UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q





(Mark
One)





R
              QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      the quarterly period ended March 31, 2010.or£
              TRANSITION REPORT PURSUANT TO
      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      the transition period from _______________ to _______________





Commission
File Number: 333-72097





NEOGENOMICS,
INC.


(Exact
name of registrant as specified in its charter)





Nevada
                      
                      74-2897368(State
      or other jurisdiction of
                      
                      (I.R.S.
      Employer Identification No.)incorporation
      or organization)12701
      Commonwealth Drive, Suite 9, Fort Myers,Florida
                      
                      33913(Address
      of principal executive offices)
                      
                      (Zip
      Code)





(239)
768-0600





(Registrant’s
telephone number, including area code)





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 R No £





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, 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 £ No £





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 £
                    Accelerated
      filer £
                    Non-accelerated
      filer £
                    Smaller
      reporting company R(Do
      not check if a smaller reporting company)





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes £ No R





As of
April 29, 2010, the registrant had 37,278,667 shares of Common Stock, par value
$0.001 per share outstanding.










TABLE
OF CONTENTS





PART
      I FINANCIAL INFORMATIONItem
      1. Financial Statements (unaudited)
                4Item 2. Management’s Discussion
      and Analysis ofFinancial Condition and Results
      of Operations
                13Item
      3. Quantitative and Qualitative Disclosures About Market
    Risk
                20Item
      4. Controls and Procedures
                20Item
      4T. Controls and Procedures
                20PART
      II OTHER INFORMATIONItem
      1. Legal Proceedings
                21Item
      1A. Risk Factors
                21Item
      2. Unregistered Sales of Equity Securities and Use of
    Proceeds
                21Item
      3. Defaults Upon Senior Securities
                21Item
      4. Removed and Reserved
                21Item
      5. Other Information
                21Item
      6. Exhibits
                22SIGNATURES




2


FORWARD-LOOKING
STATEMENTS





The
information in this Quarterly Report on Form 10-Q contains “forward-looking
statements” relating to NeoGenomics, Inc., a Nevada corporation (referred to
individually as the “Parent Company” or collectively with all of its
subsidiaries as “NeoGenomics” or the “Company”) 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” represent the Company’s current expectations or
beliefs including, but not limited to, statements concerning the Company’s
operations, performance, financial condition and growth. For this purpose, any
statements contained in this Form 10-Q that are not statements of historical
fact are forward-looking statements. Without limiting the generality of the
foregoing, words such as “anticipates,” “believes,” “estimates,” “expects,”
“intends,” “may,” “plans,” “projects,” “will,” “would” or the negative or other
comparable terminology are intended to identify forward-looking statements,
although not all forward-looking statements contain these identifying words.
These statements by their nature involve substantial risks and uncertainties,
such as credit losses, dependence on management and key personnel, variability
of quarterly results, competition and the ability of the Company to continue its
growth strategy, certain of which are beyond the Company’s control. Should one
or more of these risks or uncertainties materialize or should the underlying
assumptions prove incorrect, actual outcomes and results could differ materially
from those indicated in the forward-looking statements.





Any
forward-looking statement speaks only as of the date on which such statement is
made, and the Company undertakes no obligation to update any forward-looking
statement or statements to reflect events or circumstances after the date on
which such statement is made or to reflect the occurrence of unanticipated
events. New factors emerge from time to time and it is not possible for
management to predict all of such factors, nor can it assess the impact of each
such factor on the business or the extent to which any factor, or combination of
factors, may cause actual results to differ materially from those contained in
any forward-looking statements.


3


PART
I — FINANCIAL INFORMATION





Item 1. Financial
Statements





NEOGENOMICS,
INC.


CONDENSED
CONSOLIDATED BALANCE SHEETS


(in
thousands, except share data)




March
      31, 2010
              
              
              December
      31, 2009(unaudited)ASSETSCURRENT
      ASSETSCash
      and cash equivalents
              
              $
              1,661
              
              
              $
              1,631Restricted
      cash
              
              
              1,000
              
              
              
              1,000Accounts
      receivable (net of allowance for doubtful accounts of $695 and $589,
      respectively)
              
              
              5,492
              
              
              
              4,632Inventories
              
              
              582
              
              
              
              602Other
      current assets
              
              
              515
              
              
              
              655Total
      current assets
              
              
              9,250
              
              
              
              8,520PROPERTY AND EQUIPMENT
      (net of accumulated depreciation of $3,202 and $2,787
      respectively)
              
              
              4,882
              
              
              
              4,340OTHER
      ASSETS
              
              
              86
              
              
              
              85TOTAL
      ASSETS
              
              $
              14,218
              
              
              $
              12,945LIABILITIES AND STOCKHOLDERS’
      EQUITYCURRENT
      LIABILITIESAccounts
      payable
              
              $
              1,762
              
              
              $
              1,969Accrued
      compensation
              
              
              1,007
              
              
              
              1,308Accrued
      expenses and other liabilities
              
              
              439
              
              
              
              465Short-term
      portion of equipment capital leases
              
              
              1,823
              
              
              
              1,482Revolving
      credit line
              
              
              2,453
              
              
              
              552Total
      current liabilities
              
              
              7,484
              
              
              
              5,776LONG
      TERM LIABILITIESLong-term
      portion of equipment capital leases
              
              
              1,631
              
              
              
              1,526TOTAL
      LIABILITIES
              
              
              9,115
              
              
              
              7,302Commitments
      and contingenciesSTOCKHOLDERS’
      EQUITYCommon
      stock, $.001 par value, (100,000,000 shares authorized; 37,270,055 and
      37,185,078 shares issued and outstanding at March 31, 2010 and December
      31, 2009, respectively)
              
              
              37
              
              
              
              37Additional
      paid-in capital
              
              
              23,972
              
              
              
              23,762Accumulated
      deficit
              
              
              (18,906
              )
              
              
              (18,156
              )Total stockholders’ equity
              
              
              5,103
              
              
              
              5,643TOTAL
      LIABILITIES AND STOCKHOLDERS’ EQUITY
              
              $
              14,218
              
              
              $
              12,945


See
notes to unaudited condensed consolidated financial
statements.





4


NEOGENOMICS,
INC.


CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS


(in
thousands, except per share amounts)


(unaudited)




For
      the Three Months Ended March 31,2010
                
                
                2009NET
      REVENUE
                
                $
                8,418
                
                
                $
                6,914COST
      OF REVENUE
                
                
                4,344
                
                
                
                3,091GROSS
      MARGIN
                
                
                4,074
                
                
                
                3,823OPERATING
      EXPENSESGeneral
      and administrative
                
                
                2,902
                
                
                
                2,341Sales
      and marketing
                
                
                1,763
                
                
                
                1,334Total
      operating expenses
                
                
                4,665
                
                
                
                3,675INCOME
      / (LOSS) FROM OPERATIONS
                
                
                (591
                )
                
                
                148INTEREST
      INCOME (EXPENSE) - NET
                
                
                (159
                )
                
                
                (115
                )NET
      INCOME (LOSS)
                
                $
                (750
                )
                
                $
                33NET
      INCOME (LOSS) PER SHARE-      Basic
                
                $
                (0.02
                )
                
                $
                0.00-      Diluted
                
                $
                (0.02
                )
                
                $
                0.00WEIGHTED
      AVERAGE NUMBER
                  OF
      SHARES OUTSTANDING-      Basic
                
                
                37,220
                
                
                
                32,173-      Diluted
                
                
                37,220
                
                
                
                35,630





See notes
to unaudited condensed consolidated financial statements.


5


NEOGENOMICS,
INC.


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(in
thousands)


(unaudited)





For
      the Three Months Ended
                  March
      31,2010
                
                
                2009CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      income (loss)
                
                $
                (750
                )
                
                $
                33Adjustments
      to reconcile net income (loss) to net cash used in provided by operating
      activities:Provision
      for bad debts
                
                
                540
                
                
                
                508Depreciation
                
                
                415
                
                
                
                237Amortization
      of debt issue costs
                
                
                18
                
                
                
                13Stock-based
      compensation
                
                
                109
                
                
                
                58Non-cash
      consulting expenses
                
                
                19
                
                
                
                20Changes
      in assets and liabilities, net:(Increase)
      decrease in accounts receivable, net of write-offs
                
                
                (1,401
                )
                
                
                (1,550
                )(Increase)
      decrease in inventories
                
                
                20
                
                
                
                (86
                )(Increase)
      decrease in prepaid expenses
                
                
                122
                
                
                
                (28
                )(Increase)
      decrease in deposits
                
                
                -
                
                
                
                (8
                )Increase
      (decrease) in accounts payable and other liabilities
                
                
                (656
                )
                
                
                472NET
      CASH USED IN OPERATING ACTIVITIES
                
                
                (1,564
                )
                
                
                (331
                )CASH
      FLOWS FROM INVESTING ACTIVITIESPurchases
      of property and equipment
                
                
                (114
                )
                
                
                (6
                )NET
      CASH USED IN INVESTING ACTIVITIES
                
                
                (114
                )
                
                
                (6
                )CASH
      FLOWS FROM FINANCING ACTIVITIESProceeds
      from capital lease obligations
                
                
                25
                
                
                
                97Advances
      on credit facility
                
                
                1,901
                
                
                
                272Repayment
      of capital leases
                
                
                (300
                )
                
                
                (138
                )Issuance
      of common stock and warrants for cash, net of transaction
      expenses
                
                
                82
                
                
                
                495NET
      CASH PROVIDED BY FINANCING ACTIVITIES
                
                
                1,708
                
                
                
                726NET
      INCREASE IN CASH AND CASH EQUIVALENTS
                
                
                30
                
                
                
                389CASH
      AND CASH EQUIVALENTS, BEGINNING OF PERIOD
                
                
                1,631
                
                
                
                468CASH
      AND CASH EQUIVALENTS, END OF PERIOD
                
                $
                1,661
                
                
                $
                857SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATIONInterest
      paid
                
                $
                144
                
                
                $
                100Income
      taxes paid
                
                $
                —
                
                
                $
                —NON-CASH
      INVESTING AND FINANCING ACTIVITIESEquipment
      leased under capital leases
                
                $
                746
                
                
                $
                179Equipment
      purchased and payables settled with issuance of restricted common
      stock
                
                $
                -
                
                
                $
                186





See notes
to unaudited condensed consolidated financial statements.


6


NEOGENOMICS,
INC.




NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS




AS
OF MARCH 31, 2010





NOTE A — NATURE OF BUSINESS AND BASIS
OF FINANCIAL STATEMENT PRESENTATION





Nature of
Business





NeoGenomics,
Inc., a Nevada corporation (the “Parent”), and its subsidiary, NeoGenomics
Laboratories, Inc. (formerly known as NeoGenomics, Inc.), a Florida corporation
(“NEO”, “NeoGenomics Laboratories” or the “Subsidiary”) (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 Amendments of 1988 (“CLIA”), and is
dedicated to the delivery of clinical diagnostic services to pathologists,
oncologists, urologists, hospitals, and other laboratories throughout the United
States.





Basis of
Presentation





The
accompanying condensed consolidated financial statements include the accounts of
the Parent and the Subsidiary. All significant intercompany accounts and
balances have been eliminated in consolidation.





The
accompanying condensed consolidated financial statements of the Company are
unaudited and include all adjustments, in the opinion of management, which are
necessary to make the financial statements not misleading. Except as otherwise
disclosed, all such adjustments are of a normal recurring nature. Interim
results are not necessarily indicative of results for a full year.





The
interim condensed consolidated financial statements and notes are presented in
accordance with the rules and regulations of the Securities and Exchange
Commission and do not contain certain information included in the Company’s
Annual Report on Form 10-K for the year ended December 31, 2009. Therefore, the
interim condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
contained in the Company’s annual report.





Use of
Estimates





The
preparation of condensed consolidated financial statements in conformity with
GAAP requires management to make estimates and assumptions that affect the
amounts reported in the condensed consolidated financial statements and these
notes to the condensed consolidated financial statements. The most significant
estimates in the Company’s condensed consolidated financial statements relate to
revenue recognition, allowance for doubtful accounts and stock-based
compensation. Actual results could differ from those estimates.





Revenue
Recognition





The
Company recognizes revenues in accordance with the Securities and Exchange
Commission’s (the “Commission”) Staff Accounting Bulletin Topic 13.A.1 (ASC
605-10-S99-1)No. 104, “Revenue Recognition”, 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 and revenues are recognized once the diagnostic services have
been performed, the results have been delivered to the ordering physician, the
payor has been identified and eligibility and insurance have been
verified.  These diagnostic services are billed to various payors,
including Medicare, commercial insurance companies, other directly billed
healthcare institutions such as hospitals and clinics, and
individuals.  The Company reports revenues from contracted payors,
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 payors, including certain insurance companies and individuals,
based on the amount expected to be collected.  The difference between
the amount billed and the amount expected to be collected from non-contracted
payors is recorded as a contractual allowance to arrive at the reported
revenues.  The expected revenues from non-contracted payors are based
on the historical collection experience of each payor or payor group, as
appropriate.  In each reporting period, the Company reviews its
historical collection experience for non-contracted payors and adjusts its
expected revenues for current and subsequent periods accordingly.  As
a result of the economic climate in the United States, we have used shorter and
more current time horizons in analyzing historical experience.


7





Accounts Receivable and
Allowance for Doubtful Accounts





Accounts
receivable are reported at realizable value, net of allowance for doubtful
accounts (the “Allowance”), which is estimated and recorded in the period the
related revenue is recorded based on the historical collection experience for
each type of payor.  In addition, the Allowance is adjusted
periodically, based upon an evaluation of historical collection experience with
specific payors, payor types, and 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 reserve
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.





Stock-Based
Compensation





The
Company accounts for stock-based compensation in accordance with FASB ASC Topic
718 Compensation – Stock Compensation.  ASC 718 requires recognizing
compensation costs for all share-based payment awards made to employees and
directors based upon the awards’ grant-date fair value.  The standard
covers employee stock options, restricted stock, and other equity
awards.





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’ vesting periods.  The
Company estimates an expected forfeiture rate, which is factored into the
determination of the Company’s periodic expense.





Net Income (Loss) Per Common
Share





We
compute net income (loss) per share in accordance with ASC 260, Earnings per
Share (“ASC 260”). Under the provisions of ASC 260, basic net income (loss) per
share is computed by dividing the net income (loss) available to common
stockholders by the weighted average number of common shares outstanding during
the period. Diluted net income (loss) per share is computed by dividing the net
income (loss) for the period by the weighted average number of common and common
equivalent shares outstanding, using the treasury stock method, during the
period. Equivalent shares consist of employee stock options and certain warrants
issued to consultants and other providers of financing to the Company that are
in-the-money based on the weighted average closing share price for the period.
Under the treasury stock method, the number of in-the-money shares that are
considered outstanding for this calculation is reduced by the number of common
shares that theoretically could have been re-purchased by the Company with the
aggregate exercise proceeds of such warrant and option exercises if such shares
were re-purchased at the average market price for the period.





There
were no common equivalent shares included in the calculation of diluted earnings
per share for the three month period ended March 31, 2010 because the Company
had a net loss for such period and therefore such common equivalent shares were
anti-dilutive.Common
equivalent shares outstanding as of March 31, 2009 using the treasury stock
method includes approximately 2.63 million equivalent shares for unexercised
warrants and approximately 827,000 shares for unexercised stock options, and
these were included in the earnings per share calculation for the three months
ended March 31, 2009.


8


NOTE B — REVOLVING CREDIT AND
SECURITY AGREEMENT





On
February 1, 2008, our subsidiary, NeoGenomics Laboratories, Inc., a Florida
corporation (“Borrower”), entered into a Revolving Credit and Security Agreement
(the “Credit Facility” or “Credit Agreement”) with CapitalSource, the terms of
which provide for borrowings based on eligible accounts receivable up to a
maximum borrowing of $3.0 million, as defined in the Credit Agreement. Subject
to the provisions of the Credit Agreement, CapitalSource shall make advances to
us from time to time during the three year term, and the Credit Facility may be
drawn, repaid and redrawn from time to time as permitted under the Credit
Agreement.





Interest
on outstanding advances under the Credit Facility are payable monthly in arrears
on the first day of each calendar month at an annual rate based on the one-month
LIBOR plus 3.25%, subject to a LIBOR floor of 3.14%. At March 31, 2010, the
effective rate of interest was 6.39%.





To secure
the payment and performance in full of the Obligations (as defined in the Credit
Agreement), we granted CapitalSource a continuing security interest in and lien
upon, all of our rights, title and interest in and to our Accounts (as defined
in the Credit Agreement), which primarily consist of accounts receivable and
cash balances held in lock box accounts. Furthermore, pursuant to the Credit
Agreement, the Parent guaranteed the punctual payment when due, whether at
stated maturity, by acceleration or otherwise, of all of the Obligations. The
Parent guaranty is a continuing guarantee and shall remain in force and effect
until the indefeasible cash payment in full of the Guaranteed Obligations (as
defined in the Credit Agreement) and all other amounts payable under the Credit
Agreement are made.





On
November 3, 2008, the Company and CapitalSource signed a first amendment to the
Credit Agreement. This amendment increased the amount allowable under the Credit
Agreement to pay towards the settlement of the US Labs lawsuit to $250,000 from
$100,000 and documented other administrative agreements between NeoGenomics and
CapitalSource.





On April
14, 2009, the Parent Company, NeoGenomics Laboratories, Inc. (the wholly owned
subsidiary of the Parent Company) (“Borrower”) and CapitalSource (as agent for
CapitalSource Bank) entered into a Second Amendment to Revolving Credit and
Security Agreement (the “Second Amendment”). The Second Amendment, among other
things, amends that certain Revolving Credit and Security Agreement dated
February 1, 2008 as amended by that certain First Amendment to Revolving Credit
and Security Agreement dated November 3, 2008 (as amended, the “Loan Agreement”)
to (i) provide that through December 31, 2009, the Borrower must maintain
Minimum Liquidity (as defined in the Loan Agreement) of not less than $500,000,
(ii) amend the definitions of “Fixed Charge Coverage Ratio” and “Fixed Charges”,
(iii) amend the definition of “Permitted Indebtedness” to increase the amount of
permitted capitalized lease obligations and indebtedness incurred to purchase
goods secured by certain purchase money liens and (iv) amend and update certain
representations, warranties and schedules. In addition, pursuant to the Second
Amendment, CapitalSource waived the following events of default under the Loan
Agreement: (i) the failure of the Borrower to comply with the fixed charge
coverage ratio covenant for the test period ending December 31, 2008, (ii) the
failure of the Borrower to notify CapitalSource of the change of Borrower’s name
to NeoGenomics Laboratories, Inc. and to obtain CapitalSource’s prior consent to
the related amendment to Borrower’s Articles of Incorporation, (iii) the failure
of the Parent Company and the Borrower to obtain CapitalSource’s prior written
consent to the amendment of the Parent Company’s bylaws to allow for the size of
the Parent Company’s Board of Directors to be increased to eight members and
(iv) the failure of the Borrower to notify CapitalSource of the filing of an
immaterial complaint by the Borrower against a former employee of the Borrower.
The Company paid CapitalSource Bank a $25,000 amendment fee in connection with
the Second Amendment.





On March
26, 2010, we entered into an amendment (the “Third Amendment”) to the credit
facility agreement with CapitalSource for which we paid CapitalSource an
amendment fee of $25,000 which was creditable against the commitment fee for our
amended and r estated Credit
Agreeement signed on April 26, 2010.  The Third Amendment waived
events of default relating to our failure to comply with the Fixed Charge
Coverage Ratio for the Test Periods ended January 31, 2010 and February 28,
2010. The Third Amendment also revised the Fixed Charge Coverage Ratio
calculation for the Test Period ending March 31, 2010 to permit us to add
amounts of unrestricted cash, unrestricted cash equivalents and unused
availability to Adjusted EBITDA for purposes of the test. For each monthly Test
Period after March 31, 2010, the calculation of the Fixed Charge Coverage
Ratio will revert to Adjusted EBITDA, without adjustment for such
amounts.  We were in compliance with our covenants for the period
ended March 31, 2010.





On March
31, 2010, we had an outstanding amount due on the Credit Facility of
approximately $2,450,000 and the available credit under the Credit Facility was
approximately $550,000.





On April
26, 2010 as described more fully in Note F we increased our Credit Facility to
$5.0 million and we had an outstanding amount due on the Credit Facility of
approximately $2.3 million and the available credit under the Credit Facility
was approximately $1.7 million.


9





NOTE C — COMMON STOCK PURCHASE
AGREEMENT





On
November 5, 2008, we entered into a common stock purchase agreement (the “Stock
Agreement”) with Fusion Capital Fund II, LLC an Illinois limited liability
company (“Fusion”). The Stock Agreement, which has a term of 30 months, provides
for the future funding of up to $8.0 million from sales of our common stock to
Fusion on a when and if needed basis as determined by us in our sole discretion.
In consideration for entering into this Stock Agreement, on October 10, 2008, we
issued to Fusion 17,500 shares of our common stock (valued at $14,700 on the
date of issuance) and paid $17,500 as a due diligence expense reimbursement. In
addition, on November 5, 2008, we issued to Fusion 400,000 shares of our common
stock (valued at $288,000 on the date of issuance) as a commitment fee.
Concurrently with entering into the Stock Agreement, we entered into a
registration rights agreement with Fusion. Under the registration rights
agreement, we agreed to file a registration statement with the SEC covering the
417,500 shares that have already been issued to Fusion and at least 3.0 million
shares that may be issued to Fusion under the Stock Agreement. Presently, we
expect to sell no more than the initial 3.0 million shares to Fusion during the
term of this Stock Agreement. The Company filed a registration statement on Form
S-1 on November 28, 2008 and on February 5, 2009 the registration statement
became effective and on April 28, 2009, we filed Post Effective Amendment No 1
to the registration statement which became effective on May 8,
2009.





Under the
Stock Agreement we have the right to sell to Fusion shares of our common stock
from time to time in amounts between $50,000 and $1.0 million, depending on the
market price of our common stock. The purchase price of the shares related to
any future funding under the Stock Agreement will be based on the prevailing
market prices of our stock at the time of such sales without any fixed discount,
and the Company will control the timing and amount of any sales of shares to
Fusion. Fusion shall not have the right or the obligation to purchase any shares
of our common stock on any business day that the price of our common stock is
below $0.45 per share. The Stock Agreement may be terminated by us at any time
at our discretion without any cost to us. There are no negative covenants,
restrictions on future funding from other sources, penalties, further fees or
liquidated damages in the agreement.





Given our
current liquidity position from cash on hand and our availability under our
Credit Facility with CapitalSource, we have no immediate plans to issue common
stock under the Stock Agreement. If and when we do elect to sell shares to
Fusion under this agreement, we expect to do so opportunistically and only under
conditions deemed favorable by the Company. Any proceeds received by the Company
from sales under the Stock Agreement will be used for general corporate
purposes, working capital, and/or for expansion activities.





NOTE
D — CAPITAL LEASE TRANSACTIONS





Wells Fargo Lease
Agreement





On
January 14, 2010, we entered into Lease Supplement No. 2 for $424,000 which was
used to acquire laboratory equipment. Supplement No. 2, which was accounted for
as a capital lease, has a term of 60 months with monthly payments of $8,628 and
a $1 final purchase payment at termination.





After
entering into Supplement No. 2 on January 14, 2010, we have approximately
$61,000 available for further advances under the Wells Fargo Lease.





SunTrust Lease
Agreement





On
January 19, 2010, we entered into Lease Schedule No. 2 for $290,000 which was
used to fund laboratory equipment and furniture and fixtures. Schedule 2, which
was accounted for as a capital lease, has a term of 60 months with monthly
payments of $5,704 and a $1 final purchase payment at termination.





NOTE E — RELATED PARTY
TRANSACTIONS





Consulting
Agreements





During
the three months ended March 31, 2010 and 2009, Steven C. Jones, a director of
the Company, earned approximately $67,000 and $56,000, respectively, for various
consulting work performed in connection with his duties as Executive Vice
President of Finance or Acting Principal Financial Officer.


10





During
the three months ended March 31, 2010 and 2009, George O’Leary, a director of
the Company, earned approximately $0 and $9,500, respectively, for various
consulting work performed for the Company.





Laboratory Information
System





On March
11, 2005, we entered into an agreement with HCSS, LLC and eTelenext, Inc. to
enable NeoGenomics to use eTelenext, Inc’s Accessioning Application, AP Anywhere
Application and CMQ Application.  HCSS, LLC is a holding company
created to build a small laboratory network for the 50 small commercial genetics
laboratories in the United States.  HCSS, LLC is owned 66.7% by Dr.
Michael T. Dent, a member of our Board of Directors.  George O’Leary,
a member of our Board of Directors is Chief Financial Officer of HCSS,
LLC.





On June
18, 2009, we entered into a Software Development, License and Support Agreement
with HCSS, LLC and eTelenext, Inc. to upgrade the Company’s laboratory
information system to APvX.  The estimated costs for the development
and migration phase are anticipated to be approximately $75,000 and are expected
to be completed in May 2010.  This agreement has an initial term of
five years from the date of acceptance and calls for monthly fees of
$8,000-$12,000 during the term.





During
2010, eTelenext and HCSS were merged to form PathCenter, Inc.  Dr.
Michael T. Dent and Mr. George O’Leary have beneficial ownership of 12.2% and
4.6%, respectively of PathCenter, Inc.





For the
three months ended March 31, 2010 and 2009, eTelenext/HCSS earned approximately
$69,000 and $38,000 respectively.





Gulf Pointe Capital Lease
Agreement





On
September 30, 2008, the Company entered into a master lease agreement (the
“Master Lease”) with Gulf Pointe Capital, LLC (“Gulf Pointe”) which allows us to
obtain lease capital from time to time up to an aggregate of $130,000 of lease
financing. The terms under this lease are consistent with the terms of our other
lease arrangements. Three members of our Board of Directors Steven Jones, Peter
Petersen and Marvin Jaffe, are affiliated with Gulf Pointe and recused
themselves from both sides of all negotiations concerning this transaction. In
consideration for entering into the Master Lease with Gulf Pointe, the Company
issued a warrant to purchase 32,475 shares of common stock to Gulf Pointe with
an exercise price of $1.08 per share and a five year term. Such warrant vests
25% on issuance and then on a pro rata basis as amounts are drawn under the
Master Lease. The warrant was valued at approximately $11,000 using the
Black-Scholes option pricing model, and the warrant cost is being expensed as it
vests. At the end of the term of any lease schedule under the Master Lease, the
Company’s options are as follows: (a) purchase not less than all of the
equipment for its then fair market value not to exceed 15% of the original
equipment cost, (b) extend the lease term for a minimum of six months, or (c)
return not less than all the equipment at the conclusion of the lease term. On
September 30, 2008, we also entered into the first lease schedule under the
Master Lease which provided for the sale/leaseback of approximately $130,000 of
used laboratory equipment (“Lease Schedule No. 1”). Lease Schedule No. 1 has a
30 month term and a lease rate factor of 0.0397/month, which equates to monthly
payments of $5,155 during the term.





On
February 9, 2009, we amended our Master Lease with Gulf Pointe to increase the
maximum size of the facility to $250,000. As part of this amendment, we
terminated the original warrant agreement, dated September 30, 2008, and
replaced it with a new warrant to purchase 83,333 shares of our common stock.
Such new warrant has a five year term, an exercise price of $0.75 per share and
the same vesting schedule as the original warrant. The replacement warrant was
valued using the Black-Scholes option pricing model and the value did not
materially differ from the valuation of the original warrant it replaced. On
February 9, 2009, we also entered into a second schedule under the Master Lease
for the sale/leaseback of approximately $118,000 of used laboratory equipment
(“Lease Schedule No. 2”). Lease Schedule No. 2 has a 30 month term at the same
lease rate factor per month as Lease Schedule No. 1, which equates to monthly
payments of $4,690 during the term.





NOTE F — SUBSEQUENT
EVENTS





SunTrust Lease
Agreement





On April
13, 2010, the Company entered into Lease Schedule No. 3 of the SunTrust lease
for approximately $249,000 which was funded to several vendors for lab equipment
and computer hardware. Schedule 3 has a term of 60 months with monthly payments
of approximately $4,900 and a $1.00 final purchase payment at termination.
Schedule No. 3 is being accounted for as a capital lease.


11





After
entering into Lease Schedule No. 3 on January 19, 2010, we have approximately
$533,000 available for further advances under the SunTrust Lease.





Amended and Restated
Revolving Credit and Security Agreement with Capital Source
Bank





On April
26, 2010, the Parent Company, NeoGenomics Laboratories, Inc., the wholly-owned
subsidiary of the Parent Company (“Borrower”), and CapitalSource entered into an
Amended and Restated Revolving Credit and Security Agreement (the “Amended and
Restated Credit Agreement”).  The Amended and Restated Credit
Agreement amended and restated the 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
Amended and Restated Credit Agreement and the Original Credit Agreement are
substantially similar except that the Amended and Restated Credit Agreement,
among other things, (i) increases the maximum principal amount of the revolving
credit facility from $3,000,000 to $5,000,000, (ii) provides that the term of
the Amended and Restated Credit Agreement shall end on February 1,
2013,  (iii) increases the amount of the collateral management fee and
unused line fees paid by Borrower to CapitalSource, (iv) modifies the
definitions of “Minimum Termination Fee” and “Permitted Indebtedness”, (v)
provides that the Borrower must maintain a minimum outstanding principal balance
under the revolving facility of at least $2,000,000, (vi) increases the interest
rate to LIBOR plus 4.25% (provided that LIBOR shall not be less than 2.0%) and
(vii) revises certain covenants and representations and
warranties.   Borrower paid CapitalSource a commitment fee of
$33,500 in connection with the execution of the Amended and Restated Credit
Agreement (CapitalSource credited $25,000 of the amendment fee previously paid
by the Borrower in connection with the March 26, 2010 amendment of the Original
Credit Agreement towards the commitment fee).





END OF
FINANCIAL STATEMENTS.


12





ITEM 2.
            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 all of its subsidiaries as “NeoGenomics” or the “Company” in this Form 10-Q)
is the registrant for SEC reporting purposes. Our common stock is listed
on the OTC Bulletin Board under the symbol “NGNM.”





Introduction





The
following discussion and analysis should be read in conjunction with the
unaudited condensed consolidated financial statements, and the notes thereto
included herein. The information contained below includes statements of the
Company’s or management’s beliefs, expectations, hopes, goals and plans that, if
not historical, are forward-looking statements subject to certain risks and
uncertainties that could cause actual results to differ materially from those
anticipated in the forward-looking statements. For a discussion on
forward-looking statements, see the information set forth in the introductory
note to this Quarterly Report on Form 10-Q under the caption “Forward Looking
Statements”, which information is incorporated herein by reference.





Overview





NeoGenomics
operates a network of cancer-focused testing laboratories whose mission is to
improve patient care through exceptional cancer genetic diagnostic, prognostic
and predictive testing services. Our vision is to become America’s premier
cancer testing laboratory by delivering uncompromising quality, exceptional
service and innovative products and solutions. The Company’s laboratory network
currently offers the following types of testing services:





a)
            cytogenetics
      testing, which analyzes human
chromosomes;





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





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





d)
            immunohistochemistry
      testing, which analyzes the distribution of tumor antigens in specific
      cell and tissue types, and





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





All of
these testing services are widely utilized in the diagnosis, prognosis, and
prediction for response to therapy of various types of cancers.





Our
Focus





NeoGenomics’
primary focus is to provide high complexity laboratory testing for
community-based pathology, oncology, dermatology and urology markets in the
United States and the Caribbean. We focus on community-based practitioners for
two reasons: First, academic pathologists and associated clinicians tend to have
their testing needs met within the confines of their university affiliation.
Secondly, most of the cancer care in the United States is administered by
community based practitioners due to ease of local access. We currently provide
our services to pathologists and oncologists that perform bone marrow and/or
peripheral blood sampling for the diagnosis of blood and lymphoid tumors
(leukemias and lymphomas) and archival tissue referred for analysis of solid
tumors such as breast cancer. We also serve community-based urologists by
providing a FISH-based genetic test for the diagnosis of bladder cancer and
early detection of recurrent disease.





The high
complexity cancer testing services we offer to community-based pathologists are
designed to be a natural extension of and complementary to the services that our
pathologist clients perform within their own practices. Because fee-for-service
pathologists derive a significant portion of their annual revenue from the
interpretation of cancer biopsy specimens, they represent an important market
segment to us. We believe our relationship as a non-competitive partner to the
community-based pathologist empowers these pathologists to expand their testing
breadth and provide a menu of services that matches or exceeds the level of
service found in academic centers of excellence around the
country.


13





We also
believe that we can provide a competitive choice to those larger oncology
practices that prefer to have a direct relationship with a laboratory for cancer
genetic testing services. Our regionalized approach allows us strong
interactions with clients and our innovative Genetic Pathology Solutions (“GPS”)
report summarizes all relevant case data on one summary report.





New FISH Test for
Melanoma





In
February 2010 we launched the first of the three tests developed pursuant to the
Strategic Supply Agreement with Abbott under the trade name
MelanoSITETM.   MelanoSITETM is a four probe FISH test that can be
used as a diagnostic aid to traditional histopathologic evaluation in diagnosing
melanoma.   In conjunction with histopathology, the MelanoSITETM
test can help improve classification of melanocytic neoplasms with conflicting
morphologic criteria and help insure proper follow-up.  Differential
diagnosis of moderate to severely atypical nevi versus true melanoma is one of
the most challenging areas in dermatopathology.  While most melanomas
can be readily distinguished from nevi on histopathologic examination, we
estimate there are about 5% of cases that are ambiguous and show conflicting
morphologic criteria.  Diagnostic ambiguity has significant adverse
consequences for patients and the healthcare system at large.  Failure
to recognize melanoma is potentially fatal, but labeling a benign lesion as
malignant can lead to unwarranted wide re-excisions, sentinel lymph node
biopsies, adjuvant toxic therapeutic interventions and the emotional strain of
facing a diagnosis of cancer.  Considering the large number of
biopsies done in the U.S. to either confirm or rule out melanoma, diagnostic
uncertainty of this scale represents a significant challenge to the U.S.
healthcare system.  We believe the MelanoSITETM test will help address
this diagnostic uncertainty and help to reduce the medical costs associated with
melanoma by providing a more accurate diagnosis.





The
performance characteristics of the MelanoSITETM test were established in a
multicenter validation study involving over 500 cases, which resulted in a
sensitivity (a measure of true positives and false negatives) of 77% and a
specificity (a measure of true negatives and false positives) of
97%.  Importantly, based on our study, the MelanoSITETM test has a
negative predictive value (NPV) of over 98%.  This means that
dermatopathologists and dermatologists can be confident that a patient with a
negative test result has a very low likelihood of having
melanoma.  Therefore, the clinician may not need to perform a wide
re-excision of the lesion, potentially scarring a patient for life, and may not
need to perform a sentinel lymph node biopsy which can potentially lead to
further complications such as lymphedema.  We expect the marketing and
selling of the MelanoSITETM test to be a major focus of the Company during
2010.





Seasonality





The
majority of our testing volume is dependent on patients being treated by
hematology/oncology professionals and other healthcare providers. Volume of
testing generally declines during the vacation seasons, year-end holiday periods
and other major holidays, particularly when those holidays fall during the
middle of the week. In addition, volume of testing tends to decline due to
adverse weather conditions, such as heavy snow, excessively hot or cold spells
or hurricanes, 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.





Critical Accounting
Policies





The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires us to make estimates and
assumptions and select accounting policies that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements, as well as the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.





While
many operational aspects of our business are subject to complex federal, state
and local regulations, the accounting for our business is generally
straightforward with net revenues primarily recognized upon completion of the
testing process. Our revenues are primarily comprised of laboratory tests, and
approximately one-half of total operating costs and expenses consist of employee
compensation and benefits. Due to the nature of our business, several of our
accounting policies involve significant estimates and judgments. These
accounting policies have been described in our Annual Report on Form 10-K for
the year ended December 31, 2009, and there have been no material changes in the
three months ended March 31, 2010.


14





Results
of Operations for the Three Months Ended March 31, 2010as
Compared to the Three Months Ended March 31, 2009





The
following table presents the condensed consolidated statements of operations as
a percentage of revenue:





For
      the three months ended
                                March 31.2010
                              
                              
                              2009NET
      REVENUE
                              
                              
                              100
                              %
                              
                              
                              100
                              %COST
      OF REVENUE
                              
                              
                              52
                              %
                              
                              
                              45
                              %GROSS
      PROFIT
                              
                              
                              48
                              %
                              
                              
                              55
                              %OPERATING
      EXPENSES:General
      and administrative
                              
                              
                              34
                              %
                              
                              
                              34
                              %Sales
      and marketing
                              
                              
                              21
                              %
                              
                              
                              19
                              %TOTAL
      OPERATING EXPENSES
                              
                              
                              55
                              %
                              
                              
                              53
                              %Interest
      (income) expense, net
                              
                              
                              2
                              %
                              
                              
                              2
                              %NET
      INCOME (LOSS)
                              
                              
                              (9
                              )%
                              
                              
                              0
                              %





Revenue





The
Company’s specialized testing services are performed based on a written test
requisition form and revenues are recognized once the testing services have been
performed, the results have been delivered to the ordering physician, the payor
has been identified and eligibility and insurance have been verified. Our
testing services are billed to various payors, including Medicare, commercial
insurance companies, other directly billed healthcare institutions such as
hospitals and clinics, and individuals. We report revenues from contracted
payors, including Medicare, certain insurance companies and certain healthcare
institutions, based on the contractual rate, or in the case of Medicare,
published fee schedules. We report revenues from non-contracted payors,
including certain insurance companies and individuals, based on the amount
expected to be collected. The difference between the amount billed and the
amount expected to be collected from non-contracted payors is recorded as a
contractual allowance to arrive at the reported revenues. The expected revenues
from non-contracted payors are based on the historical collection experience of
each payor or payor group, as appropriate. In each reporting period, we review
our historical collection experience for non-contracted payors and adjust our
expected revenues for current and subsequent periods accordingly.





Revenues
increased approximately 22%, or $1.5 million, to $8.4 million for the three
months ended March 31, 2010 as compared to $6.9 million for the three months
ended March 31, 2009. The revenue increase for the three months ended March 31,
2010, as compared to the comparable period in 2009, was primarily driven by
increases in the number of tests performed partially offset by a decline in
average revenue per test.





Test
volume increased approximately 34% for the three months ended March 31, 2010.
Increases in test volumes were primarily driven by the substantial increases in
sales and marketing activities by the Company over the past twelve
months.





Revenues
per test are a function of both the type of the test (e.g. FISH, cytogenetics,
flow cytometry, etc.) and the payer (e.g., Medicare, Medicaid, third party
insurer, institutional client etc.). Average revenue per test is primarily
driven by our test type mix and our payer mix. The decrease in average revenue
per test for the three months ended March 31, 2010 is primarily the result of
decreases in our managed care reimbursements and to a lesser extent from lower
priced tests in our test type mix.





We have
established a reserve for uncollectible amounts based on estimates of what we
will collect from: a) third-party payers with whom we do not have a contractual
arrangement or sufficient experience to accurately estimate the amount of
reimbursement we will receive, b) payments directly from patients, and c) those
procedures that are not covered by insurance or other third party payers. The
Company’s allowance for doubtful accounts increased 18%, or approximately
$106,000 to $695,000, as compared to $589,000 at December 31, 2009. The
allowance for doubtful accounts was approximately 11% of accounts receivable on
March 31, 2010 and December 31, 2009.


15





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.





Cost of
revenue increased approximately 41%, or $1.2 million, to $4.3 million for the
three months ended March 31, 2010 as compared to $3.1 million for the three
months ended March 31, 2009. The increase was primarily attributable to
increases in all areas of costs of revenue as the Company scaled its operations
in order to meet increasing demand. Cost of revenue as a percentage of revenue
was approximately 52% for the three months ended March 31, 2010 as compared to
45% for the three months ended March 31, 2009.





Accordingly,
gross margin was approximately 48% for the three months ended March 31, 2010 as
compared to 55% for the three months ended March 31, 2009. This decline in gross
margin is primarily the result of our largest customer at March 31, 2009
bringing in-house certain high margin tests in the second quarter of 2009 and
replacing a portion of that volume with additional low margin testing. This
customer represented 6% of total revenue for the three months ended March 31,
2010 compared to 18% for the comparable period in 2009.





Sales and
Marketing





Sales and
marketing expenses relate primarily to the employee related costs of our sales
management, sales representatives, marketing, and customer service
personnel.





For
      the three months ended
                        March 31,2010
                      
                      
                      2009
                      
                      
                      %
                        ChangeSales
      and marketing
                      
                      $
                      1,763,000
                      
                      
                      $
                      1,334,000
                      
                      
                      
                      32
                      %As
      a % of revenue
                      
                      
                      21
                      %
                      
                      
                      19
                      %





The
increase in sales and marketing expenses is primarily a result of adding
substantial numbers of sales and marketing personnel in 2009 to generate
additional revenue growth as well as marketing costs related to our Melanoma
FISH test.





We expect
our sales and marketing expenses to increase as we hire additional sales
management, sales representatives, and marketing personnel as part of our growth
strategy. However, we expect these expenses to decline as a percentage of
revenue as our case volumes increase and we develop more economies of scale in
our sales and marketing activities.





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. In addition, the provision for doubtful accounts is
included in general and administrative expenses.





For
      the three months ended
                        March 31,2010
                      
                      
                      2009
                      
                      
                      %
                        ChangeGeneral
      and administrative
                      
                      $
                      2,902,000
                      
                      
                      $
                      2,341,000
                      
                      
                      
                      24
                      %As
      a % of revenue
                      
                      
                      34
                      %
                      
                      
                      34
                      %





The
increase in general and administrative expenses is primarily a result of adding
additional management and information technology personnel and due to
approximately $200,000 of additional R&D expenses incurred to develop the
Melanoma FISH test.





Bad debt
expense increased by approximately 7%, or $33,000, to $540,000 for the three
months ended March 31, 2010 as compared to $508,000 for the three months ended
March 31, 2009. Bad debt expense as a percentage of revenue for the three months
ended March 31, 2010 was 6.5% as compared to 7.3% for the three months
ended March 31, 2009.


16





The
decrease in bad debt expense as a percentage of revenue is the result of
improvements in our billing practices.





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 we develop more operating leverage in
our business.





Interest Expense,
net





Interest
expense net, which represents the interest expense we incur on our borrowing
arrangements offset by the interest income we earn on cash deposits. Interest
expense, net increased approximately 39%, or $44,000 to $159,000 for the three
months ended March 31, 2010 as compared to $115,000 for the three months ended
March 31, 2009. Interest expense is primarily related to the amount of our
capital leases outstanding and to a lesser extent to the borrowing under our
credit facility with CapitalSource Finance, LLC (“CapitalSource”). Interest
expense increased over the same period in the prior year primarily as a result
of the higher capital lease and working capital facility balances as of March
31, 2010 as compared to March 31, 2009.





Net Income
(Loss)





As a
result of the foregoing, we reported a net loss of $750,000, or $(0.02)/share,
for the three months ended March 31, 2010 as compared to a net income of
$33,000, or $0.00/share, for the three months ended March 31, 2009.





Liquidity and Capital
Resources





The
following table presents a summary of our cash flows provided by (used in)
operating, investing and finance activities for the three months ended March 31,
2010 and 2009 as well as the period ending cash and cash equivalents and working
capital.





For
      the three months ended
                      March 31.2010
                    
                    
                    2009Net
      cash provided by (used in):Operating
      activities
                    
                    $
                    (1,564,000
                    )
                    
                    $
                    (331,000
                    )Investing
      activities
                    
                    
                    (114,000
                    )
                    
                    
                    (6,000
                    )Financing
      activities
                    
                    
                    1,708,000
                    
                    
                    
                    726,000Net
      increase in cash and cash equivalents
                    
                    
                    30,000
                    
                    
                    
                    389,000Cash
      and cash equivalents, beginning of period
                    
                    
                    1,631,000
                    
                    
                    
                    468,000Cash
      and cash equivalents, end of period (1)
                    
                    $
                    1,661,000
                    
                    
                    $
                    857,000Working
      Capital (2), end of period
                    
                    $
                    1,766,000
                    
                    
                    $
                    2,744,000







(1)
              This
      excludes restricted cash of
$1.0M


(2)
            Defined
      as current assets - current
liabilities.





The large
increase in cash used in operations for the three months ended March 31, 2010 as
compared to the comparable period in 2009 is primarily the result of loss from
operations, increases in our Accounts Receivable from increased revenues, as
well as the result of legislation that expired on December 31, 2009 which
grandfathered the implementation of new reimbursement procedures for the
technical component of Medicare tests performed for certain hospital clients
(known as the “TC Grandfather” legislation).  The extension of this
legislation was part of the Patient Protection and Affordable Care Act, HR 3590
which was delayed and not signed by the President until late March
2010.  As a result of this the Centers for Medicare and Medicaid
Services (“CMS”), had asked reference laboratories to hold off on submission of
the grandfather related claims and therefore we did not submit claims for
approximately $750,000 until the last week of March 2010.  We expect
to be paid on these claims in the second quarter of 2010 and have seen
significant cash collections in April related to these claims.





The
increase in cash used in investing activities relates to paying more cash for
capital expenditures than in the prior year.





The
increase in net cash flow provided by financing activities was primarily the
result of increases in funding on our Capital Source working capital facility
related to the increase in Accounts Receivable as well as our operating
losses.  This funding was partially offset by payments on our capital
lease facilities.


17





On
November 5, 2008, we entered into a common stock purchase agreement (the “Stock
Agreement”) with Fusion Capital Fund II, LLC an Illinois limited liability
company (“Fusion”). The Stock Agreement, which has a term of 30 months, provides
for the future funding of up to $8.0 million from sales of our common stock to
Fusion on a when and if needed basis as determined by us in our sole discretion,
depending on, among other things, the market price of our common stock. As of
March 31, 2010, we had not drawn on any amounts under the Fusion Stock
Agreement.





On
February 1, 2008, we entered into a revolving credit facility with
CapitalSource, which allows us to borrow up to $3,000,000 based on a formula
which is tied to our eligible accounts receivable that are aged less than 150
days.





As of
March 31, 2010, we had approximately $1,661,000 in cash on hand, $547,000 of
availability under our credit facility, and up to $8.0 million under the Fusion
Stock Agreement. As such, we believe we have adequate resources to meet our
operating commitments for the next twelve months, and accordingly our
consolidated financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amounts and
classification of liabilities that might be necessary should we be unable to
continue as a going concern.





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 anticipate that we will need to
purchase approximately $3.0 million to $4.0 million of additional capital
equipment during the next twelve months. We plan to fund these expenditures with
cash, through bank loan facilities, and through capital lease financing
arrangements. 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.





Related Party
Transactions





Consulting
Agreements





During
the three months ended March 31, 2010 and 2009, Steven C. Jones, a director of
the Company, earned approximately $67,000 and $56,000, respectively, for various
consulting work performed in connection with his duties as Executive Vice
President of Finance or Acting Principal Financial Officer.





During
the three months ended March 31, 2010 and 2009, George O’Leary, a director of
the Company, earned approximately $0 and $9,500, respectively, for various
consulting work performed for the Company.





Laboratory Information
System





On March
11, 2005, we entered into an agreement with HCSS, LLC and eTelenext, Inc. to
enable NeoGenomics to use eTelenext, Inc’s Accessioning Application, AP Anywhere
Application and CMQ Application.  HCSS, LLC is a holding company
created to build a small laboratory network for the 50 small commercial genetics
laboratories in the United States.  HCSS, LLC is owned 66.7% by Dr.
Michael T. Dent, a member of our Board of Directors.  George O’Leary,
a member of our Board of Directors is Chief Financial Officer of HCSS,
LLC.





On June
18, 2009, we entered into a Software Development, License and Support Agreement
with HCSS, LLC and eTelenext, Inc. to upgrade the Company’s laboratory
information system to APvX.  The estimated costs for the development
and migration phase are anticipated to be approximately $75,000 and are expected
to be completed in May 2010.  This agreement has an initial term of
five years from the date of acceptance and calls for monthly fees of
$8,000-$12,000 during the term.





During
2010, eTelenext and HCSS were merged to form PathCenter, Inc.  Dr.
Michael T. Dent and Mr. George O’Leary have beneficial ownership of 12.2% and
4.6%, respectively of PathCenter, Inc.





For the
three months ended March 31, 2010 and 2009, eTelenext/HCSS earned approximately
$69,000 and $38,000 respectively.


18





Gulf Pointe Capital Lease
Agreement





On
September 30, 2008, the Company entered into a master lease agreement (the
“Master Lease”) with Gulf Pointe Capital, LLC (“Gulf Pointe”) which allows us to
obtain lease capital from time to time up to an aggregate of $130,000 of lease
financing. The terms under this lease are consistent with the terms of our other
lease arrangements. Three members of our Board of Directors Steven Jones, Peter
Petersen and Marvin Jaffe, are affiliated with Gulf Pointe and recused
themselves from both sides of all negotiations concerning this transaction. In
consideration for entering into the Master Lease with Gulf Pointe, the Company
issued a warrant to purchase 32,475 shares of common stock to Gulf Pointe with
an exercise price of $1.08 per share and a five year term. Such warrant vests
25% on issuance and then on a pro rata basis as amounts are drawn under the
Master Lease. The warrant was valued at approximately $11,000 using the
Black-Scholes option pricing model, and the warrant cost is being expensed as it
vests. At the end of the term of any lease schedule under the Master Lease, the
Company’s options are as follows: (a) purchase not less than all of the
equipment for its then fair market value not to exceed 15% of the original
equipment cost, (b) extend the lease term for a minimum of six months, or (c)
return not less than all the equipment at the conclusion of the lease term. On
September 30, 2008, we also entered into the first lease schedule under the
Master Lease which provided for the sale/leaseback of approximately $130,000 of
used laboratory equipment (“Lease Schedule No. 1”). Lease Schedule No. 1 has a
30 month term and a lease rate factor of 0.0397/month, which equates to monthly
payments of $5,155 during the term.





On
February 9, 2009, we amended our Master Lease with Gulf Pointe to increase the
maximum size of the facility to $250,000. As part of this amendment, we
terminated the original warrant agreement, dated September 30, 2008, and
replaced it with a new warrant to purchase 83,333 shares of our common stock.
Such new warrant has a five year term, an exercise price of $0.75 per share and
the same vesting schedule as the original warrant. The replacement warrant was
valued using the Black-Scholes option pricing model and the value did not
materially differ from the valuation of the original warrant it replaced. On
February 9, 2009, we also entered into a second schedule under the Master Lease
for the sale/leaseback of approximately $118,000 of used laboratory equipment
(“Lease Schedule No. 2”). Lease Schedule No. 2 has a 30 month term at the same
lease rate factor per month as Lease Schedule No. 1, which equates to monthly
payments of $4,690 during the term.





Subsequent
Events





SunTrust Lease
Agreement





On April
13, 2010, the Company entered into Lease Schedule No. 3 of the SunTrust lease
for approximately $249,000 which was funded to several vendors for lab equipment
and computer hardware. Schedule 3 has a term of 60 months with monthly payments
of approximately $4,900 and a $1.00 final purchase payment at termination.
Schedule No. 3 is being accounted for as a capital lease.





After
entering into Lease Schedule No. 3 on January 19, 2010, we have approximately
$533,000 available for further advances under the SunTrust Lease.





Amended and Restated
Revolving Credit and Security Agreement with Capital Source
Bank





On April
26, 2010, the Parent Company, NeoGenomics Laboratories, Inc., the wholly-owned
subsidiary of the Parent Company (“Borrower”), and CapitalSource entered into an
Amended and Restated Revolving Credit and Security Agreement (the “Amended and
Restated Credit Agreement”).  The Amended and Restated Credit
Agreement amended and restated the 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
Amended and Restated Credit Agreement and the Original Credit Agreement are
substantially similar except that the Amended and Restated Credit Agreement,
among other things, (i) increases the maximum principal amount of the revolving
credit facility from $3,000,000 to $5,000,000, (ii) provides that the term of
the Amended and Restated Credit Agreement shall end on February 1,
2013,  (iii) increases the amount of the collateral management fee and
unused line fees paid by Borrower to CapitalSource, (iv) modifies the
definitions of “Minimum Termination Fee” and “Permitted Indebtedness”, (v)
provides that the Borrower must maintain a minimum outstanding principal balance
under the revolving facility of at least $2,000,000, (vi) increases the interest
rate to LIBOR plus 4.25% (provided that LIBOR shall not be less than 2.0%) and
(vii) revises certain covenants and representations and
warranties.   Borrower paid CapitalSource a commitment fee of
$33,500 in connection with the execution of the Amended and Restated Credit
Agreement (CapitalSource credited $25,000 of the amendment fee previously paid
by the Borrower in connection with the March 26, 2010 amendment of the Original
Credit Agreement towards the commitment fee).


19





ITEM 3 — Quantitative and Qualitative
Disclosures About Market Risk





We are a
smaller reporting company as defined by Rule 12b-2 of the Securities Exchange
Act of 1934 and are not required to provide information under this
item.





ITEM 4 — Controls and
Procedures





Not
applicable.





ITEM 4T — Controls and
Procedures





Disclosure Controls and
Procedures





We
maintain disclosure controls and procedures designed to ensure that information
required to be disclosed in reports filed under the Securities Exchange Act of
1934, as amended, is recorded, processed, summarized, and reported within the
time periods specified in the SEC’s rules and forms, and that such information
is accumulated and communicated to our management, including our principal
executive officer, principal financial officer, and principal accounting
officer, as appropriate, to allow timely decisions regarding required
disclosure. In designing and evaluating our disclosure controls and procedures,
management recognized that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the
desired control objectives.





As
required by SEC Rule 15d-15(e), our management carried out an evaluation, under
the supervision and with the participation of our principal executive officer,
principal financial officer, and principal accounting officer, of the
effectiveness of our disclosure controls and procedures as of the end of the
period covered by this report. Based on that evaluation, our principal executive
officer, principal financial officer, and principal accounting officer concluded
that our disclosure controls and procedures were effective at a reasonable
assurance level as of the end of the period covered by this report.





Changes in Internal Control
Over Financial Reporting





There
were no changes in our internal control over financial reporting that occurred
during the three months ended March 31, 2010 that have materially affected, or
are reasonably likely to materially affect, our internal control over financial
reporting.


20


PART
II — OTHER INFORMATION





ITEM 1 — LEGAL
PROCEEDINGS





On
November 9, 2009, the Company was notified by the Civil Division of the U.S.
Department of Justice (“DOJ”) that a “Qui Tam” Complaint (“Complaint”) had been
filed under seal by a private individual against a number of health care
companies, including the Company. The Complaint is an action to recover damages
and civil penalties arising from alleged false or fraudulent claims and
statements submitted or caused to be submitted by the defendants to Medicare.
The DOJ has not made any decision whether to join the action. The Company
believes the allegations in the Complaint are without merit and intends to
vigorously defend itself if required to do so.





ITEM 1A — RISK
FACTORS





We are a
smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are
not required to provide information under this item.





ITEM 2 — UNREGISTERED SALES OF EQUITY
SECURITIES AND USE OF PROCEEDS





Not
Applicable





ITEM 3 — DEFAULTS UPON SENIOR
SECURITIES





Not
Applicable





ITEM
4 — REMOVED AND RESERVED





None





ITEM 5 — OTHER
INFORMATION






Amended and Restated
Revolving Credit and Security Agreement with Capital Source
Bank
 
 On April
26, 2010, the Parent Company, NeoGenomics Laboratories, Inc., the wholly-owned
subsidiary of the Parent Company (“Borrower”), and CapitalSource entered into an
Amended and Restated Revolving Credit and Security Agreement (the “Amended and
Restated Credit Agreement”).  The Amended and Restated Credit
Agreement amended and restated the 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
Amended and Restated Credit Agreement and the Original Credit Agreement are
substantially similar except that the Amended and Restated Credit Agreement,
among other things, (i) increases the maximum principal amount of the revolving
credit facility from $3,000,000 to $5,000,000, (ii) provides that the term of
the Amended and Restated Credit Agreement shall end on February 1,
2013,  (iii) increases the amount of the collateral management fee and
unused line fees paid by Borrower to CapitalSource, (iv) modifies the
definitions of “Minimum Termination Fee” and “Permitted Indebtedness”, (v)
provides that the Borrower must maintain a minimum outstanding principal balance
under the revolving facility of at least $2,000,000, (vi) increases the interest
rate to LIBOR plus 4.25% (provided that LIBOR shall not be less than 2.0%) and
(vii) revises certain covenants and representations and
warranties.   Borrower paid CapitalSource a commitment fee of
$33,500 in connection with the execution of the Amended and Restated Credit
Agreement (CapitalSource credited $25,000 of the amendment fee previously paid
by the Borrower in connection with the March 26, 2010 amendment of the Original
Credit Agreement towards the commitment fee).





21


ITEM 6 — EXHIBITS





EXHIBITNO.
                        
                        DESCRIPTION10.44
                        
                        Amended
      and Restated Revolving Credit and Security Agreement dated April 26, 2010
      between NeoGenomics Laboratories, Inc., NeoGenomics, Inc., and
      CapitalSource Finance LLC10.45
                        
                        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.31.1
                        
                        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
      200231.2
                        
                        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
      200231.3
                        
                        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
      200232.1
                        
                        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




22


SIGNATURES





Pursuant
to the requirements 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:
      May 4, 2010
                NEOGENOMICS,
      INC.By:
                /s/ Douglas M. VanOortName:
                Douglas
      M. VanOortTitle:
                Chairman
      andChief
      Executive OfficerBy:
                /s/ George CardozaName:
                George
      CardozaTitle:
                Chief
      Financial OfficerBy:
                /s/ Jerome J. DvonchName:
                Jerome
      J. DvonchTitle:
                Director
      of Finance andPrincipal
      Accounting Officer


23