our common stock. However, we have the right to control the timing and amount of any sales of our shares to Fusion Capital and the Purchase Agreement may be terminated by us at any time at our discretion without any cost to us.

In connection with entering into the Purchase Agreement, we authorized the sale to Fusion Capital of up to 3,000,000 shares of our common stock or 9.3% of our outstanding common stock on November 5, 2008 (the date of the Purchase Agreement). We estimate that we will sell no more than 3,000,000 shares to Fusion Capital under the Purchase Agreement all of which are included in this offering. We have the right to terminate the Purchase Agreement without any payment or liability to Fusion Capital at any time, including in the event that all 3,000,000 shares are sold to Fusion Capital under the Purchase Agreement. Subject to approval by our board of directors, we have the right but not the obligation to sell more than 3,000,000 shares to Fusion Capital. In the event we elect to sell more than the 3,000,000 shares offered hereby, we will be required to file a new registration statement and have it declared effective by the U.S. Securities and Exchange Commission. The number of shares ultimately offered for sale by Fusion Capital under this prospectus is dependent upon the number of shares purchased by Fusion Capital under the Purchase Agreement. The following table sets forth the amount of proceeds we would receive from Fusion Capital from the sale of shares at varying purchase prices:

 

Assumed Average Purchase Price		Number of Shares to be Sold if Full Purchase		Percentage of Outstanding Shares After Giving Effect to the Issuance to Fusion Capital(1)		Proceeds from the Sale of Shares  to Fusion Capital Under the  Purchase Agreement
$0.45		3,000,000		8.5%		$1,350,000
$0.69(2)		3,000,000		8.5%		$2,070,000
$1.00		3,000,000		8.5%		$3,000,000
$1.50		3,000,000		8.5%		$4,500,000
$2.00		3,000,000		8.5%		$6,000,000
$2.50		3,000,000		8.5%		$7,500,000
$2.67		3,000,000		8.5%		$8,000,000

 

(1)

The denominator is based on 32,117,237 shares outstanding as of December 31, 2008, which includes the 417,500 shares previously issued to Fusion Capital. The numerator is based on the number of shares issuable under the Purchase Agreement at the corresponding assumed purchase price set forth in the adjacent column.

 

(2)

Closing sale price of our shares on January 21, 2009.

 

 

 

This prospectus relates to shares of our common stock that may be offered and sold from time to time by the selling stockholders. We will receive no proceeds from the sale of shares of common stock in this offering. However, we may receive up to $8.0 million in proceeds from the sale of our common stock to Fusion Capital under the Purchase Agreement. Any proceeds from Fusion Capital we receive under the Purchase Agreement will be used for working capital and general corporate purposes.

 

 

 

	•	ordinary brokers’ transactions;
	•	transactions involving cross or block trades;
	•	through brokers, dealers, or underwriters who may act solely as agents
	•	“at the market” into an existing market for the common stock;
	•	in other ways not involving market makers or established business markets, including direct sales to purchasers or sales effected through agents;
	•	in privately negotiated transactions; or
	•	any combination of the foregoing.

 

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

 

 

 

NeoGenomics operates a network of cancer 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 prediction of the clinical significance of various cancers. All of these testing services are widely used in the diagnosis and prognosis of various types of cancer.

 

 

 

 

 

·

Revenue Recognition

 

·

Accounts Receivable

 

·

Accounting For Contingencies

 

·

Stock Based Compensation

 

 

 

 

 

 

 

 

---

 

December 31, 2006
Payor Group		0-30			%			30-60			%			60-90			%			90-120			%			> 120			%			Total			%
Client		$	146,005			9	%	$	150,698			10	%	$	79,481			5	%	$	8,606			1	%	$	33,827			2	%	$	418,617			27	%
Commercial Insurance			133,333			8	%		105,464			7	%		58,026			4	%		48,847			3	%		35,248			2	%		380,918			24	%
Medicaid			325			0	%		650			0	%		2,588			0	%		400			0	%		-			0	%		3,963			0	%
Medicare			293,298			19	%		282,463			18	%		71,283			5	%		68,830			4	%		56,598			4	%		772,472			49	%
Self Pay			135			0	%		2,058			0	%		723			0	%		-			0	%		-			0	%		2,916			0	%
Total		$	573,096			36	%	$	541,333			35	%	$	212,101			13	%	$	126,683			8	%	$	125,673			8	%	$	1,578,886			100	%

 

 

 

 

When involved in litigation or claims, in the normal course of our business, we follow the provisions of SFAS No. 5, Accounting for Contingencies, to record litigation or claim-related expenses. We evaluate, among other factors, the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss. We accrue for settlements when the outcome is probable and the amount or range of the settlement can be reasonably estimated. In addition to our judgments and use of estimates, there are inherent uncertainties surrounding litigation and claims that could result in actual settlement amounts that differ materially from estimates.  With respect to claims brought against the Company by Accupath Diagnostics Laboratories, Inc. (“US Labs”), on April 23, 2008, the Company and US Labs entered into a settlement agreement and release (the “Settlement Agreement”); whereby, both parties agreed to settle and resolve all claims asserted in and arising out of the aforementioned lawsuit. Pursuant to the Settlement Agreement, we are required to pay $500,000 to US Labs, of which $250,000 was paid on May 1, 2008 with funds from the Company’s insurance carrier and the remaining $250,000 shall be paid by the Company on the last day of each month in equal installments of $31,250 commencing on May 31, 2008.  Under the terms of the Settlement Agreement, there are certain provisions agreed to in the event of default. As of October 31, 2008 the remaining amount due was $62,500, and no events of default had occurred.

 

 

Prior to January 1, 2006, we accounted for stock-based awards and our Employee Stock Purchase Plan using the intrinsic method in accordance with APB Opinion No. 25, “Accounting for Stock Issued to Employees”, FASB Interpretation No. 44 (“FIN 44”)“Accounting for Certain Transactions Involving Stock-Based Compensation, an Interpretation of APB Opinion No. 25”, FASB Technical Bulletin No. 97-1 (“FTB 97-1”)“Accounting under Statement 123 for Certain Employee Stock Purchase Plans with a Look-Back Option”, and related interpretations and provided the required pro forma disclosures of SFAS 123  ”Accounting for Stock-Based Compensation”.  In accordance with APB 25, non-cash, stock-based compensation expense was recognized for any options for which the exercise price was below the market price on the actual grant date and for any grants that were modified from their original terms.  The charge for the options with an exercise price below the market price on the actual grant date was equal to the number of options multiplied by the difference between the exercise price and the market price of the option shares on the actual grant date.  That expense was amortized over the vesting period of the options.  The charge for modifications of options in general was equal to the number of options modified multiplied by the difference between the market price of the options on the modification date and the grant price.  The charge for modified options was taken over the remaining service period, if any.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense net, which primarily represents interest on borrowing arrangements, increased 423.5%, or $61,000 to $75,000 for the three months ended September 30, 2008 as compared to $14,000 for the three months ended September 30, 2007. For the nine months ended September 30, 2008 interest expense, net decreased 3.1%, or $6,000 to $199,000 as compared to $206,000 for the nine months ended September 30, 2007. Interest expense for the three and nine months ended September 30, 2008 is related to our new credit facility with Capital Source, while interest expense for the three and nine months ended September 30, 2007 was related to our previous credit facility with Aspen Select Healthcare, LP (“Aspen”), which had a higher average balance and higher interest rate, but was paid off in the second quarter of 2007, thus resulting in no interest expense in the third quarter of 2007 as compared to the third quarter of 2008.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

During the nine months ended September 30, 2008, our operating activities used approximately $182,000 in cash compared with approximately $2,189,000 used in the nine months ended September 30, 2007. We invested approximately $370,000 on new equipment during the nine months ended September 30, 2008, compared with approximately $407,000 for the nine months ended September 30, 2007. As of November 5, 2008, we had approximately $625,000 in cash on hand and $1,250,000 of availability under our Credit Facility with CapitalSource. On November 5, 2008, we entered into the Purchase Agreement with Fusion Capital, that provides for future sales of our common stock to Fusion Capital in amounts up to $8.0 million over the next 30 months in amounts and at times that are solely in our discretion. If we elect to sell stock to Fusion Capital under the Purchase Agreement, any proceeds received by us would be used for general corporate purposes or to pursue strategic opportunities that may arise. On November 5, 2008, we also entered into a master lease agreement with Leasing Technologies International, Inc. (“LTI”) which allows us to draw as much as $1.0 million over the next twelve months to purchase capital equipment. At the present time, we anticipate that based on i) our current business plan and operations, ii) our existing cash balances, iii) the availability of our accounts receivable credit facility with CapitalSource, iv) the availability of equity capital under the Purchase Agreement, and v) the availability of equipment financing under the master lease agreement with LTI, we will have adequate liquidity for at least the next twelve months. 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 or cash that may be required to pursue strategic transactions or acquisitions. In the event that the Company grows faster than we currently anticipate or we engage in strategic transactions or acquisitions and our cash on hand and/or our availability under the CapitalSource Credit Facility, the Purchase Agreement, or the LTI master lease agreement is not sufficient to meet our financing needs, we may need to raise additional capital from other sources. In such event, we may not be able to obtain such funding on attractive terms, or at all, and the Company may be required to curtail its operations. In the event that we do need to raise additional capital, we would seek to raise this additional money through issuing a combination of debt and/or equity securities primarily through banks and/or other large institutional investors. At September 30, 2008, we had stockholders’ equity of $2,487,000.

 

 

 

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

 

 

 

On June 6, 2005, we entered into a Standby Equity Distribution Agreement (the “SEDA”) with Cornell Capital Partners, LP.  Pursuant to the SEDA, the Company could, at its discretion, periodically sell to Cornell Capital Partners shares of common stock for a total purchase price of up to $5.0 million.    On August 1, 2007, the SEDA expired and we decided not to renew it.

 

 

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