UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
DC 20549





FORM
10-K





(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, 2009


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:  333-72097





NEOGENOMICS,
INC.


(Exact
name of registrant as specified in its charter)





Nevada
              74-2897368(State
      or other jurisdiction of
              (IRS
      Employer Identification No.)incorporation
      or organization)





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:  None.





Securities
registered pursuant to Section 12(g) of the Act: None





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  o  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.


x





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 oNon-accelerated filer o(Do not
      check if smaller reporting company)
            Smaller
      reporting company x





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, 2009, the aggregate market value of the registrant’s common stock held
by non-affiliates of the registrant was approximately $27.2 million, based on
the closing price of the registrant’s common stock of $1.34 per share on June
30, 2009.





The
number of shares outstanding of the registrant’s Common Stock, par value $0.001
per share, as of March 24, 2010:  37,255,092





NEOGENOMICS,
INC.


FORM
10-K ANNUAL REPORT


For
the Fiscal Year Ended December 31, 2009





Table
of Contents







PagePART
      IItem
      1.
              Business
              4Item
      1A.
              Risk
      Factors
              15Item
      1B.
              Unresolved
      Staff Comments
              26Item
      2.
              Properties
              27Item
      3.
              Legal
      Proceedings
              27Item
      4.
              Submission
      of Matters to a Vote of Security Holders
              27PART
      IIItem
      5.
              Market
      for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
              28Item
      6.
              Selected
      Financial Data
              29Item
      7.
              Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
              30Item
      7A.
              Quantitative
      and Qualitative Disclosures About Market Risk
              44Item
      8.
              Financial
      Statements and Supplementary Data
              45Item
      9.
              Changes
      in and Disagreements With Accountants on Accounting and Financial
      Disclosure
              73Item
      9A.
              Controls
      and Procedures
              73Item
      9B.
              Other
      Information
              74PART
      IIIItem
      10.
              Directors,
      Executive Officers and Corporate Governance
              75Item
      11.
              Executive
      Compensation
              79Item
      12.
              Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
              83Item
      13.
              Certain
      Relationships and Related Transactions, and Director
      Independence
              86Item
      14.
              Principal
      Accountant Fees and Services
              90PART
      IVItem
      15.
              Exhibits
      and Financial Statement Schedules
              91Signatures


2


PART
I




FORWARD-LOOKING
STATEMENTS





The information in this Annual Report
on Form 10-K contains “forward-looking statements” and information within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”), which are subject to the “safe harbor” created by
those sections.  These forward-looking statements include, but are not
limited to, statements concerning our strategy, future operations, future
financial position, future revenues, projected costs, prospects and plans and
objectives of management.  The words “anticipates,” “believes,”
“estimates,” “expects,” “intends,” “may,” “plans,” “projects,” “will,” “would”
and similar expressions are intended to identify forward-looking statements,
although not all forward-looking statements contain these identifying
words.  We may not actually achieve the plans, intentions or
expectations disclosed in our forward-looking statements and you should not
place undue reliance on our forward-looking statements.  These
forward-looking statements involve known and unknown risks and uncertainties
that could cause our actual results, performance or achievements to differ
materially from those expressed or implied by the forward-looking statements,
including, without limitation, the risks set forth in Part I, Item 1A, “Risk
Factors” in this Annual Report on Form 10-K and in our other filings with the
Securities and Exchange Commission.





Forward-looking
statements include, but are not limited to, statements about:





·
            The
      expected reimbursement levels from governmental payors and private
      insurers;





·
            The
      application, to our business and the services we provide, of existing
      laws, rules and regulations, including without limitation, Medicare laws,
      anti-kickback laws, Health Insurance Portability and Accountability Act of
      1996 (“HIPAA”) regulations, state medical privacy laws, federal and state
      false claims laws and corporate practice of medicine
  laws;





·
            Regulatory
      developments in the United States;





·
            Our
      ability to maintain our license under Clinical Laboratory Improvement
      Amendments of 1988 (“CLIA”);





·
            Our
      ability to expand our operations and increase our market
      share;





·
            Our
      ability to expand our service offerings by adding new testing
      capabilities;





·
            Our
      ability to compete with other diagnostic
  laboratories;





·
            Our
      ability to hire and retain sufficient managerial, sales, clinical and
      other personnel to meet our needs;





·
            Our
      ability to successfully scale our business, including expanding our
      facilities, our backup systems and infrastructure;
  and





·
            The
      accuracy of our estimates regarding reimbursement, expenses, future
      revenues and capital requirements.





These
forward-looking statements represent our management’s beliefs and assumptions
only as of the date of this Annual Report on Form 10-K.  You should
read this Annual Report on Form 10-K, and the documents that we reference in
this Annual Report on Form 10-K and have filed as exhibits, completely and with
the understanding that our actual future results may be materially different
from what we expect.





Except as
required by law, we assume no obligation to update these forward-looking
statements publicly, or to update the reasons actual results could differ
materially from those anticipated in these forward-looking statements, even if
new information becomes available in the future.


3


ITEM
1.           DESCRIPTION
OF BUSINESS





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-K) is the registrant for SEC reporting purposes.  Our
common stock is listed on the OTC Bulletin Board under the symbol
“NGNM”.





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.





Market
Opportunity





The
medical testing laboratory market can be broken down into three primary
segments:





•           clinical
lab testing,


•           anatomic
pathology testing, and


•           genetic
and molecular testing.





Clinical
laboratories are typically engaged in high volume, highly automated, lower
complexity tests on easily procured specimens such as blood and
urine.  Clinical lab tests often involve testing of a less urgent
nature, for example, cholesterol testing and testing associated with routine
physical exams.





Anatomic
pathology (“AP”) testing involves evaluation of tissue, as in surgical
pathology, or cells as in cytopathology.  The most widely performed AP
procedures include the preparation and interpretation of pap smears, skin
biopsies, and tissue biopsies.





Genetic
and molecular testing typically involves analyzing chromosomes, genes or DNA/RNA
sequences for abnormalities.  New tests are being developed at an
accelerated pace, thus this market niche continues to expand
rapidly.  Genetic and molecular testing requires highly specialized
equipment and credentialed individuals (typically MD or PhD level) to certify
results and typically yields the highest reimbursement levels of the three
market segments.





The
market for cancer testing is growing rapidly.  Key factors influencing
this growth are:  (i) cancer is primarily a disease of the elderly and
now that the baby boomer generation has started to turn sixty, the U.S. is
experiencing a significant increase in the number of senior citizens, (ii) the
American Cancer Society estimates that one in four senior citizens will develop
some form of cancer during the rest of their lifetime, and (iii) every year more
and more genes are discovered to have a specific link to cancer, which then
enables a genetic or molecular test to be developed.   We
estimate that the Company addresses a $5-6 billion total United States market
opportunity, about half of which is derived from genetic and molecular testing
with the other half derived from more traditional anatomic pathology testing
services that are complementary to and often ordered with the genetic testing
services we offer.


4


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.





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.





Competitive
Strengths





Turnaround
Times





At
NeoGenomics, we strive to provide industry leading turnaround times to our
clients nationwide and to provide information so that physicians can provide
their patients with the correct treatment as soon as possible.





We
believe  our average 4-5 day turn-around time for our cytogenetics
testing services and our average 3-4 day turn-around time for FISH testing
services continue to be industry-leading benchmarks for national
laboratories.  The consistent timeliness of results is a competitive
strength in cytogenetics and FISH testing and a driver of additional testing
requests by our referring physicians.  Quick turn-around times for
cytogenetics and FISH tests allow for the performance of other tests to augment
or confirm results and improve patient care.  Without rapid turnaround
times, there is an increased chance that the test results will not be returned
within an acceptable diagnostic window when other adjunctive diagnostic test
results are required.  We believe our turn-around times result in our
referring physicians requesting more of our testing services and give us a
significant competitive advantage in marketing our services against those of
other competing laboratories.


5


National
Direct Sales Force





NeoGenomics
has assembled a strong direct sales force.  Our sales representatives
(“Territory Business Managers”) are organized into four regions (Northeast,
Southeast, Central and West).  These sales representatives are trained
extensively in cancer genetic testing and consultative selling
skills.  As of March 24, 2010, we had 24 Territory Business Managers
and four Regional Managers.





Strategic
Supply Agreement with Abbott Molecular





In July 2009, we entered into a
Strategic Supply Agreement with Abbott Molecular, Inc, a wholly-owned subsidiary
of Abbott Laboratories.  Under the terms of this agreement,
NeoGenomics has the rights to develop and exclusively launch three laboratory
developed tests (LDTs) based on intellectual property developed and/or licensed
by Abbott.  We launched the first of these tests in February 2010, a
FISH test for the diagnosis of melanoma, and expect to launch the second test in
early 2011 and the third in 2012.  In conjunction with the Strategic
Supply Agreement, Abbott Laboratories purchased a 9.6% stake in
NeoGenomics.





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.





Client
Care





NeoGenomics Customer Care Specialists
(“CCS”) are organized by region into territories that service not only our
external clients, but also work very closely with and support our sales
team.  A client receives personalized assistance when dealing with
their dedicated CCS because each CCS understands their clients’ specific
needs.  CCS’s handle everything from arranging specimen pickup to
delivering the results to fulfill NeoGenomics’ objective of delivering
exceptional services to our clients.


6





Geographic
Locations





In 2009,
we continued an aggressive campaign to regionalize our laboratory operations
around the country to be closer to our clients.  Many high complexity
laboratories within the cancer testing niche have frequently operated a core
facility on one or both coasts to service the needs of their customers around
the country.  We believe that our clients and prospects desire to do
business with a laboratory with national breadth and a local
presence.  NeoGenomics’ has four facilities.  The Chatsworth
California location is a small office laboratory for our pathologists. and we
have three main laboratory locations in Fort Myers, Florida; Irvine California;
and Nashville Tennessee and all facilities have the appropriate state licenses
and Clinical Laboratory Improvement Act, as amended (“CLIA”), and College of
American Pathologists (“CAP”) accreditations and are currently receiving
specimens.  As situations dictate and opportunities arise, we will
continue to develop and open new laboratories, linked together by our optimized
Laboratory Information System (“LIS”), to better meet the regionalized needs of
our clients.





Laboratory
Information System





NeoGenomics has what we believe is a
state of the art LIS that interconnects our locations and provides flexible
reporting options to clients.  This system allows us to deliver
uniform test results throughout our network, regardless of where the lab that
performs any specific test is located.  This allows us to move
specimens between locations to better balance our workload.  Our LIS
also allows us to offer highly specialized services to certain sub-segments of
our client base.  For instance, our tech-only NeoFISHTM and
NeoFLOWTM
applications allow our community-based pathologist clients to tailor individual
reports to their own customizable report templates.  This feature has
been well-received by our tech-only clients.





Scientific
Pipeline





The field of cancer genetics is rapidly
evolving, and we are committed to developing and offering new tests to meet the
needs of the market place based on the latest scientific
discoveries.  During 2009, in addition to the validation work
performed for our exclusive Melanoma FISH test, the Company made significant
strides in developing the capability to perform molecular diagnostic testing
in-house.  We believe that by adding additional types of tests to our
product offering, we will be able to increase our testing volumes through our
existing client base as well as more easily attract new clients via the ability
to package our testing services more appropriately to the needs of the
market.  We expect to launch at least five new molecular tests in
fiscal year 2010.





Competition





We
operate in segments of the medical testing laboratory industry that are highly
competitive.  Competitive factors in the genetic and molecular testing
business generally include the reputation of the laboratory, range of services
offered, pricing, convenience of sample collection and pick-up, quality of
analysis and reporting,  medical staff, timeliness of delivery of
completed reports (i.e. turnaround times) and post-reporting follow-up for
clients.





Our
competitors in the United States are numerous and include major medical testing
laboratories.  Many of these competitors have greater financial
resources and production capabilities.  These companies may succeed in
developing service offerings that are more effective than any that we have or
may develop, and may also prove to be more successful than we are in marketing
such services. In addition, technological advances or different approaches
developed by one or more of our competitors may render our products obsolete,
less effective or uneconomical.





We
estimate that the United States market for genetic and molecular testing is
divided among approximately 300 laboratories. Approximately 80% of these
laboratories are attached to academic institutions and primarily provide
clinical services to their affiliate university hospitals. We believe that the
remaining 20% is quite fragmented and that less than 20 laboratories market
their services nationally.  We estimate that the top 20 laboratories
account for approximately 50% of market revenues for genetic and molecular
testing.


7





We intend
to continue to gain market share by offering industry-leading turnaround times,
a broad service menu, high-quality test reports, bringing new tests to market,
and enhanced post-test consultation services through our direct sales
force.  In addition, we have a fully integrated and interactive
internet-enabled LIS that enables us to report real time results to clients in a
secure environment.





Global
Products





We offer
a full set of global services to meet the needs of our clients to improve
patient care.  In our global service offerings, our lab performs the
technical component of tests, and our M.D.s and Ph.D.’s interpret the test
results for our clients (known as the professional component).  This
product line provides a comprehensive testing service to those clients who are
not credentialed and trained in interpreting genetic and molecular
tests.  Global products also allow NeoGenomics to derive a higher
level of reimbursement than would otherwise be possible with a tech-only test.
This product also services the needs of physicians who are looking for ways to
save their time.





We
increased our professional level staffing for global requisitions requiring
interpretation.  Importantly, in April 2008 we recruited two
well-known hematopathologists to NeoGenomics at our Irvine, California
laboratory location, enabling this west coast facility to become the mirror
image of our main facility in Fort Myers, Florida.  We currently
employ four full-time MDs as our medical directors and pathologists, two PhDs as
our scientific directors and cytogeneticists, and one part-time MD acting as a
consultant and backup pathologist for case sign out purposes.  We have
plans to hire several more pathologists in 2010 as our product mix continues to
expand beyond tech-only services and more sales emphasis is focused on our
ability to issue consolidated reporting with case interpretation under our
Genetic Pathology Solutions (“GPS”) product line.





Tech-Only
Products





In 2006,
NeoGenomics launched what we believe was the first technical component only
(“tech-only”) FISH product offering in the United States.  Tech-only
products allow our community-based pathology clients that are properly trained
and credentialed to provide services to clinicians based on established and
trusted relationships. These pathologist clients perform the professional
interpretation of results themselves and bill for such work under the physician
fee schedule.  For tech-only FISH, NeoGenomics performs the technical
component of the test (specimen set-up, staining, sorting and categorization of
cells, chromosomes, genes or DNA, etc) and the pathology client performs the
professional component.  This allows NeoGenomics to partner with its
pathology clients and provides for close collaboration in meeting market
needs.  Prior to the advent of tech-only products, pathologists who
did not have a genetic lab would have had to send all of the work out to a
reference lab.  Utilizing NeoFISHTM,
pathologist clients are empowered to extend the outreach efforts of their
practices and exert a high level of involvement in the delivery of high quality
patient care.





NeoFLOWTM
tech-only flow cytometry was launched as a companion service to NeoFISHTM in late
2007.    We believe the NeoFLOWTM service
offering will continue to be a key growth driver for the Company in
2010.  Moreover, the combination of NeoFLOWTM and
NeoFISHTM
strengthens and differentiates NeoGenomics and allows us to compete more
favorably against larger, more entrenched competitors in our testing
niche.





Sales and
Marketing





We
continue to grow our testing volumes and revenue due to our expanding field
sales footprint.  As of March 24, 2010, NeoGenomics’ sales and
marketing team totaled 35 individuals, including 24 Territory Business Managers
(sales representatives), one Account Service Managers, four Regional Managers
and six marketing and management professionals.  During 2009, we made
significant investments in sales and marketing personnel and we expect to
realize the positive effects of those investments in 2010.





As
a result of our expanding sales force, we experienced 47% year-over-year revenue
growth to $29.5 million in 2009 from $20.0 million in 2008.  Our
average revenue/requisition increased 15% to $931 in 2009 from $808 in 2008 due
to a higher mix on global products with interpretation and an increase of higher
revenue flow cytometry testing as a percentage of our total
revenue.


8





FY2009
                
                
                FY2008
                
                
                %IncreaseClient
      Requisitions Received (Cases)
                
                
                31,638
                
                
                
                24,780
                
                
                
                28
                %Number
      of Tests Performed
                
                
                45,675
                
                
                
                32,539
                
                
                
                40
                %Average
      Number of Tests/Requisition
                
                
                1.44
                
                
                
                1.31
                
                
                
                10
                %Total
      Testing Revenue
                
                $
                29,469,000
                
                
                $
                20,015,000
                
                
                
                47
                %Average
      Revenue/Requisition
                
                $
                931
                
                
                $
                808
                
                
                
                15
                %Average
      Revenue/Test
                
                $
                645
                
                
                $
                615
                
                
                
                5
                %





Within
the subspecialty field of hematopathology, our scientific expertise and product
offering allows us to be able to perform multiple tests on each specimen
received.  Many physicians believe that a comprehensive approach to
the diagnosis and prognosis of blood and lymph node disease to be the standard
of care throughout the country.  As the average number of tests
performed per requisition increases, we believe this will help to generate
significant synergies and efficiencies in our operations and our sales and
marketing activities.





Seasonality





The majority of our testing volume is
dependent on patients being treated by hematology/oncology professionals and
other healthcare providers. The volume of our testing services generally
declines during the summer vacation season, year-end holiday periods and other
major holidays, particularly when those holidays fall during the middle of the
week. In addition, the volume of our testing tends to decline due to adverse
weather conditions, such as excessively hot or cold spells, heavy snow,
hurricanes or tornados in certain regions, consequently reducing revenues and
cash flows in any affected period. Therefore, comparison of the results of
successive periods may not accurately reflect trends for future
periods.





Distribution
Methods





The
Company currently performs the vast majority of its testing services at each of
its three main clinical laboratory locations: Fort Myers, Florida, Nashville,
Tennessee and Irvine, California, and then produces a report for the requesting
physician.  We also have a facility for our California medical staff
in Chatsworth, California.  Services performed in-house include
cytogenetics, FISH, flow cytometry, morphology, immunohistochemistry, and some
molecular testing.  The Company currently outsources approximately
half of its molecular testing to third parties, but expects to validate and
perform the majority of this testing in-house during 2010 to better meet client
demand and quality requirements.





Suppliers





The
Company orders its laboratory and research supplies from large national
laboratory supply companies such as Abbott Laboratories, Fisher Scientific,
Invitrogen, Cardinal Health, Ventana and Beckman Coulter.  Other than
as discussed below, we do not believe any disruption from any one of these
suppliers would have a material effect on our business.  The Company
orders the majority of its FISH probes from Abbott Laboratories and as a result
of their dominance of that marketplace and the absence of any competitive
alternatives, if there was a disruption in the supply of these probes, and we
did not have inventory available, it could have a material effect on our
business.  This risk cannot be completely offset due to the fact that
Abbott Laboratories has patent protection which limits other vendors from
supplying these probes.


9


Dependence on Major
Clients





We
currently market our services to pathologists, oncologists, urologists,
hospitals and other clinical laboratories.  During 2009, we performed
45,675 individual tests.  Ongoing sales efforts have decreased
dependence on any given source of revenue.  Notwithstanding this fact,
one key client accounts for a disproportionately large case volume and revenue
total.  For the years ended December 31, 2009 and 2008, one client
with multiple locations accounted for 10% and 22% respectively, of total
revenue.  As a result of this one customer bringing certain tests
in-house, this client represented less than 5% of our fourth quarter 2009
revenue.  All others were less than 5% of total revenue
individually.





Payor
Mix





In 2009,
approximately 49% of our revenue was derived from Medicare claims, 26% from
commercial insurance companies, 24% from clients such as hospitals and other
reference laboratories, and 1% from all others including patients.  As
of December 31, 2008, Medicare and one commercial insurance provider accounted
for 28% and 9% of the Company’s total accounts receivable balance,
respectively.  There is no other significant concentration in our
payor mix.





Trademarks





The
“NeoGenomics” name and logo has been trademarked with the United States Patent
and Trademark Office. We have also trademarked the brand names MelanoSITE
and  DermFISH related to our melanoma FISH test.





Number of
Employees





As of
December 31, 2009, we had 166 full-time equivalent employees.  In
addition, eight other individuals, including three pathologists and a Ph.D.
cytogenetics director, serve as consultants to the Company on a regular
basis.  On December 31, 2008, we had 114 full-time equivalent
employees and six consultants serving on a regular basis. Our employees are not
represented by any union and we believe our employee relations are
good.





Government
Regulation





The
laboratory business is subject to extensive governmental regulation at the
federal, state and local levels.  The laboratories are required to be
licensed by the states, certified by the federal government to participate in
the Medicare and Medicaid programs, and are subject to extensive requirements as
a condition of participation in various governmental health benefits
programs.  The failure to comply with any of the applicable federal
and state laws, regulations, and reimbursement guidelines could have a material
adverse effect on the Company’s business.  The applicable laws and
regulations, and the interpretations of them, change frequently and there can be
no assurance that the Company will not be subject to audit, inquiry, or
investigation with respect to some aspect of its operations.  Some of
the federal and state laws and regulations are described below under "Clinical
Laboratory Operations," "Anti-Fraud and Abuse Laws," “The False Claims Act,”
"Confidentiality of Health Information," and "Food and Drug
Administration".





Clinical Laboratory
Operations





Licensure
and Accreditation





The
Company operates clinical laboratories in Fort Myers, Florida, Nashville,
Tennessee, Irvine, California and Chatsworth, California. The Chatsworth
California location is a small office laboratory for our pathologists. The
laboratories are licensed as required by the states in which they are
located.  In addition, the laboratory in Tennessee is licensed by the
State of New York as it accepts clinical specimens obtained in New
York.  All of the NeoGenomics laboratories are certified in accordance
with the Clinical Laboratories Improvement Act, as amended
(“CLIA”).  Under CLIA, the U.S. Department of Health and Human
Services (“HHS”) establishes quality standards for each category of testing
performed by the laboratory.  The categories of testing include
waived, moderate complexity, and high complexity. NeoGenomics’ laboratories are
categorized as high complexity.  The NeoGenomics’ laboratories are
also accredited by the College of American Pathologists (“CAP”) and actively
participate in CAP’s proficiency testing programs for all tests offered by the
Company. Proficiency testing programs require the participating laboratories to
test specimens that they receive from the testing entity and return the results.
The testing entity, conducting an approved program, analyzes the results
returned and provides to the Company a quality control report assessing the
results.  An important component of a quality assurance program is to
establish whether the laboratory’s test results are accurate and
valid.


10


The
federal and state certification and licensure programs establish standards for
the operation of clinical laboratories, including, but not limited to,
qualifications of personnel and quality control. Compliance with such standards
is verified by periodic inspections by inspectors employed by federal and state
regulatory agencies and accrediting organizations.  The Company’s
Quality Assurance team, which is comprised of representatives of all departments
of the Company, also conducts routine internal surveys and requires corrective
actions in response to the findings.





Quality
of Care





Our
mission is to improve patient care through quality cancer genetic diagnostic
services. By delivering exceptional service and innovative solutions, we aspire
to become America’s premier cancer testing laboratory.  The quality of
care provided to clients and their patients is of paramount importance to
us.  We maintain strong quality control processes, including standard
operating procedures, controls, performance measurement and reporting
mechanisms.  Our employees are committed to providing accurate,
reliable, and consistent services at all times.  Any concerns
regarding the quality of testing or services provided by the Company are
immediately communicated to Company management and, if necessary, the Compliance
Department or Human Resources Department.





Compliance
Program





The
health care industry is highly regulated and scrutinized with respect to fraud,
abusive billing practices, and improper financial relationships between health
care companies and their referral sources.  The Office of the
Inspector General of HHS (the “OIG”) has published compliance guidance,
including the Compliance Program Guidance for Clinical Laboratories in August of
1998, and advisory opinions.  The Company has implemented a Compliance
Program that is overseen by the senior management of the Company.  Its
objective is to ensure compliance with the myriad federal and state laws,
regulations and governmental guidance applicable to our business.  Our
program consists of training/education of employees and monitoring and auditing
Company practices. The Board of Directors has formed a Compliance Committee
which meets regularly to discuss all compliance-related issues that may affect
the Company. The Company continuously reviews its policies and procedures as new
regulations and interpretations come to light to comply with applicable
regulations.





Hotline





As part
of its Compliance Program, the Company provides a hotline for employees who wish
to anonymously or confidentially report suspected violations of our codes of
conduct, policies/procedures, or laws and regulations. Employees are strongly
encouraged to report any suspected violation if they do not feel the problem can
be appropriately addressed through the normal chain of command. The hotline does
not replace other resources available to Employees, including supervisors,
managers and human resources staff, but is an alternate channel available 24
hours a day, 365 days a year. The hotline forwards all reports to the Compliance
Officer who is responsible for investigating, reporting to the Compliance
Committee, and documenting the disposition of each report. The hotline forwards
any calls pertaining to the financial statements or financial issues to the
Chair of the Audit Committee. The Company does not allow any retaliation against
an employee who reports a compliance related issue.





Anti-Fraud and Abuse
Laws





The
federal laws governing Medicare, Medicaid, and other federal health benefits, as
well as other state and federal laws, regulate certain aspects of the
relationships between health care providers, including clinical laboratories,
and their referral sources, including physicians, hospitals, other laboratories,
and other entities. The federal anti-kickback laws, referred to as the Medicare
and Medicaid Anti-Fraud and Abuse Amendments to the Social Security Act (the
“Anti-Kickback Statute”), prohibit any knowing and willful offer, payment,
solicitation or receipt of any form of remuneration, either directly or
indirectly, in return for, or to induce: (i) the referral of an individual for a
service for which payment may be made by Medicare and Medicaid or other federal
health benefit programs; or (ii) the purchasing, leasing, ordering or arranging
for, or recommending the purchase, lease or order of, any service or item for
which payment may be made by Medicare, Medicaid or other federal health benefit
programs.  Violations of federal anti-kickback laws and regulations
are punishable as a felony, by civil money penalties, and exclusion from
participation in Medicare, Medicaid and other federal health benefit
programs.  Most states have similar laws with both criminal and civil
penalties.


11


Because
of the broad proscriptions of the Anti-Kickback Statute, subsequent federal law
required the HHS to publish regulations to guide the health care community in
structuring relationships that would not violate the law.  The OIG
published regulations outlining certain categories of relationships between
health care providers and persons or entities that may have a referral
relationship that would be deemed not to violate the Anti-Kickback
Statute.  These regulations are known as the Safe Harbor Regulations
(the “Safe Harbor Regulations”) because persons who enter into transactions that
comply with all of the criteria for an applicable safe harbor will not be
subject to prosecution under the Anti-Kickback Statute. The Safe Harbor
Regulations are narrowly drafted to avoid inadvertently immunizing prohibited
conduct. A relationship or transaction that does not meet all of the criteria of
an applicable Safe Harbor Regulation is not deemed to be illegal. Rather it may
be subject to additional scrutiny. The Company endeavors to comply with the Safe
Harbor Regulations, but there can be no assurance that the Company would not be
subject to investigation and, if investigated, that relationships could be found
not to comply with the Safe Harbor Regulations.





Medicare Payment
Guidelines





The
Company has various billing arrangements with its clients and with third party
payors, including the Medicare program. The Company may perform the entire test
and render a professional interpretation in which case the Company would bill
globally, for both the technical and professional components, either directly to
the payor or to the client.  Alternatively, the Company may perform
the technical component of the test only and either bill the payor directly or
bill the client.  Client billing arrangements are priced competitively
at fair market value.  These client billing arrangements may implicate
the prohibition of the Medicare program against charging the Medicare or
Medicaid programs fees substantially in excess of the Company’s usual and
customary charges.  These billing arrangements may also implicate the
federal Stark Law and the federal and state anti-kickback statutes.





Federal
law authorizes the Secretary of HHS to suspend or exclude providers from
participation in the Medicare and Medicaid programs if they charge Medicare or
state Medicaid programs fees "substantially in excess" of their "usual
charges."  The OIG has stated in commentary to various final and
proposed regulations its position that this statute has limited applicability to
the current Medicare reimbursement system which either mandates prospective
payment or provides for services to be reimbursed based on a fee
schedule.  The OIG indicated, in the Federal Register of September 2,
1998, that it would expect the statutory authority to exclude providers based on
a determination that their fees were substantially in excess of their usual
charges would “have declining relevance within the Medicare reimbursement
system.”  However, in the Federal Register of September 15, 2003, the
OIG requested, in a Notice of Proposed Rule-Making, comments as to whether any
services reimbursed under the physician fee schedule should be subject to these
regulations.  The OIG further stated that “[w]e note that ancillary
services, such as laboratory tests and drugs, would remain subject to these
regulations, even when furnished by physicians” [F.R., Vol. 68, No. 178,
September 15, 2003 at 53940]





In
several Advisory Opinions, the OIG has provided additional guidance regarding
the possible application of this law, as well as the applicability of the
anti-kickback laws to pricing arrangements. The OIG concluded in an Advisory
Opinion issued in 1999 [OIG Advisory Opinion No. 99-13] that an arrangement
under which a laboratory offered substantial discounts to physicians for
laboratory tests billed directly to the physicians could potentially trigger the
"substantially in excess" provision and might violate the anti-kickback law,
because the discounts could be viewed as being provided to the physician in
exchange for the physician's referral to the laboratory of non-discounted
Medicare business, unless the discounts could otherwise be
justified.


12


The
Centers for Medicare and Medicaid Services promulgated, in 2008, a revision to
the regulation that prohibits the mark up of purchased diagnostic services [42
C.F.R. §414.50] (the “Anti-Markup Rule”).  The Anti-Markup Rule
prohibits a physician or other supplier from billing for the technical or
professional component of a diagnostic test that was ordered by the physician or
supplier and was performed by a physician who does not share a practice with the
billing physician or supplier an amount greater than the lesser of: (i) the
performing supplier’s net charge to the billing physician; (ii) the billing
physician’s actual charge; or (iii) the fee schedule amount for the test that
would be allowed if the performing supplier billed directly.  There
has been considerable commentary and the regulation has been amended to attempt
to clarify the regulation.





In light
of the various federal regulations and guidance from the OIG, the Company
endeavors to price its products competitively while endeavoring to meet
applicable statutes and regulations.





Physician Self Referral
Laws





The
federal law referred to as the "Stark Law”, named after Rep. Fortney “Pete”
Stark, prohibits physicians who have a financial relationship with an entity
from referring Medicare and Medicaid patients to that entity for the provision
of designated health services unless the transaction meets an exception to the
law.  The Company is subject to the Stark law in that laboratory
services are classified as a designated health service.  The
prohibited financial relationships include investment and compensation
arrangements.





Some
states in which the Company is engaged have enacted similar physician
self-referral laws. For example, the Florida Patient Self-Referral Act of 1992,
as amended, (the “Act”) is similar to the Stark law, but is narrower in some
respects and broader in others. Clinical laboratory services are similarly
classified as a designated health service in the Act. But, the Act applies to
investment interests, and, unlike the Stark Law, does not address compensation
arrangements. The penalties for a violation of the Act include forfeiture of all
payments received, civil money penalties, and disciplinary action by the
applicable licensing board.





The Stark
Law is a per se statute
in that intent to violate the statute, unlike the Anti-Kickback Statute, is
immaterial.  A violation of the Stark Law renders any reimbursements
improper and requires the provider to forfeit any funds received in violation of
the Stark Law, and exposes the parties to civil and criminal penalties. The
Company endeavors to structure its financial relationships in compliance with
the Stark Law and with similar state physician self-referral laws.





The False Claims
Act





The
Federal False Claims Act prohibits any person or entity from knowingly
presenting, or causing to be presented, to the U.S. government, or to a Medicare
program contractor, a false or fraudulent claim for payment, or knowingly making
or using a false record or statement to have a false claim paid by the
government, or conspiring to defraud the U.S. government, or knowingly making or
using a false statement to conceal and obligation to pay the
government.  A violation of the Federal False Claims Act is punishable
by a civil penalty of $5,500 to $11,000 plus three times the amount of
damages.  Private parties may bring an action on behalf of the U.S.
Government by filing a qui
tam case.  The private party, called a relator, is entitled to
a share of the proceeds from any recovery or settlement.  As most
quitam cases are filed
by current or former employees, an effective compliance program plays a crucial
role in reducing the Company’s exposure to liability.  It is also a
criminal offense, under Title 18 U.S. Code, Section 287, for a person or entity
to make a claim against the United States or any department or agency, knowing
the claim to be false, fictitious or fraudulent.  The penalty is
imprisonment of not more than five years. The Federal False Claims Act has been
an effective enforcement tool for the federal government. Many states have
enacted similar false claims acts as well.





The
Company seeks to structure its arrangements with physicians and other clients to
be in compliance with the Anti-Kickback Statute, Stark Law, state laws, and the
Federal False Claims Act and to stay abreast of current developments and changes
in the law and regulations.  However, these laws and regulations are
complex and subject to interpretation.  Consequently, we are unable to
ascertain with certainty that any of our transactions will not be subject to
scrutiny and, if scrutinized, will not result in sanctions or
penalties.  The Company has taken and will continue to take actions to
endeavor to ensure compliance with the myriad federal and state laws that govern
our business.


13


Confidentiality and Security
of Personal Health Information





The
Health Insurance Portability and Accountability Act of 1996, as amended
("HIPAA") contains provisions that protect individually identifiable health
information from unauthorized use or disclosure by covered entities and their
business associates. The Office of Civil Rights of HHS, the agency responsible
for enforcing HIPAA, has published regulations to address the privacy (the
“Privacy Rule”) and security (the “Security Rule”) of protected health
information (“PHI”).  The Company is a covered entity and has adopted
policies and procedures to comply with the Privacy Rule and the Security Rule.
The health care facilities and providers that refer specimens to the Company are
also bound by HIPAA.





HIPAA
also required that all providers who transmit claims for health care goods or
services electronically utilize standard transaction and data sets and to
standardize national provider identification codes. The Company has taken
necessary steps to comply with HIPAA regulations, utilizes standard transaction
data sets, and has obtained and implemented national provider identifiers, or
NPIs, as the standard unique health identifier in filing and processing health
care claims and other transactions.





The
American Recovery and Reinvestment Act (“ARRA”) recently enacted the HITECH Act
which extends the scope of HIPAA to permit enforcement against business
associates for a violation, establishes new requirements to notify the Office of
Civil Rights of HHS of a breach of HIPAA, and allows the Attorneys General of
the states to bring actions to enforce violations of HIPAA.  Rules
implementing various aspects of HIPAA are continuing to be
developed.





In
addition to the HIPAA Privacy Rule and Security Rule described above, the
Company is subject to state laws regarding the handling and disclosure of
patient records and patient health information. These laws vary widely.
Penalties for violation include sanctions against a laboratory's licensure as
well as civil or criminal penalties.  Additionally, private
individuals may have a right of action against the Company for a violation of a
state’s privacy laws.  We believe we are in material compliance with
current state laws regarding the confidentiality of health information and will
continue to monitor and comply with new or changing state laws.





The Fair
and Accurate Credit Transactions Act of 2003, enacted on Dec. 4, 2003, directed
the Federal Trade Commission to implement regulations to protect consumers
against identity theft.  The Federal Trade Commission issued what are
referred to as the “Red Flag Rules”, but the effective date for enforcement has
been delayed several times. The Red Flag Rules are now subject to enforcement as
of June 1, 2010. Health care providers who act as a “creditor” to any of its
patients with respect to a “covered account” are required to implement an
identity theft protection program to safeguard patient information.  A
creditor includes any entity that regularly extends, renews or continues credit
or which defers payment for goods or services. Since the Company routinely
extends credit by billing for its services after such services are provided, the
Company meets the definition of a “creditor” under the Red Flag Rules.
Accordingly, the Company has developed a written program designed to identify
and detect the relevant warning signs – or “red flags” – of identity theft and
establish appropriate responses to prevent and mitigate identity theft in order
to comply with the Red Flag Rules. We are also developing a plan to update the
program, and the program will be managed by senior management staff under the
policy direction of our Board of Directors. The Company intends to take such
steps as necessary to determine the extent to which it may be covered by the Red
Flag Rule and take such steps as necessary to comply.


14


ITEM
1A.         RISK
FACTORS





We are subject to various risks that
may materially harm our business, financial condition and results of operations.
An investor should carefully consider the risks and uncertainties described
below and the other information in this filing before deciding to purchase our
common stock. If any of these risks or uncertainties actually occurs, our
business, financial condition or operating results could be materially harmed.
In that case, the trading price of our common stock could decline or we may be
forced to cease operations.





We
May Not Be Able To Implement Our Business Strategies Which Could Impair Our
Ability To Continue Operations





Implementation
of our business strategies will depend in large part on our ability to (i)
attract and maintain a significant number of clients; (ii) effectively provide
acceptable products and services to our clients; (iii) obtain adequate financing
on favorable terms to fund our business strategies; (iv) maintain appropriate
procedures, policies, and systems; (v) hire, train, and retain skilled employees
and management; (vi) continue to operate with increasing competition in the
medical laboratory industry; (vii) establish, develop and maintain name
recognition; and (viii) establish and maintain beneficial relationships with
third-party insurance providers and other third party payors.  Our
inability to obtain or maintain any or all these factors could impair our
ability to implement our business strategies successfully, which could have
material adverse effects on our results of operations and financial
condition.





We
May Be Unsuccessful In Managing Our Growth Which Could Prevent The Company From
Becoming Profitable





Our
recent growth has placed, and is expected to continue to place, a significant
strain on our managerial, operational and financial resources.  To
manage our potential growth, we must continue to implement and improve our
operational and financial systems and to expand, train and manage our employee
base.  We may not be able to effectively manage the expansion of our
operations and our systems and our procedures or controls may not be adequate to
support our operations.  Our management may not be able to achieve the
rapid execution necessary to fully exploit the market opportunity for our
products and services.  Any inability to manage growth could have a
material adverse effect on our business, results of operations, potential
profitability and financial condition.  Part of our business strategy
may be to acquire assets or other companies that will complement our existing
business. At this time, we are unable to predict whether or when any material
transaction will be completed should negotiations commence.  If we
proceed with any such transaction, we may not be able to effectively integrate
the acquired operations with our own operations.  We may also seek to
finance any such acquisition by debt financings or issuances of equity
securities and such financing may not be available on acceptable terms or at
all.





We
May Incur Greater Costs Than Anticipated, Which Could Result In Sustained
Losses





We used
reasonable efforts to assess and predict the expenses necessary to pursue our
business plan. However, implementing our business plan may require more
employees, capital equipment, supplies or other expenditure items than
management has predicted.  Similarly, the cost of compensating
additional management, employees and consultants or other operating costs may be
more than we estimate, which could result in ongoing and sustained
losses.


15





We
Rely On A Limited Number Of Third Parties For Manufacture And Supply Of Certain
Of Our Critical Laboratory Instruments And Materials, And We May Not Be Able To
Find Replacement Suppliers Or Manufacturers In A Timely Manner In The Event Of
Any Disruption, Which Could Adversely Affect Our Business.





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





We
May Face Fluctuations In Results Of Operations Which Could Negatively Affect Our
Business Operations And We Are Subject To Seasonality In Our
Business





As a
result of our limited operating history and the relatively limited information
available on our competitors, we may not have sufficient internal or
industry-based historical financial data upon which to calculate anticipated
operating expenses.  Management expects that our results of operations
may also fluctuate significantly in the future as a result of a variety of
factors, including, but not limited to: (i) the continued rate of growth, usage
and acceptance of our products and services; (ii) demand for our products and
services; (iii) the introduction and acceptance of new or enhanced products or
services by us or by competitors; (iv) our ability to anticipate and effectively
adapt to developing markets and to rapidly changing technologies; (v) our
ability to attract, retain and motivate qualified personnel; (vi) the
initiation, renewal or expiration of significant contracts with our major
clients; (vii) pricing changes by us, our suppliers or our competitors; (viii)
seasonality; and (ix) general economic conditions and other
factors.  Accordingly, future sales and operating results are
difficult to forecast.  Our expenses are based in part on our
expectations as to future revenues and to a significant extent are relatively
fixed, at least in the short-term. We may not be able to adjust spending in
a timely manner to compensate for any unexpected revenue
shortfall.  Accordingly, any significant shortfall in relation to our
expectations would have an immediate adverse impact on our business, results of
operations and financial condition.  In addition, we may determine
from time to time to make certain pricing or marketing decisions or acquisitions
that could have a short-term material adverse affect on our business, results of
operations and financial condition and may not result in the long-term benefits
intended.  Furthermore, in Florida, currently our primary referral
market for lab testing services, a meaningful percentage of the population,
returns to homes in the Northern U.S. to avoid the hot summer
months.   This combined with the usual summer vacation schedules
of our clients usually results in seasonality in our
business.  Because of all of the foregoing factors, our operating
results could be less than the expectations of investors in future
periods.


16


We
Substantially Depend Upon Third Parties For Payment Of Services, Which Could
Have A Material Adverse Affect On Our Cash Flows And Results Of
Operations





The
Company is a clinical medical laboratory that provides medical testing services
to doctors, hospitals, and other laboratories on patient specimens that are sent
to the Company.  In the case of most specimen referrals that are
received for patients that are not in-patients at a hospital or institution or
otherwise sent by another reference laboratory, the Company generally has to
bill the patient’s insurance company or a government program for its
services.  As such it relies on the cooperation of numerous third
party payors, including but not limited to Medicare, Medicaid and various
insurance companies, in order to get paid for performing services on behalf of
the Company’s clients.  Wherever possible, the amount of such third
party payments is governed by contractual relationships in cases where the
Company is a participating provider for a specified insurance company or by
established government reimbursement rates in cases where the Company is an
approved provider for a government program such as Medicare.  However,
the Company does not have a contractual relationship with many of the insurance
companies with whom it deals, nor is it necessarily able to become an approved
provider for all government programs.  In such cases, the Company is
deemed to be a non-participating provider and there is no contractual assurance
that the Company is able to collect the amounts billed to such insurance
companies or government programs.  Currently, the Company is not a
participating provider with the majority of the insurance companies it bills for
its services.  Until such time as the Company becomes a participating
provider with such insurance companies, there can be no contractual assurance
that the Company will be paid for the services it bills to such insurance
companies, and such third parties may change their reimbursement policies for
non-participating providers in a manner that may have a material adverse effect
on the Company’s cash flow or results of operations.





Our
Business Is Subject To Rapid Scientific Change, Which Could Have A Material
Adverse Affect On Our Business, Results of Operations And Financial
Condition





The
market for genetic and molecular testing services is characterized by rapid
scientific developments, evolving industry standards and customer demands, and
frequent new product introductions and enhancements.  Our future
success will depend in significant part on our ability to continually improve
our offerings in response to both evolving demands of the marketplace and
competitive service offerings, and we may be unsuccessful in doing
so.





The
Market For Our Services Is Highly Competitive, Which Could Have A Material
Adverse Affect On Our Business, Results Of Operations And Financial
Condition





The
market for genetic and molecular testing services is highly competitive and
competition is expected to continue to increase.  We compete with other
commercial medical laboratories in addition to the in-house laboratories of many
major hospitals.  Many of our existing competitors have significantly
greater financial, human, technical and marketing resources than we
do.  Our competitors may develop products and services that are
superior to ours or that achieve greater market acceptance than our
offerings.  We may not be able to compete successfully against current
and future sources of competition and in such case, this may have a material
adverse effect on our business, results of operations and financial
condition.





We
Face The Risk of Capacity Constraints, Which Could Have A Material Adverse
Affect On Our Business, Results Of Operations And Financial
Condition





We
compete in the market place primarily on three factors:  a) the
quality and accuracy of our test results; b) the speed or turn-around times of
our testing services; and c) our ability to provide after-test support to those
physicians requesting consultation.  Any unforeseen increase in the
volume of clients could strain the capacity of our personnel and systems, which
could lead to inaccurate test results, unacceptable turn-around times, or
customer service failures.  In addition, as the number of clients and
cases increases, our products, services, and infrastructure may not be able to
scale accordingly.  Any failure to handle higher volume of requests
for our products and services could lead to the loss of established clients and
have a material adverse effect on our business, results of operations and
financial condition.  If we produce inaccurate test results, our
clients may choose not to use us in the future.  This could severely
harm our business, results of operations and financial condition.  In
addition, based on the importance of the subject matter of our tests, inaccurate
results could result in improper treatment of patients, and potential liability
for us.


17


We
May Fail To Protect Our Facilities, Which Could Have A Material Adverse Affect
On Our Business, Results Of Operations And Financial Condition





The
Company’s operations are dependent in part upon its ability to protect its
laboratory operations against physical damage from fire, floods, hurricanes,
earthquakes, power loss, telecommunications failures, break-ins and similar
events.  The Company does not presently have an emergency back-up
generator in place at its Nashville, Tennessee or Irvine and Chatsworth,
California laboratory locations that can mitigate to some extent the effects of
a prolonged power outage.  The occurrence of any of these events could
result in interruptions, delays or cessations in service to clients, which could
have a material adverse effect on our business, results of operations and
financial condition.





The
Steps Taken By The Company To Protect Its Proprietary Rights May Not Be
Adequate, Which Could Result In Infringement Or Misappropriation By
Third-Parties





We regard
our copyrights, trademarks, trade secrets and similar intellectual property as
critical to our success, and we rely upon trademark and copyright law, trade
secret protection and confidentiality and/or license agreements with our
employees, clients, partners and others to protect our proprietary
rights.  The steps taken by us to protect our proprietary rights may
not be adequate or third parties may infringe or misappropriate our copyrights,
trademarks, trade secrets and similar proprietary rights.  In
addition, other parties may assert infringement claims against us.





We
Are Dependent On Key Personnel And Need To Hire Additional Qualified Personnel
In Order For Our Business To Succeed





Our
performance is substantially dependent on the performance of our senior
management and key technical personnel.  In particular, our success
depends substantially on the continued efforts of our senior management team,
which currently is composed of a small number of individuals.  The
loss of the services of any of our executive officers, our laboratory directors
or other key employees could have a material adverse effect on our business,
results of operations and our financial condition.  Our future success
also depends on our continuing ability to attract and retain highly qualified
technical and managerial personnel.  Competition for such personnel is
intense and we may not be able to retain our key managerial and technical
employees or may not be able to attract and retain additional highly qualified
technical and managerial personnel in the future.  The inability to
attract and retain the necessary technical and managerial personnel could have a
material adverse effect upon our business, results of operations and financial
condition.





The
Failure To Obtain Necessary Additional Capital To Finance Growth And Capital
Requirements, Could Adversely Affect Our Business, Financial Condition And
Results Of Operations





We may
seek to exploit business opportunities that require more capital than we have
currently available.  We may not be able to raise such capital on
favorable terms or at all.  If we are unable to obtain such additional
capital, we may be required to reduce the scope of our anticipated expansion,
which could adversely affect our business, financial condition and results of
operations.





On
February 1, 2008, we entered in a revolving credit facility with CapitalSource
Finance, LLC (“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 December 31, 2009, we had cash and cash
equivalents of approximately $1,630,000, restricted cash of $1,000,000 and we
had approximately $2,447,000 of availability under this credit
facility.  If we were unable to obtain sufficient working capital
financing from CapitalSource or sell enough of our products, we would need to
secure other sources of funding, including possibly equity financing, in order
to satisfy our working capital needs.  This line expires on January
31, 2011, and we have the risk that it may not be renewed or a suitable
replacement found.  The CapitalSource credit facility line has
financial covenants which are measured on a monthly basis and which must
continue to be met by the Company.  We failed to meet our fixed charge
coverage ratio for the test periods ended January 31, 2010 and February 28, 2010
and received a waiver on March 26, 2010.  In the event that we do not
continue to meet the requirements by such financial covenants or we otherwise
default on the terms of the CapitalSource credit facility and we are unable to
obtain a waiver of such default or obtain Capital Source’s agreement to amend
the facility, there is a risk that Capital Source could stop lending under the
facility and demand that all amounts outstanding under the facility be paid
immediately by the Company.


18


On
November 5, 2008, the Company and Fusion Capital Fund II, LLC, an Illinois
limited liability company (“Fusion Capital”),
entered into a Common Stock Purchase Agreement (the “Purchase
Agreement”).  We only have the right to receive $50,000 every
four business days under the Purchase Agreement unless our stock price equals or
exceeds $0.75, in which case we can sell greater amounts  to Fusion
Capital as the price of our common stock increases.  Fusion Capital
shall not have the right nor the obligation to purchase any shares of our common
stock on any business day that the market price of our common stock is less than
$0.45.  Since we registered 3,000,000 shares for sale under the
Purchase Agreement by Fusion Capital pursuant to a registration statement on
Form S-1 filed on November 28, 2008, the selling price of our common stock to
Fusion Capital will have to average at least $2.67 per share for us to receive
the maximum proceeds of $8.0 million.  Assuming a purchase price of
$1.50 per share (the closing sale price of the common stock on December 31,
2009) and the purchase by Fusion Capital of the full 3,000,000 shares under the
Purchase Agreement, proceeds to us would only be $4,500,000unless we choose to
register more than 3,000,000 shares, which we have the right, but not the
obligation, to do.  Subject to approval by our board of directors, we
have the right but not the obligation to sell more than 3,000,000 shares to
Fusion Capital.  In the event we elect to sell more than 3,000,000
shares to Fusion Capital, we will be required to file a new registration
statement and have it declared effective by the U.S. Securities and Exchange
Commission.




The
extent we rely on Fusion Capital as a source of funding will depend on a number
of factors, including the prevailing market price of our common stock and the
extent to which we are able to secure working capital from other
sources.  Specifically, Fusion Capital shall not have the right nor
the obligation to purchase any shares of our common stock on any business days
that the market price of our common stock is less than $0.45.  If
obtaining sufficient financing from Fusion Capital were to prove unavailable or
prohibitively dilutive and if we are unable to sell enough of our products, we
will need to secure another source of funding in order to satisfy our working
capital needs.





Even if
we are able to access the full $3.0 million from CapitalSource and the full $8.0
million under the Purchase Agreement with Fusion Capital, we may still need
additional capital to fully implement our business, operating and development
plans.  Should the financing we require to sustain our working capital
needs be unavailable or prohibitively expensive when we require it, there could
be a material adverse effect on our business, operating results, financial
condition and prospects.





Proposed
Government Regulation Of Laboratory Developed Tests (“LDT’s”) May Result In
Delays To Certain Laboratory Tests and Increase Our Costs To Implement New
Tests





We
frequently develop testing procedures to provide diagnostic results to tests
that are not available using Federal Drug Administration (“FDA”) approved
methods.  The FDA has been considering changes to the way that
laboratories are allowed to offer these LDT’s.  Currently all such
tests are conducted and offered under approval by CLIA and individual state
licensing procedures: the FDA is considering requiring FDA approval on a portion
of those currently offered non-FDA approved tests.  There are
currently no formal definitions, procedures or FDA processes on how such
approvals would be handled but there is a risk that this could delay the
offering of certain tests and result in additional validation costs to
us.





Steps
Taken By Government Payors, Such As Medicare And Medicaid To Control The
Utilization and Reimbursement Of Healthcare Services, Including Esoteric Testing
May Diminish Our Net Revenue





We face
efforts by government payers to reduce utilization as well as reimbursement for
laboratory testing services.




19


From time
to time, Congress has legislated formulas adverse to sustainable payment rates,
and has reduced, delayed, or modified updates to the Medicare Physician Fee
Schedule. The Physician Fee Schedule assigns relative value units to each
procedure or service, and a conversion factor is applied to calculate the
reimbursement. The Physician Fee Schedule is subject to adjustment on an annual
basis. The formula used to calculate the fee schedule conversion factor, known
as the Sustainable Growth Rate, would have resulted in significant decreases in
payment for most physician services for each year since 2003. However, since
that time Congress has intervened repeatedly to prevent these payment
reductions, and the conversion factor has been increased or frozen for the
subsequent year. Decreases in payment will occur in future years unless Congress
acts to change the formula used to calculate the fee schedule or continues to
legislate modifications to the Sustainable Growth Rate each year. In late 2008,
Congress acted to provide a 1.1% increase in physician fee schedule payments in
2009. The calendar year 2010 update to the conversion factor for the physician
fee schedule, based on the statutory formula, is a payment reduction of 21.2 %.
To temporarily prevent this reduction to the physician fee schedule, an
extension of the 2009 conversion factor through February 28, 2010 was included
in legislation enacted on December 19, 2009. However, legislation was enacted in
early March of 2010 to delay the implementation of the reduction until September
30, 2010.  In the event that the reduction in the Medicare physician
fee schedule is not further modified prospectively, either by statutory
intervention or by modifying the formula to determine the physician fee
schedule, the Company could face a material reduction in the Medicare
reimbursements it receives for certain of its laboratory tests. Reductions in
the Medicare physician fee schedule could have a material adverse effect on our
business, operating results, financial condition and prospects.





In
addition, certain other legislation 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).  As a result of the
expiration of the TC Grandfather legislation, reference labs like the Company
could no longer bill Medicare directly for the technical component of laboratory
tests for grandfathered hospitals.  However the recently enacted
Patient Protection and Affordable Care Act, HR 3590, extended the TC Grandfather
provision through December 31, 2010.  In the event that the TC
Grandfather legislation is not further extended, Company would be required to
bill the hospitals ordering such services for the technical component of those
tests the Company previously billed to Medicare.  In such case, there
can be no assurance that the hospital clients of the Company will contract to
pay for such tests or will continue to order such tests from the Company in the
same volumes as they have been historically, which could have a material adverse
effect on our business, operating results, financial condition and
prospects.





CMS
adopts policies, from time to time, limiting or excluding coverage for certain
of the tests that we perform.  Many state governments are under budget
pressures and are also considering reductions to their Medicaid
fees.  Further, Medicare can perform audits for overutilization of
billed services.  Even though all tests performed by us are ordered by
our clients, who establish the medical necessity for the tests, we may be
subject to recoupment of payments, as the recipient of Medicare payments for
such tests, in the event that CMS determines that the tests failed to meet all
applicable criteria for payment.  When CMS revises its coverage
policies, our costs increase due to the complexity and additional administrative
requirements. Furthermore, Medicaid reimbursement and regulations vary by state,
and we are subject to varying administrative and billing regulations, which
affect the complexity of servicing such programs and our administrative
costs.





During
the last several years, the federal government has sponsored programs to expand
the number of Medicare beneficiaries participating in managed care programs,
called “Medicare Advantage” programs, and has encouraged such beneficiaries to
switch from the traditional fee for service Medicare program to Medicare
Advantage programs. There has been rapid growth of health insurance and managed
care plans offering Medicare Advantage programs and growth in beneficiary
enrollment in these programs. Also in recent years, many states have
increasingly mandated that Medicaid beneficiaries enroll in managed care
arrangements. If these efforts continue to be successful, we may experience a
further shift of traditional Medicare and Medicaid beneficiaries to managed care
programs. As a result, the Company would be required to contract with those
managed care programs. There can be no assurance that the managed care programs
and the Company will enter into agreements at rates of payment similar to those
the Company realizes from its non-managed care lines of business. Recently,
state budget pressures have encouraged states to consider several courses that
may impact our business, such as delaying payments, restricting coverage
eligibility, service coverage restrictions and imposing taxes on our
services.


20


We expect
these initiatives to continue and, if they do, to reduce reimbursements, to
impose more stringent cost controls and to reduce utilization of clinical test
services. These efforts, including changes in law or regulations that may occur
in the future, may have a material adverse impact on our business, operating
results, financial condition and prospects.





Our
Net Revenue Will Be Diminished If Payors Do Not Adequately Cover Or Reimburse
Our Services





There has
been and will continue to be significant efforts by both federal and state
agencies to reduce costs in government healthcare programs and otherwise
implement government control of healthcare costs. In addition, increasing
emphasis on managed care in the U.S. may continue to put pressure on the pricing
of healthcare services. Uncertainty exists as to the coverage and reimbursement
status of new applications or services. Third party payors, including
governmental payors such as Medicare and private payors, are scrutinizing new
medical products and services and may not cover or may limit coverage and the
level of reimbursement for our services. Third party insurance coverage may not
be available to patients for any of our existing tests or for tests we discover
and develop.  In addition, a substantial portion of the testing for
which we bill our hospital and laboratory clients is ultimately paid by third
party payors.  Any pricing pressure exerted by these third party
payors on our clients may, in turn, be exerted by our clients on
us.  If government and other third party payors do not provide
adequate coverage and reimbursement for our tests, our operating results, cash
flows or financial condition may decline.





Third
Party Billing Is Extremely Complicated And Will Result In Significant Additional
Costs To Us





Billing
for laboratory services is extremely complicated. The customer refers the tests;
the payor is the party that pays for the tests, and the two are not usually the
same. Depending on the billing arrangement and applicable law, we need to bill
various payors, such as patients, insurance companies, Medicare, Medicaid,
doctors and employer groups, hospitals and other laboratories, all of which have
different billing requirements. Additionally, our billing relationships require
us to undertake internal audits to evaluate compliance with applicable laws and
regulations as well as internal compliance policies and procedures. Insurance
companies also impose routine external audits to evaluate payments made, which
adds further complexity to the billing process.





Among
others, the primary factors which complicate our billing practices
are:





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




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




·
            disparity
      in coverage and information requirements among various
      carriers.




We incur
significant additional costs as a result of our participation in the Medicare
and Medicaid programs, as billing and reimbursement for clinical laboratory
testing are subject to considerable and complex federal and state regulations.
The additional costs we expect to incur include those related to:  (1)
complexity added to our billing processes; (2) training and education of our
employees and clients; (3) implementing compliance procedures and oversight;
(4) collections and legal costs; and (5) costs associated with, among other
factors, challenging coverage and payment denials and providing patients with
information regarding claims processing and services, such as advanced
beneficiary notices.


21


Our
Operations Are Subject To Strict Laws Prohibiting Fraudulent Billing And Other
Abuse, And Our Failure To Comply With Such Laws Could Result In Substantial
Penalties





Of
particular importance to our operations are federal and state laws prohibiting
fraudulent billing and providing for the recovery of non-fraudulent
overpayments.   A large number of laboratories have been forced
by the federal and state governments, as well as by private payors, to enter
into substantial settlements under these laws. In particular, if an entity is
determined to have violated the federal False Claims Act, it may be required to
pay up to three times the actual damages sustained by the government, plus civil
penalties of between $5,500 to $11,000 for each separate false claim. There are
many potential bases for liability under the federal False Claims Act. Liability
arises, primarily, when an entity knowingly submits, or causes another to
submit, a false claim for reimbursement to the federal government. Submitting a
claim with reckless disregard or deliberate ignorance of its truth or falsity
could also result in substantial civil liability. A trend affecting the
healthcare industry is the increased use of the federal False Claims Act and, in
particular, actions under the False Claims Act’s “whistleblower” or “qui tam”
provisions to challenge the reimbursement practices of providers and suppliers.
Those provisions allow a private individual to bring an action on behalf of the
government alleging that the defendant has submitted a fraudulent claim for
payment to the federal government. The government must decide whether to
intervene in the lawsuit and whether to prosecute the case. If it declines to do
so, the individual may pursue the case alone, although the government must be
kept apprised of the progress of the lawsuit. Whether or not the federal
government intervenes in the case, it will receive the majority of any recovery.
In addition, various states have enacted laws modeled after the federal False
Claims Act.  Government investigations of clinical laboratories have
been ongoing for a number of years and are expected to continue in the
future.





The
Failure To Comply With Significant Government Regulation And Laboratory
Operations May Subject The Company To Liability, Penalties Or Limitation Of
Operations





As
discussed in the Government Regulation section of our business description, we
are subject to extensive state and federal regulatory oversight.  Our
laboratory locations may not pass inspections conducted to ensure compliance
with CLIA or with any other applicable licensure or certification laws. The
sanctions for failure to comply with CLIA or state licensure requirements might
include the inability to perform services for compensation or the suspension,
revocation or limitation of the laboratory location’s CLIA certificate or state
license, as well as civil and/or criminal penalties.  In addition, any
new legislation or regulation or the application of existing laws and
regulations in ways that we have not anticipated could have a material adverse
effect on the Company’s business, results of operations and financial
condition.  Existing federal laws governing Medicare and Medicaid, as
well as some other state and federal laws, also regulate certain aspects of the
relationship between healthcare providers, including clinical and anatomic
laboratories, and their referral sources, including physicians, hospitals and
other laboratories. Certain provisions of these laws, known as the
"anti-kickback law" and the “Stark Laws”, contain extremely broad proscriptions.
Violation of these laws may result in criminal penalties, exclusion from
Medicare and Medicaid, and significant civil monetary penalties.  We
seek to structure our arrangements with physicians and other clients to be in
compliance with the anti-kickback, Stark and state laws, and to keep up-to-date
on developments concerning their application by various means, including
consultation with legal counsel.  However, we are unable to predict
how these laws will be applied in the future and the arrangements into which we
enter may become subject to scrutiny thereunder.  Furthermore, HIPAA,
and other state laws contain provisions that affect the handling of claims and
other patient information that are, or have been, transmitted electronically and
regulate the general disclosure of patient records and patient health
information. These provisions, which address security and confidentiality of
patient information as well as the administrative aspects of claims handling,
have very broad applicability and they specifically apply to healthcare
providers, which include physicians and clinical laboratories. Although we
believe we have complied with the Standards, Security and Privacy rules under
HIPAA and state laws, an audit of our procedures and systems could find
deficiencies.  Such deficiencies, if found, could have a material
adverse effect on the Company’s business, results of operations and financial
condition and subject us to liability.





Our
Failure To Comply With Governmental Payor Regulations Could Result In Our Being
Excluded From Participation In Medicare, Medicaid Or Other Governmental Payor
Programs, Which Would Decrease Our Revenues And Adversely Affect Our Results Of
Operations And Financial Condition





Billable
tests which are reimbursable from Medicare and Medicaid accounted for
approximately 49% and 47% of our revenues for the years ended December 31, 2009
and 2008, respectively. The Medicare program imposes extensive and detailed
requirements on diagnostic services providers, including, but not limited to,
rules that govern how we structure our relationships with physicians, how and
when we submit reimbursement claims and how we provide our specialized
diagnostic services. Our failure to comply with applicable Medicare, Medicaid
and other governmental payor rules could result in our inability to participate
in a governmental payor program, our returning funds already paid to us for
services performed, civil monetary penalties, criminal penalties and/or
limitations on the operational function of our laboratory. If we were unable to
receive reimbursement under a governmental payor program, a substantial portion
of our revenues would be lost, which would adversely affect our results of
operations and financial condition.


22


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





Our
laboratory currently uses the services of outside reference laboratories to
provide certain complementary laboratory services to those services provided
directly by our laboratory. Although Medicare policies do not prohibit certain
independent-laboratory-to-independent-laboratory referrals and subsequent
mark-up for services, California and other states have rules and regulations
that prohibit or limit the mark-up of these laboratory-to-laboratory services. A
challenge to our charge-setting procedures under these rules and regulations
could have a material adverse effect on our business, results of operations and
financial condition.





Failure
To Comply With The HIPAA Security And Privacy Regulations May Increase Our
Operational Costs





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





Changes
In Regulations, Payor Policies Or Contracting Arrangements With Payors Or
Changes In Other Laws, Regulations Or Policies May Adversely Affect Coverage Or
Reimbursement For Our Specialized Diagnostic Services, Which May Decrease Our
Revenues And Adversely Affect Our Results Of Operations And Financial
Condition





Governmental
payors, as well as private insurers and private payors, have implemented and
will continue to implement measures to control the cost, utilization and
delivery of healthcare services, including clinical laboratory and pathology
services. Congress has considered, from time to time and has implemented changes
to laws and regulations governing healthcare service providers, including
specialized diagnostic service providers. These changes have adversely affected
and may in the future adversely affect coverage for our services.  We
also believe that healthcare professionals will not use our services if third
party payors do not provide adequate coverage and reimbursement for them. These
changes in federal, state, local and third party payor regulations or policies
may decrease our revenues and adversely affect our results of operations and
financial condition.   We will continue to be a non-contracting
provider until such time as we enter into contracts with third party payors with
whom we are not currently contracted.  Because a portion of our
revenues is from third-party payors with whom we are not currently contracted,
it is likely that we will be required to make positive or negative adjustments
to accounting estimates with respect to contractual allowances in the future,
which may adversely affect our results of operations, our credibility with
financial analysts and investors, and our stock price.


23


We
Are Subject To Security Risks Which Could Harm Our Operations





Despite
the implementation of various security measures by us, our infrastructure is
vulnerable to computer viruses, break-ins and similar disruptive problems caused
by our clients or others.  Computer viruses, break-ins or other
security problems could lead to interruption, delays or cessation in service to
our clients.  Further, such break-ins, whether electronic or physical
could also potentially jeopardize the security of confidential information
stored in our computer systems as it relates to clients and other parties
connected through us, which may deter potential clients and give rise to
uncertain liability to parties whose security or privacy has been
infringed.  A significant security breach could result in loss of
clients, damage to our reputation, direct damages, costs of repair and
detection, and other expenses.  The occurrence of any of the foregoing
events could have a material adverse effect on our business, results of
operations and financial condition.





We
Must Hire And Retain Qualified Sales Representatives To Grow Our
Sales





Our
ability to retain existing clients for our specialized diagnostic services and
attract new clients is dependent upon retaining existing sales representatives
and hiring new sales representatives, which is an expensive and time-consuming
process. We face intense competition for qualified sales personnel and our
inability to hire or retain an adequate number of sales representatives could
limit our ability to maintain or expand our business and increase sales. Even if
we are able to increase our sales force, our new sales personnel may not commit
the necessary resources or provide sufficient high quality service and attention
to effectively market and sell our services. If we are unable to maintain and
expand our marketing and sales networks or if our sales personnel do not perform
to our high standards, we may be unable to maintain or grow our existing
business and our results of operations and financial condition will likely
suffer accordingly. If a sales representative ceases employment, we risk the
loss of client goodwill based on the impairment of relationships developed
between the sales representative and the healthcare professionals for whom the
sales representative was responsible. This is particularly a risk if the
representative goes to work for a competitor, as the healthcare professionals
that are our clients may choose to use a competitor's services based on their
relationship with the departed sales representative.





Performance
Issues, Service Interruptions Or Price Increases By Our Shipping Carrier Could
Adversely Affect Our Business, Results Of Operations And Financial Condition,
And Harm Our Reputation And Ability To Provide Our Specialized Diagnostic
Services On A Timely Basis





Expedited,
reliable shipping is essential to our operations. One of our marketing
strategies entails highlighting the reliability of our point-to-point transport
of patient samples.  We rely heavily on a single carrier, FedEx
Corporation, and also our local courier, for reliable and secure point-to-point
transport of patient samples to our laboratory and enhanced tracking of these
patient samples.  Should FedEx encounter delivery performance issues
such as loss, damage or destruction of a sample, it may be difficult to replace
our patient samples in a timely manner and such occurrences may damage our
reputation and lead to decreased demand for our services and increased cost and
expense to our business. In addition, any significant increase in shipping rates
could adversely affect our operating margins and results of operations.
Similarly, strikes, severe weather, natural disasters or other service
interruptions by delivery services we use would adversely affect our ability to
receive and process patient samples on a timely basis. If FedEx or we were to
terminate our relationship, we would be required to find another party to
provide expedited, reliable point-to-point transport of our patient samples.
There are only a few other providers of such nationwide transport services, and
there can be no assurance that we will be able to enter into arrangements with
such other providers on acceptable terms, if at all. Finding a new provider of
transport services would be time-consuming and costly and result in delays in
our ability to provide our specialized diagnostic services. Even if we were to
enter into an arrangement with such provider, there can be no assurance that
they will provide the same level of quality in transport services currently
provided to us by FedEx. If the new provider does not provide the required
quality and reliable transport services, it could adversely affect our business,
reputation, results of operations and financial condition.


24


We
Use Biological And Hazardous Materials That Require Considerable Expertise And
Expense For Handling, Storage Or Disposal And May Result In Claims Against
Us





We work
with hazardous materials, including chemicals, biological agents and compounds,
blood samples and other human tissue that could be dangerous to human health and
safety or the environment. Our operations also produce hazardous and
biohazardous waste products. Federal, state and local laws and regulations
govern the use, generation, manufacture, storage, handling and disposal of these
materials and wastes. Compliance with applicable environmental laws and
regulations may be expensive, and current or future environmental laws and
regulations may impair business efforts. If we do not comply with applicable
regulations, we may be subject to fines and penalties.  In addition,
we cannot entirely eliminate the risk of accidental injury or contamination from
these materials or wastes. Our general liability insurance and/or workers'
compensation insurance policy may not cover damages and fines arising from
biological or hazardous waste exposure or contamination. Accordingly, in the
event of contamination or injury, we could be held liable for damages or
penalized with fines in an amount exceeding our resources, and our operations
could be suspended or otherwise adversely affected.





Our
Ability To Comply With The Financial Covenants In Our Credit Agreements Depends
Primarily On Our Ability To Generate Substantial Operating Cash
Flow





Our
ability to comply with the financial covenants under our credit agreement with
CapitalSource will depend primarily on our success in generating substantial
operating cash flow. Our credit agreement contains numerous financial and other
restrictive covenants, including restrictions on purchasing and selling assets,
paying dividends to our shareholders, and incurring additional indebtedness. Our
failure to meet these covenants could result in a default and acceleration of
repayment of the indebtedness under our credit facility. If the maturity of
our indebtedness were accelerated, we may not have sufficient funds to pay such
indebtedness. In such event, our lenders would be entitled to proceed against
the collateral securing the indebtedness, which includes substantially our
entire accounts receivable, to the extent permitted by our credit agreements and
applicable law.





We
Have Potential Conflicts Of Interest Relating To Our Related Party Transactions
Which Could Harm Our Business





We have
potential conflicts of interest relating to existing agreements we have with
certain of our directors, officers, principal shareholders, shareholders and
employees. Potential conflicts of interest can exist if a related party director
or officer has to make a decision that has different implications for us
and the related party. If a dispute arises in connection with any of these
agreements, if not resolved satisfactorily to us, our business could be
harmed.   There can be no assurance that the above or any future
conflicts of interest will be resolved in our favor. If not resolved, such
conflicts could harm our business.





We
Are Effectively Controlled By Existing Stockholders And Therefore Other
Stockholders Will Not Be Able To Direct The Company





Effective
voting control of the Company is held by a relatively small group of
stockholders.  These stockholders effectively retain control of our
Board of Directors and determine all of our corporate actions.  In
addition, the Company and stockholders owning and/or having the right to
vote 12,204,730 shares, or approximately 32.8% of the Company’s voting
shares outstanding as of March 24, 2010, have executed a Shareholders’ Agreement
that, among other provisions, gives Aspen Select Healthcare, LP (“Aspen”), our
largest stockholder, the right to elect three out of the eight directors
authorized for our Board and nominate one mutually acceptable independent
director and Dr. Michael T. Dent, our founder, the right to nominate one
director.  Accordingly, it is anticipated that Aspen and other parties
to the Shareholders’ Agreement will continue to have the ability to effectively
elect a controlling number of the members of our Board of
Directors.  Such concentration of ownership may also have the effect
of delaying or preventing a change in control of the Company.


25


No
Foreseeable Dividends





We do not
anticipate paying dividends on our common stock in the foreseeable
future.  Rather, we plan to retain earnings, if any, for the operation
and expansion of our business.





There
May Not Be A Viable Public Market For Our Common Stock





We cannot
predict the extent to which investor interest in our Company will sustain an
active trading market for our common stock on the OTC Bulletin Board or any
other stock market on which we may be listed or how liquid any such market might
remain. If an active public market is not sustained, it may be difficult for our
stockholders to sell their shares of common stock at a price that is attractive
to them, or at all.





We
May Become Involved In Securities Class Action Litigation That Could Divert
Management's Attention And Harm Our Business





The stock
markets have from time to time experienced significant price and volume
fluctuations that have affected the market prices for the common stock of
diagnostic companies. These broad market fluctuations may cause the market price
of our common stock to decline. In the past, securities class action litigation
has often been brought against a company following a decline in the market price
of its securities. This risk is especially relevant for us because clinical
laboratory service companies have experienced significant stock price volatility
in recent years.  We may become involved in this type of litigation in
the future. Litigation often is expensive and diverts management's attention and
resources, which could adversely affect our business.





If
We Are Not The Subject Of Securities Analyst Reports Or If Any Securities
Analyst Downgrades Our Common Stock Or Our Sector, The Price Of Our Common Stock
Could Be Negatively Affected





Securities
analysts may publish reports about us or our industry containing information
about us that may affect the trading price of our common stock.  There
are many publicly traded companies active in the healthcare industry, which may
mean it will be less likely that we receive analysts' coverage, which in turn
could affect the price of our common stock. In addition, if a securities or
industry analyst downgrades the outlook for our common stock or one of our
competitors' stocks or chooses to terminate coverage of our common stock, the
trading price of our common stock may also be negatively affected.





If
Penny Stock Regulations Impose Restrictions On The Marketability Of Our Common
Stock, The Ability Of Our Stockholders To Sell Shares Of Our Stock Could Be
Impaired





The SEC has adopted regulations that
generally define a "penny stock" to be an equity security that has a market
price of less than $5.00 per share or an exercise price of less than $5.00 per
share subject to certain exceptions. Exceptions include equity securities issued
by an issuer that has (i) net tangible assets of at least $2,000,000, if such
issuer has been in continuous operation for more than three years, or (ii) net
tangible assets of at least $5,000,000, if such issuer has been in continuous
operation for less than three years, or (iii) average revenue of at least
$6,000,000 for the preceding three years. Our common stock is currently trading
at under $5.00 per share. Although we currently fall under one of the
exceptions, if at a later time we fail to meet one of the exceptions, our common
stock will be considered a penny stock.  Broker/dealers dealing in
penny stocks are required to provide potential investors with a document
disclosing the risks of penny stocks. Moreover, broker/dealers are required to
determine whether an investment in a penny stock is a suitable investment for a
prospective investor. These requirements, among others, may reduce the potential
market for our common stock by reducing the number of potential investors. This
may make it more difficult for investors in our common stock to resell shares to
third parties or to otherwise dispose of them. This could cause our stock price
to decline.




ITEM
1B.         UNRESOLVED STAFF
COMMENTS.




None


26




ITEM
2.            DESCRIPTION
OF PROPERTY




We operate a regional network of
laboratories.    All our facilities are leased and we
believe that they are sufficient to meet our needs for the foreseeable future
and that, if needed, additional space will be available at a reasonable
cost.  The following table summarizes our facilities by
location:





Location
              
              Purpose
              
              Square footageFort
      Myers, Florida
              
              Corporate
      headquarters and laboratory
              
              25,700Irvine,
      California
              
              Laboratory
              
              14,800Chatsworth,
      California
              
              Pathology
      Laboratory
              
              1,200Nashville,
      Tennessee
              
              Laboratory
              
              5,400





ITEM
      3.
            LEGAL
      PROCEEDINGS





On
November 9th, 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
4.            (REMOVED
AND RESERVED)


27


PART
II




ITEM
      5.
            MARKET
      FOR THE COMPANY’S COMMON EQUITY AND RELATED STOCKHOLDER
      MATTERS





Market
Information





Our
common stock is quoted on the OTC Bulletin Board under the symbol
“NGNM”.  Set forth below is a table summarizing the high and low bid
quotations for our common stock during the last two fiscal years.





QUARTER
                    
                    HIGH BID
                    
                    
                    LOW BID4th
      Quarter 2009
                    
                    $
                    1.80
                    
                    
                    $
                    1.413rd
      Quarter 2009
                    
                    $
                    2.25
                    
                    
                    $
                    1.322nd
      Quarter 2009
                    
                    $
                    1.49
                    
                    
                    $
                    0.921st
      Quarter 2009
                    
                    $
                    1.19
                    
                    
                    $
                    0.564th
      Quarter 2008
                    
                    $
                    1.05
                    
                    
                    $
                    0.563rd
      Quarter 2008
                    
                    $
                    1.15
                    
                    
                    $
                    0.832nd
      Quarter 2008
                    
                    $
                    1.35
                    
                    
                    $
                    0.861st
      Quarter 2008
                    
                    $
                    1.15
                    
                    
                    $
                    0.72





The above
table is based on over-the-counter quotations. These quotations reflect
inter-dealer prices, without retail mark-up, markdown or commissions, and may
not necessarily represent actual transactions.  All historical data
was obtained from the www.NASDAQ.com web site.





Holders
of Common Stock





As of
March 24, 2010, there were 495 stockholders of record of our common stock,
although there are more beneficial owners.





Dividends





We have
never declared or paid cash dividends on our common stock.  We intend
to retain all future earnings to finance future growth and therefore we do not
anticipate paying any cash dividends in the foreseeable future.  In
addition, certain financing agreements entered into by the Company may limit our
ability to pay dividends in the future.




28





Securities
Authorized for Issuance Under Equity Compensation Plans (a)





Plan Category
                                        
                                        Number of securities
                                          to be issued upon
                                          exercise of
                                          outstanding options,
                                          warrants and rights
                                        
                                        
                                        Weighted average
                                          exercise price of
                                          outstanding options,
                                          warrants and rights
                                        
                                        
                                        Number of securities
                                          remaining available
                                          for future issuance
                                          under equity
                                          compensation plansEquity
      compensation plans approved by security holders:Amended
      and Restated Equity Incentive Plan (“Equity Incentive
    Plan”)
                                        
                                        
                                        4,861,653
                                        
                                        
                                        $
                                        0.85
                                        
                                        
                                        
                                        1,039,299
                                        (d)Employee
      Stock Purchase Plan (“ESPP”)
                                        
                                        
                                        -
                                        
                                        
                                        
                                        N/A
                                        
                                        
                                        
                                        275,356Equity
      compensation plans not approved by security holders
                                        
                                        
                                        975,000
                                        (b,c)
                                        
                                        $
                                        0.96
                                        
                                        
                                        
                                        -Total
                                        
                                        
                                        5,836,653
                                        
                                        
                                        $
                                        0.87





(a)
            As
      of December 31, 2009.


(b)
            Includes
      an outstanding option to purchase 350,000 shares of common stock granted
      to Robert P. Gasparini, our President and Chief Science Officer, outside
      the Company’s Equity Incentive Plan on March 12, 2008.  The
      options have an exercise price of $0.80 per share and vests based on the
      achievement of certain performance milestones.  In the event of
      a change of control of the Company, all unvested portions of the option
      will vest in full.  Unless sooner terminated pursuant to the
      terms of the stock option agreement, the option will terminate on March
      12, 2015.


(c)
            Includes
      outstanding warrants to purchase 625,000 shares of common stock at an
      exercise price of $1.05 per share granted to Doug VanOort on March 16,
      2009.  The warrants vest based on the achievement of certain
      performance milestones.  In the event of a change of control of
      the Company with a share price in excess of $4.00 per share, all unvested
      warrants will vest immediately.  Unless sooner terminated
      pursuant to the terms of the warrant agreement, the warrants will
      terminate on March 15, 2014.


(d)
            The
      Company’s Equity Incentive Plan was amended and restated on March 3, 2009,
      and subsequently approved by shareholders holding a majority of the shares
      outstanding, to allow for the issuance of an aggregate of up to 6,500,000
      shares under the plan.





Currently,
the Company’s Equity Incentive Plan, as amended and restated on October 31, 2006
and again amended and restated on March 3, 2009, and the Company’s ESPP, dated
October 31, 2006, are the only equity compensation plans in effect.





Recent
Sales of Unregistered Securities





No sales
of unregistered securities were made during the quarter ended December 31, 2009.
The Company has previously reported in certain Quarterly Reports on Form 10-Q
and Current Reports on Form 8-K other sales of unregistered securities during
the year ended December 31, 2009.





Item
6. Selected Financial Data





We are a
“smaller reporting company” as defined by Regulations S-K and as such, are not
required to provide the information contained in this item pursuant to
Regulation S-K.


29







ITEM
      7.
            MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS





NeoGenomics,
Inc., a Nevada corporation (referred to individually as the “Parent Company” or
collectively with its subsidiary as “NeoGenomics” or the “Company” in this Form
10-K) 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 Consolidated Financial Statements, and
the Notes thereto included in this Form 10-K. The information contained below
includes statements of management’s beliefs, expectations, hopes, goals and
plans that, if not historical, are forward-looking statements subject to certain
risks and uncertainties that could cause actual results to differ materially
from those anticipated in the forward-looking statements. For a discussion on
forward-looking statements, see the information set forth in the Introductory
Note to this Annual Report under the caption “Forward Looking Statements”, which
information is incorporated herein by reference.





Overview





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.





Market
Opportunity





The
medical testing laboratory market can be broken down into three primary
segments:





•           clinical
lab testing,


•           anatomic
pathology testing, and


•           genetic
and molecular testing.





Clinical
laboratories are typically engaged in high volume, highly automated, lower
complexity tests on easily procured specimens such as blood and
urine.  Clinical lab tests often involve testing of a less urgent
nature, for example, cholesterol testing and testing associated with routine
physical exams.





Anatomic
pathology (“AP”) testing involves evaluation of tissue, as in surgical
pathology, or cells as in cytopathology.  The most widely performed AP
procedures include the preparation and interpretation of pap smears, skin
biopsies, and tissue biopsies.


30


Genetic
and molecular testing typically involves analyzing chromosomes, genes or DNA/RNA
sequences for abnormalities.  New tests are being developed at an
accelerated pace, thus this market niche continues to expand
rapidly.  Genetic and molecular testing requires highly specialized
equipment and credentialed individuals (typically MD or PhD level) to certify
results and typically yields the highest reimbursement levels of the three
market segments.





The
market for cancer testing is growing rapidly.  Key factors influencing
this growth are:  (i) cancer is primarily a disease of the elderly and
now that the baby boomer generation has started to turn sixty, the U.S. is
experiencing a significant increase in the number of senior citizens, (ii) the
American Cancer Society estimates that one in four senior citizens will develop
some form of cancer during the rest of their lifetime, and (iii) every year more
and more genes are discovered to have a specific link to cancer, which then
enables a genetic or molecular test to be developed.   We
estimate that the Company addresses a $5-6 billion total United States market
opportunity, about half of which is derived from genetic and molecular testing
with the other half derived from more traditional anatomic pathology testing
services that are complementary to and often ordered with the genetic testing
services we offer.





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.





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.





Competitive
Strengths





Turnaround
Times





At
NeoGenomics, we strive to provide industry leading turnaround times to our
clients nationwide and to provide information so that physicians can provide
their patients with the correct treatment as soon as possible.





We
believe  our average 4-5 day turn-around time for our cytogenetics
testing services and our average 3-4 day turn-around time for FISH testing
services continue to be industry-leading benchmarks for national
laboratories.  The consistent timeliness of results is a competitive
strength in cytogenetics and FISH testing and a driver of additional testing
requests by our referring physicians.  Quick turn-around times for
cytogenetics and FISH tests allow for the performance of other tests to augment
or confirm results and improve patient care.  Without rapid turnaround
times, there is an increased chance that the test results will not be returned
within an acceptable diagnostic window when other adjunctive diagnostic test
results are required.  We believe our turn-around times result in our
referring physicians requesting more of our testing services and give us a
significant competitive advantage in marketing our services against those of
other competing laboratories.


31


National
Direct Sales Force





NeoGenomics
has assembled a strong direct sales force.  Our sales representatives
(“Territory Business Managers”) are organized into four regions (Northeast,
Southeast, Central and West).  These sales representatives are trained
extensively in cancer genetic testing and consultative selling
skills.  As of March 24, 2010, we had 24 Territory Business Managers
and four Regional Managers.





Strategic
Supply Agreement with Abbott Molecular





In July 2009, we entered into a
Strategic Supply Agreement with Abbott Molecular, Inc, a wholly-owned subsidiary
of Abbott Laboratories.  Under the terms of this agreement,
NeoGenomics has the rights to develop and exclusively launch three laboratory
developed tests (LDTs) based on intellectual property developed and/or licensed
by Abbott.  We launched the first of these tests in February 2010, a
FISH test for the diagnosis of melanoma, and expect to launch the second test in
early 2011 and the third in 2012.  In conjunction with the Strategic
Supply Agreement, Abbott Laboratories purchased a 9.6% stake in
NeoGenomics.





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.





Client
Care





NeoGenomics Customer Care Specialists
(“CCS”) are organized by region into territories that service not only our
external clients, but also work very closely with and support our sales
team.  A client receives personalized assistance when dealing with
their dedicated CCS because each CCS understands their clients’ specific
needs.  CCS’s handle everything from arranging specimen pickup to
delivering the results to fulfill NeoGenomics’ objective of delivering
exceptional services to our clients.


32


Geographic
Locations





In 2009,
we continued an aggressive campaign to regionalize our laboratory operations
around the country to be closer to our clients.  Many high complexity
laboratories within the cancer testing niche have frequently operated a core
facility on one or both coasts to service the needs of their customers around
the country.  We believe that our clients and prospects desire to do
business with a laboratory with national breadth and a local
presence.  NeoGenomics’ has four facilities.  The Chatsworth
California location is a small office laboratory for our pathologists. and we
have three main laboratory locations in Fort Myers, Florida; Irvine California;
and Nashville Tennessee and all facilities have the appropriate state licenses
and Clinical Laboratory Improvement Act, as amended (“CLIA”), and College of
American Pathologists (“CAP”) accreditations and are currently receiving
specimens.  As situations dictate and opportunities arise, we will
continue to develop and open new laboratories, linked together by our optimized
Laboratory Information System (“LIS”), to better meet the regionalized needs of
our clients.





Laboratory
Information System





NeoGenomics has what we believe is a
state of the art LIS that interconnects our locations and provides flexible
reporting options to clients.  This system allows us to deliver
uniform test results throughout our network, regardless of where the lab that
performs any specific test is located.  This allows us to move
specimens between locations to better balance our workload.  Our LIS
also allows us to offer highly specialized services to certain sub-segments of
our client base.  For instance, our tech-only NeoFISHTM and
NeoFLOWTM
applications allow our community-based pathologist clients to tailor individual
reports to their own customizable report templates.  This feature has
been well-received by our tech-only clients.





Scientific
Pipeline





The field of cancer genetics is rapidly
evolving, and we are committed to developing and offering new tests to meet the
needs of the market place based on the latest scientific
discoveries.  During 2009, in addition to the validation work
performed for our exclusive Melanoma FISH test, the Company made significant
strides in developing the capability to perform molecular diagnostic testing
in-house.  We believe that by adding additional types of tests to our
product offering, we will be able to increase our testing volumes through our
existing client base as well as more easily attract new clients via the ability
to package our testing services more appropriately to the needs of the
market.  We expect to launch at least five new molecular tests in
2010.





Critical Accounting
Policies





The
preparation of financial statements in conformity with United States generally
accepted accounting principles requires our management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Our
management routinely makes judgments and estimates about the effects of matters
that are inherently uncertain.  For a complete description of our
significant accounting policies, see Note B to our Consolidated Financial
Statements included in this Annual Report on Form 10-K.





Our
critical accounting policies are those where we have made difficult, subjective
or complex judgments in making estimates, and/or where these estimates can
significantly impact our financial results under different assumptions and
conditions. Our critical accounting policies are:





·
            Revenue
      Recognition


·
            Accounts
      Receivable


·
            Stock
      Based Compensation


33


Revenue
Recognition





The Company recognizes revenues in
accordance with SEC Staff Accounting Bulletin Topic 13.A.1 (ASC 605-10-S99-1),
“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.





Trade Accounts Receivable
and Allowance For Doubtful Accounts





We record
accounts receivable net of estimated discounts, contractual allowances and
allowances for bad debts.  We provide for accounts receivable that
could become uncollectible in the future by establishing an allowance to reduce
the carrying value of such receivables to their estimated net realizable
value.  We estimate this allowance based on the aging of our accounts
receivable and our historical collection experience for each type of
payer.  Receivables are charged off to the allowance account at the
time they are deemed uncollectible.  In the event that the actual
amount of payment received differs from the previously recorded estimate of an
account receivable, an adjustment to revenue is made in the current period at
the time of final collection and settlement.  During 2009, we recorded
approximately $279,000 of net total incremental revenue from tests in which we
underestimated the revenue in 2008 relative to the amounts that we ultimately
received in 2009.  This was approximately 0.9% of our total 2009
fiscal year revenue and 1.4% of our 2008 fiscal year revenue.  During
2008, we recorded approximately $259,000 of net total incremental revenue from
tests in which we underestimated the revenue in 2007 relative to the amounts
that we ultimately received in 2008.  This was approximately 1.3% of
our total 2008 fiscal year revenue and 2.3% of our 2007 fiscal year revenue.
These adjustments are not material to the Company’s results of operations in any
period presented.  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.





The
following tables present the dollars and percentage of the Company’s net
accounts receivable from customers outstanding by aging category at December 31,
2009 and 2008.  All of our receivables were pending approval by
third-party payers as of the date that the receivables were
recorded:


34


NEOGENOMICS
AGING OF RECEIVABLES BY PAYOR GROUP





December
31, 2009





Payor
      Group
                            
                            0-30
                            
                            
                            %
                            
                            
                            30-60
                            
                            
                            %
                            
                            
                            60-90
                            
                            
                            %
                            
                            
                            90-120
                            
                            
                            %
                            
                            
                            120-150
                            
                            
                            %
                            
                            
                            >150
                            
                            
                            %
                            
                            
                            Total
                            
                            
                            %Client
                            
                            $
                            210,672
                            
                            
                            
                            4
                            %
                            
                            $
                            425,731
                            
                            
                            
                            8
                            %
                            
                            $
                            437,552
                            
                            
                            
                            8
                            %
                            
                            $
                            216,692
                            
                            
                            
                            4
                            %
                            
                            $
                            52,257
                            
                            
                            
                            1
                            %
                            
                            $
                            75,884
                            
                            
                            
                            1
                            %
                            
                            $
                            1,418,788
                            
                            
                            
                            27
                            %Commercial
      Insurance
                            
                            
                            581,824
                            
                            
                            
                            11
                            %
                            
                            
                            428,340
                            
                            
                            
                            8
                            %
                            
                            
                            255,488
                            
                            
                            
                            5
                            %
                            
                            
                            152,239
                            
                            
                            
                            3
                            %
                            
                            
                            96,916
                            
                            
                            
                            2
                            %
                            
                            
                            370,977
                            
                            
                            
                            7
                            %
                            
                            
                            1,885,784
                            
                            
                            
                            36
                            %Medicaid
                            
                            
                            18,227
                            
                            
                            
                            0
                            %
                            
                            
                            13,312
                            
                            
                            
                            0
                            %
                            
                            
                            13,552
                            
                            
                            
                            1
                            %
                            
                            
                            11,423
                            
                            
                            
                            0
                            %
                            
                            
                            5,544
                            
                            
                            
                            0
                            %
                            
                            
                            26,049
                            
                            
                            
                            0
                            %
                            
                            
                            88,107
                            
                            
                            
                            2
                            %Medicare
                            
                            
                            895,518
                            
                            
                            
                            17
                            %
                            
                            
                            107,357
                            
                            
                            
                            2
                            %
                            
                            
                            103,804
                            
                            
                            
                            2
                            %
                            
                            
                            41,780
                            
                            
                            
                            1
                            %
                            
                            
                            36,293
                            
                            
                            
                            1
                            %
                            
                            
                            256,861
                            
                            
                            
                            5
                            %
                            
                            
                            1,441,613
                            
                            
                            
                            28
                            %Private
      Pay
                            
                            
                            78,842
                            
                            
                            
                            2
                            %
                            
                            
                            71,059
                            
                            
                            
                            1
                            %
                            
                            
                            39,912
                            
                            
                            
                            1
                            %
                            
                            
                            12,866
                            
                            
                            
                            0
                            %
                            
                            
                            20,809
                            
                            
                            
                            0
                            %
                            
                            
                            36,866
                            
                            
                            
                            1
                            %
                            
                            
                            260,374
                            
                            
                            
                            5
                            %Unbilled
      Revenue
                            
                            
                            126,564
                            
                            
                            
                            2
                            %
                            
                            
                            -
                            
                            
                            
                            0
                            %
                            
                            
                            -
                            
                            
                            
                            0
                            %
                            
                            
                            -
                            
                            
                            
                            0
                            %
                            
                            
                            -
                            
                            
                            
                            0
                            %
                            
                            
                            
                            
                            
                            
                            0
                            %
                            
                            
                            126,564
                            
                            
                            
                            2
                            %Total
                            
                            $
                            1,911,647
                            
                            
                            
                            36
                            %
                            
                            $
                            1,045,799
                            
                            
                            
                            19
                            %
                            
                            $
                            850,308
                            
                            
                            
                            17
                            %
                            
                            $
                            435,000
                            
                            
                            
                            8
                            %
                            
                            $
                            211,819
                            
                            
                            
                            4
                            %
                            
                            $
                            766,637
                            
                            
                            
                            14
                            %
                            
                            $
                            5,221,230
                            
                            
                            
                            100
                            %





December
31, 2008





Payor
      Group
                            
                            0-30
                            
                            
                            %
                            
                            
                            30-60
                            
                            
                            %
                            
                            
                            60-90
                            
                            
                            %
                            
                            
                            90-120
                            
                            
                            %
                            
                            
                            120-150
                            
                            
                            %
                            
                            
                            >150
                            
                            
                            %
                            
                            
                            Total
                            
                            
                            %Client
                            
                            $
                            280,002
                            
                            
                            
                            9
                            %
                            
                            $
                            189,811
                            
                            
                            
                            6
                            %
                            
                            $
                            285,126
                            
                            
                            
                            9
                            %
                            
                            $
                            176,406
                            
                            
                            
                            5
                            %
                            
                            $
                            144,897
                            
                            
                            
                            4
                            %
                            
                            $
                            26,762
                            
                            
                            
                            1
                            %
                            
                            $
                            1,103,004
                            
                            
                            
                            34
                            %Commercial
      Insurance
                            
                            
                            350,009
                            
                            
                            
                            11
                            %
                            
                            
                            217,741
                            
                            
                            
                            7
                            %
                            
                            
                            137,210
                            
                            
                            
                            4
                            %
                            
                            
                            104,836
                            
                            
                            
                            3
                            %
                            
                            
                            70,959
                            
                            
                            
                            2
                            %
                            
                            
                            287,272
                            
                            
                            
                            9
                            %
                            
                            
                            1,168,027
                            
                            
                            
                            36
                            %Medicaid
                            
                            
                            434
                            
                            
                            
                            0
                            %
                            
                            
                            7,312
                            
                            
                            
                            0
                            %
                            
                            
                            14,861
                            
                            
                            
                            1
                            %
                            
                            
                            12,124
                            
                            
                            
                            0
                            %
                            
                            
                            8,078
                            
                            
                            
                            0
                            %
                            
                            
                            42,145
                            
                            
                            
                            1
                            %
                            
                            
                            84,954
                            
                            
                            
                            2
                            %Medicare
                            
                            
                            530,833
                            
                            
                            
                            16
                            %
                            
                            
                            56,334
                            
                            
                            
                            2
                            %
                            
                            
                            33,149
                            
                            
                            
                            1
                            %
                            
                            
                            12,054
                            
                            
                            
                            0
                            %
                            
                            
                            23,378
                            
                            
                            
                            1
                            %
                            
                            
                            53,993
                            
                            
                            
                            2
                            %
                            
                            
                            709,741
                            
                            
                            
                            22
                            %Private
      Pay
                            
                            
                            25,341
                            
                            
                            
                            1
                            %
                            
                            
                            35,004
                            
                            
                            
                            1
                            %
                            
                            
                            29,354
                            
                            
                            
                            1
                            %
                            
                            
                            15,969
                            
                            
                            
                            0
                            %
                            
                            
                            13,114
                            
                            
                            
                            0
                            %
                            
                            
                            27,142
                            
                            
                            
                            1
                            %
                            
                            
                            145,924
                            
                            
                            
                            4
                            %Unbilled
      Revenue
                            
                            
                            60,523
                            
                            
                            
                            2
                            %
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            
                            
                            
                            
                            -
                            
                            
                            
                            60,523
                            
                            
                            
                            2
                            %Total
                            
                            $
                            1,247,142
                            
                            
                            
                            39
                            %
                            
                            $
                            506,202
                            
                            
                            
                            16
                            %
                            
                            $
                            499,700
                            
                            
                            
                            16
                            %
                            
                            $
                            321,389
                            
                            
                            
                            8
                            %
                            
                            $
                            260,426
                            
                            
                            
                            7
                            %
                            
                            $
                            437,314
                            
                            
                            
                            14
                            %
                            
                            $
                            3,272,173
                            
                            
                            
                            100
                            %





During
2009, we decreased our accounts receivable greater than 120 days as a percentage
of total accounts receivable by 3%.  This decrease could have been
larger but an increase in Medicare receivables greater than 150 days resulted
because of delays in receiving our Medicare provider number for our Chatsworth
facility from California Medicare. The licensing and inspections of this
facility were completed and valid but significant delays in the processing of
our application by California Medicare caused the application to become stale
resulting in us having to resubmit the application several times.  In
January 2010 we received our provider number and we expect to be able to
resubmit all previous claims and receive payment on them during the year ending
December 31, 2010.





Based on
a detailed analysis, we believe that our $589,000 allowance for doubtful
accounts, which represents approximately 11% of our receivables balance, is
adequate as of December 31, 2009.  At December 31, 2008, our allowance
for doubtful accounts was $359,000 or 11% of accounts receivable.





Stock Based
Compensation.





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





For stock
options, the Company uses a trinomial lattice option-pricing model to estimate
the grant-date fair value of stock option awards, and recognizes compensation
cost on a straight-line basis over the awards’ requisite service
periods.  The Company estimates an expected forfeiture rate, which is
factored into the determination of the Company’s quarterly expense.





See Note
B – Summary of Significant Accounting Policies - Stock-Based Compensation and
Note F – Stock Based Compensation in the Notes to Consolidated Financial
Statements for more information regarding the valuation of stock-based
compensation.


35


Results of Operations for
the year ended December 31, 2009 as compared with the year ended December 31,
2008





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





For
      the year ended
                          December 31.2009
                        
                        
                        2008NET
      REVENUE
                        
                        
                        100
                        %
                        
                        
                        100
                        %COST
      OF REVENUE
                        
                        
                        48
                        %
                        
                        
                        47
                        %GROSS
      PROFIT
                        
                        
                        52
                        %
                        
                        
                        53
                        %OPERATING
      EXPENSES:General
      and administrative
                        
                        
                        34
                        %
                        
                        
                        41
                        %Sales
      and marketing
                        
                        
                        24
                        %
                        
                        
                        17
                        %TOTAL
      OPERATING EXPENSES
                        
                        
                        58
                        %
                        
                        
                        58
                        %Interest
      (income) expense, net
                        
                        
                        2
                        %
                        
                        
                        2
                        %NET
      INCOME (LOSS)
                        
                        
                        (8
                        )%
                        
                        
                        (7
                        )%





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.





During the year ended December 31,
2009, our revenues increased approximately 47% to $29,469,000 from $20,015,000
during the year ended December 31, 2008. .





Test
volume increased approximately 40% for the year ended December 31, 2009.
Increases in test volumes were primarily driven by the substantial increases in
sales and marketing activities by the Company over the past year.





For the
year ended December 31, 2009, our average revenue per client requisition
increased by approximately 15% to $931 from $808 in 2008.  Our average
revenue per test increased by approximately 5% to $645 in 2009 from $615 in
2008.  Revenues per test are a function of both the type of the test
and the payer.





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.


36


Our cost
of revenue, as a percentage of gross revenue, increased from 47% for the year
ended December 31, 2008 to 48% for the year ended December 31,
2009.  This increase was primarily the result of the restructuring of
our relationship with our largest customer and the resulting change in mix from
a higher margin test to a lower margin test.





Gross
Profit





As
a result of the 47% increase in revenue and our 48% cost of revenue, our gross
profit increased 43% to $15,215,000 for the year ended December 31, 2009, from a
gross profit of $10,661,000 for the year ended December 31, 2008. When expressed
as a percentage of revenue, our gross margins decreased from 53.3% for the year
ended December 31, 2008 to 51.6% for the year ended December 31,
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 year ended
                    December 31.2009
                  
                  
                  2008
                  
                  
                  %
                    ChangeSales
      and marketing
                  
                  $
                  6,885,000
                  
                  
                  $
                  3,367,000
                  
                  
                  
                  105
                  %As
      a % of revenue
                  
                  
                  23
                  %
                  
                  
                  17
                  %





Sales and
marketing expenses increased approximately 105%, or $3,519,000 to $6,885,000 for
the year ended December 31, 2009 as compared to $3,367,000 for the year ended
December 31, 2008, primarily as a result of adding substantial numbers of sales
and marketing personnel in 2009 to generate additional revenue
growth.  At December 31, 2009, we had 43 sales and marketing and
customer care personnel compared with 33 sales and marketing and customer care
personnel at December 31, 2008.





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, 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 year ended
                                  December 31.2009
                              
                              
                              2008
                              
                              
                              %
                                ChangeGeneral
      and administrative
                              
                              $
                              10,057,000
                              
                              
                              $
                              8,179,000
                              
                              
                              
                              23
                              %As
      a % of revenue
                              
                              
                              34
                              %
                              
                              
                              41
                              %


.


General
and administrative expenses increased approximately 23%, or $1,878,000 to
$10,057,000 for the year ended December 31, 2009 as compared to $8,179,000 for
the year ended December 31, 2008. The increase in general and administrative
expenses is primarily a result of adding additional management, information
technology, and billing personnel to support the increase in our
revenue.


37


Bad debt
expense increased by approximately 20%, or $365,000 to $2,155,000 for the year
ended December 31, 2009 as compared to $1,790,000 for the year ended December
31, 2008. This increase was primarily a result of the significant increases in
revenue partially offset by a decrease in bad debt as percentage of revenue. Bad
debt as a percentage of revenue decreased 1.6% to 7.3% for the year ended
December 31, 2009 from 8.9% of revenue for the year ended December 31,
2008.  This decline was the result of managed care contracts we
entered into during the year and improved performance by our billing
department.





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 continue to decline as a
percentage of our revenue as our case volumes increase and as we continue to
develop more operating leverage in our business.





Other (Income)
Expense





Other
income and expense primarily represents the interest expense we incur on our
borrowing arrangements (primarily comprised of interest payable on advances
under our revolving credit facility with Capital Source and interest paid on
capital lease obligations) offset by the interest income we earn on cash
deposits.  Interest expense increased from $309,000 in 2008 to
$532,000 in 2009, reflecting higher borrowings, particularly related to our
capital lease obligations as we acquired additional equipment to support our
increasing volume of business. This increase was largely offset in 2009 because
in 2008 we incurred a one-time $200,000 write down of our investment associated
with a potential joint venture, as discussed in Note M to our consolidated
financial statements.





Net Loss





As
a result of the foregoing, our net loss increased approximately 62% from
approximately ($1,383,000) or $(0.04) per share for the year ended December 31,
2008 to approximately ($2,243,000) or $(0.06) per share for the year ended
December 31, 2009.





Commitments





Employment Contracts with
named Executive Officers





The Company is a party to employment
contracts with several of its officer’s that contain commitments as described in
Note G to our consolidated financial statements and detailed below is a list of
all such contracts signed during 2009.





On March
16, 2009, the Company entered into an employment agreement with Douglas M.
VanOort (the “EmploymentAgreement”) to
employ Mr. VanOort in the capacity of Executive Chairman and interim Chief
Executive Officer.  The Employment Agreement has an initial term from
March 16, 2009 through March 16, 2013, which initial term automatically renews
for one year periods.  Mr. VanOort will receive a salary of $225,000
per year for so long as he spends not less than 2.5 days per week on the affairs
of the Company.  He will receive an additional $50,000 per year while
serving as the Company’s interim Chief Executive Officer; provided that he
spends not less than 3.5 days per week on average on the affairs of the
Company.  Mr. VanOort is also eligible to receive an annual cash bonus
based on the achievement of certain performance metrics of at least 30% of his
base salary (which includes amounts payable with respect to serving as Executive
Chairman and interim Chief Executive Officer).  Mr. VanOort is also
entitled to participate in all of the Company’s employee benefit plans and any
other benefit programs established for officers of the Company.


38


The
Employment Agreement also provides that Mr. VanOort will be granted an option to
purchase 1,000,000 shares of the Company’s common stock under the Company’s
Amended and Restated Equity Incentive Plan (the “Amended Plan”).  The
exercise price of such option is $0.80 per share.  500,000 shares of
common stock subject to the option will vest according to the following schedule
(i) 200,000 shares will vest on March 16, 2010 (provided that if Mr. VanOort’s
employment is terminated by the Company without “cause” then the pro rata
portion of such 200,000 shares up until the date of termination shall vest);
(ii) 12,500 shares will vest each month beginning on April 16, 2010 until March
16, 2011; (iii) 8,000 shares will vest each month beginning on April 16, 2011
until March 16, 2012 and (iv) 4,500 shares will vest each month beginning on
April 16, 2012 until March 16, 2013.  500,000 shares of common
stock subject to the option will vest based on the achievement of certain
performance metrics by the Company.  Any unvested portion of the
option described above shall vest in the event of a change of control of the
Company.





Either
party may terminate Mr. VanOort’s employment with the Company at any time upon
giving sixty days advance written notice to the other party.  The
Company and Mr. VanOort also entered into a Confidentiality, Non-Solicitation
and Non-Compete Agreement in connection with the Employment
Agreement.





On March
16, 2009, the Company and the Douglas M. VanOort Living Trust entered into a
Subscription Agreement (the “Subscription Agreement”) pursuant to which the
Douglas M. VanOort Living Trust purchased 625,000 shares of the Company’s common
stock at a purchase price of $0.80 per share (the “Subscription
Shares”).  The Subscription Shares are subject to a two year lock-up
that restricts the transfer of the Subscription Shares; provided, however, that
such lock-up shall expire in the event that the Company terminates Mr. VanOort’s
employment.  The Subscription Agreement also provides for certain
piggyback registration rights with respect to the Subscription
Shares.





On March
16, 2009, the Company and Mr. VanOort entered into a Warrant Agreement (the
“Warrant Agreement”) pursuant to which Mr. VanOort, subject to the vesting
schedule described below, may purchase up to 625,000 shares of the Company’s
common stock at an exercise price of $1.05 per share (the “Warrant
Shares”).  The Warrant Shares vest based on the following vesting
schedule:





(i)
            20%
      of the Warrant Shares vest
immediately,


(ii)
            20%
      of the Warrant Shares will be deemed to be vested on the first day on
      which the closing price per share of the Company’s common stock has
      reached or exceeded $3.00 per share for 20 consecutive trading
      days,


(iii)
            20%
      of the Warrant Shares will be deemed to be vested on the first day on
      which the closing price per share of the Company’s common stock has
      reached or exceeded $4.00 per share for 20 consecutive trading
      days,


(iv)
            20%
      of the Warrant Shares will be deemed to be vested on the first day on
      which the closing price per share of the Company’s common stock has
      reached or exceeded $5.00 per share for 20 consecutive trading days
      and


(v)
            20%
      of the Warrant Shares will be deemed to be vested on the first day on
      which the closing price per share of the Company’s common stock has
      reached or exceeded $6.00 per share for 20 consecutive trading
      days.





In the
event of a change of control of the Company in which the consideration payable
to each common stockholder of the Company in connection with such change of
control has a deemed value of at least $4.00 per share then the Warrant Shares
shall immediately vest in full.  In the event that Mr. VanOort resigns
his employment with the Company or the Company terminates Mr. VanOort’s
employment for “cause” at any time prior to the time when all Warrant Shares
have vested, then the rights under the Warrant Agreement with respect to the
unvested portion of the Warrant Shares as of the date of termination will
immediately terminate.





On
October 28, 2009, the Company appointed Mr. VanOort, to the position of Chief
Executive Officer and amended and restated his employment agreement, as
previously disclosed, pursuant to a Current Report on Form 8-K filed with the
Securities and Exchange Commission on November 3, 2009. Mr. VanOort previously
held the position of Executive Chairman and Interim Chief Executive Officer of
the Company from March 16, 2009 until October 28, 2009. Mr. VanOort also serves
as the Chairman of the Company’s Board of Directors.


39


On July
22, 2009, the Company entered into an employment agreement with Grant Carlson
(to employ Mr. Carlson in the capacity of Vice President Sales..  The
Offer Letter provides for a four (4) year term, which is terminable upon written
notice by either party.  The Offer Letter also provides for an initial
base salary of $200,000 per year and provides that Mr. Carlson is eligible to
receive an incentive bonus targeted at 30% of his base salary based on the
achievement of certain goals.  Mr. Carlson is entitled to participate
in all medical and other benefits that the Company has established for its
employees.  Mr. Carlson also is entitled to an automobile allowance of
$700 per month (plus reimbursement for work-related gas expenses) and
reimbursement for personal telephone and cell phone use at a rate of $250 per
month.  Mr. Carlson is also eligible for four (4) weeks of paid time
off per year.  Mr. Carlson is also eligible for up to $20,000 of
relocation assistance. Mr. Carlson was granted 150,000 stock options at an
exercise price of $1.34 and with a five year term so long as Mr. Carlson remains
an employee of the Company.  These options are scheduled to vest
according to the passage of time.  So long as Mr. Carlson remains
employed by the Company, such option will have a five-year term and will be
subject to time and performance based vesting.  If Mr. Carlson resigns
prior to July 6, 2010, he will forfeit the option.  If the Company
terminates Mr. Carlson without cause then the Company will continue to pay Mr.
Carlson’s base salary and maintain his employee benefits for a period of six (6)
months.





On
November 30, 2009, we entered into an employment agreement with George Cardoza,
our Chief Financial Officer.  The Employment Agreement has an initial
term from November 30, 2009 through November 29, 2013, which initial term
automatically renews for one year periods.  The employment agreement
specifies an initial base salary of $190,000/year.  Mr. Cardoza is
also entitled beginning with the year ended December 31, 2010 to receive cash
bonuses for any given fiscal year in an amount equal to 30% of his base salary
if he meets certain goals established by the CEO and approved by the board of
directors. In addition, Mr. Cardoza was granted 150,000 stock options at an
exercise price of $1.55 and with a five year term so long as Mr. Cardoza remains
an employee of the Company.  These options are scheduled to vest
according to the passage of time.  Mr. Cardoza's employment agreement
also specifies that he is entitled to four weeks of paid vacation per year and
other insurance benefits. Mr. Cardoza is also eligible for up to $20,000 of
relocation assistance. In the event that Mr. Cardoza is terminated
without cause by the Company, the Company has agreed to pay Mr. Cardoza's base
salary and maintain his benefits for a period of six months.





On
December 7, 2009, we entered into an employment agreement with Jack G. Spitz,
our Vice President of Laboratory Operations.  The Employment Agreement
has an initial term from December 7, 2009 through December 6, 2013, which
initial term automatically renews for one year periods.  The
employment agreement specifies an initial base salary of
$210,000/year.  Mr. Spitz is also entitled beginning with the year
ended December 31, 2010 to receive cash bonuses for any given fiscal year in an
amount equal to 30% of his base salary if he meets certain goals established by
the President or CEO and approved by the board of directors. In addition, Mr.
Spitz was granted 150,000 stock options at an exercise price of $1.52 and with a
five year term so long as Mr. Spitz remains an employee of the
Company.  These options are scheduled to vest according to the passage
of time.  Mr. Spitz's employment agreement also specifies that he is
entitled to four weeks of paid vacation per year and other insurance benefits.
Mr. Spitz is also eligible for up to $35,000 of relocation assistance. In
the event that Mr. Spitz is terminated without cause by the Company, the Company
has agreed to pay Mr. Spitz's base salary and maintain his benefits for a period
of six months.





Purchase
Commitments





The
Company had open purchase commitments with two vendors of laboratory equipment
for approximately $500,000 of equipment at December 31, 2009.  This
equipment was delivered in January 2010.





Operating
Commitments





The
Company leases its laboratory and office facilities under non-cancelable
operating leases.  Please refer to Note G of the consolidated
financial statements for a schedule of commitments for operating
leases.


40


Capital Lease
Obligations





The
Company leases certain property and equipment under various agreements accounted
for as capital lease obligations. Please refer to Note K of the consolidated
financial statements for a schedule of capital lease commitments. Two lease
lines were established during the fourth quarter of 2010 as below.





Wells Fargo Lease
Agreement





On
October 2, 2009, we and Wells Fargo Equipment Finance, Inc. (“Wells Fargo”),
entered into a Master Lease Agreement (the “Wells Fargo Lease”). The Wells Fargo
Lease establishes the general terms and conditions pursuant to which NeoGenomics
Laboratories, Inc. may lease $750,000 in equipment. Advances under the lease
line may be made for 180 days by executing supplemental schedules for each
advance, which would have a 60 month term.





On
October 2, 2009, we entered into Lease Supplement No. 1 of the Wells Fargo Lease
for $265,200 which was funded to one vendor for lab equipment. Supplement No. 1
has a term of 60 months with monthly payments of $5,396 and a $1.00 final
purchase payment at termination. Supplement No. 1 is being accounted for as a
capital lease.





At
December 31, 2009 there was $484,800 remaining on this capital lease
line.





SunTrust Lease
Agreement





On
October 28, 2009, we and SunTrust Equipment Finance & Leasing Corp.
(“SunTrust”), entered into an equipment lease agreement (the “SunTrust Lease”).
The SunTrust Lease establishes the general terms and conditions pursuant to
which the Subsidiary may lease up to $1.5 million in equipment and other
property.





On
November 12, 2009, we entered into Lease Schedule No. 1 of the SunTrust lease
for $428,465 which was funded to several vendors for lab equipment, computer
hardware and furniture and fixtures. Schedule 1 has a term of 60 months with
monthly payments of $8,433 and a $1.00 final purchase payment at termination.
Schedule No. 1 is being accounted for as a capital lease.  As part of
this schedule, we agreed to keep at least $1,000,000 in compensating cash
balances with SunTrust as long as we owed any monies under the schedule. This
balance is accounted for as current restricted cash as we have the ability to
pay-off the schedule at any time and as a result of that we have shown the
principal owed on the arrangement as a current liability.





At
December 31, 2009 there was $1,071,535 available to borrow on this
facility.





Liquidity and Capital
Resources





The
following table presents a summary of our cash flows provided by (used in)
operating, investing and financing activities for the year ended December 31,
2009 and 2008 as well as the period ending cash and cash equivalents and working
capital.


41





For the year ended
                    December 31.2009
                  
                  
                  2008Net
      cash provided by (used in):Operating
      activities
                  
                  $
                  (1,500,417
                  )
                  
                  $
                  (138,306
                  )Investing
      activities
                  
                  
                  (963,740
                  )
                  
                  
                  (501,781
                  )Financing
      activities
                  
                  
                  3,627,055
                  
                  
                  
                  897,685Net
      increase in cash and cash equivalents
                  
                  
                  1,162,898
                  
                  
                  
                  257,598Cash
      and cash equivalents, beginning of period
                  
                  
                  468,171
                  
                  
                  
                  210,573Cash
      and cash equivalents, end of period
                  
                  $
                  1,631,069
                  
                  
                  $
                  468,171Working
      Capital (1), end of period
                  
                  $
                  2,743,903
                  
                  
                  $
                  (35,425
                  )





(1)
            Defined
      as current assets less current
liabilities.





During
the year ended December 31, 2009, our operating activities used approximately
$1,500,000 of cash compared with $138,000 of cash used in the comparable period
in 2008.  This increase was primarily as a result of the increase in
accounts receivable in 2009 as compared with 2008. Cash used in investing
activities was approximately $964,000 in 2009 compared with $502,000 in 2008,
reflecting increased purchases of equipment to support our increased volume of
business.  In 2009, our net cash flow provided by financing activities
was approximately $3,627,000 which was primarily derived from sales of our
common stock and the exercise of common stock warrants.  At December
31, 2009 and 2008, we had unrestricted cash and cash equivalents of
approximately $1,630,000 and $468,000 respectively.  We also had
$1,000,000 of restricted cash at December 31, 2009.





On
November 5, 2008, we entered into a common stock purchase agreement (the
“Purchase Agreement”) with Fusion Capital Fund II, LLC an Illinois limited
liability company (“Fusion”).  The Purchase Agreement, which has a term of
30 months, provides for the future funding of up to $8,000,000 from sales of our
common stock to Fusion on a when and if needed basis as determined by us in our
sole discretion.  As of March 23, 2010, we had not drawn on any
amounts under the Fusion Purchase Agreement.





On
February 1, 2008, we entered into a revolving credit facility with CapitalSource
Finance, LLC, 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 December 31, 2009, we had approximately $2,400,000 of
availability under our credit facility.





Our
consolidated financial statements are prepared using accounting principles
generally accepted in the United States of America applicable to a going
concern, which contemplate the realization of assets and liquidation of
liabilities in the normal course of business.   As such, we
believe we have adequate resources to meet our operating commitments for the
next year 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 year.  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.  Please see Note K to the consolidated financial statements
for further detail with respect to lease financing facilities.


42


Recent Accounting
Pronouncements





The
following accounting pronouncements were adopted by the Company during
2009:





On July
1, 2009, the Company adopted the provisions of ASU 2009-05, Fair Value
Measurements and Disclosures (Topic 820)—Measuring Liabilities at Fair
Value.  It had no impact on the Company’s financial condition or
results of operations.  Under this standard, companies determining the
fair value of a liability may use the perspective of an investor that holds the
related obligation as an asset. This topic addresses practice difficulties
caused by the tension between fair-value measurements based on the price that
would be paid to transfer a liability to a new obligor and contractual or legal
requirements that prevent such transfers from taking place. No new fair-value
measurements are required by the standard.





In May
2009, the Financial Accounting Standards Board issued Topic 855, Subsequent
Events. This topic addresses accounting and disclosure requirements related to
subsequent events. It requires management to evaluate subsequent events through
the date the financial statements are either issued or available to be issued,
depending on the company’s expectation of whether it will widely distribute its
financial statements to its shareholders and other financial statement users.
Companies are required to disclose the date through which subsequent events have
been evaluated – see Note B to our consolidated financial
statements.





The
Company has determined that all other recently issued accounting standards will
not have a material impact on its consolidated financial statements, or do not
apply to its operations.




Related Party
Transactions





Consulting
Agreements





During
2009 and 2008, Steven C. Jones, a director of the Company, earned $199,600 and
$176,300, respectively, for various consulting work performed in connection with
his duties as Acting Principal Financial Officer.





During
2009 and 2008, George O’Leary, a director of the Company, earned $60,200 and
$22,200, respectively, in cash for various consulting work performed for the
Company.  On January 18, 2006, Mr. O’Leary received 50,000 stock
options for work performed for the benefit of the Company.  The stock
options had an exercise price of $0.26 per/share. On March, 15, 2007, Mr.
O’Leary received 100,000 warrants for certain consulting services performed for
the Company.  The stock options had an exercise price of $0.26
per/share. These warrants had an exercise price of $1.49 per/share and a five
year term.  Half of the warrants were deemed vested on issuance and
the other half vested ratably over a 24 month period.  During 2009,
Mr. O’Leary exercised the 100,000 warrants and the 50,000 stock options in a
cash-less exercise per the terms of the agreements.  The Company
issued 85,030 and 42,215 shares to settle these exercises.





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 April 2010.  This agreement has an
initial term of 5 years from the date of acceptance and calls for monthly fees
of $8,000-$12,000 during the term.  During the years ended December
31, 2009 and 2008, HCSS earned approximately $87,675 and approximately $99,900,
respectively, for transaction fees related to completed tests.


43


During
2009 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.





Gulf Pointe Capital Lease
Agreement





See Note
K to our consolidated financial statements for a description of our lease
facility with Gulf Pointe Capital, an entity with which three members of our
Board of Directors, Steven Jones, Peter Petersen and Marvin Jaffe, are
affiliated.





Subsequent
Events





Equipment
Leases





As
described in Note K to our consolidated financial statements, on January 14,
2010 and January 19, 2010, we entered into additional capital leases of
approximately $424,000 and $290,000, respectively, under our existing lease
lines with Wells Fargo Equipment Finance, Inc. and SunTrust Equipment Finance
& Leasing Corp., respectively.  We have approximately $61,000 and
$782,000 available to us for additional capital leases under the Wells Fargo and
the SunTrust capital lease facilities, respectively.





Third Amendment to Revolving
Credit and Security Agreement





On March
26, 2010, the Parent Company, NeoGenomics Laboratories, Inc. (the wholly owned
subsidiary of the Parent Company) (“Borrower”) and CapitalSource Finance LLC
(“CapitalSource”) (as agent for CapitalSource Bank) entered into a Third
Amendment to Revolving Credit and Security Agreement (the “Loan Amendment”) for which we paid
CapitalSource an amendment fee of $25,000. 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 Coverage Ratio will revert
to Adjusted EBITDA, without adjustment for such amounts.





ITEM
      7A.
            QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK





We are a “smaller reporting company” as
defined by Regulations S-K and as such, are not required to provide the
information contained in this item pursuant to
Regulation S-K.


44


ITEM
      8.
            FINANCIAL
      STATEMENTS AND SUPPLEMENTARY DATA





INDEX TO CONSOLIDATED
FINANCIAL STATEMENTS








PageReport
      of Independent Registered Public Accounting Firm.
                            
                            46Consolidated
      Balance Sheets as of December 31, 2009 and 2008.
                            
                            47Consolidated
      Statements of Operations for the years ended December 31, 2009 and
      2008.
                            
                            48Consolidated
      Statements of Stockholders’ Equity for the years ended December 31, 2009
      and 2008.
                            
                            49Consolidated
      Statements of Cash Flows for the years ended December 31, 2009 and
      2008.
                            
                            50Notes
      to Consolidated Financial Statements.
                            
                            51









45




REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM





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





We
have audited the accompanying consolidated balance sheets of NeoGenomics, Inc.
(the “Company”), as of December 31, 2009 and 2008, and the related consolidated
statements of operations, stockholders’ equity and cash flows for the years then
ended.  These financial statements are the responsibility of the
Company's management.  Our responsibility is to express an opinion on
these financial statements based on our audits.





We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States of America).  Those
standards require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material
misstatement.  The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial
reporting.  Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting.  Accordingly, we express no such opinion.  An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements.  An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation.  We believe that our audits provide a reasonable basis
for our opinion.





In
our opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of the Company as of December 31, 2009
and 2008, 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.





/s/
Kingery & Crouse, P.A


Certified
Public Accountants


Tampa,
FL


March
26, 2010


46


NEOGENOMICS,
INC.





CONSOLIDATED
BALANCE SHEETS AS OF DECEMBER 31, 2009 and 2008








2009
                          
                          
                          2008ASSETSCURRENT
      ASSETSCash
      and cash equivalents
                          
                          $
                          1,631,069
                          
                          
                          $
                          468,171Restricted
      Cash
                          
                          
                          1,000,000
                          
                          
                          
                          -Accounts
      receivable (net of allowance for doubtful accounts of $589,012 and
      $358,642, respectively)
                          
                          
                          4,632,219
                          
                          
                          
                          2,913,531Inventories
                          
                          
                          601,802
                          
                          
                          
                          491,459Other
      current assets
                          
                          
                          655,046
                          
                          
                          
                          482,408Total
      current assets
                          
                          
                          8,520,136
                          
                          
                          
                          4,355,569PROPERTY AND EQUIPMENT
      (net of accumulated depreciation of $2,786,704 and $1,602,594
      respectively)
                          
                          
                          4,339,560
                          
                          
                          
                          2,875,297OTHER
      ASSETS
                          
                          
                          85,604
                          
                          
                          
                          64,509TOTAL
      ASSETS
                          
                          $
                          12,945,300
                          
                          
                          $
                          7,295,375LIABILITIES AND STOCKHOLDERS’
      EQUITYCURRENT
      LIABILITIESAccounts
      payable
                          
                          $
                          1,968,884
                          
                          
                          $
                          1,512,427Accrued
      compensation
                          
                          
                          1,308,160
                          
                          
                          
                          736,552Accrued
      expenses and other liabilities
                          
                          
                          464,830
                          
                          
                          
                          358,265Short-term
      portion of equipment capital leases
                          
                          
                          1,482,326
                          
                          
                          
                          636,900Revolving
      credit line
                          
                          
                          552,033
                          
                          
                          
                          1,146,850Total
      current liabilities
                          
                          
                          5,776,233
                          
                          
                          
                          4,390,994LONG
      TERM LIABILITIESLong-term
      portion of equipment capital leases
                          
                          
                          1,525,728
                          
                          
                          
                          1,403,271TOTAL
      LIABILITIES
                          
                          
                          7,301,961
                          
                          
                          
                          5,794,265Commitments
      and contingenciesSTOCKHOLDERS’
      EQUITYCommon
      stock, $.001 par value, (100,000,000 shares authorized; 37,185,078 and
      32,117,008 shares issued and outstanding at December 31, 2009 and 2008,
      respectively)
                          
                          
                          37,185
                          
                          
                          
                          32,117Additional
      paid-in capital
                          
                          
                          23,761,784
                          
                          
                          
                          17,381,810Accumulated
      deficit
                          
                          
                          (18,155,630
                          )
                          
                          
                          (15,912,817
                          )Total
      stockholders’ equity
                          
                          
                          5,643,339
                          
                          
                          
                          1,501,110TOTAL
      LIABILITIES AND STOCKHOLDERS’ EQUITY
                          
                          $
                          12,945,300
                          
                          
                          $
                          7,295,375







See notes
to consolidated financial statements.


47


NEOGENOMICS,
INC.





CONSOLIDATED
STATEMENTS OF OPERATIONS


FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008










2009
                                                    
                                                    
                                                    2008NET
      REVENUE
                                                    
                                                    $
                                                    29,469,054
                                                    
                                                    
                                                    $
                                                    20,015,319COST
      OF REVENUE
                                                    
                                                    
                                                    14,254,227
                                                    
                                                    
                                                    
                                                    9,353,852GROSS
      MARGIN
                                                    
                                                    
                                                    15,214,827
                                                    
                                                    
                                                    
                                                    10,661,467OPERATING
      EXPENSESGeneral
      and administrative
                                                    
                                                    
                                                    10,056,944
                                                    
                                                    
                                                    
                                                    8,178,953Sales
      and marketing
                                                    
                                                    
                                                    6,885,396
                                                    
                                                    
                                                    
                                                    3,366,503Total
      operating expenses
                                                    
                                                    
                                                    16,942,340
                                                    
                                                    
                                                    
                                                    11,545,456INCOME
      / (LOSS) FROM OPERATIONS
                                                    
                                                    
                                                    (1,727,513
                                                    )
                                                    
                                                    
                                                    (883,989
                                                    )OTHER
      INCOME / (EXPENSE):Other
      income
                                                    
                                                    
                                                    17,091
                                                    
                                                    
                                                    
                                                    9,926Interest
      expense
                                                    
                                                    
                                                    (532,391
                                                    )
                                                    
                                                    
                                                    (308,523
                                                    )Loss
      on investment
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    (200,000
                                                    )Other
      income / (expense) – net
                                                    
                                                    
                                                    (515,300
                                                    )
                                                    
                                                    
                                                    (498,597
                                                    )NET
      LOSS
                                                    
                                                    $
                                                    (2,242,813
                                                    )
                                                    
                                                    $
                                                    (1,382,586
                                                    )NET LOSS PER
      SHARE- Basic and Diluted
                                                    
                                                    $
                                                    (0.06
                                                    )
                                                    
                                                    $
                                                    (0.04
                                                    )WEIGHTED
      AVERAGE NUMBEROF SHARES OUTSTANDING–Basic and
      Diluted
                                                    
                                                    
                                                    34,638,502
                                                    
                                                    
                                                    
                                                    31,506,824








See notes
to consolidated financial statements.


48


NEOGENOMICS,
INC.





CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY


FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008







AdditionalCommon Stock
                
                
                Paid-In
                
                
                AccumulatedShares
                
                
                Amount
                
                
                Capital
                
                
                Deficit
                
                
                TotalBalances,
      December 31, 2007
                
                
                31,391,660
                
                
                $
                31,391
                
                
                $
                16,820,954
                
                
                $
                (14,530,231
                )
                
                $
                2,322,114Common
      stock issuances for cash
                
                
                49,260
                
                
                
                49
                
                
                
                45,094
                
                
                
                -
                
                
                
                45,143Transaction
      fees and expenses
                
                
                -
                
                
                
                -
                
                
                
                (8,411
                )
                
                
                -
                
                
                
                (8,411
                )Stock
      compensation expense - warrants
                
                
                -
                
                
                
                -
                
                
                
                132,584
                
                
                
                -
                
                
                
                132,584Exercise
      of stock options
                
                
                88,500
                
                
                
                89
                
                
                
                23,656
                
                
                
                -
                
                
                
                23,745Shares
      issued to Fusion Capital, net of issuance costs (Note I)
                
                
                417,500
                
                
                
                418
                
                
                
                (48,266
                )
                
                
                -
                
                
                
                (47,848
                )Shares
      issued for registration penalties
                
                
                170,088
                
                
                
                170
                
                
                
                170,019
                
                
                
                -
                
                
                
                170,189Stock
      compensation expense
                
                
                -
                
                
                
                -
                
                
                
                246,180
                
                
                
                -
                
                
                
                246,180Net
      loss
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (1,382,586
                )
                
                
                (1,382,586
                )Balances,
      December 31, 2008
                
                
                32,117,008
                
                
                
                32,117
                
                
                
                17,381,810
                
                
                
                (15,912,817
                )
                
                
                1,501,110Common
      stock issuances to Abbott
                
                
                3,500,000
                
                
                
                3,500
                
                
                
                4,763,500
                
                
                
                -
                
                
                
                4,767,000Common
      stock issuance ESPP plan
                
                
                68,672
                
                
                
                69
                
                
                
                86,721
                
                
                
                -
                
                
                
                86,790Transaction
      fees and expenses
                
                
                -
                
                
                
                -
                
                
                
                (236,575
                )
                
                
                -
                
                
                
                (236,576
                )Stock
      compensation expense - warrants
                
                
                -
                
                
                
                -
                
                
                
                67,738
                
                
                
                -
                
                
                
                67,738Exercise
      of stock options
                
                
                55,215
                
                
                
                55
                
                
                
                3,055
                
                
                
                -
                
                
                
                3,110Exercise
      of warrants
                
                
                519,183
                
                
                
                519
                
                
                
                637,510
                
                
                
                -
                
                
                
                638,029Common
      stock issuance to CEO for cash
                
                
                625,000
                
                
                
                625
                
                
                
                499,375
                
                
                
                -
                
                
                
                500,000Shares
      issued for purchase of assets
                
                
                300,000
                
                
                
                300
                
                
                
                185,700
                
                
                
                -
                
                
                
                186,000Stock
      compensation expense - options
                
                
                -
                
                
                
                -
                
                
                
                372,951
                
                
                
                -
                
                
                
                372,951Net
      loss
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (2,242,813
                )
                
                
                (2,242,813
                )Balances,
      December 31, 2009
                
                
                37,185,078
                
                
                $
                37,185
                
                
                $
                23,761,784
                
                
                $
                (18,155,630
                )
                
                $
                5,643,339









See notes
to consolidated financial statements.


49


NEOGENOMICS,
INC.





CONSOLIDATED
STATEMENTS OF CASH FLOWS


FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008








2009
                
                
                2008CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      Loss
                
                $
                (2,242,813
                )
                
                $
                (1,382,586
                )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Depreciation
      and amortization
                
                
                1,184,109
                
                
                
                740,564Loss
      on investments
                
                
                -
                
                
                
                200,000Amortization
      of debt issue costs
                
                
                68,649
                
                
                
                54,006Stock
      based compensation
                
                
                372,951
                
                
                
                246,180Non-cash
      consulting expenses
                
                
                67,738
                
                
                
                132,584Other
      non-cash expenses
                
                
                -
                
                
                
                8,862Provision
      for bad debts
                
                
                2,154,567
                
                
                
                1,789,577Changes
      in assets and liabilities, net:(Increase)
      decrease in accounts receivable, net of write-offs
                
                
                (3,873,255
                )
                
                
                (1,466,357
                )(Increase)
      decrease in inventories
                
                
                (110,343
                )
                
                
                (186,709
                )(Increase)
      decrease in prepaid expenses
                
                
                (195,793
                )
                
                
                (63,057
                )(Increase)
      decrease in other current assets
                
                
                (21,094
                )
                
                
                (3,934
                )Increase
      (decrease) in legal contingency
                
                
                -
                
                
                
                (375,000
                )Increase
      (decrease) in accounts payable and other liabilities
                
                
                1,094,867
                
                
                
                167,564NET
      CASH USED IN OPERATING ACTIVITIES
                
                
                (1,500,417
                )
                
                
                (138,306
                )CASH
      FLOWS FROM INVESTING ACTIVITIESPurchases
      of property and equipment
                
                
                (963,740
                )
                
                
                (501,781
                )NET
      CASH USED IN INVESTING ACTIVITIES
                
                
                (963,740
                )
                
                
                (501,781
                )CASH
      FLOWS FROM FINANCING ACTIVITIESAdvances
      (repayments) from/to revolving credit facility
                
                
                (594,818
                )
                
                
                1,146,850Restricted
      cash
                
                
                (1,000,000
                )
                
                
                -Repayment
      of capital lease obligations
                
                
                (809,599
                )
                
                
                (377,641
                )Proceeds
      from issuance of capital lease on owned assets
                
                
                273,119
                
                
                
                67,999Issuance
      of common stock and warrants for cash , net of transaction
      expenses
                
                
                5,758,353
                
                
                
                60,477NET
      CASH PROVIDED BY FINANCING ACTIVITIES
                
                
                3,627,055
                
                
                
                897,685NET
      CHANGE IN CASH AND CASH EQUIVALENTS
                
                
                1,162,898
                
                
                
                257,598CASH
      AND CASH EQUIVALENTS, BEGINNING OF YEAR
                
                
                468,171
                
                
                
                210,573CASH
      AND CASH EQUIVALENTS, END OF YEAR
                
                $
                1,631,069
                
                
                $
                468,171SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATIONInterest
      paid
                
                $
                463,742
                
                
                $
                256,323Equipment
      leased under capital leases
                
                $
                1,777,484
                
                
                $
                1,207,863Common
      stock issued for the purchase of assets
                
                $
                186,000
                
                
                $
                -Income
      taxes paid
                
                $
                -
                
                
                $
                -







See notes
to consolidated financial statements.


50


NEOGENOMICS,
INC.





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





NOTE A– NATURE OF BUSINESS AND BASIS OF
PRESENTATION





NeoGenomics,
Inc., a Nevada Company, was formed in 1998 under the name of American
Communications Enterprises, Inc. (“ACE”, the “Parent”, or the “Parent
Company”).





NeoGenomics
Laboratories, Inc., a Florida company (“NEO”, “NeoGenomics”
or  “Subsidiary”) was formed in June 2001, and agreed to be acquired
by ACE in a reverse acquisition in November 2001.  On March 3, 2009,
we changed the name of the Subsidiary from NeoGenomics Inc, to NeoGenomics
Laboratories, Inc.  NeoGenomics 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.





ACE
succeeded to NEO’s name in January, 2002, and NeoGenomics remains a wholly-owned
subsidiary of the Parent Company. (NEO and ACE are collectively referred to as
“we”, “us”, “our” or the “Company”).





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





Certain
amounts in the prior year’s consolidated financial statements have been
reclassified to conform to the current year presentation.





NOTE B– SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES





FASB Accounting Standards
Codification





In June
2009, the FASB issued the FASB Accounting Standards Codification (the
“Codification”), which replaced all existing FASB accounting and reporting
standards. Effective for financial statements for interim and annual periods
ending after September 15, 2009, the Codification is the single source of
authoritative U.S. generally accepted accounting principles (GAAP) for
non-governmental entities. Rules and interpretive releases of the Securities and
Exchange Commission (SEC) under authority of federal securities laws are also
sources of authoritative GAAP for SEC registrants and are referenced in the
Codification. References to the Codification are identified by their Accounting
Standards Codification (“ASC”) Topic number and, as appropriate, their Subtopic,
Section and Subsection number.  Effective July 1, 2009, changes to
authoritative U.S. GAAP are communicated through Accounting Standards Updates
(“ASU”). Implementation of the Codification had no effect on the Company’s
financial statements, except for changes in the manner in which authoritative
guidance is now referenced.





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 reserves, contingencies,
useful lives and recovery of long-term assets, income and other taxes, and the
fair value of stock-based compensation.  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 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.


51


NEOGENOMICS,
INC.





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





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 horizon’s in analyzing historical experience.





Cost of
Revenue





Cost of
revenue consists primarily of lab related materials and supplies, salaries
related to laboratory personnel, transportation of patient samples to and from
our laboratories, allocated facility costs, and depreciation of equipment used
to deliver the Company’s services.





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.




Statement of Cash
Flows




For
purposes of the statement of cash flows, we consider all highly liquid
investments purchased with an original maturity of three months or less to be
cash equivalents.





Fair Value of Financial
Instruments and Concentrations of Credit Risk





The
carrying value of cash and cash equivalents, restricted cash, accounts
receivable, accounts payable, accrued expenses and other liabilities, amounts
outstanding under our revolving credit facility, and other current assets and
liabilities are considered reasonable estimates of their respective fair values
due to their short-term nature.  The Company maintains its cash and
cash equivalents with domestic financial institutions that the Company believes
to be of high credit standing.  The Company believes that, as of
December 31, 2009, its concentration of credit risk related to cash and cash
equivalents was not significant.  The carrying value of the Company’s
long-term capital lease obligations approximates its fair value based on the
current market conditions for similar instruments.





Concentrations
of credit risk with respect to revenue and accounts receivable are primarily
limited to certain clients to whom the Company provides a significant volume of
its services, and to specific payors 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.  The Company continues to focus its sales efforts to
decrease the dependency on any given source of revenue and decrease its credit
risk from any one large client or payor type, and these efforts decrease our
credit risk.  For the years ended December 31, 2009 and 2008, one
client with multiple locations accounted for 10% and 22% respectively, of total
revenue.  As a result of this one customer bringing certain tests
in-house, this client represented less than 5% of our fourth quarter 2009
revenue.  All others were less than 5% of total revenue
individually.


52


NEOGENOMICS,
INC.





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





The
Company orders the majority of its FISH probes from one vendor and as a result
of their dominance of that marketplace and the absence of any competitive
alternatives, if they were to have a disruption and not have inventory available
it could have a material effect on our business.  This risk cannot be
completely offset due to the fact that they have patent protection which limits
other vendors from supplying these probes.





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).





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 a straight line
basis over the estimated useful lives of the assets.





Leasehold
improvements are amortized over the related lease terms or their estimated
useful lives.  Property and equipment acquired under capital leases
are depreciated over the related lease terms or the useful lives of the
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.





Income
Taxes





We
compute income taxes in accordance with ASC Topic 740 Income
Taxes.  Under ASC-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 for property and
equipment as well as impairment losses and the timing of recognition of bad
debts.





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.





Tax Effects of Stock-Based
Compensation





We will
only recognize a tax benefit from windfall tax deductions for stock-based awards
in additional paid-in capital if an incremental tax benefit is realized after
all other tax attributes currently available have been
utilized.


53


NEOGENOMICS,
INC.





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





Net Loss Per Common
Share





We
compute loss per share in accordance with ASC Topic 260 Earnings Per
Share.  Under the provisions of ASC 260, basic net loss per share is
computed by dividing the net loss available to common stockholders by the
weighted average number of common shares outstanding during the
period.  Diluted net loss per share is computed by dividing the net
loss for the period by the weighted average number of common and common
equivalent shares outstanding during the period.  During the years
ended December 31, 2009 and 2008, we reported net loss per share and,
accordingly, common equivalent shares outstanding as of December 31, 2009 and
2008, which consisted of employee stock options and warrants issued to
consultants, providers of financing to the Company and others, were excluded
from diluted net loss per common share calculations as of such dates because
they were anti-dilutive.  As a result, basic and diluted loss per
share were equivalent.





Recent
Pronouncements





The
following accounting pronouncements were adopted by the Company during
2009:





On July
1, 2009, the Company adopted the provisions of ASU 2009-05, Fair Value
Measurements and Disclosures (Topic 820)—Measuring Liabilities at Fair
Value.  It had no impact on the Company’s financial condition or
results of operations.  Under this standard, companies determining the
fair value of a liability may use the perspective of an investor that holds the
related obligation as an asset. This topic addresses practice difficulties
caused by the tension between fair-value measurements based on the price that
would be paid to transfer a liability to a new obligor and contractual or legal
requirements that prevent such transfers from taking place. No new fair-value
measurements are required by the standard.





In May
2009, the Financial Accounting Standards Board issued Topic 855, Subsequent
Events. This topic addresses accounting and disclosure requirements related to
subsequent events. It requires management to evaluate subsequent events through
the date the financial statements are either issued or available to be issued,
depending on the company’s expectation of whether it will widely distribute its
financial statements to its shareholders and other financial statement users.
Companies are required to disclose the date through which subsequent events have
been evaluated – see below.





The
Company has determined that all other recently issued accounting standards will
not have a material impact on its Consolidated Financial Statements, or do not
apply to its operations.




NOTE
C – LIQUIDITY





Our
consolidated financial statements are prepared using accounting principles
generally accepted in the United States of America applicable to a going
concern, which contemplates the realization of assets and liquidation of
liabilities in the normal course of business.    On November
5, 2008, we entered into a common stock purchase agreement with Fusion Capital
Fund II, LLC .  The 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
(see Note J).  On February 1, 2008, we entered into a revolving credit
facility with CapitalSource Finance, LLC, 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 (see Note H).  We believe we
have adequate resources to meet our operating commitments for the next year 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.


54


NEOGENOMICS,
INC.





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





NOTE
D – PROPERTY AND EQUIPMENT, NET





Property
and equipment consisted of the following at December 31, 2009 and
2008:





2009
                  
                  
                  2008
                  
                  
                  Estimated
                    UsefulLives
                    inYearsEquipment
                  
                  $
                  4,991,886
                  
                  
                  $
                  3,450,449
                  
                  
                  
                  3-7Leasehold
      improvements
                  
                  
                  618,876
                  
                  
                  
                  111,114
                  
                  
                  
                  3-5Furniture
      & fixtures
                  
                  
                  351,832
                  
                  
                  
                  247,366
                  
                  
                  
                  7Computer
      hardware
                  
                  
                  486,852
                  
                  
                  
                  276,520
                  
                  
                  
                  3Computer
      software
                  
                  
                  541,948
                  
                  
                  
                  382,154
                  
                  
                  
                  3Assets
      not yet placed in service
                  
                  
                  134,870
                  
                  
                  
                  10,288
                  
                  
                  
                  -Subtotal
                  
                  
                  7,126,264
                  
                  
                  
                  4,477,891Less
      accumulated depreciation and amortization
                  
                  
                  (2,786,704
                  )
                  
                  
                  (1,602,594
                  )Property
      and equipment, net
                  
                  $
                  4,339,560
                  
                  
                  $
                  2,875,297





Depreciation
and amortization expense on property and equipment, including leased assets, for
the years ended December 31, 2009 and 2008, was $1,184,109 and $740,564,
respectively.





Property
and equipment under capital leases, included above, consists of the following at
December 31, 2009 and 2008:





2009
                    
                    
                    2008Equipment
                    
                    $
                    3,413,595
                    
                    
                    $
                    2,273,864Furniture
      & fixtures
                    
                    
                    159,864
                    
                    
                    
                    106,119Computer
      hardware
                    
                    
                    298,305
                    
                    
                    
                    120,821Computer
      software
                    
                    
                    225,644
                    
                    
                    
                    142,814Leasehold
      Improvements
                    
                    
                    233,386
                    
                    
                    
                    -Assets
      not yet placed in service
                    
                    
                    84,347
                    
                    
                    
                    -Subtotal
                    
                    
                    4,415,141
                    
                    
                    
                    2,643,618Less
      accumulated depreciation and amortization
                    
                    
                    (1,441,234
                    )
                    
                    
                    (656,797
                    )Property
      and equipment under capital leases, net
                    
                    $
                    2,973,907
                    
                    
                    $
                    1,986,821





NOTE
E – INCOME TAXES





We
recognized losses for financial reporting purposes for the years ended December
31, 2009 and 2008, in the accompanying consolidated statements of
operations.  Accordingly, no provisions for income taxes and/or
deferred income taxes payable have been provided in the accompanying
consolidated financial statements.





At
December 31, 2009 and 2008, we had net operating loss carryforwards of
approximately $9,888,662 and $7,520,000, respectively.  The
significant difference between this amount and our accumulated deficit arises
primarily from certain stock based compensation that is considered to be a
permanent difference.  Assuming our net operating loss carryforwards
are not disallowed because of certain “change in control” provisions of the
Internal Revenue Code, these net operating loss carryforwards expire in various
years through the year ending December 31, 2028.  However, we
have established a valuation allowance to fully reserve our deferred income tax
assets as such assets did not meet the required asset recognition standard
established by ASC Topic 740. Our valuation allowance increased by approximately
$1,350,000 during the year ended December 31, 2009.





At
December 31, 2009 and 2008, our current and non-current deferred income tax
assets (assuming an effective income tax rate of approximately 40.5%, which
includes 35% for federal taxes and 5.5% for state taxes) consisted of the
following:


55


NEOGENOMICS,
INC.





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





2009
                          
                          
                          2008Net
      current deferred income tax asset:Allowance
      for doubtful accounts
                          
                          $
                          227,200
                          
                          
                          $
                          138,300Less
      valuation allowance
                          
                          
                          (227,200
                          )
                          
                          
                          (138,300
                          )Total
                          
                          $
                          -
                          
                          
                          $
                          -





Net
      non-current deferred income tax asset:Net
      operating loss carryforwards
                              
                              $
                              3,856,600
                              
                              
                              $
                              2,933,000Accumulated
      depreciation and impairment
                              
                              
                              (543,000
                              )
                              
                              
                              (881,000
                              )Subtotal
                              
                              
                              3,313,600
                              
                              
                              
                              2,052,000Less
      valuation allowance
                              
                              
                              (3,313,600
                              )
                              
                              
                              (2,052,000
                              )Total
                              
                              $
                              -
                              
                              
                              $
                              -





NOTE
F – EMPLOYEE STOCK OPTIONS, STOCK PURCHASE PLAN AND WARRANTS





Stock Option
Plan





On March
3, 2009, the Company’s Board of Directors approved the Amended and Restated
Equity Incentive Plan (the “Amended Plan”), which amended and restated the
Equity Incentive Plan, originally effective as of October 14, 2003, and
previously amended and restated effective as of October 31, 2006.  The
Amended Plan allows for the award of equity incentives, including stock options,
stock appreciation rights, restricted stock awards, stock bonus awards, deferred
stock awards, and other stock-based awards to certain employees, directors, or
officers of, or key advisers or consultants to, the Company or its
subsidiaries. The Amended Plan provides that the maximum aggregate number
of shares of the Company’s common stock reserved and available for issuance
under the Amended Plan is 6,500,000 and that the Amended Plan will expire on
March 3, 2019.





As of
December 31, 2009, option and stock awards for 5,161,652 shares were
outstanding, including 350,000 options issued outside of the Amended Plan to
Robert Gasparini, the Company’s President and Chief Science Officer, and option
and stock awards for 641,264 shares had been exercised, leaving a total of
1,047,084 shares available for future option and stock
awards.  Options typically expire after 5 or 10 years and generally
vest over 3 or 4 years, but each grant’s expiration, vesting and exercise price
provisions are determined at the time the awards are granted by the Compensation
Committee of the Board of Directors or by the Chairman and Chief Executive
Officer by virtue of authority delegated to him by the Compensation
Committee.





We
account for option and stock awards under the Amended Plan in accordance
with ASC Topic 718 Compensation – Stock Compensation, which requires the
measurement and recognition of compensation expense in the Company’s statement
of operations for all share-based option and stock awards, based on estimated
grant-date fair values.





ASC Topic
718 requires us to estimate the fair value of stock-based option awards on
the date of grant using an option-pricing model.  The grant-date fair
value of the award is recognized as expense over the requisite service period
using the straight-line method.  In accordance with ASC Topic 718, the
estimated stock-based compensation expense to be recognized is reduced by an
estimate of the annualized rate of stock option forfeitures.





We
estimate the grant-date fair value of stock-based option awards using a
trinomial lattice model.  This model is affected by our stock price on
the date of the grant as well as assumptions regarding a number of highly
complex and subjective variables.  These variables include the
expected term of the option, expected risk-free rates of return, the expected
volatility of our common stock, and expected dividend yield, each of which is
more fully described below.  The assumptions for expected
term and expected volatility are the two assumptions that significantly
affect the grant date fair value.


56


NEOGENOMICS,
INC.





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





Expected Term:  The
expected term of an option is the period of time that the option is expected to
be outstanding.  The average expected term is determined using a
trinomial lattice simulation model.





Risk-free Interest
Rate:  We base the risk-free interest rate used in the
trinomial lattice valuation method on the implied yield at the grant date of the
U.S. Treasury zero-coupon issue with an equivalent term to the stock-based award
being valued.  Where the expected term of a stock-based award
does not correspond with the term for which a zero coupon interest rate is
quoted, we use the nearest interest rate from the available
maturities.





Expected Stock Price
Volatility:  Effective January 1, 2006 until December 31,
2008, we evaluated the assumptions used to estimate volatility and determined
that, under SAB 107, we should use a blended average of our volatility and the
volatility of certain peer companies.  We believe that the use of this
blended average peer volatility is more reflective of market conditions and a
better indicator of our expected volatility due to the limited trading history
available for our Company since its last change of control, prior to which we
operated under a different business model.  Effective January 1, 2009
since we had sufficient historical data since our last change of control we
began to use our own historical weekly volatility because that was more
reflective of market conditions.





Dividend
Yield:  Because we have never paid a dividend and do not expect
to begin doing so in the foreseeable future, we have assumed a 0% dividend yield
in valuing our stock-based awards.





The fair
value of stock option awards granted during the years ended December 31, 2009
and 2008 was estimated as of the grant date using a trinomial lattice model with
the following weighted average assumptions:





2009
                          
                          
                          2008Expected
      term (in years)
                          
                          
                          4.1
                          
                          
                          
                          3.5Risk-free
      interest rate (%)
                          
                          
                          1.9
                          %
                          
                          
                          2.0
                          %Expected
      volatility (%)
                          
                          
                          59
                          %
                          
                          
                          42
                          %Dividend
      yield (%)
                          
                          
                          0
                          %
                          
                          
                          0
                          %Weighted
      average fair value/share at grant date
                          
                          $
                          0.42
                          
                          
                          $
                          0.22





The
status of our stock options and stock awards are summarized as
follows:




Number
                  
                  
                  Weighted
                    AverageOf
                    Shares
                  
                  
                  Exercise
                    PriceOutstanding
      at December 31, 2007
                  
                  
                  2,796,044
                  
                  
                  $
                  0.81Granted
                  
                  
                  1,405,000
                  
                  
                  
                  0.87Exercised
                  
                  
                  (88,500
                  )
                  
                  
                  0.27Canceled
                  
                  
                  (388,122
                  )
                  
                  
                  1.32Outstanding
      at December 31, 2008
                  
                  
                  3,724,422
                  
                  
                  
                  0.79Granted
                  
                  
                  2,371,598
                  
                  
                  
                  1.00Exercised
                  
                  
                  (55,215
                  )
                  
                  
                  0.26Canceled
                  
                  
                  (879,153
                  )
                  
                  
                  1.01Outstanding
      at December 31, 2009
                  
                  
                  5,161,652
                  
                  
                  
                  0.86Exercisable
      at December 31, 2009
                  
                  
                  2,982,343
                  
                  
                  
                  0.73




57


NEOGENOMICS,
INC.





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





As
described in Note G, on March 16, 2009, the Company entered into an employment
agreement with Douglas M. VanOort (the “EmploymentAgreement”).  The
Employment Agreement provided for the grant to Mr. VanOort of an option under
the Amended Plan to purchase 1,000,000 shares of the Company’s common stock, at
an exercise price of $0.80 per share (the closing market price of the company’s
common stock on March 13, 2009, the preceding business day).  500,000
shares of common stock subject to the option will vest according to the
following schedule (i) 200,000 shares will vest on March 16, 2010 (provided that
if Mr. VanOort’s employment is terminated by the Company without “cause” then
the pro rata portion of such 200,000 shares up until the date of termination
shall vest); (ii) 12,500 shares will vest each month beginning on April 16, 2010
until March 16, 2011; (iii) 8,000 shares will vest each month beginning on April
16, 2011 until March 16, 2012 and (iv) 4,500 shares will vest each month
beginning on April 16, 2012 until March 16, 2013.  500,000 shares of
common stock subject to the option will vest based on the achievement of
certain performance metrics by the Company.  Any unvested portion of
the option described above will vest in the event of a change in control of the
Company.





The
following table summarizes information about our options outstanding at December
31, 2009:





Options Outstanding, Expected to Vest
                                              
                                              Options ExercisableRange of
                                                Exercise
                                                Prices ($)
                                              
                                              Number
                                                Outstanding
                                              
                                              
                                              Weighted
                                                Average
                                                Remaining
                                                Contractual
                                                Life (Years)
                                              
                                              
                                              Weighted
                                                Average
                                                Exercise
                                                Price
                                              
                                              
                                              Number
                                                Exercisable
                                              
                                              Weighted
                                                Average
                                                Remaining
                                                Contractual
                                                Life (Years)
                                              
                                              
                                              Weighted
                                                Average
                                                Exercise
                                                Price0.00
      – 0.30
                                              
                                              
                                              996,000
                                              
                                              
                                              
                                              4.8
                                              
                                              
                                              $
                                              0.25
                                              
                                              
                                              
                                              996,000
                                              
                                              
                                              
                                              4.8
                                              
                                              
                                              $
                                              0.250.31
      – 0.46
                                              
                                              
                                              59,500
                                              
                                              
                                              
                                              5.4
                                              
                                              
                                              
                                              0.35
                                              
                                              
                                              
                                              59,500
                                              
                                              
                                              
                                              5.4
                                              
                                              
                                              
                                              0.350.47
      – 0.61
                                              
                                              
                                              113,500
                                              
                                              
                                              
                                              5.8
                                              
                                              
                                              
                                              0.50
                                              
                                              
                                              
                                              113,500
                                              
                                              
                                              
                                              5.8
                                              
                                              
                                              
                                              0.500.62
      – 0.83
                                              
                                              
                                              2,178,596
                                              
                                              
                                              
                                              5.8
                                              
                                              
                                              
                                              0.77
                                              
                                              
                                              
                                              888,330
                                              
                                              
                                              
                                              5.7
                                              
                                              
                                              
                                              0.750.84
      – 1.08
                                              
                                              
                                              478,996
                                              
                                              
                                              
                                              4.2
                                              
                                              
                                              
                                              0.99
                                              
                                              
                                              
                                              330,039
                                              
                                              
                                              
                                              4.1
                                              
                                              
                                              
                                              0.971.09
      – 1.47
                                              
                                              
                                              612,163
                                              
                                              
                                              
                                              5.3
                                              
                                              
                                              
                                              1.36
                                              
                                              
                                              
                                              348,331
                                              
                                              
                                              
                                              6.0
                                              
                                              
                                              
                                              1.401.48
      – 1.84
                                              
                                              
                                              722,897
                                              
                                              
                                              
                                              5.5
                                              
                                              
                                              
                                              1.58
                                              
                                              
                                              
                                              246,643
                                              
                                              
                                              
                                              6.7
                                              
                                              
                                              
                                              1.535,161,652
                                              
                                              
                                              
                                              5.4
                                              
                                              
                                              
                                              0.86
                                              
                                              
                                              
                                              2,982,343
                                              
                                              
                                              
                                              5.3
                                              
                                              
                                              
                                              0.73





As of
December 31, 2009, the aggregate intrinsic value of all stock options
outstanding and expected to vest was approximately $3,360,000 and the aggregate
intrinsic value of currently exercisable stock options was approximately
$2,308,000.  The intrinsic value of each option share is the
difference between the fair market value of NeoGenomics common stock and the
exercise price of such option share to the extent it is
“in-the-money”.  Aggregate intrinsic value represents the value that
would have been received by the holders of in-the-money options had they
exercised their options on the last trading day of the year and sold the
underlying shares at the closing stock price on such day.  The
intrinsic value calculation is based on the $1.50 closing stock price of
NeoGenomics Common Stock on December 31, 2009, the last trading day of
2009.  The total number of in-the-money options outstanding and
exercisable as of December 31, 2009 was 2,785,700.





The total
intrinsic value of options exercised during the years ended December 31, 2009
and 2008 was approximately $80,000 and $44,000,
respectively.  Intrinsic value of exercised shares is the total value
of such shares on the date of exercise less the cash received from the option
holder to exercise the options.  The total cash proceeds received from
the exercise of stock options was approximately $3,110 and $24,000 for the years
ended December 31, 2009 and 2008, respectively.





The total
fair value of options granted during the years ended December 31, 2009 and 2008
was approximately $986,000 and $310,000, respectively.   The
total fair value of option shares vested during the years ended
December 31, 2009 and 2008 was approximately $233,000 and
$220,000.


58


NEOGENOMICS,
INC.





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





Stock
compensation cost recognized for the years ended December 31, 2009 and 2008 was
approximately $373,000 and $246,000, respectively. We will only recognize a tax
benefit from windfall tax deductions for stock-based awards in additional
paid-in capital if an incremental tax benefit is realized after all other tax
attributes currently available have been utilized. As of December 31, 2009,
there was approximately $639,000 of total unrecognized stock-based compensation
cost, net of expected forfeitures, related to unvested stock options granted
under the Amended Plan.  This cost is expected to be recognized over a
weighted-average period of 1.7 years.


59





NEOGENOMICS,
INC.





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





Employee Stock Purchase
Plan





Effective
January 1, 2007, the Company began sponsoring an Employee Stock Purchase Plan
(“ESPP”), under which eligible employees may purchase Common Stock, by means of
limited payroll deductions, at a 5% discount from the fair market value of the
Common Stock as of specific dates.  In accordance with ASC Topic
718-50 Compensation – Stock Compensation – Employee Share Purchase Plans, the
ESPP is considered non-compensatory and does not require the recognition of
compensation cost because the discount offered to employees does not exceed
5%.  Shares issued pursuant to this plan were 68,443 and 49,260 for
the period ended December 31, 2009 and 2008, respectively.





Common Stock
Warrants





From time
to time, the company issues warrants to purchase its common
stock.  These warrants have been issued for consulting services, in
connection with the company’s credit facilities or in connection with sales of
its common stock, and in connection with employment agreements or for
compensation of directors.  These warrants are valued using an option
pricing model and using the volatility, market price, strike price, risk-free
interest rate and dividend yield appropriate at the date the warrants were
issued.  Stock compensation cost recognized for the years ended
December 31, 2009 and 2008 was approximately $68,000 and $133,000,
respectively.





Warrant
activity is summarized as follows:





Shares
                
                
                Weighted Average
                  Exercise PriceWarrants
      outstanding, December 31, 2007
                
                
                5,805,363
                
                
                $
                0.59Granted
                
                
                32,475
                
                
                
                1.08Warrants
      outstanding, December 31, 2008
                
                
                5,837,838
                
                
                
                0.61Granted
                
                
                738,333
                
                
                
                1.00Exercised
                
                
                (519,183
                )
                
                
                1.27Expired
                
                
                (130,091
                )
                
                
                1.35Cancelled
                
                
                (35,147
                )
                
                
                1.08Warrants
      outstanding, December 31, 2009
                
                
                5,891,750
                
                
                $
                0.59


60


NEOGENOMICS,
INC.





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





The
following table summarizes information on warrants outstanding on December 31,
2009:





Number
                                    outstanding
                                  
                                  
                                  Exercise
                                    price
                                  
                                  Issued
                                  
                                  Expire2,500,000
                                  
                                  
                                  $
                                  0.31
                                  
                                  03/23/2005
                                  
                                  01/20/20111,600,000
                                  
                                  
                                  
                                  0.26
                                  
                                  01/21/2006
                                  
                                  01/20/201135,000
                                  
                                  
                                  
                                  0.30
                                  
                                  02/13/2006
                                  
                                  02/12/201135,000
                                  
                                  
                                  
                                  0.68
                                  
                                  05/16/2006
                                  
                                  05/15/201115,000
                                  
                                  
                                  
                                  0.62
                                  
                                  02/03/2009
                                  
                                  02/03/2012100,000
                                  
                                  
                                  
                                  1.49
                                  
                                  03/15/2007
                                  
                                  03/13/2012550,000
                                  
                                  
                                  
                                  1.50
                                  
                                  06/06/2007
                                  
                                  06/05/2012348,417
                                  
                                  
                                  
                                  1.50
                                  
                                  06/06/2007
                                  
                                  06/05/201283,333
                                  
                                  
                                  
                                  0.75
                                  
                                  02/09/2009
                                  
                                  02/08/2014625,000
                                  
                                  
                                  
                                  1.05
                                  
                                  03/16/2009
                                  
                                  03/15/20145,891,750
                                  
                                  
                                  $
                                  0.59





On
February 3, 2009, in connection with consulting services rendered to the
Company, we issued warrants to purchase 30,000 shares of common stock at $0.62
per share.  Warrants for 15,000 shares were exercised prior to
December 31, 2009.





As described in Note L, in
connection with our lease facility withGulf Pointe Capital, LLC, on
February 9, 2009 we issued warrants to purchase 83,333 shares of common stock,
which warrants replaced 32,475 warrants previously issued in connection with
that facility.





As
described in Note J, on March 16, 2009, the Company entered into an employment
agreement with Douglas M. VanOort and in connection with that agreement also
entered into a warrant agreement pursuant to which Mr. VanOort may purchase up
to 625,000 shares of the Company’s common stock at an exercise price of $1.05
per share. The warrants become exercisable in five tranches, with 20% of
the warrants being exercisable immediately and a further 20% becoming
exercisable on the first day on which the closing price per share of the
Company’s common stock has reached or exceeded, for 20 consecutive trading days,
$3.00, $4.00, $5.00 and $6.00 per share, respectively.  In the event
of a change in control of the Company in which the consideration payable to each
common stockholder of the Company in connection with such change in control has
a deemed value of at least $4.00 per share, then the warrants will immediately
become exercisable.  In the event that Mr. VanOort resigns his
employment with the Company or the Company terminates Mr. VanOort’s employment
for “cause” at any time prior to the time when all warrants are exercisable,
then the rights under the warrant agreement with respect to the portion of the
warrants not yet exercisable as of the date of termination will immediately
terminate.





In August
2009, 419,153 of the 767,570 warrants originally issued in connection with the
June 2007 sale of common stock were exercised and the Company received proceeds
of $628,730.





During
2009, Mr. O’Leary exercised 100,000 warrants in a cash-less transaction per the
terms of the agreements.  The company issued 85,030 shares to settle
this exercise.





NOTE
G – COMMITMENTS AND CONTINGENCIES





Operating
Leases





The
Company leases its laboratory and office facilities under non-cancelable
operating leases.  These operating leases expire at various dates
through April 2012 and generally require the payment of real estate taxes,
insurance, maintenance and operating costs.  The Company has
approximately 26,000 square feet of office and laboratory space at our corporate
headquarters in Fort Myers, Florida.  In addition, we maintain
laboratory and office space in Irvine, California, Chatsworth California and
Nashville, Tennessee.





The
minimum aggregate future obligations under non-cancelable operating leases as of
December 31, 2009 are as follows:


61


NEOGENOMICS,
INC.





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





Years ending December 31,2010
                  
                  $
                  906,8182011
                  
                  
                  632,2802012
                  
                  
                  115,7082013
                  
                  
                  -2014
                  
                  
                  -Total
      minimum lease payments
                  
                  $
                  1,654,806





Rent
expense for the years ended December 31, 2009 and 2008 was $816,838 and
$754,138, respectively and is included in costs of revenues and in general and
administrative expenses, depending on the allocation of work space in each
facility.  Certain of the Company’s facility leases include rent
escalation clauses.  The Company normalizes rent expense on a
straight-line basis over the term of the lease for known changes in lease
payments over the life of the lease.





Purchase
Commitments





The
company had open purchase commitments with 2 vendors of laboratory equipment for
approximately $500,000 of equipment at December 31, 2009.  This
equipment was delivered during 2010.





US Labs
Settlement





On
October 26, 2006, Accupath Diagnostics Laboratories, Inc. d/b/a US Labs, a
California corporation (“US Labs”) filed a complaint in the Superior Court of
the State of California for the County of Los Angeles (entitled Accupath
Diagnostics Laboratories, Inc. v. NeoGenomics, Inc., et al., Case No. BC 360985)
(the “Lawsuit”) against the Company and Robert Gasparini, as an individual, and
certain other employees and non-employees of NeoGenomics (the “Defendants”) with
respect to claims arising from discussions with current and former employees of
US Labs.  On March 18, 2008, we reached a preliminary agreement to
settle US Labs' claims, and in accordance with ASC Topic 450 Contingencies, as of December 31, 2007 we
accrued a $375,000 loss contingency, which consisted of $250,000 to provide for
the Company's expected share of this settlement, and $125,000 to provide for the
Company's share of the estimated legal fees up to the date of
settlement.




On April
23, 2008, the Company and US Labs entered into a Settlement Agreement and
Release (the "Settlement Agreement") whereby both parties agreed to settle and
resolve all claims asserted in and arising out of the aforementioned lawsuit.
Pursuant to the Settlement Agreement, the Defendants were required to pay
$500,000 to US Labs, of which $250,000 was paid with funds from the Company's
insurance carrier in May 2008 and the remaining $250,000 was paid by the Company
in equal installments of $31,250 commencing on May 31,
2008.   Under the terms of the Settlement Agreement, there were
certain provisions agreed to in the event of default.  As of December
31, 2008, the full settlement amount had been paid and no events of default had
occurred.




Private Placement of Common
Stock and Registration Penalties





As of
December 31, 2007, we had not been able to effectively complete the Registration
Statement required to be filed in connection with our June 2007 private
placement (the “Private Placement”) and pursuant to the terms of the Private
Placement, we accrued $282,000 in estimated penalties as liquidated damages,
which were expected to be incurred for the period through June 2008, the date we
anticipated to be able to effectively complete the Registration Statement. The
Registration Statement became effective on July 1, 2008.  In
September, 2008, the Company paid $40,500 in cash and issued 170,088 shares of
common stock valued at approximately $1.00 per share for an aggregate payment of
$210,688 to the holders of the Private Placement shares to settle the penalties
due.  The remaining $71,412 in accrued penalties was reversed in
September, 2008 as certain shareholders had previously sold their shares, thus
forfeiting their rights to any penalties.


62


NEOGENOMICS,
INC.





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





Employment
Contracts





Robert
Gasparini





On March
12, 2008, we entered into an employment agreement with Robert Gasparini, our
President and Chief Scientific Officer, to extend his employment with the
Company for an additional four year term.  This employment agreement
was retroactive to January 1, 2008 and provides that it will automatically renew
after the initial four year term for one year increments unless either party
provides written notice to the other party of their intention to terminate the
agreement 90 days before the end of the initial term (or any renewal
term).  The employment agreement specifies an initial base salary of
$225,000/year with specified salary increases tied to achieving revenue
goals.  Mr. Gasparini is also entitled to receive cash bonuses for any
given fiscal year in an amount equal to 30% of his base salary if he meets
certain targets established by the Board of Directors. In addition, Mr.
Gasparini was granted 784,000 stock options at an exercise price of $0.80 and
with a seven year term so long as Mr. Gasparini remains an employee of the
Company.  These options are scheduled to vest according to the passage
of time and the meeting of certain performance-based milestones.  Mr.
Gasparini's employment agreement also specifies that he is entitled to four
weeks of paid vacation per year and other insurance benefits. In the event that
Mr. Gasparini is terminated without cause by the Company, the Company has agreed
to pay Mr. Gasparini's base salary and maintain his benefits for a period of a
year.





Jerome
Dvonch





On June
14, 2008, we entered into an employment agreement with Jerome Dvonch, our
Principal Accounting Officer, to extend his employment with the Company for an
additional four year term and provides that it will automatically renew after
the initial four year term for one year increments unless either party provides
written notice to the other party of their intention to terminate the agreement
30 days before the end of the initial term (or any renewal term).  The
employment agreement specifies an initial base salary of $150,000/year and does
not allow for an increase during the first 24 months of the term.  Mr.
Dvonch is also entitled to receive cash bonuses for any given fiscal year if he
meets certain targets established by the Board of Directors. In addition, Mr.
Dvonch was granted 100,000 stock options with an exercise price of $1.04 and
with a seven year term so long as Mr. Dvonch remains an employee of the
Company.  These options are scheduled to vest according to the passage
of time and the meeting of certain performance-based milestones.  Mr.
Dvonch's employment agreement also specifies that he is entitled to four weeks
of paid vacation per year and other insurance benefits. In the event that Mr.
Dvonch is terminated without cause by the Company, the Company has agreed to pay
Mr. Dvonch's base salary and maintain his benefits for a period of six
months.





Douglas
VanOort





On March
16, 2009, the Company entered into an employment agreement with Douglas M.
VanOort (the “EmploymentAgreement”) to
employ Mr. VanOort in the capacity of Executive Chairman and interim Chief
Executive Officer.  The Employment Agreement has an initial term from
March 16, 2009 through March 16, 2013, which initial term automatically renews
for one year periods.  Mr. VanOort will receive a salary of $225,000
per year for so long as he spends not less than 2.5 days per week on the affairs
of the Company.  He will receive an additional $50,000 per year while
serving as the Company’s interim Chief Executive Officer; provided that he
spends not less than 3.5 days per week on average on the affairs of the
Company.  Mr. VanOort is also eligible to receive an annual cash bonus
based on the achievement of certain performance metrics of at least 30% of his
base salary (which includes amounts payable with respect to serving as Executive
Chairman and interim Chief Executive Officer).  Mr. VanOort is also
entitled to participate in all of the Company’s employee benefit plans and any
other benefit programs established for officers of the Company.





The
Employment Agreement also provides that Mr. VanOort will be granted an option to
purchase 1,000,000 shares of the Company’s common stock under the Company’s
Amended and Restated Equity Incentive Plan (the “Amended Plan”).  The
exercise price of such option is $0.80 per share.  500,000 shares of
common stock subject to the option will vest according to the following schedule
(i) 200,000 shares will vest on March 16, 2010 (provided that if Mr. VanOort’s
employment is terminated by the Company without “cause” then the pro rata
portion of such 200,000 shares up until the date of termination shall vest);
(ii) 12,500 shares will vest each month beginning on April 16, 2010 until March
16, 2011; (iii) 8,000 shares will vest each month beginning on April 16, 2011
until March 16, 2012 and (iv) 4,500 shares will vest each month beginning on
April 16, 2012 until March 16, 2013.  500,000 shares of common stock
subject to the option will vest based on the achievement of certain performance
metrics by the Company.  Any unvested portion of the option described
above shall vest in the event of a change of control of the
Company.


63


NEOGENOMICS,
INC.





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





Either
party may terminate Mr. VanOort’s employment with the Company at any time upon
giving sixty days advance written notice to the other party.  The
Company and Mr. VanOort also entered into a Confidentiality, Non-Solicitation
and Non-Compete Agreement in connection with the Employment
Agreement.





On March
16, 2009, the Company and the Douglas M. VanOort Living Trust entered into a
Subscription Agreement (the “Subscription Agreement”) pursuant to which the
Douglas M. VanOort Living Trust purchased 625,000 shares of the Company’s common
stock at a purchase price of $0.80 per share (the “Subscription
Shares”).  The Subscription Shares are subject to a two year lock-up
that restricts the transfer of the Subscription Shares; provided, however, that
such lock-up shall expire in the event that the Company terminates Mr. VanOort’s
employment.  The Subscription Agreement also provides for certain
piggyback registration rights with respect to the Subscription
Shares.





On
October 28, 2009, the Company appointed Douglas M. VanOort, to the position of
Chief Executive Officer and amended and restated his employment agreement, as
previously disclosed, pursuant to a Current Report on Form 8-K filed with the
Securities and Exchange Commission on November 3, 2009. Mr. VanOort previously
held the position of Executive Chairman and Interim Chief Executive Officer
of the Company from March 16, 2009 until October 28, 2009. Mr. VanOort also
serves as the Chairman of the Company’s Board of Directors.





Grant
Carlson





On July
22, 2009, the Company entered into an employment agreement with Grant Carlson
(to employ Mr. Carlson in the capacity of Vice President Sales and
Marketing.  The Offer Letter provides for a four (4) year term, which
is terminable upon written notice by either party.  The Offer Letter
also provides for an initial base salary of $200,000 per year and provides that
Mr. Carlson is eligible to receive an incentive bonus targeted at 30% of his
base salary based on the achievement of certain goals.  Mr. Carlson is
entitled to participate in all medical and other benefits that the Company has
established for its employees.  Mr. Carlson also is entitled to an
automobile allowance of $700 per month (plus reimbursement for work-related gas
expenses) and reimbursement for personal telephone and cell phone use at a
rate of $250 per month.  Mr. Carlson is also eligible for four (4)
weeks of paid time off per year.  Mr. Carlson is also eligible for up
to $20,000 of relocation assistance. Mr. Carlson was granted 150,000 stock
options at an exercise price of $1.34 and with a five year term so long as Mr.
Carlson remains an employee of the Company.  If Mr. Carlson resigns
prior to July 6, 2010, he will forfeit the option.  If the Company
terminates Mr. Carlson without cause then the Company will continue to pay Mr.
Carlson’s base salary and maintain his employee benefits for a period of six
months.





George
Cardoza





On
November 30, 2009, we entered into an employment agreement with George Cardoza,
our Chief Financial Officer.  The Employment Agreement has an initial
term from November 30, 2009 through November 29, 2013, which initial term
automatically renews for one year periods.  The employment agreement
specifies an initial base salary of $190,000 per year.  Mr. Cardoza is
also entitled beginning with the year ended December 31, 2010 to receive cash
bonuses for any given fiscal year in an amount equal to 30% of his base salary
if he meets certain goals established by the CEO and approved by the board of
directors. In addition, Mr. Cardoza was granted 150,000 stock options at an
exercise price of $1.55 and with a five year term so long as Mr. Cardoza remains
an employee of the Company.  These options are scheduled to vest
according to the passage of time.  Mr. Cardoza's employment agreement
also specifies that he is entitled to four weeks of paid vacation per year and
other insurance benefits. Mr. Cardoza is also eligible for up to $20,000 of
relocation assistance. In the event that Mr. Cardoza is terminated without
cause by the Company, the Company has agreed to pay Mr. Cardoza's base salary
and maintain his benefits for a period of six months.


64


NEOGENOMICS,
INC.





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





Jack
G. Spitz





On
December 7, 2009, we entered into an employment agreement with Jack G. Spitz,
our Vice President of Laboratory Operations.  The Employment Agreement
has an initial term from December 7, 2009 through December 6, 2013, which
initial term automatically renews for one year periods.  The
employment agreement specifies an initial base salary of $210,000 per
year.  Mr. Spitz is also entitled beginning with the year ended
December 31, 2010 to receive cash bonuses for any given fiscal year in an amount
equal to 30% of his base salary if he meets certain goals established by the
President or CEO and approved by the board of directors. In addition, Mr. Spitz
was granted 150,000 stock options at an exercise price of $1.52 and with a five
year term so long as Mr. Spitz remains an employee of the
Company.  These options are scheduled to vest according to the passage
of time.  Mr. Spitz's employment agreement also specifies that he is
entitled to four weeks of paid vacation per year and other insurance benefits.
Mr. Spitz is also eligible for up to $35,000 of relocation assistance. In
the event that Mr. Spitz is terminated without cause by the Company, the Company
has agreed to pay Mr. Spitz's base salary and maintain his benefits for a period
of six months.





NOTE
H – REVOLVING CREDIT AND SECURITY AGREEMENT





On
February 1, 2008, our subsidiary, NeoGenomics Laboratories, Inc., (“the
Borrower”), entered into a Revolving Credit and Security Agreement (the “Credit
Facility” or “Credit Agreement”) with CapitalSource Finance LLC
(“CapitalSource”), the terms of which provide for borrowings based on eligible
accounts receivable up to a maximum borrowing of $3,000,000, as defined in the
Credit Agreement.  Subject to the provisions of the Credit Agreement,
CapitalSource will 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 December 31,
2009, the effective rate of interest was 6.39%.  On December 31, 2009,
the available credit under the Credit Facility was approximately $2,448,000 and
the outstanding borrowing was $552,000 after netting compensating cash on
hand.





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.





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 Finance LLC
(“CapitalSource”) (as agent for CapitalSource Bank) entered into a Second
Amendment to Revolving Credit and Security Agreement (the “Loan
Amendment”).  The Loan 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 Loan 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 Loan Amendment.


65


NEOGENOMICS, INC.





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





NOTE
I – ABBOTT SUPPLY AGREEMENT





On July
24, 2009, NeoGenomics Laboratories and Abbott Molecular Inc., a Delaware
corporation (“Abbott Molecular”), entered into a Strategic Supply Agreement (the
“Supply Agreement”). The Supply Agreement, among other things, provides for
Abbott Molecular to supply materials with which NeoGenomics intends to develop
its own FISH (fluorescence in situ hybridization)-based test for the diagnosis
of malignant melanoma in skin biopsy specimens (the “Melanoma
LDT”).





Pursuant
to the terms of the Supply Agreement, Abbott Molecular has agreed to supply
NeoGenomics with such of Abbott Molecular’s analyte specific reagents (“ASRs”)
that NeoGenomics may request for the purpose of NeoGenomics’ evaluation and
determination as to which ASRs to include in its Melanoma LDT. Once the ASRs
have been identified by NeoGenomics, Abbott Molecular has agreed to supply such
ASRs (subject to certain limitations) to NeoGenomics. If NeoGenomics identifies
for inclusion in the Melanoma LDT one or more ASRs that are not currently
marketed or sold commercially by Abbott Molecular as individual stand-alone
products, then the Supply Agreement provides that Abbott Molecular will supply
such ASRs to NeoGenomics on an exclusive basis in the United States and Puerto
Rico (the “Exclusive ASRs”), provided that Abbott Molecular may also supply such
exclusive ASRs to certain of its academic collaborators for research and limited
clinical purposes. Abbott Molecular’s obligation to supply the Exclusive ASRs on
an exclusive basis is subject to NeoGenomics meeting certain revenue thresholds
with respect to the Melanoma LDT. Except for the ASRs supplied for evaluation
purposes (which are to be supplied at no cost), the Supply Agreement provides
that the price of the ASRs supplied by Abbott Molecular will include both a base
and a premium component.





In the
event that Abbott Molecular obtains FDA approval for its own in vitro diagnostic
test for aid in diagnosis of malignant melanoma in skin biopsy specimens, the
Supply Agreement contemplates a means by which NeoGenomics may offer such
FDA-approved test to its customers instead of the Melanoma LDT.





Pursuant
to the Supply Agreement, Abbott Molecular also granted to NeoGenomics a first
right to develop two additional laboratory developed tests relating to certain
specified disease states using Abbott Molecular ASRs or other
products.





The
initial term of the Supply Agreement expires on December 31, 2019. The Supply
Agreement also contemplates two year renewal terms under certain circumstances.
The parties may terminate the Supply Agreement prior to the expiration of the
term under certain circumstances.





The
Supply Agreement provides (subject to certain limitations) that Abbott Molecular
may convert the Supply Agreement into a non-exclusive agreement or terminate the
Supply Agreement if NeoGenomics does not develop and launch the Melanoma LDT
within six (6) months after the date on which Abbott Molecular supplies ASRs
(other than ASRs supplied for evaluation purposes) to NeoGenomics.





Abbott
Molecular may terminate the Supply Agreement following a change of control
involving NeoGenomics and certain designated companies. In such event Abbott
Molecular would pay to NeoGenomics (or its successor) a termination payment
based upon a pre-defined formula.


66


NEOGENOMICS,
INC.





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





NOTE
J – EQUITY TRANSACTIONS





Warrant Exercises from the2007 Private
Placement





During
the period from May 31, 2007 through June 6, 2007, we sold 2,666,667 shares of
our Common Stock to ten unaffiliated accredited investors (the “Investors”) at a
price of $1.50 per share in a Private Placement of our Common Stock (the
“Private Placement”).  The Private Placement generated gross proceeds
to the Company of $4.0 million, and after estimated transaction costs, the
Company received net cash proceeds of approximately $3.8
million.





On August
15, 2007 our Board of Directors voted to issue warrants to purchase 533,334
shares of our Common Stock to the investors who purchased shares in the Private
Placement.  Such warrants have an exercise price of $1.50 per share
and are exercisable for a period of two years.





In August
2009, 419,153 warrants were exercised that were attributable to this equity
raise and the Company received proceeds of $628,700.





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 (“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 $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
dated November 28, 2008, and on February 5, 2009 the filing became
effective.




Under the
Stock Agreement, after the SEC has declared effective the registration statement
related to the transaction, 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 (see Note H), 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.





Asset Purchase
Agreements





On
February 2, 2009, we issued 300,000 shares of restricted stock, valued at
$186,000 based on the February 2, 2009 closing price of the Company’s common
stock on the OTC Bulletin Board, in connection with two agreements to purchase
the assets (primarily laboratory equipment) of two laboratories, including
settlement of certain amounts due to the owners.


67


NEOGENOMICS,
INC.





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





Share Purchase by the
Douglas VanOort Living Trust





On March
16, 2009, the Company and the Douglas M. VanOort Living Trust entered into a
Subscription Agreement (the “Subscription
Agreement”) pursuant to which the Douglas M. VanOort Living Trust
purchased 625,000 shares of the Company’s common stock at a purchase price of
$0.80 per share (the “Subscription
Shares”).  Douglas M VanOort is Chairman of the Company’s Board
of Directors and Chief Executive Officer.  The Subscription Shares are
subject to a two year lock-up that restricts the transfer of the Subscription
Shares; provided, however, that such lock-up shall expire in the event that the
Company terminates Mr. VanOort’s employment.  The Subscription
Agreement also provides for certain piggyback registration rights with respect
to the Subscription Shares.





On March
16, 2009, the Company and Mr. VanOort entered into a Warrant Agreement (the
“Warrant
Agreement”) pursuant to which Mr. VanOort, subject to the vesting
schedule described below, may purchase up to 625,000 shares of the Company’s
common stock at an exercise price of $1.05 per share (the “Warrant
Shares”).  These warrants had an aggregate fair value of
$160,267. The Warrant Shares vest based on the following vesting
schedule:





(i)
            20%
      of the Warrant Shares vest
immediately,


(ii)
            20%
      of the Warrant Shares will be deemed to be vested on the first day on
      which the closing price per share of the Company’s common stock has
      reached or exceeded $3.00 per share for 20 consecutive trading
      days,


(iii)
            20%
      of the Warrant Shares will be deemed to be vested on the first day on
      which the closing price per share of the Company’s common stock has
      reached or exceeded $4.00 per share for 20 consecutive trading
      days,


(iv)
            20%
      of the Warrant Shares will be deemed to be vested on the first day on
      which the closing price per share of the Company’s common stock has
      reached or exceeded $5.00 per share for 20 consecutive trading days
      and


(v)
            20%
      of the Warrant Shares will be deemed to be vested on the first day on
      which the closing price per share of the Company’s common stock has
      reached or exceeded $6.00 per share for 20 consecutive trading
      days.





In the
event of a change of control of the Company in which the consideration payable
to each common stockholder of the Company in connection with such change of
control has a deemed value of at least $4.00 per share, then the Warrant Shares
shall immediately vest in full.  In the event that Mr. VanOort resigns
his employment with the Company or the Company terminates Mr. VanOort’s
employment for “cause” at any time prior to the time when all Warrant Shares
have vested, then the rights under the Warrant Agreement with respect to the
unvested portion of the Warrant Shares as of the date of termination will
immediately terminate.





Common Stock Purchase
Agreement and Registration Rights Agreement with Abbott
Laboratories





On July
24, 2009, NeoGenomics, Inc. entered into a Common Stock Purchase Agreement (the
“Common Stock Purchase Agreement”) with Abbott Laboratories, an Illinois
corporation (“Abbott”), and consummated the issuance and sale to Abbott, for an
aggregate purchase price of $4,767,000, of 3,500,000 shares of common stock,
$0.001 par value per share (the “Shares”). Pursuant to the terms of the Common
Stock Purchase Agreement, Abbott is prohibited from selling or otherwise
transferring the Shares until January 20, 2010.





On July
24, 2009, NeoGenomics, Inc. and Abbott also entered into a Registration Rights
Agreement (the “Registration Rights Agreement”) that, among other things, grants
certain demand and piggyback registration rights to Abbott with respect to the
Shares.





NOTE
K – EQUIPMENT CAPITAL LEASES





From time
to time, we have entered into various capital leases, primarily to fund
purchases of laboratory and other equipment, including the lease agreements
described below.


68


NEOGENOMICS,
INC.





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





Gulf Pointe Capital Lease
Agreement





On
September 30, 2008, we entered into a master lease agreement (the “Master
Lease”) with Gulf Pointe Capital, LLC (“Gulf Pointe”) which provided for
$130,000 of lease financing after it was determined that the lease facility with
LTI described below would not allow for the leasing of certain used and other
types of equipment. 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. The
terms under this lease are consistent with the terms of our other lease
arrangements and provided for the sale/leaseback of approximately $130,000 of
used laboratory equipment. The lease 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. In
consideration for entering into the Master Lease, the Company issued 32,475
common stock warrants to Gulf Pointe with an exercise price of $1.08 and a five
year term. The warrants were valued at approximately $11,000 using the
Black-Scholes option pricing model. At the end of the lease term, 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
February 9, 2009, we amended our Master Lease with GulfPointe to increase the
maximum size of the facility to $250,000 and entered into a second schedule
under the Master Lease for the sale/leaseback of approximately $118,000 of used
laboratory equipment. This second lease has a 30 month term at the same lease
rate factor per month as the first lease, which equates to monthly payments of
$4,690 during the term. 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 warrants have a five year
term, an exercise price of $0.75 per share and the same vesting schedule as the
original warrants. The replacement warrants
were valued using the Black-Scholes option pricing model and the value did not
materially differ from the valuation of the original warrants they replaced.





Leasing Technologies
International Lease Agreement





On
November 5, 2008, we entered into a Master Lease Agreement with Leasing
Technologies International, Inc (the “LTI Lease”). The LTI Lease establishes the
general terms and conditions pursuant to which we may lease up to $1,000,000 of
equipment. Advances under the lease line may be made for one year by executing
equipment schedules for each advance. The lease term of any equipment schedules
issued under the lease line will be for 36 months. The lease rate factor
applicable for each equipment schedule is 0.0327/month. If we make use of the
entire lease line, the monthly rent would be $32,700. Monthly rent for the
leased equipment is payable in advance on the first day of each month. At the
end of the term of each equipment schedule, we may: (a) renew the lease with
respect to such equipment for an additional 12 months at fair market value; (b)
purchase the equipment at fair market value, which price will not be less than
10% of cost nor more than 14% of cost; (c) extend the term for an additional six
months at 35% of the monthly rent paid during the initial term, after which the
equipment may be purchased for the lesser of fair market value or 8% of cost; or
(d) return the equipment subject to a remarketing charge equal to 6% of
cost.





In 2008,
we entered into Lease Schedule No. 1 to the LTI Lease for $437,300 and on May
22, 2009, July 29, 2009 and September 22, 2009, entered into Lease Schedules
Nos. 2, 3 and 4 for $442,300, $40,066, and $29,218, respectively, which were
used to fund laboratory and computer equipment.





As of
December 31, 2009, we have been advanced $948,884 under the LTI Lease. We cannot
receive any further advances under the LTI Lease.





Wells Fargo Lease
Agreement





On
October 2, 2009, we entered into a Master Lease Agreement with Wells Fargo
Equipment Finance, Inc. (the “Wells Fargo Lease”). The Wells Fargo Lease
establishes the general terms and conditions pursuant to which we may lease up
to $750,000 in equipment. Advances under the lease line may be made for 180 days
by executing supplemental schedules for each advance, which would have a 60
month term.





On
October 2, 2009, we entered into Lease Supplement No. 1 for $265,200 which was
used to acquire laboratory equipment. Supplement No. 1, which is being accounted
for as a capital lease, has a term of 60 months with monthly payments of $5,396
and a $1 final purchase payment at termination.





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 will be 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.


69


NEOGENOMICS,
INC.





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





After
entering into Supplement No. 2 on January 14, 2010, we have $60,800 available
for further advances under the Wells Fargo Lease.





SunTrust Lease
Agreement





On
October 28, 2009, we entered into an equipment lease agreement with SunTrust
Equipment Finance & Leasing Corp. (the “SunTrust Lease”). The SunTrust Lease
establishes the general terms and conditions pursuant to which we may lease up
to $1.5 million in equipment and other property.  Advances under the
lease line may be made by executing supplemental schedules for each advance,
which would have a term of 60 months.





On
November 12, 2009, we entered into Lease Schedule No. 1 for $428,465 which was
used to fund laboratory equipment, computer hardware and furniture and fixtures.
Schedule No. 1, which is being accounted for as a capital lease, has a term of
60 months with monthly payments of $8,434 and a $1 final purchase payment at
termination. As part of this schedule, the Subsidiary agreed to keep at least
$1,000,000 in compensating cash balances with SunTrust as long as the subsidiary
owed any monies under the schedule. This balance is accounted for as current
restricted cash as we have the ability to pay-off the schedule at any time and
as a result of that we have shown the principal owed on the arrangement as a
current liability.





On
January 19, 2010, we entered into Lease Schedule No. 2 for $289,573 which was
used to fund laboratory equipment and furniture and fixtures. Schedule 2, which
will be 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.





After
entering into Lease Schedule No. 2 on January 19, 2010, we have $781,962
available for further advances under the SunTrust Lease.





Capital Lease
Obligations





The
Company’s capital lease obligations expire at various times through 2014 and the
weighted average interest rates under such leases approximated 13.3% at December
31, 2009. Most of these leases contain bargain purchase options that allow us to
purchase the leased property for a minimal amount upon the expiration of the
lease term.  Future minimum lease payments under capital lease
obligations, including those described above, are:





Years ending December 31,2010
                  
                  $
                  1,836,5012011
                  
                  
                  1,058,0202012
                  
                  
                  431,8442013
                  
                  
                  167,8632014
                  
                  
                  83,664Total
      future minimum lease payments
                  
                  
                  3,577,892Less
      amount representing interest
                  
                  
                  (569,838
                  )Present
      value of future minimum lease payments
                  
                  
                  3,008,054Less
      current maturities
                  
                  
                  (1,482,326
                  )Obligations
      under capital leases – long term
                  
                  $
                  1,525,728





Property
and equipment acquired under capital lease agreements (see Note D) is pledged as
collateral to secure the performance of the future minimum lease payments
above.


70


NEOGENOMICS,
INC.





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





NOTE
L – RELATED PARTY TRANSACTIONS





Consulting
Agreements





During
2009 and 2008, Steven C. Jones, a director of the Company, earned $199,600 and
$176,300, respectively, for various consulting work performed in connection with
his duties as Acting Principal Financial Officer and Executive Vice President of
Finance.





During
2009 and 2008, George O’Leary, a director of the Company, earned $60,200 and
$22,200, respectively, in cash for various consulting work performed for the
Company.  On March 15, 2007, Mr. O’Leary received 50,000 stock options
for work performed for the benefit of the Company and 100,000 warrants for
certain consulting services performed for the Company.  The stock
options had an exercise price of $0.26 per/share. These warrants had an exercise
price of $1.49 per/share and a five year term.  Half of the warrants
were deemed vested on issuance and the other half vested ratably over a 24 month
period.  During 2009, Mr. O’Leary exercised the 100,000 warrants and
the 50,000 stock options in a cash-less exercise per the terms of the
agreements.  The Company issued 85,030 and 42,215 shares to settle
these exercise.





On June
6, 2007, we issued to the six non-employees director’s of our board of directors
a total of 550,000 warrants at $1.50/share.  Such warrants had an
exercise price of $1.50/share with three year vesting and a five year final
term.  These warrants were valued at approximately $280,000 on the
date of issuance using the Black-Schools option pricing model and our being
expensed over the vesting period.  These warrants expire in June
2012.





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 April 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 the years ended
December 31, 2009 and 2008, HCSS earned approximately $87,675 and approximately
$99,900, respectively, for transaction fees related to completed
tests.





During
2009, 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.





Gulf Pointe Capital Lease
Agreement





See Note
K for a description of our lease agreement with Gulf Pointe Capital, LLC, an
entity with which three members of our Board of Directors, Steven Jones, Peter
Petersen and Marvin Jaffe, are affiliated.





NOTE
M – POWER 3 MEDICAL PRODUCTS, INC.





On April
2, 2007, we entered into an agreement with Power3 Medical Products, Inc.,
(“Power3”) regarding the formation of a joint venture Contract Research
Organization (“CRO”) and the issuance of convertible debentures and certain
options by Power3 to us (the “Letter Agreement”).  Power3 is an early
stage company engaged in the discovery, development, and commercialization of
protein biomarkers.  As part of the agreement, on April 17, 2007, we
provided $200,000 of working capital to Power3 by purchasing a 6% convertible
debenture, due April 17, 2009 (the “Debenture”).  We were also granted
two options to increase our stake in Power3 first to 20% and then up to 60% of
Power3’s fully diluted shares.  The first option is exercisable for a
period starting on the date of purchase of the convertible debenture by
NeoGenomics and extending until the day which is the later of (y) November 16,
2007 or (z) the date that certain preconditions specified in the agreement have
been achieved.


71


NEOGENOMICS,
INC.





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





As of
March 24, 2010, Power3 had still failed to meet at least four of the five
preconditions specified in the Letter Agreement.  As a result of this
failure to meet the pre-conditions specified in the Letter Agreement, we believe
that all of our options to acquire interests in Power3 and license their
Intellectual Property are still in full force and effect and we have notified
Power3 that we are reserving all of our rights under the Letter
Agreement.   We have also notified Power3 that they are in
default of their obligations under the Debenture by failing to pay interest due
since September 2008 and principal which was due April 17, 2009, and that as a
result of such default, we were demanding the accelerated payment of the full
principal and any accrued interest under the Debenture.  We intend to
vigorously pursue all remedies in this matter.





NOTE
N – RETIREMENT PLAN





We
maintain a defined-contribution 401(k) retirement plan covering substantially
all employees (as defined).  Our employees may make voluntary contributions
to the plan, subject to limitations based on IRS regulations and
compensation.  In addition, we match any employees’ contributions on a
dollar to dollar basis up to 1% of the respective employee’s
salary.  We made matching contributions of approximately $50,798 and
$41,000 during the years ended December 31, 2009 and 2008,
respectively.





NOTE
O – SUBSEQUENT EVENTS





Equipment
Leases





As
described in Note K, on January 14, 2010 and January 19, 2010, we entered into
additional capital leases under our lease facilities with Wells Fargo and
SunTrust, respectively.





Third Amendment to Revolving
Credit and Security Agreement


On March
26, 2010, we entered into an amendment (the “Third Amendment”) to the
credit facility agreement with CapitalSource (see Note H), for which we paid
CapitalSource an amendment fee of $25,000.  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 Coverage Ratio will revert
to Adjusted EBITDA, without adjustment for such amounts.


End of Financial
Statements


72


ITEM
      9.
            CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE




None.





ITEM
      9A.
            CONTROLS
      AND PROCEDURES





Not
applicable.





ITEM
      9A(T).
            CONTROLS
      AND PROCEDURES





Evaluation
of Disclosure Controls and Procedures





We
maintain disclosure controls and procedures, as such term is defined in
Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (“the
Exchange Act”), that are designed to provide reasonable assurance that the
information required to be disclosed by us in reports filed under the Exchange
Act is (i) recorded, processed, summarized and reported within the time
periods specified in the SEC’s rules and forms and (ii) accumulated and
communicated to our management, including our principal executive officer
(“PEO”) and principal financial officer (“PFO”), as appropriate to allow timely
decisions regarding required disclosure. A controls system cannot provide
absolute assurance that the objectives of the controls system are met, and no
evaluation of controls can provide absolute assurance that all control issues
and instances of fraud, if any, within a company have been detected. Our
management, with the participation of our PEO and PFO, evaluated the
effectiveness of our disclosure controls and procedures as of the end of the
period covered by this report. Based on that evaluation, the PEO and PFO
concluded that our disclosure controls and procedures were effective as of
December 31, 2009.





Management’s
Report on Internal Control Over Financial Reporting





Management
is responsible for establishing and maintaining adequate internal control over
financial reporting. 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. Our internal control
over financial reporting includes those policies and procedures that pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of our assets; provide reasonable
assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting
principles, and that our receipts and expenditures are being made only in
accordance with authorizations of our management and directors; and provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of our 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.





A
material weakness is a deficiency, or a combination of deficiencies, in internal
control over financial reporting, such that there is a reasonable possibility
that a material misstatement of our annual or interim Consolidated Financial
Statements will not be prevented or detected on a timely basis.





Management
evaluated our internal control over financial reporting as of December 31,
2009.  In making this assessment, management used the criteria
established inInternal
Control-Integrated Framework  issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO), and with further
guidance for internal controls for smaller reporting companies provided by the
SEC’s new Interpretive Guidance in Release No. 34-55929. As a result of this
assessment and based on the criteria in the COSO framework, management has
concluded that, as of December 31, 2009, our internal control over
financial reporting was effective.


73


This
annual report does not include an attestation report of the Company’s registered
public accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by the Company’s registered
public accounting firm pursuant to temporary rules of the Securities and
Exchange Commission that permit the Company to provide only management’s report
in this annual report.





Remediation
of Material Weaknesses





As of
December 31, 2009, the Company has remediated the following material weakness
noted in the Company’s Annual Report on Form 10-K for the fiscal year ended
December 31, 2008:





·
            The
      Company’s internal controls over excel spreadsheets used for financial
      reporting have been improved, because critical spreadsheets are now
      password protected, maintained on a protected drive, subject to logic
      testing, cell formula testing and locking and contain appropriate input
      controls.




Changes
in Internal Control over Financial Reporting





In the
fourth quarter of 2009, the Company improved its internal control over financial
reporting through the following:





·
            The
      Company automated its consolidated financial statement reporting process
      by utilizing the functions available in its accounting system software
      package.





Except as disclosed above, there were
no changes in our internal control over financial reporting that occurred during
the quarter ended December 31, 2009 that have materially affected, or are
reasonably likely to materially affect, the Company’s internal control over
financial reporting.





ITEM
9B. Other Information





Robert J. Feeney
Ph.D.





The
employment of Robert J. Feeney, formerly the Company’s Vice President of
Business Development ended on January 6, 2010.


Third Amendment to Revolving
Credit and Security Agreement





On March
26, 2010, we entered into an amendment (the “Third Amendment”) to the
credit facility agreement with CapitalSource (see Note H), for which we paid
CapitalSource an amendment fee of $25,000.  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 Coverage Ratio will revert
to Adjusted EBITDA, without adjustment for such amounts.


74


PART
III





ITEM
      10.
            DIRECTORS,
      EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE





The
following table sets forth certain information regarding our members of the
Board of Directors and other executives as of March 24, 2010:





Name
                  
                  Age
                  
                  PositionBoard of Directors:Douglas
      VanOort
                  
                  54
                  
                  Chairman
      of the Board of Director’s and Chief Executive Officer,Robert
      P. Gasparini
                  
                  55
                  
                  President
      and Chief Science Officer, Board MemberSteven
      C. Jones
                  
                  46
                  
                  Executive
      Vice President of Finance, Board MemberMichael
      T. Dent
                  
                  45
                  
                  Board
      MemberGeorge
      G. O’Leary
                  
                  47
                  
                  Board
      MemberPeter
      M. Peterson
                  
                  53
                  
                  Board
      MemberMarvin
      E. Jaffe
                  
                  73
                  
                  Board
      MemberWilliam
      J. Robison
                  
                  73
                  
                  Board
      MemberOther Executives:George
      Cardoza
                  
                  48
                  
                  Chief
      Financial OfficerJack
      G. Spitz
                  
                  54
                  
                  Vice
      President of Laboratory OperationsGrant
      Carlson
                  
                  42
                  
                  Vice
      President of Sales and MarketingMatthew
      William Moore
                  
                  36
                  
                  Vice
      President of Research and DevelopmentJerome
      J. Dvonch
                  
                  41
                  
                  Director
      of Finance and Principal Accounting
Officer





Members of the Company’s Board of
Directors are elected at the annual meeting of stockholders and hold office
until their successors are elected. The Company’s officers are appointed by the
Board of Directors and serve at the pleasure of the Board and are subject to
employment agreements, if any, approved and ratified by the Board.





The
Company, Michael Dent, Aspen Select Healthcare L.P. (“Aspen”), John Elliot,
Steven Jones and Larry Kuhnert are parties to the Amended and Restated
Shareholders’ Agreement dated March 21, 2005, as amended, that, among other
provisions, gives Aspen, our largest stockholder, the right to elect three out
of the eight directors authorized for our Board of Directors, and to nominate
one mutually acceptable independent director.  In addition, Michael
Dent and the executive management of the Company has the right to elect one
director for our Board of Directors, until the earlier of (i) Dr. Dent’s
resignation as an officer or director of the Company or (ii) the sale by Dr.
Dent of 50% or more of the number of shares of our common stock that he held on
March 21, 2005.


75


Douglas M. VanOort, – Chairman
of the Board of Directors and Chief Executive Officer





Mr.
VanOort has served as the Chairman of the Board of Directors and Chief Executive
Officer of NeoGenomics since October 28, 2009. Prior to that he served as
Chairman of the Board of Directors, Executive Chairman and Interim Chief
Executive Officer from March 2009 to October 2009. He has been an Operating
Partner with Summer Street Capital Partners since 2004 and a Founding Partner of
Conundrum Capital Partners since 2000. From 1995 to 1999, he served as the
Senior Vice President Operations for Quest Diagnostics, Incorporated. During
this period Quest Diagnostics grew to approximately $1.5 billion in annual
revenue through both organic growth and mergers and acquisitions. From 1982 to
1995, Mr. VanOort served in various positions at Corning Incorporated and
ultimately held the position of Executive Vice President and CFO of Corning Life
Sciences, Inc. In 1995, Corning spun off Corning Life Sciences, Inc. into two
companies, Quest Diagnostics and Covance, Inc. Mr. VanOort serves as a member of
the Board of Directors of Palladian Health, International Climbing Machines,
Inc. and Bio HiTech, Inc. In addition, since 2000, Mr. VanOort has served as the
Chairman, Co-Founder and Co-Owner of Vision Ace Hardware, LLC, a retail hardware
chain. Mr. VanOort is a graduate of Bentley College.





Robert P. Gasparini, M.S. –
President and Chief Science Officer, Board Member





Mr.
Gasparini has served as the President and Chief Science Officer of NeoGenomics
since January 2005. Prior to assuming the role of President and Chief Science
Officer, Mr. Gasparini was a consultant to the Company beginning in May 2004.
Prior to NeoGenomics, Mr. Gasparini was the Director of the Genetics Division
for US Pathology Labs, Inc. (“US Labs”) from January 2001 to December 2004.
During this period, Mr. Gasparini started the Genetics Division for US Labs and
grew annual revenues of this division to $30 million over a 30 month period.
Prior to US Labs, Mr. Gasparini was the Molecular Marketing Manager for Ventana
Medical Systems from 1999 to 2001. Prior to Ventana, Mr. Gasparini was the
Assistant Director of the Cytogenetics Laboratory for the Prenatal Diagnostic
Center from 1993 to 1998 an affiliate of Massachusetts General Hospital and part
of Harvard University. While at the Prenatal Diagnostic Center, Mr. Gasparini
was also an Adjunct Professor at Harvard University. Mr. Gasparini is a licensed
Clinical Laboratory Director and an accomplished author in the field of
Cytogenetics. He received his BS degree from The University of Connecticut in
Biological Sciences and his Master of Health Science degree from Quinnipiac
University in Laboratory Administration.





Steven C. Jones – Executive
Vice President Finance, Board Member





Mr. Jones
has served as a director since October 2003 and as Executive Vice President of
Finance since November 30, 2009. Mr. Jones served as Chief Financial Officer for
the Company prior to November 30, 2009. He is a Managing Director in Medical
Venture Partners, LLC, a venture capital firm established in 2003 for the
purpose of making investments in the healthcare industry. Mr. Jones is also the
co-founder and Chairman of the Aspen Capital Group and has been President and
Managing Director of Aspen Capital Advisors since January 2001. Prior to that
Mr. Jones was a chief financial officer at various public and private companies
and was a Vice President in the Investment Banking Group at Merrill Lynch &
Co. Mr. Jones received his B.S. degree in Computer Engineering from the
University of Michigan in 1985 and his MBA degree from the Wharton School of the
University of Pennsylvania in 1991. He is also Chairman of the Board T3
Communications, Inc. and serves on the Board of Directors of Disc Motion
Technologies, Inc.





Michael T. Dent M.D.– Board
Member





Dr. Dent
is our founder and a director. Dr. Dent was our President and Chief Executive
Officer from June 2001, when he founded NeoGenomics, to April 2004. From April
2004 until April 2005, Dr. Dent served as our President and Chief Medical
Officer. Dr. Dent founded the Naples Women's Center in 1996 and continues his
practice to this day. He received his training in Obstetrics and Gynecology at
the University of Texas in Galveston. He received his M.D. degree from the
University of South Carolina in Charleston, S.C. in 1992 and a B.S. degree from
Davidson College in Davidson, N.C. in 1986. He is a member of the American
Association of Cancer Researchers and a Diplomat and fellow of the American
College of Obstetricians and Gynecologists. He sits on the Board of the Florida
Life science Biotech Initiative.


76


George G. O’Leary – Board
Member





Mr.
O’Leary is a director of NeoGenomics and is currently running his own consulting
firm, SKS Consulting of South Florida Corp. where he consults for NeoGenomics as
well as several other companies. Mr. O’Leary is also a board member of NeoMedia
Technologies, Inc, and is Chairman of the Board of Director’s for Isonics
Corporation. He is also acting CFO for Isonics Corportion. Prior to that he was
President of US Medical Consultants, LLC. Prior to assuming his duties with US
Medical, he was a consultant to the company and acting Chief Operating Officer.
Prior to NeoGenomics, Mr. O’Leary was the President and CFO of Jet Partners, LLC
from 2002 to 2004. During that time he grew annual revenues from $12 million to
$17.5 million. Prior to Jet Partners, Mr. O’Leary was CEO and President of
Communication Resources Incorporated (CRI) from 1996 to 2000. During that time
he grew annual revenues from $5 million to $40 million. Prior to CRI, Mr.
O’Leary held various positions including VP of Operations for Cablevision
Industries from 1987 to 1996. Mr. O’Leary was a CPA with Peat Marwick Mitchell
from 1984 to 1987. He received his BBA in Accounting from Siena College in
Albany, New York.





Peter M. Peterson – Board
Member





Mr.
Peterson is a director of NeoGenomics and is the founder of Aspen Capital
Partners, LLC which specializes in capital formation, mergers &
acquisitions, divestitures, and new business start-ups. Prior to forming Aspen
Capital Partners, Mr. Peterson was Managing Director of Investment Banking with
H. C. Wainwright & Co. Prior to Wainwright, Mr. Peterson was president of
First American Holdings and Managing Director of Investment Banking. Prior to
First American, he served in various investment banking roles and was the
co-founder of ARM Financial Corporation. Mr. Peterson was one of the key
individuals responsible for taking ARM Financial public on the OTC market and
the American Stock Exchange. Under Mr. Peterson’s financial leadership, ARM
Financial Corporation was transformed from a diversified holding company into a
national clinical laboratory company with 14 clinical laboratories and ancillary
services with over $100 million in assets. He has also served as an officer or
director for a variety of other companies, both public and private. Mr. Peterson
earned a Bachelor of Science degree in Business Administration from the
University of Florida.





Marvin E. Jaffe, MD– Board
Member





Dr. Jaffe, who is retired, spent his
entire working career in the pharmaceutical industry and has been responsible
for the pre-clinical and clinical development of new drugs and biologics in
nearly every therapeutic area. He began his career at Merck & Co and spent
18 years with Merck, rising to the position of Senior Vice-President of Medical
Affairs. After leaving Merck, Dr. Jaffe became the founding President of the
R.W. Johnson Pharmaceutical Research Institute (PRI), a Johnson & Johnson
Company. PRI was established for the purpose of providing globally integrated
research and development support to several companies within the J&J
pharmaceutical sector. Dr. Jaffe retired from Johnson & Johnson in 1994 and
currently serves as a consultant and board member to the biopharmaceutical and
biotechnology industries. He was on the Board of Immunomedics, Inc., and on the
Boards of Genetic Therapy, Inc., Vernalis Group, plc., Celltech Group, plc. and
Matrix Pharmaceuticals which were acquired by other companies. He is on the
Scientific Advisory Boards of the Seaver Foundation and the Jefferson Medical
College Hospital for Neuroscience. He is a partner of Naimark Associates which
consults to the biopharmaceutical industry.





William J. Robison – Board
Member





Mr. Robison, who is retired, spent his
entire 41 year career with Pfizer, Inc. At Pfizer, he rose through the ranks of
the sales organization and became Senior Vice President of Pfizer Labs in 1986.
In 1990, he became General Manager of Pratt Pharmaceuticals, a then new division
of the U.S. Pharmaceuticals Group, and in 1992 he became the President of the
Consumer Health Care Group. In 1996 he became a member of Pfizer’s Corporate
Management Committee and was promoted to the position of Executive Vice
President and head of Worldwide Corporate Employee Resources. Mr. Robison
retired from Pfizer in 2001 and currently serves as a consultant and board
member to various companies. Mr. Robison is a board member and an executive
committee member of the USO of Metropolitan New York, Inc. He is also on the
board of directors of the Northeast Louisiana University foundation, a member of
the Human Resources Roundtable Group, the Pharmaceutical Human Resource Council,
the Personnel Round Table, and on the Employee Relations Steering Committee for
The Business Round Table.


77


George Cardoza – Chief
Financial Officer





Mr. Cardoza has served as Chief
Financial Officer since November 2009.  Prior to that from March 2008
to November 2009, Mr. Cardoza served as the Chief Financial Officer of Protocol
Global Solutions, Inc., a privately held international marketing company. Mr.
Cardoza also served as the Controller of Protocol Global Solutions from March
2006 to March 2008. From April 1991 to March 2006, Mr. Cardoza was employed by
Quest Diagnostics Inc., a diagnostic testing, information and services company,
in a number of positions, including the position of Controller—Central Region
from 2001 to March 2006.  At Quest Mr. Cardoza was responsible for
overseeing all the financial operations of the Central Region, which had sales
of over $1.2 billion in 2006.  Prior to his time with Quest, he worked
for Sony Music Entertainment Inc. and the Continental Grain Company in various
financial roles.  Mr. Cardoza received his B.S. from Syracuse
University in finance and accounting and has received his M.B.A. from Michigan
State University.





Jack G. Spitz– Vice President
of Laboratory Operations





Mr. Spitz has served as Vice President
of Laboratory Operations since December 2009.  Prior to that Mr. Spitz
most recently served as Executive Director of Operations for Dermpath
Diagnostics, a division of Quest Diagnostics, and formerly a division of
Ameripath, Inc., where he was responsible for running operations of five (5)
dermatopathology laboratories across the Southeast United States. Prior to
joining Ameripath in 2006, Mr. Spitz was employed by Genova Diagnostics, an
international esoteric clinical laboratory, as Director of Laboratory Operations
from 2000 to 2006. While at Genova Diagnostics, in addition to operational
responsibilities, Mr. Spitz was also involved in many R&D projects,
including ground up development of a genetic testing laboratory and he was
responsible for the transition of tests from R&D to operations. Mr. Spitz
received a B.A. degree in Pharmacy from the Medical University of South Carolina
and a B.A. degree in Microbiology from the University of South
Florida.





Grant Carlson– Vice President
of Sales and Marketing





Mr. Carlson has served as Vice
President of Sales and Marketing since July 2009.  Mr. Carlson had
previously served as a consultant to the Company since December
2008.  Prior to that Mr. Carlson served as the President and Chief
Executive Officer of Calgenex Corporation, a nutraceutical company which he
co-founded, from March 2006 to June 2008.  From April 2004 to February
2006, Mr. Carlson served as President and Chief Operating Officer of Nanobac
Pharmaceuticals Incorporated, a pharmaceutical and diagnostic
company.  Mr. Carlson served as Vice President, Marketing and Business
Development of Agilix Corporation, a functional genomics company, from April
2001 to April 2004.  From January 1989 to April 2001, Mr. Carlson was
employed by Dianon Systems, Inc., an anatomic pathology laboratory, lastly in
the position of Vice President, Marketing & Business
Development.  Mr. Carlson received a B.S. degree in Kinesiology from
the University of California, Los Angeles.





Mathew William Moore, Ph.D.–
Vice President of Research and Development





Mr. Moore has served as Vice President
of Research and Development since July 2006. Prior to that he served as Vice
President of Research and Development for Combimatrix Molecular Diagnostics, a
subsidiary of Combimatrix Corporation, a biotechnology company, developing novel
microarray, Q-PCR and Comparative Genomic Hybridization based diagnostics. Prior
to Combimatrix Molecular Diagnostics, he served as a senior scientist with US
Labs, a division of Laboratory Corporation of America (LabCorp) where he was
responsible for the initial implementation of the Molecular in SituHybridization and
Molecular Genetics programs. Mr. Moore received his Bachelors of Science degree
in Biotechnology, where he graduated with honors and his doctoral degree from
the University of New South Wales, Australia.


78


Jerome J. Dvonch– Director of
Finance, Principal Accounting Officer





Mr. Dvonch has served as Director of
Finance since August 2005 and as Principal Accounting Officer since August
2006.  From June 2004 through July 2005, Mr. Dvonch was Associate
Director of Financial Planning and Analysis with Protein Design Labs, a
bio-pharmaceutical company.  From September 2000 through June 2004,
Mr. Dvonch held positions of increasing responsibility including Associate
Director of Financial Analysis and Reporting with Exelixis, Inc., a
biotechnology company.   He also was Manager of Business Analysis
for Pharmchem Laboratories, a drug testing laboratory.  Mr. Dvonch is
a Certified Public Accountant and received his M.B.A. from the Simon School of
Business at the University of Rochester.  He received his B.B.A. in
accounting from Niagara University.





Nomination
Criteria





Members of our board of director were
nominated to serve as directors based on reasons that included among others,
their experience in health related businesses or their business acumen as
described above in their biographies.





Audit
Committee Expert





Mr.
O’Leary is the chair of the audit committee and is the audit committee financial
expert, as defined by Item 407 of Regulation S-K of the Securities Act of 1933,
as amended.  For Audit Committee Mr. O’Leary is not considered to be
“independent” pursuant to NASDAQ Listing Rule 5605.





Code
of Ethics





The
Company adopted a Code of Ethics for its senior financial officers and its
principal executive officer during 2004 as filed as an exhibit to our Annual
Report on Form 10-KSB dated April 16, 2005.  A copy of the Code of
Ethics may be obtained, free of charge, by writing to the Secretary of
NeoGenomics, Inc., 12701 Commonwealth Drive, Suite 9, Fort Myers, Florida
33913.





ITEM
      11.
            EXECUTIVE
      COMPENSATION





Summary
Compensation Table





The
following Summary Compensation Table sets forth all compensation earned and
accrued, in all capacities, during the fiscal years ended December 31, 2009 and
2008, by our Named Executive Officers.





Name and
                  Principal Position
              
              Year
              
              Salary
              
              
              Bonus
              
              
              Stock
                  Award
              
              
              Option
                  Award(1)
              
              
              Non-
                  Equity
                  Incentive
                  Plan
                  Compensation
              
              
              Non-
                  qualified
                  Deferred
                  Compensation
                  Earnings
              
              
              All Other
                  Compensation
              
              
              TotalDouglas
      VanOort (3)
              
              2009
              
              $
              218,846
              
              
              $
              37,500
              
              
              $
              -
              
              
              $
              203,479
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              459,825Chief
      Executive Officer and Chairman of the BoardRobert
      P. Gasparini
              
              2009
              
              $
              249,968
              
              
              $
              20,000
              
              
              $
              -
              
              
              $
              72,372
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              342,340President
      and Chief
              
              2008
              
              $
              235,872
              
              
              $
              35,000
              
              
              $
              -
              
              
              $
              89,985
              
              
              $
              -
              
              
              $
              -
              
              
              
              
              
              
              $
              360,857Science
      OfficerGrant
      Carlson(2)
              
              2009
              
              $
              97,569
              
              
              $
              12,000
              
              
              $
              -
              
              
              $
              23,570
              
              
              $
              -
              
              
              $
              -
              
              
              $
              110,802
              
              
              $
              243,941V.P.
      of Sales and
              
              2008
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              17,517
              
              
              $
              17,517Marketing




(1)
            See
      Item 8, Note F for a description on the valuation methodology of stock
      option awards and warrants.  Mr. VanOort was granted warrants to
      purchase 625,000 shares of common stock and the stock compensation expense
      related to these warrants has been included in option
    awards.




79




(2)
            Mr.
      Carlson acted as a consultant to the Company from December 2008 until his
      hire date in July 2010 and received $105,102 for those services and he
      also received a $4,200 car allowance and a $1,500 cell phone
      allowance.




(3)
            Mr.
      VanOort began in March 2009 as Executive Chairman and Interim Chief
      Executive Officer and began as full time Chief Executive Officer in
      October 2009.




Outstanding
Equity Awards at Fiscal Year End




The
following table sets forth information with respect to outstanding equity awards
held by our named executive officers as of December 31, 2009.




Option AwardsName and
                                          Principal Position
                                      
                                      Number of
                                          Securities
                                          Underlying
                                          Unexercised
                                          Options
                                          Exercisable
                                      
                                      
                                      Number of
                                          Securities
                                          Underlying
                                          Unexercised
                                          Options Un-
                                          exercisable
                                      
                                      
                                      Equity Incentive
                                          Plan Awards-
                                          Number of
                                          Securities
                                          Underlying
                                          Unexercised &
                                          Unearned
                                          Options
                                      
                                      
                                      Option
                                          Exercise
                                          Price
                                      
                                      Option
                                          Expiration
                                          DateDoug
      VanOort
                                      
                                      
                                      200,000
                                      
                                      
                                      
                                      800,000
                                      (1)
                                      
                                      
                                      -
                                      
                                      
                                      $
                                      0.80
                                      
                                      3/15/2016Chief
      Executive Officer and Chairman of the Board of DirectorsRobert  P.
      Gasparini
                                      
                                      
                                      575,000
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      175,000
                                      
                                      
                                      
                                      0.25
                                      
                                      1/1/2015President
      and Chief
                                      
                                      
                                      100,000
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      150,000
                                      
                                      
                                      
                                      1.47
                                      
                                      2/13/2017Science
      Officer
                                      
                                      
                                      292,000
                                      
                                      
                                      
                                      292,000
                                      (2)(3)
                                      
                                      
                                      200,000
                                      
                                      
                                      
                                      0.80
                                      
                                      3/12/201550,000
                                      
                                      
                                      
                                      100,000
                                      (3)
                                      
                                      
                                      50,000
                                      
                                      
                                      
                                      0.62
                                      
                                      2/9/2019Grant
      Carlson
                                      
                                      
                                      18,750
                                      
                                      
                                      
                                      131,250
                                      (1)
                                      
                                      
                                      -
                                      
                                      
                                      
                                      1.32
                                      
                                      7/22/2014V.P.
      of Sales andMarketing




(1)
            Please
      see Note G of the consolidated financial statements for a vesting
      detail.




(2)
            288,000
      of the options are time-based and vest monthly from January 2009 through
      December 2011; the remaining 300,000 options have annual performance
      measures that are tied to each of the next three
  years




(3)
            Relates
      to a cancelation of certain performance options which resulted in a new
      option grant of performance
options.




Director
Compensation





Each of
our non-employee directors is entitled to receive cash
compensation.  As of December 31, 2009 the reimbursement was as
follows:





·
            $1,000
      for each board meeting physically
attended


·
            $500
      for each board meeting attended via conference
  call


·
            $5,000
      for each calendar quarter served as
director


·
            $150
      per hour for all hours worked as part of any
  committee


80





We also
reimburse our directors for out of pocket expenses incurred in connection with
attendance at board and committee meetings.  The following table
provides information concerning the compensation of our directors for the year
ended December 31, 2009.





Name
                  
                  Fees
                      Earned
                      orPaid in
                      Cash
                  
                  
                  Stock
                      Awards
                  
                  
                  Warrant/
                      Option
                      Awards(1)
                  
                  
                  Non-Equity
                      Incentive Plan
                      Compensation
                  
                  
                  Nonqualified
                      Deferred
                      Compensation
                      Earnings
                  
                  
                  All Other
                      Compensation
                  
                  
                  TotalMichael
      T. Dent (2)
                  
                  $
                  27,800
                  
                  
                  $
                  -
                  
                  
                  $
                  17,000
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  44,800Steven
      Jones (2)
                  
                  
                  26,600
                  
                  
                  
                  -
                  
                  
                  
                  17,000
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  199,600
                  
                  
                  
                  243,200George
      O'Leary (2)
                  
                  
                  30,350
                  
                  
                  
                  -
                  
                  
                  
                  17,000
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  60,200
                  
                  
                  
                  107,550Peter
      Peterson (2)
                  
                  
                  26,800
                  
                  
                  
                  -
                  
                  
                  
                  17,000
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  43,800William
      Robison (3)
                  
                  
                  31,918
                  
                  
                  
                  -
                  
                  
                  
                  17,000
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  48,918Marvin
      Jaffe (3)
                  
                  
                  26,100
                  
                  
                  
                  -
                  
                  
                  
                  17,000
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  43,100





(1)
            On
      June 6, 2007, upon the conclusion of the private placement and sale of
      2.67 million shares of our stock at $1.50/share to disinterested third
      parties, the board approved certain warrant compensation for each director
      as an additional incentive to the nominal per meeting fees in
      place.  From the inception of the Company up until this time, no
      stock-based compensation had ever been awarded to
      directors.  All warrants issued to directors had a strike price
      equal to the private placement price per share ($1.50/share), a five year
      term and a three year vesting period.  For those directors who
      had been a director for at least two years as of the date of the award,
      25% of the warrants issued were deemed to have vested upon
      issue.  All of the remaining warrants were deemed to vest
      ratably over a 36 month period.  All of the warrants issued were
      valued using the Black Scholes option/warrant valuation model with the
      following assumptions:  expected volatility – 35%, expected life
      – 4 years, risk-free rate – 4.5%, and dividend yield – 0%.  The
      Company is expensing the value of these warrants over the vesting period
      pursuant to the methodology outlined in SFAS 123(R).  Pursuant
      to Regulation SB, Item 402, Paragraph (f)(2)(iii), amounts indicated are
      the amounts expensed for such warrants under SFAS 123 (R) for the year
      ended December 31, 2008.





(2)
            Awarded
      on June 6, 2007 a warrant to purchase 100,000 shares of common stock as
      board member compensation.  Such warrants were valued at $51,000
      using the Black-Scholes option/warrant valuation
  model.





(3)
            Awarded
      on June 6, 2007 a warrant to purchase 75,000 shares of common stock as
      board member compensation on June 6, 2007.  Such warrants were
      valued at $38,000 using the Black-Scholes option/warrant valuation
      model.





(4)
            Other
      compensation for Mr. Jones reflects his consulting compensation for
      serving as our Executive Vice President of Finance and Acting Principal
      Financial Officer.





(5)
            In
      addition to Mr. O’Leary’s Board compensation warrants, Mr. O’Leary was
      also awarded 100,000 warrants on March 15, 2007 in connection with certain
      consulting services performed on behalf of the Company.  Such
      warrants have a strike price of $1.49/share and a five year
      term.  Half of such warrants were deemed vested up front and the
      remaining half vest ratably over a 24 month period.  Such
      warrants had a value of $36,000 using the Black Scholes option/warrant
      valuation model.


81


Employment
Agreements





Please see NoteG
of the financial statements for disclosures with respect to the employment
agreements and offer letters, if applicable, to which certain of the named
executive officers described in the above Summary Compensation Table are
subject.


82


ITEM
      12.
            SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS





The
following table sets forth information as of March 24, 2010, with respect to
each person known by the Company to own beneficially more than 5% of the
Company’s outstanding common stock, each director and officer of the Company and
all directors and executive officers of the Company as a group.  The
Company has no other class of equity securities outstanding other than common
stock.


83





Title of
                                                                              Class
                                                                            
                                                                            Name And Address Of Beneficial Owner
                                                                            
                                                                            Amount and Nature
                                                                              Of Beneficial
                                                                              Ownership (1)
                                                                            
                                                                            
                                                                            Percent Of Class(1)Common
                                                                            
                                                                            Aspen
      Select Healthcare, LP (2)
                                                                              1740
      Persimmon Drive, Suite 100
                                                                              Naples,
      Florida 34109
                                                                            
                                                                            
                                                                            11,666,155
                                                                            
                                                                            
                                                                            
                                                                            28.9
                                                                            %Common
                                                                            
                                                                            Steven
      C. Jones (3)
                                                                              c/o
      NeoGenomics, Inc.
                                                                              12701
      Commonwealth Blvd, Suite 5
                                                                              Fort
      Myers, FL  33193
                                                                            
                                                                            
                                                                            12,779,679
                                                                            
                                                                            
                                                                            
                                                                            31.4
                                                                            %Common
                                                                            
                                                                            Michael
      T. Dent, M.D. (4)
                                                                              c/o
      NeoGenomics, Inc.
                                                                              12701
      Commonwealth Blvd, Suite 5
                                                                              Fort
      Myers, FL  33193
                                                                            
                                                                            
                                                                            2,487,079
                                                                            
                                                                            
                                                                            
                                                                            6.6
                                                                            %Common
                                                                            
                                                                            Douglas
      M. VanOort (5)
                                                                              c/o
      NeoGenomics, Inc.
                                                                              12701
      Commonwealth Blvd, Suite 5
                                                                              Fort
      Myers, FL 33193
                                                                            
                                                                            
                                                                            1,186,500
                                                                            
                                                                            
                                                                            
                                                                            3.1
                                                                            %Common
                                                                            
                                                                            Robert
      P. Gasparini (6)
                                                                              c/o
      NeoGenomics, Inc.
                                                                              12701
      Commonwealth Blvd, Suite 5
                                                                              Fort
      Myers, FL  33193
                                                                            
                                                                            
                                                                            1,178,275
                                                                            
                                                                            
                                                                            
                                                                            3.1
                                                                            %Common
                                                                            
                                                                            George
      O’Leary (7)
                                                                              c/o
      NeoGenomics, Inc.
                                                                              12701
      Commonwealth Blvd, Suite 5
                                                                              Fort
      Myers, FL  33193
                                                                            
                                                                            
                                                                            197,917
                                                                            
                                                                            
                                                                            
                                                                            *Common
                                                                            
                                                                            Peter
      M. Peterson (8)
                                                                              c/o
      NeoGenomics, Inc.
                                                                              12701
      Commonwealth Blvd, Suite 5
                                                                              Fort
      Myers, FL  33193
                                                                            
                                                                            
                                                                            12,001,817
                                                                            
                                                                            
                                                                            
                                                                            29.7
                                                                            %Common
                                                                            
                                                                            William
      J. Robison (9)
                                                                              c/o
      NeoGenomics, Inc.
                                                                              12701
      Commonwealth Blvd, Suite 5
                                                                              Fort
      Myers, FL  33193
                                                                            
                                                                            
                                                                            142,630
                                                                            
                                                                            
                                                                            
                                                                            *Common
                                                                            
                                                                            Marvin
      E. Jaffe, M.D. (10)
                                                                              c/o
      NeoGenomics, Inc.
                                                                              12701
      Commonwealth Blvd, Suite 5
                                                                              Fort
      Myers, FL  33193
                                                                            
                                                                            
                                                                            94,346
                                                                            
                                                                            
                                                                            
                                                                            *Common
                                                                            
                                                                            George
      Cardoza (11)
                                                                              c/o
      NeoGenomics, Inc.
                                                                              12701
      Commonwealth Blvd, Suite 5
                                                                              Fort
      Myers, FL  33193
                                                                            
                                                                            
                                                                            9,000
                                                                            
                                                                            
                                                                            
                                                                            *Common
                                                                            
                                                                            Grant  Carlson
      (12)
                                                                              c/o
      NeoGenomics, Inc.
                                                                              12701
      Commonwealth Blvd, Suite 5
                                                                              Fort
      Myers, FL  33193
                                                                            
                                                                            
                                                                            24,850
                                                                            
                                                                            
                                                                            
                                                                            *Common
                                                                            
                                                                            Matthew
      W. Moore (13)
                                                                              c/o
      NeoGenomics, Inc.
                                                                              12701
      Commonwealth Blvd, Suite 5
                                                                              Fort
      Myers, FL  33193
                                                                            
                                                                            
                                                                            76,875
                                                                            
                                                                            
                                                                            
                                                                            *


84





Common
                                                  
                                                  Jack
      G. Spitz
                                                    c/o
      NeoGenomics, Inc.
                                                    12701
      Commonwealth Blvd, Suite 5
                                                    Fort
      Myers, FL  33193
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  *Common
                                                  
                                                  Jerome
      J. Dvonch (14)
                                                    c/o
      NeoGenomics, Inc.
                                                    12701
      Commonwealth Blvd, Suite 5
                                                    Fort
      Myers, FL  33193
                                                  
                                                  
                                                  162,167
                                                  
                                                  
                                                  
                                                  -Common
                                                  
                                                  Directors
      and Officers as a Group (11 persons) (15)
                                                  
                                                  
                                                  18,587,233
                                                  
                                                  
                                                  
                                                  42.6
                                                  %Common
                                                  
                                                  SKL
      Family Limited Partnership (16)
                                                    984
      Oyster Court
                                                    Sanibel,
      FL 33957
                                                  
                                                  
                                                  2,900,000
                                                  
                                                  
                                                  
                                                  7.6
                                                  %Common
                                                  
                                                  1837
      Partners, LP., 1837 Partners, QP,LP., and 1837 Partner Ltd. (1837 RMB
      Managers, LLC) (17)
                                                    115
      South LaSalle St., 34th
      Floor
                                                    Chicago,
      IL 60603
                                                  
                                                  
                                                  3,481,175
                                                  
                                                  
                                                  
                                                  9.4
                                                  %Common
                                                  
                                                  Blair
      R. Haarlow (18)
                                                    c/o
      RMB Capital
                                                    115
      South LaSalle St., 34th
      Floor
                                                    Chicago,
      IL 60603
                                                  
                                                  
                                                  3,927,585
                                                  
                                                  
                                                  
                                                  10.6
                                                  %Common
                                                  
                                                  Francis
      Tuite (19)
                                                    c/o
      RMB Capital
                                                    115
      South LaSalle St., 34th Floor
                                                    Chicago,
      IL 60603
                                                  
                                                  
                                                  3,524,175
                                                  
                                                  
                                                  
                                                  9.5
                                                  %


*    
    Less than one percent (1%)





(1)
            The
      number and percentage of shares beneficially owned are determined in
      accordance with Rule 13d-3 of the Securities Exchange Act of 1934, as
      amended (the “Exchange Act”),
      and the information is not necessarily indicative of beneficial ownership
      for any other purpose.  Under such rule, beneficial ownership
      includes any shares over which the individual or entity has voting power
      or investment power and any shares of common stock that the individual has
      the right to acquire within 60 days of March 23, 2010, through the
      exercise of any stock option or other right.  As of March 23,
      2010, 37,211,092 shares of the Company’s common stock were
      outstanding.





(2)
            Aspen
      Select Healthcare, LP (Aspen) has direct ownership of 5,905,279 shares and
      has certain warrants to purchase 3,050,000 shares, all of which are
      exercisable within 60 days of March 23, 2010.  Also includes
      2,710,876 shares to which Aspen has received a voting
      proxy.  The general partner of Aspen is Medical Venture
      Partners, LLC, an entity controlled by Steven C. Jones and Peter M.
      Peterson.





(3)
            Steven
      C. Jones, Executive Vice President - Finance and director of the Company,
      has direct ownership of 391,164 shares and warrants exercisable within 60
      days of March 23, 2010 to purchase an additional 125,215
      shares.  Totals for Mr. Jones also include (i) 129,412 shares
      owned by Aspen Opportunity Fund, LP, an investment
      partnership  that Mr. Jones and Mr. Peterson control, (ii)
      107,143 shares owned by Jones Network, LP, a family limited partnership
      that Mr. Jones controls, (iii) warrants exercisable within 60 days of
      March 16, 2010 to purchase 250,000 shares, that are owned by Aspen Capital
      Advisors, LLC, a company that Mr. Jones controls, (iv) warrants
      exercisable within 60 days of March 23, 2010 to purchase 83,333 shares
      that are owned by Gulf Pointe Capital, LLC, a company that Mr. Jones and
      Mr. Peterson control, and (v) 27,257 shares held in certain individual
      retirement and custodial accounts.  In addition, as a managing
      member of the general partner of Aspen, he has the right to vote all
      shares controlled by Aspen, thus all Aspen shares and currently
      exercisable warrants have been added to his total (see Note
      2).




(4)
            Michael
      T. Dent, M.D. is a director of the Company.  Dr. Dent’s
      beneficial ownership includes 900,000 shares held in a trust for the
      benefit of Dr. Dent’s children (of which Dr. Dent and his attorney are the
      sole trustees), warrants exercisable within sixty days of March 23, 2010
      to purchase 170,909 shares and options exercisable within sixty days of
      March 23, 2010 to purchase 400,000 shares.  Dr. Dent’s
      beneficial ownership also includes 1,016,170 shares owned directly by Dr.
      Dent’s spouse.




85




(5)
            Douglas
      M. VanOort, the Chairman and CEO of the Company, has direct ownership of
      636,500 shares, warrants exercisable within 60 days of March 23, 2010 to
      purchase 125,000 shares of stock and options exercisable within sixty days
      of March 23, 2010 to purchase 425,000
shares.




(6)
            Robert
      P. Gasparini, President of the Company, has direct ownership of 145,275
      shares and options exercisable within 60 days of March 23, 2010 to
      purchase 1,033,000 shares.




(7)
            George
      O’Leary, a director of the Company, has direct ownership of warrants
      exercisable within 60 days of March 23, 2010 to purchase 197,917
      shares.




(8)
            Peter
      M. Peterson, a director of the Company, has direct ownership of warrants
      exercisable within 60 days of March 23, 2010 to purchase 97,917
      shares.  In addition, as a managing member of the general
      partner of Aspen, he has the right to vote all shares controlled by Aspen,
      thus all Aspen shares and currently exercisable warrants have been added
      to his total (see Note 2).  Mr. Peterson’s beneficial ownership
      also includes (i) warrants exercisable within 60 days of March 23, 2010 to
      purchase an additional 83,333 shares that are owned by Gulf Pointe
      Capital, LLC, a company that Mr. Jones and Mr. Peterson control, and (ii)
      129,412 shares owned by Aspen Opportunity Fund, LP, an investment
      partnership that Mr. Jones and Mr. Peterson
  control.




(9)
            William
      J. Robison, a director of the Company, has direct ownership of 69,713
      shares and warrants exercisable within 60 days of March 23, 2010 to
      purchase 72,917 shares.




(10)
            Marvin
      E. Jaffe, M.D., a director of the Company, has direct ownership of 21,429
      shares and warrants exercisable within 60 days of March 23, 2010 to
      purchase 72,917 shares.




(11)
            George
      Cardoza, Chief Financial Officer, has direct ownership of 9,000
      shares.




(12)
            Grant
      Carlson, Vice President of Sales and Marketing, has direct ownership of
      6,100 shares and options exercisable within 60 days of March 23, 2010 to
      purchase 18,750 shares.




(13)
            Matthew
      W. Moore, Vice President of Research and Development, has options
      exercisable within 60 days of March 23, 2010 to purchase 76,875
      shares.




(14)
            Jerome
      J. Dvonch, Principal Accounting Officer, has options exercisable within 60
      days of March 23, 2010 to purchase 162,167
  shares.




(15)
            The
      total number of shares listed does not double count the shares that may be
      beneficially attributable to more than one
  person.




(16)
            SKL
      Family Limited Partnership has direct ownership of 2,000,000 shares and
      warrants exercisable within 60 days of March 23, 2010 to purchase 900,000
      shares.   The general partners of the SKL Family Limited
      Partnership are the Kent Logan Irrevocable Trust u/t/d 2/6/2008 and the
      Lance Logan Irrevocable Trust u/t/d 2/6/2008, with Kent Logan and Lance
      Logan as co-trustees of each trust.




(17)
            1837
      RMB Managers, LLC and its affiliates have direct ownership of 3,481,175
      shares.  1837 RMB Managers, LLC acts as the general partner and
      makes all the investment decisions for 1837 Partners LP., 1837 Partners
      QP, LP and 1837 Partners LTD who own the shares
      listed.




(18)
            Blair
      R. Haarlow has direct ownership of 80,500 shares and controls certain
      trusts which own 365,910 shares.  In addition, as a managing
      member of 1837 RMB Managers, LLC, he has the right to vote all shares
      controlled by 1837 RMB Managers, thus all shares and currently exercisable
      warrants owned or controlled by 1837 RMB Managers, LLC have been added to
      his total (see Note
17).




(19)
            Frances
      E. Tuite has direct ownership of 43,000 shares.  In addition, as
      a managing member of 1837 RMB Managers, LLC, she has the right to vote all
      shares controlled by 1837 RMB Managers, thus all shares and currently
      exercisable warrants owned or controlled by 1837 RMB Managers, LLC have
      been added to her total (see Note
  17).




ITEM
      13.
            CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
      INDEPENDENCE





Consulting
Agreements





During
2009 and 2008, Steven C. Jones, a director of the Company and Executive Vice
President of Finance, earned $199,600 and $176,300, respectively, for various
consulting work performed in connection with his duties as Executive Vice
President of Finance and Acting Principal Financial Officer.





During
2009 and 2008, George O’Leary, a director of the Company, earned $60,200 and
$22,200, respectively, in cash for various consulting work performed for the
Company.  On January 18, 2006, Mr. O’Leary received 50,000 stock
options for work performed for the benefit of the Company.  The stock
options had an exercise price of $0.26 per/share. On March, 15, 2007, Mr.
O’Leary received 100,000 warrants for certain consulting services performed for
the Company.  These warrants had an exercise price of $1.49 per/share
and a five year term.  Half of the warrants were deemed vested on
issuance and the other half vested ratably over a 24 month
period.  During 2009, Mr. O’Leary exercised the 100,000 warrants and
the 50,000 stock options in a cash-less exercise per the terms of the
agreements.  The Company issued 85,030 and 42,215 shares to settle
these exercises.


86


On June
6, 2007, we issued to the six non-employee director’s of our board of directors
a total of 550,000 warrants.  Such warrants had an exercise price of
$1.50/share with three year vesting and a five year final term.  These
warrants were valued at approximately $280,000 on the date of issuance using the
Black-Scholes option pricing model and our being expensed over the vesting
period.  These warrants expire in June 2012.





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 April 2010. This agreement has an initial term of 5 years from
the date of acceptance and calls for monthly fees of $8,000-$12,000 during the
term. During the years ended December 31, 2009 and 2008, HCSS earned
approximately $87,675 and approximately $99,900, respectively, for transaction
fees related to completed tests.





During
2009, 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.





Gulf Pointe Capital Lease
Agreement





On
September 30, 2008, we entered into a master lease agreement (the “Master
Lease”) with Gulf Pointe Capital, LLC (“Gulf Pointe”) which provided for
$130,000 of lease financing after it was determined that the lease facility with
Leasing Technologies International, Inc. would not allow for the leasing of
certain used and other types of equipment. 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. The terms under this lease are consistent with the
terms of our other lease arrangements and provided for the sale/leaseback of
approximately $130,000 of used laboratory equipment. The lease 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. In consideration for entering into the Master Lease,
the Company issued 32,475 common stock warrants to Gulf Pointe with an exercise
price of $1.08 and a five year term. The warrants were valued at approximately
$11,000 using the Black-Scholes option pricing model. At the end of the lease
term, 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
February 9, 2009, we amended our Master Lease with GulfPointe to increase the
maximum size of the facility to $250,000 and entered into a second schedule
under the Master Lease for the sale/leaseback of approximately $118,000 of used
laboratory equipment. This second lease has a 30 month term at the same lease
rate factor per month as the first lease, which equates to monthly payments of
$4,690 during the term. 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 warrants have a five year
term, an exercise price of $0.75 per share and the same vesting schedule as the
original warrants. The replacement warrants
were valued using the Black-Scholes option pricing model and the value did not
materially differ from the valuation of the original warrants they replaced.


87


Share Purchase by the
Douglas M. VanOort Living Trust





On March 16, 2009, the Company and the
Douglas M. VanOort Living Trust entered into a Subscription Agreement (the
“Subscription
Agreement”) pursuant to which the Douglas M. VanOort Living Trust
purchased 625,000 shares of the Company’s common stock at a purchase price of
$0.80 per share (the “Subscription
Shares”).  Douglas M VanOort is Chairman of the Company Board
of Directors and Executive Chairman and interim Chief Executive Officer of the
Company.  The Subscription Shares are subject to a two year lock-up
that restricts the transfer of the Subscription Shares; provided, however, that
such lock-up shall expire in the event that the Company terminates Mr. VanOort’s
employment.  The Subscription Agreement also provides for certain
piggyback registration rights with respect to the Subscription
Shares.





On March
16, 2009, the Company and Mr. VanOort entered into a Warrant Agreement (the
“Warrant
Agreement”) pursuant to
which Mr. VanOort, subject to the vesting schedule described below, may purchase
up to 625,000 shares of the Company’s common stock at an exercise price of $1.05
per share (the “Warrant
Shares”).  These warrants had an aggregate fair value of
$160,267. The Warrant Shares vest based on the following vesting
schedule:





(i)
            20%
      of the Warrant Shares vest
immediately,


(ii)
            20%
      of the Warrant Shares will be deemed to be vested on the first day on
      which the closing price per share of the Company’s common stock has
      reached or exceeded $3.00 per share for 20 consecutive trading
      days,


(iii)
            20%
      of the Warrant Shares will be deemed to be vested on the first day on
      which the closing price per share of the Company’s common stock has
      reached or exceeded $4.00 per share for 20 consecutive trading
      days,


(iv)
            20%
      of the Warrant Shares will be deemed to be vested on the first day on
      which the closing price per share of the Company’s common stock has
      reached or exceeded $5.00 per share for 20 consecutive trading days
      and


(v)
            20%
      of the Warrant Shares will be deemed to be vested on the first day on
      which the closing price per share of the Company’s common stock has
      reached or exceeded $6.00 per share for 20 consecutive trading
      days.





In the
event of a change of control of the Company in which the consideration payable
to each common stockholder of the Company in connection with such change of
control has a deemed value of at least $4.00 per share, then the Warrant Shares
shall immediately vest in full.  In the event that Mr. VanOort resigns
his employment with the Company or the Company terminates Mr. VanOort’s
employment for “cause” at any time prior to the time when all Warrant
Shares have vested, then the rights under the Warrant Agreement with respect to
the unvested portion of the Warrant Shares as of the date of termination will
immediately terminate.





Independent
Directors




Mr.
O’Leary and Mr. Robinson are considered to be “independent” as that term is
defined by NASDAQ Listing Rule 5605.





The Audit
Committee is comprised of Mr. Petersen and Mr. O’Leary.  For Audit
Committee purposes, neither Mr. Petersen nor Mr. O’Leary are considered to be
“independent” pursuant to NASDAQ Listing Rule 5606.  Mr. O’Leary is
the chair of the audit committee and the audit committee expert.





The
Compensation Committee is comprised of Mr. Robison,Mr. Jones,
and Dr. Dent.  Mr. Jones and Dr. Dent are not considered “independent”
as that term is defined by NASDAQ Listing Rule 5605.Mr.
Robison is the chair of the compensation committee.


88


The
Compliance Committee is comprised of Mr. Jones and Dr. Jaffe.  Mr.
Jones and Dr. Jaffe are not considered “independent” as that term is defined by
NASDAQ Listing Rule 5605.  Mr. Jones is the chair of the compliance
committee.


89


ITEM
      14.
            PRINCIPAL
      ACCOUNTANT FEES AND SERVICES




Summarized below is the aggregate
amount of various professional fees billed by our principal accountants Kingery
and Crouse, P.A. with respect to our last two fiscal years:




2009
                  
                  
                  2008Audit
      fees
                  
                  $
                  102,000
                  
                  
                  $
                  76,000Audit-related
      fees
                  
                  
                  -
                  
                  
                  
                  -Tax
      fees
                  
                  
                  11,000
                  
                  
                  
                  6,000All
      other fees
                  
                  
                  10,000
                  
                  
                  
                  11,000





All audit fees are approved by our
Audit Committee and Board of Directors, and are limited to services provided on
the Company’s annual and quarterly reports filed with the Securities and
Exchange Commission (the “SEC”).  Tax fees are related to the
Company’s filing of federal and state income tax returns.  All other
fees consist primarily of services performed related to other SEC filings and
related correspondence.





The Audit
Committee's policy is to pre-approve all audit and non-audit services provided
by the independent registered public accounting firm, including the estimated
fees and other terms of any such engagement.


90


PART
IV





ITEM
      15.
            EXHIBITS,
      FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
  8-K




Financial Statements:See Index to Consolidated
Financial Statements under Part II, Item 8 of this Annual Report on Form
10-K




Exhibits:




Exhibit No.
                
                Description of Exhibit
                
                Location3.1
                
                Articles
      of Incorporation, as amended
                
                Incorporated
      by reference to the Company’s Registration Statement on Form SB-2 as filed
      with the SEC on February 10, 19993.2
                
                Amendment
      to Articles of Incorporation filed with the Nevada Secretary of State on
      January 3, 2002
                
                Incorporated
      by reference to the Company’s Annual Report on Form 10-KSB as filed with
      the SEC on May 20, 20033.3
                
                Amendment
      to Articles of Incorporation filed with the Nevada Secretary of State on
      April 11, 2003
                
                Incorporated
      by reference to the Company’s Annual Report on Form 10-KSB as filed with
      the SEC on May 20, 20033.4
                
                Amended
      and Restated Bylaws
                
                Incorporated
      by reference to the Company’s Quarterly Report on Form 10-Q as filed with
      the SEC on May 14, 20094.1
                
                Amended
      and Restated Equity Incentive Plan effective as of March 3,
      2009
                
                Incorporated
      by reference to the Company’s Current Report on Form 8-K as filed with the
      SEC on March 20, 200910.1
                
                Loan
      Agreement between NeoGenomics, Inc. and Aspen Select Healthcare, L.P.
      dated March 23, 2005
                
                Incorporated
      by reference to the Company’s Current Report on Form 8-K as filed with the
      SEC on March 30, 200510.2
                
                Amended
      and Restated Registration Rights Agreement between NeoGenomics, Inc. and
      Aspen Select Healthcare, L.P. and individuals dated March 23,
      2005
                
                Incorporated
      by reference to the Company’s Current Report on Form 8-K as filed with the
      SEC on March 30, 200510.3
                
                Guaranty
      of NeoGenomics, Inc., dated March 23, 2005
                
                Incorporated
      by reference to the Company’s Current Report on Form 8-K as filed with the
      SEC on March 30, 200510.4
                
                Stock
      Pledge Agreement between NeoGenomics, Inc. and Aspen Select Healthcare,
      L.P., dated March 23, 2005
                
                Incorporated
      by reference to the Company’s Current Report on Form 8-K as filed with the
      SEC on March 30, 200510.5
                
                Warrants
      issued to Aspen Select Healthcare, L.P., dated March 23,
    2005
                
                Incorporated
      by reference to the Company’s Current Report on Form 8-K as filed with the
      SEC on March 30, 2005




91





Exhibit No.
              
              Description of Exhibit
              
              Location10.6
              
              Security
      Agreement between NeoGenomics, Inc. and Aspen Select Healthcare, L.P.,
      dated March 23, 2005
              
              Incorporated
      by reference to the Company’s Current Report on Form 8-K as filed with the
      SEC on March 30, 200510.7
              
              Amended
      and Restated Shareholders’ Agreement dated March 23, 2005 among
      Neogenomics, Inc., a Nevada corporation, Michael Dent, Aspen Select
      Healthcare, LP, John Elliot, Steven Jones and Larry
Kuhnert
              
              Incorporated
      by reference to the Company’s Registration Statement on Form S-1 as filed
      with the SEC on November 28, 200810.8
              
              Standby
      Equity Distribution Agreement with Cornell Capital Partners, L.P. dated
      June 6, 2005
              
              Incorporated
      by reference to the Company’s Current Report on Form 8-K as filed with the
      SEC on June 8, 200510.9
              
              Registration
      Rights Agreement with Cornell Capital Partners, L.P. related to the
      Standby Equity Distribution dated June 6, 2005
              
              Incorporated
      by reference to the Company’s Current Report on Form 8-K as filed with the
      SEC on June 8, 200510.10
              
              Placement
      Agent Agreement with Spartan Securities Group, Ltd., related to the
      Standby Equity Distribution dated June 6, 2005
              
              Incorporated
      by reference to the Company’s Current Report on Form 8-K as filed with the
      SEC on June 8, 200510.11
              
              Amended
      and Restated Loan Agreement between NeoGenomics, Inc. and Aspen Select
      Healthcare, L.P., dated March 30, 2006
              
              Incorporated
      by reference to the Company’s Annual Report on Form 10-KSB as filed with
      the SEC on April 1, 200610.12
              
              Amended
      and Restated Warrant Agreement between NeoGenomics, Inc. and Aspen Select
      Healthcare, L.P., dated January 21, 2006
              
              Incorporated
      by reference to the Company’s Annual Report on Form 10-KSB as filed with
      the SEC on April 1, 200610.13
              
              Amended
      and Restated Security Agreement between NeoGenomics, Inc. and Aspen Select
      Healthcare, L.P., dated March 30, 2006
              
              Incorporated
      by reference to the Company’s Annual Report on Form 10-KSB as filed with
      the SEC on April 1, 200610.14
              
              Registration
      Rights Agreement between NeoGenomics, Inc. and Aspen Select Healthcare,
      L.P., dated March 30, 2006
              
              Incorporated
      by reference to the Company’s Annual Report on Form 10-KSB as filed with
      the SEC on April 1, 200610.15
              
              Warrant
      Agreement between NeoGenomics, Inc. and SKL Family Limited Partnership,
      L.P. issued January 23, 2006
              
              Incorporated
      by reference to the Company’s Annual Report on Form 10-KSB as filed with
      the SEC on April 1, 2006




92





Exhibit No.
              
              Description of Exhibit
              
              Location10.16
              
              Warrant
      Agreement between NeoGenomics, Inc. and Aspen Select Healthcare, L.P.
      issued March 14, 2006
              
              Incorporated
      by reference to the Company’s Annual Report on Form 10-KSB as filed with
      the SEC on April 1, 200610.17
              
              Warrant
      Agreement between NeoGenomics, Inc. and Aspen Select Healthcare, L.P.
      issued March 30, 2006
              
              Incorporated
      by reference to the Company’s Annual Report on Form 10-KSB as filed with
      the SEC on April 1, 200610.18
              
              Agreement
      with Power3 Medical Products, Inc. regarding the Formation of Joint
      Venture & Issuance of Convertible Debenture and Related
      Securities
              
              Incorporated
      by reference to the Company’s Annual Report on Form 10-KSB, as filed with
      the SEC on April 2, 200710.19
              
              Securities
      Purchase Agreement, dated April 17, 2007, by and between NeoGenomics, Inc.
      and Power3 Medical Products, Inc.
              
              Incorporated
      by reference to the Company’s Quarterly Report on Form 10-QSB, as filed
      with the SEC on May 15, 200710.20
              
              Convertible
      Debenture, dated April 17, 2007, issued by Power3 Medical Products, Inc.
      to NeoGenomics, Inc. in the principal amount of $200,000
              
              Incorporated
      by reference to the Company’s Quarterly Report on Form 10-QSB, as filed
      with the SEC on May 15, 200710.21
              
              Letter
      Agreement, by and between NeoGenomics, Inc. and Noble International
      Investments, Inc.
              
              Incorporated
      by reference to the Company’s Registration Statement on Form SB-2 as filed
      with the SEC on July 6, 200710.22
              
              Subscription
      Documents
              
              Incorporated
      by reference to the Company’s Registration Statement on Form SB-2 as filed
      with the SEC on July 6, 200710.23
              
              Investor
      Registration Right Agreement
              
              Incorporated
      by reference to the Company’s Registration Statement on Form SB-2 as filed
      with the SEC on July 6, 200710.24
              
              Credit
      Agreement, dated February 1, 2008, by and between NeoGenomics, Inc., the
      Nevada corporation, NeoGenomics, Inc., the Florida corporation, and
      CapitalSource Finance LLC
              
              Incorporated
      by reference to the Company’s Report on Form 8-K for the SEC filed
      February 7, 2008.10.25
              
              Employment
      Agreement, dated March 12, 2008, between Neogenomics, Inc. and Mr. Robert
      P. Gasparini
              
              Incorporated
      by reference to the Company’s Annual Report on Form 10-KSB as filed with
      the SEC on April 14, 200810.26
              
              Employment
      Agreement, dated June 24, 2008, between Neogenomics, Inc. and Mr. Jerome
      Dvonch
              
              Incorporated
      by reference to the Company’s Quarterly Report on Form 10-Q for the
      quarter ended June 30, 2008, filed August 14,
  2008




93





Exhibit No.
                
                Description of Exhibit
                
                Location10.27
                
                Common
      Stock Purchase Agreement, dated November 5, 2008, between Neogenomics,
      Inc., a Nevada corporation, and Fusion Capital Fund II,
LLC
                
                Incorporated
      by reference to the Company’s Quarterly Report on Form 10-Q for the
      quarter ended September 30, 2008, filed November 7,
200810.28
                
                Registration
      Rights Agreement, dated November 5, 2008, between Neogenomics, Inc., a
      Nevada corporation, and Fusion Capital Fund II, LLC
                
                Incorporated
      by reference to the Company’s Quarterly Report on Form 10-Q for the
      quarter ended September 30, 2008, filed November 7,
200810.29
                
                Master
      Lease Agreement, dated November 5, 2008, between Neogenomics, Inc., a
      Florida corporation, and Leasing Technologies International
      Inc.
                
                Incorporated
      by reference to the Company’s Quarterly Report on Form 10-Q for the
      quarter ended September 30, 2008, filed November 7,
200810.30
                
                Guaranty
      Agreement, dated November 5, 2008, between Neogenomics, Inc., a Nevada
      corporation, and Leasing Technologies International, Inc.
                
                Incorporated
      by reference to the Company’s Quarterly Report on Form 10-Q for the
      quarter ended September 30, 2008, filed November 7,
200810.31
                
                First
      Amendment to Revolving Credit and Security Agreement, dated November 3,
      2008, among Neogenomics, Inc., a Florida corporation, Neogenomics, Inc., a
      Nevada corporation, and CapitalSource Finance LLC
                
                Incorporated
      by reference to the Company’s Quarterly Report on Form 10-Q for the
      quarter ended September 30, 2008, filed November 7,
200810.32
                
                Employment
      Agreement, dated March 16, 2009 between Mr. Douglas M. VanOort and
      NeoGenomics, Inc.
                
                Incorporated
      by reference to the Company’s Current Report on Form 8-K as filed with the
      SEC on March 20, 200910.33
                
                Subscription
      Agreement dated March 16, 2009 between the Douglas M. VanOort Living Trust
      and NeoGenomics, Inc.
                
                Incorporated
      by reference to the Company’s Current Report on Form 8-K as filed with the
      SEC on March 20, 200910.34
                
                Warrant
      Agreement dated March 16, 2009 between Mr. Douglas M. VanOort and
      NeoGenomics, Inc.
                
                Incorporated
      by reference to the Company’s Current Report on Form 8-K as filed with the
      SEC on March 20, 200910.35
                
                Second  Amendment
      to Revolving Credit and Security Agreement, dated April  14,
      2009, among NeoGenomics Laboratories, Inc., NeoGenomics, Inc., and
      CapitalSource Finance LLC
                
                Incorporated  by
      reference to the Company’s Annual Report on Form 10-K filed with the SEC
      on April 14, 2009




94





Exhibit No.
                
                Description of Exhibit
                
                Location10.36
                
                Common
      Stock Purchase Agreement dated July 24, 2009 between NeoGenomics, Inc. and
      Abbott Laboratories
                
                Incorporated  by
      reference to the Company’s Current Report on Form 8-K as filed with the
      SEC on July 30, 200910.37
                
                Registration
      Rights Agreement dated July 24, 2009 between NeoGenomics, Inc. and Abbott
      Laboratories
                
                Incorporated  by
      reference to the Company’s Current Report on Form 8-K as filed with the
      SEC on July 30, 200910.38
                
                Employment
      Letter dated July 22, 2009 between NeoGenomics, Inc. and Grant
      Carlson
                
                Incorporated  by
      reference to the Company’s Current Report on Form 8-K as filed with the
      SEC on July 30, 200910.39
                
                Strategic
      Supply Agreement dated July 24, 2009, between NeoGenomics Laboratories,
      Inc. and Abbott Molecular Inc.
                
                Incorporated
      by reference to the Company’s Quarterly Report on Form 10-Q for the
      quarter ended June 30, 2009, filed August 7, 200910.40
                
                Amended
      and Restated Employment Agreement dated October 28, 2009 between
      NeoGenomics, Inc. and Douglas M. VanOort
                
                Incorporated  by
      reference to the Company’s Current Report on Form 8-K as filed with the
      SEC on November 3, 200910.41
                
                Employment
      Letter dated November 3, 2009 between NeoGenomics Laboratories, Inc. and
      George Cardoza
                
                Provided
      herewith.10.42
                
                Employment
      Letter dated November 3, 2009 between NeoGenomics Laboratories, Inc. and
      Jack G. Spitz
                
                Provided
      herewith.10.43
                
                Third
      Amendment to Revolving Credit and Security Agreement dated March 26, 2010
      between NeoGenomics Laboratories, Inc., NeoGenomics, Inc., and
      CapitalSource Finance LLC
                
                Provided
      herewith.14.1
                
                NeoGenomics,
      Inc. Code of Ethics for Senior Financial Officers and the Principal
      Executive Officer
                
                Incorporated
      by reference to the Company’s Current Report on Form 8-K as filed with the
      SEC on April 15, 200521.1
                
                Subsidiaries
      of Neogenomics, Inc.
                
                Incorporated  by
      reference to the Company’s Annual Report on Form 10-K filed with the SEC
      on April 14, 2009




95





Exhibit No.
                
                Description of Exhibit
                
                Location31.1
                
                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
      2002
                
                Provided
      herewith31.2
                
                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
      2002
                
                Provided
      herewith31.3
                
                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
      2002
                
                Provided
      herewith32.1
                
                Certification
      by Principal Executive Office, 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
                
                Provided
      herewith




96




SIGNATURES




Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.





Date:     
      March 29, 2010
                    NEOGENOMICS,
      INC.By:
                    /s/ Douglas VanOortName:
                    Douglas
      VanOortTitle:
                    Chief
      Executive Officer





Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.





Signatures
                
                Title(s)
                
                Date/s/ Douglas M. VanOort
                
                Chairman
      of the Board and Chief Executive Officer (Principal Executive
      Officer)
                
                March
      29, 2010Douglas
      M. VanOort/s/ Robert P.
      Gasparini
                
                President,
      Chief Science Officer and Director
                
                March
      29, 2010Robert
      P. Gasparini/s/Steven C.
      Jones
                
                EVP
      Finance and Director
                
                March
      29, 2010Steven
      C. Jones/s/ George Cardoza
                
                Chief
      Financial Officer (Principal Financial Officer)
                
                March
      29, 2010George
      Cardoza/s/Jerome J. Dvonch
                
                Director
      of Finance (Principal Accounting Officer)
                
                March
      29, 2010Jerome
      J. Dvonch/s/
      Michael T. Dent
                
                Director
                
                March
      29, 2010Michael
      T. Dent, M.D./s/
      George G. O’Leary
                
                Director
                
                March
      29, 2010George
      G. O’Leary/s/
      Peter M. Peterson
                
                Director
                
                March
      29, 2010Peter
      M. Peterson/s/
      William J. Robison
                
                Director
                
                March
      29, 2010William
      J. Robison/s/
      Marvin E. Jaffe
                
                Director
                
                March
      29, 2010Marvin
      E. Jaffe