neo-10ka_20151231.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-K/A

Amendment No. 1

 

(Mark One)

x

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2015

or

o

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

 

74-2897368

(State or other jurisdiction of

incorporation or organization)

 

(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   o     No   x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.    Yes   o     No   x

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   x     No   o

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   x     No   o

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.   o

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

 

o

  

Accelerated Filer

 

x

 

 

 

 

Non-accelerated filer

 

o  (Do not check if smaller reporting company)

  

Smaller reporting company

 

o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act):     o   Yes     x   No

As of June 30, 2015, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was approximately $327.3 million, based on the closing price of the registrant’s common stock of $5.41 per share on June 30, 2015.

The number of shares outstanding of the registrant’s Common Stock, par value $0.001 per share, as of March 9, 2016: 75,863,608

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s Proxy Statement for its 2016 Annual Meeting of stockholders are incorporated by reference into Part III of this Annual Report on Form 10-K.  

 

 

 


NEOGENOMICS, INC.

 

EXPLANATORY NOTE

We are filing this Amendment No. 1 on Form 10-K/A (“Amendment”) to our Annual Report on Form 10-K for the fiscal year ended December 31, 2015, which was filed with the Securities and Exchange Commission on March 15, 2016 (“Original Form 10-K”).  This amendment is filed to (i) correct an error on the cover page of the Original Form 10-K relating to the aggregate market value of our common stock held by non-affiliates, (ii) correct a typographical error in the date of the Report of Independent Registered Public Accounting Firm of Kingery & Crouse P.A., contained in Item 8 of the Original Form 10-K.  Such date is corrected by this amendment from February 24, 2016 to February 24, 2014 and (iii) correct a typographical error on page 103 of the Original Form 10-K (page 38 of the Amendment) under the Capital Lease Obligations section of Note K - Commitments and Contingencies to correct the reference to the table of future minimum lease payments under capital leases and correctly reference that information to where it appears in Note F.  

Pursuant to Rule 12b-15 promulgated under the Securities Exchange Act of 1934, as amended, we have included the entire text of Item 8 of the Form 10-K in this Amendment. However, there have been no changes to the text of such item other than the changes stated in the immediately preceding paragraph. Furthermore, there have been no changes to the XBRL data filed in Exhibit 101.1 of the Original Form 10-K.  

Except as expressly set forth above, this Amendment does not, and does not purport to, amend, update or restate the information in any other item of the Original Form 10-K or reflect any events that have occurred after the filing of the Original Form 10-K.

 

 

 

 

 

 

 

 

 

 

 

 


NEOGENOMICS, INC.

 

 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

Page

Report of Independent Registered Public Accounting Firm – Crowe Horwath LLP

 

4

Report of Independent Registered Public Accounting Firm – Kingery and Crouse P.A.

 

5

Consolidated Balance Sheets as of December 31, 2015 and 2014.

 

6

Consolidated Statements of Operations for the years ended December 31, 2015, 2014 and 2013.

 

7

Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity for the years ended December 31, 2015, 2014 and 2013.

 

8

Consolidated Statements of Cash Flows for the years ended December 31, 2015, 2014 and 2013.

 

9

Notes to Consolidated Financial Statements.

 

10

 


 

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 sheets of NeoGenomics, Inc. and subsidiaries (“NeoGenomics”) as of December 31, 2015 and 2014, and the related consolidated statements of operations, redeemable convertible preferred stock and stockholders' equity, and cash flows for the years then ended. We also have audited NeoGenomics’ internal control over financial reporting as of December 31, 2015, 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 audits 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 Clarient, Inc. acquired during 2015, 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, 2015 and 2014, and the results of its operations and its cash flows for the years 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, 2015, 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 15, 2016

 

4

 


 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of NeoGenomics, Inc.:

We have audited the accompanying consolidated statements of operations, stockholders’ equity, and cash flows of NeoGenomics, Inc. and its subsidiaries (the “Company”) for the year ended December 31, 2013. 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 audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit 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 audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated results of operations and cash flows of NeoGenomics, Inc. and its subsidiaries for the year ended December 31, 2013, 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

 

5


NEOGENOMICS, INC.

 

CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)

 

  

 

As of December 31,

 

 

 

2015

 

 

2014

 

ASSETS

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

23,420

 

 

$

33,689

 

Accounts receivable (net of allowance for doubtful accounts of $4,759 and

   $4,180, respectively)

 

 

48,943

 

 

 

20,475

 

Inventories

 

 

5,108

 

 

 

2,616

 

Deferred income tax asset

 

 

16,668

 

 

 

821

 

Other current assets

 

 

4,889

 

 

 

1,141

 

Total current assets

 

 

99,028

 

 

 

58,742

 

Property and equipment (net of accumulated depreciation of $26,534 and

   $19,822, respectively)

 

 

34,577

 

 

 

15,082

 

Intangible assets, net

 

 

87,800

 

 

 

4,212

 

Goodwill

 

 

146,421

 

 

 

2,929

 

Other assets

 

 

129

 

 

 

141

 

Total assets

 

$

367,955

 

 

$

81,106

 

LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK

   AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$

12,464

 

 

$

6,294

 

Accrued compensation

 

 

6,217

 

 

 

3,897

 

Accrued expenses and other liabilities

 

 

7,374

 

 

 

1,208

 

Revolving credit facility, net

 

 

8,869

 

 

 

 

Short-term portion of car loans

 

 

50

 

 

 

66

 

Short-term portion of capital leases

 

 

4,534

 

 

 

3,158

 

Short-term portion of term loan

 

 

550

 

 

 

 

Total current liabilities

 

 

40,058

 

 

 

14,623

 

Long-term liabilities

 

 

 

 

 

 

 

 

Long-term portion of car loans

 

 

82

 

 

 

64

 

Long-term portion of capital leases

 

 

5,040

 

 

 

5,193

 

Long-term portion of term loan, net

 

 

52,254

 

 

 

 

Deferred income tax liability

 

 

32,409

 

 

 

821

 

Total long-term liabilities

 

 

89,785

 

 

 

6,078

 

Total liabilities

 

 

129,843

 

 

 

20,701

 

Commitments and contingencies - see Note K

 

 

 

 

 

 

 

 

Redeemable convertible preferred stock:

 

 

 

 

 

 

 

 

Series A Redeemable Convertible Preferred Stock, $0.01 par value,

   (50,000,000 and 10,000,000 shares authorized; and 14,666,667 and no shares

   issued and outstanding, respectively)

 

 

28,602

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

 

 

Common stock, $.001 par value, (250,000,000 and 100,000,000 shares

   authorized; 75,820,307 and  60,242,818 shares issued and

   outstanding, respectively)

 

 

76

 

 

 

60

 

Additional paid-in capital

 

 

231,375

 

 

 

79,751

 

Accumulated deficit

 

 

(21,941

)

 

 

(19,406

)

Total stockholders’ equity

 

 

209,510

 

 

 

60,405

 

Total liabilities, redeemable convertible preferred stock and

   stockholders' equity

 

$

367,955

 

 

$

81,106

 

 

6

 


NEOGENOMICS, INC.

 

 

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

 

 

 

For the years ended December 31,

 

 

 

2015

 

 

2014

 

 

2013

 

NET REVENUE

 

$

99,802

 

 

$

87,069

 

 

$

66,467

 

Cost of revenue

 

 

56,046

 

 

 

46,355

 

 

 

34,730

 

GROSS MARGIN

 

 

43,756

 

 

 

40,714

 

 

 

31,737

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative

 

 

33,631

 

 

 

23,808

 

 

 

17,397

 

Research and development

 

 

4,198

 

 

 

2,689

 

 

 

2,440

 

Sales and marketing

 

 

11,562

 

 

 

11,999

 

 

 

8,726

 

Total operating expenses

 

 

49,391

 

 

 

38,496

 

 

 

28,563

 

INCOME (LOSS) FROM OPERATIONS

 

 

(5,635

)

 

 

2,218

 

 

 

3,174

 

Interest expense, net

 

 

854

 

 

 

985

 

 

 

989

 

Other (income) expense

 

 

(2,000

)

 

 

(56

)

 

 

 

Income (loss) before taxes

 

 

(4,489

)

 

 

1,289

 

 

 

2,185

 

Income tax (benefit) expense

 

 

(1,954

)

 

 

157

 

 

 

152

 

NET INCOME (LOSS)

 

 

(2,535

)

 

 

1,132

 

 

 

2,033

 

Deemed dividends on preferred stock

 

 

40

 

 

 

 

 

 

 

Amortization of preferred stock beneficial conversion feature

 

 

82

 

 

 

 

 

 

 

NET INCOME (LOSS) ATTRIBUTABLE TO COMMON

   STOCKHOLDERS

 

$

(2,657

)

 

$

1,132

 

 

$

2,033

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET EARNINGS (LOSS) PER SHARE ATTRIBUTABLE TO

   COMMON STOCKHOLDERS

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.04

)

 

$

0.02

 

 

$

0.04

 

Diluted

 

$

(0.04

)

 

$

0.02

 

 

$

0.04

 

 

 

 

 

 

 

 

 

 

 

 

 

 

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

60,526

 

 

 

53,483

 

 

 

48,263

 

Diluted

 

 

60,526

 

 

 

56,016

 

 

 

52,775

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to consolidated financial statements.

 

 

7

 


NEOGENOMICS, INC.

 

CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY

(In thousands, except share amounts)

 

 

 

Series A

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Redeemable Convertible Preferred Stock

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Total

 

BALANCE, DECEMBER 31, 2012

 

 

 

 

$

 

 

 

45,280,280

 

 

$

45

 

 

$

31,742

 

 

$

(22,571

)

 

$

9,216

 

Common stock issuance ESPP plan

 

 

 

 

 

 

 

 

76,595

 

 

 

 

 

 

230

 

 

 

 

 

 

230

 

Stock issuance fees and expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,037

)

 

 

 

 

 

(1,037

)

Issuance of stock for stock options

 

 

 

 

 

 

 

 

438,998

 

 

 

1

 

 

 

371

 

 

 

 

 

 

372

 

Issuance of common stock for cash

 

 

 

 

 

 

 

 

3,322,500

 

 

 

3

 

 

 

9,965

 

 

 

 

 

 

9,968

 

Stock compensation expense - warrants

 

 

 

 

 

 

 

 

 

 

 

 

 

 

263

 

 

 

 

 

 

263

 

Stock compensation expense - options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

666

 

 

 

 

 

 

666

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,033

 

 

 

2,033

 

BALANCE, DECEMBER 31, 2013

 

 

 

 

$

 

 

 

49,118,373

 

 

$

49

 

 

$

42,200

 

 

$

(20,538

)

 

$

21,711

 

Common stock issuance ESPP plan

 

 

 

 

 

 

 

 

90,285

 

 

 

 

 

 

353

 

 

 

 

 

 

353

 

Stock issuance fees and expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,776

)

 

 

 

 

 

(2,776

)

Issuance of stock for warrants

 

 

 

 

 

 

 

 

458,333

 

 

 

1

 

 

 

455

 

 

 

 

 

 

456

 

Issuance of restricted stock

 

 

 

 

 

 

 

 

138,500

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of stock for stock options

 

 

 

 

 

 

 

 

2,387,327

 

 

 

2

 

 

 

1,805

 

 

 

 

 

 

1,807

 

Issuance of common stock for cash

 

 

 

 

 

 

 

 

8,050,000

 

 

 

8

 

 

 

37,022

 

 

 

 

 

 

37,030

 

Stock compensation expense - warrants

 

 

 

 

 

 

 

 

 

 

 

 

 

 

51

 

 

 

 

 

 

51

 

Stock compensation expense – options and

   restricted stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

641

 

 

 

 

 

 

641

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,132

 

 

 

1,132

 

BALANCE, DECEMBER 31, 2014

 

 

 

 

$

 

 

 

60,242,818

 

 

$

60

 

 

$

79,751

 

 

$

(19,406

)

 

$

60,405

 

Common stock issuance ESPP plan

 

 

 

 

 

 

 

 

73,958

 

 

 

 

 

 

369

 

 

 

 

 

 

369

 

Issuance of Series A redeemable convertible

   preferred stock

 

 

14,666,667

 

 

 

28,480

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock issuance fees and expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(148

)

 

 

 

 

 

(148

)

Issuance of restricted stock

 

 

 

 

 

 

 

 

11,440

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of stock for stock options

 

 

 

 

 

 

 

 

492,091

 

 

 

1

 

 

 

713

 

 

 

 

 

 

714

 

Tax benefit from stock option award activity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

118

 

 

 

 

 

 

118

 

Issuance of common stock to fund acquisition

 

 

 

 

 

 

 

 

15,000,000

 

 

 

15

 

 

 

102,495

 

 

 

 

 

 

102,510

 

Beneficial conversion feature

 

 

 

 

 

 

 

 

 

 

 

 

 

 

44,720

 

 

 

 

 

 

44,720

 

Deemed dividends on preferred stock

 

 

 

 

 

40

 

 

 

 

 

 

 

 

 

(40

)

 

 

 

 

 

(40

)

Amortization of preferred stock beneficial

   conversion feature

 

 

 

 

 

82

 

 

 

 

 

 

 

 

 

(82

)

 

 

 

 

 

(82

)

Stock compensation expense - warrants

 

 

 

 

 

 

 

 

 

 

 

 

 

 

590

 

 

 

 

 

 

590

 

Stock compensation expense - options and

   restricted stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,889

 

 

 

 

 

 

2,889

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,535

)

 

 

(2,535

)

BALANCE, DECEMBER 31, 2015

 

 

14,666,667

 

 

$

28,602

 

 

 

75,820,307

 

 

$

76

 

 

$

231,375

 

 

$

(21,941

)

 

$

209,510

 

 

See notes to consolidated financial statements.

 

 

8

 


NEOGENOMICS, INC.

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

 

 

 

For the years ended December 31,

 

 

 

2015

 

 

2014

 

 

2013

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(2,535

)

 

$

1,132

 

 

$

2,033

 

Adjustments to reconcile net income (loss) to net cash provided by

   operating activities, net of business acquisition:

 

 

 

 

 

 

 

 

 

 

 

 

Impact of tax valuation allowance

 

 

(2,066

)

 

 

 

 

 

 

Depreciation

 

 

6,730

 

 

 

5,345

 

 

 

4,189

 

Amortization of intangibles

 

 

412

 

 

 

295

 

 

 

223

 

Amortization of debt issue costs

 

 

 

 

 

66

 

 

 

49

 

Stock based compensation – options and restricted stock

 

 

2,889

 

 

 

641

 

 

 

666

 

Stock based compensation – warrants

 

 

590

 

 

 

51

 

 

 

263

 

Provision for bad debts

 

 

2,318

 

 

 

2,437

 

 

 

2,797

 

Changes in assets and liabilities, net of business acquisition:

 

 

 

 

 

 

 

 

 

 

 

 

(Increase) in accounts receivable, net of write-offs

 

 

(3,215

)

 

 

(2,770

)

 

 

(7,416

)

(Increase) in inventories

 

 

(896

)

 

 

(229

)

 

 

(442

)

Decrease (increase) in other assets

 

 

11

 

 

 

41

 

 

 

(71

)

(Increase) in other current assets

 

 

(3,748

)

 

 

(25

)

 

 

(932

)

Increase in accounts payable and other liabilities

 

 

5,903

 

 

 

2,466

 

 

 

868

 

Net cash provided by operating activities

 

 

6,393

 

 

 

9,450

 

 

 

2,227

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

 

 

 

 

Acquisition, net of cash acquired of $890 and $79

 

 

(72,940

)

 

 

(5,830

)

 

 

 

Purchases of property and equipment

 

 

(2,215

)

 

 

(3,772

)

 

 

(2,011

)

Net cash used in investing activities

 

 

(75,155

)

 

 

(9,602

)

 

 

(2,011

)

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

 

 

 

 

Advances from (repayments to) revolving credit facility

 

 

10,002

 

 

 

(4,282

)

 

 

(4,177

)

Repayment of capital lease obligations

 

 

(4,115

)

 

 

(3,581

)

 

 

(2,606

)

Proceeds from term loan

 

 

55,022

 

 

 

 

 

 

 

Payments of debt issue costs

 

 

(3,351

)

 

 

 

 

 

 

Issuance of common stock for the exercise of options, warrants and

   ESPP shares, net of transaction expenses

 

 

935

 

 

 

2,616

 

 

 

515

 

Issuance of common stock for cash , net of transaction expenses

 

 

 

 

 

34,254

 

 

 

9,018

 

Net cash provided by financing activities

 

 

58,493

 

 

 

29,007

 

 

 

2,750

 

Net change in cash and cash equivalents

 

 

(10,269

)

 

 

28,855

 

 

 

2,966

 

Cash and cash equivalent, beginning of year

 

 

33,689

 

 

 

4,834

 

 

 

1,868

 

Cash and cash equivalents, end of year

 

$

23,420

 

 

$

33,689

 

 

$

4,834

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

 

 

 

 

Interest paid

 

$

911

 

 

$

981

 

 

$

945

 

Income taxes paid

 

 

25

 

 

 

177

 

 

 

17

 

Supplemental disclosure of non-cash investing and financing

   information:

 

 

 

 

 

 

 

 

 

 

 

 

Equipment acquired under capital lease/loan obligations

 

 

4,813

 

 

 

5,884

 

 

 

3,377

 

Fair value of common stock issued to fund acquisition

 

 

102,510

 

 

 

 

 

 

 

Fair value of preferred stock issued to fund acquisition

 

 

73,200

 

 

 

 

 

 

 

 

See notes to consolidated financial statement

 

 

9

 


NEOGENOMICS INC.

NOTES TO THE FINANCIAL STATEMENTS

December 31, 2015, 2014 and 2013

 

 

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”), Path Labs LLC., a Delaware Limited Liability Corporation (“Path Logic”) and Clarient Inc. and its wholly-owned subsidiary Clarient Diagnostic Services, Inc. (“Clarient”), (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, 2015. Also, at December 31, 2015, all of our services were provided within the United States and all of our assets were located in the United States.

Reclassification of Prior Year Presentation

Certain prior year amounts have been reclassified for consistency with the current period presentation.  For the year ended December 31, 2015, the Company reclassified to auto loans certain amounts previously reported with capital leases and separate other income from interest expense.  The Company revised the classification on the Consolidated Balance Sheet and on the Consolidated Statement of Operations.  These changes in classification do not materially affect previously reported cash flows in the Consolidated Statements of Cash Flows, and had no net effect on the previously reported Consolidated Balance Sheet or Statements of Operations for any period.

 

 

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.

 

 

10


NEOGENOMICS INC.

NOTES TO THE FINANCIAL STATEMENTS

December 31, 2015, 2014 and 2013

 

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 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):

 

 

 

For the Years ended December 31,

 

 

 

2015

 

 

2014

 

 

2013

 

Gross service revenues

 

$

225,057

 

 

$

224,460

 

 

$

173,784

 

Total contractual adjustments and discounts

 

 

(125,255

)

 

 

(137,391

)

 

 

(107,317

)

Net service revenues

 

$

99,802

 

 

$

87,069

 

 

$

66,467

 

 

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 FedEx to ship specimens to our facility. We had approximately $3.6 million, $3.0 million and $2.9 million in outsourced shipping expenses for the years ended December 31, 2015, 2014 and 2013, 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, 2015, 2014 and 2013.

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 billed 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,

11


NEOGENOMICS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2015, 2014 and 2013

 

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):

 

 

 

Years Ended December 31,

 

 

 

2015

 

 

2014

 

 

2013

 

Beginning balance – allowance for doubtful accounts

 

$

4,180

 

 

$

4,540

 

 

$

3,002

 

Provision for doubtful accounts

 

 

2,318

 

 

 

2,437

 

 

 

2,797

 

Write-offs

 

 

(1,739

)

 

 

(2,797

)

 

 

(1,259

)

Ending balance – allowance for doubtful accounts

 

$

4,759

 

 

$

4,180

 

 

$

4,540

 

 

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

The carrying value of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and other liabilities, and other current assets and liabilities, including our revolving credit facility 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, 2015, 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 and term debt approximates its fair value based on the current market conditions for similar instruments.

Concentrations of Credit Risk

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 year ended December 31, 2015, no clients accounted for more than 5% of revenue.  For the years ended December 31, 2014 and 2013, a large oncology practice with multiple locations accounted for 10.1% and 15.8%, respectively, of total revenue. All other clients were less than 10% of total revenue individually. For the years ended December 31, 2015, 2014 and 2013, revenue derived from the State of Florida accounted for 20.5%, 25.8% and 30.6%, 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).

Other Current Assets

As of December 31, 2015 and 2014, other current assets consist primarily of prepaid expenses relating to contracts for laboratory and computer equipment maintenance.

12

 


NEOGENOMICS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2015, 2014 and 2013

 

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.  We perform a fair value assessment on property and equipment acquired in a business combination and record the fair value as the cost basis for those assets.

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 five classes of intangible assets and each class of intangible assets is amortized over its estimated service period 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 primarily related to the customer relationships acquired through the acquisition of Clarient, Inc. and Path Labs, LLC, the Clarient trade name 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 fourth quarter resulted in no impairment losses.

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, 2015, 2014 and 2013.

Debt Issuance Costs

We record debt issuance costs related to our debt liabilities as direct deductions from the carrying amount of the debt pursuant to the adoption of ASU 2015-03, Interest – Imputation of interest.  The costs are amortized to interest expense over the life of the debt using the effective interest method.  Our revolving line of credit is recorded as a short term liability due to the existence of a subjective

13

 


NEOGENOMICS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2015, 2014 and 2013

 

acceleration clause, we will also present the debt issuance costs associated with this liability as a direct deduction from the carrying amount and amortize the costs to interest expense over the life of the revolver using the effective interest rate method.

The retrospective application of the adoption of ASU 2015-03 did not have an impact on the December 31, 2014 consolidated balance sheet as the Company did not have debt issuance costs at that date. The adoption resulted in the classification of approximately $3.5 million of debt issuance costs as a direct reduction of the Company’s long-term debt and revolving credit facility on the December 31, 2015 consolidated balance sheet.

Series A Redeemable Convertible Preferred Stock

The Company has classified the Series A Redeemable Convertible Preferred Stock (‘Series A Preferred Stock”) as temporary equity on the consolidated balance sheet due to certain deemed liquidation events that are outside the Company’s control.  These events include the following:

 

·

Acquisition of 50% or more of the voting securities of the Company

 

·

Consolidation, merger or corporate reorganization in which the stockholders of the Company immediately prior to such consolidation, merger or reorganization own less than 50% of the voting power immediately after the consolidation, merger or reorganization

 

·

Sale, lease license, transferor disposition of all or substantially all of the assets, technology or intellectual property of the Company

We evaluated our Series A Preferred Stock upon issuance in order to determine classification as to permanent or temporary equity and whether or not the instrument contains an embedded derivative that requires bifurcation. This analysis followed the whole instrument approach which compares an individual feature against the entire instrument which includes that feature. This analysis was based on a consideration of the economic characteristics and risk of the Series A Preferred Stock.

We evaluated all of the stated and implied substantive terms and features, including: (i) redemption (Purchase Call Option) on the Series A Preferred Stock allowing the Company to redeem the Series A Preferred Stock at any time, (ii) required redemption contingent if we raise capital, (iii) required redemption in the event of certain deemed liquidation events (in essence, any change in control of the Company, (iv) conversion (Written Call Option) on the underlying shares if after three years the stock trades at $8.00 for thirty trading days, and (v) conversion (Contingent Forward) on the underlying shares automatically at the ten year anniversary of the issue date.  

As a result of this analysis, we concluded that the Series A Preferred Stock represented an equity host and, therefore, the redemption feature of the Series A Preferred Stock was not considered to be clearly and closely related to the associated equity host instrument, however the redemption features did not meet the net settlement criteria of a derivative and, therefore, were not considered embedded derivatives that required bifurcation.

We also concluded that the conversion rights under the Series A Preferred Stock were clearly and closely related to the equity host instrument.  Accordingly, the conversion rights features on the Series A Preferred Stock were not considered an embedded derivative that required bifurcation.

Beneficial Conversion Feature

The issuance of the Company's Series A Preferred Stock generated a beneficial conversion feature, which arises when a debt or equity security is issued with an embedded conversion option that is beneficial to the investor or in the money at inception because the conversion option has an effective strike price that is less than the market price of the underlying stock at the commitment date. We recognized this beneficial conversion feature by allocating the intrinsic value of the conversion option, which is the number of shares of common stock available upon conversion multiplied by the difference between the effective conversion price per share and the fair value of common stock per share on the commitment date, to additional paid-in capital, resulting in a discount on the Series A Preferred Stock. NeoGenomics is accreting the discount over three years from the date of issuance through the earliest conversion date, which is three years.  Accretion expense is recognized as dividend equivalents over the three year period.

14

 


NEOGENOMICS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2015, 2014 and 2013

 

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 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, 2015, 2014 and 2013, 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 measure compensation expense for stock-based awards to employees non-employee contracted physicians and directors based upon the awards’ initial grant-date fair value.  The estimated grant-date fair value of the award is recognized as expense over the requisite service period using the straight-line method. The fair value of awards to non-employees are then market-to-market each reporting period until vesting criteria are met.  

We estimate the fair value of stock options and warrants 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 avera