OUR COMMON PURPOSE:
We Save Lives by Improving Patient Care
OUR MISSION:
To improve patient care through exceptional
cancer genetic testing services
OUR VISION:
By delivering uncompromising quality, exceptional
service and innovative solutions, we are becoming
America’s premier cancer testing laboratory
OUR VALUES:
Quality – Integrity – Accountability – Teamwork –
Employee, Customer and Results Focused
BECOMING AMERICA’S PREMIER CANCER TESTING LABORATORY
2014 Accomplishments
• Grew revenue by 31% to $87.1 million driven by new tests and market share gains.
• Increased earnings before interest, taxes, depreciation and amortization and stock
compensation expense (Adjusted EBITDA) by 8% to $9.2 million. Achieved profitability
with $1.1 million of net income, or $0.02/share despite Medicare price reductions.
• Launched 48 new molecular and FISH tests and converted 23 tests
to Next-Generation Sequencing to create one of the most
comprehensive Oncology test menus in America.
• Increased Cash Flows from Operations by 324% to $9.5 million
compared with 2013.
• Completed our first acquisition of PathLogic for $6.0 million
in an all cash transaction, which bolstered our test menu
and capabilities and resulted in $4.9 million of revenue from
the period of acquisition on July 8, 2014 through
December 31, 2014.
• Raised $34.5 million in a well-received equity offering in
August, paid off all of our non-lease bank debt, purchased
PathLogic, and still had $34 million available at
December 31, 2014.
Continued Growth in Revenue, Volumes and Earnings
(in thousands, except for tests and percentages) FY 2012 FY 2013 FY 2014
Revenue 59,867 66,467 87,069
% Revenue Growth 37.7% 11.0% 31.0%
Net Income 65 2,033 1,132
Diluted Earnings per Share $ 0.00 $ 0.04 $ 0.02
Adjusted EBITDA 5,998 8,515 9,176
% Growth 181.1% 42.0% 7.8%
Base NeoGenomics test volume 114,606 137,317 177,279
% Growth 50.2% 19.8% 29.1%
Annual Revenue
($ in millions)
$87.1
$66.5
$59.9
$100.0
$80.0
$60.0
$43.5
$40.0
$34.4
$20.0
$0
2010
2011
2012
2013
2014
Key Priorities for 2015
• Grow rapidly by providing customers with the latest capabilities in the field of cancer testing.
• “Get Lean” by using information technology, greater automation, best practices, and other
tools to improve quality and further reduce our cost of testing.
• Innovate relentlessly by launching a proprietary NeoLABTM (Liquid Alternative to Biopsy)
test for prostate cancer as well as launch other Next Generation Sequencing tests.
• Expand our Clinical Trials business by capitalizing on our world class Molecular testing menu
and developing our relationships with pharmaceutical firms.
• Capitalize on the opportunities presented by our acquisition of PathLogic including selling
specific reference lab services to NeoGenomics core customers.
• Acquire additional companies that complement our core business model.
NeoGenomics Laboratories. © 2015 All Rights Reserved.
Page 1
DEAR FELLOW SHAREHOLDERS
We are driven by a passion to help save the lives of
patients and to become America’s premier cancer
testing laboratory. In 2014 we made significant strides
toward achieving our goals, and we are determined
to continue on that path in 2015 and beyond by
pursuing key focus areas.
West Sacramento, has core competencies that will
allow us to offer new highly-specialized testing services
to our existing clinical customer base and to our clinical
trials customers. Our expanded scope and capabilities
will help us achieve our objective to be a one-stop-shop
for clients in need of cancer diagnostic services.
Growth
Innovation
With outstanding customer retention and a steady
stream of new customers, we have been able to grow
our business organically by more than 150% over the
past five years. In fact, our “Core Business” (excluding
PathLogic) achieved a 65% compounded annual
growth rate in both test volume and revenue over the
last ten years.
As a national reference laboratory, the foundation
of our business model and our growth strategy is to
establish strategic, strong, and enduring relationships
with Pathology practices, Oncology groups and
Hospitals across the country. We are committed to
helping our clients grow and prosper in their local
markets. We leverage our comprehensive test menu
and client-focused information systems to create a
“one-stop-shop” capability to provide for all client
needs related to cancer genetic testing.
Cancer testing is growing as demographics shift
and testing technologies improve, but we expect
NeoGenomics to grow at a rate faster than the market.
We expect that our broad testing menu and strong
service culture will allow us to continue to gain market
share well into the future.
The acquisition of PathLogic in 2014 was our first
meaningful acquisition. PathLogic, located in
Driven by strong Medical and R&D Leadership,
we continue to develop and introduce new cutting-
edge cancer tests to fulfill our important role to achieve
the promise of personalized or precision medicine.
In 2014 alone, we launched 48 new molecular assays,
FISH tests, and multi-methodology cancer profiles. We
also converted another 23 tests to Next-Generation
Sequencing. Our broad testing menu continues to
attract the interest of both traditional clinical clients
and the biopharmaceutical industry.
We believe that relentless innovation is important in this
age of revolutionary change in molecular diagnostics,
and we are continuing to invest in innovation with new
Next Generation Sequencing tests and proprietary
products to add to our new product pipeline.
This is a very exciting time in the field of cancer genetics
as new discoveries are being made at an ever-
increasing pace. New technologies such as Next
Generation Sequencing are making more and more
information available and helping to offer greater
insights into a patient’s condition. NeoGenomics is firmly
at the forefront in the field of molecular diagnostics and,
as a result, we are gaining some of the nation’s top
academic research centers as clients.
Our work in cell-free DNA testing, sometimes referred to
as “liquid biopsies” is continuing. We made significant
Page 2 NeoGenomics Laboratories. © 2015 All Rights Reserved.
As a national reference laboratory, the foundation of our business model and
our growth strategy is to establish strategic relationships with Pathology practices,
Oncology groups and Hospitals across the country.
progress on our development initiative for our NeoLABTM
(Liquid Alternative to Biopsy) Prostate Cancer test,
the first truly proprietary test we have developed.
This NeoLAB Prostate test is unique as it is performed on
a combination of blood plasma and urine, rather than
on prostate tissue biopsies. The two goals for the test are
to diagnose the presence of cancer in patients with BPH
(benign prostatic hyperplasia), and to distinguish high-
grade from low-grade cancer in patients with prostate
cancer. The NeoLABTM test is currently available as a
Laboratory Developed Test (“LDT”) to patients who want
to participate in the ongoing validation of the test.
We expect to complete our validation of the NeoLABTM
Prostate test in 2015, and are working in collaboration
with leading Academic Centers to develop cell-free
DNA tests for other difficult cancers.
Diversification
Diversifying our business is a key strategic initiative as
we seek to balance our risk profile and optimize our
opportunities. We are keenly focused on diversifying our
payer mix, our client base, and our testing capabilities.
Our business did become more balanced in 2014.
For example, in the Base NeoGenomics business,
Medicare and Governmental payers represented 20%
of revenue compared with 25% in 2013, Hematological
FISH revenue represented 36% of total revenue
compared with 43% in 2013, and molecular testing
revenue grew by over 60% and represented 23% of
our total test volume.
While maintaining focus on our important partnerships
with community-based pathology and hospital clients,
we also expect to diversify in 2015 by developing
partnerships with:
• Oncology Groups
• Academic Centers
• Large Hospital Systems/
Accountable Care Organizations
• Biopharmaceutical Clients
Diversification in the Biopharmaceutical area is
particularly important. We continue to build this
business through our partnership with Covance and
through direct relationships with pharmaceutical firms
as more oncology therapeutics undergo rigorous clinical
trials testing.
We have been able to diversify our product offering
with over 100 new molecular tests and profiles launched
in the last three years. Looking forward, we expect new
products to be a key driver of both growth and
diversification.
Performance
We believe that high-quality processes are also low-cost
processes, and we work very hard to continuously
improve everything we do. To accomplish this, we invest
in quality management, process management, lab
automation, information technology, and in our people.
In 2014, results from these activities were evident as we:
• Reduced Base NeoGenomics (excluding
PathLogic) average cost-per-test by 4.7%
to the lowest level in our company history.
• Increased the number of tests processed per
lab employee by 4.0% to its highest level in
our company history.
NeoGenomics Laboratories. © 2015 All Rights Reserved.
Page 3
Cost Management & Operating Leverage
– Base NeoGenomics*
$700
$600
$500
$400
$300
$200
$100
$0
%
3
1
%
2
1
$461
$446
$512
%
0
1
$651
$575
%
5
%
1
-
FY2010 FY2011 FY2012
FY2013
FY2014
14%
12%
10%
8%
6%
4%
2%
0%
-2%
Cogs Cost/Test
S&M Cost/Test
R&D Cost/Test
G&A Net of
R&D Cost/Test
Total Cost/Test
Adj EBITA Margin %
*For comparison purposes Base NeoGenomics excludes
the impacts from the Path Logic Acquisition, which was
completed on 7/8/14.
NeoGenomics. We have outstanding people who are
driven by a common purpose. We have outstanding
medical and scientific capabilities dedicated to
providing the best service available. And we have
the solid infrastructure and foundation necessary for a
company built to last. Our company is young, but it
is strong.
As we execute our Vision, I want to thank you, our fellow
shareholders, for your confidence and for your support.
Best regards,
Douglas M. VanOort
Chairman and Chief Executive Officer
May 15, 2015
Dozens of key people from around the company
participate in Best Practice Teams to improve processes
and reduce costs. They develop and implement Lean
process initiatives, bar coding and scanning technology,
new automation, and IT enhancements to process tests
more effectively and efficiently. The following graph
shows our ability to manage costs and improve
operating profitability.
Industry Dynamics and Economic
Environment
These are exciting times in the field of molecular
diagnostics and precision medicine. New technological
developments are allowing us to develop and market
new tests that help our clients to better characterize
and monitor each patient’s cancer. This allows more
effective and targeted treatments for patients.
We believe that precision medicine improves quality
and lowers cost for our entire health care system.
While the laboratory industry has been deeply
challenged by reimbursement cuts, we believe strong
labs will survive and prosper. Our investments in growth,
innovation, quality, and process control are clearly
making us strong. We believe that reimbursement cuts
will drive industry consolidation, and we hope to make
acquisitions to further increase our strength and position.
Even in this challenging time, we aim to be a leader in
our industry and are dedicated to help improve health
care in America.
As we look ahead, I am more excited and passionate
than ever before about the opportunities for
Page 4 NeoGenomics Laboratories. © 2015 All Rights Reserved.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
È ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2014
or
‘ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from
to
Commission File Number: 001-35756
NEOGENOMICS, INC.
(Exact name of registrant as specified in its charter)
Nevada
(State or other jurisdiction of
incorporation or organization)
74-2897368
(IRS Employer
Identification No.)
12701 Commonwealth Drive, Suite 9, Fort Myers, FL 33913
(Address of principal executive offices, Zip code)
(239) 768-0600
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on which registered:
Common Stock, par value $0.001 per share
NASDAQ Capital Market
Securities registered pursuant to Section 12(g) of the Act: Common Stock par value $0.001 per share
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes ‘ No È
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the
Act. Yes ‘ No È
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes È No ‘
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files). Yes È No ‘
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is
not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ‘
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a
smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting
company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ‘
Non-accelerated filer ‘ (Do not check if smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act): ‘ Yes È No
As of June 30, 2014, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was
approximately $138.9 million, based on the closing price of the registrant’s common stock of $3.32 per share on June 30, 2014.
The number of shares outstanding of the registrant’s Common Stock, par value $0.001 per share, as of February 23, 2015:
60,255,943
È
Accelerated Filer
Smaller reporting company ‘
Portions of the registrant’s Proxy Statement for its 2015 Annual Meeting of stockholders are incorporated by reference into
Part III of this Annual Report on Form 10-K.
DOCUMENTS INCORPORATED BY REFERENCE
Page
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41
41
41
42
44
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74
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NEOGENOMICS, INC.
FORM 10-K ANNUAL REPORT
For the Fiscal Year Ended December 31, 2014
Table of Contents
PART I
Item 1.
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 2.
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 3.
Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 4.
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 6.
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . .
Item 7A. Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 8.
Item 9.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure . . .
Item 9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Signatures
Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . . . . . .
Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exhibits and Financial Statement Schedules
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
110
2
PART I
FORWARD-LOOKING STATEMENTS
The information in this Annual Report on Form 10-K contains “forward-looking statements” and
information within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”),
and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which are subject to
the “safe harbor” created by those sections. These forward-looking statements include, but are not limited to,
statements concerning our strategy, future operations, future financial position, future revenues, changing
reimbursement levels from government payers and private insurers, projected costs, prospects and plans and
objectives of management. The words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,”
“plans,” “projects,” “will,” “would” and similar expressions are intended to identify forward-looking statements,
although not all forward-looking statements contain these identifying words. We may not actually achieve the
plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue
reliance on our forward-looking statements. These forward-looking statements involve known and unknown risks
and uncertainties that could cause our actual results, performance or achievements to differ materially from those
expressed or implied by the forward-looking statements, including, without limitation, the risks set forth in Part I,
Item 1A, “Risk Factors” in this Annual Report on Form 10-K and in our other filings with the Securities and
Exchange Commission (“SEC”).
Forward-looking statements include, but are not limited to, statements about:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Our ability to implement our business strategy;
The expected reimbursement levels from governmental payers and private insurers and proposed
changes to those levels;
The application, to our business and the services we provide, of existing laws, rules and regulations,
including without limitation, Medicare laws, anti-kickback laws, Health Insurance Portability and
Accountability Act of 1996 (“HIPAA”) regulations, state medical privacy laws, federal and state false
claims laws and corporate practice of medicine laws;
Regulatory developments in the United States including increasing downward pressure on health care
reimbursement;
Our ability to maintain our license under the Clinical Laboratory Improvement Amendments of 1988
(“CLIA”);
Food and Drug Administration (“FDA”) regulation of Laboratory Developed Tests;
Failure to timely or accurately bill for our services;
Our ability to expand our operations and increase our market share;
Our ability to expand our service offerings by adding new testing capabilities;
Our ability to meet our future capital requirements;
Our ability to integrate acquired businesses and costs related to such acquisitions;
The impact of internalization of testing by customers;
Our ability to compete with other diagnostic laboratories;
Our ability to hire and retain sufficient managerial, sales, clinical and other personnel to meet our
needs;
Our ability to successfully scale our business, including expanding our facilities, our backup systems
and infrastructure;
Our ability to generate sufficient cash flow from our license agreement with Health Discovery
Corporation to support its fair value; and
3
•
The accuracy of our estimates regarding reimbursement, expenses, future revenues and capital
requirements.
These forward-looking statements represent our management’s beliefs and assumptions only as of the
date of this Annual Report on Form 10-K. You should read this Annual Report on Form 10-K, and the documents
that we reference in this Annual Report on Form 10-K and have filed as exhibits, completely and with the
understanding that our actual future results may be materially different from what we expect.
Except as required by law, we assume no obligation to update these forward-looking statements
publicly, or to update the reasons actual results could differ materially from those anticipated in these forward-
looking statements, even if new information becomes available in the future.
ITEM 1. DESCRIPTION OF BUSINESS
NeoGenomics, Inc., a Nevada corporation (referred to individually as the “Parent Company” or collectively
with its subsidiaries as “NeoGenomics”, “we”, “us”, “our” or the “Company” in this Form 10-K) is the
registrant for SEC reporting purposes. Our common stock is listed on the NASDAQ Capital Market under the
symbol “NEO”.
Overview
We operate a network of cancer-focused genetic testing laboratories whose mission is to improve
patient care through exceptional genetic and molecular testing services. Our vision is to become America’s
premier cancer genetic testing laboratory by delivering uncompromising quality, exceptional service and
innovative products and services. The Company has laboratory locations in Ft. Myers and Tampa, Florida;
Fresno, Irvine, and West Sacramento, California; and Nashville, Tennessee, and currently offers the following
types of testing services:
a) Cytogenetics – the study of normal and abnormal chromosomes and their relationship to disease. It
involves looking at the chromosome structure to identify changes from patterns seen in normal chromosomes.
Cytogenetic studies are often utilized to answer diagnostic, prognostic and predictive questions in the treatment
of hematological malignancies.
b) Fluorescence In-Situ Hybridization (“FISH”) – a branch of cancer genetics that focuses on detecting
and locating the presence or absence of specific DNA sequences and genes on chromosomes. FISH helps bridge
abnormality detection between the chromosomal and DNA sequence levels. The technique uses fluorescent
probes that bind to only those parts of the chromosome with which they show a high degree of sequence
similarity. Fluorescence microscopy is used to visualize the fluorescent probes bound to the chromosomes. FISH
can be used to help identify a number of gene alternations, such as amplification, deletions, and translocations.
c) Flow cytometry – a rapid way to measure the characteristics of cell populations. Cells from
peripheral blood, bone marrow aspirate, lymph nodes, and other areas are labeled with selective fluorescent
antibodies and analyzed as they flow in a fluid stream through a beam of light. The properties measured in these
antibodies include the relative size, relative granularity or internal complexity, and relative fluorescence
intensity. These fluorescent antibodies bind to specific cell surface antigens and are used to identify malignant
cell populations. Flow cytometry is typically performed in diagnosing a wide variety of leukemia and lymphoma
neoplasms. Flow cytometry is also used to monitor patients through therapy to determine whether the disease
burden is increasing or decreasing, otherwise known as minimal residual disease monitoring.
d) Immunohistochemistry (“IHC”) – refers to the process of localizing proteins in cells of a tissue
section and relies on the principle of antibodies binding specifically to antigens in biological tissues. IHC is
widely used in the diagnosis of abnormal cells such as those found in cancerous tumors. Specific surface
cytoplasmic or nuclear markers are characteristic of cellular events such as proliferation or cell death (apoptosis).
IHC is also widely used to understand the distribution and localization of differentially expressed proteins.
4
e) Molecular testing – a rapidly growing cancer diagnostic tool focusing on the analysis of DNA and
RNA, as well as the structure and function of genes at the molecular level. Molecular testing employs multiple
technologies including DNA fragment length analysis, real-time polymerase chain reaction (“RT-PCR”) RNA
analysis, bi-directional Sanger sequencing analysis, and Next-Generation sequencing (“NGS”).
f) Pathology consultation services are when our pathologists review surgical samples on a consultative
basis for our clients. NeoGenomics is one of a few laboratories in the country with an electron microscopy lab
which enables us to analyze complex renal cases.
The cancer testing services we offer to community-based pathologists are designed to be a natural
extension of, and complementary to, the services that they perform within their own practices. We believe our
relationship as a non-competitive partner to community-based pathology practices and hospital pathology labs
empowers them to expand their breadth of testing and provide a menu of services that matches or exceeds the
level of service found in academic centers of excellence around the country. Community-based pathology
practices and hospital pathology labs may order certain testing services on a technical component only (“TC” or
“tech-only”) basis, which allows them to participate in the diagnostic process by performing the professional
component (“PC”) interpretation services without having to hire laboratory technologists or purchase the
sophisticated equipment needed to perform the technical component of the tests. We also support our pathology
clients with interpretation and consultative services on difficult or complex cases and provide overflow
interpretation services when requested by clients.
In areas where we do not provide services to community-based pathology practices and/or hospital
pathology labs, we may directly serve oncology, dermatology, urology and other clinician practices that prefer to
have a direct relationship with a laboratory for cancer-related genetic and molecular testing services. We
typically service these types of clients with a “global” service offering where we perform both the technical and
professional components of the tests ordered. However, in certain instances larger clinician practices have begun
to internalize pathology interpretation services, and our “tech-only” service offering allows these larger clinician
practices to also participate in the diagnostic process by performing the PC interpretation services on TC testing
performed by NeoGenomics.
Market Opportunity
The medical testing laboratory market can be broken down into three primary segments:
•
•
•
Clinical Pathology testing,
Anatomic Pathology testing, and
Genetic and Molecular testing.
Clinical Pathology testing covers 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.
Anatomic Pathology testing involves evaluation of tissue, as in surgical pathology, or cells as in
cytopathology. The most widely performed Anatomic Pathology procedures include the preparation and
interpretation of pap smears, skin biopsies, and tissue biopsies.
Genetic and molecular testing typically involves analyzing chromosomes, genes, proteins and/or DNA/
RNA sequences for abnormalities. Genetic and molecular testing requires highly specialized equipment and
credentialed individuals (typically M.D. or Ph.D. level) to certify results and typically yields the highest
reimbursement levels of the three market segments.
5
NeoGenomics operates primarily in the Genetic and Molecular testing market. We also act as a
reference laboratory supplying anatomic pathology testing. NeoGenomics typically does not compete in the
Clinical pathology testing market.
The field of cancer genetics is evolving rapidly and new tests are being developed at an accelerated
pace. Based on medical and scientific discoveries over the last decade, cancer testing falls into one of three
categories: diagnostic testing, prognostic testing and predictive testing. Of the three, the fastest growing area is
predictive testing, which is utilized by clinicians to predict a patient’s response to the various treatment options in
order to deliver “personalized or precision medicine” that is optimized to that patient’s particular circumstances.
Personalized or precision medicine allows clinicians to know if a patient will or will not respond to certain
medications like Herceptin. This saves the healthcare system money by ensuring that expensive cancer drugs are
only given to those who will benefit from them. This type of testing improves patient care and potentially saves
lives by identifying optimized therapies much more rapidly than what was possible in previous years.
We estimate that the United States market for genetic and molecular testing is divided among
approximately 400 laboratories. Approximately two thirds of these laboratories are attached to academic
institutions and primarily provide clinical services to their affiliated university hospitals and associated
physicians. We believe that the remaining one third of the market is quite fragmented and that less than
20 laboratories market their services nationally. We estimate that the top 20 laboratories account for
approximately 50% of market revenues for genetic and molecular testing.
We believe several key factors are influencing the rapid growth in the market for cancer testing:
(i) every year more and more genes and genomic pathways are implicated in the development and/or clinical
course of cancer; (ii) cancer is primarily a disease of the elderly - one in four senior citizens is likely to develop
some form of cancer during the rest of their lifetime once they turn sixty, and now that the baby boomer
generation has started to reach this age range, the incidence rates of cancer are rising; (iii) increasingly, new
drugs are being targeted to certain cancer subtypes and pathways which require companion diagnostic testing;
(iv) patient and payer awareness of the value of genetic and molecular testing; (v) decreases in the cost of
performing genetic and molecular testing; (vi) increased coverage from third party payers and Medicare for such
testing; and (vii) the health insurance coverage to uninsured Americans under the Patient Protection and
Affordable Care Act as amended by the Health Care and Education Reconciliation Act, each enacted in March
2010. These factors have driven explosive growth in the market for this type of testing. We estimate a
$10-12 billion total market opportunity for cancer testing in the United States, about $5-7 billion of which is
derived from genetic and molecular testing with the remaining portion derived from more traditional anatomic
pathology testing services that are complementary to and often ordered with the genetic and molecular testing
services we offer.
2015 Focus Areas: Grow, Innovate, Diversify and Get Lean
Grow
We plan to continue growing organically by providing high complexity, cancer-related laboratory
testing services to hospitals, community-based pathology practices, and clinicians throughout the United States.
We currently perform analyses for hematopoietic cancers such as leukemia and lymphoma (blood and lymphoid
tumors) and solid tumor cancers such as breast, lung, colon, and bladder cancer. For hematopoietic cancers, we
typically analyze bone marrow aspirate and peripheral blood specimens. For solid tumor cancers, we typically
analyze tissue samples or urine.
Our growth over the past several years has been due to several factors. Our highly trained sales team
has been successful in competing against other larger national laboratories with one of the broadest test menus in
our industry. Our sales team consists of many industry veterans who can talk to pathologists and oncologists
about our complex testing and developments in the field of cancer testing. Our tech-only testing option allows
6
local pathologists to compete against the large national laboratories and helps our clients view us as more of a
partner who is working with them, rather than against them by taking away work. Our Sales representatives often
become trusted advisors to our clients who rely on them, and NeoGenomics, to keep up with the latest
developments in the rapidly changing field of molecular genetics. We have also been successful in expanding to
new geographies where we did not previously have sales representation and this has helped us bring our service
offerings to new clients.
Our growth has also been aided by strong client retention. We believe our low client attrition is due to
our strong service levels and culture of customer focus. We work to have engaged employees who want to
achieve the highest customer satisfaction possible. Our TC-PC model results in clients viewing us as more of a
partner than a vendor and this also helps in our retention of clients. By retaining our existing customer base and
bringing in a steady stream of new customers we have been able to organically grow our business by over 200%,
over the past four years.
We are keenly focused on innovation, and believe this has been a key factor in our growth. Over the
past three years, we have developed over 90 new molecular oncology tests, and believe we now have one of the
most comprehensive oncology test menus of any laboratory in the world. By launching new tests at a steady rate,
our Sales representatives are able to share cutting edge developments in molecular genetics with customers and
prospective customers. We believe Clients are increasingly relying on us because we are an emerging leader in
the molecular oncology field. We have had several academic centers begin to refer specimens for testing. These
high profile reference customers often result in other accounts referring testing as well. New customers who
begin using us because of our many new innovative test offerings often begin to refer large portions of their other
testing, which has helped to sustain our growth.
We will also look to grow our business through mergers or acquisitions if the right opportunities
become available. We are focused on strategic opportunities that would be complementary to our menu of
services and would be accretive to our earnings and cash flow in the short to medium timeframe. On July 8, 2014
we acquired Path Labs, LLC, doing business as, Path Logic a leading provider of specialized anatomic pathology
services to hospitals and physicians primarily in Northern California. Path Logic provides high-quality Anatomic
Pathology services with significant expertise in the sub-specialties of renal pathology, dermatopathology,
women’s health and gastrointestinal and genitourinary pathology. For 2013, Path Logic reported revenue of
approximately $10 million and employed approximately 65 people. We recognized revenue of approximately
$4.9 million for the period of ownership from July 8, 2014 through December 31, 2014 from this acquisition. We
estimate that an additional $2.0 to 3.0 million of annual revenue opportunities can be realized in the coming years
as our existing customers and Path Logic’s customers begin to utilize each other’s testing menus and capabilities.
We completed an equity offering of $34.3 million in August of 2014 to provide cash for future
acquisition opportunities when they become available.
Innovate
We are committed to being an innovative leader in oncology testing. Our goal is to develop new assays
to help physician clients better manage their patients and to enable them to practice evidence-based medicine
tailored specifically for each of their patients. During the year ended December 31, 2014, we introduced an
additional 48 new molecular and FISH based tests and cancer profiles. We also converted another 23 tests to
Next Generation Sequencing (“NGS”). We also launched our multimodality solid tumor “Discovery Profile”
which analyzes 315 genes for mutation using NGS and includes 9 FISH tests to analyze translocations,
amplifications and deletions that might be missed by NGS. This Discovery Profile is designed to meet the needs
of investigators and clinicians who are interested in testing large numbers of genes and numerous translocations
and gene amplifications. It also meets the needs of pharmaceutical companies engaged in clinical trials. This
multimodality testing is unique in the industry and provides the gold standard FISH testing for detecting therapy-
related abnormalities, such as ALK translocations, and HER2 and MET amplifications, each of which is required
to be confirmed by FISH prior to initiating expensive therapy.
7
We also recently launched two first-in-kind tests. The first predicts acquired resistance and
susceptibility to Bruton Tyrosin Kinase (“BTK”) inhibitors. The second is a lymphoma profiling test to predict
susceptibility to BTK inhibitors for treatment of lymphoma and Chronic Lymphocytic Leukemia. BTK inhibitors
are a new non-cytotoxic targeted therapy and a number of Phase III studies are ongoing. In fact, these tests are a
good example of the compelling value proposition of genetic testing. New targeted therapies can be very
effective and quite expensive, and these tests help physicians choose the right therapy for the individual patient.
They substantially improve cancer care and help avoid therapies that will not be effective. Our clients have been
very receptive to our new molecular offerings and we believe that we have the most comprehensive clinical
molecular test menu of any laboratory in the United States. We are also seeing increasing interest in our
molecular menu from several pharmaceutical firms. We also introduced a number of NeoTYPETM profiles that
combine multiple molecular tests into multi-gene tests targeting specific types of cancer to help pathologists and
oncologists determine cancer subtypes on difficult cases. We use next generation sequencing and bi-directional
sanger sequencing analysis which we believe is superior to many of the molecular tests being offered by our
competitors because we are able to detect mutations that other methods would not detect.
We are also working to develop a proprietary NeoLABTM (Liquid Alternative to Biopsy) Prostate
cancer test that is performed on blood plasma and urine rather than on prostate tissue biopsies. There are two
goals for this test, a) to diagnose the presence of cancer in patients with BPH (Benign prostatic hyperplasia) and
b) to distinguish high-grade from low-grade cancer in patients with prostate cancer. We completed a preliminary
patient study in June 2013, and the results were published in March 2014 in the Genetic Testing and Molecular
Biomarkers journal. In addition, in February 2014, we completed a follow up study with additional patient
samples which confirmed the published preliminary data from the first trial. The results of this second study were
presented at the Association of Clinical Oncologists (“ASCO”) meeting in 2014. We are currently conducting a
pivotal validation study that is targeting 800-1,000 patients to further validate the efficacy of our NeoLABTM
Prostate Test. The NeoLABTM test is available as a Laboratory Developed Test (“LDT”) to patients who want to
participate in the ongoing validation on the condition that their treating physician must provide clinical utilization
and follow-up data to us as part of the testing process. While further validation work needs to be completed, we
continue to be encouraged about the potential for this new test. We are planning an unrestricted commercial
launch of the NeoLABTM prostate test in the second half of 2015.
In addition, over the last year we believe we have vastly improved our immunohistochemistry offering,
developed a new digital imaging platform and launched several new FISH tests. We expect these new tests to
drive growth in the future. We also expect to continue to make investments in R&D that will allow us to
commercialize a number of new and innovative genetic tests as scientific and medical technological advances are
made.
Diversify
Our third focus area in 2015 is to further diversify our business. In November 2013, we announced an
exclusive five-year alliance with Covance Central Laboratories (“Covance”) to provide comprehensive anatomic
pathology, histology and specialty laboratory testing services for clinical trials. Covance is the largest contract
research organization servicing the needs of the pharmaceutical industry. Through this alliance, Covance’s
clients will gain access to fully integrated anatomic pathology and histology (“APH”) services, including
immunohistochemistry (“IHC”), fluorescence in-situ hybridization (“FISH”) and molecular testing. As part of
this five year agreement, Covance has agreed to utilize NeoGenomics as its exclusive provider of a) technical
component FISH testing services for specimens processed in the U.S. and b) professional interpretations for
global APH tests, subject to certain limited exceptions. We believe Covance specifically selected NeoGenomics
as their long-term partner to provide seamless global testing services supporting oncology and companion
diagnostics strategies for biopharmaceutical firms around the world. In addition to accessing the clinical trials
market through our relationship with Covance, we also directly serve pharmaceutical companies. We believe our
broad Molecular testing menu has led several pharmaceutical firms to contact us directly about projects. We
8
currently have ongoing clinical trials with numerous international pharmaceutical firms and we expect clinical
trials testing to be a major component of our diversification strategy in coming years.
Get Lean
We are also focused on becoming more efficient and reducing our cost per test. Our best practice teams
work with our information technology teams to make improvements in efficiencies to our lab processes. We are
using information systems and technology to move NeoGenomics further along the path of being a “fully digital
lab”, that uses on-line ordering, bar coding, specimen tracking, and other tools to create a streamlined, seamless,
and efficient lab. In 2014, we completed a major facility upgrade to our Fort Myers, Florida lab location, which
has allowed us to increase our efficiencies and reduce our cost per test. These Lean initiatives are having a
dramatic impact on our cost structure and have allowed us to absorb reductions in average revenue per test with
minimal impact to gross margin. During the years ended December 31, 2014 and 2013, we reduced our average
cost of goods sold per test in our “Base Business” (excluding Path Logic) by 4.7% and 12.2%, respectively,
versus the comparable periods in 2013 and 2012.
Competitive Strengths
Turnaround Times
We strive to provide industry leading turnaround times for test results to our clients nationwide. By
providing information to our clients in a rapid manner, physicians can begin treating their patients as soon as
possible. We believe our average 4-5 day turnaround time for our cytogenetics testing services, our average
3-4 day turnaround time for FISH testing services, our 5-7 day turnaround time for molecular testing and our
average 1 day turnaround time for flow cytometry and pathology testing services are industry-leading
benchmarks for national laboratories. Our consistent timeliness of results is a competitive strength and a driver of
additional testing requests by our referring physicians. Rapid turnaround times allow for the performance of other
adjunctive tests within an acceptable diagnosis window in order to augment or confirm results and more fully
inform treatment options. We believe that our fast turnaround times are a key differentiator versus other national
laboratories, and our clients often cite them as a key factor in their relationship with us.
Medical Team
Our team of medical professionals and Ph.Ds. are specialists in the field of genetics, oncology and
pathology. Our medical team is led by our Chief Medical Officer, Dr. Maher Albitar, a renowned
hematopathologist with extensive experience in molecular and genetic testing. Prior to joining NeoGenomics,
Dr. Albitar was Medical Director for Hematopathology and Oncology at the Quest Nichols Institute and Chief
R&D Director for Hematopathology and Oncology for Quest Diagnostics. He also served as Section Chief for
Leukemia at the University of Texas M. D. Anderson Cancer Center and Medical Director of the MD Anderson
Molecular laboratory, one of the first labs of its kind in the United States. In addition to Dr. Albitar, we employ
15 other full-time M.D.s and Ph.Ds in addition to part-time consultants for specific specialties.
Extensive Tech-Only Service Offerings
We launched the first tech-only FISH testing services in the United States in 2006, and we currently
have the most extensive menu of tech-only FISH services in the country. We also offer tech-only flow cytometry
and immunohistochemistry testing services. These types of testing services allow the professional interpretation
component of a test to be billed separately by our physician clients. Our FISH, Flow Cytometry and other tech-
only service offerings allow properly trained and credentialed community-based pathologists to extend their own
practices by performing professional interpretations services, which allows them to better service the needs of
their local clientele without the need to invest in the lab equipment and personnel required to perform the
technical component of genetic and molecular testing.
9
Our tech-only services are designed to give pathologists the option to choose, on a case by case basis,
whether they want to order just the technical information and images relating to a specific test so they can
perform the professional interpretation, or order “global” services and receive a comprehensive test report which
includes a NeoGenomics Pathologist’s interpretation of the test results. Our clients appreciate the flexibility to
access NeoGenomics’ medical staff for difficult or complex cases or when they are otherwise unavailable to
perform professional interpretations. We believe this innovative approach to serving the needs of pathology
clients results in longer term, more committed client relationships that are more akin to strategic partnerships.
Our extensive tech-only service offerings have differentiated NeoGenomics and allowed us to compete more
effectively against larger, more entrenched competitors in our niche of the industry.
Global Service Offerings
We also offer a full set of global services to meet the needs of those clients who are not credentialed
and trained in interpreting genetic tests and who are looking for specialists to interpret the testing results for
them. In our global service offerings, our lab performs the technical component of the tests and our M.D.s and
Ph.Ds. provide the interpretation services. Our professional staff is also available for post-test consultative
services. These clients rely on the expertise of our medical team to give them the answers they need in a timely
manner to help inform their diagnoses and treatment decisions. Many of our tech-only clients also rely on our
medical team for difficult or challenging cases by ordering our global testing services on a case-by-case basis or
our medical team can serve as a backup to support our clients who need help to satisfy the continued and
demanding requirements of their practice. Our reporting capabilities allow for all relevant case data from our
global services to be captured in one summary report. When providing global services, NeoGenomics performs
both the technical and professional component of the test, which results in a higher reimbursement level.
Client Education Programs
We believe we have one of the most extensive client education programs in the genetic and molecular
testing industry. We train pathologists how to use and interpret genetic testing services so that they can better
interpret technical data and render their diagnosis, which allows them to participate in our TC-PC program. Our
educational programs include an extensive library of on-demand training modules, online courses, and custom
tailored on-site training programs that are designed to prepare clients to utilize our tech-only services. We offer
training and information on new cancer tests and the latest developments in the field of molecular genetic testing.
Each year, we also regularly sponsor seminars and webinars on emerging topics of interest in our field. Our
medical staff is involved in many aspects of our training programs.
Superior Testing Technologies And Instrumentation
We use some of the most advanced testing technologies and instrumentation in the laboratory industry.
The use of next generation sequencing in our molecular testing allows us to detect multiple mutations which can
be missed with single point mutation analysis. Many laboratories rely on more limited molecular tests which only
detect single elements on a gene. Our automated FISH and Cytogenetics tools allow us to deliver the highest
quality testing to our clients and our Flow Cytometry laboratory is one of only a few in the country using 10-
color Flow Cytometry analysis technology on a technical-only basis. We are one of only a few laboratories with
an electron microscopy (EM) department for diagnosis in complex renal case analysis.
Laboratory Information System (LIS)
We believe we have a state-of-the-art Laboratory Information System (“LIS”) that interconnects our
locations and provides flexible reporting solutions to clients. This system allows us to standardize testing and
deliver uniform test results and images throughout our network, regardless of the location that any specific
portion of a test is performed within our network. This allows us to move specimens and image analysis work
between locations to better balance our workload. Our LIS also allows us to offer highly specialized and
10
customizable reporting solutions to our tech-only clients. For instance, our tech-only FISH and Flow Cytometry
applications allow our community-based pathologist clients to tailor individual reports to their specifications and
incorporate only the images they select and then issue and sign-out such reports using our system. Our
customized reporting solution also allows our clients to incorporate test results performed on ancillary tests not
performed at NeoGenomics into summary report templates. This FlexREPORTtm feature has been well-received
by clients.
National Direct Sales Force
Our direct sales force has been trained extensively in cancer genetic testing and consultative selling
skills to service the needs of clients. Our sales representatives (“Territory Business Managers”) are organized
into three regions (Northeast, Central and West). These sales representatives all utilize our custom Customer
Relationship Management System (“CRM”) to manage their territories, and we have integrated all of the
important customer care functionality within our LIS into the CRM so that our Territory Business Managers can
stay informed of emerging issues and opportunities within their regions. Our in-house customer care team is
aligned with our field sales team to serve the needs of our clients by utilizing the same LIS and CRM. Our field
teams can see in real-time when a client calls the laboratory, the reason for the call, the resolution, and if face-to-
face interaction is needed for follow-up.
Geographic Locations
Many high complexity laboratories within the cancer testing niche have frequently operated a core
facility on either the West Coast or the East Coast of the United States to service the needs of their customers
around the country. We believe our clients and prospects desire to do business with a laboratory with national
breadth and a local presence. We have six facilities, three large laboratory locations in Fort Myers, Florida, West
Sacramento, California and Irvine, California and three smaller laboratory locations in Fresno, California,
Nashville, Tennessee and Tampa, Florida. Our objective is to “operate one lab with six locations” in order to
deliver standardized, high quality, test results. We intend to continue to develop and open new laboratories and/
or expand our current facilities as market situations dictate and business opportunities arise.
Scientific Pipeline
In the past few years our field has experienced a rapid increase in tests that are tied to specific
“genomic pathways”. These predictive tests are typically individualized for a small sub-set of patients with a
specific subtype of cancer. The therapeutic target in the genomic pathway is typically a small molecule found at
the level of the cell surface, within the cytoplasm and/or within the nucleus. These genomic pathways, known as
the “Hallmarks of Cancer”, contain a target-rich environment for small-molecule “anti-therapies”. These anti-
therapies target specific mutations in the major cancer pathways such as the Proliferation Pathway, the Apoptotic
Pathway, the Angiogenic Pathway, the Metastasis Pathway, and the Signaling Pathways and Anti-Signaling
Pathways.
Sales and Marketing
We continue to grow our testing volumes and revenue due to our investment in sales and marketing.
11
Our revenue, requisition and test metrics for NeoGenomics, Inc. excluding Path Logic (“Base Business”) for the
years ended December 31, 2014, 2013 and 2012 were as follows:
FY 2014
FY 2013
FY 2012
Client Requisitions Received (Cases) . . . . . .
Number of Tests Performed . . . . . . . . . . . . .
Average Number of Tests/Requisition . . . . .
113,087
177,279
1.57
88,431
137,317
1.55
73,773
114,606
1.55
Total Testing Revenue . . . . . . . . . . . . . . . . .
Average Revenue/Requisition . . . . . . . . . . . .
. . . . . . . . . . . . . . . . .
Average Revenue/Test
$82,194,000
727
$
464
$
$66,467,000
752
$
484
$
$59,867,000
812
$
522
$
The following table shows the requisitions and revenue for Path Logic for the corresponding periods in
2014:
Supplemental Information on Customer Requisitions Received
Path Logic (1)
For the period
from July 8, 2014
through
December 31,
2014
Requisitions Rec’d (cases)
. . . . . . . . . . . . . . . . . . . . . .
38,989
Total Testing Revenue . . . . . . . . . . . . . . . . . . . . . . . . . .
Avg Revenue/Requisition . . . . . . . . . . . . . . . . . . . . . . .
$4,875,000
125
$
(1) These Path Logic requisition counts and revenue are for the period from our acquisition on July 8, 2014
through December 31, 2014
Our 24% year-over-year revenue growth in our Base Business is a result of a broad based increase in
the number of new clients. Our average revenue per test decrease of approximately 4% in our Base Business was
primarily result of the National Correct Coding Initiative “NCCI” FISH testing edits issued in December 2013.
Effective as of January 1, 2014, the NCCI created a contradiction with respect to long-established billing
practices for FISH testing. The new FISH edits reduced the number of billable units that laboratories should bill
for certain multi-probe FISH tests is less than the previously established guidance. We expect our average
revenue per test in our Base Business to decline further in 2015 as a result of further Medicare rate reductions.
The American Medical Association changed the CPT coding structure for FISH and
Immunohistochemistry testing for 2015. These two key testing areas have new CPT codes that may not be
recognized by Commercial Insurances until they update their processing systems. This could result in delays in
processing our claims and could increase our days-sales-outstanding (“DSO’s”). We also believe that most
Commercial Insurance plans will follow Medicare’s reimbursement framework and will reduce reimbursement
for these new CPT codes. While the impact cannot be specifically measured at this time, it will have the effect of
lowering average reimbursement per test in 2015.
Our consolidated revenue was approximately $87.1 million for the twelve months ended December 31,
2014 as compared to approximately $66.5 million for the comparable period in 2013. Revenue increased by
31.0% for the twelve months ended December 31, 2014 when compared to the comparable period in 2013,
because of the increase in clients described above and due to the acquisition of Path Logic resulting in
$4.9 million of revenue or 7.3% of the increase in revenue. The revenue amount for Path Logic is for the period
from our acquisition on July 8, 2014 through December 31, 2014.
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Our approximate 11% year-over-year revenue growth during 2013 was a result of a broad based
increase in the number of new clients and increases related to additional practices for one large client with
approximately 50 locations. Testing volumes grew approximately 20% in 2013 while average revenue per test
declined approximately 7% primarily as a result of the expiration of the TC Grandfather clause. As a result of
this regulatory change, effective July 1, 2012, we were no longer able to bill Medicare directly for the technical
component of certain hospital in-patient and out-patient laboratory tests and now must bill our hospital clients
directly for such services, and are often reimbursed at a lower rate than what we were previously receiving from
Medicare. As a result of this we have seen a shift to more client-direct billing.
Seasonality
The majority of our testing volume is dependent on patients being treated by hematology/oncology
professionals and other healthcare providers. The volume of our testing services generally declines modestly
during the summer vacation season, year-end holiday periods and other major holidays, particularly when those
holidays fall during the middle of the week. In addition, the volume of our testing tends to decline due to adverse
weather conditions, such as excessively hot or cold spells, heavy snow, hurricanes or tornados in certain regions,
consequently reducing revenues and cash flows in any affected period. Therefore, comparison of the results of
successive periods may not accurately reflect trends for future periods.
Competition
The genetic and molecular testing niche of the laboratory testing industry is highly competitive and,
given the opportunities in this industry, we expect it to become even more competitive. There has been a high
pace of consolidation in the industry in recent years and several new large players have entered the market.
Competitive factors in genetic and molecular testing generally include the reputation of the laboratory, range of
services offered, pricing, convenience of sample collection and pick-up, quality of analysis and reporting,
medical staff, timeliness of delivery of completed reports (i.e. turnaround times) and post-reporting follow-up for
clients.
Our competitors in the United States are numerous and include major national medical testing
laboratories, hospital laboratories and in-house physician laboratories. 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 service offerings obsolete, less effective or uneconomical.
We intend to continue to gain market share by offering industry-leading turnaround times, a broad
service menu, high-quality test reports, new tests including proprietary ones, enhanced post-test consultation
services, and the personal attention from our direct sales force. In addition, we believe our flexible reporting
solutions, which enable clients to report out customized results in a secure, real-time environment, will allow us
to continue to gain market share.
Suppliers
The Company orders its laboratory and research supplies from large national laboratory supply
companies such as Abbott Molecular, Fisher Scientific, Illumina, Life Technologies, Metasystems, Invitrogen,
Cardinal Health, Ventana and Beckman Coulter. We do not believe any disruption from any one of these
suppliers would have a material effect on our business.
Dependence on Major Clients and Geographies
We currently market our services to pathologists, oncologists, urologists, other clinicians, hospitals and
other clinical laboratories. During 2014, we maintained our relationship with a large oncology practice with
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multiple office locations. The revenues from this customer represented as percentage of our total revenue is as
follows:
Largest customer as a % of Total Revenue . . . . . . . . . . . . . . .
10.1%
15.8%
14.9%
FY 2014
FY 2013
FY 2012
All other clients were less than 5% of total revenue individually.
Our revenue derived from the state of Florida represented as percentage of our total revenue is as
follows:
State of Florida as a % of Total Revenue . . . . . . . . . . . . . . . .
25.8%
30.6%
33.6%
FY 2014
FY 2013
FY 2012
Payer Mix
The following table reflects our estimate of the breakdown of net revenue by type of payer for the
fiscal years ended December 31, 2014, 2013, and 2012:
Medicare and other government
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Client Direct Billing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Patient and year-end accrual
2014
2013
2012
20% 25% 36%
27% 25% 29%
50% 43% 33%
2%
7%
3%
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100% 100% 100%
The trend of decreasing “Medicare and other government” revenue shown above primarily relates to
the expiration of the TC Grandfather clause on July 1, 2012. This resulted in the requirement that NeoGenomics
bill clients (Hospitals) for the technical component of inpatient and outpatient testing.
Trademarks
The “NeoGenomics” name and logo has been trademarked with the United States Patent and
Trademark Office. We have also trademarked or have applications pending for the brand names NeoFISH,
NeoFLOW, NeoSITE, NeoArray, NeoTYPE, NeoSCORE, NeoLAB and NeoLINK. We have also trademarked
the marketing slogans, “When time matters and results count” and “Time matters, results count”.
Insurance
We maintain professional liability insurance and numerous other insurance policies. We believe that
our present insurance is sufficient to cover currently estimated exposures, but we cannot assure that we will not
incur liabilities in excess of the policy coverage limits. In addition, although we believe that we will be able to
continue to obtain adequate insurance coverage, we cannot assure that we will be able to do so at acceptable cost.
Available Information
Our internet website address is www.neogenomics.com. Our Annual Report on Form 10-K, Quarterly
Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished
pursuant to section 13(a) or 15(d) of the Exchange Act are available free of charge through our website as soon
as reasonably practicable after we electronically file with or furnish them to the Securities and Exchange
Commission or SEC, and are available in print to any stockholder who requests a copy. Information on our
website shall not be deemed incorporated into, or to be part of, this Annual Report on Form 10-K.
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Additionally the SEC maintains a website that contains reports, proxy statements, information
statements and other information regarding issuers, including us, that file electronically with the SEC at
www.sec.gov.
Number of Employees
As of December 31, 2014, we had 440 full-time equivalent employees. In addition, 5 other individuals,
including 3 pathologists and our Chief Medical Officer, serve as consultants to the Company on a regular basis.
The Company also had approximately 10 temporary contract personnel at December 31, 2014. Our employees
are not represented by any union and we believe our employee relations are good.
Government Regulation
The laboratory business is subject to extensive governmental regulation at the federal, state and local
levels. The laboratories are required to be licensed by the states, certified by the federal government to participate
in the Medicare and Medicaid programs, and are subject to extensive requirements as a condition of participation
in various governmental health benefits programs. The failure to comply with any of the applicable federal and
state laws, regulations, and reimbursement guidelines could have a material adverse effect on the Company’s
business. The applicable laws and regulations, and the interpretations of them, change frequently and there can be
no assurance that the Company will not be subject to audit, inquiry, or investigation with respect to some aspect
of its operations. Some of the federal and state laws and regulations are described below under “Clinical
Laboratory Operations,” “Anti-Fraud and Abuse Laws,” “The False Claims Act,” “Confidentiality of Health
Information” and “Food and Drug Administration”.
Clinical Laboratory Operations
Licensure and Accreditation
The Company operates clinical laboratories in Fort Myers and Tampa, Florida, Nashville, Tennessee
and Fresno, West Sacramento and Irvine, California. The laboratories are licensed as required by the states in
which they are located. In addition, the laboratories in Fort Myers, Florida and Nashville, Tennessee are licensed
by the State of New York as they accept clinical specimens obtained in New York. We also became licensed by
the State of New York to perform molecular and histology testing in our Irvine, California location. All of the
NeoGenomics laboratories are certified in accordance with the Clinical Laboratory Improvement Amendments,
as amended (“CLIA”). Under CLIA, the U.S. Department of Health and Human Services (“HHS”) establishes
quality standards for each category of testing performed by the laboratory. The categories of testing include
waived, moderate complexity and high complexity. NeoGenomics’ laboratories are categorized as high
complexity. Four of the six site locations for NeoGenomics’ laboratories are also accredited by the College of
American Pathologists (“CAP”) and actively participate in CAP’s proficiency testing programs for all tests
offered by the Company. Our Tampa, Florida and Fresno, California facilities are read-only laboratories and
therefore, CAP accreditation wouldn’t fully qualify. Proficiency testing programs require the participating
laboratories to test specimens that they receive from the testing entity and return the results. The testing entity,
conducting an approved program, analyzes the results returned and provides to the Company a quality control
report assessing the results. An important component of a quality assurance program is to establish whether the
laboratory’s test results are accurate and valid.
The federal and state certification and licensure programs establish standards for the operation of
clinical laboratories, including, but not limited to, qualifications of personnel and quality control. Compliance
with such standards is verified by periodic inspections by inspectors employed by federal and state regulatory
agencies and accrediting organizations. The Company has a Quality Assurance Committee which is comprised of
representatives of all departments of the Company, conducts routine internal surveys and requires corrective
action reports in response to the findings.
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Quality of Care
Our mission is to improve patient care through quality cancer genetic diagnostic services. By
delivering exceptional service and innovative solutions, we aspire to become America’s premier cancer testing
laboratory. The quality of care provided to clients and their patients is of paramount importance to us. We
maintain quality control processes, including standard operating procedures, controls, performance measurement
and reporting mechanisms. Our employees are committed to providing accurate, reliable and consistent services
at all times. Any concerns regarding the quality of testing or services provided by the Company are immediately
communicated to NeoGenomics Medical Team, Company management and, if necessary, the Director for
Quality Systems, the Compliance Department or Human Resources Department.
Compliance Program
The health care industry is highly regulated and scrutinized with respect to fraud, abusive billing
practices and improper financial relationships between health care companies and their referral sources. The
Office of the Inspector General of HHS (the “OIG”) has published compliance guidance, including the
Compliance Program Guidance for Clinical Laboratories in August of 1998, and advisory opinions. The
Company has implemented a robust Compliance Program which is overseen by our Board of Directors. Its
objective is to ensure compliance with the myriad federal and state laws, regulations and governmental guidance
applicable to our business. Our program consists of training/education of employees and monitoring and auditing
Company practices. The Board of Directors has formed a Compliance Committee of the Board which meets
regularly to discuss all compliance-related issues that may affect the Company. The Company continuously
reviews its policies and procedures as new regulations and interpretations come to light to comply with
applicable regulations. The Director of Compliance reports directly to the Compliance Committee.
Hotline
As part of its Compliance Program, the Company provides a hotline for employees who wish to
anonymously or confidentially report suspected violations of our codes of conduct, policies/procedures, or laws
and regulations. Employees are strongly encouraged to report any suspected violation if they do not feel the
problem can be appropriately addressed through the normal chain of command. The hotline does not replace
other resources available to our employees, including supervisors, managers and human resources staff, but is an
alternative channel available 24 hours a day, 365 days a year. The hotline forwards all reports to the Director of
Compliance who is responsible for investigating, reporting to the Compliance Committee, and documenting the
disposition of each report. The hotline forwards any calls pertaining to the financial statements or financial issues
to the Chairman of the Audit Committee. The Company does not allow any retaliation against an employee who
reports a compliance related issue.
Laboratory Developed Tests (LDTs)
The federal Food and Drug Administration, or FDA, has regulatory responsibility over, among other
areas, instruments, test kits reagents and other medical devices used by clinical laboratories to perform diagnostic
testing. High complexity and CLIA-certified laboratories, such as ours, frequently develop internal testing
procedures to provide diagnostic results to customers. These tests are referred to as laboratory developed tests, or
LDTs. LDTs are subject to CMS oversight through its enforcement of CLIA. The FDA has also claimed
regulatory authority over all LDTs, but indicates that it has exercised enforcement discretion with regard to most
LDTs offered by high complexity CLIA-certified laboratories, and has not subjected these tests to the panoply of
FDA rules and regulations governing medical devices. However, the FDA has stated that it has been considering
changes in the way it believes that laboratories ought to be allowed to offer these LDTs, and since 2010 publicly
announced that it would be exercising regulatory authority over LDTS, using a risk-based approach that will
direct more resources to tests with the highest risk of injury. In October 2014, the FDA announced its proposed
framework and timetable for implementing this guidance. Through the American Clinical Laboratory
16
Association (“ACLA”) the industry has announced its intention to oppose the guidance proposed by the FDA and
has engaged the services of Professor Lawrence Tribe and former Solicitor General Paul Clement to represent the
interests of the industry in this matter. This FDA regulation may result in increased regulatory burdens for us to
continue to offer our tests or to develop and introduce new tests and may increase our costs.
Anti-Fraud and Abuse Laws
The federal laws governing Medicare, Medicaid and other federal health benefits, as well as other state
and federal laws, regulate certain aspects of the relationships between health care providers, including clinical
laboratories, and their referral sources, including physicians, hospitals, other laboratories and other entities. The
federal anti-kickback laws, referred to as the Medicare and Medicaid Anti-Fraud and Abuse Amendments to the
Social Security Act (the “Anti-Kickback Statute”), prohibit any knowing and willful offer, payment, solicitation
or receipt of any form of remuneration, either directly or indirectly, in return for, or to induce: (i) the referral of
an individual for a service for which payment may be made by Medicare and Medicaid or other federal health
benefit programs; or (ii) the purchasing, leasing, ordering or arranging for, or recommending the purchase, lease
or order of, any service or item for which payment may be made by Medicare, Medicaid or other federal health
benefit programs. Violations of federal anti-kickback laws and regulations are punishable as a felony, by civil
money penalties, and exclusion from participation in Medicare, Medicaid and other federal health benefit
programs. Most states have similar laws with both criminal and civil penalties.
Because of the broad proscriptions of the Anti-Kickback Statute, subsequent federal law required the
HHS to publish regulations to guide the health care community in structuring relationships that would not violate
the law. The OIG published regulations outlining certain categories of relationships between health care
providers and persons or entities that may have a referral relationship that would be deemed not to violate the
Anti-Kickback Statute. These regulations are known as the Safe Harbor Regulations (the “Safe Harbor
Regulations”) because persons who enter into transactions that comply with all of the criteria for an applicable
safe harbor will not be subject to prosecution under the Anti-Kickback Statute. The Safe Harbor Regulations are
narrowly drafted to avoid inadvertently immunizing prohibited conduct. A relationship or transaction that does
not meet all of the criteria of an applicable Safe Harbor Regulation is not deemed to be illegal. Rather it may be
subject to additional scrutiny. The Company endeavors to comply with the Safe Harbor Regulations, but there
can be no assurance that the Company would not be subject to investigation and, if investigated, that
relationships could be found not to comply with the Safe Harbor Regulations.
Medicare Payment Guidelines
We have various billing arrangements with our clients and with third party payers, including the
Medicare program. The Company may perform the entire test and render a professional interpretation in which
case the Company would bill globally, for both the technical and professional components, either directly to the
payer or to the client. Alternatively, the Company may perform the technical component of the test only and
either bill the payer directly or bill the client. Client billing arrangements are priced competitively at fair market
value. These client billing arrangements may implicate the prohibition of the Medicare program against charging
the Medicare or Medicaid programs fees substantially in excess of the Company’s usual and customary charges.
These billing arrangements may also implicate the federal Stark Law and the federal and state anti-kickback
statutes.
Federal law authorizes the Secretary of HHS to suspend or exclude providers from participation in the
Medicare and Medicaid programs if they charge Medicare or state Medicaid programs fees “substantially in
excess” of their “usual charges.” The OIG has stated in commentary to various final and proposed regulations its
position that this statute has limited applicability to the current Medicare reimbursement system which either
mandates prospective payment or provides for services to be reimbursed based on a fee schedule. The OIG
indicated, in the Federal Register of September 2, 1998, that it would expect the statutory authority to exclude
providers based on a determination that their fees were substantially in excess of their usual charges would “have
17
declining relevance within the Medicare reimbursement system.” However, in the Federal Register of
September 15, 2003, the OIG requested, in a Notice of Proposed Rule-Making, comments as to whether any
services reimbursed under the physician fee schedule should be subject to these regulations. The OIG further
stated that “we note that ancillary services, such as laboratory tests and drugs, would remain subject to these
regulations, even when furnished by physicians” [F.R., Vol. 68, No. 178, September 15, 2003 at 53940].
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 an Advisory Opinion issued in 1999 [OIG Advisory Opinion No. 99-13] 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 Centers for Medicare and Medicaid Services promulgated, in 2009, a revision to the regulation that
prohibits the mark up of purchased diagnostic services [42 C.F.R. §414.50] (the “Anti-Markup Rule”). The Anti-
Markup Rule prohibits a physician or other supplier from marking up the price paid for the technical or
professional component of a diagnostic test that was ordered by the billing physician or supplier and which was
performed by a physician who does not share a practice with the billing physician or supplier. The billing
physician is prohibited from billing the Medicare program an amount greater than the lesser of: (i) the
performing supplier’s net charge to the billing physician; (ii) the billing physician’s actual charge; or (iii) the fee
schedule amount for the test that would be allowed if the performing supplier billed directly.
In light of the various federal regulations and guidance from the OIG, the Company endeavors to price
its products competitively while endeavoring to meet applicable statutes and regulations.
Physician Self-Referral Laws
The federal law referred to as the “Stark Law”, named after Rep. Fortney “Pete” Stark, prohibits
physicians who have a financial relationship with an entity from referring Medicare and Medicaid patients to that
entity for the provision of designated health services unless the transaction meets an exception to the law. The
Company is subject to the Stark law in that laboratory services are classified as a designated health service. The
prohibited financial relationships include investment and compensation arrangements.
Some states in which the Company is engaged have enacted similar physician self-referral laws. For
example, the Florida Patient Self-Referral Act of 1992, as amended, (the “Act”) is similar to the Stark law, but is
narrower in some respects and broader in others. Clinical laboratory services are similarly classified as a
designated health service in the Act. But, the Act applies to investment interests, and, unlike the Stark Law, does
not address compensation arrangements. The penalties for a violation of the Act include forfeiture of all
payments received, civil money penalties, and disciplinary action by the applicable licensing board.
The Stark Law is a per se statute in that intent to violate the statute, unlike the Anti-Kickback Statute,
is immaterial. A violation of the Stark Law renders any reimbursements improper and requires the provider to
forfeit any funds received in violation of the Stark Law. In addition a violation of the Stark Law exposes the
parties to civil and criminal penalties. The Company endeavors to structure its financial relationships in
compliance with the Stark Law and with similar state physician self-referral laws.
The False Claims Act
The Federal False Claims Act prohibits any person or entity from knowingly presenting, or causing to
be presented, to the U.S. government, or to a Medicare program contractor, a false or fraudulent claim for
payment, or knowingly making or using a false record or statement to have a false claim paid by the government,
18
or conspiring to defraud the U.S. government, or knowingly making or using a false statement to conceal an
obligation to pay the government. A violation of the Federal False Claims Act is punishable by a civil penalty of
$5,500 to $11,000 plus three times the amount of damages. Private parties may bring an action on behalf of the
U.S. Government by filing a qui tam case. The private party, called a relator, is entitled to a share of the proceeds
from any recovery or settlement. As most qui tam cases are filed by current or former employees, an effective
compliance program plays a crucial role in reducing the Company’s exposure to liability. It is also a criminal
offense, under Title 18 U.S. Code, Section 287, for a person or entity to make a claim against the United States or
any department or agency, knowing the claim to be false, fictitious or fraudulent. The penalty is imprisonment of
not more than five years. The Federal False Claims Act has been an effective enforcement tool for the federal
government. Many states have enacted similar false claims acts as well.
The Company seeks to structure its arrangements with physicians and other clients to be in compliance
with the Anti-Kickback Statute, Stark Law, state laws, and the Federal False Claims Act and to stay abreast of
current developments and changes in the law and regulations. However, these laws and regulations are complex
and subject to interpretation. Consequently, we are unable to ascertain with certainty that any of our transactions
will not be subject to scrutiny and, if scrutinized, will not result in sanctions or penalties. The Company has taken
and will continue to take actions to endeavor to ensure compliance with the myriad federal and state laws that
govern our business.
Confidentiality and Security of Personal Health Information
The Health Insurance Portability and Accountability Act of 1996, as amended (“HIPAA”) contains
provisions that protect individually identifiable health information from unauthorized use or disclosure by
covered entities and their business associates. The Office for Civil Rights of HHS, the agency responsible for
enforcing HIPAA, has published regulations to address the privacy (the “Privacy Rule”) and security (the
“Security Rule”) of protected health information (“PHI”). The Company is a covered entity and has adopted
policies and procedures to comply with the Privacy Rule and the Security Rule. The health care facilities and
providers that refer specimens to the Company are also bound by HIPAA.
HIPAA also required that all providers who transmit claims for health care goods or services
electronically utilize standard transaction and data sets and to standardize national provider identification codes.
The Company has taken necessary steps to comply with HIPAA regulations, utilizes standard transaction data
sets, and has obtained and implemented national provider identifiers, or NPIs, as the standard unique health
identifier in filing and processing health care claims and other transactions.
The American Recovery and Reinvestment Act (“ARRA”) recently enacted the HITECH Act which
extends the scope of HIPAA to permit enforcement against business associates for a violation, establishes new
requirements to notify the Office for Civil Rights of HHS of a breach of HIPAA, and allows the Attorneys
General of the states to bring actions to enforce violations of HIPAA. Rules implementing various aspects of
HIPAA are continuing to be developed. With respect to these rules, commencing July 1, 2012, CMS required that
all HIPAA-covered entities such as the Company conduct electronic claim submissions and related electronic
transactions under a new HIPAA transaction standard called Version 5010. CMS has required this upgrade in
connection with another new requirement applicable to the industry, the implementation of new diagnostic code
sets to be used in claims submission. The new diagnostic code sets are called the ICD-10-CM, and are to be
implemented on October 1, 2015. The Company has been aware of these changes for some time, and believes it
is prepared to timely adopt the new standards. However, it is expected that these changes, in particular the
adoption of new diagnostic codes – which must be provided to us accurately by referring physicians in order for
us to receive payment from payers, such as Medicare – will result in a degree of disruption and confusion, which
may adversely affect Company operations, including reimbursement rates.
In addition to the HIPAA Privacy Rule and Security Rule described above, the Company is subject to
state laws regarding the handling and disclosure of patient records and patient health information. These laws
19
vary widely. Penalties for violation include sanctions against a laboratory’s licensure as well as civil or criminal
penalties. Additionally, private individuals may have a right of action against the Company for a violation of a
state’s privacy laws. We believe we are in material compliance with current state laws regarding the
confidentiality of health information and will continue to monitor and comply with new or changing state laws.
The Fair and Accurate Credit Transactions Act of 2003, enacted on Dec. 4, 2003, directed the Federal
Trade Commission to implement regulations to protect consumers against identity theft. The Federal Trade
Commission issued what are referred to as the “Red Flag Rules”, but the effective date for enforcement has been
delayed several times. The Red Flag Rules are now subject to enforcement as of January 1, 2012. The Red Flag
Program Clarification Act of 2010 (“RFPCA”) gave some relief to health care providers by changing the
definition of “creditor”, thereby narrowing the application to health care providers who do not otherwise obtain
or use consumer reports or furnish information to consumer reporting agencies in connection with a credit
transaction. Health care providers who act as a “creditor” to any of its patients with respect to a “covered
account” are required to implement an identity theft protection program to safeguard patient information. A
creditor includes any entity that regularly in the course of business obtains or uses consumer reports in
connection with credit transactions, furnishes information to a consumer reporting agency in connection with a
credit transaction, or advances funds to or on behalf of a person based on the person’s obligation to repay the
funds or repayable from specific property pledged by or on behalf of the person. But, a creditor, as defined in the
RFPCA, that advances funds on behalf of a person for expenses incidental to a services provided by the creditor
to that person is not subject to the Red Flag Rules. The Company has developed a written program designed to
identify and detect the relevant warning signs – or “red flags” – of identity theft and establish appropriate
responses to prevent and mitigate identity theft in order to comply with the Red Flag Rules. We are also
developing a plan to update the program, and the program will be managed by senior management staff under the
policy direction of our Board of Directors. The Company intends to take such steps as necessary to determine the
extent to which the Red Flag Rules apply to it and to take such steps as necessary to comply.
20
Executive Officers of the Company
The following table sets forth certain information regarding our members of the Board of
Directors and other executives as of February 15, 2015:
Name
Age
Position
Board of Directors:
Douglas M. VanOort . . . . . . . . . . . . . . . . . . . . . . .
59 Chairman of the Board of Directors and Chief
Executive Officer,
Steven C. Jones . . . . . . . . . . . . . . . . . . . . . . . . . . .
51 Executive Vice President of Finance, Chief
Compliance Officer, Board Member
Dr. Michael T. Dent
. . . . . . . . . . . . . . . . . . . . . . .
50 Board Member
Kevin C. Johnson . . . . . . . . . . . . . . . . . . . . . . . . .
60 Board Member
Raymond R. Hipp . . . . . . . . . . . . . . . . . . . . . . . . .
72 Board Member
Bruce K. Crowther . . . . . . . . . . . . . . . . . . . . . . . .
63 Board Member
William J. Robison . . . . . . . . . . . . . . . . . . . . . . . .
Other Executives:
George A. Cardoza . . . . . . . . . . . . . . . . . . . . . . . .
Dr. Maher Albitar . . . . . . . . . . . . . . . . . . . . . . . . .
Robert P. Gasparini . . . . . . . . . . . . . . . . . . . . . . . .
Robert J. Shovlin . . . . . . . . . . . . . . . . . . . . . . . . . .
Steven A. Ross . . . . . . . . . . . . . . . . . . . . . . . . . . .
Edwin F. Weidig III . . . . . . . . . . . . . . . . . . . . . . .
79 Board Member
53 Chief Financial Officer
59 Chief Medical Officer and Director of Research and
Development
60 Chief Scientific Officer
44 Chief Operating Officer
50 Chief Information Officer
45 Director of Finance and Principal Accounting Officer
Members of the Company’s Board of Directors are elected at the annual meeting of stockholders and
hold office until their successors are elected. The Company’s officers are appointed by the Board of Directors
and serve until their resignation or removal by the Board and are subject to employment agreements, if any,
approved and ratified by the Board. There are no family relationships between any of our officers or directors.
The Company, Michael Dent, Aspen Select Healthcare L.P. (“Aspen”), John Elliot, Steven Jones and
Larry Kuhnert are parties to the Amended and Restated Shareholders’ Agreement dated March 21, 2005, as
amended, that, among other provisions, gives Aspen, our largest stockholder, the right to elect three out of the
eight directors authorized for our Board of Directors, and to nominate one mutually acceptable independent
director. In addition, Michael Dent and the executive management of the Company has the right to elect one
director for our Board of Directors until the earlier of (i) Dr. Dent’s resignation as an officer or director of the
Company or (ii) the sale by Dr. Dent of 50% or more of the number of shares of our common stock that he held
on March 21, 2005.
Douglas M. VanOort, – Chairman of the Board of Directors and Chief Executive Officer
Mr. VanOort has served as the Chairman of the Board of Directors and Chief Executive Officer of
NeoGenomics since October 28, 2009. For seven months prior to October 2009, he served as Chairman of the
Board of Directors, Executive Chairman and Interim Chief Executive Officer. Prior to joining NeoGenomics,
Mr. VanOort was a General Partner with a Private Equity Firm, and a Founding Managing Partner of a Venture
Capital Firm. From 1982 through 1999, Mr. VanOort served in various positions at Corning Incorporated and at
its spin-off company, Quest Diagnostics, Inc. During the period from 1995 through 1999, he served as the Senior
21
Vice President Operations for Quest Diagnostics, Incorporated which was then a $1.5 billion newly formed
NYSE-traded Company. During the period of 1989 to 1995, he held senior executive positions at Corning Life
Sciences, Inc., including Executive Vice President. Corning Life Sciences Inc. had revenues of approximately
$2 billion and was spun-off in a public transaction to create both Quest Diagnostics and Covance, Inc.
From 1982 to 1989, Mr. VanOort served in various executive positions at Corning Incorporated, including
Director of Mergers & Acquisitions. Mr. VanOort currently serves as a member of the Board of Directors of
several privately-held companies, and is a principal owner of a privately-held retail hardware store chain.
Mr. VanOort is a graduate of Bentley University.
Steven C. Jones – Executive Vice President Finance, Chief Compliance Officer, Board Member
Mr. Jones has served as a director since October 2003, as Executive Vice President of Finance since
November 30, 2009, and as Chief Compliance Officer since February 7, 2013. Mr. Jones served as Chief
Financial Officer for the Company from October 2003 until November 30, 2009. 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 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 degree from the Wharton School of the University of Pennsylvania
in 1991. He also serves as Chairman of the Board of T3 Communications, Inc. and he is a member of the Board
of XG Sciences, Inc.
Michael T. Dent M.D. – Board Member
Dr. Dent is our founder and has served as a director since inception. 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.
Kevin C. Johnson – Board Member
Mr. Johnson has served as a director since 2010. Mr. Johnson is currently Chief Executive Officer of
United Allergy Services, Inc., a private company which exists to empower providers and advance the
understanding of immunotherapy as the best kind of allergy treatment where he has served since September
2014. From January 2003 until September 2014 Mr. Johnson was retired. From May 1996 until January 2003,
Mr. Johnson was Chairman, Chief Executive Officer and President of DIANON Systems, Inc., a publicly-traded
cancer diagnostic services company providing anatomic pathology and molecular genetic testing services to
physicians nationwide. During that time, DIANON grew annual revenues from approximately $56 million in
1996 to approximately $200 million in 2002. DIANON was sold to Laboratory Corporation of America (NYSE:
LH) in January of 2003. Prior to joining DIANON in 1996, Mr. Johnson was employed by Quest Diagnostics and
Quest’s predecessor, the Life Sciences Division of Corning, Incorporated, for 18 years, and held numerous
management and executive level positions. Mr. Johnson is currently serving on the Board of Directors of United
Allergy Services, Inc., a private company and ClearPath Diagnostics, a private company.
Raymond R. Hipp – Board Member
Mr. Hipp has served as a director since February 2011. Mr. Hipp is a retired senior executive that has
been involved in consulting work over the last few years involving mergers and acquisitions as well as being a
22
member of a number of public company boards of directors. From July 1998 until his retirement in June 2002,
Mr. Hipp served as Chairman, President and CEO of Alternative Resources Corporation, a provider of
information technology outsourcing services. From August 1996 until May 1998, Mr. Hipp was the Chief
Executive Officer of ITI Marketing Services, a provider of marketing services. Prior to that, Mr. Hipp held senior
executive positions with several other firms. Mr. Hipp has a B.S. from Southeast Missouri State University.
Mr. Hipp served on the Board of Directors and on the Audit Committee of Gardner Denver, Inc. (NYSE: GDI),
an industrial manufacturing company, for over 14 years.
Bruce K. Crowther – Board Member
Mr. Crowther has served as a Director since October 2014. Mr. Crowther recently retired as President
and Chief Executive Officer of Northwest Community Healthcare where he has served for the last 23 years.
Northwest Community Healthcare is an award winning hospital offering a complete system of care.
Mr. Crowther has a B.S. in Biology and an M.B.A. from Virginia Commonwealth University. Mr. Crowther
serves on the Board of Directors of Wintrust Financial Corporation, a public company and serves on the Board of
Directors of Barrington Bank and Trust which is a Wintrust Financial Corporation owned Company. He also
serves as Chairman of the Max McGraw Wildlife Foundation; a not for profit organization committed to
conservation education and research.
William J. Robison – Board Member
Mr. Robison has served as a director since May 2007. Mr. Robison, who is retired, spent his entire
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 on the Board of Directors of MWI Veterinary Supply Company,
Inc. (NASD: MWIV). He is also on the board of trustees of University of Louisiana – Monroe. Mr. Robison was
previously a board member and an executive committee member of the USO of Metropolitan New York, Inc., the
Human Resources Roundtable Group, the Pharmaceutical Human Resource Council, the Personnel Round Table,
and the Employee Relations Steering Committee for The Business Round Table.
George A. Cardoza – Chief Financial Officer
Mr. Cardoza has served as Chief Financial Officer since November 2009. Prior to that from March
2008 to November 2009, Mr. Cardoza served as the Chief Financial Officer of Protocol Global Solutions, Inc., a
privately held international marketing company. Mr. Cardoza also served as the Controller of Protocol Global
Solutions from March 2006 to March 2008. From April 1991 to March 2006, Mr. Cardoza was employed by
Quest Diagnostics Inc., a diagnostic testing, information and services company, in a number of positions,
including the position of Controller – Central Region from 2001 to March 2006. At Quest Mr. Cardoza was
responsible for overseeing all the financial operations of the Central Region, which had revenue of over
$1.2 billion in 2006. Prior to his time with Quest, he worked for Sony Music Entertainment Inc. and the
Continental Grain Company in various financial roles. Mr. Cardoza received his B.S. from Syracuse University
in finance and accounting and has received his M.B.A. from Michigan State University.
Maher Albitar, M.D. – Chief Medical Officer and Director of Research and Development
Dr. Albitar has served as Chief Medical Officer and Director of Research and Development since
January 2012. From 2008 to 2011, Dr. Albitar served as the Medical Director for Hematopathology and
Oncology, Nichols Institute of Quest Diagnostics, and Chief R&D Director for Hematopathology and Oncology
for Quest Diagnostics, a diagnostic testing, information and services company. From 2003 to 2008, Dr. Albitar
served as the Director of Hematopathology for the Nichols Institute of Quest Diagnostics. From 2005 to
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2011, Dr. Albitar also served as a Board member of Associated Diagnostics Pathologists, Inc. From 1991 to
2003, Dr. Albitar held various faculty positions at The University of Texas MD Anderson Cancer Center.
Dr. Albitar previously served as the Chief Medical Officer of Health Discovery Corporation (“HDC”) and is
currently a member of the Board of Directors of HDC. Dr. Albitar has also served as a consultant to multiple
companies. Dr. Albitar received his medical degree in 1979 from Damascus Medical School in Damascus, Syria.
Robert P. Gasparini, M.S. – Chief Scientific Officer
Mr. Gasparini has served as the Chief Scientific Officer of NeoGenomics since January 2005 and served as
President and Chief Scientific Officer from January 2005 – May 2011. Prior to assuming the role of Chief
Scientific Officer, Mr. Gasparini was a consultant to the Company beginning in 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 Massachusetts 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 in Laboratory Administration from Quinnipiac University.
Robert J. Shovlin – Chief Operating Officer
Mr. Shovlin has served as the Chief Operating Officer of NeoGenomics since October 2014. From
2012 until October 2014, Mr. Shovlin served as Chief Development Officer for Bostwick Laboratories, a leading
provider of anatomic pathology testing services targeting urologists and other clinicians, where he was
responsible for Sales, Marketing, Managed Care, Business Development, and Clinical Trials. From 2005 until
2011, he served in progressively more responsible positions, including President and Chief Executive Officer, for
Aureon Biosciences, Inc., a venture-backed diagnostics company focused on developing novel and proprietary
prostate cancer tests. Mr. Shovlin also served as Executive Director for Anatomic Pathology and Director of
Managed Care for Quest Diagnostics from 2003 until 2005, and held sales leadership positions at Dianon
Systems from 1997 until 2003. Mr. Shovlin served as a Captain, Infantry Officer in the United States Marine
Corps from 1992 until 1997 where he served as a Platoon and Company Commander with 1st Battalion
4th Marines and as an Instructor and Staff Platoon Commander at the Basic School. He holds a Bachelor of
Science Degree from Pennsylvania State University, and a Masters of Business Administration from Rutgers
University.
Steven A. Ross – Chief Information Officer
Mr. Ross has served as Chief Information Officer since May 2013. Prior to joining the Company,
Mr. Ross served as Vice President Technology at Chico’s FAS, Inc. during the period from 2003 to 2013 where
he participated in the direction of all information technology resource planning, budgeting, technology associate
development coaching and operation initiatives for the $2.5 billion dollar global consumer products company.
Mr. Ross has his Bachelor of Science from New Mexico State University.
Edwin F. Weidig III – Director of Finance, Principal Accounting Officer
Edwin F. Weidig III has served as Director of Finance and Principal Accounting Officer since January
2012. Mr. Weidig served as the Company’s Corporate Controller from October 2007 until January 2012. Prior to
that, from May 2005 to October 2007 he was a Division Controller for Meritage Homes Corporation
(NYSE:MTH) in Fort Myers, Florida, and prior to that from January 1999 to May 2005 he worked in public
accounting for a local firm in Fort Myers, Florida and for the PwC office in Boston, Massachusetts. Mr. Weidig
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earned his Bachelor of Science degree in Business Administration from Merrimack College. Mr. Weidig holds an
active CPA license with the state of Massachusetts.
ITEM 1A. RISK FACTORS
We are subject to various risks that may materially harm our business, financial condition and results
of operations. They are not, however, the only risks we face. Additional risks and uncertainties not presently
known to us or that we currently believe not to be material may also adversely affect our business, financial
condition or 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.
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 and
maintain a significant number of clients; (ii) effectively provide acceptable products and services to our clients;
(iii) develop and license new products and technologies; (iv) obtain adequate financing on favorable terms to
fund our business strategies; (v) maintain appropriate internal procedures, policies, and systems; (vi) hire, train,
and retain skilled employees and management; (vii) continue to operate despite increasing competition in the
medical laboratory industry; (viii) be paid reasonable fees by government payer’s that will adequately cover our
costs; (ix) establish, develop and maintain our name recognition; and (x) 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 effects on our results of operations and financial condition.
We May Be Unsuccessful In Managing Our Growth Which Could Prevent The Company From Operating
Profitably
Our 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 must continue to implement and
improve our operational, financial and billing 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 and our 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 existing 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 be able to effectively integrate the acquired operations with our own operations. We have $33.7 million of
cash and cash equivalents to finance acquisitions but we may need to supplement this cash with debt financings
or issuances of equity securities and such financing may not be available on acceptable terms or at all.
We May Experience Discontinuation Or Recalls Of Existing Testing Products Or Failures To Develop, Or
Acquire, Licenses For New Or Improved Testing Technologies Which Could Materially and Adversely Affect
Our Revenues
From time to time, manufacturers discontinue or recall reagents, test kits or instruments used by the
Company to perform laboratory testing. Such discontinuations or recalls could adversely affect the Company’s
costs, testing volume and revenue.
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Our industry is subject to changing technology and new product introductions. The Company’s success
will depend, in part, on its ability to develop, acquire or license new and improved technologies on favorable
terms and to obtain appropriate coverage and reimbursement for these technologies. The Company may not be
able to negotiate acceptable licensing arrangements and it cannot be certain that such arrangements will yield
commercially successful diagnostic tests. If the Company is unable to license these testing methods at
competitive rates, its research and development costs may increase as a result. In addition, if the Company is
unable to license new or improved technologies to expand its testing operations, its testing methods may become
outdated when compared with the Company’s competition and testing volume and revenue may be materially
and adversely affected.
We May Incur Greater Costs Than Anticipated, Which Could Result In Sustained Losses
We use reasonable efforts to assess and predict the expenses necessary to pursue our business
strategies. However, implementing our business strategies 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 ongoing and sustained losses.
We May Face Fluctuations In Our Results Of Operations And We Are Subject To Seasonality In Our
Business Which Could Negatively Affect Our Business Operations
Management expects that our results of operations may 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 likely 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 our business, results of operations and financial condition and may not result in the
long-term benefits intended. Furthermore, in Florida, currently our largest referral market for lab testing services,
a meaningful percentage of the population, returns to homes in the Northern U.S. to avoid the hot summer
months. This combined with the usual summer vacation schedules of our clients usually results in seasonality in
our business. Because of all of the foregoing factors, our operating results in future periods could be less than the
expectations of investors.
We Depend Substantially Upon Third Parties For Payment Of Services, Which Could Have A Material
Adverse Affect On Our Cash Flows And Results Of Operations
The Company’s business consists of a clinical laboratory that provides medical testing services for
doctors, hospitals, and other laboratories on patient specimens that are sent to the Company’s laboratory. In the
case of some specimen referrals that are received for patients that are not in-patients or out-patients at a hospital
or institution or otherwise sent by another reference laboratory, the Company typically bills 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, to get paid
for performing services on behalf of the Company’s clients and their patients. The amount of such third-party
payments is governed by contractual relationships in cases where the Company is a participating provider for a
26
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 or Medicaid. However, the Company does not
have contractual relationships with some 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 will be able to collect the
amounts billed to such insurance companies or government programs. Currently, the Company is not a
participating provider with some 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 or patients, and such third-
parties may change their reimbursement policies for non-participating providers in a manner that may have a
material adverse effect on the Company’s cash flow or results of operations. When new CPT codes are
introduced by the American Medical Association it often takes time for Commercial Insurances to recognize the
new codes, which can significantly impact the timing of payments, if any, and can increase our days-sales-
outstanding (DSO’s). Insurance companies may also try to steer business away from us towards in-network
providers by sending letters to physicians and even imposing financial penalties, if they continue to send us
business.
Our Business Is Subject To Rapid Scientific Change, Which Could Have A Material Adverse Effect On Our
Business, Results Of Operations And Financial Condition
The market for genetic and molecular testing services is characterized by rapid scientific developments,
evolving industry standards and customer demands, and frequent new product introductions and enhancements.
For example, new tests developed by our competitors may prove superior and replace our existing tests. 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 service offerings, and we may be unsuccessful in
doing so which could have a material adverse effect on our business, results of operations and financial
condition.
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 testing services is highly competitive and we expect competition
to continue to increase. We compete with other commercial clinical laboratories in addition to the in-house
laboratories of many major hospitals and physician practices. Many of our existing competitors have
significantly greater financial, human, technical and marketing resources than we do. Some physician groups and
hospitals have made the decision to internalize testing rather than using an outsourced laboratory such as
NeoGenomics and therefore control the referral of their own specimens. 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 in such cases, this may have a
material adverse effect on our business, results of operations and financial condition.
Increased Competition, Including Price Competition, Could Have A Material Adverse Impact On Our Net
Revenues And Profitability
Our industry is characterized by intense competition. Our major competitors including Quest
Diagnostics and Laboratory Corporation of America are large national laboratories that possess greater name
recognition, larger customer bases, significantly greater financial resources and employ substantially more
personnel than we do. Many of our competitors have long established relationships with their customers and
third-party payers. We cannot assure you that we will be able to compete successfully with such entities in the
future.
The laboratory business is intensely competitive both in terms of price and service. Pricing of
laboratory testing services is often one of the most significant factors used by health care providers and
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third-party payers in selecting a laboratory. As a result of the laboratory industry undergoing significant
consolidation, larger laboratory providers are able to increase cost efficiencies afforded by large-scale automated
testing. This consolidation results in greater price competition. We may be unable to increase cost efficiencies
sufficiently, if at all, and as a result, our net earnings and cash flows could be negatively impacted by such price
competition. Additionally, we may also face changes in fee schedules, competitive bidding for laboratory
services or other actions or pressures reducing payment schedules as a result of increased or additional
competition.
Additional competition, including price competition, could have a material adverse impact on our net
revenues and profitability.
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 factors: i) the quality and accuracy of our test
results; ii) the speed or turn-around times of our testing services; and iii) our ability to provide after-test support
to those physicians requesting consultation. Any unforeseen increase in the volume of clients could strain the
capacity of our personnel and systems, leading to unacceptable turn-around times, or customer service failures. In
addition, as the number of our clients and specimens increases, our products, services, and infrastructure may not
be able to scale accordingly. We may also not be able to hire additional licensed medical technologists that we
need to handle increased volumes. Any failure to handle higher volume of requests for our products and services
could lead to the loss of established clients and have a material adverse effect on our business, results of
operations and financial condition. If we produce inaccurate test results, our clients may choose not to use us in
the future. This could severely harm our business, results of operations and financial condition. 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.
We May Fail To Protect Our Facilities, Which Could Have A Material Adverse Affect On Our Business,
Results Of Operations And Financial Condition
The Company’s operations are dependent in part upon its ability to protect its laboratory operations
against physical damage from explosions, fire, floods, hurricanes, earthquakes, power loss, telecommunications
failures, break-ins and similar events. The Company does not presently have an emergency back-up generator in
place at its Tampa, Florida, Nashville, Tennessee, Fresno, West Sacramento, or Irvine, California laboratory
locations that would otherwise mitigate to some extent the effects of a prolonged power outage. The occurrence
of any of these events could result in interruptions, delays or cessations in service to clients, which could have a
material adverse effect on our business, results of operations and financial condition.
The Steps Taken By The Company To Protect Its Proprietary Rights May Not Be Adequate, Which Could
Result In Infringement Or Misappropriation By Third-Parties
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, clients, partners and others to protect our proprietary rights. The steps taken by
us to protect our proprietary rights may not be adequate or third parties may infringe or misappropriate our
copyrights, trademarks, trade secrets and similar proprietary rights. In addition, other parties may assert
infringement claims against us.
We Are Dependent On Key Personnel And Need To Hire Additional Qualified Personnel In Order For Our
Business To Succeed
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
28
management team, which currently is composed of a small number of individuals. The loss of the services of any
of our executive officers, our medical staff, our laboratory directors or other key employees could have a material
adverse effect on our business, results of operations and our financial condition. Our future success also depends
on our continuing ability to attract and retain highly qualified managerial and technical personnel as we grow.
Competition for such personnel is intense and we may not be able to retain our key managerial and technical
employees or may not be able to attract and retain additional highly qualified managerial and technical personnel
in the future. The inability to attract and retain the necessary managerial and technical personnel could have a
material adverse effect 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 we have currently
available. 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.
As of December 31, 2014, we had cash and cash equivalents of approximately $33.7 million.
We may still need additional capital to fully implement our business, operating and development plans.
Should the financing we require to sustain our working capital needs be unavailable or prohibitively expensive
when we require it, there could be a material adverse effect on our long-term business, rate of growth, operating
results, financial condition and prospects.
Proposed Government Regulation Of Laboratory Developed Tests (“LDTs”) May Result In Delays To
Launching Certain Laboratory Tests and Increase Our Costs To Implement New Tests
We frequently develop testing procedures to provide diagnostic results to clients that cannot currently
be provided using test kits approved or cleared by the U.S. Food and Drug Administration, or FDA. The FDA has
been considering changes to the way that it regulates these Laboratory Developed Tests, or LDTs. Currently all
LDTs are conducted and offered in accordance with the Clinical Laboratory Improvements Amendments, or
CLIA, and individual state licensing procedures. The FDA has published a draft guidance document that would
require FDA clearance or approval of a subset of LDTs, as well as a modified approach for some lower risk
LDTs that may require FDA oversight short of the full premarket approval or clearance process. FDA is taking
the position that it can implement these new LDT regulatory requirements without promulgating formal
regulations. As a result, there is a risk that the FDA’s proposed regulatory process could delay the offering of
certain tests and result in additional validation costs and fees. There is also an associated risk for us that some
tests currently offered might become subject to FDA premarket approval or clearance. This FDA approval or
clearance process would be time-consuming and costly, with no guarantee of ultimate approval or clearance.
On July 31, 2014 the FDA issued a notification to Congress of the “Anticipated Details of the Draft
Guidance for Industry, Food and Drug Administration Staff, and Clinical Laboratories: Framework for
Regulatory Oversight of Laboratory Developed Tests (LDTs).” As described in this notification, the FDA
planned to provide draft guidance to clinical laboratories that develop their own LDTs regarding how FDA
intends to regulate such laboratories under the Federal Food, Drug, and Cosmetic Act. On October 3, 2014 the
FDA issued the draft guidance to clinical laboratories. The regulatory framework will use a risk-based approach
to enforce the FDA’s premarket review requirements, and for high-risk tests, the framework may require
laboratories to use FDA-approved tests, if available, rather than LDTs. If implemented, the framework may also
require us to obtain premarket clearance or approval for certain of our LDTs. Implementation of this framework
would include a lengthy phase-in period ranging from two to nine years depending on the risk assessment rating
of each particular test. The FDA has provided an opportunity for public comment through February 2015 before
the guidance is finalized. Through the American Clinical Laboratory Association (“ACLA”) the industry has
29
announced its intention to oppose the guidance proposed by the FDA and has engaged the services of Professor
Lawrence Tribe and former Solicitor General Paul Clemente to represent the interests of the industry in this
matter. We anticipate the FDA will receive numerous comments on this issue, and the regulatory framework
ultimately implemented by the FDA may differ substantially from the framework described in the draft guidance.
This FDA regulation may result in increased regulatory burdens for us to continue to offer our tests or to develop
and introduce new tests and may increase our costs.
The FDA’s current proposal could require a significant volume of applications with the FDA which
would be burdensome and the FDA could take a long time to review them if every lab in the country files a large
volume of registrations and applications for each of their LDT’s.
If We Were Required To Conduct Additional Clinical Trials Prior To Continuing To Sell Our Current Tests
Or Launching Any Other Tests We May Develop, Those Trials Could Result In Delays Or Failure To Obtain
Necessary Regulatory Approvals, Which Could Harm Our Business.
In the event that, in the future, the FDA begins to regulate our tests, it may require additional pre-
market clinical testing prior to submitting a regulatory notification or application for commercial sales. Such pre-
market clinical testing could delay the commencement or completion of clinical testing, significantly increase our
test development costs, delay commercialization of any future tests, and interrupt sales of our current tests. Many
of the factors that may cause or lead to a delay in the commencement or completion of clinical trials may also
ultimately lead to delay or denial of regulatory clearance or approval. The commencement of clinical trials may
be delayed due to insufficient patient enrollment, which is a function of many factors, including the size of the
patient population, the nature of the protocol, the proximity of patients to clinical sites and the eligibility criteria
for the clinical trial.
We may find it necessary to engage contract research organizations to perform data collection and
analysis and other aspects of our clinical trials, which might increase the cost and complexity of our trials. We
may also depend on clinical investigators, medical institutions and contract research organizations to perform the
trials. If these parties do not successfully carry out their contractual duties or obligations or meet expected
deadlines, or if the quality, completeness or accuracy of the clinical data they obtain is compromised due to the
failure to adhere to our clinical protocols or for other reasons, our clinical trials may have to be extended, delayed
or terminated. Many of these factors would be beyond our control. We may not be able to enter into replacement
arrangements without undue delays or considerable expenditures. If there are delays in testing or approvals as a
result of the failure to perform by third parties, our research and development costs would increase, and we may
not be able to obtain regulatory clearance or approval for our tests. In addition, we may not be able to establish or
maintain relationships with these parties on favorable terms, if at all. Each of these outcomes would harm our
ability to market our tests, or to achieve sustained profitability.
Failure In Our Information Technology Systems Could Significantly Increase Testing Turn-around Time Or
Billing Processes And Otherwise Disrupt Our Operations.
Our laboratory operations depend, in part, on the continued performance of our information technology
systems. Our information technology systems are potentially vulnerable to physical or electronic break-ins,
computer viruses and similar disruptions. In addition, we are in the process of integrating the information
technology systems of our recently acquired subsidiaries, and we may experience system failures or interruptions
as a result of this process. Sustained system failures or interruption of our systems in one or more of our
laboratory operations could disrupt our ability to process laboratory requisitions, perform testing, provide test
results in a timely manner and/or bill the appropriate party. Breaches with respect to protected health information
could result in violations of the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), the
Health Information Technology for Economic and Clinical Health Act (“HITECH Act”) and analogous state
laws, and risk the imposition of significant fines and penalties. Failure of our information technology systems
could adversely affect our business, profitability and financial condition.
30
Healthcare Reform Programs May Impact Our Business And The Pricing We Receive For Our Services.
In March of 2010, health care reform legislation known as the “Patient Protection and Affordable Care
Act” was passed into law (the “ACA”). The ACA makes changes that are expected to significantly impact the
pharmaceutical and medical device industries and clinical laboratories. For example, beginning in 2013 each
medical device manufacturer must pay sales tax in an amount equal to 2.3% of the price for which such
manufacturer sells its medical devices that are listed with the Food and Drug Administration (“FDA”). Although
the FDA has issued draft guidance that, if finalized, would regulate certain clinical laboratory tests that are
developed and validated by a laboratory for its own use, or laboratory developed tests (“LDT’s”), as medical
devices, none of our LDT’s such as our prostate cancer test are currently listed with the FDA. We cannot assure
you that the tax will not apply to services such as ours in the future. The ACA contains several provisions that
seek to limit Medicare spending in the future. One key provision is the establishment of “Accountable Care
Organizations” (“ACO”) under which hospitals and physicians will be able to share savings that result from cost
control efforts. We cannot predict what the final business models will be, nor can we predict with certainty the
future impact on our business. There is the possibility that these organizations will seek to lower reimbursement
for the services we provide and some may potentially restrict access to our services. NeoGenomics may not be
able to gain access into certain ACOs. These changes could have an adverse and material impact on our
operations. In furtherance of health care reform and the reduction in health care expenditures, the ACA contains
numerous provisions to be implemented through 2018. There can be no assurance at this time that the
implementation of these provisions will not have a material adverse effect on the business of the Company.
Failure To Comply With Environmental, Health and Safety Laws and Regulations, Including The Federal
Occupational Safety and Health Administration Act, And The Needlestick Safety and Prevention Act Could
Result In Fines and Penalties and Loss of Licensure, And Have a Material Adverse Effect Upon Our
Business.
We are subject to licensing and regulation under federal, state and local laws and regulations relating to
the protection of the environment and human health and safety, including laws and regulations relating to the
handling, transportation and disposal of medical specimens, infectious and hazardous waste and radioactive
materials, as well as regulations relating to the safety and health of laboratory employees. The federal
Occupational Safety and Health Administration has established extensive requirements relating to workplace
safety for health care employers, including clinical laboratories, whose workers may be exposed to blood-borne
pathogens such as HIV and the hepatitis B virus. These requirements, among other things, require work practice
controls, protective clothing and equipment, training, medical follow-up, vaccinations and other measures
designed to minimize exposure to, and transmission of, blood-borne pathogens. In addition, the Needlestick
Safety and Prevention Act requires, among other things, that we include in our safety programs the evaluation
and use of engineering controls such as safety needles if found to be effective at reducing the risk of needlestick
injuries in the workplace.
Failure to comply with such federal, state and local laws and regulations could subject us to denial of
the right to conduct business, fines, criminal penalties and/or other enforcement actions, any of which could have
a material adverse effect on our business. In addition, compliance with future legislation could impose additional
requirements for us, which may be costly.
Steps Taken By Government Payers, Such As Medicare And Medicaid To Control The Utilization and
Reimbursement Of Healthcare Services, Including Esoteric Testing May Diminish Our Net Revenue
We face efforts by government payers to reduce utilization as well as reimbursement for laboratory
testing services. Changes in governmental reimbursement may result from statutory and regulatory changes,
retroactive rate adjustments, administrative rulings and other policy changes.
From time to time, legislative freezes and updates affect some of our tests that are reimbursed by the
Medicare program under the Medicare Physician Fee Schedule (“MPFS”) or Clinical Laboratory Fee Schedule
31
(“CLFS”). The MPFS, which is updated on an annual basis using a prescribed statutory formula, is subject to
significant reductions in reimbursement unless Congress intervenes. In the past, when the application of the
statutory formula resulted in lower payments, Congress has passed interim legislation to prevent the reductions.
The most recent legislative intervention passed was Protecting Access to Medicare Act of 2014, or PAMA,
which provided for a 0.5% update to the 2013 MPFS conversion factor through 2014 and a 0% update from
January 1 until April 1, 2015. If Congress fails to intervene to prevent the negative update factor in future years,
the resulting decrease in payment may adversely affect our revenue, business, operating results, financial
condition and prospects.
In addition, recent laws make changes to Medicare reimbursement for our tests that are reimbursed
under the CLFS, many of which have already gone into effect. The ACA includes a reduction in the annual
update factor used to adjust payments under the CLFS for inflation. This update factor reflects the consumer
price index for all urban consumers, or CPI-U, and the ACA reduces the CPI-U by 1.75% for the years 2011
through 2015. The ACA also imposes a multifactor productivity adjustment in addition to the CPI-U, which may
further reduce payment rates. Further, in February 2012, the Middle Class Tax Relief and Job Creation Act of
2012 were passed, which, among other things, reduced the update to the CLFS by an additional 2% for CY 2013,
and rebased payments at the reduced rate for subsequent years. Overall, when adding this 2% reduction to the
ACA’s adjustments, the payment rates under the CLFS declined by 2.95% and 0.75% for 2013 and 2014,
respectively. This reduction does not include the additional sequestration adjustment.
Most recently, on April 1, 2014, the Protecting Access to Medicare Act of 2014, or PAMA, was signed
to law, which, among other things, is expected to significantly alter the current payment methodology under the
CLFS. Under the new law, reporting could begin as early as January 1, 2016 and every three years thereafter (or
annually in the case of advanced diagnostic lab tests), clinical laboratories must report laboratory test payment
data for each Medicare-covered clinical diagnostic lab test that it furnishes during a time period to be defined by
future regulations. The reported data must include the payment rate (reflecting all discounts, rebates, coupons and
other price concessions) and the volume of each test that was paid by each private payer (including health
insurance issuers, group health plans, Medicare Advantage plans and Medicaid managed care organizations).
Beginning in 2017, the Medicare payment rate for each clinical diagnostic lab test will be equal to the weighted
median amount for the test from the most recent data collection period. The payment rate will apply to laboratory
tests furnished by a hospital laboratory if the test is separately paid under the hospital outpatient prospective
payment system. The payment will also apply to physician office laboratories for which a majority of revenue
comes from the CLFS. Also for the years 2017 through 2019, the amount of reduction in the Medicare rate (if
any) shall not exceed 10 percent from the prior year’s rate and for the years 2020 through 2022, any reduction
shall not exceed 15 percent from the prior year’s rate. It is too early to predict the impact on reimbursement for
our tests reimbursed under the CLFS.
Also under PAMA, the Centers for Medicare & Medicaid Services, or CMS, is required to adopt
temporary billing codes to identify new tests and new advanced diagnostic laboratory tests that have been cleared
or approved by the FDA. For an existing test that is cleared or approved by the FDA and for which Medicare
payment is made as of April 1, 2014, CMS is required to assign a unique billing code if one has not already been
assigned by the agency. In addition to assigning the code, CMS must publicly report payment for the tests no
later than January 1, 2016. We cannot determine at this time the full impact of the new law on our business,
financial condition and results of operations.
CMS also adopts regulations and policies, from time to time, revising, limiting or excluding coverage
or reimbursement for certain of the tests that we perform. Likewise, many state governments are under budget
pressures and are also considering reductions to their Medicaid fees. Further, Medicare, Medicaid and other third
party payers audit for overutilization of billed services. Even though all tests performed by us are ordered by our
clients, who are responsible for establishing the medical necessity for the tests ordered, we may be subject to
recoupment of payments, as the recipient of the payments for such tests, in the event that a third party payer such
as CMS determines that the tests failed to meet all applicable criteria for payment. When third party payers like
32
CMS revise their coverage regulations or policies, our costs generally increase due to the complexity of
complying with additional administrative requirements. Furthermore, Medicaid reimbursement and regulations
vary by state. Accordingly, we are subject to varying administrative and billing regulations, which also increase
the complexity of servicing such programs and our administrative costs. Finally, state budget pressures have
encouraged states to consider several courses that may impact our business, such as delaying payments,
restricting coverage eligibility, service coverage restrictions and imposing taxes on our services.
In certain jurisdictions including Florida and California, Palmetto GBA, a Medicare administrative
contractor, administers the Molecular Diagnostic Services Program, or MolDX, and establishes coverage and
reimbursement for certain molecular diagnostic tests, including many of our tests. To obtain Medicare coverage
for a molecular diagnostic test (FDA approved or LDT), laboratories must apply for and obtain a unique test
identifier or what is known as a “Z” code. For newly developed tests or for established tests that have not been
validated for clinical and analytical validity and clinical utility, laboratories must submit a detailed dossier of
clinical data to substantiate that the test meets Medicare’s requirements for coverage. We have received favorable
coverage for many of our molecular tests, however we have also received non-coverage determination for many
newer tests. The field of molecular diagnostics is evolving very rapidly, and clinical studies on many new tests
are still underway. We cannot be assured that some of our molecular tests will ever be covered services by
Medicare, nor can we determine when the medical literature will meet the standard for coverage that Palmetto
GBA has set.
In recent years, Medicare has encouraged beneficiaries to participate in managed care programs, known
as “Medicare Advantage” programs, and has encouraged beneficiaries from the traditional fee-for- service
Medicare program to switch to Medicare Advantage programs. This has resulted in rapid growth of health
insurance and managed care plans offering Medicare Advantage programs and growth in Medicare beneficiary
enrollment in these programs. Also in recent years, many states have increasingly mandated that Medicaid
beneficiaries enroll in managed care arrangements. If these efforts continue to be successful, we may experience
a further shift of traditional Medicare and Medicaid fee-for-service beneficiaries to managed care programs. As a
result, we would be required to contract with those private managed care programs in order to be reimbursed for
services provided to their Medicare and Medicaid members. There can be no assurance that we will be successful
in entering into agreements with these managed care programs at rates of payment similar to those we realize
from our non-managed care lines of business.
CMS has, as part of its regulatory structure, developed the National Correct Coding Initiative, or NCCI
to promote national correct coding methodologies and to control improper coding leading to inappropriate
payment in Medicare Part B claims. In December of 2013 the NCCI Coding Policy Manual changed how we bill
both FISH and immunohistochemistry testing. The language relates to what NCCI considers “bundled” services,
and will impact the quantity of certain tests that are billed. NCCI limits the number of units we may bill for
certain test codes which lowers the overall reimbursement we receive for that test. Effective on January 1, 2015
the AMA adopted all of the NCCI definitions for FISH which will adversely impact our reimbursement from
commercial insurance plans.
On November 13, 2014 CMS published its “final rule” on the 2015 MPFS. This final rule, known as
CMS-1612-FC established lower relative value units (RVU’s) for FISH testing. This lower valuation led to a
16-20% reduction in multiplex FISH reimbursement in 2015 after taking into account the NCCI changes from
2014. Reimbursement for less frequent single-probe FISH testing was reduced by 45-50%. NeoGenomics, the
American Clinical Laboratory Association (ACLA) and several members of Congress including Florida,
Representative Gus Bilirakis have sent letters to CMS expressing the view that FISH reimbursement was
incorrectly set. NeoGenomics had a meeting with CMS in Baltimore, on January 7, 2015 where a presentation
was made on FISH testing and all the various inputs required to perform a FISH test. Specifically, CMS used a
quantity of 1.0 on the supplies input, not considering that FISH requires a positive and negative control, as well
as a certain repeat rate on what is very complex testing. The previous supply input value was 1.5 and the Relative
Value Update Committee (Medicare’s RUC) recommended 2.4 supplies per test. CMS did say that they did not
33
follow the RUC recommendations for FISH testing and reimbursement. CMS noted that a correction to the
supplies input factor would be considered in the future. CMS said that all of the comments they have received on
FISH would be considered in their next proposed rule, which would be issued in July of 2015, to be effective
January 1, 2016. There is no certainty that CMS will make any changes to the RVU’s or the reimbursement for
FISH testing in the future. There is a risk that other commercial payers will follow Medicare’s lead and reduce
reimbursement on these tests and that would further reduce our revenue.
We expect the initiatives described above to continue and, if they do, to reduce reimbursements for
clinical laboratory services, to impose more stringent cost controls on clinical laboratory services and to reduce
utilization of clinical laboratory services. These efforts, including changes in law or regulations that may occur in
the future, may each individually or collectively have a material adverse impact on our business, operating
results, financial condition and prospects.
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 tests or for
tests we discover and develop. In addition, 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 clients may, in turn, be exerted by our clients on us. If government and other third party payers do
not provide adequate coverage and reimbursement for our tests, our operating results, cash flows or financial
condition may decline.
Our Business Could Be Adversely Impacted By The Adoption Of The ICD-10-CM Code Set
CMS has adopted a new coding set for diagnoses, commonly known as ICD-10-CM, which
significantly expands the current coding set. ICD-10-CM is currently required to be used on all claims with dates
of service on or after October 1, 2015. We may be required to incur significant expense in implementing
ICD-10-CM, and, if we do not adequately implement it, our business could be adversely impacted. In addition, if
as a result of the new coding set, physicians fail to provide appropriate codes for desired tests, we may not be
reimbursed for tests we perform.
Third Party Billing Is Extremely Complicated And Results In Significant Additional Costs To Us
Billing for laboratory services is extremely complicated. The customer refers the tests; the payer pays
for the tests, and the two may not be the same. Depending on the billing arrangement and applicable laws, the
Company must bill various payers, such as patients, insurance companies, Medicare, Medicaid, doctors and
employer groups, hospitals and other laboratories, all of which have different billing requirements. Additionally,
we undertake internal audits to evaluate compliance with applicable laws and regulations as well as internal
compliance policies and procedures. Insurance companies and government payers such as Medicare and
Medicaid also impose routine external audits to evaluate payments, which adds further complexity to the billing
process.
Among others, the primary factors which complicate our billing practices are:
•
•
pricing differences between our fee schedules and the reimbursement rates of the payers;
changes in payer rules;
34
•
•
disputes with payers as to the party who 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 services 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 and systems; (2) training and education of our employees and clients;
(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 advance 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 overpayments. A large number of laboratories have entered into substantial
settlements with the federal and state governments under these laws. Private payers have also brought civil
actions against laboratories which have resulted in substantial judgments In particular, if an entity is determined
to have violated the federal False Claims Act, it may be required to pay up to three 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 a number of potential bases for liability under the federal False Claims Act. For example, liability
arises when an entity knowingly submits, or causes another to submit, a claim for reimbursement to the federal
government for a service which was not provided or which did not qualify for reimbursement. Submitting a claim
with reckless disregard or deliberate ignorance of its truth or falsity could also result in liability under the False
Claims Act. The False Claims Act’s “whistleblower” or “qui tam” provisions are being used with more frequency
to challenge the reimbursement practices of providers and suppliers. Those provisions allow a private individual
to bring an action on behalf of the government alleging that the defendant has submitted false claims for payment
to the federal government. The government must decide whether to intervene in the lawsuit and whether to
prosecute the case. If it declines to do so, the individual may 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. The successful qui tam relator who brought the case is entitled
to a portion of the proceeds and its attorneys’ fees and costs. In addition, various states have enacted laws
modeled after the federal False Claims Act. Government investigations of clinical laboratories have been
ongoing for a number of years and are expected to continue in the future.
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 contained in this report,
the Company is subject to extensive state and federal regulatory oversight. Upon periodic inspection, our
laboratory locations may be out of compliance with CLIA requirements or with applicable licensure or
certification laws. The sanctions for failure to comply with CLIA, state licensure requirements, or other
applicable laws and regulations could include the suspension, revocation or limitation of the right to perform
clinical laboratory services or receive compensation for those services, as well as civil or criminal penalties or
administrative fines. In addition, any new legislation or regulation or the application of existing laws and
regulations in ways that the Company has 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 laboratories, and their referral sources, including physicians, hospitals and other
laboratories. Certain of these laws, known as the “anti-kickback laws” and the “Stark Law”, contain extremely
broad proscriptions. Violation of these laws may result in criminal penalties, exclusion from participation in the
35
Medicare, Medicaid, and other federal healthcare programs, and significant civil monetary penalties, as well as
False Claims Act liability. The Company seeks to structure its arrangements with physicians and other clients to
be in compliance with the anti-kickback laws, Stark Law and similar 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, HIPAA, the HITECH Act, and associated regulations and similar state laws contain
provisions that require the electronic exchange of health information, such as claims submission and receipt of
remittances, using standard transactions and code sets (“Standards”) and regulate the use and disclosure of
patient records and other Protected Health Information (“PHI”). 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 many healthcare providers, including physicians and clinical
laboratories. Although the Company believes it is in material compliance with the Standards, Security and
Privacy rules under HIPAA and the HITECH Act and state privacy and security laws, a failure to comply with
these laws could have a material adverse effect on the Company’s business, results of operations and financial
condition and subject us to liability. Additionally, the recent amendments to HIPAA in the HITECH Act provide
that the state Attorneys General may bring an action against a covered entity, such as the Company, for a
violation of HIPAA.
A Failure To Comply With Governmental Payer Regulations Could Result In Our Being Excluded From
Participation In Medicare, Medicaid Or Other Governmental Payer Programs, Which Would Decrease Our
Revenues And Adversely Affect Our Results Of Operations And Financial Condition
Tests which are reimbursed by Medicare and other Government payers (State Medicaid programs)
accounted for approximately 20%, 25% and 36% of our revenues for the years ended December 31, 2014, 2013
and 2012, respectively. The Medicare program imposes extensive and detailed requirements on diagnostic
service providers, including, but not limited to, rules that govern how we structure our relationships with
physicians, how and when the Company submits claims for reimbursement and how we provide specialized
diagnostic laboratory services. Our failure to comply with applicable Medicare, Medicaid and other
governmental payer rules could result in our inability to participate in a governmental payer program, an
obligation to repay funds already paid to us for services performed, civil monetary penalties, criminal penalties
and/or limitations on the operational function of our laboratory. If we were unable to receive reimbursement
under a governmental payer program, a substantial portion of our revenues would be lost, which would adversely
affect our results of operations and financial condition.
Failure To Comply With The HIPAA Privacy, Security And Breach Notification Regulations May Increase
Our Operational Costs
The HIPAA privacy and security regulations establish comprehensive federal standards with respect to
the uses and disclosures of Protected Health Information (“PHI”) by certain entities including health plans and
health care providers, and set standards to protect the confidentiality, integrity and availability of electronic PHI.
The regulations establish a complex regulatory framework on a variety of subjects, including, for example, the
circumstances under which uses and disclosures of PHI are permitted or required without a specific authorization
by the patient; a patient’s right to access, amend and receive an accounting of certain disclosures of PHI; the
content of notices of privacy practices describing how PHI is used and disclosed and individuals’ rights with
respect to their PHI; and implementation of administrative, technical and physical safeguards to protect privacy
and security of PHI. We have implemented policies and procedures to comply with the HIPAA privacy and
security laws and regulations. The privacy regulations establish a uniform federal standard but do not supersede
state laws that may be more stringent. Therefore, we are required to comply with both federal privacy and
security regulations and varying state privacy and security laws and regulations. The federal privacy regulations
restrict our ability to use or disclose certain individually identifiable patient health information, without patient
36
authorization, for purposes other than payment, treatment or health care operations (as defined by HIPAA),
except for disclosures for various public policy purposes and other permitted purposes outlined in the privacy
regulations.
The HITECH Act and its implementing regulations also require healthcare providers like the Company
to notify affected individuals, the Secretary of the U.S. Department of Health and Human Services, and in some
cases, the media, when PHI has been breached as defined under and following the requirements of HIPAA. Many
states have similar breach notification laws. In the event of a breach, we could incur operational and financial
costs related to remediation as well as preparation and delivery of the notices, which costs could be substantial.
Additionally, HIPAA, the HITECH Act, and their implementing regulations provide for significant civil fines,
criminal penalties, and other sanctions for failure to comply with the privacy, security, and breach notification
rules, including for wrongful or impermissible use or disclosure of PHI. Although the HIPAA statute and
regulations do not expressly provide for a private right of action for damages, the Company could incur damages
under state laws to private parties for the wrongful or impermissible use or disclosure of confidential health
information or other private personal information. Additionally, the recent amendments to HIPAA provide that
the state Attorneys General may bring an action against a covered entity, such as the Company, for a violation of
HIPAA. We insure some of our risk with respect to HIPAA security breaches although there could be operational
costs associated with HIPAA breaches above our insured limits.
Changes In Regulations, Payer Policies Or Contracting Arrangements With Payers Or Changes In Other
Laws, Regulations Or Policies May Adversely Affect Coverage Or Reimbursement For Our Specialized
Diagnostic Services, Which May Decrease Our Revenues And Adversely Affect Our Results Of Operations
And Financial Condition
Governmental payers, as well as private insurers and private payers, have implemented and will
continue to implement measures to control the cost, utilization and delivery of healthcare services, including
clinical laboratory and pathology services. Congress and federal agencies, such as CMS, have, from time to time,
implemented changes to laws and regulations governing healthcare service providers, including specialized
diagnostic service providers. These changes have adversely affected and may in the future adversely affect
coverage for our services. We also believe that healthcare professionals may not use our services if third-party
payers do not provide adequate coverage and reimbursement for them. These changes in federal, state, local and
third-party payer regulations or policies may decrease our revenues and adversely affect our results of operations
and financial condition. We will continue to be a non-contracting provider until such time as we enter into
contracts with third-party payers with whom we are not currently contracted. Because a portion of our revenues
is from third-party payers with whom we are not currently contracted, it is likely that we will be required to make
positive or negative adjustments to accounting estimates with respect to contractual allowances in the future,
which may adversely affect our results of operations, our credibility with financial analysts and investors, and our
stock price.
We Are Subject To Security Risks Which Could Harm Our Operations
The HITECH Act imposed additional requirements, restrictions and penalties on covered entities and
their business associates to, among other things, deter breaches of security. As a result, the remedial actions
required, the reporting requirements, and sanctions for a breach are more stringent. The Company’s electronic
health records system is periodically modified to meet applicable security standards. Despite the implementation
of various security measures by us, our infrastructure may be vulnerable to computer viruses, break-ins and
similar disruptive problems caused by our clients or others, which could lead to interruption, delays or cessation
in service to our clients. Further, such incidents, whether electronic or physical could also potentially jeopardize
the security of confidential information, including PHI stored in our computer systems as it relates to clients,
patients, and other parties connected through us, which may deter potential clients and give rise to uncertain
liability to parties whose security or privacy has been infringed. A significant security breach could result in
fines, loss of clients, damage to our reputation, direct damages, costs of repair and detection, costs to remedy the
37
breach, and other expenses. We insure some of our risk with respect to security breaches but the occurrence of
any of the foregoing events could have a material adverse effect on our business, results of operations and
financial condition.
Clinicians Or Patients Using Our Services May Sue Us, And Our Insurance May Not Sufficiently Cover All
Claims Brought Against Us, Which Will Increase Our Expenses
The development, marketing, sale and performance of healthcare services expose us to the risk of
litigation, including professional negligence. Damages assessed in connection with, and the costs of defending,
any legal action could be substantial. We may be faced with litigation claims that exceed our insurance coverage
or are not covered under any of our insurance policies. In addition, litigation could have a material adverse effect
on our business if it impacts our existing and potential customer relationships, creates adverse public relations,
diverts management resources from the operation of the business, or hampers our ability to otherwise conduct
our business.
We May Not Be Successful in Research And Development Efforts With Respect To The Health Discovery
Corporation Intangible Assets Which May Lead To An Impairment Of
Underlying Assets
We have ongoing research and development efforts to commercialize tests using the acquired
technology from Health Discovery Corporation. We also are trying to develop a support vector machine
application for interpreting Cytogenetics and Flow Cytometry test results. There is no guarantee that we will be
successful in developing commercially feasible products or be able use the Cytogenetics or Flow Cytometry
interpretation systems and if we are unsuccessful we will need to record an impairment of the underlying
intangible assets.
A Failure To Integrate Newly Acquired Businesses And The Costs Related To Such Integration Could Have A
Material Adverse Impact On Our Net Revenues And Profitability
The successful integration of any business that we may acquire entails numerous risks, including,
among others:
•
•
•
•
•
•
•
•
•
Loss of key customers or employees;
Loss of key commercial insurance or managed care contracts;
Issues related to revenue recognition and/or cash collections;
The increased scope and complexity of the acquired operations;
Difficulty in consolidating redundant facilities and infrastructure and in standardizing information
and other systems;
Failure to maintain quality of services that we and any such acquired companies have historically
provided;
Diversion of management’s attention from our day-to-day business;
Incurring significant additional operating expenses; and
Potential impact of unknown/contingent liabilities not disclosed or identified during due diligence
process
We cannot assure you that current or future acquisitions, if any, or any related integration efforts will
be successful, or that our business will not be adversely affected by any future acquisitions. Even if we are able
to successfully integrate the operations of companies or businesses that we may acquire in the future, we may not
be able to realize the benefits that we expect to result from such integration, including projected cost savings.
38
We Must Hire And Retain Qualified Sales Representatives To Grow Our Sales, If Not, Our Existing Business
and Our Results Of Operations and Financial Condition Will Likely Suffer
Our ability to retain existing clients for our specialized diagnostic services and attract new clients is
dependent upon retaining existing sales representatives and hiring and training new sales representatives, which
is an expensive and time-consuming process. We face intense competition for qualified sales personnel and our
inability to hire or retain an adequate number of sales representatives could limit our ability to maintain or
expand our business and increase sales. Even if we are able to increase our sales force, our new sales personnel
may not commit the necessary resources or provide sufficient high quality service and attention to effectively
market and sell our services. If we are unable to maintain and expand our marketing and sales networks or if our
sales personnel do not perform to our standards, we may be unable to maintain or grow our existing business and
our results of operations and financial condition will likely suffer accordingly. If a sales representative ceases
employment, we risk the loss of client goodwill based on the impairment of relationships developed between the
sales representative and the healthcare professionals for whom the sales representative was responsible. This is
particularly a risk if the representative goes to work for a competitor, as the healthcare professionals that are our
clients may choose to use a competitor’s services based on their relationship with our former sales representative.
Performance Issues, Service Interruptions Or Price Increases By Our Shipping Carrier Could Adversely
Affect Our Business, Results Of Operations And Financial Condition, And Harm Our Reputation And Ability
To Provide Our Specialized Diagnostic Services On A Timely Basis
Expedited, reliable shipping is essential to our operations. One of our marketing strategies entails
highlighting the reliability of our point-to-point transport of patient samples. We rely heavily on a single provider
of transport services, Federal Express (“the Carrier”), for reliable and secure point-to-point transport of patient
samples to our laboratory and enhanced tracking of these patient samples. Should the Carrier encounter delivery
performance issues such as loss, damage or destruction of a sample, it may be difficult to replace our patient
samples in a timely manner and such occurrences may damage our reputation and lead to decreased demand for
our services and increased cost and expense to our business. In addition, any significant increase in shipping rates
could adversely affect our operating margins and results of operations. Similarly, strikes, severe weather, natural
disasters or other service interruptions by delivery services we use would adversely affect our ability to receive
and process patient samples on a timely basis. If the Carrier or we were to terminate our relationship, we would
be required to find another party to provide expedited, reliable point-to-point transport of our patient samples.
There are only a few other providers of such nationwide transport services, and there can be no assurance that we
will be able to enter into arrangements with such other providers on acceptable terms, if at all. Finding a new
provider of transport services would be time-consuming and costly and result in delays in our ability to provide
our specialized diagnostic services. Even if we were to enter into an arrangement with such provider, there can be
no assurance that they will provide the same level of quality in transport services currently provided to us by the
Carrier. If the new provider does not provide the required quality and reliable transport services, it could
adversely affect our business, reputation, results of operations and financial condition.
We Use Biological And Hazardous Materials That Require Considerable Expertise And Expense For
Handling, Storage Or Disposal And May Result In Claims Against Us
We work with hazardous materials, including chemicals, biological agents and compounds, blood
samples and other human tissue that could be dangerous to human health and safety or the environment. Our
operations also produce hazardous and biohazardous waste products. Federal, state and local laws and regulations
govern the use, generation, manufacture, storage, handling and disposal of these materials and wastes.
Compliance with applicable environmental laws and regulations may be expensive, and current or future
environmental laws and regulations may impair business efforts. If we do not comply with applicable
regulations, we may be subject to fines and penalties. In addition, we cannot entirely eliminate the risk of
accidental injury or contamination from these materials or wastes. Our general liability insurance and/or workers’
compensation insurance policy may not cover damages and fines arising from biological or hazardous waste
39
exposure or contamination. Accordingly, in the event of contamination or injury, we could be held liable for
damages or penalized with fines in an amount exceeding our resources, and our operations could be suspended or
otherwise adversely affected.
We Are Subject To A Shareholders’ Agreement That Governs The Election Of Certain Members Of Our
Board Of Directors
The Company and certain stockholders of the Company are parties to a Shareholders’ Agreement that,
among other provisions, gives Aspen Select Healthcare, LP (“Aspen”), our largest shareholder, the right to elect
three out of the eight directors authorized for our Board of Directors and to nominate one mutually acceptable
independent director. In addition, Michael Dent and the executive management of the Company have the right to
elect one director to our Board of Directors until the earlier of: (i) Dr. Dent’s resignation as an officer or director
of the Company and (ii) the sale by Dr. Dent of 50% or more of the number of shares of our common stock that
he held on March 21, 2005. Accordingly, it is anticipated that Aspen and other parties to the Shareholders’
Agreement will continue to have the ability to effectively elect a number of the members of our Board of
Directors.
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.
We May Become Involved In Securities Class Action Litigation That Could Divert Management’s Attention
And Harm Our Business
The stock markets have from time to time experienced significant price and volume fluctuations that
have affected the market prices for the common stock of diagnostic companies. These broad market fluctuations
may cause the market price of our common stock to decline. In the past, securities class action litigation has often
been brought against a company following a decline in the market price of its securities. This risk is especially
relevant for us because clinical laboratory service companies have experienced significant stock price volatility
in recent years. We may become involved in this type of litigation in the future. Litigation often is expensive and
diverts management’s attention and resources, which could adversely affect our business.
If Any Securities Analyst Downgrades Our Common Stock Or Our Sector, The Price Of Our Common Stock
Could Be Negatively Affected
Securities analysts may publish reports about us or our industry containing information about us that
may affect the trading price of our common stock. If a securities or industry analyst downgrades the outlook for
our common stock or one of our competitors’ stocks or chooses to terminate coverage of our common stock, the
trading price of our common stock may be negatively affected.
The Price Of Our Common stock May Fluctuate Significantly
The price of our common stock has been, and is likely to continue to be, volatile, which means that it
could decline substantially within a short period of time. For example, the per share price of our common stock
traded on the NASDAQ Capital Market ranged from $2.05 to $6.10 for the period from January 1, 2013 to
December 31, 2014. The price of our common stock could fluctuate significantly for many reasons, including the
following:
•
•
future announcements concerning us or our competitors;
regulatory developments and enforcement actions bearing on advertising, marketing or sales;
40
•
•
•
•
•
•
•
•
reports and recommendations of analysts and whether or not we meet the milestones and metrics
set forth in such reports;
gaining or losing large customers or managed care plans;
introduction of new products or services;
acquisition or loss of significant manufacturers, distributors or suppliers or an inability to obtain
sufficient quantities of materials needed to provide our services;
quarterly variations in operating results;
business acquisitions or divestitures;
changes in governmental or third-party reimbursement practices and rates; and
fluctuations in the economy, world political events or general market conditions.
In addition, stock markets in general and the market for shares of health care stocks in particular, have
experienced extreme price and volume fluctuations in recent years, fluctuations that frequently have been
unrelated to the operating performance of the affected companies. These broad market fluctuations may
adversely affect the market price of our common stock. The market price of our common stock could decline
below its current price and the market price of our shares may fluctuate significantly in the future. These
fluctuations may be unrelated to our performance.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
PROPERTIES
We operate a regional network of laboratories. All our laboratory facilities are leased and we believe
that they are sufficient to meet our needs at existing volume levels and that, if needed, additional space will be
available at a reasonable cost. The following table summarizes our laboratory facilities by location:
Location
Purpose
Square footage
Fort Myers, Florida . . . .
Irvine, California . . . . . .
West Sacramento,
California . . . . . . . . . .
Tampa, Florida . . . . . . . .
Nashville, Tennessee . . .
Fresno, California . . . . . .
Plantation, Florida . . . . .
Corporate headquarters and laboratory
Laboratory
Laboratory
Laboratory
Laboratory
Laboratory
Courier office
49,014
26,105
13,219
5,875
5,400
2,541
500
Our rapid growth may require securing additional space in 2015.
ITEM 3. LEGAL PROCEEDINGS
From time to time the Company is engaged in legal proceedings in the ordinary course of business. We
do not believe any current legal proceedings are material to our business. No material proceedings were
terminated in the fourth quarter of 2014.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our common stock is listed on the NASDAQ Capital Market under the symbol “NEO”. Set forth below
is a table summarizing the high and low sale prices for our common stock during the last two fiscal years.
QUARTER
4th Quarter 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3rd Quarter 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2nd Quarter 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1st Quarter 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4th Quarter 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3rd Quarter 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2nd Quarter 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1st Quarter 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
HIGH
SALES PRICE
LOW
SALES PRICE
$5.81
$6.10
$3.80
$4.69
$4.15
$4.05
$4.20
$4.02
$3.96
$3.34
$2.95
$3.17
$2.70
$2.05
$3.45
$2.40
The above table is based on a report provided by the NASDAQ Capital Markets and the OTC Markets
Group, Inc. These quotations reflect inter-dealer prices, without retail mark-up, markdown or commissions, and
may not necessarily represent actual transactions. All historical data was obtained from the www.nasdaq.com
web site.
Holders of Common Stock
As of February 2, 2015, there were 554 stockholders of record of our common stock. The number of
record holders does not include beneficial owners of common stock whose shares are held in the names of banks,
brokers, nominees or other fiduciaries.
Dividends
We have never declared or paid cash dividends on our common stock. We intend to retain all future
earnings to finance operations and future growth and therefore we do not anticipate paying any cash dividends in
the foreseeable future.
42
Securities Authorized for Issuance Under Equity Compensation Plans (a)
Equity Compensation Plan Information
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
under equity
compensation plans
4,012,096
$2.04
388,440 (e)
—
N/A
413,795
Plan Category
Equity compensation plans
approved by security holders:
Amended and Restated Equity
Incentive Plan (“Equity
Incentive Plan”) . . . . . . . . . .
Employee Stock Purchase Plan
(“ESPP”) . . . . . . . . . . . . . . .
Equity compensation plans not
approved by security holders (b),
. . . . . . . . . . . . . . . . . . . . .
(c), (d)
Total . . . . . . . . . . . . . . . . .
5,462,096
1,450,000
$1.61
$1.93
—
802,235
(a) As of December 31, 2014.
(b)
Includes outstanding options to purchase 800,000 shares of common stock at an exercise price of $1.71 per
share granted to Douglas M. VanOort on February 14, 2012. These options vest based on the passage of
time. In the event of a change of control of the Company with a share price in excess of $4.00 per share, all
unvested options will vest immediately. Unless sooner terminated pursuant to the terms of the stock option
agreement, the options will terminate on February 14, 2017.
Includes outstanding warrants to purchase 450,000 shares of common stock at an exercise price of $1.50 per
share granted to Steven C. Jones on May 3, 2010. These warrants vest based on the passage of time and
based on the achievement of certain milestones. In the event of a change of control of the Company all
unvested warrants will vest immediately. Unless sooner terminated pursuant to the terms of the warrant
agreement, the warrants will terminate on May 3, 2017.
Includes outstanding warrants to purchase 200,000 shares of common stock at an exercise price of $1.43 per
share granted to Maher Albitar on January 9, 2012. These warrants vest based on the achievement of certain
milestones. In the event of a change of control of the Company with a share price in excess of $4.00 per
share, all unvested warrants will vest immediately. Unless sooner terminated pursuant to the terms of the
warrant agreement, the warrants will terminate on January 9, 2017.
(c)
(d)
(e) The Company’s Equity Incentive Plan was amended and restated on April 16, 2013, and subsequently
approved by shareholders holding a majority of the shares outstanding, to allow for the issuance of an
aggregate of up to 7,000,000 shares under the plan.
Currently, the Company’s Equity Incentive Plan, as amended and restated on October 31, 2006 and again
amended and restated on April 16, 2013 and the Company’s ESPP as Amended and Restated, dated April 16,
2013 are the only equity compensation plans in effect.
Recent Sales of Unregistered Securities
No sales of unregistered securities were made during the quarter ended December 31, 2014.
43
Comparison of Cumulative Five Year Total Return
We have presented below the cumulative total return to our stockholders of $100 during the period
from December 31, 2009, through December 31, 2014 in comparison to the cumulative return on the S&P 500
Index and a customized peer group of 7 publically traded companies during that same period. The peer group is
made up of Enzo Biochem, Inc., Genomic Health, Inc., Laboratory Corporation of America Holdings, Myriad
Genetics, Inc., Quest Diagnostics, Inc., Bio-Reference Laboratories, Inc. and Response Genetics, Inc. Several of
NeoGenomics closest competitors are part of large pharmaceutical or other multi-national firms, or are privately
held and as such we are unable to get financial information for them.
$300
$250
$200
$150
$100
$50
$-
NeoGenomics
S&P 500
Peer Group
2009
2010
2011
2012
2013
2014
The results assume that $100 (with reinvestment of all dividends) was invested in our common stock,
the index and in the peer group and its relative performance tracked through December 31, 2014. The
comparisons are based on historical data and are not indicative of, nor intended to forecast, the future
performance of our common stock. The performance graph set forth above shall not be deemed incorporated by
reference into any filing by us under the Securities Act of 1933 or the Securities Exchange Act of 1934 except to
the extent that we specifically incorporate such information by reference therein.
Item 6.
Selected Financial Data
The following is a summary of our historical consolidated financial data for the periods ended and at
the dates indicated below. You are encouraged to read this information together with our audited consolidated
financial statements and the related footnotes and “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” included elsewhere in this Annual Report.
The historical consolidated financial data for the years ended December 31, 2014, 2013, and 2012
(Operating and Other Cash Data) has been derived from our audited consolidated financial statements, which are
included elsewhere in this Annual Report. The historical consolidated financial data for the years ended
December 31, 2010 and 2011 and as of December 31, 2012 (Balance Sheet Data) has been derived from our
audited consolidated financial statements, which are not included in this Annual Report.
44
We believe that the comparability of our financial results between the periods presented in the table
below is significantly impacted by factors which are more fully described in “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” and the Consolidated Financial Statements and the
notes thereto included elsewhere in this Annual Report.
Fiscal Years Ended December 31,
2014
2013
2012
2011
2010
[In thousands except per share data]
Operating Data:
Net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$87,069
46,355
$66,467
34,730
$59,867
33,031
$43,484
24,056
$34,371
18,588
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . .
40,714
38,496
31,737
28,563
Income from operations . . . . . . . . . . . . . . . . . . . . . . . . .
Interest and other income(expense) . . . . . . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . .
2,218
(929)
157
3,174
(989)
152
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,132
$ 2,033
Net income (loss) per share – Basic . . . . . . . . . . . . . . . .
Net income (loss) per share – Diluted . . . . . . . . . . . . . .
$
$
0.02
0.02
$
$
0.04
0.04
26,836
25,625
1,211
(1,146)
—
19,428
19,837
(409)
(768)
—
15,783
18,746
(2,963)
(340)
—
65
$ (1,177) $ (3,303)
0.00
$ (0.03) $ (0.09)
0.00
$ (0.03) $ (0.09)
$
$
$
Other Cash Data:
Net Cash – Operating activities . . . . . . . . . . . . . . . . . . .
Net Cash – Investing activities . . . . . . . . . . . . . . . . . . . .
Net Cash – Financing activities . . . . . . . . . . . . . . . . . . .
$ 2,227
$ 9,450
$ (2,052)
$ (9,602) $ (2,011) $ (3,652) $ (897) $ (916)
$ 2,434
$ 3,384
$29,007
$ (492) $
$ 2,750
$ 2,359
69
As of December 31,
2014
2013
2012
2011
2010
[In thousands]
Balance Sheet Data:
Current Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and Equipment . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$58,742
15,082
4,212
2,929
141
$27,491
9,694
2,577
—
154
$18,581
8,607
2,800
—
83
$13,178
6,642
—
—
129
$ 8,738
4,839
—
—
74
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$81,106
$39,916
$30,071
$19,949
$13,651
Current Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-Term Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . .
$14,623
6,078
$14,323
3,882
$17,758
3,097
$11,444
2,608
$ 9,168
1,348
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stockholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . .
20,701
60,405
18,205
21,711
20,855
9,216
14,052
5,897
10,516
3,135
Total Liabilities and Stockholders’ Equity . . . . . . . . . .
$81,106
$39,916
$30,071
$19,949
$13,651
Working Capital (Deficit)
. . . . . . . . . . . . . . . . . . . . . . .
$44,119
$13,168
$
823
$ 1,734
$ (430)
45
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) (IN THOUSANDS, EXCEPT PER
SHARE DATA)
Net Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross Profit
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Income (Loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Income (Loss) Per Common Share:
Three Months Ended
03/31/14
06/30/14
09/30/14
12/31/14
Total
2014
$18,182
$ 8,709
102
$
$20,670
$10,239
274
$
$25,000
$23,217
$10,294
$11,472
$ (291) $ 1,047
$87,069
$40,714
$ 1,132
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
0.00
0.00
$
$
0.01
0.01
$ (0.01) $
$ (0.01) $
0.02
0.02
$
$
0.02
0.02
Weighted Average Common Shares Outstanding – Basic . . .
49,277
49,890
54,444
60,043
53,483
Weighted Average Common Shares Outstanding –
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
53,469
53,733
54,444
62,732
56,016
Net Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross Profit
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Income Per Common Share:
Three Months Ended
03/31/13
06/30/13
09/30/13
12/31/13
Total
2013
$15,657
$ 7,246
3
$
$15,603
$ 7,157
273
$
$16,884
$ 8,171
900
$
$18,323
$ 9,163
857
$
$66,467
$31,737
$ 2,033
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
0.00
0.00
$
$
0.01
0.01
$
$
0.02
0.02
$
$
0.02
0.02
$
$
0.04
0.04
Weighted Average Common Shares Outstanding – Basic . . .
46,264
48,793
48,933
49,021
48,263
Weighted Average Common Shares Outstanding –
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
50,923
53,744
53,173
53,638
52,775
Three Months Ended
03/31/12
06/30/12
09/30/12
12/31/12
Total
2012
Net Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross Profit
Net Income (Loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Income (Loss) Per Common Share:
$15,160
$ 7,144
603
$
$15,611
$ 7,367
551
$
$14,202
$ 5,892
$ (975) $ (114) $
$14,894
$ 6,433
$59,867
$26,836
65
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
0.01
0.01
$
$
0.01
0.01
$ (0.02) $ (0.00) $
$ (0.02) $ (0.00) $
0.00
0.00
Weighted Average Common Shares Outstanding – Basic . . .
44,697
44,954
45,175
45,273
45,027
Weighted Average Common Shares Outstanding –
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
47,424
47,650
45,175
45,273
48,715
46
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
NeoGenomics, Inc., a Nevada corporation (referred to individually as the “Parent Company” or collectively
with its subsidiary as “NeoGenomics”, “we”, “us”, “our” or the “Company” in this Form 10-K) is the
registrant for SEC reporting purposes. Our common stock is listed on the NASDAQ Capital Market under the
symbol “NEO.”
Introduction
The following discussion and analysis should be read in conjunction with the Consolidated Financial
Statements, and the Notes thereto included in this Form 10-K. The information contained below includes
statements of 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
We operate a network of cancer-focused genetic testing laboratories whose mission is to improve
patient care through exceptional genetic and molecular testing services. Our vision is to become America’s
premier cancer genetic testing laboratory by delivering uncompromising quality, exceptional service and
innovative products and services. The Company has laboratory locations in Ft. Myers and Tampa, Florida;
Fresno, Irvine, and West Sacramento, California; and Nashville, Tennessee, and currently offers the following
types of testing services:
a) Cytogenetics - the study of normal and abnormal chromosomes and their relationship to disease. It
involves looking at the chromosome structure to identify changes from patterns seen in normal chromosomes.
Cytogenetic studies are often utilized to answer diagnostic, prognostic and predictive questions in the treatment
of hematological malignancies.
b) Fluorescence In-Situ Hybridization (“FISH”) - a branch of cancer genetics that focuses on detecting
and locating the presence or absence of specific DNA sequences and genes on chromosomes. FISH helps bridge
abnormality detection between the chromosomal and DNA sequence levels. The technique uses fluorescent
probes that bind to only those parts of the chromosome with which they show a high degree of sequence
similarity. Fluorescence microscopy is used to visualize the fluorescent probes bound to the chromosomes. FISH
can be used to help identify a number of gene alternations, such as amplification, deletions, and translocations.
c) Flow cytometry - a rapid way to measure the characteristics of cell populations. Cells from
peripheral blood, bone marrow aspirate, lymph nodes, and other areas are labeled with selective fluorescent
antibodies and analyzed as they flow in a fluid stream through a beam of light. The properties measured in these
antibodies include the relative size, relative granularity or internal complexity, and relative fluorescence
intensity. These fluorescent antibodies bind to specific cell surface antigens and are used to identify malignant
cell populations. Flow cytometry is typically performed in diagnosing a wide variety of leukemia and lymphoma
neoplasms. Flow cytometry is also used to monitor patients through therapy to determine whether the disease
burden is increasing or decreasing, otherwise known as minimal residual disease monitoring.
d) Immunohistochemistry (“IHC”) - refers to the process of localizing proteins in cells of a tissue
section and relies on the principle of antibodies binding specifically to antigens in biological tissues. IHC is
widely used in the diagnosis of abnormal cells such as those found in cancerous tumors. Specific surface
cytoplasmic or nuclear markers are characteristic of cellular events such as proliferation or cell death (apoptosis).
IHC is also widely used to understand the distribution and localization of differentially expressed proteins.
47
e) Molecular testing - a rapidly growing cancer diagnostic tool focusing on the analysis of DNA and
RNA, as well as the structure and function of genes at the molecular level. Molecular testing employs multiple
technologies including DNA fragment length analysis, real-time polymerase chain reaction (“RT-PCR”) RNA
analysis, bi-directional Sanger sequencing analysis, and Next-Generation sequencing (“NGS”).
f) Pathology consultation services are when our pathologists review surgical samples on a consultative
basis for our clients. NeoGenomics is one of a few laboratories in the country with an electron microscopy lab
which enables us to analyze complex renal cases.
The cancer testing services we offer to community-based pathologists are designed to be a natural
extension of, and complementary to, the services that they perform within their own practices. We believe our
relationship as a non-competitive partner to community-based pathology practices and hospital pathology labs
empowers them to expand their breadth of testing and provide a menu of services that matches or exceeds the
level of service found in academic centers of excellence around the country. Community-based pathology
practices and hospital pathology labs may order certain testing services on a technical component only (“TC” or
“tech-only”) basis, which allows them to participate in the diagnostic process by performing the professional
component (“PC”) interpretation services without having to hire laboratory technologists or purchase the
sophisticated equipment needed to perform the technical component of the tests. We also support our pathology
clients with interpretation and consultative services on difficult or complex cases and provide overflow
interpretation services when requested by clients.
In areas where we do not provide services to community-based pathology practices and/or hospital
pathology labs, we may directly serve oncology, dermatology, urology and other clinician practices that prefer to
have a direct relationship with a laboratory for cancer-related genetic and molecular testing services. We
typically service these types of clients with a “global” service offering where we perform both the technical and
professional components of the tests ordered. However, in certain instances larger clinician practices have begun
to internalize pathology interpretation services, and our “tech-only” service offering allows these larger clinician
practices to also participate in the diagnostic process by performing the PC interpretation services on TC testing
performed by NeoGenomics.
Operating Segment
We have one reportable operating segment that delivers testing services to hospitals, pathologists,
oncologists, other clinicians and researchers. Also, at December 31, 2014, all of our services were provided
within the United States and all of our assets were located in the United States.
Market Opportunity
The medical testing laboratory market can be broken down into three primary segments:
•
•
•
Clinical Pathology testing,
Anatomic Pathology testing, and
Genetic and Molecular testing.
Clinical Pathology testing covers 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.
Anatomic Pathology testing involves evaluation of tissue, as in surgical pathology, or cells as in
cytopathology. The most widely performed Anatomic Pathology procedures include the preparation and
interpretation of pap smears, skin biopsies, and tissue biopsies.
48
Genetic and molecular testing typically involves analyzing chromosomes, genes, proteins and/or DNA/
RNA sequences for abnormalities. Genetic and molecular testing requires highly specialized equipment and
credentialed individuals (typically M.D. or Ph.D. level) to certify results and typically yields the highest
reimbursement levels of the three market segments.
NeoGenomics operates primarily in the Genetic and Molecular testing market. We also act as a
reference laboratory supplying anatomic pathology testing. NeoGenomics typically does not compete in the
Clinical pathology testing market.
The field of cancer genetics is evolving rapidly and new tests are being developed at an accelerated
pace. Based on medical and scientific discoveries over the last decade, cancer testing falls into one of three
categories: diagnostic testing, prognostic testing and predictive testing. Of the three, the fastest growing area is
predictive testing, which is utilized by clinicians to predict a patient’s response to the various treatment options in
order to deliver “personalized or precision medicine” that is optimized to that patient’s particular circumstances.
Personalized or precision medicine allows clinicians to know if a patient will or will not respond to certain
medications like Herceptin. This saves the healthcare system money by ensuring that expensive cancer drugs are
only given to those who will benefit from them. This type of testing improves patient care and potentially saves
lives by identifying optimized therapies much more rapidly than what was possible in previous years.
We estimate that the United States market for genetic and molecular testing is divided among
approximately 400 laboratories. Approximately two thirds of these laboratories are attached to academic
institutions and primarily provide clinical services to their affiliated university hospitals and associated
physicians. We believe that the remaining one third of the market is quite fragmented and that less than
20 laboratories market their services nationally. We estimate that the top 20 laboratories account for
approximately 50% of market revenues for genetic and molecular testing.
We believe several key factors are influencing the rapid growth in the market for cancer testing:
(i) every year more and more genes and genomic pathways are implicated in the development and/or clinical
course of cancer; (ii) cancer is primarily a disease of the elderly - one in four senior citizens is likely to develop
some form of cancer during the rest of their lifetime once they turn sixty, and now that the baby boomer
generation has started to reach this age range, the incidence rates of cancer are rising; (iii) increasingly, new
drugs are being targeted to certain cancer subtypes and pathways which require companion diagnostic testing;
(iv) patient and payer awareness of the value of genetic and molecular testing; (v) decreases in the cost of
performing genetic and molecular testing; (vi) increased coverage from third party payers and Medicare for such
testing; and (vii) the health insurance coverage to uninsured Americans under the Patient Protection and
Affordable Care Act as amended by the Health Care and Education Reconciliation Act, each enacted in
March 2010. These factors have driven explosive growth in the market for this type of testing. We estimate a
$10-12 billion total market opportunity for cancer testing in the United States, about $5-7 billion of which is
derived from genetic and molecular testing with the remaining portion derived from more traditional anatomic
pathology testing services that are complementary to and often ordered with the genetic and molecular testing
services we offer.
2015 Focus Areas: Grow, Innovate, Diversify and Get Lean
Grow
We plan to continue growing organically by providing high complexity, cancer-related laboratory
testing services to hospitals, community-based pathology practices, and clinicians throughout the United States.
We currently perform analyses for hematopoietic cancers such as leukemia and lymphoma (blood and lymphoid
tumors) and solid tumor cancers such as breast, lung, colon, and bladder cancer. For hematopoietic cancers, we
typically analyze bone marrow aspirate and peripheral blood specimens. For solid tumor cancers, we typically
analyze tissue samples or urine.
49
Our growth over the past several years has been due to several factors. Our highly trained sales team
has been successful in competing against other larger national laboratories with one of the broadest test menus in
our industry. Our sales team consists of many industry veterans who can talk to pathologists and oncologists
about our complex testing and developments in the field of cancer testing. Our tech-only testing option allows
local pathologists to compete against the large national laboratories and helps our clients view us as more of a
partner who is working with them, rather than against them by taking away work. Our Sales representatives often
become trusted advisors to our clients who rely on them, and NeoGenomics, to keep up with the latest
developments in the rapidly changing field of molecular genetics. We have also been successful in expanding to
new geographies where we did not previously have sales representation and this has helped us bring our service
offerings to new clients.
Our growth has also been aided by strong client retention. We believe our low client attrition is due to
our strong service levels and culture of customer focus. We work to have engaged employees who want to
achieve the highest customer satisfaction possible. Our TC-PC model results in clients viewing us as more of a
partner than a vendor and this also helps in our retention of clients. By retaining our existing customer base and
bringing in a steady stream of new customers we have been able to organically grow our business by over 200%,
over the past four years.
We are keenly focused on innovation, and believe this has been a key factor in our growth. Over the
past three years, we have developed over 90 new molecular oncology tests, and believe we now have one of the
most comprehensive oncology test menus of any laboratory in the world. By launching new tests at a steady rate,
our Sales representatives are able to share cutting edge developments in molecular genetics with customers and
prospective customers. We believe Clients are increasingly relying on us because we are an emerging leader in
the molecular oncology field. We have had several academic centers begin to refer specimens for testing. These
high profile reference customers often result in other accounts referring testing as well. New customers who
begin using us because of our many new innovative test offerings often begin to refer large portions of their other
testing, which has helped to sustain our growth.
We will also look to grow our business through mergers or acquisitions if the right opportunities
become available. We are focused on strategic opportunities that would be complementary to our menu of
services and would be accretive to our earnings and cash flow in the short to medium timeframe. On July 8, 2014
we acquired Path Labs, LLC, doing business as, Path Logic a leading provider of specialized anatomic pathology
services to hospitals and physicians primarily in Northern California. Path Logic provides high-quality Anatomic
Pathology services with significant expertise in the sub-specialties of renal pathology, dermatopathology,
women’s health and gastrointestinal and genitourinary pathology. For 2013, Path Logic reported revenue of
approximately $10 million and employed approximately 65 people. We recognized revenue of approximately
$4.9 million for the period of ownership from July 8, 2014 through December 31, 2014 from this acquisition. We
estimate that an additional $2.0 to 3.0 million of annual revenue opportunities can be realized in the coming years
as our existing customers and Path Logic’s customers begin to utilize each other’s testing menus and capabilities.
We completed an equity offering of $34.3 million in August of 2014 to provide cash for future
acquisition opportunities when they become available.
Innovate
We are committed to being an innovative leader in oncology testing. Our goal is to develop new assays
to help physician clients better manage their patients and to enable them to practice evidence-based medicine
tailored specifically for each of their patients. During the year ended December 31, 2014, we introduced an
additional 48 new molecular and FISH based tests and cancer profiles. We also converted another 23 tests to
Next Generation Sequencing (“NGS”). We also launched our multimodality solid tumor “Discovery Profile”
which analyzes 315 genes for mutation using NGS and includes 9 FISH tests to analyze translocations,
amplifications and deletions that might be missed by NGS. This Discovery Profile is designed to meet the needs
50
of investigators and clinicians who are interested in testing large numbers of genes and numerous translocations
and gene amplifications. It also meets the needs of pharmaceutical companies engaged in clinical trials. This
multimodality testing is unique in the industry and provides the gold standard FISH testing for detecting therapy-
related abnormalities, such as ALK translocations, and HER2 and MET amplifications, each of which is required
to be confirmed by FISH prior to initiating expensive therapy.
We also recently launched two first-in-kind tests. The first predicts acquired resistance and
susceptibility to Bruton Tyrosin Kinase (“BTK”) inhibitors. The second is a lymphoma profiling test to predict
susceptibility to BTK inhibitors for treatment of lymphoma and Chronic Lymphocytic Leukemia. BTK inhibitors
are a new non-cytotoxic targeted therapy and a number of Phase III studies are ongoing. In fact, these tests are a
good example of the compelling value proposition of genetic testing. New targeted therapies can be very
effective and quite expensive, and these tests help physicians choose the right therapy for the individual patient.
They substantially improve cancer care and help avoid therapies that will not be effective. Our clients have been
very receptive to our new molecular offerings and we believe that we have the most comprehensive clinical
molecular test menu of any laboratory in the United States. We are also seeing increasing interest in our
molecular menu from several pharmaceutical firms. We also introduced a number of NeoTYPETM profiles that
combine multiple molecular tests into multi-gene tests targeting specific types of cancer to help pathologists and
oncologists determine cancer subtypes on difficult cases. We use next generation sequencing and bi-directional
sanger sequencing analysis which we believe is superior to many of the molecular tests being offered by our
competitors because we are able to detect mutations that other methods would not detect.
We are also working to develop a proprietary NeoLABTM (Liquid Alternative to Biopsy) Prostate
cancer test that is performed on blood plasma and urine rather than on prostate tissue biopsies. There are two
goals for this test, a) to diagnose the presence of cancer in patients with BPH (Benign prostatic hyperplasia) and
b) to distinguish high-grade from low-grade cancer in patients with prostate cancer. We completed a preliminary
patient study in June 2013, and the results were published in March 2014 in the Genetic Testing and Molecular
Biomarkers journal. In addition, in February 2014, we completed a follow up study with additional patient
samples which confirmed the published preliminary data from the first trial. The results of this second study were
presented at the Association of Clinical Oncologists (“ASCO”) meeting in 2014. We are currently conducting a
pivotal validation study that is targeting 800-1,000 patients to further validate the efficacy of our NeoLABTM
Prostate Test. The NeoLABTM test is available as a Laboratory Developed Test (“LDT”) to patients who want to
participate in the ongoing validation on the condition that their treating physician must provide clinical utilization
and follow-up data to us as part of the testing process. While further validation work needs to be completed, we
continue to be encouraged about the potential for this new test. We are planning an unrestricted commercial
launch of the NeoLABTM prostate test in the second half of 2015.
In addition, over the last year we believe we have vastly improved our immunohistochemistry offering,
developed a new digital imaging platform and launched several new FISH tests. We expect these new tests to
drive growth in the future. We also expect to continue to make investments in R&D that will allow us to
commercialize a number of new and innovative genetic tests as scientific and medical technological advances are
made.
Diversify
Our third focus area in 2015 is to further diversify our business. In November 2013, we announced an
exclusive five-year alliance with Covance Central Laboratories (“Covance”) to provide comprehensive anatomic
pathology, histology and specialty laboratory testing services for clinical trials. Covance is the largest contract
research organization servicing the needs of the pharmaceutical industry. Through this alliance, Covance’s
clients will gain access to fully integrated anatomic pathology and histology (“APH”) services, including
immunohistochemistry (“IHC”), fluorescence in-situ hybridization (“FISH”) and molecular testing. As part of
this five year agreement, Covance has agreed to utilize NeoGenomics as its exclusive provider of a) technical
component FISH testing services for specimens processed in the U.S. and b) professional interpretations for
51
global APH tests, subject to certain limited exceptions. We believe Covance specifically selected NeoGenomics
as their long-term partner to provide seamless global testing services supporting oncology and companion
diagnostics strategies for biopharmaceutical firms around the world. In addition to accessing the clinical trials
market through our relationship with Covance, we also directly serve pharmaceutical companies. We believe our
broad Molecular testing menu has led several pharmaceutical firms to contact us directly about projects. We
currently have ongoing clinical trials with numerous international pharmaceutical firms and we expect clinical
trials testing to be a major component of our diversification strategy in coming years.
Get Lean
We are also focused on becoming more efficient and reducing our cost per test. Our best practice teams
work with our information technology teams to make improvements in efficiencies to our lab processes. We are
using information systems and technology to move NeoGenomics further along the path of being a “fully digital
lab”, that uses on-line ordering, bar coding, specimen tracking, and other tools to create a streamlined, seamless,
and efficient lab. In 2014, we completed a major facility upgrade to our Fort Myers, Florida lab location, which
has allowed us to increase our efficiencies and reduce our cost per test. These Lean initiatives are having a
dramatic impact on our cost structure and have allowed us to absorb reductions in average revenue per test with
minimal impact to gross margin. During the years ended December 31, 2014 and 2013, we reduced our average
cost of goods sold per test in our “Base Business” (excluding Path Logic) by 4.7% and 12.2%, respectively,
versus the comparable periods in 2013 and 2012.
Competitive Strengths
Turnaround Times
We strive to provide industry leading turnaround times for test results to our clients nationwide. By
providing information to our clients in a rapid manner, physicians can begin treating their patients as soon as
possible. We believe our average 4-5 day turnaround time for our cytogenetics testing services, our average
3-4 day turnaround time for FISH testing services, our 5-7 day turnaround time for molecular testing and our
average 1 day turnaround time for flow cytometry and pathology testing services are industry-leading
benchmarks for national laboratories. Our consistent timeliness of results is a competitive strength and a driver of
additional testing requests by our referring physicians. Rapid turnaround times allow for the performance of other
adjunctive tests within an acceptable diagnosis window in order to augment or confirm results and more fully
inform treatment options. We believe that our fast turnaround times are a key differentiator versus other national
laboratories, and our clients often cite them as a key factor in their relationship with us.
Medical Team
Our team of medical professionals and Ph.Ds. are specialists in the field of genetics, oncology and
pathology. Our medical team is led by our Chief Medical Officer, Dr. Maher Albitar, a renowned
hematopathologist with extensive experience in molecular and genetic testing. Prior to joining NeoGenomics,
Dr. Albitar was Medical Director for Hematopathology and Oncology at the Quest Nichols Institute and Chief
R&D Director for Hematopathology and Oncology for Quest Diagnostics. He also served as Section Chief for
Leukemia at the University of Texas M. D. Anderson Cancer Center and Medical Director of the MD Anderson
Molecular laboratory, one of the first labs of its kind in the United States. In addition to Dr. Albitar, we employ
15 other full-time M.D.s and Ph.Ds in addition to part-time consultants for specific specialties.
Extensive Tech-Only Service Offerings
We launched the first tech-only FISH testing services in the United States in 2006, and we currently
have the most extensive menu of tech-only FISH services in the country. We also offer tech-only flow cytometry
and immunohistochemistry testing services. These types of testing services allow the professional interpretation
52
component of a test to be billed separately by our physician clients. Our FISH, Flow Cytometry and other tech-
only service offerings allow properly trained and credentialed community-based pathologists to extend their own
practices by performing professional interpretations services, which allows them to better service the needs of
their local clientele without the need to invest in the lab equipment and personnel required to perform the
technical component of genetic and molecular testing.
Our tech-only services are designed to give pathologists the option to choose, on a case by case basis,
whether they want to order just the technical information and images relating to a specific test so they can
perform the professional interpretation, or order “global” services and receive a comprehensive test report which
includes a NeoGenomics Pathologist’s interpretation of the test results. Our clients appreciate the flexibility to
access NeoGenomics’ medical staff for difficult or complex cases or when they are otherwise unavailable to
perform professional interpretations. We believe this innovative approach to serving the needs of pathology
clients results in longer term, more committed client relationships that are more akin to strategic partnerships.
Our extensive tech-only service offerings have differentiated NeoGenomics and allowed us to compete more
effectively against larger, more entrenched competitors in our niche of the industry.
Global Service Offerings
We also offer a full set of global services to meet the needs of those clients who are not credentialed
and trained in interpreting genetic tests and who are looking for specialists to interpret the testing results for
them. In our global service offerings, our lab performs the technical component of the tests and our M.D.s and
Ph.Ds. provide the interpretation services. Our professional staff is also available for post-test consultative
services. These clients rely on the expertise of our medical team to give them the answers they need in a timely
manner to help inform their diagnoses and treatment decisions. Many of our tech-only clients also rely on our
medical team for difficult or challenging cases by ordering our global testing services on a case-by-case basis or
our medical team can serve as a backup to support our clients who need help to satisfy the continued and
demanding requirements of their practice. Our reporting capabilities allow for all relevant case data from our
global services to be captured in one summary report. When providing global services, NeoGenomics performs
both the technical and professional component of the test, which results in a higher reimbursement level.
Client Education Programs
We believe we have one of the most extensive client education programs in the genetic and molecular
testing industry. We train pathologists how to use and interpret genetic testing services so that they can better
interpret technical data and render their diagnosis, which allows them to participate in our TC-PC program. Our
educational programs include an extensive library of on-demand training modules, online courses, and custom
tailored on-site training programs that are designed to prepare clients to utilize our tech-only services. We offer
training and information on new cancer tests and the latest developments in the field of molecular genetic testing.
Each year, we also regularly sponsor seminars and webinars on emerging topics of interest in our field. Our
medical staff is involved in many aspects of our training programs.
Superior Testing Technologies And Instrumentation
We use some of the most advanced testing technologies and instrumentation in the laboratory industry.
The use of next generation sequencing in our molecular testing allows us to detect multiple mutations which can
be missed with single point mutation analysis. Many laboratories rely on more limited molecular tests which only
detect single elements on a gene. Our automated FISH and Cytogenetics tools allow us to deliver the highest
quality testing to our clients and our Flow Cytometry laboratory is one of only a few in the country using
10-color Flow Cytometry analysis technology on a technical-only basis. We are one of only a few laboratories
with an electron microscopy (EM) department for diagnosis in complex renal case analysis.
53
Laboratory Information System (LIS)
We believe we have a state-of-the-art Laboratory Information System (“LIS”) that interconnects our
locations and provides flexible reporting solutions to clients. This system allows us to standardize testing and
deliver uniform test results and images throughout our network, regardless of the location that any specific
portion of a test is performed within our network. This allows us to move specimens and image analysis work
between locations to better balance our workload. Our LIS also allows us to offer highly specialized and
customizable reporting solutions to our tech-only clients. For instance, our tech-only FISH and Flow Cytometry
applications allow our community-based pathologist clients to tailor individual reports to their specifications and
incorporate only the images they select and then issue and sign-out such reports using our system. Our
customized reporting solution also allows our clients to incorporate test results performed on ancillary tests not
performed at NeoGenomics into summary report templates. This FlexREPORTtm feature has been well-received
by clients.
National Direct Sales Force
Our direct sales force has been trained extensively in cancer genetic testing and consultative selling
skills to service the needs of clients. Our sales representatives (“Territory Business Managers”) are organized
into three regions (Northeast, Central and West). These sales representatives all utilize our custom Customer
Relationship Management System (“CRM”) to manage their territories, and we have integrated all of the
important customer care functionality within our LIS into the CRM so that our Territory Business Managers can
stay informed of emerging issues and opportunities within their regions. Our in-house customer care team is
aligned with our field sales team to serve the needs of our clients by utilizing the same LIS and CRM. Our field
teams can see in real-time when a client calls the laboratory, the reason for the call, the resolution, and if face-to-
face interaction is needed for follow-up.
Geographic Locations
Many high complexity laboratories within the cancer testing niche have frequently operated a core
facility on either the West Coast or the East Coast of the United States to service the needs of their customers
around the country. We believe our clients and prospects desire to do business with a laboratory with national
breadth and a local presence. We have six facilities, three large laboratory locations in Fort Myers, Florida,
West Sacramento, California and Irvine, California and three smaller laboratory locations in Fresno, California,
Nashville, Tennessee and Tampa, Florida. Our objective is to “operate one lab with six locations” in order to
deliver standardized, high quality, test results. We intend to continue to develop and open new laboratories and/
or expand our current facilities as market situations dictate and business opportunities arise.
Scientific Pipeline
In the past few years our field has experienced a rapid increase in tests that are tied to specific
“genomic pathways”. These predictive tests are typically individualized for a small sub-set of patients with a
specific subtype of cancer. The therapeutic target in the genomic pathway is typically a small molecule found at
the level of the cell surface, within the cytoplasm and/or within the nucleus. These genomic pathways, known as
the “Hallmarks of Cancer”, contain a target-rich environment for small-molecule “anti-therapies”. These anti-
therapies target specific mutations in the major cancer pathways such as the Proliferation Pathway, the Apoptotic
Pathway, the Angiogenic Pathway, the Metastasis Pathway, and the Signaling Pathways and Anti-Signaling
Pathways.
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 amounts of assets
54
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. For a complete description of our significant accounting policies, see Note B to our
Consolidated Financial Statements included in this Annual Report on Form 10-K.
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:
•
•
•
•
•
•
Revenue Recognition
Accounts Receivable
Intangible Assets
Stock Based Compensation
Deferred taxes
Goodwill
Revenue Recognition
The Company recognizes revenues when (a) the price is fixed or determinable, (b) persuasive evidence
of an arrangement exists, (c) the service is performed and (d) collectability of the resulting receivable is
reasonably assured.
The Company’s specialized diagnostic services are performed based on a written test requisition form
or electronic equivalent and revenues are recognized once the diagnostic services have been performed, and the
results have been delivered to the ordering physician. These diagnostic services are billed to various payers,
including Medicare, commercial insurance companies, other directly billed healthcare institutions such as
hospitals and clinics, and individuals. The Company reports revenues from contracted payers, including
Medicare, certain insurance companies and certain healthcare institutions, based on the contractual rate, or in the
case of Medicare, published fee schedules. The Company reports revenues from non-contracted payers, including
certain insurance companies and individuals, based on the amount expected to be collected. The difference
between the amount billed and the amount estimated to be collected from non-contracted payers is recorded as an
contractual allowance to arrive at the reported net revenues. The expected revenues from non-contracted payers
are based on the historical collection experience of each payer or payer group, as appropriate. The Company
records revenues from patient pay tests net of a large discount and as a result recognizes minimal revenue on
those tests. The Company regularly reviews its historical collection experience for non-contracted payers and
adjusts its expected revenues for current and subsequent periods accordingly. The following table reflects our
estimate of the breakdown of net revenue by type of payer for the fiscal years ended December 31, 2014, 2013,
and 2012:
Medicare and other government
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Client Direct Billing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Patient and year-end accrual
2014
2013
2012
20% 25% 36%
27% 25% 29%
50% 43% 33%
2%
7%
3%
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100% 100% 100%
Our proportion of client direct billing has increased due to the expiration of the “TC-Grandfather
clause” in 2012, which shifted the billing for the technical component of certain anatomic pathology services
away from Medicare and directly to Hospitals.
55
Trade Accounts Receivable and Allowance For Doubtful Accounts
Accounts receivable are comprised of amounts due from sales of the Company’s specialized diagnostic
services and are recorded at the invoiced amount, net of discounts and contractual allowances. The allowance for
doubtful accounts is estimated based on the aging of accounts receivable with each payer category and the
historical data on bad debts in these aging categories. In addition, the allowance is adjusted periodically for other
relevant factors, including regularly assessing the state of our billing operations in order to identify issues which
may impact the collectability of receivables or allowance estimates. Revisions to the allowance are recorded as
an adjustment to bad debt expense within general and administrative expenses. After appropriate collection
efforts have been exhausted, specific receivables deemed to be uncollectible are charged against the allowance in
the period they are deemed uncollectible. Recoveries of receivables previously written-off are recorded as credits
to the allowance.
The following tables present the dollars and percentage of the Company’s gross accounts receivable
from customers outstanding by aging category at December 31, 2014 and 2013:
NEOGENOMICS AGING OF RECEIVABLES BY PAYER GROUP
December 31, 2014
Payer Group
0-30
%
31-60
%
61-90
%
91-120
%
>120
%
Total
%
. . . . . . $3,704,604 15% $3,211,330 13% $1,639,036
Client
Commercial
7% $1,017,923
4% $2,347,571
9% $11,920,464 48%
Insurance . .
Medicaid . . . .
Medicare . . . .
Private Pay . .
Unbilled
825,805
14,974 — %
720,502
27,131 — %
4% 719,305
3% 766,941
3% 748,200
4,262 — %
10,839 — %
3% 927,093
4% 727,280
3% 327,007
24,279 — %
29,022 — %
22,942 — % 340,195
1% 1,262,910
20,111 — % 158,634
3% 3,762,822 15% 6,823,073 28%
2%
2%
393,212
5% 3,964,792 16%
1%
259,177
1%
Revenue . . 1,294,321
5%
— — %
— — %
— — %
— — % 1,294,321
5%
Total . . . $6,587,337 27% $4,886,269 20% $3,173,118 13% $2,136,183
8% $7,872,132 32% $24,655,039 100%
NEOGENOMICS AGING OF RECEIVABLES BY PAYER GROUP
December 31, 2013
Payer Group
0-30
%
31-60
%
61-90
%
91-120
%
>120
%
Total
%
. . . . . . $2,716,164 11% $1,728,152
Client
Commercial
7% $1,232,594
6% $ 581,713
3% $ 905,057
4% $ 7,163,680 31%
Insurance . .
Medicaid . . . .
Medicare . . . .
Private Pay . .
Unbilled
341,364
21,509
349,224
8,562
2% 985,446
75,820
0%
2% 1,016,452
0%
4% 740,250
76,713
0%
5% 1,169,982
11,459
3% 557,269
87,291
0%
5% 636,039
1,661
0%
2% 3,883,242 17% 6,507,571 28%
2%
2%
0% 285,383
3% 3,057,915 13% 6,229,612 28%
0%
0%
0%
546,716
110,098
88,416
— — %
Revenue . . 2,634,940 11%
— — %
— — %
— — %
— — % 2,634,940 11%
Total . . . $6,071,763 26% $3,805,870 16% $3,230,998 14% $1,863,973
8% $8,220,013 36% $23,192,617 100%
The following table represents our allowance balances at each balance sheet date presented and that
allowance as a percentage of gross accounts receivable:
Allowance for doubtful accounts . . . . . . . . . . . .
As a % of total accounts receivable . . . . . . . . . .
$4,180,000
$4,540,000
$(360,000)
17.0%
19.6%
December 31,
2014
2013
Change
56
For the year ended December 31, 2014 our allowance for doubtful accounts decreased $0.4 million as
compared to the year ended December 31, 2013. The decrease is attributed to the fact that we had strong cash
collections during 2014 and a significant reduction in days-sales-outstanding. This resulted in less doubtful
accounts than in the past based on the aging of our accounts receivable. We saw a drop in our percentage of
receivables over 120 days from 36% at December 31, 2013 to 32% at December 31, 2014. As a percentage of
total accounts receivable, the allowance for doubtful accounts decreased to 17.0% at December 31, 2014 from
19.6% at December 31, 2013.
Intangible Assets
As a result of the acquisition of Path Logic in July 2014, we recorded $1.93 million of customer
relationships as an intangible asset and we are amortizing this intangible asset over a thirteen year period.
On January 6, 2012 we acquired approximately $3.0 million of intangible assets related to our Master
License Agreement (“the License Agreement”) with HDC pursuant to which we were granted an exclusive
worldwide license to utilize 84 issued and pending patents to develop and commercialize laboratory developed
tests (“LDTs”) and other products relating to hematopoietic and solid tumor cancers. The licensed intellectual
property and know-how relates to support vector machine (“SVM”), recursive feature elimination (“SVM-RFE”),
fractal genomic modeling (“FGM”) and other pattern recognition technology as well as certain patents relating to
digital image analysis, biomarker discovery, and gene and protein-based diagnostic, prognostic, and predictive
testing.
Under the terms of the License Agreement, we may, subject to certain limitations, use, develop, make,
have made, modify, sell, and commercially exploit products and services in the fields of laboratory testing,
molecular diagnostics, clinical pathology, anatomic pathology and digital image analysis relating to the
development, marketing, production or sale of any LDTs or other products used for diagnosing, ruling out,
predicting a response to treatment, and/or monitoring treatment of any hematopoietic and solid tumor cancers
excluding cancers affecting the retina and breast cancer (collectively, the “Field”).
The License Agreement allows us to develop and sell any gene, gene-product or protein-based LDTs
based on HDC’s technology in the Field and provides for sublicensing rights and the assignment of the License
Agreement, in whole or in part, in our discretion. The License Agreement further provides us with access to
certain HDC personnel and consulting resources in the fields of mathematics and in genetic and molecular test
development. The licensed technology also includes, among other things, certain tests, algorithms and computer
software which have already been developed by HDC. We intend to focus on developing prostate, pancreatic,
and colon cancer LDTs. In addition, we plan to develop interpretation software that will help to automate the
analysis of cytogenetics and flow cytometry tests.
The intangible assets from HDC were valued at cost of the assets as we acquired the assets in an arms-
length transaction. We present intangible assets net of accumulated amortization in our financial statements. We
have three classes of intangible assets related to the HDC agreement and each class of intangible assets is
amortized over its estimated service period from service date through the weighted average patent expiration date
of each class of patents or the period of economic benefit. We continually review the estimated pattern in which
the economic benefits will be consumed and adjust the amortization period and our pattern to match our estimate.
These intangible assets had amortization expense of $295,000, $223,000 and $182,000 during the years
ended December 31, 2014, 2013 and 2012, respectively and a net book value of approximately $4.2 million and
$2.6 million as of December 31, 2014 and December 31, 2013, respectively. The amortization expense for the
Health Discovery licenses is currently included as a research and development expense and the Path Logic
customer list is included in general and administrative expense in the consolidated statement of operations. We
will continue to record the amortization of customer relationships as a general and administrative expense. We
will continue to record the amortization of the Support Vector Machine (SVM) technology, the Laboratory
57
developed tests (LDT) technology and the Flow Cytometry and Cytogenetics technology intangibles as a
research and development expense until such time that we have products, services or cost savings directly
attributable to these intangible assets that would require that it to be recorded in cost of goods sold.
We review our long-lived assets for recoverability if events or changes in circumstances indicate the
assets may be impaired. This circumstance exists when the carrying amount of the asset exceeds the sum of the
undiscounted cash flows expected to result from its use and eventual disposition. At December 31, 2014, we
believe the carrying value of our long-lived assets is recoverable.
Stock Based Compensation
The Company recognizes compensation costs for all share-based payment awards made to employees,
non-employee contracted physicians and directors based upon the awards’ grant-date fair value.
For stock options, the Company uses a trinomial lattice option-pricing model to estimate the grant-date
fair value of stock option awards, and recognizes compensation cost on a straight-line basis over the awards’
requisite service periods for employees and ratably for non-employees. The Company’s periodic expense is
adjusted for actual forfeitures.
See Note B – Summary of Significant Accounting Policies - Stock-Based Compensation and Note H –
Stock Options, Stock Purchase Plan and Warrants in the Notes to Consolidated Financial Statements for more
information regarding the assumptions used in our valuation of stock-based compensation.
Deferred Taxes
Our accounting for deferred tax consequences represents our best estimate of future events that can be
appropriately reflected in accounting estimates. Changes in existing tax laws, regulations, rates and future
operating results may impact the amount of deferred tax liabilities and deferred tax assets over time. We allocate
our deferred tax asset and liabilities based on the classification of the item creating the deferred or when we
believe the deferred will be realized if there is no corresponding item. The valuation allowance is allocated based
on the gross deferred tax asset.
The Company recorded a valuation allowance to reduce our deferred tax asset to an amount that we
expected to be realized. The Company considers all positive and negative evidence to determine the adequacy of
the recorded valuation allowance. The factors included in the analysis are historical and projected future taxable
income including expectations of pending contracts and evolving business practices of our industry. If we
determine that it is more likely than not that we will be able to use a deferred tax asset in the future in excess of
its carrying value, an adjustment to the deferred tax asset valuation allowance would be made to reduce income
tax expense. Although we posted pre-tax income in 2013 and 2014, due to the unsettled circumstances around
reimbursement reductions in 2015, which includes further Medicare rate reductions and the fact that we believe
that most commercial insurance companies will follow Medicare’s reimbursement framework and will reduce
reimbursement for the effected Medicare CPT codes, we believe that our profitability for 2015 is not reasonably
assured and thus we continued to record the full valuation allowance against our net deferred tax assets at
December 31, 2014.
Goodwill
The Company evaluates goodwill on an annual basis in the fourth quarter or more frequently if
management believes indicators of impairment exist. Such indicators could include, but are not limited to (1) a
significant adverse change in legal factors or in business climate, (2) unanticipated competition, or (3) an adverse
action or assessment by a regulator. The Company first assesses qualitative factors to determine whether it is
more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill. If
58
management concludes that it is more likely than not that the fair value of a reporting unit is less than its carrying
amount, management conducts a two-step quantitative goodwill impairment test. The first step of the impairment
test involves comparing the fair value of the applicable reporting unit with its carrying value. The Company
estimates the fair values of its reporting units using a combination of the income, or discounted cash flows,
approach and the market approach, which utilizes comparable companies’ data. If the carrying amount of a
reporting unit exceeds the reporting unit’s fair value, management performs the second step of the goodwill
impairment test. The second step of the goodwill impairment test involves comparing the implied fair value of
the affected reporting unit’s goodwill with the carrying value of that goodwill. The amount, by which the
carrying value of the goodwill exceeds its implied fair value, if any, is recognized as an impairment loss. The
Company’s evaluation of goodwill completed during the year resulted in no impairment losses.
Results of Operations for the year ended December 31, 2014 as compared with the year ended
December 31, 2013
The following table presents the condensed consolidated statements of operations as a percentage of
revenue:
For the years ended
December 31.
2014
2013
NET REVENUE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
COST OF REVENUE . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100.0% 100.0%
52.2%
53.2%
GROSS PROFIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
46.8%
47.8%
OPERATING EXPENSES:
General and administrative . . . . . . . . . . . . . . . . . . . . . .
Research and development
. . . . . . . . . . . . . . . . . . . . . .
Sales and marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL OPERATING EXPENSES . . . . . . . . . . . . . . . . . .
INCOME FROM OPERATIONS . . . . . . . . . . . . . . . . . . .
27.3%
3.1%
13.8%
44.2%
2.6%
26.2%
3.7%
13.1%
43.0%
4.8%
INTEREST AND OTHER EXPENSE – NET . . . . . . . . . . .
(1.1)%
(1.5)%
NET INCOME BEFORE INCOME TAXES . . . . . . . . . .
INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.5%
0.2%
1.3%
3.3%
0.2%
3.1%
Revenue
Our revenue, requisition and test metrics for NeoGenomics, Inc. excluding Path Logic (“Base
Business”) for the years ended December 31, 2014 and 2013 are as follows:
FY 2014
FY 2013
% Change
Client Requisitions Received (Cases) . . . . . . . . .
Number of Tests Performed . . . . . . . . . . . . . . . . .
Average Number of Tests/Requisition . . . . . . . . .
113,087
177,279
1.57
88,431
137,317
1.55
Total Testing Revenue . . . . . . . . . . . . . . . . . . . . .
Average Revenue/Requisition . . . . . . . . . . . . . . .
Average Revenue/Test . . . . . . . . . . . . . . . . . . . . .
$82,194,000
727
$
464
$
$66,467,000
752
$
484
$
27.9%
29.1%
1.0%
23.7%
(3.3)%
(4.2)%
59
The following table shows the requisitions and revenue for Path Logic for the corresponding periods in 2014:
Supplemental Information on Customer Requisitions Received
Path Logic (1)
For the period
from July 8, 2014
through
December 31,
2014
Requisitions Rec’d (cases)
. . . . . . . . . . . . . . . . . . . . . .
38,989
Total Testing Revenue . . . . . . . . . . . . . . . . . . . . . . . . . .
Avg Revenue/Requisition . . . . . . . . . . . . . . . . . . . . . . .
$4,875,000
125
$
(1) These Path Logic requisition counts and revenue are for the period from our acquisition on July 8, 2014
through December 31, 2014
Our 24% year-over-year revenue growth in our Base Business is a result of a broad based increase in
the number of new clients. Our average revenue per test decrease of approximately 4% in our Base Business was
primarily result of the National Correct Coding Initiative “NCCI” FISH testing edits issued in December 2013.
Effective as of January 1, 2014, the NCCI created a contradiction with respect to long-established billing
practices for FISH testing. The new FISH edits reduced the number of billable units that laboratories should bill
for certain multi-probe FISH tests is less than the previously established guidance. We expect our average
revenue per test in our Base Business to decline further in 2015 as a result of further Medicare rate reductions.
The American Medical Association changed the CPT coding structure for FISH and
Immunohistochemistry testing for 2015. These two key testing areas have new CPT codes that may not be
recognized by Commercial Insurances until they update their processing systems. This could result in delays in
processing our claims and could increase our days-sales-outstanding (“DSO’s”). We also believe that most
Commercial Insurance plans will follow Medicare’s reimbursement framework and will reduce reimbursement
for these new CPT codes. While the impact cannot be specifically measured at this time, it will have the effect of
lowering average reimbursement per test in 2015.
Our consolidated revenue was approximately $87.1 million for the twelve months ended December 31,
2014 as compared to $66.5 million for the comparable period in 2013. Revenue increased by 31.0% for the
twelve months ended December 31, 2014 when compared to the comparable period in 2013, because of the
increase in clients described above and due to the acquisition of Path Logic resulting in $4.9 million of revenue
or 7.3% of the increase in revenue. The revenue amount for Path Logic is for the period from our acquisition on
July 8, 2014 through December 31, 2014.
Cost of Revenue and Gross Profit
Cost of revenue includes payroll and payroll related costs for performing tests, depreciation of
laboratory equipment, rent for laboratory facilities, laboratory reagents, probes and supplies, and delivery and
courier costs relating to the transportation of specimens to be tested.
The consolidated cost of revenue and gross profit metrics are as follows:
For the years ended
December 31,
2014
2013
Change
% Change
Cost of Revenue . . . . . . . . . . . . . . . . . . . .
Cost of Revenue as a % of revenue . . . .
Gross Profit . . . . . . . . . . . . . . . . . . . . . . .
Gross Profit as a % of revenue . . . . . . .
$46,355,000
$34,730,000
$11,625,000
53.2%
52.2%
$40,714,000
$31,737,000
$ 8,977,000
46.8%
47.8%
33.5%
1.9%
28.3%
(2.1)%
60
The cost of revenue and gross profit metrics for the Base Business is as follows:
For the years ended
December 31,
2014
2013
Change
% Change
Cost of Revenue . . . . . . . . . . . . . . . . . . . . .
Cost of Revenue as a % of revenue . . . . .
Gross Profit . . . . . . . . . . . . . . . . . . . . . . . .
Gross Profit as a % of revenue . . . . . . . .
Cost of Revenue per Test . . . . . . . . . . . . .
Gross Profit per Test
. . . . . . . . . . . . . . . .
$42,739,000
$34,730,000
$8,009,000
52.0%
52.2%
$39,455,000
$31,737,000
$7,718,000
48.0%
241.08
222.56
$
$
$
$
47.8%
252.92
231.12
$
$
(11.84)
(8.56)
23.1%
(0.4)%
24.3%
0.4%
(4.7)%
(3.7)%
Overall cost of revenue for the Base Business increased in 2014 due to the increases in our testing
volumes. The 4.7% decline in cost of revenue per test for these periods was the result of several factors,
including:
•
Improved productivity in our laboratory, as we experienced an increase in the amount of tests
processed per laboratory FTE (full time equivalent personnel). This was driven by improved
capacity planning and utilization along with several process improvements in the laboratory.
• We were able to decrease our logistics cost through internalizing certain courier routes that were
previously serviced by contract courier services.
•
Our supplies cost as a percentage of revenue declined based on efforts made to reduce price from
certain key vendors and efforts by the best practice teams to reduce any supply waste.
Our best practice teams work closely with our Information Technology team to re-design our systems
and processes to improve efficiencies. We continue to focus on improving our laboratory operations in order to
continue to drive further improvements in our cost per test. We believe that we will continue to realize a
reduction in average cost per test in future periods based on the activities of our best practices teams. We expect
that the reductions in the average revenue per test described in the revenue section earlier in this management
discussion and analysis will exert further pressure on our margins and that as a result we will see a reduction in
gross profit as a percentage of revenue.
The cost of revenue and gross profit metrics for Path Logic for the period from July 8, 2014 to
December 31, 2014 are as follows:
Path Logic (1)
Cost of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of revenue as a % of revenue . . . . . . . . . . . . . . . . .
Gross Profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross Profit as a % of revenue . . . . . . . . . . . . . . . . . . . .
For the
period from
July 8, 2014
through
December 31,
2014
$3,616,000
74.2%
$1,259,000
25.8%
(1) These Path Logic cost of revenue and gross profit amounts are for the period from our acquisition on July 8,
2014 through December 31, 2014
61
Sales and Marketing
Sales and marketing expenses relate primarily to the employee related costs of our sales management,
sales representatives, sales and marketing consultants, marketing, and customer service personnel.
For the years ended
December 31.
Sales and marketing . . . . . . . . . . . . . . . . . .
As a % of revenue . . . . . . . . . . . . . . . . . . . .
2014
2013
Change
% Change
$11,999,000
$8,726,000
$3,273,000
37.5%
13.8%
13.1%
The approximate 38% increase in sales and marketing for the year ended December 31, 2014 as
compared to the year ended December 31, 2013 was primarily the result of increased personnel in our sales
organization and all associated costs related to those personnel. Sales and marketing expenses increased only
0.7% as a percentage of revenue. We have added new territories in new geographies across the country and
expect this to continue in 2015. The sales and marketing expenses for Path Logic are from our period of
acquisition on July 8, 2014 through December 31, 2014 and were approximately $0.3 million.
We expect our overall sales and marketing expenses to increase modestly in 2015. We also anticipate
making some limited additions to our sales team in 2015.
General and Administrative Expenses
General and administrative expenses relate to billing, bad debts, finance, human resources, information
technology and other administrative functions. They primarily consist of employee related costs (such as salaries,
fringe benefits, and stock-based compensation expense), professional services, facilities expense, and
depreciation and administrative-related costs allocated to general and administrative expenses.
General and administrative . . . . . . . . . . .
As a % of revenue . . . . . . . . . . . . . . . . . . .
2014
2013
Change
% Change
$23,808,000
$17,397,000
$6,411,000
36.9%
27.3%
26.2%
For the years ended
December 31.
General and administrative expenses increased approximately 37%, for the year ended December 31,
2014 as compared to the year ended December 31, 2013. This increase is primarily a result of adding information
technology and billing personnel to support the increase in our testing volumes as well as health and business
insurance costs, depreciation and increases in other professional fees. This increase also includes the general and
administrative expenses related to our acquisition of Path Logic from the period of acquisition on July 8, 2014
through December 31, 2014 and was approximately $1.7 million. General and administrative expenses increased
1% as a percentage of revenue.
Bad debt expense, in dollars, decreased by approximately 13%, or $0.4 million to $2.4 million for the
year ended December 31, 2014 as compared to $2.8 million for the year ended December 31, 2013. Bad debt as a
percentage of revenue decreased to 2.8% for the year ended December 31, 2014 from 4.2% of revenue for the
year ended December 31, 2013. This decrease was the result of increased cash collections during the year ended
December 31, 2014, cash collected on balances previously written off, and the need to carry a smaller allowance
for doubtful accounts at December 31, 2014 than at December 31, 2013.
We expect our general and administrative expenses to increase as we add personnel, increase our
billing and collections activities; incur additional expenses associated with the expansion of our facilities and
backup systems; and continue to build our physical infrastructure to support our anticipated growth. However, we
expect general and administrative expenses to decline as a percentage of our revenue as our case volumes
increase and as we continue to develop more operating leverage in our business.
62
Research and Development Expenses
Research and development (R&D) expenses relate to cost of developing new proprietary and non-
proprietary genetic tests. R&D expenses consist of payroll for our R&D staff, supplies cost, stock compensation
expense, as well as cost related to our licensing agreement with Health Discovery Corporation, including
amortization of the licensed technology.
Research and development . . . . . . . . . . . . . . .
As a % of revenue . . . . . . . . . . . . . . . . . . . . . .
For the years ended
December 31.
2014
2013
Change
% Change
$2,689,000
$2,440,000
$249,000
10.2%
3.1%
3.7%
The increase in research and development expenses is primarily a result of increased supplies and labor
costs partially offset by a decrease in stock based compensation expense. R&D expenses for the year ended
December 31, 2014, included $200,000 and $50,000 of stock based compensation expenses for non-employee
options and warrants as compared to $252,000 and $231,000 for the comparable period in 2013. We anticipate an
ongoing investment in research and development as we develop new genetic tests in 2015 and expand our R&D
staffing.
Interest and Other Expense
Interest and other income and expense primarily represents the interest expense we incur on our
borrowing arrangements, primarily comprised of interest paid on capital lease obligations and interest payable on
advances under our revolving credit facility with Capital Source for the period we had the revolving credit
facility in 2014 offset by the interest income we earn on cash deposits. Interest expense decreased from
approximately $1.0 million in 2013 to $0.9 million in 2014, reflecting lower borrowings, particularly related to
our revolving credit facility which was terminated in August 2014, after our equity raise, and partially offset by
an increase in capital lease obligations as we acquired additional equipment to support our increasing volume of
business.
Net Income
The following table provides the net income for each period along with the computation of basic and
diluted net income per share for the year ended December 31, 2014 and 2013 (in thousands, except per share
amounts):
Years Ended December 31,
2014
2013
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,132
$ 2,033
Basic weighted average shares outstanding . . . . . . . . . . .
Effect of potentially dilutive securities . . . . . . . . . . . . . .
Diluted weighted average shares outstanding . . . . . . . . .
Basic net income per share . . . . . . . . . . . . . . . . . . . . . . . .
Diluted net income per share . . . . . . . . . . . . . . . . . . . . . .
53,483
2,533
56,016
$
$
0.02
0.02
48,263
4,512
52,775
$
$
0.04
0.04
We expect that the reductions to revenue from the 2015 reimbursement reductions and the impact to
our average revenue per test to put pressure on our expected net income for 2015.
63
Non-GAAP Measures
“Adjusted EBITDA” is defined by NeoGenomics as net income from continuing operations before
(i) interest expense, (ii) tax expense, (iii) depreciation and amortization expense, (iv) non-cash stock-based
compensation and warrant amortization expense, (v) transaction expenses related to acquisitions and potential
acquisitions, (vi) costs related to terminating our credit facility, and (vii) other extraordinary or non-recurring
charges. NeoGenomics believes that Adjusted EBITDA provides a more consistent measurement of operating
performance and trends across reporting periods by excluding these cash and non-cash items of expense not
directly related to ongoing operations from income. Adjusted EBITDA also assists investors in performing
analysis that is consistent with financial models developed by research analysts.
Adjusted EBITDA as defined by NeoGenomics is not a measurement under GAAP and may differ
from non-GAAP measures used by other companies. There are limitations inherent in non-GAAP financial
measures such as Adjusted EBITDA because they exclude a variety of charges and credits that are required to be
included in a GAAP presentation, and do not therefore present the full measure of NeoGenomics recorded costs
against its net revenue. Accordingly, investors should consider non-GAAP results together with GAAP results in
analyzing NeoGenomics financial performance.
The following is a reconciliation of GAAP net income to Non-GAAP EBITDA and Adjusted EBITDA
for the years ending December 31, 2014 and 2013:
For the years ended
December 31,
2014
2013
Net income (Per GAAP) . . . . . . . . . . . . . . . . . . . . . . .
$1,132,000
$2,033,000
Adjustments to Net Income:
Interest expense (income), net . . . . . . . . . . .
Amortization of intangibles . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation of property and equipment . . .
985,000
295,000
157,000
5,345,000
989,000
223,000
152,000
4,189,000
EBITDA (non-GAAP) . . . . . . . . . . . . . . . . . . . .
7,914,000
7,586,000
Further Adjustments to EBITDA:
Acquisition related transaction expense . . .
Costs of terminating credit facility . . . . . . .
Non-cash stock-based compensation . . . . .
473,000
98,000
691,000
—
—
929,000
Adjusted EBITDA (non-GAAP)
. . . . . . . . . . .
$9,176,000
$8,515,000
Adjusted EBITDA as % of Revenue . . . . . . . .
10.5%
12.8%
64
Results of Operations for the year ended December 31, 2013 as compared with the year ended
December 31, 2012
The following table presents the condensed consolidated statements of operations as a percentage of
revenue:
For the years ended
December 31.
2013
2012
NET REVENUE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
COST OF REVENUE . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100.0% 100.0%
55.2%
52.2%
GROSS PROFIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
47.8%
44.8%
OPERATING EXPENSES:
General and administrative . . . . . . . . . . . . . . . . . . . . . .
Research and development
. . . . . . . . . . . . . . . . . . . . . .
Sales and marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL OPERATING EXPENSES . . . . . . . . . . . . . . . . . .
INCOME FROM OPERATIONS . . . . . . . . . . . . . . . . . . .
26.2%
3.7%
13.1%
43.0%
4.8%
26.5%
3.8%
12.5%
42.8%
2.0%
INTEREST AND OTHER INCOME (EXPENSE) –
NET . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1.5)%
(1.9)%
NET INCOME BEFORE INCOME TAXES . . . . . . . . . .
INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.3%
0.2%
3.1%
0.1%
0.0%
0.1%
Revenue
follows:
Our revenue, requisition and test metrics for the years ended December 31, 2013 and 2012 are as
FY 2013
FY 2012
% Change
Client Requisitions Received (Cases) . . . . . . . . .
Number of Tests Performed . . . . . . . . . . . . . . . . .
Average Number of Tests/Requisition . . . . . . . . .
88,431
137,317
1.55
73,773
114,606
1.55
Total Testing Revenue . . . . . . . . . . . . . . . . . . . . .
Average Revenue/Requisition . . . . . . . . . . . . . . .
Average Revenue/Test . . . . . . . . . . . . . . . . . . . . .
$66,467,000
752
$
484
$
$59,867,000
812
$
522
$
19.9%
19.8%
0.0%
11.0%
(7.4)%
(7.3)%
Our 11% year-over-year revenue growth is a result of a broad based increase in the number of new
clients, including new office locations for our one client with approximately 50 locations. This client represented
15.8% and 14.9% of our total revenue for the years ended December 31, 2013 and 2012, respectively.
Our average revenue per test and per requisition decrease of approximately 7% was primarily
attributable to the expiration of the TC Grandfather clause and a modest impact by an increasing proportion of
lower average revenue molecular and immunohistochemistry tests in our test mix.
On February 22, 2012, the Middle Class Tax Relief Act (“MCTRA”) was enacted. The MCTRA
included a provision that specified that the Centers for Medicare and Medicaid Services (“CMS”) Technical
Component Grandfather Clause (“TC Grandfather”) would expire on June 30, 2012. The TC Grandfather clause
65
had allowed independent laboratories like us to bill Medicare directly for the technical component of certain
hospital in-patient and out-patient laboratory tests reimbursable off of the Medicare Physician Fee Schedule for
hospitals that had a relationship with an independent pathology lab prior to July 22, 1999. As a result of this
regulatory change, since becoming effective July 1, 2012, we were now required to bill hospitals directly for
these technical component services. Our hospital clients, however, receive no incremental reimbursement for in-
patient tests and only limited incremental reimbursement for out-patient tests. Beginning in the third quarter of
2012, the expiration of the TC Grandfather clause created price competition in approximately 18% of our
revenue base, where previously there had been none. This caused an impact to revenue and also directly impacted
gross margin and net income by approximately $2.6 million when comparing the year ended December 31, 2013
to the year ended December 31, 2012. The requirement to submit claims to our clients directly, instead of
Medicare, has also had an impact on the time it takes for us to collect on the receivables for the tests in question.
Medicare typically pays each claim filed within 3 to 4 weeks of filing, however, clients typically get billed only
once a month for all claims, and the collection cycle time from clients is generally 30-90 days or more from the
time they receive our bill. While we could bill Medicare on a daily basis, many of our hospital clients want only
one cumulative bill at the end of the month.
Cost of Revenue and Gross Profit
Cost of revenue includes payroll and payroll related costs for performing tests, depreciation of
laboratory equipment, rent for laboratory facilities, laboratory reagents, probes and supplies, and delivery and
courier costs relating to the transportation of specimens to be tested.
For the years ended
December 31,
2013
2012
Change
% Change
Cost of Revenue . . . . . . . . . . . . . . . . . . . . .
Cost of Revenue as a % of revenue . . . . .
Gross Profit . . . . . . . . . . . . . . . . . . . . . . . .
Gross Profit as a % of revenue . . . . . . . .
Cost of Revenue per Test . . . . . . . . . . . . .
Gross Profit per Test
. . . . . . . . . . . . . . . .
$34,730,000
$33,031,000
$1,699,000
52.2%
55.2%
$31,737,000
$26,836,000
$4,901,000
47.8%
252.92
231.12
$
$
$
$
44.8%
288.21
234.16
$
$
(35.29)
(3.04)
5.1%
(5.4)%
18.3%
6.7%
(12.2)%
(1.3)%
Overall cost of revenue increased in 2013 due to the increases in our testing volumes. The decline in
cost of revenue per test for these periods was the result of several factors, including:
•
Improved productivity in our laboratory, as we experienced an increase in the amount of tests
processed per laboratory FTE (full time equivalent personnel). This was driven by improved
capacity planning and utilization along with several process improvements in the laboratory.
• We experienced a reduction in test send-outs to other laboratories as a result of our expanded
Molecular test services menu and a reduction in our contract labor due to our expanded medical
staff.
• We were able to decrease our logistics cost through internalizing certain courier routes that were
previously serviced by contract courier services.
•
Our supplies cost as a percentage of revenue declined based on efforts made to reduce price from
certain key vendors and efforts by the best practice teams to reduce any supply waste.
Our best practice teams work closely with our Information Technology team to re-design our systems
and processes to improve efficiencies. We continue to focus on improving our laboratory operations in order to
continue to drive further improvements in our cost per test.
66
Sales and Marketing
Sales and marketing expenses relate primarily to the employee related costs of our sales management,
sales representatives, sales and marketing consultants, marketing, and customer service personnel.
For the years ended
December 31.
Sales and marketing . . . . . . . . . . . . . . . . . . .
As a % of revenue . . . . . . . . . . . . . . . . . . . . .
2013
2012
Change
% Change
$8,726,000
$7,501,000
$1,225,000
16.3%
13.1%
12.5%
The approximate 16% increase in sales and marketing for the year ended December 31, 2013 as
compared to the year ended December 31, 2012 was primarily the result of increased headcount in our sales
organization and all associated costs related to those personnel and commissions increased.
General and Administrative Expenses
General and administrative expenses relate to billing, bad debts, finance, human resources, information
technology and other administrative functions. They primarily consist of employee related costs (such as salaries,
fringe benefits, and stock-based compensation expense), professional services, facilities expense, and
depreciation and administrative-related costs allocated to general and administrative expenses.
General and administrative . . . . . . . . . . .
As a % of revenue . . . . . . . . . . . . . . . . . . .
2013
2012
Change
% Change
$17,397,000
$15,843,000
$1,554,000
9.8%
26.2%
26.5%
For the years ended
December 31.
General and administrative expenses increased approximately 10%, for the year ended December 31,
2013 as compared to the year ended December 31, 2012. This increase is primarily a result of adding information
technology and billing personnel to support the increase in our testing volumes as well as health and business
insurance costs, depreciation and increases in other professional fees.
Bad debt expense, in dollars, decreased by approximately 8%, or $0.3 million to $2.8 million for the
year ended December 31, 2013 as compared to $3.1 million for the year ended December 31, 2012. Bad debt as a
percentage of revenue decreased to 4.2% for the year ended December 31, 2013 from 5.1% of revenue for the
year ended December 31, 2012. This decline was the result of changes in our payer mix, resulting in more client
billing, which historically has less bad debt than patient or insurance billing.
Research and Development Expenses
Research and development (R&D) expenses relate to cost of developing new proprietary and non-
proprietary genetic tests. R&D expenses consist of payroll for our R&D staff, supplies cost, stock compensation
expense, as well as cost related to our licensing agreement with Health Discovery Corporation, including
amortization of the licensed technology.
Research and development . . . . . . . . . . . . . . .
As a % of revenue . . . . . . . . . . . . . . . . . . . . . .
For the years ended
December 31.
2013
2012
Change
% Change
$2,440,000
$2,281,000
$159,000
7.0%
3.7%
3.8%
67
The increase in research and development expenses is primarily a result of increased stock
compensation expense. R&D expenses for the year ended December 31, 2013, included $252,000 and
$231,000 of stock based compensation expenses for non-employee options and warrants as compared to
$151,000 and $135,000 for the comparable period in 2012.
Interest and Other (Income) Expense
Interest and other income and expense primarily represents the interest expense we incur on our
borrowing arrangements, primarily comprised of interest payable on advances under our revolving credit facility
with Capital Source and interest paid on capital lease obligations offset by the interest income we earn on cash
deposits. Interest expense decreased from approximately $1.15 million in 2012 to $1.0 million in 2013, reflecting
lower borrowings, particularly related to our revolving credit facility and partially offset by an increase in capital
lease obligations as we acquired additional equipment to support our increasing volume of business.
Net Income
The following table provides the net income for each period along with the computation of basic and
diluted net income per share for the year ended December 31, 2013 and 2012 (in thousands, except per share
amounts):
Years Ended December 31,
2013
2012
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,033
$
65
Basic weighted average shares outstanding . . . . . . . . . . .
Effect of potentially dilutive securities . . . . . . . . . . . . . .
Diluted weighted average shares outstanding . . . . . . . . .
Basic net income per share . . . . . . . . . . . . . . . . . . . . . . . .
Diluted net income per share . . . . . . . . . . . . . . . . . . . . . .
48,263
4,512
52,775
$
$
0.04
0.04
45,027
3,688
48,715
$
$
0.00
0.00
Non-GAAP Measures
“Adjusted EBITDA” is defined by NeoGenomics as net income from continuing operations before
(i) interest expense, (ii) tax expense, (iii) depreciation and amortization expense, (iv) non-cash stock-based
compensation and warrant amortization expense and (v) other extraordinary or non-recurring charges, such as the
costs related to moving our California facility. NeoGenomics believes that Adjusted EBITDA provides a more
consistent measurement of operating performance and trends across reporting periods by excluding these cash
and non-cash items of expense not directly related to ongoing operations from income. Adjusted EBITDA also
assists investors in performing analysis that is consistent with financial models developed by research analysts.
Adjusted EBITDA as defined by NeoGenomics is not a measurement under GAAP and may differ
from non-GAAP measures used by other companies. There are limitations inherent in non-GAAP financial
measures such as Adjusted EBITDA because they exclude a variety of charges and credits that are required to be
included in a GAAP presentation, and do not therefore present the full measure of NeoGenomics recorded costs
against its net revenue. Accordingly, investors should consider non-GAAP results together with GAAP results in
analyzing NeoGenomics financial performance.
68
The following is a reconciliation of GAAP net income to Non-GAAP EBITDA and Adjusted EBITDA
for the years ending December 31, 2013 and 2012:
For the years ended
December 31,
2013
2012
Net income (Per GAAP) . . . . . . . . . . . . . . . . . . . . . . .
$2,033,000
$
65,000
Adjustments to Net Income:
Interest expense (income), net . . . . . . . . . . .
Amortization of intangibles . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation of property and equipment . . .
989,000
223,000
152,000
4,189,000
1,146,000
182,000
—
3,637,000
EBITDA (non-GAAP) . . . . . . . . . . . . . . . . . . . .
7,586,000
5,030,000
Further Adjustments to EBITDA:
Other non-recurring items . . . . . . . . . . . . . .
Non-cash stock-based compensation . . . . .
—
929,000
170,000
798,000
Adjusted EBITDA (non-GAAP)
. . . . . . . . . . .
$8,515,000
$5,998,000
Adjusted EBITDA as a % of revenue . . . . . . .
12.8%
10.0%
Liquidity and Capital Resources
The following table presents a summary of our cash flows provided by (used in) operating, investing
and financing activities for the years ended December 31, 2014 and 2013 as well as the period ending cash and
cash equivalents and working capital.
For the years ended December 31,
2014
2013
2012
Net cash provided by (used in):
Operating activities . . . . . . . . . . . . . . . .
Investing activities . . . . . . . . . . . . . . . . .
Financing activities . . . . . . . . . . . . . . . .
$ 9,450,000
(9,602,000)
29,007,000
$ 2,227,000
(2,011,000)
2,750,000
$ (492,000)
(3,652,000)
3,384,000
Net increase (decrease) in cash and cash
equivalents . . . . . . . . . . . . . . . . . . . . . . . .
28,855,000
2,966,000
(760,000)
Cash and cash equivalents, beginning of
period . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,834,000
1,868,000
2,628,000
Cash and cash equivalents, end of
period . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$33,689,000
$ 4,834,000
$ 1,868,000
Working Capital (1), end of period . . . . . .
$44,119,000
$13,168,000
$
823,000
(1) Defined as current assets less current liabilities.
During the year ended December 31, 2014, our operating activities provided approximately
$9.5 million of cash compared with $2.2 million of cash provided in the comparable period in 2013. This
increase in cash provided from operations was primarily the result of our profitability and an increase in accounts
payable and accrued expenses. Our Days-Sales-Outstanding (or DSO’s) fell by 18 days in 2014 as we
transitioned to a new billing system. Our accounts receivable balance has increased by $1.8 million as a result of
the Path Logic acquisition.
69
Cash used in investing activities in 2014 of $9.6 million arose from the acquisition of Path Logic and
the purchase of computer and laboratory equipment, tenant improvements, externally developed software
interfaces and internally developed software.
Cash used in investing activities in 2013 of $2.0 million arose from the purchase of computer and
laboratory equipment, tenant improvements, externally developed software interfaces and internally developed
software.
Cash used in investing activities in 2012 arose from the purchase of the intangible assets from Health
Discovery Corporation and from the purchase of computer and laboratory equipment, tenant improvements,
externally developed software interfaces and internally developed software.
Cash generated by financing activities in 2014 was the result of equity raise completed in August 2014
for $34.3 million partially offset by the pay-off on the revolving credit facility in August 2014. Cash generated
by financing activities in 2013 was the result of equity raise completed in March 2013 for $9.2 million partially
offset by pay-downs on the revolving credit facility. Cash generated by financing activities in 2012 was the result
of advances on our revolving credit facility.
On March 26, 2012, the Parent Company, NeoGenomics Laboratories (together with the Parent
Company, the “Borrower”), and CapitalSource Finance LLC (“Capital Source”) entered into a First Amendment
(the “Amendment”) to the Amended and Restated Revolving Credit and Security Agreement, dated April 26,
2010 (the “Amended and Restated Credit Agreement” or the “Credit Facility”). The Amended and Restated
Credit Agreement amended and restated the original Revolving Credit and Security Agreement dated February 1,
2008, as amended, by and among the Parent Company, Borrower and CapitalSource (the “Original Credit
Agreement”). The terms of the Amendment and the Amended and Restated Credit Agreement are substantially
similar except that the Amendment, among other things:
I.)
Increased the maximum principal amount of the revolving credit facility (the “Facility Cap”) to
$8.0 million from $5.0 million; provided, that the Borrower may request to increase the Facility
Cap twice during the term of the Amended and Restated Credit Agreement in increments of
$1.0 million to a maximum of $10,000,000;
II.) Extended the term of the Amended and Restated Credit Agreement to March 26, 2015;
III.) Revised the definition of “Minimum Termination Fee” to be:
a.
b.
c.
d.
2.5% of the Facility Cap if the Revolver Termination (as defined in the Amended and
Restated Credit Agreement) is at any time before March 26, 2013;
1.5% of the Facility Cap if the Revolver Termination is after March 26, 2013 but before
March 26, 2014;
0.5% of the Facility Cap if the Revolver Termination is on or after March 26, 2014; and
That there shall be no Minimum Termination Fee if the Revolver Termination occurs within
five (5) days of the end of the term.
IV.) Modified the definition of “Permitted Indebtedness” and “Fixed Charge Coverage Ratio”; and
V.) Amended Section 3.1 of the Amended and Restated Credit Agreement by deleting “the LIBOR
shall be not less than 2.0%” and replacing it with “the LIBOR shall be not less than 1.0%”.
We paid Capital Source a commitment fee of $80,000 in connection with the Amendment.
On July 27, 2012 the Facility Cap was increased from $8.0 million to $9.0 million.
70
On January 25, 2013 the Borrower and CapitalSource entered into a Second Amendment (the “Second
Amendment”) to the Amended and Restated Credit Agreement. The terms of the Second Amendment:
I.)
Increased the Facility Cap to $10.0 million from $9.0 million; provided, that the Borrower may
request to increase the Facility Cap twice during the term of the Amended and Restated Credit
Agreement in increments of $1.0 million to a maximum of $12,000,000 on or after January 31,
2013;
II.) Amended Annex 1 of the Credit Facility as follows:
a) Deleted Section 2 of the Annex 1 in its entirety and replaced it with the following:
2. Minimum Cash Velocity
For each Test Period, measured as of the last day of each calendar month ending on or after
December 31, 2012, Collections of Accounts of Borrowers collectively shall not be less than the
Cash Velocity Percentage of Borrowers net revenue for the Revenue Period less the bad debt
expense recognized on the income statement for such Revenue Period.
b) Added the following definition to the definitions set forth in such Annex in the appropriate
alphabetic order:
“Cash Velocity Percentage” means (a) 80% for the period beginning December 31, 2012 and ending on
March 31, 2013 and (b) 87.5% at all other times.
We paid Capital Source a commitment fee of $10,000 in connection with the Second Amendment.
On January 24, 2014 the Borrower and CapitalSource entered into a Third Amendment (the “Third
Amendment”) to the Amended and Restated Credit Agreement. The terms of the Third Amendment amended the
Annex I of the credit agreement to delete the definition of Cash Velocity Percentage in its entirety and to replace
it with the following:
Cash Velocity Percentage – shall mean (a) 80% for the period beginning December 31, 2012 and
ending on March 31, 2013, (b) 75% for the period beginning December 1, 2013 and ending on March 31, 2014
and (c) 87.5% at all other times.
We paid Capital Source a commitment fee of $5,000 in connection with the Third Amendment.
On July 8, 2014 the Borrower, Path Labs, LLC, (“New Borrower”) and CapitalSource entered into a
Joinder and Fourth Amendment (the “Fourth Amendment”) to the Amended and Restated Credit Agreement. The
Fourth Amendment added the New Borrower to the credit agreement and allowed for them to borrow under the
facility. All other terms of the credit agreement remained unchanged.
On July 8, 2014, NeoGenomics Laboratories, Inc., a Florida corporation (“Neo Labs”), a wholly-owned
subsidiary of the registrant NeoGenomics, Inc., a Nevada corporation (the “NeoGenomics”), entered into a
membership interest purchase agreement with Path Labs, LLC d/b/a Path Logic, a Delaware limited liability
company (“Path Logic”), and Path Labs Holdings, LLC, a Delaware limited liability company (“PL Holdings”),
whereby Neo Labs acquired all of the outstanding equity ownership interests in Path Logic from PL Holdings for
a purchase price of $6.0 Million less its capital lease liabilities assumed. These capital lease liabilities were
estimated to be approximately $100,000, therefore consideration was approximately $5.9 million. Neo Labs paid
the purchase price using cash on hand and borrowings on its revolving credit facility.
In August 2014, the Company completed an offering of 8,050,000 shares of registered common stock,
at a price of $4.60 per share, for gross proceeds of approximately $37.0 million. The Company received
approximately $34.3 million in net proceeds after deducting underwriting fees and offering costs and expenses of
71
approximately $2.7 million. The Company plans to use the net proceeds for working capital, capital expenditures
and for general corporate purposes including potential acquisitions.
On August 26, 2014, we repaid all outstanding amounts and terminated the facility. We paid Capital
Source termination fees of $61,000 in connection with the termination. We also wrote off unamortized debt
issuance costs of approximately $37,000.
In addition to having a positive cash flow from operations, we had approximately $33.7 million in cash
on hand as of December 31, 2014. As such, we believe we have adequate resources to meet our operating
commitments for the year ending December 31, 2015.
Related Party Transactions
During 2014, 2013 and 2012, Steven Jones, a director of the Company, earned approximately
$257,500, $254,500 and $207,500, respectively, for various consulting work performed in connection with his
duties as Executive Vice President of Finance. Mr. Jones is Chairman of the Compliance Committee. Mr. Jones
also earned $177,500, $72,500 and $80,000 in corporate bonuses related to his consulting work in 2014, 2013
and 2012.
Contractual Obligations
The following table summarizes our significant contractual obligations as of December 31, 2014
(in thousands):
FY 2015 ($)
FY 2016 ($)
FY 2017 ($)
FY 2018 ($)
Thereafter ($) Total ($)
FY 2019 &
Purchase obligations . . . . . . . . . . . . . . .
Capital Lease obligations . . . . . . . . . . .
Operating Leases . . . . . . . . . . . . . . . . .
301
3,784
1,282
301
3,191
928
301
1,601
483
293
518
—
191
29
—
1,387
9,123
2,693
Capital Expenditures
We currently forecast capital expenditures 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 estimate that
we will need to purchase approximately $7.5 million to $8.5 million of additional capital equipment during the
next year. We plan to fund these expenditures with capital lease financing arrangements and cash. 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.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards
Update (“ASU”) 2014-09, Revenues from Contracts with Customers. The update calls for a number of revisions
in the revenue recognition rules. The update is effective for annual reporting periods beginning after
December 15, 2016, including interim periods within that reporting period. Early application is not permitted.
Entities may use a full retrospective approach or report the cumulative effect as of the date of adoption. The
Company is currently reviewing this update and has not yet determined the effect this may have on our
consolidated financial statements.
Off-Balance Sheet Arrangements
None
72
Effects of Inflation
We do not believe that inflation has had a material impact on our business, revenues, or operating
results during the periods presented.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We do not invest in or trade instruments which are sensitive to market risk. We also do not have any
material foreign operations or foreign sales so we have no exposure to foreign currency exchange rate risk.
73
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm – Crowe Horwath LLP . . . . . . . . . . . . . . . . . . . .
Report of Independent Registered Public Accounting Firm – Kingery and Crouse P.A.
. . . . . . . . . . . . . . . .
Consolidated Balance Sheets as of December 31, 2014 and 2013.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Operations for the years ended December 31, 2014, 2013 and 2012. . . . . . . . . .
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2014, 2013 and
2012.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows for the years ended December 31, 2014, 2013 and 2012.
. . . . . . . .
Notes to Consolidated Financial Statements.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Page
75
76
77
78
79
80
81
74
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders NeoGenomics, Inc. Fort Myers, Florida
We have audited the accompanying consolidated balance sheet of NeoGenomics, Inc. and subsidiaries
(“NeoGenomics”) as of December 31, 2014, and the related consolidated statements of operations, stockholders’
equity, and cash flows for the year then ended. We also have audited NeoGenomics’ internal control over
financial reporting as of December 31, 2014, based on criteria established in the 2013 Internal Control –
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). NeoGenomics’ management is responsible for these consolidated financial statements, for maintaining
effective internal control over financial reporting, and for its assessment of the effectiveness of internal control
over financial reporting, included in the accompanying “Management’s Report on Internal Control Over
Financial Reporting”. Our responsibility is to express an opinion on these consolidated financial statements and
an opinion on the Company’s internal control over financial reporting based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audits to obtain reasonable assurance
about whether the consolidated financial statements are free of material misstatement and whether effective
internal control over financial reporting was maintained in all material respects. Our audit of the consolidated
financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements, assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. Our audit of internal control over
financial reporting included obtaining an understanding of internal control over financial reporting, assessing
the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audits also included performing such other procedures as we
considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our
opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes
in accordance with generally accepted accounting principles. A company’s internal control over financial
reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of
the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
As permitted, NeoGenomics has excluded the operations of Path Labs LLC acquired during 2014, which is
described in Note D of the consolidated financial statements, from the scope of management’s report on internal
control over financial reporting. As such, it has also been excluded from the scope of our audit of internal
control over financial reporting.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of NeoGenomics as of December 31, 2014, and the results of its operations and its cash flows
for the year then ended in conformity with accounting principles generally accepted in the United States of
America. Also in our opinion, NeoGenomics maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2014, based on criteria established in the 2013 Internal Control –
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
/s/ Crowe Horwath LLP
Tampa, Florida
March 3, 2015
75
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of NeoGenomics, Inc.:
We have audited the accompanying consolidated balance sheet of NeoGenomics, Inc. and its subsidiaries (the
“Company”) as of December 31, 2013, and the related consolidated statements of operations, stockholders’
equity, and cash flows for the years ended December 31, 2013 and 2012. These financial statements are the
responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audits to obtain reasonable assurance
about whether the financial statements are free of material misstatement. 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 consolidated financial statements referred to above present fairly, in all material respects, the
consolidated financial position of NeoGenomics, Inc. and its subsidiaries as of December 31, 2013, and the
consolidated results of their operations and their cash flows for the years ended December 31, 2013 and 2012, in
conformity with accounting principles generally accepted in the United States of America.
/s/ Kingery & Crouse P.A.
Certified Public Accountants
Tampa, FL
February 24, 2014
76
NEOGENOMICS, INC.
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2014 and 2013
In thousands, except share amounts
2014
2013
ASSETS
CURRENT ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income tax asset, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 33,689
20,475
2,616
821
1,141
$ 4,834
18,653
2,301
588
1,115
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
58,742
27,491
PROPERTY AND EQUIPMENT, NET . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15,082
INTANGIBLE ASSETS, NET . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
GOODWILL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,212
2,929
141
9,694
2,577
—
154
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 81,106
$ 39,916
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term portion of equipment capital lease obligations . . . . . . . . . . . . . . . . . . . . . .
Revolving credit line . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 6,294
3,897
1,208
3,224
—
$ 4,177
2,337
741
2,786
4,282
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14,623
14,323
LONG TERM LIABILITIES
Long-term portion of equipment capital lease obligations . . . . . . . . . . . . . . . . . . . . . . .
Deferred income tax liability, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total long term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,257
821
6,078
3,294
588
3,882
TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
20,701
18,205
COMMITMENTS AND CONTINGENCIES (SEE NOTE I)
STOCKHOLDERS’ EQUITY
Common stock, $.001 par value, (100,000,000 shares authorized; 60,242,818 and
49,118,373 shares issued and outstanding, respectively) . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
60
79,751
(19,406)
49
42,200
(20,538)
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
60,405
21,711
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY . . . . . . . . . . . . . . . . . . . . .
$ 81,106
$ 39,916
See notes to consolidated financial statements.
77
NEOGENOMICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2014, 2013 AND 2012
In thousands, except per share amounts
2014
2013
2012
NET REVENUE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$87,069
$66,467
$59,867
COST OF REVENUE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
46,355
34,730
33,031
GROSS MARGIN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
40,714
31,737
26,836
OPERATING EXPENSES
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales and marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
23,808
2,689
11,999
17,397
2,440
8,726
15,843
2,281
7,501
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
38,496
28,563
25,625
INCOME FROM OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,218
3,174
1,211
INTEREST AND OTHER EXPENSE – NET . . . . . . . . . . . . . . . . . . . . . . . . . . .
929
989
1,146
INCOME BEFORE TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,289
2,185
INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
157
152
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,132
$ 2,033
NET INCOME PER SHARE – Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
0.02
$
0.04
65
—
65
0.00
$
$
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING –
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
53,483
48,263
45,027
NET INCOME PER SHARE – Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
0.02
$
0.04
$
0.00
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING –
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
56,016
52,775
48,715
See notes to consolidated financial statements.
78
NEOGENOMICS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2014, 2013 AND 2012
In thousands, except share amounts
Balances, December 31, 2011 . . . . . . . . . . . . . . . . . . .
Common stock issuance ESPP plan . . . . . . . . . . . . . . .
Stock issuance fees and expenses . . . . . . . . . . . . . . . . .
Issuance of stock for stock options . . . . . . . . . . . . . . .
Issuance of stock for warrants . . . . . . . . . . . . . . . . . . .
Issuance of common stock for intangibles . . . . . . . . . .
Stock compensation expense – warrants . . . . . . . . . . .
Stock compensation expense – options and restricted
stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common Stock
Shares
Amount
43,416,200
$ 43
—
56,805 —
—
197,209 —
250,066 —
1,360,000
—
—
—
2
—
—
—
Additional
Paid-In
Capital
$ 28,490
89
(38)
198
262
1,943
153
645
—
Accumulated
Deficit
$(22,636)
—
—
—
—
—
—
—
65
Total
$ 5,897
89
(38)
198
262
1,945
153
645
65
Balances, December 31, 2012 . . . . . . . . . . . . . . . . . . .
45,280,280
$ 45
$ 31,742
$(22,571)
$ 9,216
Common stock issuance ESPP plan . . . . . . . . . . . . . . .
Stock issuance fees and expenses . . . . . . . . . . . . . . . . .
Issuance of stock for stock options . . . . . . . . . . . . . . .
Issuance of common stock for cash . . . . . . . . . . . . . . .
Stock compensation expense – warrants . . . . . . . . . . .
Stock compensation expense – options . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
76,595 —
—
—
438,998
3,322,500
—
—
—
1
3
—
—
—
230
(1,037)
371
9,965
263
666
—
—
—
—
—
—
—
2,033
230
(1,037)
372
9,968
263
666
2,033
Balances, December 31, 2013 . . . . . . . . . . . . . . . . . . .
49,118,373
$ 49
$ 42,200
$(20,538)
$21,711
Common stock issuance ESPP plan . . . . . . . . . . . . . . .
Stock issuance fees and expenses . . . . . . . . . . . . . . . . .
Issuance of stock for warrants . . . . . . . . . . . . . . . . . . .
Issuance of restricted stock . . . . . . . . . . . . . . . . . . . . .
Issuance of stock for stock options . . . . . . . . . . . . . . .
Issuance of common stock for cash . . . . . . . . . . . . . . .
Stock compensation expense – warrants . . . . . . . . . . .
Stock compensation expense – options and restricted
stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1
2
8
90,285 —
—
—
458,333
138,500 —
2,387,327
8,050,000
—
—
—
—
—
—
353
(2,776)
455
—
1,805
37,022
51
—
—
—
—
—
—
—
353
(2,776)
456
—
1,807
37,030
51
641
—
—
1,132
641
1,132
Balances, December 31, 2014 . . . . . . . . . . . . . . . . . . .
60,242,818
$ 60
$ 79,751
$(19,406)
$60,405
See notes to consolidated financial statements.
79
NEOGENOMICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2014, 2013 AND 2012
In thousands
2014
2013
2012
CASH FLOWS FROM OPERATING ACTIVITIES
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income to net cash provided by operating
$ 1,132
$ 2,033 $
65
activities:
Depreciation and amortization of property and equipment . . . . . . . . . . . .
Amortization of intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of debt issue costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock based compensation – options and restricted stock . . . . . . . . . . . . .
Stock based compensation – warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for bad debts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,345
295
66
641
51
2,437
4,189
223
49
666
263
2,797
Changes in assets and liabilities, net:
(Increase) in accounts receivable, net of write-offs . . . . . . . . . . . . . . . . . .
(Increase) in inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Decrease (increase) in other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Increase) decrease in other current assets . . . . . . . . . . . . . . . . . . . . . . . .
Increase in accounts payable and other liabilities . . . . . . . . . . . . . . . . . . .
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES . . . . . . .
(2,770)
(229)
41
(25)
2,466
(7,416)
(442)
(71)
(932)
868
9,450
2,227
3,636
182
38
645
153
3,053
(9,192)
(657)
46
96
1,443
(492)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition, net of cash acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NET CASH USED IN INVESTING ACTIVITIES . . . . . . . . . . . . . . . . . . . . . . .
—
(5,830)
(3,772)
—
—
(2,011)
(1,037)
—
(2,615)
(9,602)
(2,011)
(3,652)
CASH FLOWS FROM FINANCING ACTIVITIES
(Repayments to) advances from revolving credit facility . . . . . . . . . . . . . . . . .
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayment of capital lease obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of common stock for the exercise of options, warrants and ESPP
(4,282)
—
(3,581)
(4,177)
—
(2,606)
4,560
500
(2,187)
shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of common stock for cash , net of transaction expenses . . . . . . . . . . .
NET CASH PROVIDED BY FINANCING ACTIVITIES . . . . . . . . . . . . . . . . .
2,616
34,254
29,007
NET CHANGE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . . . . .
28,855
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR . . . . . . . . . . . .
4,834
515
9,018
2,750
2,966
1,868
511
—
3,384
(760)
2,628
CASH AND CASH EQUIVALENTS, END OF YEAR . . . . . . . . . . . . . . . . . . . .
$33,689
$ 4,834
$ 1,868
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
981
177
$
$
945
$ 1,108
17
$ —
Equipment leased under capital lease obligations . . . . . . . . . . . . . . . . . . . . . . .
$ 5,884
$ 3,377 $ 2,782
Common stock issued for intangible asset purchase . . . . . . . . . . . . . . . . . . . . .
$ — $ — $ 1,945
See notes to consolidated financial statements.
80
NEOGENOMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014, 2013 and 2012
NOTE A – NATURE OF BUSINESS AND BASIS OF PRESENTATION
NeoGenomics, Inc., a Nevada corporation (the “Parent” or the “Parent Company”), and its subsidiaries,
NeoGenomics Laboratories, Inc., a Florida corporation (“NEO”, “NeoGenomics Laboratories”) and Path Labs
LLC., a Delaware Limited Liability Corporation (“Path Logic”) (collectively referred to as “we”, “us”, “our”,
“NeoGenomics”, or the “Company”), operates as a certified “high complexity” clinical laboratory in accordance
with the federal government’s Clinical Laboratory Improvement Act, as amended (“CLIA”), and is dedicated to
the delivery of clinical diagnostic services to pathologists, oncologists, urologists, hospitals, and other
laboratories throughout the United States.
The accompanying consolidated financial statements include the accounts of the Parent and the Subsidiaries. All
significant intercompany accounts and balances have been eliminated in consolidation.
We have one reportable operating segment that delivers testing services to hospitals, pathologists, oncologists,
other clinicians and researchers and represents 100% of the Company’s consolidated assets, net revenues and net
income for each of the three years ended December 31, 2014. Also, at December 31, 2014, all of our services
were provided within the United States and all of our assets were located in the United States.
NOTE B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The Company prepares its consolidated financial statements in conformity with accounting principles generally
accepted in the United States of America. These principles require management to make estimates, judgments
and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, together with
amounts disclosed in the related notes to the consolidated financial statements. Actual results and outcomes may
differ from management’s estimates, judgments and assumptions. Significant estimates, judgments and
assumptions used in these consolidated financial statements include, but are not limited to, those related to
revenues, accounts receivable and related allowances, contingencies, useful lives and recovery of long-term
assets and intangible assets, income taxes and valuation allowances, stock-based compensation and impairment
analysis of goodwill. These estimates, judgments, and assumptions are reviewed periodically and the effects of
material revisions in estimates are reflected in the consolidated financial statements prospectively from the date
of the change in estimate.
Revenue Recognition
The Company recognizes revenues when (a) the price is fixed or determinable, (b) persuasive evidence of an
arrangement exists, (c) the service is performed and (d) collectability of the resulting receivable is reasonably
assured.
The Company’s specialized diagnostic services are performed based on a written test requisition form or
electronic equivalent and revenues are recognized once the diagnostic services have been performed, and the
results have been delivered to the ordering physician. These diagnostic services are billed to various payers,
including Medicare, commercial insurance companies, other directly billed healthcare institutions such as
hospitals and clinics, and individuals. The Company reports revenues from contracted payers, including
Medicare, certain insurance companies and certain healthcare institutions, based on the contractual rate, or in the
case of Medicare, published fee schedules. The Company reports revenues from non-contracted payers, including
certain insurance companies and individuals, based on the amount expected to be collected. The difference
81
NEOGENOMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014, 2013 and 2012
between the amount billed and the amount estimated to be collected from non-contracted payers is recorded as a
contractual allowance to arrive at the reported net revenues. The expected revenues from non-contracted payers
are based on the historical collection experience of each payer or payer group, as appropriate. The Company
records revenues from patient pay tests net of a large discount and as a result recognizes minimal revenue on
those tests. The Company regularly reviews its historical collection experience for non-contracted payers and
adjusts its expected revenues for current and subsequent periods accordingly.
The table below shows the adjustments made to gross service revenue to arrive at net revenues, the amount
reported on our statement of operations (in thousands):
Gross Service Revenues . . . . . . . . . . . . . . . . . . . . . .
Total Contractual Adjustments and Discounts . . . . .
$ 224,460
(137,391)
$ 173,784
(107,317)
$157,591
(97,724)
Net Service Revenues . . . . . . . . . . . . . . . . . . . . . . . .
$ 87,069
$ 66,467
$ 59,867
For the Years Ended December 31,
2014
2013
2012
Cost of Revenue
Cost of revenue includes payroll and payroll related costs for performing tests, depreciation of laboratory
equipment, rent for laboratory facilities, laboratory reagents, probes and supplies, and delivery and courier costs
relating to the transportation of specimens to be tested.
Shipping Costs
The Company has a significant expense related to shipping specimens to our facility for testing and this cost is
for contract couriers, commercial airline flights and charges from Federal Express to ship specimens to our
facility. We had approximately $3.0 million, $2.9 million and $3.1 million in shipping expense for the years
ended December 31, 2014, 2013 and 2012, respectively, and these costs were included in our cost of revenue.
Advertising Costs
Advertising costs are expensed at the time they were incurred and are not material for the years ended
December 31, 2014, 2013 and 2012.
Research and Development
Research and development (“R&D”) costs are expensed as incurred. R&D expenses consist of cash and equity
compensation and benefits for R&D personnel, amortization of intangibles, supplies, inventory and payment for
samples to complete validation studies. These expenses were incurred to develop new genetic tests.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are comprised of amounts due from sales of the Company’s specialized diagnostic services
and are recorded at the invoiced amount, net of discounts and contractual allowances. The allowance for doubtful
accounts is estimated based on the aging of accounts receivable with each payer category and the historical data
on bad debts in these aging categories. In addition, the allowance is adjusted periodically for other relevant
factors, including regularly assessing the state of our billing operations in order to identify issues which may
82
NEOGENOMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014, 2013 and 2012
impact the collectability of receivables or allowance estimates. Revisions to the allowance are recorded as an
adjustment to bad debt expense within general and administrative expenses. After appropriate collection efforts
have been exhausted, specific receivables deemed to be uncollectible are charged against the allowance in the
period they are deemed uncollectible. Recoveries of receivables previously written-off are recorded as credits to
the allowance. Our estimates of net revenue are subject to change based on the contractual status and payment
policies of the third party payers with whom we deal. We regularly refine our estimates in order to make our
estimated revenue as accurate as possible based on our most recent collection experience with each third party
payer.
Changes in the allowance for doubtful accounts are as follows (in thousands):
Beginning balance – Allowance for Doubtful Accounts . . .
Provision for doubtful accounts . . . . . . . . . . . . . . . . . . . . . .
Write-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 4,540
2,437
(2,797)
$ 3,002
2,797
(1,259)
$ 2,150
3,053
(2,201)
Ending balance – Allowance for Doubtful Accounts . . . . .
$ 4,180
$ 4,540
$ 3,002
Years Ended December 31,
2014
2013
2012
Statements of Cash Flows
For purposes of the consolidated statements of cash flows, we consider all highly liquid investments purchased
with an original maturity of three months or less to be cash equivalents.
Fair Value of Financial Instruments and Concentrations of Credit Risk
The carrying value of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and
other liabilities, and other current assets and liabilities are considered reasonable estimates of their respective fair
values due to their short-term nature. The Company maintains its cash and cash equivalents with domestic
financial institutions that the Company believes to be of high credit standing. The Company believes that, as of
December 31, 2014, its concentration of credit risk related to cash and cash equivalents was not significant. The
carrying value of the Company’s long-term capital lease obligations approximates its fair value based on the
current market conditions for similar instruments.
Concentrations of credit risk with respect to revenue and accounts receivable are primarily limited to certain
clients and geographies to which the Company provides a significant volume of its services, and to specific
payers of our services such as Medicare and individual insurance companies. The Company’s client base consists
of a large number of geographically dispersed clients diversified across various customer types. For the years
ended December 31, 2014, 2013 and 2012, a large oncology practice with multiple locations accounted for
10.1%, 15.8% and 14.9%, respectively, of total revenue. All other clients were less than 5% of total revenue
individually. For the years ended December 31, 2014, 2013 and 2012, revenue derived from the State of Florida
accounted for 25.8%, 30.6% and 33.6%, respectively, of total revenue.
Inventories
Inventories, which consist principally of testing supplies, are valued at the lower of cost or market, using the
first-in, first-out method (FIFO).
83
NEOGENOMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014, 2013 and 2012
Other Current Assets
As of December 31, 2014 and 2013, other current assets consist primarily of prepaid expenses.
Property and Equipment
Property and equipment are recorded at cost, net of accumulated depreciation and amortization. Property and
equipment generally includes purchases of items with a cost greater than $1,000 and a useful life greater than one
year. Depreciation and amortization are computed on the straight line basis over the estimated useful lives of the
assets. Leasehold improvements and property and equipment under capital leases are amortized over the shorter
of the related lease terms or their estimated useful lives. Costs incurred in connection with the development of
internal-use software are capitalized in accordance with the accounting standard for internal-use software, and
are amortized over the expected useful life of the software.
The Company periodically reviews the estimated useful lives of property and equipment. Changes to the
estimated useful lives are recorded prospectively from the date of the change. Upon retirement or sale, the cost of
the assets disposed of and the related accumulated depreciation are removed from the accounts and any resulting
gain or loss is included in income (loss) from operations. Repairs and maintenance costs are expensed as
incurred.
Intangible Assets
Intangible assets with finite useful lives are recorded at fair value or cost, less accumulated amortization. We
have four classes of intangible assets and each class of intangible assets is amortized over its estimated service
period from service date for thirteen years or through the weighted average patent expiration date of each class of
patents or the period of economic benefit using the straight-line method. We periodically review the estimated
pattern in which the economic benefits will be consumed and adjust the amortization period and pattern to match
our estimate. The Company’s intangible assets are related to the customer relationships acquired through the
acquisition of Path Labs, LLC and to our license agreement with Health Discovery Corporation.
Goodwill
The Company evaluates goodwill on an annual basis in the fourth quarter or more frequently if management
believes indicators of impairment exist. Such indicators could include, but are not limited to (1) a significant
adverse change in legal factors or in business climate, (2) unanticipated competition, or (3) an adverse action or
assessment by a regulator. The Company first assesses qualitative factors to determine whether it is more likely
than not that the fair value of a reporting unit is less than its carrying amount, including goodwill. If management
concludes that it is more likely than not that the fair value of a reporting unit is less than its carrying amount,
management conducts a two-step quantitative goodwill impairment test. The first step of the impairment test
involves comparing the fair value of the applicable reporting unit with its carrying value. The Company estimates
the fair values of its reporting units using a combination of the income, or discounted cash flows, approach and
the market approach, which utilizes comparable companies’ data. If the carrying amount of a reporting unit
exceeds the reporting unit’s fair value, management performs the second step of the goodwill impairment test.
The second step of the goodwill impairment test involves comparing the implied fair value of the affected
reporting unit’s goodwill with the carrying value of that goodwill. The amount, by which the carrying value of
the goodwill exceeds its implied fair value, if any, is recognized as an impairment loss. The Company’s
evaluation of goodwill completed during the year resulted in no impairment losses.
84
NEOGENOMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014, 2013 and 2012
Recoverability and Impairment of Long-Lived Assets
The Company reviews the recoverability of its long-lived assets (property and equipment, and intangible assets)
if events or changes in circumstances indicate the assets may be impaired. Evaluation of possible impairment is
based on the Company’s ability to recover the asset from the expected future pretax cash flows (undiscounted
and without interest charges) of the related operations. If the expected undiscounted pretax cash flows are less
than the carrying amount of such asset, an impairment loss is recognized for the difference between the estimated
fair value and carrying amount of the asset. No impairment loss was recognized in the years ended December 31,
2014, 2013 and 2012. We believe the carrying values of our long-lived assets are recoverable at December 31,
2014.
Income Taxes
We compute income taxes in accordance with ASC Topic 740, Income Taxes. Under ASC Topic 740, 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 and lives for property and equipment and recognition of
bad debts and various other expenses that have been allowed for or accrued for financial statement purposes but
are not currently deductible for income tax purposes.
The provision for income taxes, including the effective tax rate and analysis of potential tax exposure items, if
any, requires significant judgment and expertise in federal and state income tax laws, regulations and strategies,
including the determination of deferred tax assets and liabilities and any estimated valuation allowances deemed
necessary to recognize deferred tax assets at an amount that is more likely than not to be realized. We evaluate
quarterly tax positions that have been taken or are expected to be taken in our tax returns, and record a liability
for uncertain tax positions, if deemed necessary. We follow a two-step approach to recognizing and measuring
uncertain tax positions. First, tax positions are recognized if the weight of available evidence indicates that it is
more likely than not that the position will be sustained upon examination, including resolution of related appeals
or litigation processes, if any. Second, the tax position is measured as the largest amount of tax benefit that has a
greater than 50% likelihood of being realized upon settlement. We recognize interest and penalties related to
unrecognized tax benefits in the provision for income taxes in the accompanying consolidated financial
statements. During the years ended December 31, 2014, 2013 and 2012, we do not believe we had any significant
uncertain tax positions nor did we have any provision for interest or penalties related to such positions.
Stock-Based Compensation
We account for option and stock awards under the Amended Plan in accordance with ASC Topic 718,
Compensation – Stock Compensation, which requires the measurement and recognition of compensation expense
in the Company’s consolidated statements of operations for all share-based option and stock awards, based on
estimated grant-date fair values.
ASC Topic 718 requires us to estimate the fair value of stock-based option awards on the date of grant using an
option-pricing model. The grant-date fair value of the award is recognized as expense over the requisite service
period using the straight-line method. In accordance with ASC Topic 718, the estimated stock-based
compensation expense to be recognized is reduced by stock option forfeitures.
85
NEOGENOMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014, 2013 and 2012
We estimate the grant-date fair value of stock-based option awards using a trinomial lattice model. This model is
affected by our stock price on the date of the grant as well as assumptions regarding a number of highly complex
and subjective variables. These variables include the expected term of the option, expected risk-free rates of
return, the expected volatility of our common stock, and expected dividend yield, each of which is more fully
described below. The assumptions for expected term and expected volatility are the two assumptions that
significantly affect the grant date fair value.
Expected Term: The expected term of an option is the period of time that the option is expected to be
outstanding. The average expected term is determined using a trinomial lattice simulation model.
Risk-free Interest Rate: We base the risk-free interest rate used in the trinomial lattice valuation method on the
implied yield at the grant date of the U.S. Treasury zero-coupon issue with an equivalent term to the stock-based
award being valued. Where the expected term of a stock-based award does not correspond with the term for
which a zero coupon interest rate is quoted, we use the nearest interest rate from the available maturities.
Expected Stock Price Volatility: We use our own historical weekly volatility because that is more reflective of
market conditions.
Dividend Yield: Because we have never paid a dividend and do not expect to begin doing so in the foreseeable
future, we have assumed a 0% dividend yield in valuing our stock-based awards.
Tax Effects of Stock-Based Compensation
We will only recognize a tax benefit from windfall tax deductions for stock-based awards in additional paid-in
capital if an incremental tax benefit is realized after all other tax attributes currently available have been utilized.
Net Income Per Common Share
Basic net income per share is computed using the weighted average number of common shares outstanding
during the applicable period. Diluted net income per share is computed using the weighted average number of
common shares outstanding during the applicable period, plus the dilutive effect of potential common stock.
Potential common stock consists of shares issuable pursuant to stock options and warrants. Calculations of net
income per share are done using the treasury stock method.
Recent Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update
(“ASU”) 2014-09, Revenues from Contracts with Customers. The update calls for a number of revisions in the
revenue recognition rules. The update is effective for annual reporting periods beginning after December 15,
2016, including interim periods within that reporting period. Early application is not permitted. Entities may use
a full retrospective approach or report the cumulative effect as of the date of adoption. The Company is currently
reviewing this update and has not yet determined the effect this may have on our consolidated financial
statements.
86
NEOGENOMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014, 2013 and 2012
NOTE C – PROPERTY AND EQUIPMENT, NET
Property and equipment consisted of the following at December 31, 2014 and 2013 (in thousands):
Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . .
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . .
Computer hardware . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Computer software . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assets not yet placed in service . . . . . . . . . . . . . . . . . . .
2014
2013
$ 19,604
3,541
1,982
4,249
5,033
495
$ 13,848
2,258
1,087
2,680
3,265
1,034
Estimated
Useful
Lives in
Years
3-7
2-5
7
3
2-3
—
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less accumulated depreciation and amortization . . . . . .
34,904
(19,822)
24,172
(14,478)
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . .
$ 15,082
$ 9,694
Depreciation and amortization expense on property and equipment, including leased assets in each period was as
follows (in thousands):
For the years ended December 31,
2014
2013
2012
Depreciation and amortization expense . . . . . . . . . . . . . . . . . .
$5,345
$4,189
$3,636
In our consolidated statements of operations, we recorded approximately $3,516, $2,985 and $2,800 of
depreciation and amortization in cost of revenue for the years ended December 31, 2014, 2013 and 2012,
respectively, and we recorded $1,829, $1,204 and $836 of depreciation and amortization in general and
administrative expenses for the years ended December 31, 2014, 2013 and 2012, respectively.
Property and equipment under capital leases, included above, consists of the following at December 31, 2014 and
2013 (in thousands):
2014
2013
Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Computer hardware . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Computer software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasehold Improvements . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 8,729
1,250
2,454
523
44
$ 7,885
575
1,607
306
134
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less accumulated depreciation and amortization . . . . . . . . .
13,000
(4,959)
10,507
(5,038)
Property and equipment under capital leases, net . . . . . . . . .
$ 8,041
$ 5,469
NOTE D – ACQUISITIONS
On July 8, 2014, the Company entered into a membership interest purchase agreement with Path Labs, LLC d/b/a
Path Logic, a Delaware limited liability company (“Path Logic”), and Path Labs Holdings, LLC, a Delaware
87
NEOGENOMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014, 2013 and 2012
limited liability company (“PL Holdings”), whereby the Company acquired all of the outstanding equity
ownership interests in Path Logic from PL Holdings for a purchase price (in thousands) of $5,908. NeoGenomics
Laboratories paid the purchase price using cash on hand and borrowings on its revolving credit facility.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the
acquisition date of July 8, 2014 (in thousands):
Current assets, including cash and cash
equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment . . . . . . . . . . . . . . . .
Identifiable intangible assets – customer
relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long term deposits . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets acquired . . . . . . . . . . . . . . . . . . . . . . .
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . .
July 8, 2014
(As Initially
Reported)
Measurement
Period
Adjustments
July 8, 2014
(As Adjusted)
$ 1,881
804
$(159)
(227)
$ 1,722
577
1,860
—
2,561
7,106
(1,185)
(13)
70
28
368
80
5
(85)
1,930
28
2,929
7,186
(1,180)
(98)
Net assets acquired . . . . . . . . . . . . . . . . . . . . . . . . .
$ 5,908
$ —
$ 5,908
The above estimated fair values of assets acquired and liabilities assumed are based on the information that was
available as of the acquisition date to estimate the fair value of assets acquired and liabilities assumed. As of
December 31, 2014, the Company’s measurement period adjustments are complete.
Acquired intangible assets of $1.93 million consist of customer relationships which are being amortized over
thirteen years. We recorded approximately $71,000 of amortization expense in the year ended December 31,
2014.
The estimated amortization expense related to the acquired intangible assets for each of the five succeeding fiscal
years and thereafter as of December 31, 2014 is as follows (in thousands):
Years Ending December 31,
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 148
148
148
148
148
1,119
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,859
The goodwill arising from the acquisition of Path Logic includes revenue synergies as a result of our existing
customers and Path Logic’s customers having access to each other’s testing menus and capabilities. It also arises
from the new product lines which Path Logic adds to the Company’s product portfolio. The total amount of
goodwill which is expected to be deductible for tax purposes is approximately $3.7 million, which will be
amortized on our tax returns over 15 years.
88
NEOGENOMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014, 2013 and 2012
We incurred approximately $361,000 of due diligence and transaction related expenses for the acquisition of Path
Logic during the year ended December 31, 2014. These costs included pre-acquisition due diligence costs and
transaction related expenses. These costs were included in general and administrative expenses in our
consolidated statements of operations for the year ended December 31, 2014.
The following unaudited pro forma information (in thousands) have been provided for illustrative purposes only
and are not necessarily indicative of results that would have occurred had the Acquisition been in effect since
January 1, 2013, nor are they necessarily indicative of future results.
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings (loss) per share
Years Ended December 31,
(unaudited)
2014
2013
$91,993
549
$
$76,305
$ (3,340)
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
0.01
0.01
$ (0.07)
$ (0.07)
The unaudited pro forma consolidated results during the years ended December 31, 2014 and 2013 have been
prepared by adjusting our historical results to include the Acquisition as if it occurred on January 1, 2013. These
unaudited pro forma consolidated historical results were then adjusted for the following:
•
•
•
•
•
•
adjustments to reflect the impact of $361,000 of transaction costs related to the 2014 acquisition of
Path Logic as of January 1, 2013,
a net reduction in amortization expense during the years ended December 31, 2014 and 2013 due to
decreased intangible assets recorded related to the acquisition,
a net reduction in interest expense during the years ended December 31, 2014 and 2013 as we did not
acquire the existing debt from the acquisition offset by our interest expense on net borrowings under
capital leases and notes payable,
a net reduction in depreciation expense during the years ended December 31, 2014 and 2013 due to
decreased fixed asset values recorded related to the acquisition,
a net reduction in general and administrative expenses for the years ended December 31, 2014 and
2013 to remove the management fees from the private equity company and the Chief Executive
Officer’s salary from the results,
a net reduction to adjust for the tax effect of the losses that were acquired which is based on an estimate
of the state income taxes and federal alternate minimum tax which would not be required.
As noted above, the unaudited pro forma results of operations do not purport to be indicative of the actual results
that would have been achieved by the combined company for the periods presented or that may be achieved by
the combined company in the future.
NOTE E – INTANGIBLE ASSETS
As a result of the acquisition of Path Logic in July 2014 (See Note D), we recorded $1.93 million of customer
relationships as an intangible asset and we are amortizing these customer relationships over a thirteen year
period.
89
NEOGENOMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014, 2013 and 2012
On January 6, 2012, we entered into a Master License Agreement (the “License Agreement”) with Health
Discovery Corporation, a Georgia corporation (“HDC”). We were granted an exclusive worldwide license to
certain of HDC’s “Licensed Patents” and “Licensed Know-How” (as defined in the License Agreement) to,
among other things, use, develop, make, have made, sell, offer to sell, modify, and commercially exploit
“Licensed Uses” (as defined in the License Agreement) and “Licensed Products” (as defined in the License
Agreement), in the fields of laboratory testing, molecular diagnostics, clinical pathology, anatomic pathology and
digital image analysis (excluding non-pathology-related radiologic and photographic image analysis) relating to
the development, marketing production or sale of any “Laboratory Developed Tests” or LDTs (as defined in the
License Agreement) or other products used for diagnosing, ruling out, predicting a response to treatment, and/or
monitoring treatment of any or all hematopoietic and solid tumor cancers excluding cancers affecting the retina
and breast cancer (collectively with certain other qualifications as defined in the License Agreement, the “Field”
or “Field of Use”); provided, that the exclusion for breast cancer shall be in effect only so long as that certain
license agreement between HDC and the licensee of the technology for breast cancer applications is in full force
and effect and such licensee is not in material breach of any its obligations under that agreement.
The License Agreement allows us, among other things, to develop and sell, without limitation, any gene, gene-
product or protein-based LDTs using HDC’s technology in the Field and provides for sublicensing rights and the
assignment of the License Agreement, in whole or in part, in our sole discretion. The License Agreement further
provides us with access to certain HDC personnel and consulting resources in the fields of mathematics and in
genetic and molecular test development. The Licensed Know-How also includes, among other things, certain
tests, algorithms and computer software which have already been developed by HDC.
The License Agreement is subject to two one-year extensions per product if needed, including LDTs for prostate,
colon and pancreatic cancer and software to automate the interpretation of cytogenetics and flow cytometry
(collectively, the “Initial Licensed Products”).
If we have not generated $5.0 million of net revenue from products, services and sublicensing arrangements
pursuant to the License Agreement by January 5, 2017, HDC may, at its option, revoke the exclusivity with
respect to any one or more of the Initial Licensed Products, subject to certain conditions.
In addition, the License Agreement provides for milestone payments to HDC, in cash or stock, based on
sublicensing revenue and revenue generated from products developed as a result of the License Agreement.
Milestone payments are in increments of $500,000 for every $2,000,000 in GAAP revenue recognized by us up
to a total of $5,000,000 in potential milestone payments. After $20,000,000 in cumulative GAAP revenue has
been recognized by us, HDC will receive a royalty of (i) 6.5% (subject to adjustment under certain
circumstances) of Net Revenue (as defined in the License Agreement) generated from all Licensed Uses except
for the cytogenetics and flow cytometry interpretation system and (ii) a royalty of 50% of Net Revenue (after the
recoupment of certain development and commercialization costs) that we derive from any sublicensing
arrangements for the cytogenetics and flow cytometry interpretation system. We have not made any milestone
payments to HDC.
90
NEOGENOMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014, 2013 and 2012
Intangible assets as of December 31, 2014 and 2013 consisted of the following (in thousands):
Customer Relationships . . . . . . . . . . . . . . . . . . . . . .
Support Vector Machine (SVM) technology . . . . . .
Laboratory developed test (LDT) technology . . . . .
Flow Cytometry and Cytogenetics technology . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Support Vector Machine (SVM) technology . . . . . .
Laboratory developed test (LDT) technology . . . . .
Flow Cytometry and Cytogenetics technology . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization
Period
156 months
108 months
164 months
202 months
Amortization
Period
108 months
164 months
202 months
December 31, 2014
Accumulated
Amortization
$ 71
167
297
165
$700
December 31, 2013
Accumulated
Amortization
$112
188
105
$405
COST
$1,930
500
1,482
1,000
$4,912
COST
$ 500
1,482
1,000
$2,982
Net
$1,859
333
1,185
835
$4,212
Net
$ 388
1,294
895
$2,577
The Company recorded amortization expense of intangible assets in the consolidated statements of operations as
follows (in thousands):
For the Years Ended
December 31,
2014
2013
2012
Amortization of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
$295
$223
$182
The Company recorded amortization expense from customer relationships as a general and administrative
expense. We will continue to record the amortization of the Support Vector Machine (SVM) technology, the
Laboratory developed tests (LDT) technology and the Flow Cytometry and Cytogenetics technology intangibles
as a research and development expense until the time that we have products, services or cost savings directly
attributable to these intangible assets that would require that it be recorded in cost of goods sold.
The estimated amortization expense related to amortizable intangible assets for each of the five succeeding fiscal
years and thereafter as of December 31, 2014 is as follows (in thousands):
Years Ending December 31,
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 371
371
371
371
371
2,357
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$4,212
91
NEOGENOMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014, 2013 and 2012
NOTE F – INCOME TAXES
Significant components of the provision for income taxes for the years ended December 31, 2014 and 2013 is as
follows (in thousands):
Current:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Current Provision . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014
2013
$113
44
$157
$ 93
59
$152
We recorded no provision for income taxes for the year ended December 31, 2012.
A reconciliation of the differences between the effective tax rate and the federal statutory tax rate for the years
ended December 31, 2014 and 2013 is as follows:
Federal Statutory Tax Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State Income Taxes, net of Federal Income Tax Benefit . . . . . .
Non-deductible expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-deductible stock options and warrants . . . . . . . . . . . . . . . .
Non-deductible tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prior year adjustments for stock compensation . . . . . . . . . . . . .
Other, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014
2013
34.00% 34.00%
3.37% 1.77%
5.89% 1.89%
4.00% 14.45%
8.79% — %
(27.93)% — %
— % 0.26%
(15.96)% (45.44)%
Effective Tax Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12.16% 6.93%
The prior year adjustments in the rate reconciliation for 2014 primarily relate to the recognition of deferred tax
assets for Non-qualified stock options from prior years, although such deferred tax assets would be fully reserved
by a valuation allowance.
92
NEOGENOMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014, 2013 and 2012
The valuation allowances are required to be allocated between the current and noncurrent classifications
depending on the division of deferred tax assets between current and noncurrent classifications. At December 31,
2014 and 2013, our current and non-current deferred income tax assets and liabilities consisted of the following
(in thousands):
Current deferred income tax assets:
Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . .
Accrued vacation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
AMT credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014
2013
$ 1,548
334
—
38
$ 1,741
243
93
30
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,920
2,107
Less valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1,099)
(1,519)
Total Net Current Deferred Income Tax Assets . . . . . . . . . . .
$
821
$
588
Non-Current deferred income tax assets (liabilities):
Net operating loss carry-forwards . . . . . . . . . . . . . . . . . . . . .
AMT credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonqualified stock options and warrants . . . . . . . . . . . . . . . .
Accumulated depreciation and amortization . . . . . . . . . . . . .
$ 1,336
96
560
(1,672)
$ 1,240
—
—
(933)
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
320
Less valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1,141)
Total Net Non-current Deferred Income Tax Liability . . . . .
(821)
307
(895)
(588)
Net Deferred Income Tax Asset / (Liability) . . . . . . . . . . . . .
$ —
$ —
At December 31, 2014 and 2013, the Company had federal net operating loss carry forwards of approximately
$8.2 million and $3.4 million, respectively and state net operating loss carry forwards of approximately $2.3 million
and $1.2 million, respectively. The net operating loss amount differs from the recorded deferred tax asset due to the
Company not recording the windfall benefit on the exercise of options. Assuming our net operating loss carry
forwards are not disallowed because of certain “change in control” provisions of the Internal Revenue Code, these
net operating loss carry forwards expire in various years beginning in the year ending December 31, 2028.
However, we have established a valuation allowance to fully reserve our net deferred income tax assets as such
assets did not meet the more likely than not recognition standard established by ASC Topic 740. Although we
posted pre-tax income in 2013 and 2014, due to the unsettled circumstances around reimbursement reductions in
2015, which includes further Medicare rate reductions and the fact that we believe that most commercial insurance
companies will follow Medicare’s lead and will reduce reimbursement for the effected Medicare CPT codes, we
believe that our profitability for 2015 is not reasonably assured and thus we continued to record the full valuation
allowance against our net deferred tax assets at December 31, 2014. Our valuation allowance decreased by
$174,000 and $552,000 during the years ended December 31, 2014 and 2013, respectively.
We file income tax returns in the U.S. federal jurisdiction and in various state jurisdictions. Tax regulations
within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require
significant judgment to apply. For federal and state purposes, we have open tax years from the tax years ended
December 31, 2008 to December 31, 2014. We are not currently subject to any ongoing income tax
examinations.
93
NEOGENOMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014, 2013 and 2012
We have examined our current and past tax positions taken, and have concluded that it is more likely than not
these tax positions will be sustained in the event of an examination and that there would be no material impact to
our effective tax rate. As of December 31, 2014, 2013, and 2012, we had no unrecognized tax benefits. In the
event interest or penalties will be accrued, our policy is to include these amounts related to unrecognized tax
benefits in income tax expense. As of December 31, 2014, we had no accrued interest or penalties related to
uncertain tax positions.
NOTE G – NET INCOME PER SHARE
The following table provides the computation of basic and diluted net income per share for the years ended
December 31, 2014, 2013 and 2012 (in thousands, except per share amounts):
Year Ended December 31,
2014
2013
2012
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,132
$ 2,033
$
65
Basic weighted average shares outstanding . . . . . . . . . . . .
Effect of potentially dilutive securities . . . . . . . . . . . . . . .
Diluted weighted average shares outstanding . . . . . . . . . .
Basic net income per share . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted net income per share . . . . . . . . . . . . . . . . . . . . . . .
53,483
2,533
56,016
48,263
4,512
52,775
45,027
3,688
48,715
$
$
0.02
0.02
$
$
0.04
0.04
$
$
0.00
0.00
For the year ended December 31, 2014, there were 400,000 options and no warrants excluded from the
calculation of diluted earnings per share as anti-dilutive. For the year ended December 31, 2013, there were
341,000 options and no warrants excluded from the calculation of diluted earnings per share as anti-dilutive. For
the year ended December 31, 2012, there were no outstanding options or warrants excluded from the calculation
of diluted earnings per share as anti-dilutive.
NOTE H – STOCK OPTIONS, STOCK PURCHASE PLAN AND WARRANTS
Stock Option Plan
On April 16, 2013 the Company’s Board of Directors approved the Amended and Restated Equity Incentive Plan
(the “Amended Plan”), which amended and restated the Equity Incentive Plan, originally effective as of
October 14, 2003, and previously amended and restated effective as of October 31, 2006. The Amended Plan
allows for the award of equity incentives, including stock options, stock appreciation rights, restricted stock
awards, stock bonus awards, deferred stock awards, and other stock-based awards to certain employees, directors,
or officers of, or key non-employee advisers or consultants, including contracted physicians to the Company or
its subsidiaries. The Amended Plan, which expires on March 3, 2019, provides that the maximum aggregate
number of shares of the Company’s common stock reserved and available for issuance under the Amended Plan
is 7,000,000.
As of December 31, 2014, option and stock awards for 4,012,096 shares were outstanding, including 800,000
options issued outside of the Amended Plan to Douglas VanOort, the Company’s Chairman and Chief Executive
Officer. A total of approximately 388,000 shares were available for future option and stock awards under the
Amended Plan. Options typically expire after 5 - 10 years and generally vest over 3 or 4 years, but each grant’s
expiration, vesting and exercise price provisions are determined at the time the awards are granted by the
94
NEOGENOMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014, 2013 and 2012
Compensation Committee of the Board of Directors or by the Chairman and Chief Executive Officer by virtue of
authority delegated to him by the Compensation Committee.
The fair value of each stock option award granted during the years ended December 31, 2014, 2013 and 2012
was estimated as of the grant date using a trinomial lattice model with the following weighted average
assumptions:
Expected term (in years) . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-free interest rate (%) . . . . . . . . . . . . . . . . . . . . . . . .
Expected volatility (%) . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividend yield (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average fair value/share at grant date . . . . . . .
3.0 - 4.6
2.5 – 4.5
2.5 – 4.5
1.0%
50%
0%
0.7%
46%
0%
0.6%
51%
0%
$1.50
$1.19
$0.73
2014
2013
2012
The status of our stock options and stock awards are summarized as follows:
Number
Of
Shares
Weighted
Average
Exercise
Price
Outstanding at December 31, 2011 . . . . . . . . . . . . . . . . .
4,779,170
$0.87
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canceled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,298,000
(197,209)
(102,749)
Outstanding at December 31, 2012 . . . . . . . . . . . . . . . . .
5,777,212
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canceled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
416,000
(438,998)
(28,916)
Outstanding at December 31, 2013 . . . . . . . . . . . . . . . . .
5,725,298
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canceled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
760,500
(2,387,327)
(86,375)
Outstanding at December 31, 2014 . . . . . . . . . . . . . . . . .
4,012,096
1.64
1.02
1.60
1.02
3.66
0.85
1.47
1.22
4.21
0.76
2.39
2.04
Exercisable at December 31, 2014 . . . . . . . . . . . . . . . . . .
2,379,378
$1.27
The number and weighted average grant-date fair values of options non-vested at the beginning and end of 2014,
as well as options granted, vested and forfeited during the year was as follows:
Non-vested at December 31, 2013 . . . . . . . . . . . . . . . . . .
Granted in 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested in 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited in 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of
Options
1,520,625
760,500
(565,740)
(82,667)
Non-vested at December 31, 2014 . . . . . . . . . . . . . . . . . .
1,632,718
Weighted
Average
Grant Date
Fair Value
$1.02
1.50
0.95
0.85
$1.35
95
NEOGENOMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014, 2013 and 2012
The following table summarizes information about our options outstanding at December 31, 2014:
Range of
Exercise
Prices ($)
0.00 – 0.50 . . . . . . . . . . . . . . . . . . . . . . . .
0.51 – 1.00 . . . . . . . . . . . . . . . . . . . . . . . .
1.01 – 1.50 . . . . . . . . . . . . . . . . . . . . . . . .
1.51 – 3.00 . . . . . . . . . . . . . . . . . . . . . . . .
3.01 – 4.00 . . . . . . . . . . . . . . . . . . . . . . . .
4.01 – 5.00 . . . . . . . . . . . . . . . . . . . . . . . .
5.01 – 6.00 . . . . . . . . . . . . . . . . . . . . . . . .
Options Outstanding
Options Exercisable
Weighted
Average
Remaining
Contractual
Life (Years)
Weighted
Average
Exercise
Price
1.3
1.2
1.5
2.2
3.8
4.8
4.7
2.3
$0.49
0.80
1.40
1.74
3.66
4.72
5.44
$2.04
Weighted
Average
Remaining
Contractual
Life (Years)
Weighted
Average
Exercise
Price
1.3
1.2
1.5
2.2
3.4
—
—
1.6
$0.49
0.80
1.39
1.73
3.80
—
—
$1.27
Number
Exercisable
105,000
1,007,000
671,596
499,041
96,741
—
—
2,379,378
Number
Outstanding
105,000
1,007,000
833,096
973,000
674,500
379,500
40,000
4,012,096
As of December 31, 2014, the aggregate intrinsic value of all stock options outstanding and expected to vest was
approximately $8.8 million and the aggregate intrinsic value of currently exercisable stock options was
approximately $6.9 million. The intrinsic value of each option share is the difference between the fair market
value of NeoGenomics common stock and the exercise price of such option share to the extent it is “in-the-
money”. Aggregate intrinsic value represents the value that would have been received by the holders of in-the-
money options had they exercised their options on the last trading day of the year and sold the underlying shares
at the closing stock price on such day. The intrinsic value calculation is based on the $4.17 closing stock price of
NeoGenomics Common Stock on December 31, 2014, the last trading day of 2014. The total number of in-the-
money options outstanding and exercisable as of December 31, 2014 was approximately 2,379,378.
The total intrinsic value of options exercised during the years ended December 31, 2014, 2013 and 2012 was
approximately $8,882,000, $1,200,000 and $264,000, respectively. Intrinsic value of exercised shares is the total
value of such shares on the date of exercise less the cash received from the option holder to exercise the options.
The total cash proceeds received from the exercise of stock options was approximately $1,807,000, $372,000 and
$198,000 for the years ended December 31, 2014, 2013 and 2012, respectively.
The total fair value of options granted during the years ended December 31, 2014, 2013 and 2012 was
approximately $1,139,000, $493,000 and $943,000, respectively. The total fair value of option shares vested
during the years ended December 31, 2014, 2013 and 2012 was approximately $540,000, $349,000 and
$218,000.
We recognize stock-based compensation expense over the vesting period using the straight-line method for
employees and ratably for non-employees. Stock compensation cost recognized for the years ended
December 31, 2014, 2013 and 2012 related to stock options was approximately $511,000, $666,000 and
$575,000, respectively. As of December 31, 2014, there was approximately $1,200,000 of total unrecognized
stock-based compensation cost, related to unvested stock options granted under the Amended Plan. This cost is
expected to be recognized over a weighted-average period of 1.5 years.
On October 13, 2014, Robert Shovlin, our Chief Operating Officer was granted stock options to purchase
300,000 shares of the Company’s common stock at an exercise price per share of $4.79, which was the closing
price per share on the last trading day prior to his start date. The stock options have a five year term and become
96
NEOGENOMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014, 2013 and 2012
25% vested on the first anniversary of his start date. Thereafter 6,250 options per month vest beginning with the
13th month from the grant date and ending at the 48th month from the grant date. The stock options were valued at
$502,925 based on a trinomial lattice model with the following weighted average terms:
Expected term in years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-free interest rate (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average expected volatility (%) . . . . . . . . . . . . . . . . . . .
Dividend yield (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.1
1.0%
50.7%
0%
We recorded stock compensation expense of approximately $59,873 for these options during the year ended
December 31, 2014.
On March 5, 2014, George Cardoza, our Chief Financial Officer was granted stock options to purchase 30,000
shares of the Company’s common stock at an exercise price per share of $3.45, which was the closing price per
share on the date before the grant date. The stock options have a five year term and become 33% vested on each
of the next three anniversaries of the grant date. The stock options were valued at $34,600 based on a trinomial
lattice model with the following weighted average terms:
Expected term in years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-free interest rate (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average expected volatility (%) . . . . . . . . . . . . . . . . . . .
Dividend yield (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.0
0.9%
48.9%
0%
We recorded stock compensation expense of approximately $16,000 for these options during the year ended
December 31, 2014.
On March 5, 2014, Maher Albitar, our Chief Medical Officer was granted stock options to purchase 30,000
shares of the Company’s common stock at an exercise price per share of $3.45, which was the closing price per
share on the date before the grant date. The stock options have a five year term and become 33% vested on each
of the next three anniversaries of the grant date. Dr. Albitar works in our California laboratory location, and the
State of California has certain regulations that prohibit the corporate practice of medicine. As a result of this
regulation, Dr. Albitar is not an employee, but rather is a full-time consulting physician to NeoGenomics. Thus,
these stock options are non-employee consultant options and as such are being revalued at the end of every
reporting period. At December 31, 2014 these stock options were valued at $48,850 based on a trinomial lattice
model with the following weighted average terms:
Expected term in years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-free interest rate (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average expected volatility (%) . . . . . . . . . . . . . . . . . . .
Dividend yield (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.0
0.9%
48.9%
0%
We recorded stock compensation expense of approximately $24,000 for these options during the year ended
December 31, 2014.
On April 22, 2013, Steven Ross, our Chief Information Officer was granted stock options to purchase 150,000
shares of the Company’s common stock at an exercise price per share of $3.93, which was the closing price per
share on the last trading day prior to his start date. The stock options have a five year term and become 25%
97
NEOGENOMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014, 2013 and 2012
vested on each of the first four anniversaries of his start date. The stock options were valued at $192,000 based
on a trinomial lattice model with the following weighted average terms:
Expected term in years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-free interest rate (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average expected volatility (%) . . . . . . . . . . . . . . . . . . . .
Dividend yield (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.5
0.5%
45%
0%
We recorded stock compensation expense of approximately $65,000 and $63,000 for these options during the
years ended December 31, 2014 and 2013, respectively.
On January 9, 2012, Dr. Maher Albitar, our Chief Medical Officer was granted stock options to purchase 250,000
shares of the Company’s common stock at an exercise price per share of $1.43, which was the closing price per
share on the last trading day prior to his start date. The stock options have a five year term and become 25%
vested on each of the first four anniversaries of his start date. The stock options also fully vest upon a change of
control of the Company. Dr. Albitar works in our California laboratory location, and the State of California has
certain regulations that prohibit the corporate practice of medicine. As a result of this regulation, Dr. Albitar is
not an employee, but rather is a full-time consulting physician to NeoGenomics. Thus, these stock options are
non-employee consultant options and as such are being revalued at the end of every reporting period. At
December 31, 2014 these stock options were valued at $628,500 based on a trinomial lattice model with the
following weighted average terms:
Expected term in years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-free interest rate (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average expected volatility (%) . . . . . . . . . . . . . . . . . . . .
Dividend yield (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.8
0.6%
53%
0%
We recorded stock compensation expense of approximately $200,000, $252,000 and $151,000 for these options
during the years ended December 31, 2014, 2013 and 2012, respectively.
On February 14, 2012, Mr. VanOort, our Chief Executive Officer was granted supplemental non-qualified stock
options to purchase 800,000 shares of common stock at an exercise price of $1.71 per share which have a five
year term so long as Mr. VanOort remains an employee of the Company (the “Supplemental Options”). The
Supplemental Options are scheduled to vest according to the passage of time with 200,000 shares vesting each
year on the anniversary of the grant date for the first four years after the grant. The Supplemental Options are
valued at $505,000 based on a trinomial lattice model with the following weighted average terms:
Expected term in years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-free interest rate (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average expected volatility (%) . . . . . . . . . . . . . . . . . . . .
Dividend yield (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.8
0.6%
52%
0%
We recorded stock compensation expense of $91,000, $155,000 and $210,000 for these options during the years
ended December 31, 2014, 2013 and 2012, respectively. In the event of a change of control of the Company in
which the consideration payable to common stockholders of the Company has a deemed value of at least
$4.00 per share, any unvested portion of the Supplemental Options will immediately vest in full.
98
NEOGENOMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014, 2013 and 2012
Employee Stock Purchase Plan
Effective January 1, 2007, the Company began sponsoring an Employee Stock Purchase Plan (“ESPP”), under
which eligible employees may purchase Common Stock, by means of limited payroll deductions, at a 5%
discount from the fair market value of the Common Stock as of specific dates. In accordance with ASC Topic
718-50 Compensation – Stock Compensation – Employee Share Purchase Plans, the ESPP is considered non-
compensatory and does not require the recognition of compensation cost because the discount offered to
employees does not exceed 5%. Shares issued pursuant to this plan were 90,285, 76,595 and 56,805 for the years
ended December 31, 2014, 2013 and 2012, respectively.
Common Stock Warrants
From time to time, the Company issues warrants to purchase its common stock. These warrants have been issued
for consulting services, in connection with the Company’s credit facilities and sales of its common stock, and in
connection with employment agreements and for compensation to directors. These warrants are valued using an
option pricing model and using the volatility, market price, strike price, risk-free interest rate and dividend yield
appropriate at the date the warrants were issued. Stock compensation costs recognized for the years ended
December 31, 2014, 2013 and 2012 was approximately $51,000, $263,000 and $153,000, respectively.
On January 9, 2012 Dr. Maher Albitar was granted performance incentive warrants to purchase 200,000 shares of
the Company’s common stock (the “Albitar Warrants”) at an exercise price per share of $1.43, which was the
closing price per share on the last trading day prior to his start date. These warrants are being treated as non-
employee consultant warrants and as such are being revalued, with assumptions for meeting performance, at the
end of every reporting period using a trinomial lattice model. The Albitar Warrants have a five year term and vest
in accordance with the performance criteria as follows:
(i)
80,000 will vest upon the commercial launch of the Company’s gene-based plasma prostate cancer test
licensed from Health Discovery Corp (“HDC”) or similar test based on our mutual agreement.
(ii) 40,000 will vest upon the commercial launch of the Company’s gene-based colon cancer test licensed
from HDC or similar test based on our mutual agreement.
(iii) 40,000 will vest upon the commercial launch of the Company’s gene-based pancreatic cancer test
licensed from HDC or similar test based on our mutual agreement.
(iv) 20,000 will vest upon successful consummation of a sublicensing agreement with an instrument
manufacturer to commercialize the cytogenetics automated image analysis technology licenses from
HDC.
(v) 20,000 will vest upon successful consummation of a sublicensing agreement with an instrument
manufacturer to commercialize the flow cytometry automated image analysis technology licenses from
HDC.
In the event of a change of control of the Company in which the consideration payable to common stockholders
of the Company has a deemed value of at least $4.00 per share, any unvested portion of the Albitar Warrants will
immediately vest in full.
99
NEOGENOMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014, 2013 and 2012
On December 31, 2014 the Albitar Warrants were valued at approximately $505,000 based on a trinomial lattice
model with the following terms:
Expected term in years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-free interest rate (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average expected volatility (%) . . . . . . . . . . . . . . . . . . .
Dividend yield (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.3
0.5%
51.8%
0%
We recorded stock compensation expense of approximately $49,000, $231,000 and $135,000 for these warrants
during the years ended December 31, 2014, 2013 and 2012, respectively.
On February 7, 2014, Gulfpointe Capital exercised 83,333 warrants to purchase shares of NeoGenomics common
stock at an exercise price of $0.75 per share. The Company received proceeds of $62,500 from the exercise.
On March 12, 2014, Douglas M. VanOort exercised 375,000 warrants to purchase shares of NeoGenomics
common stock at an exercise price of $1.05 per share. The Company received proceeds of $393,750 from the
exercise. On March 16, 2014, 250,000 warrants issued to Douglas M. VanOort expired unvested because
performance requirements were not met.
For the year ended December 31, 2012, 650,000 warrants previously issued to members of our board of directors
and 348,417 warrants issued in June 2007 as part of a common stock offering were exercised or expired as follows:
Type of Exercise
Warrant Shares
Exercise Price /
Share
For cash . . . . . . . . . . . . . . . . . . . . . . . . .
Cashless net exercise . . . . . . . . . . . . . . .
Expired unexercised . . . . . . . . . . . . . . .
175,000
725,000
98,417
$1.50
$1.50
$1.50
Cash Received
$ 262,500
—
$
—
$
Common Stock
Shares Issued
175,000
75,066
—
Warrant activity is summarized as follows:
Warrants outstanding, December 31, 2011 . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancelled . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Warrants outstanding, December 31, 2012 . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancelled . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Warrants outstanding, December 31, 2013 . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancelled . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares
2,156,750
200,000
(900,000)
(98,417)
—
1,358,333
—
—
—
—
1,358,333
—
(458,333)
(250,000)
—
Warrants outstanding, December 31, 2014 . . . . . . .
650,000
Warrants exercisable at December 31, 2014 . . . . . .
530,000
100
Weighted Average
Exercise Price
$1.34
1.43
1.50
1.50
—
1.24
—
—
—
—
1.24
—
1.00
1.05
0.00
$1.48
$1.49
NEOGENOMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014, 2013 and 2012
The number and weighted average grant-date fair values of warrants non-vested at the beginning and end of
2014, as well as options granted, vested and forfeited during the year was as follows:
Non-vested at December 31, 2013 . . . . . . . . . . . . . . . . . . .
Granted in 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested in 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited in 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of
Warrants
575,000
—
(205,000)
(250,000)
Non-vested at December 31, 2014 . . . . . . . . . . . . . . . . . . .
120,000
Weighted
Average
Grant Date
Fair Value
$1.18
—
1.20
1.05
$1.43
The following table summarizes information on warrants outstanding on December 31, 2014:
Number
outstanding
450,000
200,000
650,000
Exercise
price
$1.50
$1.43
$1.48
Issued
5/3/2010
1/12/2012
Expire
5/2/2017
1/12/2017
NOTE I – COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases its laboratory and office facilities under non-cancelable operating leases. These operating
leases expire at various dates through December 2017 and generally require the payment of real estate taxes,
insurance, maintenance, utility and operating costs. The Company has approximately 49,000 square feet of office
and laboratory space at our corporate headquarters in Fort Myers, Florida. In addition, we maintain laboratory
and office space in West Sacramento, Fresno and Irvine, California, Nashville, Tennessee and Tampa, Florida.
The minimum aggregate future obligations under non-cancelable operating leases as of December 31, 2014 are as
follows (in thousands):
Years ending December 31,
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,282
928
483
Total minimum lease payments . . . . . . . . . . . . . . . . . . . . . . . . .
$2,693
Rent expense for the years ended December 31, 2014, 2013 and 2012 was approximately $1,705,000, $1,072,000
and $1,123,000, respectively and is included in costs of revenues and in general and administrative expenses,
depending on the allocation of work space in each facility. Certain of the Company’s facility leases include rent
escalation clauses. The Company normalizes rent expense on a straight-line basis over the term of the lease for
known changes in lease payments over the life of the lease.
101
NEOGENOMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014, 2013 and 2012
Purchase Commitments
The Company has agreements in place to purchase a specified level of reagents from certain vendors. These
purchase commitments expire at various dates through October 2019. The purchase commitments as of
December 31, 2014 are as follows (in thousands):
Years ending December 31,
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 301
301
301
293
191
Total Purchase commitments . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,387
Capital Lease Obligations
The Company’s capital lease obligations expire at various times through 2019 and the weighted average interest
rates under such leases approximated 9.16% at December 31, 2014. Some of our leases contain bargain purchase
options that allow us to purchase the leased property for a minimal amount upon the expiration of the lease term.
The remaining leases have purchase options at fair market value. Future minimum lease payments under capital
lease obligations, including those described above are (in thousands):
Years ending December 31,
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 and thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total future minimum lease payments . . . . . . . . . . . . . . . . . . .
Less amount representing interest . . . . . . . . . . . . . . . . . . . . . . .
Present value of future minimum lease payments . . . . . . . . . .
Less current maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 3,784
3,191
1,601
518
29
9,123
(642)
8,481
(3,224)
Obligations under capital leases – long term . . . . . . . . . . . . . .
$ 5,257
Property and equipment acquired under capital lease agreements (see Note C) are pledged as collateral to secure
the performance of the future minimum lease payments above.
Employment Contracts
The agreements with our Chief Executive Officer, Chief Medical Officer, Chief Operating Officer, Chief
Information Officer and Chief Financial Officer contain the following:
•
•
Clauses that allow for continuous automatic extensions of one year unless timely written notice
terminating the contract is provided to such officers (as defined in the agreements).
Clauses that provide for accelerated vesting of the options granted pursuant to such agreements at the
time of certain changes of control of the Company.
102
NEOGENOMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014, 2013 and 2012
•
Clauses that provided for 6-12 months of severance benefits in the event that such officers are
terminated without “cause” (as defined in the agreements) by the Company. The base salaries for these
officers in 2015 are expected to approximate $1,717,000.
NOTE J – REVOLVING CREDIT AND SECURITY AGREEMENT
On March 26, 2012, the Parent Company, NeoGenomics Laboratories (“Borrower”), and CapitalSource
Finance LLC (“Capital Source”) entered into a First Amendment (the “Amendment”) to the Amended and
Restated Revolving Credit and Security Agreement, dated April 26, 2010 (the “Amended and Restated Credit
Agreement” or the “Credit Facility”). The Amended and Restated Credit Agreement amended and restated the
original Revolving Credit and Security Agreement dated February 1, 2008, as amended, among the Parent
Company, Borrower and CapitalSource (the “Original Credit Agreement”). The terms of the Amendment and the
Amended and Restated Credit Agreement are substantially similar except that the Amendment, among other
things:
I.)
Increased the maximum principal amount of the revolving credit facility (the “Facility Cap”) to
$8.0 million from $5.0 million; provided, that the Borrower may request to increase the Facility
Cap twice during the term of the Amended and Restated Credit Agreement in increments of $1.0
million to a maximum of $10,000,000;
II.) Extended the term of the Amended and Restated Credit Agreement to March 26, 2015;
III.) Revised the definition of “Minimum Termination Fee” to be:
a.
b.
c.
d.
2.5% of the Facility Cap if the “Revolver Termination” (as defined in the Agreement) is at
any time before March 26, 2013;
1.5% of the Facility Cap if the Revolver Termination is after March 26, 2013 but before
March 26, 2014;
0.5% of the Facility Cap if the Revolver Termination is on or after March 26, 2014; and
That there shall be no Minimum Termination Fee if the Revolver Termination occurs within
five (5) days of the end of the term.
IV.) Modified the definition of “Permitted Indebtedness” and “Fixed Charge Coverage Ratio”; and
V.) Amended Section 3.1 of the Amended and Restated Credit Agreement by deleting “the LIBOR
shall be not less than 2.0%” and replacing it with “the LIBOR shall be not less than 1.0%”.
We paid Capital Source a commitment fee of $80,000 in connection with the Amendment.
On January 25, 2013 the Borrower and CapitalSource entered into the Second Amendment to the
Amended and Restated Revolving Credit and Security Agreement, dated April 26, 2010. The Second
Amendment:
I.)
Increased the Facility Cap to $10.0 million from $9.0 million; provided, that the Borrower may
request to increase the Facility Cap twice during the term of the Amended and Restated Credit
Agreement in increments of $1.0 million to a maximum of $12,000,000 on or after January 31,
2013;
II.) Amended Annex 1 of the Credit Facility as follows:
a) Deleted Section 2 of the Annex 1 in its entirety and replaced it with the following:
2. Minimum Cash Velocity
103
NEOGENOMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014, 2013 and 2012
For each Test Period, measured as of the last day of each calendar month ending on or after
December 31, 2012, Collections of Accounts of Borrowers collectively shall not be less than
the Cash Velocity Percentage of Borrowers net revenue for the Revenue Period less the bad
debt expense recognized on the income statement for such Revenue Period.
b) Added the following definition to the definitions set forth in such Annex in the appropriate
alphabetic order:
“Cash Velocity Percentage” means (a) 80% for the period beginning December 31, 2012 and
ending on March 31, 2013 and (b) 87.5% at all other times.
We paid Capital Source a commitment fee of $10,000 in connection with the Second Amendment.
On January 24, 2014 the Borrower and CapitalSource entered into a Third Amendment (the “Third
Amendment”) to the Amended and Restated Credit Agreement. The terms of the Third Amendment amended
Annex I of the credit agreement to delete the definition of Cash Velocity Percentage in its entirety and to replace
it with the following:
Cash Velocity Percentage – shall mean (a) 80% for the period beginning December 31, 2012 and ending on
March 31, 2013, (b) 75% for the period beginning December 1, 2013 and ending on March 31, 2014 and
(c) 87.5% at all other times.
We paid Capital Source a commitment fee of $5,000 in connection with the Third Amendment.
On July 8, 2014 NeoGenomics Laboratories, (“Borrower”) Path Labs, LLC, (“New Borrower”) and
CapitalSource entered into a Joinder and Fourth Amendment (the “Fourth Amendment”) to the Amended and
Restated Credit Agreement. The fourth amendment added the New Borrower to the credit agreement and allowed
for them to borrow under the facility. All other terms of the credit agreement remained unchanged.
On August 26, 2014 we repaid all outstanding amounts and terminated the facility. We paid Capital Source
termination fees of $61,000 in connection with the termination. We also wrote off unamortized debt issuance
costs of approximately $37,000.
NOTE K – RELATED PARTY TRANSACTIONS
Consulting Agreement
During 2014, 2013 and 2012, Steven Jones, a director of the Company, earned approximately $257,500,
$254,500 and $207,500, respectively, for various consulting work performed in connection with his duties as
Executive Vice President of Finance. Mr. Jones is Chairman of the Compliance Committee. Mr. Jones also
earned $177,500, $72,500 and $80,000 in corporate bonuses related to his consulting work in 2014, 2013 and
2012.
On May 3, 2010, the Company entered into a consulting agreement (the “Consulting Agreement”) with Steven
Jones (the “Consultant” or “Mr. Jones”) whereby Mr. Jones would continue to provide consulting services to the
Company in the capacity of Executive Vice President of Finance. The Consulting Agreement has an initial term
from May 3, 2010 through April 30, 2013, which initial term automatically renews for additional one year
periods unless either party provides notice of termination at least three months prior to the expiration of the
initial term or any renewal term. In addition, the Company has the right to terminate the Consulting Agreement
104
NEOGENOMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014, 2013 and 2012
by giving written notice to the Consultant the year prior to the effective date of termination. The Consultant has
the right to terminate the Consulting Agreement by giving written notice to the Company three months prior to
the proposed termination date, provided, however, the Consultant is required to provide an additional three
months of transition services to the Company upon reasonable request by the Company. The Consulting
Agreement specifies an annual base retainer compensation of $180,000 per year, which was subsequently
increased to $210,000 per year in April 2012. Mr. Jones annual compensation was increased to $250,000 on
January 1, 2013. Mr. Jones annual compensation was increased to $260,000 in March 2014. Mr. Jones is also
eligible to receive an annual cash bonus based on the achievement of certain performance metrics with a target of
30% of his base retainer. Such bonus is eligible to be increased to up to 150% of the target bonus in any fiscal
year in which he meets certain performance thresholds established by the CEO of the Company and approved by
the Board of Directors. On May 3, 2010, the Company also entered into a warrant agreement with the Consultant
and it issued a warrant to purchase 450,000 shares of the Company’s common stock, which have all vested as of
December 31, 2014.
NOTE L – RETIREMENT PLAN
We maintain a defined-contribution 401(k) retirement plan covering substantially all employees (as defined). Our
employees may make voluntary contributions to the plan, subject to limitations based on IRS regulations and
compensation. In addition, we match any employees’ contributions at the rate of 50% on the dollar up to a 4%
employee contribution (2% Company match) of the respective employee’s salary. We made matching
contributions of approximately $358,000, $275,000 and $220,000 during the years ended December 31, 2014,
2013 and 2012, respectively.
NOTE M – EQUITY TRANSACTIONS
Public Offerings of Common Stock
In August 2014, the Company completed an offering of 8,050,000 shares of registered common stock, at a price
of $4.60 per share, for gross proceeds of approximately $37.0 million. The Company received approximately
$34.3 million in net proceeds after deducting underwriting fees and offering costs of approximately $2.7 million.
The Company plans to use the net proceeds for working capital, capital expenditures and for general corporate
purposes including potential acquisitions and the repayment of debt.
In March 2013, the Company completed an offering of 3,322,500 shares of registered common stock, at a price
of $3.00 per share, for gross proceeds of $10.0 million. The Company received approximately $9.2 million in net
proceeds after deducting underwriting fees and offering costs of approximately $0.8 million.
Restricted Stock Awards
On April 15, 2014, the Company granted 125,000 shares of restricted stock to Douglas M. VanOort. Such
restricted shares vest on the third anniversary of the grant date so long as Mr. VanOort remains Chairman and
Chief Executive Officer of the Company. The fair market value of the grant of restricted stock on award date was
deemed to be $381,250 or $3.05 per share, which was the closing price of the Company’s common stock on the
day before the grant as approved by the board of directors. We recorded approximately $91,000 of stock
compensation expense for the year ended December 31, 2014 related to this restricted stock.
On April 15, 2014 the Company granted each of the four independent directors 3,000 shares of restricted stock
for a total of 12,000 shares. Such restricted stock will vest ratably over each of the next four quarters so long as
105
NEOGENOMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014, 2013 and 2012
the director still serves as a member of the board of directors. The fair market value of each grant of restricted
stock on award date was deemed to be $9,150 or $3.05 per share, which was the closing price of the Company’s
common stock on the day before the grant as approved by the board of directors. We recorded approximately
$36,000 of stock compensation expense for the year ended December 31, 2014 related to this restricted stock.
On October 27, 2014, the Company granted 1,500 shares of restricted stock to Bruce K. Crowther. Such
restricted stock will vest over the next two quarters based on Mr. Crowther’s service on the board of directors.
The fair market value of the grant on the award date was deemed to be $7,365 or $4.91 per share which was the
closing price of the Company’s common stock on the day before the grant as approved by the board of directors.
We recorded approximately $2,000 of stock compensation expense for the year ended December 31, 2014 related
to this restricted stock.
The number and weighted average grant date fair values of restricted stock non-vested at the beginning and end
of 2014, 2013 and 2012, as well as stock awards granted, vested and forfeited during the year are as follows:
Nonvested at December 31, 2011 . . . . . . . . . . . . . . . . . . . .
Granted in 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested in 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited in 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonvested at December 31, 2012 . . . . . . . . . . . . . . . . . . . .
Granted in 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested in 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited in 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonvested at December 31, 2013 . . . . . . . . . . . . . . . . . . . .
Granted in 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested in 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited in 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number
of
Restricted
Shares
90,000
—
(50,000)
—
40,000
—
(32,000)
—
8,000
138,500
(18,125)
—
Weighted
Average
Grant Date
Fair Value
$1.44
—
1.44
—
1.44
—
1.44
—
1.44
3.07
2.45
Nonvested at December 31, 2014 . . . . . . . . . . . . . . . . . . . .
128,375
3.06
End of Financial Statements
106
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Executive Officer
and Chief Financial Officer, we evaluated the effectiveness of our disclosure controls and procedures as of
December 31, 2014. As the acquisition of Path Labs LLC occurred in the third quarter of 2014, management has
excluded, from its assessment of internal control over financial reporting, Path Labs operations and certain
corporate controls that were significantly impacted by the acquisition from its assessment of internal control over
financial reporting as of December 31, 2014. Based upon that evaluation, our Chief Executive Officer and Chief
Financial Officer concluded that, as of December 31, 2014, our disclosure controls and procedures were
(1) effective in that they were designed to ensure that material information relating to us, and information
required to be disclosed in our reports to the Commission, including our consolidated subsidiaries, is made
known to our Chief Executive Officer and Chief Financial Officer by others within those entities, particularly
during the period in which this report was being prepared, as appropriate to allow timely discussions and
decisions regarding required disclosure therein and (2) effective, in that they provide reasonable assurance that
information required to be disclosed by us in the reports that we file or submit under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and
forms.
Management’s Report on Internal Control Over Financial Reporting
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, is
responsible for establishing and maintaining adequate internal control over financial reporting. Internal control
over financial reporting is defined in Rules 13a-15(f) or 15d-15(f) promulgated under the Exchange Act as a
process designed by, or under the supervision of, our principal executive and principal financial officer and
effected by the Company’s board of directors, management and other personnel, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles and includes those policies and procedures: (1) that
pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and
dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the Company are being made only in accordance with
authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could
have a material effect on the financial statements.
Because of its inherent limitations, however, internal control over financial reporting may not prevent or
detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate. Our management assessed the effectiveness of the Company’s internal
control over financial reporting as of December 31, 2014. As the acquisition of Path Labs LLC occurred in the
third quarter of 2014, management has excluded, from its assessment of internal control over financial reporting
as of December 31, 2014. Path Labs LLC is a wholly-owned subsidiary of NeoGenomics, Inc. whose total assets
and total revenue represented 9.9% and 5.6%, respectively, of the related consolidated financial statement
amounts as of and for the year ended December 31, 2014. In making this assessment, our management used the
criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in
Internal Control—Integrated Framework (2013 Framework). Based on our assessment, management, with the
107
participation of our Chief Executive Officer and Chief Financial Officer, concluded that, as of December 31,
2014, our internal control over financial reporting was effective based on those criteria at the reasonable
assurance level. The effectiveness of our internal control over financial reporting as of December 31, 2014 has
been audited by Crowe Horwath LLP, an independent registered public accounting firm, as stated and attested to
in their report that is included in Item 8.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the quarter ended
December 31, 2014 that have materially affected, or are reasonably likely to materially affect, the Company’s
internal control over financial reporting.
ITEM 9B. Other Information
None.
108
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this Item 10 will be included under the captions “Election of Directors”,
“Information as to Nominees and Other Directors”, “Information Regarding Meetings and Committees of the
Board”, “Section 16(a) Beneficial Ownership Reporting Compliance” and as otherwise, set forth in the
Company’s 2015 Proxy Statement and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 will be included under the captions “Executive Compensation
and Other Information” and “Compensation Committee Interlocks and Insider Participation” and as otherwise set
forth in the Company’s 2015 Proxy Statement and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
The information required by this Item 12 will be included under the captions “Security Ownership” and
“Equity Compensation Plan Information” and as otherwise set forth in the Company’s 2015 Proxy Statement and
is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE
The information required by this Item 13 will be included under the captions “Certain Relationships
and Related Party Transactions” and “Information Regarding Meetings and Committees of the Board” and as
otherwise set forth in the Company’s 2015 Proxy Statement and is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this Item 14 will be included under the caption “Independent Auditors”
and as otherwise set forth in the Company’s 2015 Proxy Statement and is incorporated herein by reference.
109
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
Financial Statements: See Index to Consolidated Financial Statements under Part II, Item 8 of this Annual
Report on Form 10-K
Exhibit
No.
Description of Exhibit
Location
3.1
Articles of Incorporation, as amended
3.2
3.3
Amendment to Articles of Incorporation filed
with the Nevada Secretary of State on January 3,
2002
Amendment to Articles of Incorporation filed
with the Nevada Secretary of State on April 11,
2003
3.4
Amended and Restated Bylaws
Amended and Restated Equity Incentive Plan
effective as of March 3, 2009
Incorporated by reference to the Company’s
Registration Statement on Form SB-2 as filed
with the SEC on February 10, 1999
Incorporated by reference to the Company’s
Annual Report on Form 10-KSB for the year
ended December 31, 2002, as filed with the SEC
on May 20, 2003
Incorporated by reference to the Company’s
Annual Report on Form 10-KSB for the year
ended December 31, 2002, as filed with the SEC
on May 20, 2003
Incorporated by reference to the Company’s
Current Report on Form 8-K as filed with the
SEC on October 17, 2014
Incorporated by reference to the Company’s
Current Report on Form 8-K as filed with the
SEC on March 20, 2009
Warrant Agreement dated January 6, 2012
between NeoGenomics, Inc. and Maher Albitar,
M.D.
Incorporated by reference to the Company’s
Current Report on Form 8-K as filed with the
SEC on January 11, 2012
Stock Option Agreement between NeoGenomics,
Inc. and Maher Albitar, M.D.
Incorporated by reference to the Company’s
Current Report on Form 8-K as filed with the
SEC on January 11, 2012
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
Amended and Restated Registration Rights
Agreement between NeoGenomics, Inc. and
Aspen Select Healthcare, L.P. and individuals
dated March 23, 2005
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
Incorporated by reference to the Company’s
Current Report on Form 8-K as filed with the
SEC on March 30, 2005
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
Warrant Agreement 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
110
4.1
4.2
4.3
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
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
Amended and Restated Shareholders’ Agreement
dated March 23, 2005 among NeoGenomics, Inc.,
a Nevada corporation, Michael Dent, Aspen
Select Healthcare, LP, John Elliot, Steven Jones
and Larry Kuhnert
Standby Equity Distribution Agreement with
Cornell Capital Partners, L.P. dated June 6, 2005
Incorporated by reference to the Company’s
Registration Statement on Form S-1 as filed with
the SEC on November 28, 2008
Incorporated by reference to the Company’s
Current Report on Form 8-K as filed with the
SEC on June 8, 2005
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
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
Amended and Restated Loan Agreement between
NeoGenomics, Inc. and Aspen Select Healthcare,
L.P., dated March 30, 2006
Amended and Restated Warrant Agreement
between NeoGenomics, Inc. and Aspen Select
Healthcare, L.P., dated January 21, 2006
Amended and Restated Security Agreement
between NeoGenomics, Inc. and Aspen Select
Healthcare, L.P., dated March 30, 2006
Registration Rights Agreement between
NeoGenomics, Inc. and Aspen Select Healthcare,
L.P., dated March 30, 2006
Warrant Agreement between NeoGenomics, Inc.
and SKL Family Limited Partnership, L.P. issued
January 23, 2006
Warrant Agreement between NeoGenomics, Inc.
and Aspen Select Healthcare, L.P. issued March
14, 2006
Warrant Agreement between NeoGenomics, Inc.
and Aspen Select Healthcare, L.P. issued
March 30, 2006
111
Incorporated by reference to the Company’s
Annual Report on Form 10-KSB for the year
ended December 31, 2005, as filed with the SEC
on April 3, 2006
Incorporated by reference to the Company’s
Annual Report on Form 10-KSB for the year
ended December 31, 2005, as filed with the SEC
on April 3, 2006
Incorporated by reference to the Company’s
Annual Report on Form 10-KSB for the year
ended December 31, 2005, as filed with the SEC
on April 3, 2006
Incorporated by reference to the Company’s
Annual Report on Form 10-KSB for the year
ended December 31, 2005, as filed with the SEC
on April 3, 2006
Incorporated by reference to the Company’s
Annual Report on Form 10-KSB for the year
ended December 31, 2005, as filed with the SEC
on April 3, 2006
Incorporated by reference to the Company’s
Annual Report on Form 10-KSB for the year
ended December 31, 2005, as filed with the SEC
on April 3, 2006
Incorporated by reference to the Company’s
Annual Report on Form 10-KSB for the year
ended December 31, 2005, as filed with the SEC
on April 3, 2006
10.18
10.19
10.20
10.21
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 for the year
ended December 31, 2006, as filed with the SEC
on April 2, 2007
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 for the
quarterly period ended March 31, 2007, as filed
with the SEC on May 15, 2007
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 for the
quarterly period ended March 31, 2007, as filed
with the SEC on May 15, 2007
Letter Agreement, by and between
NeoGenomics, Inc. and Noble International
Investments, Inc.
Incorporated by reference to the Company’s
Registration Statement on Form SB-2 as filed
with the SEC on July 6, 2007
10.22
Subscription Documents
10.23
Investor Registration Right Agreement
Incorporated by reference to the Company’s
Registration Statement on Form SB-2 as filed
with the SEC on July 6, 2007
Incorporated by reference to the Company’s
Registration Statement on Form SB-2 as filed
with the SEC on July 6, 2007
10.24†
Revolving Credit and Security Agreement, dated
February 1, 2008, by and between NeoGenomics,
Inc., a Nevada corporation, NeoGenomics, Inc., a
Florida corporation, and CapitalSource Finance
LLC
Incorporated by reference to the Company’s
Amendment No. 1 to Quarterly Report on
Form 10-Q/A for the quarterly period ended
June 30, 2010, as filed with the SEC on
February 17, 2011
10.25
10.26
10.27
10.28
10.29
Employment Agreement, dated March 12, 2008,
between NeoGenomics, Inc. and Mr. Robert P.
Gasparini
Employment Agreement, dated June 24, 2008,
between NeoGenomics, Inc. and Mr. Jerome
Dvonch
Incorporated by reference to the Company’s
Quarterly Report on Form 10-Q for the quarterly
period ended June 30, 2010, as filed with the
SEC on August 16, 2010
Incorporated by reference to the Company’s
Quarterly Report on Form 10-Q for the quarterly
period ended June 30, 2010, as filed with the
SEC on August 16, 2010
Common Stock Purchase Agreement, dated
November 5, 2008, between NeoGenomics, Inc.,
a Nevada corporation, and Fusion Capital Fund
II, LLC
Incorporated by reference to the Company’s
Quarterly Report on Form 10-Q for the quarterly
period ended June 30, 2010, as filed with the
SEC on August 16, 2010
Registration Rights Agreement, dated November
5, 2008, between NeoGenomics, Inc., a Nevada
corporation, and Fusion Capital Fund II, LLC
Incorporated by reference to the Company’s
Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 2008, filed
November 7, 2008
Master Lease Agreement, dated November 5,
2008, between NeoGenomics, Inc., a Florida
corporation, and Leasing Technologies
International Inc.
Incorporated by reference to the Company’s
Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 2008, filed
November 7, 2008
112
10.30
10.31
10.32
10.33
10.34
10.35†
10.36
10.37
10.38
Guaranty Agreement, dated November 5, 2008,
between NeoGenomics, Inc., a Nevada
corporation, and Leasing Technologies
International, Inc.
Incorporated by reference to the Company’s
Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 2008, filed
November 7, 2008
First Amendment to Revolving Credit and
Security Agreement, dated November 3, 2008,
among NeoGenomics, Inc., a Florida
corporation, NeoGenomics, Inc., a Nevada
corporation, and CapitalSource Finance LLC
Employment Agreement, dated March 16, 2009
between Mr. Douglas M. VanOort and
NeoGenomics, Inc.
Incorporated by reference to the Company’s
Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 2008, filed
November 7, 2008
Incorporated by reference to the Company’s
Quarterly Report on Form 10-Q for the quarterly
period ended June 30, 2010, as filed with the
SEC on August 16, 2010
Subscription Agreement dated March 16, 2009
between the Douglas M. VanOort Living Trust
and NeoGenomics, Inc.
Incorporated by reference to the Company’s
Current Report on Form 8-K as filed with the
SEC on March 20, 2009
Warrant Agreement dated March 16, 2009
between Mr. Douglas M. VanOort and
NeoGenomics, Inc.
Incorporated by reference to the Company’s
Current Report on Form 8-K as filed with the
SEC on March 20, 2009
Second Amendment to Revolving Credit and
Security Agreement, dated April 14, 2009,
among NeoGenomics Laboratories, Inc.,
NeoGenomics, Inc., and CapitalSource Finance
LLC
Incorporated by reference to the Company’s
Amendment No. 1 to Quarterly Report on
Form 10-Q/A for the quarterly period ended
June 30, 2010, as filed with the SEC on
February 17, 2011
Common Stock Purchase Agreement, dated July
24, 2009, between NeoGenomics, Inc. and
Abbott Laboratories
Incorporated by reference to the Company’s
Quarterly Report on Form 10-Q for the quarterly
period ended June 30, 2010, as filed with the
SEC on August 16, 2010
Registration Rights Agreement dated July 24,
2009 between NeoGenomics, Inc. and Abbott
Laboratories
Incorporated by reference to the Company’s
Current Report on Form 8-K as filed with the
SEC on July 30, 2009
Employment Letter dated July 22, 2009 between
NeoGenomics, Inc. and Grant Carlson
Incorporated by reference to the Company’s
Quarterly Report on Form 10-Q for the quarterly
period ended June 30, 2010, as filed with the
SEC on August 16, 2010
Incorporated by reference to the Company’s
Amendment No. 1 to Quarterly Report on
Form 10-Q/A for the quarterly period ended
June 30, 2010, as filed with the SEC on
February 17, 2011
10.39†
Strategic Supply Agreement dated July 24, 2009,
between NeoGenomics Laboratories, Inc. and
Abbott Molecular Inc.
10.40
10.41
Amended and Restated Employment Agreement
dated October 28, 2009 between NeoGenomics,
Inc. and Douglas M. VanOort
Incorporated by reference to the Company’s
Current Report on Form 8-K as filed with the
SEC on November 3, 2009
Employment Letter dated November 3, 2009
between NeoGenomics Laboratories, Inc. and
George Cardoza
Incorporated by reference to the Company’s
Quarterly Report on Form 10-Q for the quarterly
period ended June 30, 2010, as filed with the
SEC on August 16, 2010
113
10.42
10.43
10.44†
Employment Letter dated November 3, 2009
between NeoGenomics Laboratories, Inc. and
Jack G. Spitz
Third Amendment to Revolving Credit and
Security Agreement dated March 26, 2011
between NeoGenomics Laboratories, Inc.,
NeoGenomics, Inc., and CapitalSource Finance
LLC
Incorporated by reference to the Company’s
Quarterly Report on Form 10-Q for the quarterly
period ended June 30, 2010, as filed with the
SEC on August 16, 2010
Incorporated by reference to the Company’s
Annual Report on Form 10-K for the year ended
December 31, 2009, as filed with the SEC on
March 29, 2010
Amended and Restated Revolving Credit and
Security Agreement dated April 26, 2011
between NeoGenomics Laboratories, Inc.,
NeoGenomics, Inc., and CapitalSource Finance
LLC
Incorporated by reference to the Company’s
Amendment No. 1 to Quarterly Report on
Form 10-Q/A for the quarterly period ended
June 30, 2010, as filed with the SEC on
February 17, 2011
10.45
Consulting Agreement dated May 3, 2010
between NeoGenomics, Inc. and Steven C. Jones.
10.46
Warrant Agreement dated May 3, 2010 between
NeoGenomics, Inc. and Steven C. Jones.
Offer Letter between NeoGenomics
Laboratories, Inc. and Marydawn Miller dated
June 16, 2011
Incorporated by reference to the Company’s
Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 2010, as filed with the
SEC on May 4, 2010
Incorporated by reference to the Company’s
Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 2010, as filed with the
SEC on May 4, 2010
Incorporated by reference to the Company’s
Quarterly Report on Form 10-Q for the quarterly
period ended June 30, 2010, as filed with the
SEC on August 16, 2010
Offer Letter between NeoGenomics
Laboratories, Inc. and Mark Smits dated July 26,
2011
Incorporated by reference to the Company’s
Current Report on Form 8-K filed with the SEC
on August 12, 2010
Master Lease Agreement dated September 9,
2012 between the Company and Garic, Inc.
Incorporated by reference to the Company’s
Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 2011, as filed with
the SEC on October 25, 2011
Medical Services Agreement dated January 6,
2012 between Albitar Oncology Consulting, LLC
and NeoGenomics Laboratories, Inc.
Incorporated by reference to the Company’s
Current Report on Form 8-K as filed with the
SEC on January 11, 2012
Letter Agreement dated January 6, 2012 between
NeoGenomics Laboratories, Inc. and Maher
Albitar, M.D.
Incorporated by reference to the Company’s
Current Report on Form 8-K as filed with the
SEC on January 11, 2012
Confidentiality and Non-Competition Agreement
dated January 6, 2012 between NeoGenomics
Laboratories, Inc. and Maher Albitar, M.D.
Incorporated by reference to the Company’s
Current Report on Form 8-K as filed with the
SEC on January 11, 2012
Confidentiality, Title to Work Product and Non-
Solicitation Agreement dated January 6, 2012
between NeoGenomics Laboratories, Inc. and
Maher Albitar, M.D.
Incorporated by reference to the Company’s
Current Report on Form 8-K as filed with the
SEC on January 11, 2012
114
10.47
10.48
10.49
10.50
10.51
10.52
10.53
10.54
10.55
10.56
10.57
Master License Agreement, dated January 6,
2012, between NeoGenomics Laboratories, Inc.
and Health Discovery Corporation
Incorporated by reference to the Company’s
Current Report on Form 8-K as filed with the
SEC on January 11, 2012
Stock Option Agreement, dated February 14,
2012, between NeoGenomics Laboratories, Inc.
and Douglas M. VanOort
Incorporated by reference to the Company’s
Annual Report on Form 10-K for the year ended
December 31, 2011, filed with the SEC on
March 12, 2012
Second Amendment to Amended and Restated
Credit and Security Agreement dated January 25,
2013 between NeoGenomics, Inc. and
CapitalSource Finance LLC
Incorporated by reference to the Company’s
Annual Report on Form 10-K for the year ended
December 31, 2012, filed with the SEC on
February 21, 2013
Purchase Agreement dated February 27, 2013
between NeoGenomics, Inc. and Craig Hallum
Capital Group, LLC
Incorporated by reference to the Company’s
Current Report on Form 8-K as filed with the
SEC on February 28, 2013
10.58
Offer Letter between NeoGenomics Laboratories,
Inc. and Steven Ross dated April 19, 2013
Confidentiality, Non-Solicitation and Non-
Compete Agreement dated April 22, 2013
between NeoGenomics Laboratories, Inc. and
Steven Ross
Incorporated by reference to the Company’s
Current Report on Form 8-K as filed with the
SEC on April 23, 2013
Incorporated by reference to the Company’s
Current Report on Form 8-K as filed with the
SEC on April 23, 2013
Third Amendment to Amended and Restated
Credit and Security Agreement dated January 24,
2014 between NeoGenomics, Inc. and
CapitalSource Finance LLC
Incorporated by reference to the Company’s
Annual Report on Form 10-K for the year ended
December 31, 2013, filed with the SEC on
February 24, 2014
Membership Interest Purchase Agreement by and
among NeoGenomics Laboratories, Inc., Path
Labs, LLC, and Path Labs Holdings, LLC, dated
July 8, 2014
Incorporated by reference to Exhibit 2.1 to our
Current Report on Form 8-K filed on July 11,
2014
Employment Agreement, dated September 18,
2014 by and between NeoGenomics, Inc. and
Robert J. Shovlin
Incorporated by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K as filed
with the SEC on October 3, 2014
Confidentiality, Non-Solicitation and Non-
Compete Agreement, dated September 18, 2014
by and between NeoGenomics, Inc. and Robert J.
Shovlin
Incorporated by reference to Exhibit 10.2 to the
Company’s Current Report on Form 8-K as filed
with the SEC on October 3, 2014
10.59
10.60
10.61
10.62
10.63
10.64
Charter of the Compliance Committee
10.65
Charter of the Nominating and Corporate
Governance Committee
Incorporated by reference to the Company’s
Current Report on Form 8-K as filed with the
SEC on October 17, 2014
Incorporated by reference to the Company’s
Current Report on Form 8-K as filed with the
SEC on October 17, 2014
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 July 20, 2011
115
21.1
23.1
23.2
31.1
31.2
31.3
32.1
101.1
Provided herewith
Provided herewith
Provided herewith
Provided herewith
Provided herewith
Provided herewith
Provided herewith
Provided herewith
Subsidiaries of NeoGenomics, Inc.
Consent of Crowe Horwath, LLP
Consent of Kingery & Crouse P.A.
Certification by Principal Executive Officer
pursuant to Rule 13a-14(a)/ 15d-14(a), as
adopted pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002
Certification by Principal Financial Officer
pursuant to Rule 13a-14(a)/ 15d-14(a), as
adopted pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002
Certification by Principal Accounting Officer
pursuant to Rule 13a-14(a)/ 15d-14(a), as
adopted pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002
Certification by Principal Executive Officer,
Principal Financial Officer and Principal
Accounting Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
The following materials from the Company’s
Annual Report on Form 10-K for the year ended
December 31, 2014 formatted in Extensible
Business Reporting Language (XBRL): (i) the
Consolidated Balance Sheets, (ii) the
Consolidated Statements of Operations, (iii) the
Consolidated Statements of Stockholders Equity
(iv) the Consolidated Statements of Cash Flows
and (v) related notes.
† Portions of the exhibit have been omitted pursuant to a request for confidential treatment pursuant to
Rule 24b-2 promulgated under the Securities Exchange Act of 1934, as amended. The omitted information has
been filed separately with the Securities and Exchange Commission.
116
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: March 3, 2015
NEOGENOMICS, INC.
/s/ Douglas M. VanOort
By:
Name: Douglas M. VanOort
Title: Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report 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/ Douglas M. VanOort
Douglas M. VanOort
/s/ Steven C. Jones
Steven C. Jones
/s/ George A. Cardoza
George Cardoza
/s/ Edwin F. Weidig III
Edwin F. Weidig III
/s/ Michael T. Dent
Michael T. Dent, M.D.
/s/ Kevin C. Johnson
Kevin C. Johnson
/s/ William J. Robison
William J. Robison
/s/ Raymond R. Hipp
Raymond R. Hipp
/s/ Bruce K. Crowther
Bruce K. Crowther
Chairman of the Board and Chief
Executive Officer (Principal
Executive Officer)
March 3, 2015
Executive Vice President, Finance
and Director
March 3, 2015
Chief Financial Officer (Principal
Financial Officer)
March 3, 2015
March 3, 2015
March 3, 2015
March 3, 2015
March 3, 2015
March 3, 2015
March 3, 2015
Director of Finance (Principal
Accounting Officer)
Director
Director
Director
Director
Director
117
SUBSIDIARIES OF NEOGENOMICS, INC.
NeoGenomics Laboratories, Inc., a Florida corporation
Path Labs, LLC, a Delaware limited liability company
EXHIBIT 21.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the registration statements on Form S-8 (File Nos. 333-125994,
333-139484, 333-159749, 333-173494, 333-180095 and 333-189391) and Form S-3 (File Nos. 333-186067 and
333-193105) of NeoGenomics, Inc. of our report dated March 3, 2015 relating to the consolidated financial
statements and effectiveness of internal control over financial reporting, appearing in this Annual Report on
Form 10-K.
EXHIBIT 23.1
/s/ Crowe Horwath LLP
Tampa, Florida
March 3, 2015
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the registration statements on Form S-8 (File Nos. 333-125994,
333-139484, 333-159749, 333-173494, 333-180095 and 333-189391) and Form S-3 (File Nos. 333-186067 and
333-193105) of NeoGenomics, Inc. of our report dated February 24, 2014 relating to the consolidated financial
statements as of December 31, 2013 and for the years ended December 31, 2013 and 2012, appearing in this
Annual Report on Form 10-K.
EXHIBIT 23.2
/s/ Kingery & Crouse, P.A.
Certified Public Accountants
Tampa, Florida
March 3, 2015
EXHIBIT 31.1
CERTIFICATIONS
I, Douglas VanOort, certify that:
1. I have reviewed this Annual Report on Form 10-K of NeoGenomics, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of,
and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)), and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal
control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
March 3, 2015
/s/ Douglas M. VanOort
Douglas M. VanOort
Chief Executive Officer, Executive Chairman
and Chairman of the Board
EXHIBIT 31.2
CERTIFICATIONS
I, George Cardoza, certify that:
1. I have reviewed this Annual Report on Form 10-K of NeoGenomics, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of,
and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)), and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal
control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
March 3, 2015
/s/ George A. Cardoza
George A. Cardoza
Chief Financial Officer
EXHIBIT 31.3
CERTIFICATIONS
I, Edwin F. Weidig III, certify that:
1. I have reviewed this Annual Report on Form 10-K of NeoGenomics, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of,
and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)), and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal
control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
March 3, 2015
/s/ Edwin F. Weidig, III
Edwin F. Weidig, III
Director of Finance and Principal Accounting
Officer
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 32.1
In connection with the Annual Report of NeoGenomics, Inc. (the “Company”) on Form 10-K for the fiscal
year ended December 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the
“Report”), each of the undersigned, in the capacities and on the dates indicated below, hereby certify pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his
knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act
of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition
and results of operations of the Company.
Date: March 3, 2015
Date: March 3, 2015
Date: March 3, 2015
/s/ Douglas M. VanOort
Douglas VanOort
Chief Executive Officer
/s/ George A. Cardoza
George Cardoza
Chief Financial Officer
/s/ Edwin F. Weidig, III
Edwin F. Weidig, III
Director of Finance and
Principal Accounting Officer
The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. § 1350, and
is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be
incorporated by reference into any filing of the Company, whether made before or after the date hereof,
regardless of any general incorporation language in such filing. A signed original of this written statement
required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature
that appears in typed form within the electronic version of this written statement required by Section 906, has
been provided to the Company and will be retained by the Company and furnished to the Securities and
Exchange Commission or its staff upon request.
CORPORATE INFORMATION
Board of Directors and Officers
Douglas M. VanOort
Chairman and CEO
Michael T. Dent, M.D.
Director
Steven C. Jones
Director
Bruce K. Crowther
Director
Raymond R. Hipp
Director
Kevin C. Johnson
Director
William J. Robison
Director
Robert J. Shovlin
Chief Operating Officer
Maher Albitar, M.D.
Chief Medical Officer
Steven G. Brodie, Ph.D.
Chief Scientific Officer
George A. Cardoza
Chief Financial Officer
Steven A. Ross
Chief Information Officer
Edwin F. Weidig III
Director of Finance and
Principal Accounting Officer
Robert H. Horel
Vice President and General
Manager of Path Logic
Jennifer M. Balliet
Vice President,
Human Resources
Corporate Offices
Annual Meeting
Forward Looking Statements
NeoGenomics annual
meeting of stockholders
will be held at the Hyatt
Regency Coconut Point
Resort at 5001 Coconut Road,
Bonita Springs, Florida 34134
on Friday June 12, 2015 at
10:00AM EST.
Stock Listing and
Information
The Company’s stock trades
on the Nasdaq Capital Market
under the symbol “NEO”.
12701 Commonwealth Drive
Suite 9
Fort Myers, FL 33913
Legal Counsel
K&L Gates, LLP
Miami, FL
Transfer Agent
Standard Registrar
and Title Company
12528 South 1840 East
Draper, UT 84020
Phone: (801) 571-8844
Independent Registered
Public Accounting Firm
Crowe Horwath LLP
Tampa, FL
The Letter to Shareholders contained in
this annual report contains “forward
looking statements” within the meaning
of the Private Litigation Reform Act of
1995, particularly statements regarding
the future success of our products and
operations; the future focus of healthcare
and the success of new initiatives and
goals. These “forward-looking statements”
are based on management’s current
expectations of future events and are
subject to a number of risks and
uncertainties that could cause actual
results to differ materially and adversely
from those set forth in or implied by
forward-looking statement. These risks
and uncertainties include, but are not
limited to: the risk that our commercial
growth may not continue; the risk that
the value or molecular diagnostic
products may decline; the risk that our
new initiatives do not succeed or we do
not accomplish our goals; and other
factors discussed as under the deeding
“Risk Factors” contained in Item 1A in our
Annual Report on Form 10-K for the year
ended December 31, 2014, filed with the
Securities and Exchange Commission, as
well as any updates to those risk factors
filed from time to time in our Quarterly
Reports on form 10-Q or Current Reports
on Form 8-K. All information in the
Letter to Shareholders is as of release,
and NeoGenomics undertakes no duty
to update this information unless required
by law.