UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

~~(Mark One)~~

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

For the quarterly period ended ~~September~~June 30, ~~2017~~

2021

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

For the transition period from to

Commission File Number: 001-35756

NEOGENOMICS, INC.

(Exact name of registrant as specified in its charter)

~~Nevada~~

~~74-2897368~~

Nevada

74-2897368

(State or other jurisdiction of

~~(I.R.S. Employer~~

incorporation or organization)

(I.R.S. Employer Identification No.)

12701 Commonwealth Drive,

Suite 9,

Fort Myers,

Florida

33913

(Address of principal executive offices)

(Zip Code)

(239) 768-0600

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common stock ($0.001 par value)

NEO

The Nasdaq Stock Market LLC

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 ☑SNo ☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes ☑S No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☑

☐

Non-accelerated filer

☐

~~(Do not check if a smaller reporting company)~~

Smaller Reporting Company

☐

Emerging Growth Company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

As of ~~November 7, 2017,~~August 5, 2021, the registrant had ~~80,409,557~~122,816,314 shares of Common Stock, par value $0.001 per share outstanding.

TABLE OF CONTENTS

FORWARD-LOOKING STATEMENTS

The information in this Quarterly Report on Form 10-Q contains “forward-looking statements” and information within the meaning of Section 27A of the Securities Act of 1933, as amended, ~~(the~~or the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended, ~~(the~~or the “Exchange Act”) relating to NeoGenomics, Inc., a Nevada corporation and its subsidiaries, NeoGenomics Laboratories, Inc., a Florida corporation (“NEO”, “NeoGenomics Laboratories”), NeoGenomics Bioinformatics Inc., a Florida corporation, and Clarient, Inc., a Delaware corporation and its wholly owned subsidiary, Clarient Diagnostic Services, Inc. (together “Clarient”) (collectively referred to as “we”, “us”, “our”, “NeoGenomics”, or the “Company”), which are subject to the “safe harbor” created by those sections. These forward-looking statements include, but are not limited to, statements concerning our strategy, future operations, future financial position, future revenues, changing reimbursement levels from government payers and private insurers, projected costs, prospects and plans and objectives of management. The words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,” “plans,” “projects,” “will,” “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. These forward-looking statements involve known and unknown risks and uncertainties that could cause our actual results, performance or achievements to differ materially from those expressed or implied by the forward-looking statements, including, without limitation, the risks set forth ~~under “Risk Factors” and~~ in Part I, Item 1A, “Risk Factors” ~~contained~~ in our Annual Report on Form 10-K as filed with the ~~SEC~~Securities and Exchange Commission (the “SEC”) on ~~March 14, 2017.~~

~~Forward looking~~February 25, 2021.

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

•Our ability to respond to rapid scientific change;

•The risk of liability in conducting clinical trials and providing research services and the sufficiency of our insurance to cover such claims;

•Our ability to implement our business strategy;

•The potential impact to our business operations, customer demand and supply chain due to the ongoing global COVID-19 coronavirus pandemic and its related variants;

•The expected reimbursement levels from governmental payers and private insurers and proposed changes to those levels;

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

•Regulatory developments in the United States including downward pressure on health care reimbursement;

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

•Food and Drug Administration, or FDA regulation of Laboratory Developed Tests (“LDTs”);

•Failure to timely or accurately bill for our services;

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

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

capabilities and overcome capacity constraints;

•Our ability to develop or acquire licenses for new or improved testing technologies;

•Our ability to meet our future capital requirements;

•Our ability to manage our indebtedness;

•Our ability to manage the quality of our investment portfolio;

•Our expectations regarding the conversion of our outstanding 1.25% Convertible Senior Notes due May 2025 (the “2025 Convertible Notes”) or our outstanding 0.25% Convertible Senior Notes due January 2028 (the “2028 Convertible Notes”) in the aggregate principal amount of $201.3 million and $345 million, respectively, and our ability to make debt service payments under the 2025 Convertible Notes or 2028 Convertible Notes if such notes are not converted;

•Our ability to protect our intellectual property from infringement;

•Our ability to integrate ~~future~~ acquisitions and costs related to such acquisitions;

•The ~~impact~~effects of ~~internalization of testing by customers;~~

seasonality on our business;

•Our ability to maintain service levels and compete with other diagnostic laboratories;

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

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

•Our handling, storage and disposal of biological and hazardous materials;

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

requirements;

•Our ability to manage expenses and risks associated with international operations, including anti-corruption and trade sanction laws and other regulations, and economic, political, legal and other operational risks associated with foreign jurisdictions;

•Our ability to have sufficient cash to pay our obligations under the 2025 Convertible Notes or the 2028 Convertible Notes; and

•The dilutive impact of the conversion of the 2025 Convertible Notes or the 2028 Convertible Notes.

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

PART I — ~~FINANCI~~ALFINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

NEOGENOMICS, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share ~~and per share amounts)~~

~~(unaudited)~~

data)


	June 30, 2021 (unaudited)		December 31, 2020
ASSETS
Current assets
Cash and cash equivalents	$	368,796	$	228,713

Marketable securities, at fair value	202,950		67,546
Accounts receivable, net	106,284		106,843
Inventories	21,384		29,526
Prepaid assets	13,959		11,547
Other current assets	8,422		4,555
Total current assets	721,795		448,730
Property and equipment (net of accumulated depreciation of $105,194 and $92,895, respectively)	112,208		85,873
Operating lease right-of-use assets	54,558		45,786

Intangible assets, net	471,038		120,653
Goodwill	499,977		211,083
Restricted cash	4,103		21,919
Investment in non-consolidated affiliate	0		29,555

Prepaid lease asset	24,958		20,229
Other assets	7,674		4,503
Total non-current assets	$	1,174,516	$	539,601
Total assets	$	1,896,311	$	988,331
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	23,056	$	24,965
Accrued compensation	38,719		24,727
Accrued expenses and other liabilities	25,304		11,654
Current portion of equipment financing obligations	1,913		2,841
Current portion of operating lease liabilities	5,642		4,967


Pharma contract liabilities	4,497		4,029
Total current liabilities	99,131		73,183
Long-term liabilities
Convertible senior notes, net	531,077		168,120
Equipment financing obligations	448		967
Operating lease liabilities	49,624		42,296


Deferred income tax liabilities, net	63,877		5,415
Other long-term liabilities	3,796		4,056
Total long-term liabilities	648,822		220,854
Total liabilities	747,953		294,037
Stockholders’ equity
Common stock, $0.001 par value, (250,000,000 shares authorized; 122,711,352 and 112,075,474 shares issued and outstanding, respectively)	123		112
Additional paid-in capital	1,101,298		701,357
Accumulated other comprehensive (loss) income	(333)		10
Retained earnings (accumulated deficit)	47,270		(7,185)
Total stockholders’ equity	1,148,358		694,294
Total liabilities and stockholders’ equity	$	1,896,311	$	988,331

ASSETS

September 30, 2017

December 31, 2016

Current assets

Cash and cash equivalents

$
12,211

$
12,525

Accounts receivable (net of allowance for doubtful accounts of $10,937 and
$13,699, respectively)

62,723

55,512

Inventories

6,088

6,253

Other current assets

4,725

4,535

Total current assets

85,747

78,825

Property and equipment (net of accumulated depreciation of $37,496 and
$27,102, respectively)

34,549

34,036

Intangible assets, net

76,330

77,064

Goodwill

147,019

147,019

Other assets

250

174

Total assets

$
343,895

$
337,118

LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY

Current liabilities

Accounts payable

$
14,823

$
16,782

Accrued compensation

11,805

8,351

Accrued expenses and other liabilities

5,000

4,247

Short-term portion of capital leases

4,687

4,891

Short-term portion of loans

3,799

3,842

Total current liabilities

40,114

38,113

Long-term liabilities

Long-term portion of capital leases

4,583

5,378

Long-term portion of loans, net

67,531

70,259

Revolving credit facility, net

24,461

21,799

Deferred income tax liability, net

7,548

14,973

Total long-term liabilities

104,123

112,409

Total liabilities

144,237

150,522

Commitments and contingencies - see Note I

Redeemable convertible preferred stock

Series A Redeemable Convertible Preferred Stock, $0.001 par value, (50,000,000 shares authorized; 6,600,000 shares issued and outstanding)

30,125

22,873

Stockholders' equity

Common stock, $0.001 par value, (250,000,000 shares authorized; 80,346,946 and 78,571,158 shares issued and outstanding, respectively)

80

79

Additional paid-in capital

229,006

216,104

Accumulated deficit

(59,553
)

(52,460
)
Total stockholders’ equity

169,533

163,723

Total liabilities, redeemable convertible preferred stock and stockholders' equity

$
343,895

$
337,118

See the accompanying notes to the unaudited ~~consolidated financial statements~~

Consolidated Financial Statements.

NEOGENOMICS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share ~~amounts)~~

data)

(unaudited)

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2017			2016			2017			2016				Three Months Ended June 30,				Six Months Ended June 30,
NET REVENUE
Clinical testing	$	56,186		$	55,739		$	172,668		$	166,674
														2021		2020		2021		2020
NET REVENUE:													NET REVENUE:
Clinical Services													Clinical Services	$	101,405	$	73,884	$	197,892	$	166,866
Pharma Services		6,866			5,022			18,150			16,919		Pharma Services	20,319		13,093		39,365		26,141
Total Revenue		63,052			60,761			190,818			183,593
Total revenue													Total revenue	121,724		86,977		237,257		193,007

COST OF REVENUE		34,242			33,416			103,634			100,471		COST OF REVENUE	68,734		58,971		142,693		118,632

GROSS PROFIT		28,810			27,345			87,184			83,122		GROSS PROFIT	52,990		28,006		94,564		74,375
Operating expenses:													Operating expenses:
General and administrative		23,267			19,025			66,743			55,810		General and administrative	54,638		34,613		95,114		70,957
Research and development		1,270			967			3,080			3,719		Research and development	3,495		2,105		5,951		4,165
Sales and marketing		6,577			5,958			18,466			18,084		Sales and marketing	17,224		10,195		30,973		23,453
Loss on sale of Path Logic		1,058			—			1,058			—
Total operating expenses		32,172			25,950			89,347			77,613		Total operating expenses	75,357		46,913		132,038		98,575
INCOME (LOSS) FROM OPERATIONS		(3,362	)		1,395			(2,163	)		5,509
LOSS FROM OPERATIONS													LOSS FROM OPERATIONS	(22,367)		(18,907)		(37,474)		(24,200)
Interest expense, net		1,398			1,468			4,173			4,509		Interest expense, net	902		1,548		2,079		2,367
Other income, net													Other income, net	(171)		(7,405)		(341)		(7,628)
Gain on investment in and loan receivable from non-consolidated affiliate, net													Gain on investment in and loan receivable from non-consolidated affiliate, net	(96,534)		0		(91,510)		0
Loss on extinguishment of debt													Loss on extinguishment of debt	0		1,400		0		1,400
Loss on termination of cash flow hedge													Loss on termination of cash flow hedge	0		3,506		0		3,506
Income (loss) before taxes		(4,760	)		(73	)		(6,336	)		1,000		Income (loss) before taxes	73,436		(17,956)		52,298		(23,845)
Income tax (benefit) expense		340			(6	)		(539	)		500
Income tax benefit													Income tax benefit	(2,437)		(11,132)		(1,461)		(10,043)
NET INCOME (LOSS)		(5,100	)		(67	)		(5,797	)		500		NET INCOME (LOSS)	$	75,873	$	(6,824)	$	53,759	$	(13,802)
Deemed dividends on preferred stock		912			1,840			2,734			5,520
Amortization of preferred stock beneficial conversion feature		1,739			3,727			5,122			11,180
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS	$	(7,751	)	$	(5,634	)	$	(13,653	)	$	(16,200	)

NET LOSS PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS
Adjustment to net income (loss) for convertible notes in diluted EPS (1)													Adjustment to net income (loss) for convertible notes in diluted EPS (1)
NET INCOME (LOSS)													NET INCOME (LOSS)	$	75,873	$	(6,824)	$	53,759	$	(13,802)
Convertible note accretion, amortization, and interest, net of tax													Convertible note accretion, amortization, and interest, net of tax	1,552		0		2,997		0
NET INCOME (LOSS) USED IN DILUTED EPS													NET INCOME (LOSS) USED IN DILUTED EPS	$	77,425	$	(6,824)	$	56,756	$	(13,802)

NET INCOME (LOSS) PER SHARE													NET INCOME (LOSS) PER SHARE
Basic	$	(0.10	)	$	(0.07	)	$	(0.17	)	$	(0.21	)	Basic	$	0.64	$	(0.06)	$	0.46	$	(0.13)
Diluted	$	(0.10	)	$	(0.07	)	$	(0.17	)	$	(0.21	)	Diluted	$	0.59	$	(0.06)	$	0.44	$	(0.13)

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING													WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic		79,617			78,145			79,208			77,224		Basic	118,287		107,887		117,249		106,209
Diluted		79,617			78,145			79,208			77,224		Diluted	131,237		107,887		130,247		106,209

(1) This adjustment compensates for the effects of the if-converted impact of convertible notes in adjusted net income. Since an entity using the if-converted method assumes that a convertible debt instrument was converted into common shares at the beginning of the reporting period, net income (loss) is adjusted to reverse any recognized interest expense (including any amortization of discounts).

See the accompanying notes to the unaudited ~~consolidated financial statements.~~

Consolidated Financial Statements.

NEOGENOMICS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

(unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
NET INCOME (LOSS)	$	75,873	$	(6,824)	$	53,759	$	(13,802)

OTHER COMPREHENSIVE INCOME (LOSS):

Net unrealized loss on marketable securities, net of tax	(183)		0		(343)		0
Unrealized gain (loss) on effective cash flow hedge, net of tax	0		38		0		(1,000)
Cash flow hedge termination reclassified to earnings	0		2,661		0		2,661
Total other comprehensive (loss) income, net of tax	(183)		2,699		(343)		1,661
COMPREHENSIVE INCOME (LOSS)	$	75,690	$	(4,125)	$	53,416	$	(12,141)

See the accompanying notes to the unaudited Consolidated Financial Statements.

NEOGENOMICS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(unaudited, in thousands, except share data)


	Common Stock		Additional Paid-In Capital			Accumulated Other Comprehensive Income (Loss)		(Accumulated Deficit) Retained Earnings		Total
		Shares			Amount
Balance, December 31, 2020		112,075,474	$	112		$	701,357	$	10	$	(7,185)	$	694,294
Cumulative-effect adjustment from change in accounting principle		—	—			(23,271)		—		696		(22,575)
Premiums paid for capped call confirmations		—	—			(29,291)		—		—		(29,291)
Common stock issuance ESPP Plan		23,917	—			1,024		—		—		1,024
Issuance of restricted stock, net of forfeitures		83,220	—			(614)		—		—		(614)
Issuance of common stock for stock options		260,167	—			2,239		—		—		2,239
Issuance of common stock - public offering, net of underwriting discounts		4,693,876	5			218,495		—		—		218,500
Stock issuance fees and expenses		—	—			(242)		—		—		(242)
ESPP expense		—	—			241		—		—		241
Stock-based compensation expense - options and restricted stock		—	—			2,412		—		—		2,412
Net unrealized loss on marketable securities, net of tax		—	—			—		(160)		—		(160)
Net loss		—	—			—		—		(22,114)		(22,114)
Balance, March 31, 2021		117,136,654	$	117		$	872,350	$	(150)	$	(28,603)	$	843,714
Common stock issuance ESPP Plan		31,839	—			1,245		—		—		1,245
Issuance of restricted stock, net of forfeitures		146,392	—			(163)		—		—		(163)
Issuance of common stock for stock options		354,310	1			4,429		—		—		4,430
Issuance of common stock - private placement, net of private placement fees		4,444,445	4			189,859		—		—		189,863
Issuance of common stock for acquisition		597,712	1			29,174		—		—		29,175
Stock issuance fees and expenses		—	—			(102)		—		—		(102)
ESPP expense		—	—			298		—		—		298
Stock-based compensation expense - options and restricted stock		—	—			4,208		—		—		4,208
Net unrealized loss on marketable securities, net of tax		—	—			—		(183)		—		(183)
Net income		—	—			—		—		75,873		75,873
Balance, June 30, 2021		122,711,352	$	123		$	1,101,298	$	(333)	$	47,270	$	1,148,358

See the accompanying notes to the unaudited Consolidated Financial Statements.

NEOGENOMICS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(unaudited, in thousands, except share data)


	Common Stock		Additional Paid-In Capital			Accumulated Other Comprehensive (Loss) Income		Accumulated Deficit		Total
		Shares			Amount
Balance, December 31, 2019		104,781,236	$	105		$	520,278	$	(1,618)	$	(11,357)	$	507,408
Common stock issuance ESPP Plan		34,330	—			796		—		—		796
Issuance of restricted stock, net of forfeitures		76,618	—			(212)		—		—		(212)
Issuance of common stock for stock options		503,873	—			2,897		—		—		2,897
Stock issuance fees and expenses		—	—			(15)		—		—		(15)
ESPP expense		—	—			194		—		—		194
Stock based compensation expense - options and restricted stock		—	—			1,991		—		—		1,991
Loss on effective cash flow hedge		—	—			—		(1,038)		—		(1,038)
Net loss		—	—			—		—		(6,978)		(6,978)
Balance, March 31, 2020		105,396,057	$	105		$	525,929	$	(2,656)	$	(18,335)	$	505,043
Common stock issuance ESPP Plan		41,058	—			928		—		—		928
Issuance of restricted stock, net of forfeitures		24,786	—			(824)		—		—		(824)
Issuance of common stock for stock options		183,443	—			2,014		—		—		2,014
Issuance of common stock - public offering, net of underwriting discounts		4,751,500	5			127,288		—		—		127,293
Stock issuance fees and expenses		—	—			(317)		—		—		(317)
ESPP expense		—	—			211		—		—		211
Stock based compensation expense - options and restricted stock		—	—			2,424		—		—		2,424
Equity component of convertible note issuance		—	—			30,912		—		—		30,912
Tax liability related to convertible note issuance		—	—			(9,330)		—		—		(9,330)
Gain on effective cash flow hedge		—	—			—		38		—		38
Cash flow hedge termination reclassified to earnings		—	—			—		2,661		—		2,661
Net loss		—	—			—		—		(6,824)		(6,824)
Balance, June 30, 2020		110,396,844	$	110		$	679,235	$	43	$	(25,159)	$	654,229

See the accompanying notes to the unaudited Consolidated Financial Statements.

NEOGENOMICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)


	Six Months Ended June 30,
	2021		2020
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	53,759	$	(13,802)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation	13,629		12,177
Amortization of intangibles	6,209		4,919
Non-cash stock-based compensation	7,159		4,821
Non-cash operating lease expense	3,750		4,113
Amortization of convertible debt discount	1,247		864
Amortization of debt issue costs	88		112
Loss on debt extinguishment	0		1,400
Loss on termination of cash flow hedge	0		3,506

Gain on investment in and loan receivable from non-consolidated affiliate, net	(91,510)		0
Interest receivable on loan receivable from non-consolidated affiliate	(391)		0

Write-off of COVID-19 PCR testing inventory and equipment	6,061		0
Other non-cash items	790		263
Changes in assets and liabilities, net
Accounts receivable, net	1,155		6,498
Inventories	3,645		(6,688)
Prepaid lease asset	(4,730)		(6,084)
Prepaid and other assets	(4,681)		(5,975)

Accounts payable, accrued and other liabilities	4,640		(11,175)
Net cash provided by (used in) operating activities	820		(5,051)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of marketable securities	(162,769)		0
Proceeds from sales and maturities of marketable securities	26,253		0
Purchases of property and equipment	(37,178)		(9,734)
Business acquisitions, net of cash acquired	(419,404)		(37,000)
Loan receivable from non-consolidated affiliate	(15,000)		0
Investment in non-consolidated affiliate	0		(13,137)

Net cash used in investing activities	(608,098)		(59,871)
CASH FLOWS FROM FINANCING ACTIVITIES

Repayment of equipment financing obligations	(1,892)		(3,059)

Repayment of term loan	0		(97,540)
Cash flow hedge termination	0		(3,317)

Issuance of common stock, net	8,045		5,469

Proceeds from issuance of convertible debt, net of issuance costs	334,410		194,376

Premiums paid for capped call confirmations	(29,291)		0
Proceeds from equity offerings, net of issuance costs	418,273		127,288
Net cash provided by financing activities	729,545		223,217

Net change in cash, cash equivalents and restricted cash	122,267		158,295
Cash, cash equivalents and restricted cash, beginning of period	250,632		173,016
Cash, cash equivalents and restricted cash, end of period	$	372,899	$	331,311

For the Nine Months Ended September 30,

CASH FLOWS FROM OPERATING ACTIVITIES

2017

2016

Net income (loss)

$
(5,797
)

$
500

Adjustments to reconcile net income (loss) to net cash provided by
operating activities:

Depreciation

11,739

11,550

Amortization of intangibles

5,201

5,454

Amortization of debt issue costs

330

532

Loss on sale of Path Logic

1,058

-

Stock based compensation – options, restricted stock and warrants

5,812

4,024

Provision for bad debts

13,026

8,183

Changes in assets and liabilities, net:

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

(20,916
)

(9,424
)
(Increase) in inventories

(37
)

(844
)
(Increase) in prepaid expenses

(406
)

(1,482
)
(Increase) in other current assets

(98
)

(46
)
Increase in accounts payable and other liabilities

2,366

3,271

Net cash provided by operating activities

12,278

21,718

CASH FLOWS FROM INVESTING ACTIVITIES

Purchases of property and equipment

(10,167
)

(5,328
)
Net cash used in investing activities

(10,167
)

(5,328
)
CASH FLOWS FROM FINANCING ACTIVITIES

Advances from revolving credit facility, net

2,496

—

Repayment to revolving credit facility

—

(10,044
)
Repayment of capital lease obligations/loans

(4,126
)

(3,874
)
Repayment on term loan, net

(2,816
)

(413
)
Proceeds from the exercise of options, warrants and ESPP shares, net of transaction expenses

2,218

3,456

Payments of equity issue costs

(197
)

—

Net cash (used in) financing activities

(2,425
)

(10,875
)
Net change in cash and cash equivalents

(314
)

5,515

Cash and cash equivalent, beginning of period

12,525

23,420

Cash and cash equivalents, end of period

$
12,211

$
28,935

Supplemental disclosure of cash flow information:

Interest paid

$
3,879

$
3,993

Income taxes paid

$
272

$
228

Supplemental disclosure of non-cash investing and financing information:

Equipment acquired under capital lease/loan obligations

$
3,240

$
4,907

Deemed dividends on preferred stock

$
2,734

$
5,520

Amortization of preferred stock beneficial conversion feature

$
5,122

$
11,180

Purchase of customer list through issuance of restricted stock

$
4,466

$
-


	Six Months Ended June 30,
	2021		2020
Reconciliation of cash, cash equivalents and restricted cash to the Consolidated Balance Sheets:
Cash and cash equivalents	$	368,796	$	295,281

Restricted cash, non-current	4,103		36,030
Total cash, cash equivalents and restricted cash	$	372,899	$	331,311

Supplemental disclosure of cash flow information:
Interest paid	$	1,329	$	1,562
Income taxes paid, net	$	114	$	89
Supplemental disclosure of non-cash investing and financing information:
Fair value of common stock issued to fund business acquisition	$	29,174	$	0

Equity offering issuance costs included in accrued expenses	$	10,137	$	0
Equipment acquired under financing obligations	$	0	$	428
Property and equipment included in accounts payable	$	3,822	$	2,487

See the accompanying notes to the unaudited ~~consolidated financial statements.~~

Consolidated Financial Statements.

NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~Unaudited~~

(unaudited)

Note ~~A –~~1. Nature of the Business ~~and Basis~~

Nature of ~~Presentation~~

the Business

NeoGenomics, Inc., a Nevada corporation, ~~(the “Parent”),~~ and its subsidiaries ~~NeoGenomics Laboratories, Inc.~~(the “Parent”, a Florida corporation (“NEO” or, “NeoGenomics Laboratories”), NeoGenomics Bioinformatics Inc., a Florida corporation, Path Labs LLC., a Delaware limited liability company (“PathLogic”) and Clarient Inc., a Delaware corporation, and its wholly owned subsidiary Clarient Diagnostic Services, Inc. (together, “Clarient”), (collectively referred to as “we”, “us”, “our”, “NeoGenomics”“Company”, or ~~the “Company”~~“NeoGenomics”), operates as a certified, ~~“high complexity”~~high complexity clinical laboratory in accordance with the federal government’s ~~Clinical Laboratory Improvement Act, as amended (“CLIA”),~~CLIA, and is dedicated to the delivery of clinical diagnostic services to pathologists, oncologists, urologists, hospitals, and other laboratories ~~throughout~~as well as providing clinical trial services to pharmaceutical firms.

COVID-19 Pandemic Update

In December 2019, a novel strain of coronavirus (“COVID-19”) was identified and the disease has since spread across the world, including the United States (“U.S.”). In March 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic. The outbreak of the pandemic is materially adversely affecting the Company’s employees, patients, communities and ~~Europe.~~

business operations, as well as the U.S. economy and financial markets. The ~~accompanying interim consolidated~~full extent to which the COVID-19 outbreak will impact the Company’s business, results of operations, financial ~~statements~~condition and cash flows will depend on future developments that are ~~unaudited~~highly uncertain and ~~have been prepared~~cannot be accurately predicted, including new information that may emerge concerning COVID-19 and the actions to contain it or treat its impact and the economic impact on local, regional, national and international markets. As the COVID-19 pandemic continues, the Company’s results of operations, financial condition and cash flows may continue to be materially adversely affected, particularly if the pandemic continues to persist for a significant amount of time.

The Company anticipates that the cash on hand, marketable securities and cash collections are sufficient to fund near-term capital and operating needs for at least the next 12 months.

At the end of the first quarter 2021, due to the broad roll-out of the COVID-19 vaccine and a sharp decline in COVID-19 polymerase chain reaction (“PCR”) testing demand, the Company made the decision to exit COVID-19 PCR testing and the Company recorded a $6.1 million expense related to the exit from COVID-19 PCR testing. This amount consisted of write-offs of $5.3 million for all remaining COVID-19 PCR testing inventory recorded to cost of revenue and $0.8 million for all remaining COVID-19 PCR testing laboratory equipment recorded to general and administrative expenses on the Consolidated Statements of Operations for the six months ended June 30, 2021. There were 0 such amounts for the three months ended June 30, 2021.

Coronavirus Aid, Relief and Economic Security Act

The Federal government passed legislation and the President of the United States signed into law on March 27, 2020, known as the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). On April 10, 2020, the U.S. Department of Health & Human Services announced that Medicare-enrolled providers would receive a portion of a direct deposit disbursement totaling $50 billion. The $50 billion is part of a $100 billion Public Health and Social Service Emergency Fund created by the CARES Act. Payments made under the CARES Act are intended to reimburse healthcare providers for health care related expenses or lost revenues attributable to COVID-19 and are not required to be repaid provided that recipients attest to and comply with certain terms and conditions, including limitations on balance billing for COVID-19 patients. In the absence of specific guidance to account for government grants in accordance with accounting principles generally accepted in the United States of America (“GAAP”), the Company accounts for such grants in accordance with international accounting standards for government grants. Such amounts are recognized when there is reasonable assurance that the Company will (1) comply with the conditions associated with the grant and (2) receive the grant. There was no grant income recognized for the three and six months ended June 30, 2021. For the three and six months ended June 30, 2020, the Company recognized $7.9 million in grant income related to the CARES Act. CARES Act grant income is classified in other (income) expense, net, on the Consolidated Statements of Operations.

The CARES Act permits the deferral of payment of the employer portion of social security taxes between March 27, 2020 and December 31, 2020, with 50% of the deferred amount due on December 31, 2021 and the remaining 50% due on December 31, 2022. As of June 30, 2021 and December 31, 2020 the total accrued deferred social security taxes, related to the CARES Act was $5.9 million. At both June 30, 2021 and December 31, 2020 this amount was recorded evenly between accrued expenses and other liabilities and other long-term liabilities on the Consolidated Balance Sheets.

Additionally, the CARES Act included an Employee Retention Tax Credit (“ERTC”) provision designed to encourage employers to keep employees on their payroll. The ERTC is a refundable tax credit against certain payroll taxes paid by employers for eligible wages paid between March 13, 2020 and December 31, 2020 that meet the requirements of the ERTC provision. On March 11, 2021, the American Rescue Plan Act was enacted extending the deadline of the ERTC to December 31, 2021 and expanded who is eligible to claim the credit. For the three and six months ended June 30, 2021, the Company

NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

recognized $0.3 million and $0.7 million, respectively, under the ERTC which was included in loss from operations on the Consolidated Statements of Operations. There were no such amounts recorded for the six months ended June 30, 2020.

NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying interim Consolidated Financial Statements are unaudited and have been prepared in accordance with GAAP for interim financial information. ~~These accompanying interim consolidated financial statements include the accounts of the Parent and its subsidiaries.~~ All intercompany transactions and balances have been eliminated in the accompanying ~~interim consolidated financial statements.~~

Consolidated Financial Statements.

The accounting policies of the Company are the same as those set forth in Note 2. Summary of Significant Accounting Policies, to the audited Consolidated Financial Statements contained in the Company’s annual report on Form 10-K for the year ended December 31, 2020, except for Business Combinations, Stock-Based Compensation, Income Taxes and the impact of the adoption of new accounting standards discussed under Recently Adopted Accounting Guidance.

Unaudited Interim Financial Information

Certain information and footnote disclosures normally included in the Company’s annual audited ~~consolidated financial statements~~Consolidated Financial Statements and accompanying notes have been condensed or omitted in these accompanying interim consolidated financial ~~statements.~~statements and footnotes. Accordingly, the accompanying interim ~~consolidated financial statements~~unaudited Consolidated Financial Statements included herein should be read in conjunction with the audited ~~consolidated financial statements~~Consolidated Financial Statements and accompanying notes included in the Company’s annual report on Form 10-K for the year ended December 31, ~~2016, filed with the SEC on March 14, 2017.~~

2020.

The results of operations presented in this quarterly report on Form 10-Q are not necessarily indicative of the results of operations that may be expected for any future periods. In the opinion of management, these unaudited ~~consolidated financial statements~~Consolidated Financial Statements include all adjustments and accruals, consisting only of normal, recurring adjustments that are necessary for a fair statement of the results of all interim periods reported herein.

Use of Estimates

The Company prepares its Consolidated Financial Statements in conformity with GAAP. These principles require management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, together with amounts disclosed in the related notes to the Consolidated Financial Statements. Actual results and outcomes may differ from management’s estimates, judgments and assumptions. Significant estimates, judgments and assumptions used in these Consolidated Financial Statements include, but are not limited to those related to revenues, accounts receivable and related allowances, contingencies, useful lives and recovery of long-term assets and intangible assets, income taxes and valuation allowances, stock-based compensation, business combinations, and impairment analysis of goodwill. These estimates, judgments, and assumptions are reviewed periodically and the effects of material revisions in estimates are reflected on the Consolidated Financial Statements prospectively from the date of the change in estimate.

Business Combinations

The Company accounts for acquisitions of entities that include inputs and processes and have ~~one reportable~~the ability to create outputs as business combinations. The tangible and identifiable intangible assets acquired and liabilities assumed in a business combination are recorded based on their estimated fair values as of the business combination date, including identifiable intangible assets which either arise from a contractual or legal right or are separable from goodwill. The Company bases the estimated fair value of identifiable intangible assets acquired in a business combination on independent third-party valuations that use information and assumptions provided by its management, which consider estimates of inputs and assumptions that a market participant would use. Any excess purchase price over the estimated fair value assigned to the net tangible and identifiable intangible assets acquired and liabilities assumed is recorded to goodwill. The use of alternative valuation assumptions, including estimated revenue projections, growth rates, estimated cost savings, cash flows, discount rates, estimated useful lives and probabilities surrounding the achievement of contingent milestones could result in different purchase price allocations and amortization expense in current and future periods. Transaction costs associated with acquisitions are expensed as incurred in general and administrative expenses. Results of operations and cash flows of acquired companies are included in the Company’s operating ~~segment~~results from the date of acquisition.

Stock-Based Compensation

The Company measures compensation expense for stock-based awards to employees, non-employee contracted physicians, and directors based upon the awards’ initial grant-date fair value. The estimated grant-date fair value of the award is recognized as expense over the requisite service period using the straight-line method.

Prior to 2021, the Company estimated the fair value of stock options using a trinomial lattice model. On January 1, 2021, the Company began applying the Black-Scholes option valuation model (“Black-Scholes”) on a prospective basis to new awards. The Company expects the use of Black-Scholes to provide a more ubiquitous estimate of fair value. Like the prior trinomial lattice model, Black-Scholes is affected by the stock price on the date of the grant as well as assumptions regarding a number of

NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

highly complex and subjective variables. These variables include the expected term of the option, expected risk-free interest rate, the expected volatility of 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 ~~delivers testing services~~significantly affect the grant date fair value.

Expected Term: The expected term of an option is the period of time that the option is expected to ~~hospitals, pathologists, oncologists,~~be outstanding. The average expected term is determined using the Black-Scholes model.

Risk-free Interest Rate: The risk-free interest rate used in the Black-Scholes model is based 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, the Company uses the nearest interest rate from the available maturities.

Expected Stock Price Volatility: The Company uses its own historical weekly volatility because that is more reflective of market conditions.

Dividend Yield: Because the Company has never paid a dividend and does not expect to begin doing so in the foreseeable future, the Company assumed no dividend yield in valuing the stock-based awards.

Income Taxes

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 and amortization methods and lives for property and equipment and recently acquired intangible assets, recognition of accounts receivable, compensation related expenses, and various other ~~clinicians,~~expenses that have been allowed for or accrued for financial statement purposes but are not currently deductible for income tax purposes.

The provision for income taxes, including the effective tax rate and ~~researchers,~~analysis of potential tax exposure items, if any, requires significant judgment and expertise in federal and state income tax laws, regulations and strategies, including the determination of deferred tax assets and liabilities and any estimated valuation allowances deemed necessary to recognize deferred tax assets at an amount that is more likely than not to be realized.

Management assesses the recoverability of its deferred tax assets as of the end of each quarter, weighing available positive and negative evidence, and is required to establish and maintain a valuation allowance for these assets if it is more likely than not that some or all of the deferred income tax assets will not be realized. The weight given to the evidence is commensurate with the extent to which ~~represents 100%~~the evidence can be objectively verified. If negative evidence exists, positive evidence is necessary to support a conclusion that a valuation allowance is not needed.

As of December 31, 2020, expected future reversals of the Company’s ~~consolidated assets, net revenues and net~~deferred income (loss) for the three and nine months ended September 30, 2017 and 2016. We have evaluated our segments based on how the Chief Operating Decision Maker (“CODM”), our Chief Executive Officer, reviews performance and makes decisions in managing the Company. At September 30, 2017, wetax liabilities provided ~~services within the United States and Europe and had assets located within the United States and Europe.~~

We have two primary types of customers, clinical and pharma. Our clinical customers include community based pathology practices, oncology groups, hospitals and academic centers. Our pharma customers include pharmaceutical companies to whom we provide testing and other servicesobjectively verifiable positive evidence to support ~~their studies~~the recoverability of its deferred tax assets. However, on January 1, 2021, the Company adopted ASU No. 2020-06, Debt - Debt with Conversion and ~~clinical trials. As we grow, we continue to assess~~Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40) - Accounting For Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”) using the ~~information~~modified retrospective approach, which resulted in a decrease of approximately $6.6 million in the Company’s deferred income tax liabilities. In addition, approximately $2 million of valuation allowance against the Company’s deferred income tax assets was established upon adoption of ASU 2020-06, resulting from the decrease in deferred income tax liabilities available to support the ~~CODM. Currently, discrete financial information~~recoverability of deferred tax assets. The valuation allowance represents the portion of the Company’s U.S. deferred income tax assets that are not more likely than not to be realized in future periods, primarily related to Federal and California research and development tax credit carryforwards.

A cumulative loss in recent years is a significant piece of negative evidence that is difficult to overcome. Cumulative loss in recent years is commonly defined as a three-year cumulative loss position. As of June 30, 2021, the Company’s U.S. ongoing operations were in a three-year cumulative loss position. Management determined that sufficient objectively verifiable positive evidence did not ~~available~~exist to overcome the negative evidence of the Company’s U.S. cumulative loss position. Accordingly, the Company’s estimated annual effective tax rate applied to the CODM about the separate financial performance of our clinical and our pharma customers. As we continue to grow and focus separately on the two customer types we will routinely assess the information available and reviewed by the CODM and determine if we meet the criteria for having separate segments.

~~Correction of Immaterial Accounting Error~~

~~The~~ Company performed an internal analysis in the third quarter of 2017 which identified an immaterial error in the revenue reported in our Form 10-K for the year ended December 31, 2016, Form 10-Q for the quarter ended March 31, 2017 and Form 10-QCompany’s pre-tax loss for the three and six months ended June 30, ~~2017. We~~2021 included the unfavorable impact of valuation allowance expected to be established against the Company’s deferred income tax assets expected to be created in 2021 for additional U.S. net operating loss and tax credit carryforwards.

As of June 30, 2021, the Company’s total valuation allowance against U.S. deferred income tax assets is forecasted to be approximately $15.5 million including deferred income tax assets from the acquisitions of Intervention Insights, Inc., d/b/a Trapelo Health, and the U.S. subsidiary of Inivata Limited, a private limited company incorporated in England and Wales. For further details regarding the acquisitions of Trapelo Health and Inivata Limited, please refer to Note 3. Acquisitions. The Company also continued to maintain a full valuation allowance against deferred tax assets in Switzerland, Singapore and China,

NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

which increased from $2.6 million as of December 31, 2020 to $3.4 million as of June 30, 2021. No valuation allowance was determined to be required for deferred income tax assets from the acquisition of Inivata Limited, the British entity.

The Company evaluates tax positions that have ~~concluded~~been taken or are expected to be taken in its tax returns, and records a liability for uncertain tax positions, if deemed necessary. The Company follows a two-step approach to recognizing and measuring uncertain tax positions. First, tax positions are recognized if the weight of available evidence indicates that it is more likely than not that the ~~error identified was not material~~position will be sustained upon examination, including resolution of related appeals or litigation processes, if any. Second, the tax position is measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon settlement.

The Company recognizes interest and penalties related to ~~any prior annual or interim periods. We assessed the extent of this error and it was corrected~~unrecognized tax benefits in the ~~third quarter of 2017, resulting~~provision for income taxes in ~~a reduction of revenue,~~the accompanying Consolidated Balance Sheets. At June 30, 2021 and ~~thus a corresponding reduction~~December 31, 2020 the Company had an uncertain tax position related to Federal and State R&D tax credit carryforwards. No interest and penalties have been accrued, as the income tax credits are carried forward to offset income tax liabilities in accounts receivable of $2.4 million and $0.6 million for the three and nine months ended September 30, 2017, respectively. See Item 4. Controls and Procedures for additional details regarding this error.

~~Note B –~~ future years.

Recently Adopted ~~and Issued~~ Accounting Guidance

~~Adopted~~

In ~~January 2017,~~October 2020, the FASB issued ASU No. ~~2017-01,~~ ~~Business Combinations. This standard clarifies~~2020-10, Codification Improvements, which updates various codification topics by clarifying disclosure requirements to align with the definition of a business and provides guidance on when transactions should be accounted for as acquisitions of assets and when they should be accounted for as acquisitions of businesses. The Company early adopted this standard on July 1, 2017 and applied this guidance to the customer list

~~NEOGENOMICS, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~Unaudited~~

~~that was acquired on August 1, 2017. The customer list acquired was not determined to meet the definition of a business under this standard and was therefore determined to be an asset acquisition.~~

~~In March 2016, the~~ ~~Financial Accounting Standards Board~~ ~~(“FASB”) issued~~ ~~Accounting Standards Update (“ASU”)~~ ~~No. 2016-09,~~ ~~Improvements to Employee Share-Based Payment Accounting.~~ The standard update required excess tax benefits and tax deficiencies to be recorded directly through earnings as a component of income tax expense. Under previous GAAP, these differences were generally recorded in additional paid-in capital and thus had no impact on net income. The change impacted the computation of diluted earnings per share, and the cash flows associated with those items are now classified as operating activities on the condensed statements of consolidated cash flows. Entities were permitted to make an accounting policy election for the impact of forfeitures on the recognition of expense for share-based payment awards. Forfeitures could be estimated, as required under previous GAAP, or recognized when they occur.

SEC’s regulations. The Company adopted this ~~ASU~~pronouncement on January 1, ~~2017 using~~2021 and the ~~transition method prescribed for each applicable provision:~~

~~Based~~impact of the provisions of this standard on the implementation guidance, previously unrecognized excess tax benefits should be on a modified retrospective basis beginning in the period the guidance is adopted. Accordingly, the Company recorded an increase in deferred tax assets and an offsetting cumulative-effect adjustment to retained earnings of $6.6 million as of January 1, 2017 for excess tax benefits not previously recognized.

its Consolidated Financial Statements was immaterial.

Based on the implementation guidance, all excess tax benefits and tax deficiencies related to share based compensation will be reported in net income (loss) on a prospective basis. For the nine months ended September 30, 2017, no income (loss) was reported.

The Company has elected to retrospectively adopt the requirement to present cash flows related to excess tax benefits as cash flows from operating activities. This adoption had no effect on cash flows for the nine months ended September 30, 2017.

~~The Company has elected to recognize forfeitures in compensation cost as they occur.~~

~~Issued~~

In August ~~2017 the FASB issued ASU 2017-12,~~ ~~Derivatives and Hedging.~~ This standard refines hedge accounting to better align an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. This update is effective for ~~annual periods beginning after December 15, 2018 and interim periods within those annual periods. Early adoption is permitted.~~ ~~The Company does not expect the adoption of ASU 2017-12 to have a material effect on its consolidated financial statements.~~

~~In May 2017, the FASB issued ASU 2017-09,~~ ~~Compensation – Stock Compensation~~. This standard provides guidance related to the scope of stock option modification accounting, to reduce diversity in practice and reduce cost and complexity regarding existing guidance. This update is effective for annual periods beginning after December 15, 2017. Early adoption is permitted. The Company does not expect the adoption of ASU 2017-09 to have a material effect on its consolidated financial statements.

~~In January 2017~~2020, the FASB issued ASU No. ~~2017-04,~~ ~~Intangibles – Goodwill~~2020-06, Debt - Debt with Conversion and ~~Other: Simplifying~~Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40) - Accounting For Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”) which simplifies the ~~Test~~accounting for ~~Goodwill Impairment. This standard eliminates Step 2~~certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity’s own equity. Among other changes, ASU 2020-06 simplifies the accounting for convertible instruments by removing the liability and equity separation model for convertible instruments with a cash conversion feature, and as a result, after adoption, entities will no longer separately present in equity an embedded conversion feature for such convertible debt instruments. Similarly, the debt discount, that is equal to the carrying value of the ~~goodwill impairment test.~~embedded conversion feature upon issuance, will no longer be amortized into income as interest expense over the life of the instrument. Instead, ~~an entity should perform its annual~~entities will account for a convertible debt instrument wholly as debt unless (1) a convertible instrument contains features that require bifurcation as a derivative under ASC Topic 815, Derivatives and Hedging, or ~~interim goodwill impairment test by comparing~~(2) a convertible instrument was issued at a substantial premium. In addition, ASU 2020-06 requires the ~~fair value~~application of ~~a reporting unit with its carrying amount. An entity should recognize an impairment charge~~the if-converted method for calculating the ~~amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount~~impact of ~~goodwill allocated to that reporting unit. This update~~convertible instruments on diluted earnings per share. ASU 2020-06 is effective for annual and interim periods beginning after December 15, 2021. Early adoption is permitted for interim or annual goodwill impairment tests performed after January 1, 2017. The Company does not expect the adoption of ASU 2017-04 to have a material effect on its consolidated financial statements.

~~In August 2016, the FASB issued “ASU” 2016-15,~~ ~~Statement of Cash Flows – Classification of Certain Cash Receipts and Cash Payments~~. This standard clarifies how specific cash receipts and cash payments are classified and presented in the statement of cash flows. This update is effective for fiscal years and interim periods within those fiscal years beginning after December 15, ~~2017. Early~~2021, with early adoption ~~is permitted.~~ permitted no earlier than fiscal years beginning after December 15, 2020. ASU 2020-06 can be adopted on either a fully retrospective or modified retrospective basis.

The Company ~~does~~adopted ASU 2020-06 on January 1, 2021 using the modified retrospective approach, and accordingly the Company recorded an adjustment that reflects the 1.25% Convertible Senior Notes due 2025 as if the embedded conversion feature had not ~~expect~~been separated. The impact upon adoption on the Consolidated Balance Sheets included an increase of approximately $27.2 million in convertible senior notes, net, a write-off of approximately $6.6 million in deferred income tax liabilities, establishment of approximately $2 million of valuation allowance against deferred income tax assets, and a decrease of approximately $23.3 million in additional paid-in capital. In addition, upon adoption, there was an adjustment to increase the beginning balance of ~~ASU 2016-15~~retained earnings on the Consolidated Balance Sheets for previously recognized interest expense, net of tax effects, of approximately $2.7 million for amortization of debt discount related to ~~have~~ the carrying value of the embedded conversion feature upon issuance, as well as a ~~material effect on its consolidated financial statements.~~

decrease to the beginning balance of retained earnings of approximately $2 million for the establishment of valuation allowance against the Company’s deferred income tax assets. There was no impact to the Company’s earnings per share calculation. For further information regarding the 1.25% Convertible Senior Notes due 2025, please refer to Note 8. Debt.

Accounting Pronouncements Pending Adoption

In ~~February 2016,~~March 2020, the FASB issued ASU No. ~~2016-02,~~ ~~Leases.~~ 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”) which provides for temporary optional expedients and exceptions to the current guidance on certain contract modifications and hedging relationships to ease the burdens related to the expected market transition from the London Inter-bank Offered Rate (“LIBOR”) or other reference rates to alternative reference rates. In January 2021, the FASB issued ASU No. 2021-01, Reference Rate Reform (Topic 848) (“ASU 2021-01”) to clarify that certain optional expedients and exceptions apply to modifications of derivative contracts and certain hedging relationships affected by changes in the interest rates used for discounting cash flows, computing variation margin settlements, and for calculating price alignment interest. ASU 2020-04 is effective beginning on March 12, 2020 and may be applied prospectively to such transactions through December 31, 2022 and ASU 2021-01 is effective beginning on January 7, 2021 and may be applied retrospectively or prospectively to such transactions through December 31, 2022. The ~~updaterequires~~ ~~organizations to recognize lease assets and lease liabilities on the balance sheet for those leases classified as operating leases under previous GAAP. ASU 2016-02 requires that a~~

Company will evaluate

NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~Unaudited~~

~~lessee should recognize~~

(unaudited)

transactions or contract modifications occurring as a ~~liability~~result of reference rate reform and determine whether to ~~make lease payments~~apply the optional guidance on an ongoing basis. As of June 30, 2021, there was no impact to the Company’s Consolidated Financial Statements related to ASU 2020-04 or ASU 2021-01.

NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 3. Acquisitions

Trapelo Health

On April 7, 2021 (the ~~lease liability)~~“Trapelo Acquisition Date”), the Company completed the acquisition of a 100% ownership interest in Intervention Insights, Inc. d/b/a Trapelo Health (“Trapelo”), an information technology company focused on precision oncology. The purchase price consisted of (i) cash consideration of $35.6 million, which included a net adjustment of $0.6 million for estimated cash on hand of Trapelo and estimated working capital adjustments on the Trapelo Acquisition Date, and (ii) equity consideration of $29.2 million, consisting of 597,712 shares of the Company’s common stock, par value $0.001 per share, valued at $48.81 per share. The Company acquired control of Trapelo on the Trapelo Acquisition Date; therefore, the fair value of the common stock issued as part of consideration was determined on the basis of the closing market price of the Company’s common stock immediately prior to the Trapelo Acquisition Date. The Trapelo acquisition enhances the Company’s ability to provide customers clinical decision support to help answer complex questions related to precision oncology biomarker testing and treatment options as part of the Company’s comprehensive oncology offerings.

The acquisition of Trapelo was determined to be a ~~right-of-use asset representing its right~~business combination and has been accounted for using the acquisition method. The purchase price and purchase price allocation are preliminary, are based upon management’s best estimates and assumptions, and are subject to future revision. The following table summarizes the estimated purchase consideration recorded for the acquisition of Trapelo, the estimated fair value of the net assets acquired and liabilities assumed, and the preliminary calculation of goodwill based on the excess of the estimated consideration transferred over the estimated fair value of the net assets acquired and liabilities assumed at the Trapelo Acquisition Date (in thousands, except per share data):


	Amount
Purchase consideration:
Shares of common stock issued as consideration	597,712
Per share value of common stock issued as consideration	$	48.81
Fair value of common stock at Trapelo Acquisition Date	$	29,174
Plus: Cash paid at closing	35,591
Total purchase consideration	$	64,765

Allocation of the purchase consideration:
Cash	$	713
Other current assets	282
Identifiable intangible asset - marketing assets	549
Identifiable intangible asset - developed technology	19,040
Other long-term assets	268
Total identifiable assets acquired	20,852
Current liabilities	(751)
Net identifiable assets acquired	20,101
Goodwill	44,664
Total purchase consideration	$	64,765

Due to the timing of the acquisition, the following are considered preliminary and are subject to change:

•amounts for intangible assets, other long-term assets, other current assets, current liabilities and other working capital adjustments pending finalization of the valuation;

•amounts for income tax assets and liabilities, pending finalization of estimates and assumptions in respect of certain tax aspects of the transaction; and

•amount of goodwill pending the completion of the valuation of the assets acquired and liabilities assumed.

The Company will finalize these amounts no later than one year from the acquisition date once it obtains the information necessary to complete the measurement process. Any changes resulting from facts and circumstances that existed as of the acquisition date may result in adjustments to the preliminary amounts disclosed above which may impact the reported results in the period those adjustments are identified.

NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

The identified developed technology and marketing intangible assets are being amortized over ten years and four years, respectively, based on their estimated useful lives. The weighted-average amortization period in total for all classes of intangible assets from the Trapelo acquisition is 9.8 years. The developed technology was valued using the income approach, specifically, the multi-period excess earnings method, which measures the after-tax cash flows attributable to the developed technology. The marketing intangible assets were valued using the income approach, specifically, the relief from royalty method, which measures the cash flow streams attributable to the marketing intangible assets in the form of the avoided royalty payment that would be paid to the owner in return for the rights to use the ~~underlying asset~~marketing intangible assets had the intangible assets not been acquired. The values of the identifiable intangible assets represent Level 3 measurements as they were based on unobservable inputs reflecting the Company’s assumptions used in pricing the assets at fair value. These inputs required significant judgments and estimates at the time of the valuation.

The goodwill recognized, all of which is assigned to the Clinical Services segment, was primarily attributable to expected synergies of the combined businesses and the acquisition of an assembled workforce knowledgeable of the healthcare and information technology industries. NaNne of the goodwill resulting from the acquisition of Trapelo is expected to be deductible for income tax purposes.

Acquisition and integration costs related to Trapelo were approximately $1.3 million and $1.5 million for the ~~lease term~~three and six months ended June 30, 2021, respectively, and are reported as general and administrative expenses in the Company’s Consolidated Statements of Operations. There were no such amounts for the three and six months ended June 30, 2020.

The results of operations of Trapelo are included in the Company’s unaudited Consolidated Financial Statements beginning on the ~~balance sheet.~~ ~~ASU 2016-02~~Trapelo Acquisition Date. Revenue and net income (loss) of Trapelo included in the Consolidated Statements of Operations was not material for the three and six months ended June 30, 2021. No pro forma information has been included relating to the Trapelo acquisition, as this acquisition was not deemed to be material to the Company’s revenue or net income (loss) on a pro forma basis for the three and six months ended June 30, 2021 and 2020.

Inivata Limited

On June 18, 2021 (the “Inivata Acquisition Date”), the Company completed the acquisition of the remaining equity interests in Inivata Limited, a private limited company incorporated in England and Wales (“Inivata”). Inivata is ~~effective~~a global, commercial stage, liquid biopsy platform company. The acquisition follows a $25 million minority equity investment by the Company in Series C1 Preference Shares (the “Preference Shares” or “previously-held equity interest”) in Inivata in May 2020, at which time the Company also acquired a fixed price option to purchase the remainder of equity interests in Inivata for ~~periods beginning after December 15, 2018~~$390 million (the “Purchase Option”). The Company and ~~interim periods~~Inivata also entered into a line of credit agreement in the amount of $15 million (the “Line of Credit”). For further details regarding the previously-held equity investment in Inivata, the Purchase Option and the Line of Credit, please refer to Note 7. Investment in Non-Consolidated Affiliate. The Inivata acquisition adds liquid biopsy platform technology, including minimal residual disease testing capabilities, to the Company’s comprehensive portfolio of oncology testing solutions.

The purchase price consisted of cash consideration of $398.6 million, which included a net adjustment of $8.6 million for estimated cash on hand of Inivata and other adjustments on the Inivata Acquisition Date, and was funded through cash on hand and a private placement of equity. For further information regarding the private placement of equity, please refer to Note 9. Equity Transactions.

Prior to the acquisition of the remaining equity interests in Inivata, the Company accounted for its previously-held equity interest and the Purchase Option in Inivata as equity securities without a readily determinable fair value. The equity interests were recorded at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. Therefore, the Company’s acquisition of control of Inivata on the Inivata Acquisition Date was accounted for as a business combination achieved in stages under the acquisition method. Accordingly, the Company used a discounted cash flow to derive a business enterprise value of Inivata in order to determine the acquisition-date fair value of the Company’s previously-held equity interest and Purchase Option in Inivata. To determine the fair value of the previously-held equity interest, the fair value of Inivata’s total equity was allocated to its various classes of equity based on the respective rights and privileges of each class of stock in liquidation. The business enterprise value and a Black-Scholes model was then used to determine the fair value of the remaining equity acquired through the exercise of the Purchase Option. The Purchase Option was recorded at the fair value at the Inivata Acquisition Date based on its settlement value. This resulted in fair values of $62.9 million in Preference Shares and a $58.5 million Purchase Option, immediately prior to the acquisition. On the Inivata Acquisition date, the $10.3 million outstanding under the Line of Credit extended by the Company to Inivata was effectively settled as part of the acquisition of Inivata at the $15 million principal amount and was recorded as part of the consideration transferred in the acquisition. The Company recorded a gain on investment in and loan receivable from non-consolidated affiliate, net, within ~~those periods.~~ the Company’s Consolidated Statements of Operations of $96.5 million and $91.5 million in the three and six months ended June 30, 2021, respectively, for the excess of the acquisition-date fair value of the Company’s previously-held equity interest, Purchase Option, and Line of Credit over their carrying values. For further

NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

details regarding the previously-held equity investment and purchase option in Inivata, please refer to Note 7. Investment in Non-Consolidated Affiliate.

The ~~adoption~~fair value and allocation of ~~this ASU~~the business combination are preliminary, are based upon management’s best estimates and assumptions, and are subject to future revision. The following table summarizes the preliminary calculation of goodwill based on the excess of the estimated fair value of the consideration transferred including the fair value of the Line of Credit, and the estimated fair value of the previously-held equity interest and Purchase Option, over the estimated fair value of the net assets acquired and liabilities assumed at the Inivata Acquisition Date (in thousands):


	Amount
Fair value of business combination:
Cash paid at closing	$	398,594
Fair value of Line of Credit	15,000
Fair value of consideration transferred	$	413,594
Fair value of previously-held equity interest	62,919
Fair value of Purchase Option	58,537
Total fair value of business combination	$	535,050

Allocation of the fair value business combination:
Cash	$	14,068
Other current assets	5,366
Property and equipment	1,753
Identifiable intangible assets - developed technology	302,982
Identifiable intangible assets - trademarks	31,700
Identifiable intangible asset - trade name	2,322
Other long-term assets	6,240
Total identifiable assets acquired	364,431
Current liabilities	(4,241)
Deferred income tax liabilities	(64,680)
Other long-term liabilities	(4,690)
Net identifiable assets acquired	290,820
Goodwill	244,230
Total fair value of business combination	$	535,050

Due to the timing of the acquisition, the following are considered preliminary and are subject to change:

•amounts for intangible assets, property and equipment, other current assets, current liabilities, and other long-term liabilities pending finalization of the valuation;

•amounts for income tax liabilities, pending finalization of estimates and assumptions in respect of certain tax aspects of the transaction;

•amount of goodwill pending the completion of the valuation of the assets acquired and liabilities assumed and the reporting unit allocation of the goodwill; and

•the acquisition-date fair value of the Company’s previously-held equity interest, Purchase Option, and the Line of Credit, and the gain on investment in and loan receivable from non-consolidated affiliate.

The Company will finalize these amounts no later than one year from the acquisition date, once it obtains the information necessary to complete the measurement process. Any changes resulting from facts and circumstances that existed as of the acquisition date may result in adjustments to the preliminary amounts disclosed above which may impact the reported results in the period those adjustments are identified.

NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

The identified developed technology intangible assets and the trademark intangible assets are both being amortized over 15 years, and the trade name intangible asset is being amortized over five years, based on their estimated useful lives. The weighted-average amortization period in total for all classes of intangible assets from the Inivata acquisition is 14.9 years. The developed technology was valued using the income approach, specifically, the multi-period excess earnings method, which measures the after-tax cash flows attributable to the developed technology. The trademarks and trade name assets were valued using the income approach, specifically, the relief from royalty method, which measures the cash flow streams attributable to the trademarks and trade name assets in the form of the avoided royalty payment that would be paid to the owner in return for the rights to use the trademarks and trade name assets had the assets not been acquired. The values of the identifiable intangible assets represent Level 3 measurements as they were based on unobservable inputs reflecting the Company’s assumptions used in pricing the assets at fair value. These inputs required significant judgments and estimates at the time of the valuation.

The goodwill recognized, of which $214.5 million and $29.7 million is assigned to the Clinical Services and Pharma Services segments, respectively, was primarily attributable to expected synergies of the combined businesses and the acquisition of an ~~increase~~assembled workforce knowledgeable of liquid biopsy technology for oncology testing. The recording of amortizable intangibles has given rise to a deferred tax liability upon the acquisition of Inivata which increased goodwill by $64.7 million. NaNne of the goodwill resulting from the acquisition of Inivata is expected to be deductible for income tax purposes.

Acquisition and integration costs related to Inivata were approximately $9.7 million and $10.3 million for the three and six months ended June 30, 2021, respectively, and are reported as general and administrative expenses in the Company’s Consolidated Statements of Operations. There were no such amounts for the three and six months ended June 30, 2020.

The results of operations of Inivata are included in the Company’s unaudited Consolidated Financial Statements beginning on the Inivata Acquisition Date. Revenue and net income (loss) of Inivata included in the Consolidated Statements of Operations was not material for the three and six months ended June 30, 2021.

The following unaudited pro forma information (in thousands) has been provided for illustrative purposes only and is not necessarily indicative of results that would have occurred had the acquisition of Inivata occurred on January 1, 2020, nor are they necessarily indicative of future results:


	Three Months Ended June 30,				Six Months Ended June 30,
	(unaudited)				(unaudited)
	2021		2020		2021		2020
Net revenue	$	121,707	$	87,114	$	237,159	$	193,318
Net loss	$	(23,222)	$	(17,842)	$	(51,313)	$	(54,702)

These unaudited pro forma results represent the combined results of operations of the Company and Inivata, on an unaudited pro forma basis, for the period in which the acquisition of Inivata occurred and the prior reporting period as though the companies had been combined as of the beginning of the earliest period presented. Therefore, the unaudited pro forma consolidated results have been prepared by adjusting the Company’s historical results to include the acquisition of Inivata as if it occurred on January 1, 2020. Acquisition-related transaction costs incurred by the Company of $10.3 million and incurred by Inivata of $11 million are included in net loss as if incurred on January 1, 2020. These unaudited pro forma consolidated historical results exclude, for all periods presented, the gain on investment in and loan receivable from non-consolidated affiliate, net, of $96.5 million and $91.5 million recorded in the three and six months ended June 30, 2021, respectively.

Note 4. Fair Value Measurements

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. A fair value hierarchy has been established based on three levels of inputs, of which the first two are considered observable and the last unobservable.

Level 1: Quoted prices in active markets for identical assets or liabilities. These are typically obtained from real-time quotes for transactions in active exchange markets involving identical assets.

Level 2: Inputs, other than quoted prices included within Level 1, which are observable for the asset or liability, either directly or indirectly. These are typically obtained from readily-available pricing sources for comparable instruments.

Level 3: Unobservable inputs, where there is little or no market activity for the asset or liability. These inputs reflect the reporting entity’s own assumptions of the data that market participants would use in pricing the asset or liability, based on the best information available in the circumstances.

NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Assets and Liabilities that are Measured at Fair Value on a Recurring Basis

The Company measures certain financial assets at fair value on a recurring basis, including its marketable securities and certain cash equivalents. The Company considers all securities available-for-sale, including those with maturity dates beyond 12 months, and therefore these securities are classified within current assets on the consolidated balance ~~sheet~~sheets as they are available to support current operational liquidity needs. The money market accounts are valued based on quoted market prices in active markets. The marketable securities are generally valued based on other observable inputs for those securities (including market corroborated pricing or other models that utilize observable inputs such as interest rates and yield curves) based on information provided by independent third-party pricing entities, except for U.S. Treasury securities which are valued based on quoted market prices in active markets.

The following tables set forth the amortized cost, gross unrealized gains, gross unrealized losses and fair values of the Company’s marketable securities accounted for as available-for-sale securities as of June 30, 2021 and December 31, 2020.


	June 30, 2021
(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Financial Assets:
Short-term marketable securities:
U.S. Treasury securities	$	51,637	$	1	$	(78)	$	51,560

Yankee bonds	3,075		0		(6)		3,069
Agency bonds	17,641		0		(6)		17,635
Municipal bonds	12,515		0		(43)		12,472
Commercial paper	22,658		0		0		22,658
Asset-backed securities	26,493		1		(27)		26,467
Corporate bonds	69,315		0		(226)		69,089
Total	$	203,334	$	2	$	(386)	$	202,950


	December 31, 2020
(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Financial Assets:
Short-term marketable securities:
U.S. Treasury securities	$	21,357	$	1	$	(18)	$	21,340

Commercial paper	14,543		0		0		14,543
Asset-backed securities	14,546		0		(8)		14,538
Corporate bonds	17,144		0		(19)		17,125
Total	$	67,590	$	1	$	(45)	$	67,546

The Company had $0.7 million and $0.2 million of accrued interest receivable at June 30, 2021 and December 31, 2020, respectively, included in other current assets on its Consolidated Balance Sheets related to its marketable securities. Realized gains or losses on marketable securities for the three months and six months ended June 30, 2021 were immaterial. There were 0 realized gains or losses on marketable securities for the three and six months ended June 30, 2020.

NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

The following tables set forth the fair value of available-for-sale marketable securities by contractual maturity at June 30, 2021 and December 31, 2020.


	June 30, 2021
(in thousands)	One Year or Less		Over One Year Through Five Years		Over Five Years		Total
Financial Assets:
Marketable Securities:
U.S. Treasury securities	$	13,593	$	37,967	$	0	$	51,560

Yankee bonds	0		3,069		0		3,069
Agency bonds	10,587		7,048		0		17,635
Municipal bonds	0		12,472		0		12,472
Commercial paper	22,658		0		0		22,658
Asset-backed securities	0		26,467		0		26,467
Corporate bonds	24,066		45,023		0		69,089
Total	$	70,904	$	132,046	$	0	$	202,950


	December 31, 2020
(in thousands)	One Year or Less		Over One Year Through Five Years		Over Five Years		Total
Financial Assets:
Marketable Securities:
U.S. Treasury securities	$	6,075	$	15,265	$	0	$	21,340

Commercial paper	14,543		0		0		14,543
Asset-backed securities	560		13,978		0		14,538
Corporate bonds	5,863		11,262		0		17,125
Total	$	27,041	$	40,505	$	0	$	67,546

The following tables set forth the Company’s cash equivalents and marketable securities accounted for as available-for-sale securities that were measured at fair value on a recurring basis based on the fair value hierarchy as of June 30, 2021 and December 31, 2020.


	June 30, 2021
(in thousands)	Level 1		Level 2		Level 3		Total
Financial Assets:
Cash equivalents:
Money market funds	$	263,880	$	0	$	0	$	263,880

Commercial paper	0		17,546		0		17,546
Marketable securities:
U.S. Treasury securities	51,560		0		0		51,560

Yankee bonds	3,069		0		0		3,069
Agency bonds	17,635		0		0		17,635
Municipal bonds	12,472		0		0		12,472
Commercial paper	0		22,658		0		22,658
Asset-backed securities	0		26,467		0		26,467
Corporate bonds	0		69,089		0		69,089
Total	$	348,616	$	135,760	$	0	$	484,376

NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)


	December 31, 2020
(in thousands)	Level 1			Level 2		Level 3		Total
Financial Assets:
Cash equivalents:
Money market funds	$	209,141		$	0	$	0	$	209,141
U.S. Treasury securities	1,000			0		0		1,000
Commercial paper	0			3,999		0		3,999
Marketable securities:
U.S. Treasury securities	21,340			0		0		21,340

Commercial paper	0			14,543		0		14,543
Asset-backed securities	0			14,538		0		14,538
Corporate bonds	0		—	17,125		0		17,125
Total	$	231,481		$	50,205	$	0	$	281,686

There were no transfers of financial assets or liabilities into or out of Level 1, Level 2, or Level 3 for the three and six months ended June 30, 2021 and June 30, 2020.

Assets and Liabilities that are Measured at Fair Value on a Nonrecurring Basis

The carrying value of cash and cash equivalents, accounts receivable, net, accounts payable, accrued expenses and other liabilities, and other current assets and liabilities, are considered reasonable estimates of their respective fair values at June 30, 2021 and December 31, 2020 due to their short-term nature.

The Company also measures certain non-financial assets at fair value on a nonrecurring basis, primarily intangible assets, goodwill, and long-lived assets in connection with periodic evaluations for potential impairment. The Company estimates the fair value of these assets using primarily unobservable inputs and, as such, these are considered Level 3 fair value measurements.

NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 5. Leases

As of June 30, 2021, the maturities of the Company’s operating lease liabilities and ~~right-of-use assets.~~ a reconciliation to the present value of lease liabilities were as follows (in thousands):


	Remaining Lease Payments
Remainder of 2021	$	3,671
2022	8,043
2023	7,638
2024	7,885
2025	5,087
Thereafter	37,142
Total remaining lease payments	69,466
Less: imputed interest	(14,200)
Total operating lease liabilities	55,266
Less: current portion	(5,642)
Long-term operating lease liabilities	$	49,624
Weighted-average remaining lease term (in years)	10.67
Weighted-average discount rate	4.1		%

The following summarizes additional supplemental data related to operating leases (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Operating lease costs	$	2,372	$	2,172	$	4,677	$	4,277


	Six Months Ended June 30,
	2021		2020
Right-of-use assets obtained in exchange for operating lease liabilities	$	12,125	$	24,071
Cash paid for operating leases	$	5,042	$	3,354

Lease contracts that have been executed but have not yet commenced are excluded from the tables above. As of June 30, 2021 the Company has entered into $33.8 million of contractually binding minimum lease payments for leases executed but not yet commenced. This amount primarily relates to the lease of the laboratory and headquarters facility in Fort Myers, Florida that is ~~currently evaluating the quantitative impact that adopting ASU 2016-02 will have on its consolidated financial statements.~~

~~In May 2014, the FASB issued ASU 2014-09,~~ ~~Revenues from Contracts with Customers. This standard update calls for a number of revisions~~expected to commence in the ~~revenue recognition rules.~~third quarter of 2021. In ~~August 2015,~~addition to the ~~FASB deferred~~minimum lease payments, the ~~effective date~~Company will pay approximately $25 million relating to the construction of the underlying assets and approximately $17 million in leasehold improvements. These amounts were placed into separate construction disbursement escrow accounts and as of June 30, 2021, $4.1 million was unpaid and remaining in restricted cash on the Consolidated Balance Sheets. Disbursements to the landlord take place from time to time to pay for the costs of the landlord’s work. The disbursements are classified as a prepaid lease asset or leasehold improvements, as appropriate, until the lease commences. Upon lease commencement, the prepaid lease asset will be included in the calculation of the right-of-use asset and the leasehold improvements will be placed in service. Construction of the infrastructure of this ~~ASU to the first quarter of 2018, with optional early adoption beginning~~facility commenced in the first quarter of ~~2017. The ASU can be applied using a full retrospective method or a modified retrospective method of adoption.~~ 2020. The Company ~~expects~~is not expected to ~~adopt this ASU in~~control the ~~first quarter~~underlying assets during the construction period and therefore is not considered the owner of ~~2018 using a full retrospective method of adoption. We anticipate~~ the ~~adoption of this standard to impact our Pharma Services revenue, specifically the timing of revenue recognition~~underlying assets for our long term research and clinical trials contracts. Many of these contracts have distinct terms which need to be evaluated separately, therefore, we are still in the process of contract review in order to determine the quantitative impact this standard will have on our Pharma Services revenue. We also expect this standard to impact our Clinical testing revenue. Under the new standard, substantially all of our bad debt expense which has historically been presented as part of selling, general and administrative expenses will be considered an implicit price concession and will be reported as a reduction in revenue. We also anticipate enhanced financial statement disclosures surrounding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The Company continues to assess the full impact the adoption of this standard will have on our financial statements.

accounting purposes.

Note ~~C –~~6. Goodwill and Intangible Assets

~~Goodwill as~~

As a result of ~~September 30, 2017~~the acquisition of Trapelo in April 2021, the Company recorded $44.7 million in goodwill, all of which was recorded in the Clinical Services segment. As a result of the acquisition of Inivata in June 2021, the Company recorded $244.2 million in goodwill, of which $214.5 million and ~~December 31, 2016 was $147.0 million. There were no~~$29.7 million is assigned to the Clinical Services and Pharma Services segments, respectively. For further information regarding the Trapelo and Inivata acquisitions, please refer to Note 3. Acquisitions.

NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

The following table summarizes the changes in the carrying amount of goodwill ~~during these periods.~~

by segment for the six months ended June 30, 2021 (in thousands):
Clinical Services Pharma Services Total
Balance as of December 31, 2020 $ 179,534 $ 31,549 $ 211,083
Trapelo acquisition 44,664 0 44,664
Inivata acquisition 214,563 29,667 244,230
Balance as of June 30, 2021 $ 438,761 $ 61,216 $ 499,977

Intangible assets ~~as of September 30, 2017 and December 31, 2016~~ consisted of the following (in thousands):


		June 30, 2021
	Amortization Period	Cost		Accumulated Amortization		Net


Customer Relationships	7 - 15 years	$	143,101	$	40,811	$	102,290
Developed Technology	10 - 15 years	322,022		1,167		320,855
Marketing Assets	4 years	549		32		517
Trademarks	15 years	31,700		76		31,624
Trade Name	5 years	2,322		17		2,305
Trademark - Indefinite lived	—	13,447		—		13,447
Total		$	513,141	$	42,103	$	471,038

September 30, 2017

Amortization
Period

Cost

Accumulated
Amortization

Net

Trade Name

24 months

$
3,000

$
2,633

$
367

Customer Relationships

156 - 180 months

85,437

9,502

75,935

Non-Compete Agreement

24 months

29

1

28

Total

$
88,466

$
12,136

$
76,330


		December 31, 2020
	Amortization Period	Cost		Accumulated Amortization		Net
Customer Relationships	7 - 15 years	$	143,101	$	35,895	$	107,206
Trademark - Indefinite lived	—	13,447		—		13,447
Total		$	156,548	$	35,895	$	120,653

December 31, 2016

Amortization
Period

Cost

Accumulated
Amortization

Net

Trade Name

24 months

$
3,000

$
1,508

$
1,492

Customer Relationships

156 - 180 months

$
81,000

$
5,428

$
75,572

Total

$
84,000

$
6,936

$
77,064

~~On August 31, 2017, the~~

The Company acquired a customer list from Ascend Genomics in exchange for 450,000 shares of restricted stock, see Note H – Equity. This customer relationship was recorded at fair value and is being amortized over 15 years. As part of the transaction, Ascend Genomics signed a non-compete agreement which was also recorded as an intangible asset and is being amortized over 2 years. We recorded approximately $1.7 and $1.8 million in straight-linerecords amortization expense within cost of ~~intangible assets~~revenue and general and administrative expense on the Consolidated Statement of Operations. The following table summarized the amortization expense for the three ~~month period~~and six months ended ~~September~~June 30, ~~2017~~2021 and 2016, respectively. We recorded approximately $5.2 million and $5.5 million in straight-line amortization expense of intangible assets for the nine month period ended September 30, 2017 and 2016, respectively. The Company recorded amortization expense from customer relationships and trade names as a general and administrative expense.

~~NEOGENOMICS, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~Unaudited~~

2020 (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Amortization of intangibles included in cost of revenue	$	729	$	0	$	729	$	0
Amortization of intangibles included in general and administrative expenses	3,022		2,467		5,480		4,919
Total amortization of intangibles	$	3,751	$	2,467	$	6,209	$	4,919

The estimated amortization expense related to amortizable intangible assets for each of the ~~five succeeding fiscal years and thereafter~~following periods as of ~~September~~June 30, ~~2017~~2021 is as follows (in thousands):

Remainder of 2017

$
1,796

2018

5,710

2019

5,706

2020

5,696

2021

5,695

2022

5,695

Thereafter

46,032

Total

$
76,330


Remainder of 2021	$	17,326
2022	34,650
2023	34,650
2024	34,650
2025	34,549

Thereafter	301,766
Total	$	457,591

NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note ~~D –~~7. Investment in Non-Consolidated Affiliate

On May 22, 2020, the Company formed a strategic alliance with Inivata, and entered into a Strategic Alliance Agreement and Laboratory Services Agreement with Inivata’s laboratory subsidiary in the U.S., Inivata, Inc., whereas Inivata’s laboratory rendered and performed certain laboratory testing which the Company made available to customers. The terms and conditions of the Laboratory Services Agreement were consistent with those that would be negotiated between willing parties on an arm’s length basis. For additional details on amounts paid related to the Laboratory Services Agreement, please refer to Note 15. Related Party Transactions.

In addition to the Laboratory Services Agreement, the Company also entered into an Investment Agreement with Inivata (the “Investment Agreement”), pursuant to which the Company acquired the Preference Shares for $25 million in cash resulting in a minority interest in Inivata’s outstanding equity and an Option Deed which provided the Company with a Purchase Option to purchase Inivata. The Investment Agreement also granted the Company one seat on Inivata’s Board of Directors. On June 18, 2021, the Company completed the acquisition of the remaining equity interests in Inivata. For further details regarding the acquisition of Inivata, please refer to Note 3. Acquisitions.

Prior to the Inivata Acquisition Date, Inivata was determined to be a variable interest entity (“VIE”) and the Company’s investment was under 20% of the total equity outstanding. The Company considered qualitative factors in assessing the primary beneficiary of the VIE which included understanding the purpose and design of the VIE, associated risks that the VIE created, activities that could be directed by the Company, and the expected relative impact of those activities on the economic performance of the VIE. Based on an evaluation of these factors, the Company concluded that it was not the primary beneficiary of Inivata prior to the Inivata Acquisition Date.

Prior to the Inivata Acquisition Date, the power to control the activities that most significantly impacted Inivata’s economic performance was the sole responsibility of Inivata’s management and Board of Directors; however, the Company did have significant influence over Inivata. As the Preference Shares were determined to not be in-substance common stock, and because the Preference Shares and the Purchase Option did not have readily determinable fair values, prior to the Inivata Acquisition Date, the Company elected to measure the Preference Shares and the Purchase Option at cost, minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer.

On May 22, 2020, the initial $25 million cost and $0.6 million of associated transaction costs was allocated between the Preference Shares and the Purchase Option based on the relative fair value of each and was recorded as investment in non-consolidated affiliate on the Consolidated Balance Sheets. The initial relative fair value of the investment in non-consolidated affiliate was comprised of $19.6 million in Preference Shares and a $6 million Purchase Option. The Preference Shares were valued by determining the equity value of Inivata using the Backsolve Method and allocating the value of the Preference Shares using the Option-Pricing Method and the inputs used included the equity value based on the Series C1 capital raised by Inivata, a volatility rate of 84%, a risk-free interest rate of 0.17% and 0% dividend yield. The Purchase Option was valued using the Black-Scholes model with a volatility rate of 84%, a risk-free interest rate of 0.17% and 0% dividend yield.

During the fourth quarter of 2020, an observable transaction of an identical investment in the Preference Shares occurred. This resulted in a remeasurement of the Preference Shares to the value of this observable transaction. The Purchase Option was also remeasured at fair value as a result of this observable transaction. As a result of these remeasurements, at December 31, 2020, the carrying value of the investment in non-consolidated affiliate was $29.6 million, comprised of $25 million in Preference Shares and a $4.6 million Purchase Option. The Company recorded a net unrealized gain of $4 million for these remeasurements for the year ended December 31, 2020 in other expense (income), net on the Consolidated Statements of Operations. At December 31, 2020, the Purchase Option was valued using the Black-Scholes model with a volatility rate of 84%, a risk-free interest rate of 0.17% and 0% dividend yield.

On May 22, 2020, the Company and Inivata also entered into the Line of Credit in the amount of $15 million. In January 2021, the Line of Credit, in its entirety, was drawn by Inivata and recorded as a loan receivable from non-consolidated affiliate on the Consolidated Balance Sheets. Prior to the Inivata Acquisition Date, the Line of Credit contractually matured on December 1, 2025 and the unpaid principal balance was payable on January 1, 2026 and bore interest at 0% per annum. In January 2021, upon the draw of the Line of Credit by Inivata, the Company used an imputed interest rate of 8.33% to present value the Line of Credit. The Company recorded an imputed interest rate discount of $5 million on the loan receivable from non-consolidated affiliate and an additional investment in non-consolidated affiliate of $5 million, resulting in a $10 million present value of the loan receivable from non-consolidated affiliate and increasing the value of the Preference Shares to $30 million. For the three and six months ended June 30, 2021 through the Inivata Acquisition Date, $0.2 million and $0.4 million of interest income was amortized to the loan receivable from non-consolidated affiliate, respectively. The interest income amortization is recorded in interest expense, net, on the Consolidated Statements of Operations.

NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

In the first quarter of 2021, subsequent to Inivata’s draw on the Line of Credit, an observable transaction of an identical investment in Inivata Preference Shares occurred. This resulted in a remeasurement of the Preference Shares to the value of this observable transaction. The Company recorded a net unrealized loss of $5 million for this remeasurement for the three months ended March 31, 2021 in other expense (income), net on the Consolidated Statements of Operations. As of March 31, 2021, the carrying value of the investment in non-consolidated affiliate was $29.6 million, comprised of $25 million in Preference Shares and a $4.6 million Purchase Option.

On the Inivata Acquisition Date, the Company acquired all of the remaining equity interests of Inivata through the exercise of its Purchase Option. The Company’s carrying value of the investment in non-consolidated affiliate was $29.6 million, comprised of $25 million in Preference Shares and a $4.6 million Purchase Option immediately prior to obtaining the remaining ownership of Inivata. The Company’s acquisition of control of Inivata on the Inivata Acquisition Date was accounted for as a business combination achieved in stages under the acquisition method. Accordingly, the Company remeasured its Preference Shares and Purchase Option to their acquisition-date fair values. The Company used a discounted cash flow to derive a business enterprise value of Inivata in order to determine the acquisition-date fair value of the Company’s Preference Shares and the Purchase Option. To determine the fair value of the Preference Shares, the fair value of equity was allocated to the various classes based on the respective rights and privileges of each class of stock in liquidation. The business enterprise value and a Black-Scholes model was then used to determine the fair value of the remaining equity acquired through the exercise of the Purchase Option. The Purchase Option was recorded at fair value at the Inivata Acquisition Date based on its settlement value. This resulted in fair values of $62.9 million in Preference Shares and a $58.5 million Purchase Option, immediately prior to the acquisition, resulting in a gain of $91.8 million in the three and six months ended June 30, 2021. On the Inivata Acquisition Date, the $10.3 million outstanding under the Line of Credit extended by the Company to Inivata was effectively settled as part of the acquisition of Inivata at the $15 million principal amount and was recorded as part of the consideration transferred in the acquisition resulting in a gain of $4.7 million in the three and six months ended June 30, 2021. The Company recorded a total gain on investment in and loan receivable from non-consolidated affiliate, net, within the Company’s Consolidated Statements of Operations of $96.5 million and $91.5 million in the three and six months ended June 30, 2021, respectively, for the excess of the acquisition-date fair value of the Company’s Preference Shares, Purchase Option, and Line of Credit over their carrying values. For further details regarding the acquisition of Inivata, please refer to Note 3. Acquisitions.

NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 8. Debt

The following table summarizes the ~~long term~~long-term debt, net at ~~September~~June 30, ~~2017~~2021 and December 31, ~~2016~~2020 (in thousands):


	June 30, 2021		December 31, 2020
0.25% Convertible Senior Notes due 2028
Principal	$	345,000	$	0
Unamortized debt discount	(9,688)		0
Unamortized debt issuance costs	(224)		0
Total 0.25% Convertible Senior Notes due 2028	$	335,088	$	0

1.25% Convertible Senior Notes due 2025
Principal	$	201,250	$	201,250
Unamortized debt discount	(4,682)		(32,592)
Unamortized debt issuance costs	(579)		(538)
Total 1.25% Convertible Senior Notes due 2025	$	195,989	$	168,120

Equipment financing obligations	2,361		3,808

Total debt	$	533,438	$	171,928

Less: Current portion of equipment financing obligations	(1,913)		(2,841)
Total long-term debt, net	$	531,525	$	169,087

September 30, 2017

December 31, 2016

Term Loan Facility

$
72,188

$
75,000

Revolving Credit Facility

25,399

22,900

Auto Loans

82

202

Capital leases

9,270

10,269

Total Debt

106,939

108,371

Less: Debt issuance costs

(1,878
)

(2,202
)
Less: Current portion of long-term debt

(8,486
)

(8,733
)
Total Long-Term Debt, net

$
96,575

$
97,436

~~The~~

At June 30, 2021, the estimated fair values (Level 2) of the 0.25% Convertible Senior Notes due 2028 and the 1.25% Convertible Senior Notes due 2025 were $327.5 million and $286.3 million, respectively. There was no such estimated fair value as of December 31, 2020 related to the 0.25% Convertible Senior Notes due 2028. At December 31, 2020, the estimated fair value (Level 2) of the 1.25% Convertible Senior Notes due 2025 was $320.9 million. At June 30, 2021 and December 31, 2020, the carrying value of the Company’s ~~long-term capital lease~~equipment financing obligations ~~and term debt approximates its~~approximated fair value based on the current market conditions for similar instruments.

~~Term Loan~~

2028 Convertible Senior Notes

On ~~December 22, 2016,~~January 11, 2021, the Company completed the sale of $345 million of Convertible Senior Notes with a stated interest rate of 0.25% and a maturity date of January 15, 2028 (the “2028 Convertible Notes”), unless earlier converted, redeemed, or repurchased. The 2028 Convertible Notes were issued at a discounted price of 97% of their principal amount. The total net proceeds from the issuance of the 2028 Convertible Notes and exercise of the Over-allotment Option was approximately $334.4 million, which includes approximately $10.6 million of discounts, commissions and offering expenses paid by the Company. On January 11, 2021 the Company entered into an Indenture (the “Indenture”), with U.S. Bank National Association, as trustee (the “Trustee”), governing the 2028 Convertible Notes. The Company used a ~~Credit Agreement~~portion of the net proceeds from the Offerings to enter into capped call transactions (as described below under the heading “Capped Call Transactions”).

Prior to September 15, 2027, noteholders may convert their 2028 Convertible Notes at their option, only in the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on June 30, 2021 (and only during such calendar quarter), if the last reported sale price of the common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (2) during the 5 business day period after any 5 consecutive trading day period in which the trading price per $1,000 principal amount of 2028 Convertible Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such trading day; (3) if the Company calls any or all of the notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date; or (4) upon the occurrence of specified corporate events. On or after September 15, 2027 until the close of business on the second business day immediately preceding the maturity date, noteholders may convert their 2028 Convertible Notes at any time, regardless of the foregoing circumstances.

NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

make-whole premium by increasing the conversion rate for a holder who elects to convert its 2028 Convertible Notes in connection with ~~Regions Bank~~such a corporate event in certain circumstances. The value of the 2028 Convertible Notes, if-converted, does not exceed the principal amount based on a closing stock price of $45.17 on June 30, 2021. For the three and six months ended June 30, 2021 the Company included 5,215,434 and 5,042,547 shares, respectively, in diluted weighted average common shares outstanding for the if-converted impact of the 2028 Convertible Notes in the diluted net income (loss) per share calculation as ~~administrative agent~~the shares would have a dilutive effect. For further details on the impact of the 2028 Convertible Notes on net income (loss) per share please refer to Note 12. Net Income (Loss) Per Share.

The Company may not redeem the 2028 Convertible Notes prior to January 20, 2025. The Company may redeem for cash all or any portion of the 2028 Convertible Notes, at its option, on or after January 20, 2025 if the last reported sale price of its common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and ~~collateral agent. The Credit Agreement~~including, the trading day immediately preceding the date of notice by the Company of redemption at a redemption price equal to 100% of the principal amount of the 2028 Convertible Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. No sinking fund is provided for ~~a $75.0 million term loan facility (the “Term Loan Facility”). The Credit Agreement also provides incremental facility capacity of $50 million, subject~~the 2028 Convertible Notes.

If an event involving bankruptcy, insolvency or reorganization events with respect to ~~certain conditions~~. ~~On September 30, 2017 and December 31, 2016,~~ the Company ~~had current~~occurs, then the principal amount of, and all accrued and unpaid interest on, all of the 2028 Convertible Notes then outstanding ~~borrowings under~~will immediately become due and payable. If any other default event occurs and is continuing, then noteholders of at least 25% of the ~~Term Loan~~aggregate principal amount of ~~approximately $3.8~~the 2028 Convertible Notes then outstanding, by notice to the Company, may declare the principal amount of, and all accrued and unpaid interest on, all of the 2028 Convertible Notes then outstanding to become due and payable immediately. If the Company undergoes a “fundamental change” as defined in the Indenture, then noteholders may require the Company to repurchase their 2028 Convertible Notes at a cash repurchase price equal to the principal amount of the 2028 Convertible Notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the fundamental change repurchase date.

The 2028 Convertible Notes are the Company’s senior, unsecured obligations and will be equal in right of payment with its existing and future senior, unsecured indebtedness, senior in right of payment to its existing and future indebtedness that is expressly subordinated to the 2028 Convertible Notes and effectively junior to its existing and future secured indebtedness, to the extent of the value of the collateral securing that indebtedness. The 2028 Convertible Notes will be structurally subordinated to all existing and future indebtedness and other liabilities, including trade payables, of its subsidiaries.

The interest expense recognized on the 2028 Convertible Notes includes $0.2 million, $0.3 million and ~~long-term outstanding borrowings~~$8,400 for the contractual coupon interest, the amortization of ~~approximately $67.5 million~~the debt discount and ~~$70.1 million, net~~the amortization of ~~unamortized~~the debt issuance costs, respectively, for the three months ended June 30, 2021. The interest expense recognized on the 2028 Convertible Notes includes $0.4 million, $0.7 million and $15,100 for the contractual coupon interest, the amortization of ~~$939,000~~the debt discount and ~~$1.1 million, respectively. The~~the amortization of the debt issuance costs, respectively, for the six months ended June 30, 2021. There were no such amounts for the three or six months ended June 30, 2020. The effective interest rate on the 2028 Convertible Notes is 0.70%, which includes the interest on the 2028 Convertible Notes and amortization of the debt discount and debt issuance costs. The 2028 Convertible Notes bear interest at a rate of 0.25% per annum, payable semi-annually in arrears on January 15 and July 15 of each year, beginning on July 15, 2021.

Capped Call Transactions

In connection with the 2028 Convertible Notes offering, on January 11, 2021, the Company entered into separate, privately negotiated convertible note hedge transactions (collectively, the “Capped Call Transactions”) with option counterparties pursuant to capped call confirmations at a cost of approximately $29.3 million. As the Capped Call Transactions meet certain accounting criteria, the Capped Call Transactions were classified as equity, are not accounted for as derivatives and were recorded as a reduction of the Company’s additional paid-in capital in the ~~carrying~~accompanying unaudited Consolidated Financial Statements. The Capped Call Transactions are not part of the terms of the 2028 Convertible Notes and will not affect any holders’ rights under the 2028 Convertible Notes. The Capped Call Transactions cover, subject to customary anti-dilution adjustments, the number of shares of the Company’s common stock that initially underlie the 2028 Convertible Notes. The number of shares underlying the Capped Call Transactions is 5.2 million.

The cap price of the Capped Call Transactions is initially $85.75 per share of the Company’s common stock, which represents a premium of 75% over the public offering price of the common stock in the 2021 Common Stock Offering, which was $49.00 per share, and is subject to certain adjustments under the terms of the Capped Call Transactions.

By entering into the Capped Call Transactions, the Company expects to reduce the potential dilution to its common stock (or, in the event a conversion of the 2028 Convertible Notes is settled in cash, to reduce its cash payment obligation) in the event that, at the time of conversion of the 2028 Convertible Notes, its common stock price exceeds the conversion price of the 2028 Convertible Notes.

NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

2025 Convertible Senior Notes

On May 4, 2020, the Company completed the sale of $201.3 million of Convertible Senior Notes with a stated interest rate of 1.25% and a maturity date of May 1, 2025 (the “2025 Convertible Notes”), unless earlier converted, redeemed, or repurchased. The 2025 Convertible Notes were issued at a discounted price of 97% of their principal amount. The total net proceeds from the issuance of the 2025 Convertible Notes and exercise of the Over-allotment Option was approximately $194.5 million, which includes approximately $6.9 million of discounts, commissions and offering expenses paid by the Company. On May 4, 2020, the Company entered into an Indenture (the “Indenture”), with U.S. Bank National Association, as trustee (the “Trustee”), governing the 2025 Convertible Notes.

Prior to February 1, 2025, noteholders may convert their 2025 Convertible Notes at their option, only in the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on September 30, 2020 (and only during such calendar quarter), if the last reported sale price of the common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (2) during the 5 business day period after any 5 consecutive trading day period in which the trading price per $1,000 principal amount of 2025 Convertible Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such trading day; (3) if the Company calls any or all of the notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date; or (4) upon the occurrence of specified corporate events. On or after February 1, 2025 until the close of business on the business day immediately preceding the maturity date, noteholders may convert their 2025 Convertible Notes at any time, regardless of the foregoing circumstances.

The last reported sales price of the Company’s common stock was not greater than or equal to 130% of the conversion price of the 2025 Convertible Notes on at least 20 of the last 30 consecutive trading days of the quarter ended June 30, 2021. The last reported sales price of the Company’s common stock was greater than or equal to 130% of the conversion price of the 2025 Convertible Notes on at least 20 of the last 30 consecutive trading days of the quarter ended December 31, 2020. Based on the terms of the 2025 Convertible Notes, the holders could have converted all or a portion of their 2025 Convertible Notes in the first quarter of 2021. When a conversion notice is received, the Company has the option to pay or deliver cash, shares of the Company’s common stock, or a combination thereof. As the Company is not required to settle the 2025 Convertible Notes in cash, the 2025 Convertible Notes are classified as long-term debt as of June 30, 2021 and December 31, 2020. As of June 30, 2021 the Company had not received any conversion notices.

Upon conversion, the Company will pay or deliver, as applicable, cash, shares of common stock or a combination of cash and shares of common stock, at its election. The initial conversion rate for the 2025 Convertible Notes is 27.5198 shares of common stock per $1,000 in principal amounts of 2025 Convertible Notes, equivalent to an initial conversion price of approximately $36.34 per share of common stock. The conversion rate is subject to adjustment as described in the Indenture. In addition, following certain corporate events that occur prior to the maturity date as described in the Indenture, the Company will pay a make-whole premium by increasing the conversion rate for a holder who elects to convert its 2025 Convertible Notes in connection with such a corporate event in certain circumstances. The value of the 2025 Convertible Notes, if-converted, exceeds the principal amount by $48.9 million based on a closing stock price of $45.17 on June 30, 2021. For the three and six months ended June 30, 2021 the Company included 5,538,360 shares in diluted weighted average common shares outstanding for the if-converted impact of the 2025 Convertible Notes in the diluted net income (loss) per share calculation as the shares would have a dilutive effect. For the three and six months ended June 30, 2020 the Company excluded 3,773,388 and 1,886,694 shares, respectively, in diluted weighted average common shares outstanding for the if-converted impact of the 2025 Convertible Notes in the diluted net income (loss) per share calculation as the shares would have an anti-dilutive effect. For further details on the impact of the 2025 Convertible Notes on net income (loss) per share please refer to Note 12. Net Income (Loss) Per Share.

The Company may not redeem the 2025 Convertible Notes prior to May 6, 2023. The Company may redeem for cash all or any portion of the 2025 Convertible Notes, at its option, on or after May 6, 2023 if the last reported sale price of its common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date of notice by the Company of redemption at a redemption price equal to 100% of the principal amount of the ~~related liability~~2025 Convertible Notes to be redeemed, plus accrued and ~~are being amortized over~~unpaid interest to, but excluding, the ~~life~~redemption date. No sinking fund is provided for the 2025 Convertible Notes.

If an event involving bankruptcy, insolvency or reorganization events with respect to the Company occurs, then the principal amount of, and all accrued and unpaid interest on, all of the ~~loan.~~

2025 Convertible Notes then outstanding will immediately become due and payable. If any other default event occurs and is continuing, then noteholders of at least 25% of the aggregate principal amount of the 2025 Convertible Notes then outstanding, by notice to the Company, may declare the principal amount of, and all

NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

accrued and unpaid interest on, all of the 2025 Convertible Notes then outstanding to become due and payable immediately. If the Company undergoes a “fundamental change” as defined in the Indenture, then noteholders may require the Company to repurchase their 2025 Convertible Notes at a cash repurchase price equal to the principal amount of the 2025 Convertible Notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the fundamental change repurchase date.

The ~~Term Loan Facility bears~~2025 Convertible Notes are the Company’s senior, unsecured obligations and will be equal in right of payment with its existing and future senior, unsecured indebtedness, senior in right of payment to its existing and future indebtedness that is expressly subordinated to the 2025 Convertible Notes and effectively junior to its existing and future secured indebtedness, to the extent of the value of the collateral securing that indebtedness. The 2025 Convertible Notes will be structurally subordinated to all existing and future indebtedness and other liabilities, including trade payables, of its subsidiaries.

The interest expense recognized on the 2025 Convertible Notes includes $0.7 million, $0.3 million and $0.03 million for the contractual coupon interest, the amortization of the debt discount and the amortization of the debt issuance costs, respectively, for the three months ended June 30, 2021. The interest expense recognized on the 2025 Convertible Notes includes $1.3 million, $0.6 million and $0.07 million for the contractual coupon interest, the amortization of the debt discount and the amortization of the debt issuance costs, respectively, for the six months ended June 30, 2021. The interest expense recognized on the 2025 Convertible Notes included $0.4 million, $0.9 million and $19,100 for the contractual coupon interest, the accretion of the debt discount and the amortization of the debt issuance costs, respectively, for both the three and six months ended June 30, 2020. The effective interest rate on the 2025 Convertible Notes is 1.96%, which includes the interest on the 2025 Convertible Notes and amortization of the debt discount and debt issuance costs. The 2025 Convertible Notes bear interest at a rate of 1.25% per annum, equal to an applicable margin plus, at NeoGenomics Laboratories’ option, either (1) the Adjusted LIBOR rate for the relevant interest period, (2) an alternate base rate determined by reference to the greatest of (a) the prime lending rate of Regions, (b) the federal funds rate for the relevant interest period plus 0.5% per annumpayable semi-annually in arrears on May 1 and (c) the one month LIBOR rate plus 1% per annum, or (3) a combination of (1) and (2). The applicable margin will range from 2.25% to 3.50% for LIBOR loans and 1.25% to 2.50% for base rate loans, in each case based on NeoGenomics Laboratories’ consolidated leverage ratio (as defined in the Credit Agreement). Interest on borrowings under the Revolving Credit Facility is payable on the last dayNovember 1 of each ~~month, in the case of each base rate loan, and~~year, which began on the last day of each interest period (but no less frequently than every three months), in the case of Adjusted LIBOR loans. The Company entered into an interest rate swap agreement to hedge against changes in the variable rate of a portion of this debt. See Note E-Derivative Instruments and Hedging Activities for more information on this instrument.

The Term Loan Facility and amounts borrowed under the Revolving Credit Facility are secured on a first priority basis by a security interest in substantially all of the tangible and intangible assets of NeoGenomics Laboratories and the Guarantors. The Term Loan Facility contains various affirmative and negative covenants including ability to incur liens and encumbrances; make certain restricted payments, including paying dividends on its equity securities or payments to redeem, repurchase or retire its equity securities; enter

~~NEOGENOMICS, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~Unaudited~~

into certain restrictive agreements; make investments, loans and acquisitions; merge or consolidate with any other person; dispose of assets; enter into sale and leaseback transactions; engage in transactions with its affiliates, and materially alter the business it conducts. In addition, the Company must meet certain maximum leverage ratios and fixed charge coverage ratios as of the end of each fiscal quarter commencing with the quarter ending March 31, 2017. The Company was in compliance with all required covenants as of September 30, 2017.

The Term Loan Facility has a maturity date of December 21, 2021. The Credit Agreement requires NeoGenomics Laboratories to mandatorily prepay the Term Loan Facility and amounts borrowed under the Revolving Credit Facility with (i) 100% of net cash proceeds from certain sales and dispositions, subject to certain reinvestment rights, (ii) 100% of net cash proceeds from certain issuances or incurrences of additional debt, (iii) beginning with the fiscal year ending December 31, 2017, 50% of excess cash flow (as defined), subject to a step down to 0% of excess cash flow if NeoGenomics Laboratories’ consolidated leverage ratio is no greater than 2.75:1.0 and (iv) 100% of net cash proceeds from issuances of permitted equity securities by NeoGenomics Laboratories made in order to cure a failure to comply with the financial covenants. NeoGenomics Laboratories is permitted to voluntarily prepay the Term Loan Facility and amounts borrowed under the Revolving Credit Facility at any time without penalty.

~~Auto Loans~~

~~The Company has auto loans with various financial institutions. The auto loan terms range from 36-60 months and carry interest rates from 0.0% to 5.2%.~~

~~Capital Leases~~

November 1, 2020.

Equipment Financing Obligations

The Company has entered into ~~capital leases~~loans with various banks to finance the purchase of laboratory equipment, office equipment and ~~office equipment.~~leasehold improvements. These ~~leases expire~~loans mature at various dates through ~~2020~~2023 and the weighted average interest rate under such ~~leases~~loans was approximately ~~4.81% at September~~5.07% as of June 30, ~~2017. Most~~2021 and 4.91% as 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. The remaining leases have purchase options at fair market value.

~~Property and equipment acquired under capital lease agreements are pledged as collateral to secure the performance of the future minimum lease payments.~~

~~Revolving Credit Facility~~

On December 22, 2016, the Company entered into a Credit Agreement with Regions Bank as administrative agent and collateral agent. The Credit Agreement provided for a $75.0 million revolving credit facility (the “Revolving Facility”). On September 30, 2017, and December 31, ~~2016, the Company had outstanding borrowings of approximately $24.5 million and $21.8 million, net of unamortized debt issuance costs of $939,000 and $1.1 million, respectively.~~

The Revolving Credit Facility includes a $10 million swingline sublimit, with swingline loans bearing interest at the alternate base rate plus the applicable margin. Any principal outstanding under the Revolving Credit Facility is due and payable on December 21, 2021 or such earlier date as the obligations under the Credit Agreement become due and payable pursuant to the terms of the Credit Agreement. The Revolving Facility bears interest at a rate per annum equal to an applicable margin plus, at NeoGenomics Laboratories’ option, either (1) the Adjusted LIBOR rate for the relevant interest period, (2) an alternate base rate determined by reference to the greatest of (a) the prime lending rate of Regions, (b) the federal funds rate for the relevant interest period plus 0.5% per annum and (c) the one month LIBOR rate plus 1% per annum, or (3) a combination of (1) and (2). The applicable margin will range from 2.25% to 3.50% for Adjusted LIBOR loans and 1.25% to 2.50% for base rate loans, in each case based on NeoGenomics Laboratories’ consolidated leverage ratio. Interest on the outstanding principal of the Term Loan Facility will be payable on the last day of each month, in the case of each base rate loan, and on the last day of each interest period (but no less frequently than every three months), in the case of LIBOR loans.

The Credit Agreement requires NeoGenomics Laboratories to mandatorily prepay the Term Loan Facility and amounts borrowed under the Revolving Credit Facility with (i) 100% of net cash proceeds from certain sales and dispositions, subject to certain reinvestment rights, (ii) 100% of net cash proceeds from certain issuances or incurrences of additional debt, (iii) beginning with the fiscal year ending December 31, 2017, 50% of excess cash flow (minus certain specified other payments), subject to a step down to 0% of excess cash flow if NeoGenomics Laboratories’ consolidated leverage ratio is no greater than 2.75:1.0 and (iv) 100% of net

~~NEOGENOMICS, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~Unaudited~~

cash proceeds from issuances of permitted equity securities by NeoGenomics Laboratories made in order to cure a failure to comply with the financial covenants. NeoGenomics Laboratories is permitted to voluntarily prepay the Term Loan Facility and amounts borrowed under the Revolving Credit Facility at any time without penalty, subject to customary “breakage” costs with respect to prepayments of Adjusted LIBOR rate loans made on a day other than the last day of any applicable interest period.

2020.

Maturities of Long-Term Debt

Maturities of long-term debt ~~at September~~as of June 30, ~~2017~~2021 are summarized as follows (in thousands):


	0.25% Convertible Senior Notes		1.25% Convertible Senior Notes		Equipment Financing Obligations		Total Debt
Remainder of 2021	$	0	$	0	$	1,086	$	1,086
2022	0		0		1,196		1,196
2023	0		0		77		77
2024	0		0		2		2
2025	0		201,250		0		201,250
2026	0		0		0		0

Thereafter	345,000		0		0		345,000
Total Debt	$	345,000	$	201,250	$	2,361	$	548,611
Less: Current portion of long-term debt	0		0		(1,913)		(1,913)
Less: Unamortized debt discount	(9,688)		(4,682)		0		(14,370)
Less: Unamortized debt issuance costs	(224)		(579)		0		(803)
Long-term debt, net	$	335,088	$	195,989	$	448	$	531,525

Term Loan and Revolving Credit Facility

Capital Lease Obligations

Auto Loans

Total Long-Term Debt

Remainder of 2017
$
938

$
1,397

$
12

$
2,347

2018

3,750

4,677

49

8,476

2019

5,625

3,112

21

8,758

2020

5,625

617

-

6,242

2021

81,649

-

-

81,649

97,587

9,803

82

107,472

Less: Interest on capital leases

-

(533
)

-

(533
)

97,587

9,270

82

106,939

Less: Current portion of long-term debt

(3,750
)

(4,687
)

(49
)

(8,486
)
Less: Debt issuance costs

(1,878
)

-

-

(1,878
)
Long-term debt, net
$
91,959

$
4,583

$
33

$
96,575

NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note ~~E – Derivative Instruments~~9. Equity Transactions

Private Placement Transaction

On June 18, 2021, the Company completed a private placement (“Private Placement”) to certain accredited investors of an aggregate of 4,444,445 shares of the Company’s common stock at a price of $45.00 per share. The net proceeds to the Company from the Private Placement were approximately $189.9 million, after deducting fees to the placement agents and ~~Hedging Activities~~

~~Cash Flow Hedges~~

~~In December~~other offering expenses of ~~2016,~~approximately $10.1 million.

Common Stock Issued for Acquisition

As discussed in Note 3. Acquisitions, the Company issued 597,712 shares of common stock as consideration for the acquisition of Trapelo in April 2021.

Underwritten Public Equity Offerings

On January 6, 2021, the Company entered into an ~~interest rate swap~~underwriting agreement relating to ~~reduce our exposure to interest rate fluctuations on our variable rate debt obligations. This derivative financial instrument is accounted for at fair value as a cash flow hedge~~ ~~which effectively modifies our exposure to interest rate risk by converting a portion~~the issuance and sale of ~~our floating rate debt to a fixed rate obligation, thus reducing the impact of interest rate changes on future interest expense.~~

We account for derivatives in accordance with FASB ASC Topic 815, see Note B-Summary of Significant Accounting Policies in Annual Report on Form 10-K for more information on our accounting policy related to derivative instruments and hedging activities.

~~Under this agreement, we receive a variable rate of interest based on LIBOR, and we pay a fixed rate of interest at 1.59%.~~ ~~The interest rate swap agreement was effective as of December 30, 2016 and a termination date of December 31, 2019.~~ ~~As of September 30, 2017 and December 31, 2016, the total notional amount~~4,081,632 shares of the Company’s ~~interest rate swaps~~common stock, $0.001 par value per share (the “2021 Common Stock Offering”). The price to the public in this offering was $49.00 per share. The net proceeds to the Company from the 2021 Common Stock Offering were ~~$50~~approximately $189.9 million, after deducting underwriting discounts, commissions and other offering expenses of approximately $10.1 million.

~~The fair value~~

Under the terms of the ~~interest rate swap will be included in~~underwriting agreement, the Company also granted the Underwriters a 30-day option to purchase up to 612,244 additional shares of Common Stock at the public offering price, less underwriting discounts and commissions. On January 6, 2021, the Underwriters exercised their option and purchased all 612,244 shares. The net proceeds related to the option exercise were approximately $28.4 million, after deducting underwriting discounts, commissions and other ~~long term assets or liabilities, when applicable. As~~offering expenses of ~~September 30, 2017~~approximately $1.6 million.

On April 29, 2020, the Company entered into an underwriting agreement relating to the issuance and ~~December 31, 2016, the fair value~~sale of 4,400,000 shares of the ~~interest rate swap was not considered to be significant due~~Company’s common stock, $0.001 par value per share (the “2020 Common Stock Offering”). The price to the ~~change~~public in ~~LIBOR over that time period outstanding, therefore, no amount is included on~~this offering was $28.50 per share. The net proceeds to the ~~balance sheet for this instrument. As~~Company from the ~~specific~~2020 Common Stock Offering were approximately $117.9 million, after deducting underwriting discounts, commissions and other offering expenses of approximately $7.5 million.

Under the terms ~~and notional amounts~~ of the ~~derivative financial instrument match those~~underwriting agreement, the Company also granted the Underwriters a 30-day option to purchase up to 660,000 additional shares of Common Stock at the ~~fixed-rate debt being hedged,~~public offering price, less underwriting discounts and commissions. On May 29, 2020, the ~~derivative instruments are assumed to be perfectly effective hedges~~Underwriters partially exercised their option and ~~accordingly, there is no impact~~on June 3, 2020, purchased an additional 351,500 shares. The net proceeds related to the ~~Company's consolidated statements~~option exercise were approximately $9.4 million, after deducting underwriting discounts, commissions and other offering expenses of ~~operations.~~ Gains and losses on this interest rate swap agreement will be recorded in accumulated other comprehensive income and will be reclassified to interest expense in the period during which the hedged transaction affects earnings. At September 30, 2017 and December 31, 2016, there was no impact to accumulated other comprehensive income (AOCI) as it was determined that there was not a significant change to record. The fair value of this instrument will be evaluated on a quarterly basis and adjusted as necessary.

approximately $0.6 million.

NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~Unaudited~~

(unaudited)

Note ~~F – Class A Redeemable Convertible Preferred Stock~~

On December 30, 2015, NeoGenomics issued 14,666,667 shares of its Series A Preferred stock as part of the consideration for the acquisition of Clarient. The Series A Preferred Stock has a face value of $7.50 per share for a total liquidation value of $110 million. During the first year, the Series A Preferred Stock had a liquidation value of $100 million if the shares were redeemed prior to December 29, 2016. On December 22, 2016, the Company redeemed 8,066,667 shares of the Series A Preferred Stock for $55.0 million in cash. The redemption amount per share equaled $6.8181825 ($7.50 minus the liquidation discount of 9.0909%). At September 30, 2017, 6,600,000 shares of Series A Preferred Stock were outstanding.

The carrying amount of the Series A Preferred Stock at September 30, 2017 was $30.1 million as compared to the carrying amount at December 31, 2016 of $22.9 million. The increase in the carrying amount is due to the accrual of deemed dividends of approximately $2.7 million, the accretion of the beneficial conversion feature of approximately $5.1 million during the nine months ending September 30, 2017 and the additional BCF discounts for payment-in-kind shares accrued during the nine months ending September 30, 2017 of $0.6 million. Both the deemed dividends and the accretion of the beneficial conversion feature are recorded as distributions to the holders of the Series A Preferred Stock on the income statement with the corresponding entry recorded as an increase to the carrying value of the Series A Preferred Stock.

~~Issue Discount~~

10. Stock-Based Compensation

The Company recorded ~~the Series A Preferred Stock at a fair value of~~ approximately ~~$73.2 million or $4.99 per share on the date of issuance. The difference between the fair value of $73.2~~$4.5 million and $2.6 million in stock-based compensation expense for the ~~liquidation value of $110~~three months ended June 30, 2021 and 2020, respectively, and approximately $7.2 million ~~represents a discount of $36.8~~and $4.8 million ~~from~~in stock-based compensation expense for the ~~initial face value as a result of assessing the impact the rights~~six months ended June 30, 2021 and ~~features~~2020, respectively. A summary of the ~~instrument and their effect on~~stock option activity under the ~~value to~~Company’s plans for the Company. After the partial redemption, the Series A Preferred stock has a fair value of approximately $32.9 million or $4.99 per share. The difference between the fair value of $32.9 million and the liquidation value of $49.5 million represents a discount of approximately $16.6 million.

~~Beneficial Conversion Features~~

six months ended June 30, 2021 is as follows:


	Number of Shares	Weighted Average Exercise Price
Options outstanding at December 31, 2020	3,785,941	$	15.21
Options granted	757,197	$	49.04
Less:
Options exercised	612,307	$	10.89
Options forfeited	200,148	$	30.86
Options outstanding at June 30, 2021	3,730,683	$	21.94
Exercisable at June 30, 2021	2,054,032	$	11.75

The fair value of each stock option award granted during the six months ended June 30, 2021 was estimated as of the grant date using a Black-Scholes model with the following weighted average assumptions:


			Six Months Ended June 30, 2021
Expected term (in years)			4.0 - 5.5
Risk-free interest rate (%)			0.7%
Expected volatility (%)			39% - 49%
Dividend yield (%)			0
Weighted average fair value/share at grant date			$18.53

As of June 30, 2021, there was approximately $15 million of unrecognized stock-based compensation expense related to stock options that will be recognized over a weighted-average period of approximately 2.2 years.

A summary of the restricted stock activity under the Company’s plans for the six months ended June 30, 2021 is as follows:


	Number of Restricted Shares	Weighted Average Grant Date Fair Value
Nonvested at December 31, 2020	291,891	$	23.82
Granted	273,327	$	49.33
Vested	(93,934)	$	24.69
Forfeited	(28,318)	$	34.55
Nonvested at June 30, 2021	442,966	$	38.69

As of June 30, 2021, there was approximately $12.1 million of unrecognized stock-based compensation expense related to restricted stock that will be recognized over a weighted-average period of approximately 1.9 years.

Employee Stock Purchase Plan (“ESPP”)

The Company offers an ESPP through which eligible employees may purchase shares of the Company’s common stock ~~into which~~at a discount of 15% of the ~~Series A Preferred Stock is convertible exceeded the allocated purchase price~~ fair market value of the Series A Preferred Stock at the date of issuance and after redemption by approximately $44.7 and $20.1 million, respectively, resulting in a beneficial conversion feature. The Company will recognize the beneficial conversion feature as non-cash, deemed dividend to the holder of Series A Preferred Stock over the first three years the Series A Preferred Stock is outstanding, as the date the stock first becomes convertible is three years from the issue date. The amount recognized forCompany’s common stock.

During the three ~~and nine~~ months ended ~~September~~June 30, ~~2017~~2021 and 2020, employees purchased 31,839 and 41,058 shares, respectively, under the ESPP. The expense recorded for these periods was approximately ~~$1.7~~$0.3 million and ~~$5.1~~$0.2 million, respectively.

~~In addition to~~During the ~~beneficial conversion feature (“BCF”) recorded at the original issue date, we recorded additional BCF discounts for payment-in-kind shares accrued for quarters~~six months ended ~~March 31, 2017,~~ June 30, ~~2017~~2021 and ~~September 30, 2017, as dividends. After~~2020, employees purchased 55,756 and 75,388 shares, respectively, under the early redemption, the face value of the remaining Series A Preferred Stock is $49.5 million. We will issue 264,000 additional shares ($49.5 million * 4.0%) / $7.50) of Series A Preferred Stock as payment-in-kind dividends for the year ending December 31, 2017, the first year dividends are payable.ESPP. The additional 264,000 shares will be discounted and amortized to the income statement over the remaining period up to the earliest conversion date, which is three years from the original issue date. The additional BCF discountexpense recorded for ~~the three and nine months ended September 30, 2017~~these periods was approximately ~~$201,240~~$0.5 million and ~~$603,720~~$0.4 million, respectively.

NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~Unaudited~~

~~Automatic Conversion~~

~~Each share of Series A Preferred Stock issued~~

(unaudited)

Note 11. Revenue Recognition

The Company has 2 operating segments for which it recognizes revenue; Clinical Services and ~~outstanding as~~Pharma Services. The Clinical Services segment provides various clinical testing services to community-based pathology practices, oncology practices, hospital pathology labs, reference labs, and academic centers with reimbursement from various payers including client direct billing, commercial insurance, Medicare and other government payers, and patients. Due to the broad roll-out of the ~~tenth anniversary~~COVID-19 vaccine and a sharp decline in COVID-19 PCR testing demand, the Company made the decision at the end of the ~~original issue date will automatically convert into fully paid~~first quarter of 2021 to exit from COVID-19 PCR testing which was part of Clinical Services segment revenues. The Pharma Services segment supports pharmaceutical firms in their drug development programs by providing testing services and ~~non-assessable shares of common stock.~~

~~Classification~~

The Company classified the Series A Preferred Stock as temporary equity on the consolidated balance sheets due to certain change in control events that are outside the Company’s control, including deemed liquidation events described in the Series A Certificate of Designation.

~~Note G –~~data analytics for clinical trials and research.

Clinical Services Revenue ~~Recognition and Contractual Adjustments~~

The Company recognizes revenues when (a) the price is fixed or determinable, (b) persuasive evidence of an arrangement exists, (c) the service is performed and (d) collectability of the resulting receivable is reasonably assured.

The Company’s specialized diagnostic services are performed based on a written test requisition form or electronic ~~equivalent,~~equivalent. The performance obligation is satisfied and revenues are recognized once the diagnostic services have been performed and the results have been delivered to the ordering physician. These diagnostic services are billed to various payers, including ~~Medicare,~~client direct billing, commercial insurance, ~~companies,~~Medicare and other ~~directly billed healthcare institutions such as hospitals~~government payers, and ~~clinics, and individuals. The Company reports revenues from contracted~~patients. Revenue is recorded for all payers including Medicare, certain insurance companies and certain healthcare institutions, based on the contractual rate, or in the case of Medicare, published fee schedules. The Company reports revenues from non-contracted payers, including certain insurance companies and individuals, based on the amount expected to be ~~collected. The difference~~collected, which considers implicit price concessions. Implicit price concessions represent differences between ~~the amount~~amounts billed and the ~~amount~~ estimated consideration the Company expects to ~~be collected~~receive based on negotiated discounts, historical collection experience and other anticipated adjustments, including anticipated payer denials. Collection of consideration the Company expects to receive typically occurs within 30 to 90 days of billing for commercial insurance, Medicare and other governmental and self-pay payers and within 60 to 90 days of billing for client payers.

Pharma Services Revenue

The Company’s Pharma Services segment generally enters into contracts with pharmaceutical customers as well as other CROs to provide research and clinical trial services ranging in duration from ~~non-contracted payers~~one month to several years. The Company records revenue on a unit-of-service basis based on number of units completed and the total expected contract value. The total expected contract value is ~~recorded~~estimated based on historical experience of total contracted units compared to realized units as ~~an allowance to arrive at~~well as known factors on a specific contract-by-contract basis. Certain contracts include upfront fees, final settlement amounts or billing milestones that may not align with the ~~reported net revenues.~~completion of performance obligations. The ~~expected revenues from non-contracted payers are~~value of these upfront fees or final settlement amounts is usually recognized over time based on the ~~historical collection experience~~number of ~~each payer or payer group, as appropriate.~~ units completed, which aligns with the progress of the Company towards fulfilling its obligations under the contract.

The Company also enters into other contracts, such as validation studies and informatics. Revenue for validation studies for which the sole deliverable may be a final report that is sent to sponsors at the completion of contracted activities, is recognized at a point in time upon delivery of the final report to the sponsor. Informatics is the sale of de-identified data for which deliverables typically consist of retrospective records, ~~revenues from patient pay tests net~~prospective deliveries of data or clinical decision support. Informatics revenue is recognized upon delivery of retrospective data, over time for prospective data feeds and clinical decision support. Any contracts that contain multiple performance obligations and include both units-of-service and point in time deliverables are accounted for as separate performance obligations and revenue is recognized as previously disclosed. The Company negotiates billing schedules and payment terms on a ~~large discount~~contract-by-contract basis. While the contract terms generally provide for payments based on a unit-of-service arrangement, the billing schedules, payment terms and related cash payments may not align with the performance of services and, as such, may not correspond to revenue recognized in any given period.

Amounts collected in advance of services being provided are deferred as contract liabilities on the Consolidated Balance Sheets. The associated revenue is recognized and the contract liability is reduced as the contracted services are subsequently performed. Contract assets are established for revenue that has been recognized but not yet billed. These contract assets are reduced once the customer is invoiced and a ~~result recognizes minimal revenue on those tests.~~ corresponding receivable is recorded. Additionally, certain costs to obtain contracts, primarily for sales commissions, are capitalized when incurred and are amortized over the term of the contract. Amounts capitalized for contracts with an initial contract term of twelve months or less are classified as current assets. All others are classified as non-current assets.

Most contracts are terminable by the customer, either immediately or according to advance notice terms specified within the contracts. All contracts require payment of fees to the Company for services rendered through the date of termination and may require payment for subsequent services necessary to conclude the study or close out the contract.

The ~~Company regularly reviews its historical collection experience for non-contracted payers~~following table summarizes the values of contract assets, capitalized commissions and adjusts its expected revenues for current and subsequent periods accordingly. On January 1, 2017, we had a significant reduction in our patient fee schedule that primarily impacts the amount billed to uninsured patients.

~~The table below shows the adjustments made to gross service revenues to arrive at net revenues~~contract liabilities (in thousands)~~, the amount reported on our statements of operations.~~

Three Months Ended September 30,

Nine Months Ended September 30,

2017

2016

2017

2016

Gross service revenues

$
85,429

$
114,902

$
263,229

$
376,857

Total contractual adjustments and discounts

(22,377
)

(54,141
)

(72,411
)

(193,264
)
Net revenues

$
63,052

$
60,761

$
190,818

$
183,593

~~Note H – Equity~~

~~A summary of the stock option activity under the Company’s plans for the three months ended September 30, 2017 is as follows:~~

Number of

Weighted average

shares

exercise price

Options outstanding at December 31, 2016

5,136,110

$
5.76

Options granted

2,070,498

7.56

Less:

Options exercised

503,320

3.73

Options canceled or expired

210,347

5.80

Options outstanding at September 30, 2017

6,492,941

6.47

Exercisable at September 30, 2017

2,137,259

5.47

NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~Unaudited~~

(unaudited)


	June 30, 2021		December 31, 2020
Current pharma contract assets (1)	$	1,842	$	1,643
Long-term pharma contract assets (2)	325		290
Total pharma contract assets	$	2,167	$	1,933


Current pharma capitalized commissions (1)	$	128	$	185
Long-term pharma capitalized commissions (2)	940		970
Total pharma capitalized commissions	$	1,068	$	1,155


Current pharma contract liabilities	$	4,497	$	4,029
Long-term pharma contract liabilities (3)	794		712
Total pharma contract liabilities	$	5,291	$	4,741

(1) Current pharma contract assets and Current pharma capitalized commissions are classified as other current assets on the ~~6,492,941 outstanding options at September~~Consolidated Balance Sheets.

(2) Long-term pharma contract assets and Long-term pharma capitalized commissions are classified as other assets on the Consolidated Balance Sheets.

(3) Long-term pharma contract liabilities are classified as other long-term liabilities on the Consolidated Balance Sheets.

Pharma contract assets increased $0.2 million, or 12%, from December 31, 2020 to June 30, ~~2017, 1,240,834 were variable accounted stock options issued to non-employees of the Company of which 445,833 options were vested and 795,001 options were unvested as of September 30, 2017.~~

~~The fair value of each stock option award granted~~2021. Pharma contract liabilities increased $0.6 million, or 12%, during the ~~nine months ended September 30, 2017 was estimated as of the grant date using a trinomial lattice model with the following weighted average assumptions:~~

Nine Months Ended
September 30, 2017

Expected term (in years)

3.0 - 4.5

Risk-free interest rate (%)

1.5%

Expected volatility (%)

43.5% - 53.0%

Dividend yield (%)

0.0%

Weighted average fair value/share at grant date

$
2.24

~~As of September 30, 2017,~~same period, while there was approximately $6.5 million of unrecognized share based compensation expense related to stock options that will be recognized over a weighted-average period of approximately 1.3 years. This includes approximately $1.9 millionan 8% decrease in unrecognized expense related to the 795,001 shares of unvested variable accounted for stock options subject to fair value adjustment at the end of each reporting period based on changes in the Company’s stock price.

~~Stock based compensation expense~~capitalized commissions. Revenue recognized for ~~stock options~~the three and ~~restricted stock and included in the consolidated statements of operations was allocated as follows (in thousands):~~

Three Months Ended September 30,

Nine Months Ended September 30,

2017

2016

2017

2016

Research and development expense

$
531

$
187

$
858

$
550

General and administrative expense

2,229

1,499

4,954

3,484

Total stock based compensation expense

$
2,760

$
1,686

$
5,812

$
4,034

~~Stock based compensation recorded in research and development relates to unvested options granted to a non-employee.~~

~~Common Stock Warrants~~

~~A summary of the warrant activity for the~~ six months ended ~~September~~June 30, ~~2017~~2021 related to Pharma contract liability balances outstanding at the beginning of the period was $1.1 million and $3.8 million, respectively. Revenue recognized for the three and six months ended June 30, 2020 related to Pharma contract liability balances outstanding at the beginning of the period was $0.4 million and $1.6 million, respectively. Amortization of capitalized commissions for the three and six months ended June 30, 2021 was $0.5 million and $0.7 million, respectively. Amortization of capitalized commissions for the three and six months ended June 30, 2020 was $0.1 million and $0.3 million, respectively.

Disaggregation of Revenue

The Company considered various factors for both its Clinical Services and Pharma Services segments in determining appropriate levels of homogeneous data for its disaggregation of revenue, including the nature, amount, timing and uncertainty of revenue and cash flows. For Clinical Services, the categories identified align with the type of customer due to similarities of billing method, level of reimbursement and timing of cash receipts. Unbilled amounts are accrued and allocated to payer categories based on historical experience. In future periods, actual billings by payer category may differ from accrued amounts. Pharma Services revenue was not further disaggregated as substantially all of the revenue relates to contracts with large pharmaceutical and biotech customers as well as other CROs for which the nature, timing and uncertainty of revenue and cash flows is ~~as follows:~~

similar and primarily driven by individual contract terms.

Number of

Weighted average

shares

exercise price

Warrants outstanding at December 31, 2016

450,000

$
1.49

Warrants granted

—

—

Less:

Warrants exercised

450,000

1.49

Warrants canceled or expired

—

—

Warrants outstanding at September 30, 2017

—

—

Exercisable at September 30, 2017

—

—

~~During~~The following table details the disaggregation of revenue for both the ~~three months ended September 30, 2017~~Clinical and 2016, we recorded $0 of warrant compensation expense. During the nine months ended September 30, 2017, we recorded $0 of warrant compensation expense and during the nine months ended September 30, 2016 we recorded a warrant compensation gain of approximately $10,000, respectively. Warrant expense (gain) for the periods presented is recorded in research and development as the expense is related to unvested performance based warrants that were granted to a non-employee. As of September 30, 2017, there were no outstanding warrants.

Pharma Services Segments (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Clinical Services:
Client direct billing	$	63,137	$	45,244	$	123,846	$	99,535
Commercial Insurance	20,528		15,148		39,102		37,142
Medicare and Medicaid	17,484		13,541		34,634		30,024
Self-Pay	256		(49)		310		165
Total Clinical Services	$	101,405	$	73,884	$	197,892	$	166,866
Pharma Services:	20,319		13,093		39,365		26,141
Total Revenue	$	121,724	$	86,977	$	237,257	$	193,007

NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~Unaudited~~

~~Restricted Stock~~

~~On August 31, 2017, we issued 450,000~~

(unaudited)

Note 12. Net Income (Loss) Per Share

The Company presents both basic earnings per share (“EPS”) and diluted EPS. Basic EPS excludes potential dilution and is computed by dividing “Net income (loss)” by the weighted-average number of common shares ~~of restricted common stock to Ascend Genomics as purchase consideration~~outstanding for the ~~customer list acquired.~~period. Diluted EPS reflects the potential dilution that could occur if stock awards were exercised and if the 2028 Convertible Notes and 2025 Convertible Notes were converted. The ~~customer list was recorded as an intangible asset, see Note C – Goodwill and Intangible Assets. As a condition of~~potential dilution from stock awards is accounted for using the ~~purchase, Ascend is prohibited from trading~~treasury stock method based on the ~~shares for a period of six months from the closing date.~~

~~Employee Stock Purchase Plan~~

We offer an employee stock purchase plan (“ESPP”) through which eligible employees may purchase shares of our common stock at a discount. On May 25, 2017, the Company amended the ESPP, increasing the discount from 5% to 15% of the fairaverage market value of the Company’s common stock. ~~As a result~~The potential dilution from conversion of ~~this change, we have recorded~~the 2028 Convertible Notes and 2025 Convertible Notes is accounted for using the if-converted method, which requires that all of the shares of the Company’s common stock ~~based compensation expense related to~~issuable upon conversion of the ~~ESPP~~2028 Convertible Notes and the 2025 Convertible Notes will be included in the calculation of diluted EPS assuming conversion of the 2028 Convertible Notes and the 2025 Convertible Notes at the beginning of the reporting period (or at time of issuance, if later).

The following table shows the calculations (in thousands, except net income (loss) per share amounts):


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Adjustment to net income (loss) for convertible notes in diluted EPS (1)
NET INCOME (LOSS)	$	75,873	$	(6,824)	$	53,759	$	(13,802)
Convertible note accretion, amortization, and interest, net of tax	1,552		0		2,997		0
NET INCOME (LOSS) USED IN DILUTED EPS	77,425		(6,824)		56,756		(13,802)


Basic weighted average shares outstanding	118,287		107,887		117,249		106,209
Dilutive effect of stock options	2,027		0		2,221		0
Dilutive effect of restricted stock awards	170		0		196		0
Dilutive effect of Convertible Notes due 2025	5,538		0		5,538		0
Dilutive effect of Convertible Notes due 2028	5,215		0		5,043		0
Diluted weighted average shares outstanding	131,237		107,887		130,247		106,209

Basic net income (loss) per share	$	0.64	$	(0.06)	$	0.46	$	(0.13)
Diluted net income (loss) per share	$	0.59	$	(0.06)	$	0.44	$	(0.13)

(1) This adjustment compensates for the ~~quarter ended September 30, 2017.~~

~~During~~effects of the ~~three months ended September 30, 2017 and 2016, employees purchased 23,664 and 26,092~~if-converted impact of convertible notes in adjusted net income. Since an entity using the if-converted method assumes that a convertible debt instrument was converted into common shares ~~respectively under~~at the ~~ESPP.~~ beginning of the reporting period, net income (loss) is adjusted to reverse any recognized interest expense (including any amortization of discounts).

The ~~expense recorded for these periods was $41,907 and $0, respectively. During~~following potential dilutive shares were excluded from the ~~nine months ended September 30, 2017 and 2016, employees purchased 74,756 and 75,623 shares, respectively under~~calculation of diluted net income (loss) per share because their effect would be anti-dilutive (in thousands):


	Three Months Ended June 30,		Six Months Ended June 30,
	2021	2020	2021	2020
Stock options	0	2,871	0	2,944
Restricted stock awards	0	281	0	237
2025 Convertible Notes	0	3,773	0	1,887
2028 Convertible Notes	0	0	0	0

The potential effect of the ~~ESPP. The expense recorded for these periods was $41,907 and $0.~~

~~Note I – Commitments~~

~~During~~Capped Call Transactions entered into concurrently with the 2028 Convertible Notes were excluded from the calculation of diluted net income (loss) per share in the three and ~~nine months~~six ended ~~September~~June 30, 2021 as the Company’s closing price on June 30, 2021 did not exceed the conversion price of $85.75 per share. The Capped Call Transactions are not reflected in diluted net income (loss) per share as they are anti-dilutive.

For further details on the Capped Call Transactions, please refer to Note 8. Debt.

NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 13. Defined Contribution Plans

The Company maintains a defined-contribution 401(k) retirement plan covering substantially all U.S. based employees (as defined). The Company's employees may make voluntary contributions to the plan, subject to limitations based on IRS regulations and compensation. Effective January 1, 2017 the Company ~~entered~~matches 100% of every dollar contributed up to 3% of the respective employee’s compensation and an additional 50% of every dollar contributed on the next 2% of compensation (4% maximum Company match). Matching contributions were approximately $1.5 million and $3.1 million for the three and six months ended June 30, 2021, respectively, and $1.2 million and $2.6 million for the corresponding periods ended June 30, 2020, respectively, and are recorded in cost of revenue and operating expenses.

As of the Inivata Acquisition Date, the Company operates a number of country-specific defined contribution pension plans for its employees and pays matching contributions into ~~leases~~a separate entity through Inivata Limited, a wholly-owned subsidiary of ~~approximately $683,000 and $3.2 million~~the Company. Employer contributions are made in ~~laboratory and computer equipment, respectively. These leases have 36 month terms, a $1.00 buyout option at the end of~~accordance with the terms and ~~interest rates ranging~~conditions of the respective country benefit plan. Employees may contribute additionally in accordance with the prevailing statutory limitations. Once the contributions have been paid, the Company has no further payment obligations. The assets of the plan are held separately from ~~0.0% to 19.5%.~~the Company and Inivata Limited in independently administered funds. The contributions are recognized as an expense in the Consolidated Statements of Operations when they are due. Amounts not paid are accrued as a short term liability in the Consolidated Balance Sheets. Such amounts for the period beginning on the Inivata Acquisition date through June 30, 2021 were immaterial.

Note 14. Commitments and Contingencies

On January 20, 2021, Natera, Inc. filed a patent infringement complaint against the Company’s newly-acquired subsidiary Inivata Limited and its subsidiary Inivata, Inc. in United States District Court for the district of Delaware, alleging Inivata’s InVisionFirst-Lung cancer diagnostic test of infringing 2 patents. The litigation is presently in the pleadings stage. The Company ~~accounted for these lease agreements as capital leases.~~

~~During~~intends to defend this matter vigorously, and believes that the ~~nine months ended September 30, 2017,~~Company has good and substantial defenses to the claims alleged in the suit, but there is no guarantee that the Company will prevail. At the time of filing, the outcome of this matter is not estimable or probable.

NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 15. Related Party Transactions

On May 22, 2020, the Company formed a strategic alliance with Inivata and entered into a ~~construction contract for~~Strategic Alliance Agreement and Laboratory Services Agreement whereas Inivata, prior to the ~~expansion of our~~Inivata Acquisition Date, would render and perform certain laboratory ~~in Houston, Texas. The contract is for approximately $5.0 million,~~testing which the Company ~~intends~~made available to ~~finance~~customers. In connection with this agreement, Inivata provided $0.4 million and $0.8 million of testing services to the Company recorded in cost of revenue in the Consolidated Statements of Operations for the three and six months ended June 30, 2021, respectively, through the Inivata Acquisition Date. Such services provided for the three and six months ended June 30, 2020 were immaterial.

On May 22, 2020, the Company and Inivata also entered into a ~~capital lease with a 36 month term~~Line of Credit in the amount of $15 million. The Company and ~~a $1.00 buyout option. The interest rate under this lease will vary based~~Inivata settled the Line of Credit after the Inivata Acquisition Date and no amounts were outstanding as of June 30, 2021. For further details on the ~~timing~~Line of Credit, please refer to Note 7. Investment in Non-Consolidated Affiliate.

On June 18, 2021, the Company completed its acquisition of all remaining equity interest in Inivata by exercising its Purchase Option. Beginning June 18, 2021, Inivata is a wholly-owned consolidated subsidiary of the ~~construction payments. We anticipate this project~~Company. As of the Inivata Acquisition Date, Inivata’s financial statement activity is being consolidated within the Company’s unaudited Consolidated Financial Statements. For further details on the acquisition of Inivata, please refer to ~~be complete~~Note 3. Acquisitions.

NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 16. Segment Information

The Company has 2 operating segments for which it recognizes revenue; Clinical Services and Pharma Services. The Company’s Clinical Services segment provides various clinical testing services to community-based pathology and oncology practices, hospital pathology labs and academic centers with reimbursement from various payers including client direct billing, commercial insurance, Medicare and other government payers, and patients. The Company’s Pharma Services segment supports pharmaceutical firms in their drug development programs by supporting various clinical trials and research as well as providing informatics related services often supporting Pharma commercialization efforts.

The financial information reviewed by the ~~first quarter~~Chief Operating Decision Maker (“CODM”) includes revenues, cost of ~~2018.~~

~~Note J – Other Related Party Transaction~~

~~During~~revenue and gross profit for each of the ~~three and nine month periods ended September 30, 2017 and 2016, Steven C. Jones was an officer, director and shareholder~~Company’s operating segments. Assets are not presented at the segment level as that information is not used by the CODM.

The following table summarizes the segment information (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Net revenues:
Clinical Services	$	101,405	$	73,884	$	197,892	$	166,866
Pharma Services	20,319		13,093		39,365		26,141
Total revenue	121,724		86,977		237,257		193,007

Cost of revenue:
Clinical Services(1)	57,233		48,757		118,798		97,680
Pharma Services	11,501		10,214		23,895		20,952
Total cost of revenue	68,734		58,971		142,693		118,632

Gross Profit:
Clinical Services	44,172		25,127		79,094		69,186
Pharma Services	8,818		2,879		15,470		5,189
Total gross profit	52,990		28,006		94,564		74,375

Operating expenses:
General and administrative	54,638		34,613		95,114		70,957
Research and development	3,495		2,105		5,951		4,165
Sales and marketing	17,224		10,195		30,973		23,453
Total operating expenses	75,357		46,913		132,038		98,575
Loss from operations	(22,367)		(18,907)		(37,474)		(24,200)
Interest expense, net	902		1,548		2,079		2,367
Other income, net	(171)		(7,405)		(341)		(7,628)
Gain on investment in and loan receivable from non-consolidated affiliate, net	(96,534)		0		(91,510)		0
Loss on extinguishment of debt	0		1,400		0		1,400
Loss on termination of cash flow hedge	0		3,506		0		3,506
Income (loss) before taxes	73,436		(17,956)		52,298		(23,845)
Income tax benefit	(2,437)		(11,132)		(1,461)		(10,043)
Net income (loss)	$	75,873	$	(6,824)	$	53,759	$	(13,802)

(1) Clinical cost of ~~the Company. In connection with his duties as Executive Vice President, Mr. Jones earned approximately $46,000 and $66,000~~revenue for the three months ended ~~September~~June 30, ~~2017 and 2016, respectively. In addition, as compensation for his services on the Board, Mr. Jones earned approximately $13,000 and $0~~2021 includes $0.7 million amortization of acquired intangible assets. Clinical cost of revenue for the ~~three~~six months ended ~~September~~June 30, ~~2017~~2021 includes $0.7 million amortization of acquired intangible assets and 2016, respectively. During the nine months ended September 30, 2017 and 2016, Mr. Jones earned approximately $164,000 and $197,000, respectively in connection with his duties as Executive Vice President. Mr. Jones also received approximately $85,000 and $79,000 during the nine months ended September 30, 2017 and 2016, respectively, as paymentwrite-offs of ~~his annual bonus compensation~~$5.3 million for ~~the previous fiscal years. In addition, as compensation for his services on the Board, Mr. Jones earned $25,500 and $0 for the nine months ended September 30, 2017 and 2016, respectively.~~

During each of the three and nine month periods ending September 30, 2017 and 2016, Kevin Johnson was a director and shareholder of the Company. In May of 2017, the Company engaged Mr. Johnson to provide services as a consultant. This engagement ended in June of 2017. In connection with his role as a consultant, Mr. Johnson earned approximately $0 and $0 for the three months ended September 30, 2017 and 2016, respectively. In addition, as compensation for his services on the Board, Mr. Johnson earned approximately $14,000 and $15,000, for the three months ended September 30, 2017 and 2016, respectively and approximately $44,000 and $45,000 for the nine months ended September 30, 2017 and 2016, respectively.

On May 25, 2017, the Company granted stock options and restricted stock to each of its board members as part of its annual board compensation process. Mr. Jones and Mr. Johnson were each granted 10,000 stock options and 8,667 shares of restricted stock for their Board services. The options were granted at a price of $7.27 per share and had a weighted average fair market value of $2.38 per option. The options vest ratably over the next three years. The restricted stock has a weighted average fair value of $7.27 per share and vests ratably on the last day of each calendar quarter up to March 31, 2018.

~~END OF FINANCIAL STATEMENTS~~

COVID-19 PCR testing inventory.

NEOGENOMICS, INC.

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

NeoGenomics, Inc., a Nevada corporation, (referred to collectively with its subsidiaries as “NeoGenomics”, “we”, “us”, “our” or the “Company” in this Form ~~10-K)~~10-Q) is the registrant for SEC reporting purposes. Our common stock is listed on the ~~NASDAQ Capital~~Nasdaq Stock Market LLC (“NASDAQ”) under the symbol “NEO”.

Introduction

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

COVID-19 Pandemic

In December 2019, a novel strain of coronavirus (“COVID-19”) was identified and the disease has since spread across the world, including the United States. In March 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic. The outbreak of the pandemic is materially adversely affecting the Company’s employees, patients, communities and business operations, as well as the United States (“U.S.”) economy and financial markets. The full extent to which the COVID-19 outbreak will impact the Company’s business, results of operations, financial condition and cash flows will depend on future developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning COVID-19, including related variants, and the actions to contain it or treat its impact and the economic impact on local, regional, national and international markets. As the COVID-19 pandemic continues, the Company’s results of operations, financial condition and cash flows may continue to be materially adversely affected, particularly if the pandemic persists for a significant amount of time.

The impact from the COVID-19 pandemic and the related disruptions have had a material adverse impact on our results of operations, volume growth rates and test volumes in 2020 and the first half of 2021. Demand may fluctuate depending on the duration and severity of the COVID-19 pandemic, the length of time it takes for normal economic and operating conditions to resume, additional governmental actions that may be taken and/or extensions of time for restrictions that have been imposed to date, and numerous other uncertainties. Such events may result in business disruption, reduced revenues and number of tests, any of which could materially affect our business, financial condition, and results of operations.

We have taken significant actions to protect our employees and maintain a safe environment while ensuring continuity of critical oncology testing for cancer patients. Among other actions, we have de-densified our laboratories and facilities, adjusted laboratory shifts, restricted visitors to facilities, restricted employee travel, implemented an emergency paid time off policy, provided remote work-environment training and support, and managed our supply chains. Importantly, all main laboratory facilities have remained open and there has been an uninterrupted continuity of high-quality testing services for clients. The Company’s top priority remains the health and safety of employees and continued quality and service for all clients with a focus on patient care. We believe that we are positioned to recover from the effects of the COVID-19 pandemic.

For additional information on risk factors related to the pandemic or other risks that could impact our results, please refer to the Company’s Form 10-K under Item 1A, “Risk Factors” for the year ended December 31, 2020, as filed with the SEC on February 25, 2021.

Overview

We operate a network of cancer-focused ~~genetic~~ testing laboratories in the United ~~States.~~States, Europe and Asia. Our mission is to improve patient care through exceptional ~~genetic and molecular~~cancer-focused testing services. Our vision is to ~~become~~be the ~~World’s~~world’s leading cancer testing and information company by delivering uncompromising quality, exceptional service and innovative solutions.

As of ~~September~~June 30, ~~2017,~~2021, the Company ~~had~~has laboratory locations in Fort Myers and Tampa, Florida; Aliso Viejo, Carlsbad, and ~~Fresno, CA; Tampa~~San Diego, California; Research Triangle Park, North Carolina; Houston, Texas; Atlanta, Georgia; Nashville, Tennessee; Cambridge, United Kingdom; Rolle, Switzerland; and ~~Fort Myers, FL; Houston, TX and Nashville, TN.~~ ~~The Company~~Singapore. We currently ~~offers~~offer the following types of ~~genetic~~testing services:

a.Cytogenetics (“karyotype analysis”) - the study of normal and ~~molecular testing services:~~

Cytogenetics - the study of normal and abnormal chromosomes and their relationship to disease. It involves looking at the chromosome structure to identify changes from patterns seen in normal chromosomes. Cytogenetic studies are often utilized to answer diagnostic, prognostic and predictive questions in the treatment of hematological malignancies.

abnormal chromosomes and their relationship to disease. Cytogenetics involves analyzing the chromosome structure to identify changes from patterns seen in normal chromosomes. Cytogenetic studies are often performed to provide diagnostic, prognostic and occasionally predictive information for patients with hematological malignancies.

Fluorescence In-Situ Hybridization (“FISH”) - a branch of cancer genetics that focuses on detecting and locating the presence or absence of specific DNA sequences and genes on chromosomes. FISH helps bridge abnormality detection between the chromosomal and DNA sequence levels. The technique uses fluorescent probes that bind to only those parts of the chromosome with which they show a high degree of sequence similarity. Fluorescence microscopy is used to visualize the fluorescent probes bound to the chromosomes. FISH can be used to help identify a number of gene alternations, such as amplification, deletions, and translocations.

Flow cytometry - a rapid way to measure the characteristics of cell populations. Cells from peripheral blood, bone marrow aspirate, lymph nodes, and other areas are labeled with selective fluorescent antibodies and analyzed as they flow in a fluid stream through a beam of light. The properties measured in these antibodies include the relative size, relative granularity or internal complexity, and relative fluorescence intensity. These fluorescent antibodies bind to specific cell surface antigens and are used to identify malignant cell populations. Flow cytometry is typically performed in diagnosing a wide variety of leukemia and lymphoma neoplasms. Flow cytometry is also used to monitor patients through therapy to determine whether the disease burden is increasing or decreasing, otherwise known as minimal residual disease monitoring.

Immunohistochemistry (“IHC”) and Digital Imaging – Refers to the process of localizing proteins in cells of a tissue section and relies on the principle of antibodies binding specifically to antigens in biological tissues. IHC is widely used in the diagnosis of abnormal cells such as those found in cancerous tumors. Specific surface cytoplasmic or nuclear markers are characteristic of cellular events such as proliferation or cell death (apoptosis). IHC is also widely used to understand the distribution and localization of differentially expressed proteins. Digital imaging allows clients to see and utilize scanned slides and perform quantitative analysis for certain stains. Scanned slides are received online in real time and can be previewed often a full day before the glass slides can be shipped back to clients.

Molecular testing - a rapidly growing cancer testing methodology that focuses on the analysis of DNA and RNA, as well as the structure and function of genes at the molecular level. Molecular testing employs multiple technologies including DNA fragment length analysis, real-time polymerase chain reaction (“RT-PCR”) RNA analysis, bi-directional Sanger sequencing analysis, and Next-Generation Sequencing (“NGS”).

Pathology consultation - services provided to clients whereby our pathologists review surgical samples on a consultative basis. NeoGenomics pathologists are some of the foremost experts on pathology in the country, and are used as experts on difficult and challenging cases.

NEOGENOMICS, INC.

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

b.Fluorescence In-Situ Hybridization (“FISH”) - a molecular cytogenetic technique that focuses on detecting and localizing the presence or absence of specific DNA sequences and genes on chromosomes. The technique uses fluorescent probes that bind to only those parts of the chromosome with which they show a high degree of sequence similarity. Fluorescence microscopy is used to visualize the fluorescent probes bound to the chromosomes. FISH can be used to help identify numerous types of gene alterations, including amplifications, deletions, and translocations.

c.Flow cytometry - a technique utilized to measure the characteristics of cell populations. Typically performed on liquid samples such as peripheral blood and bone marrow aspirate, it may also be performed on solid tissue samples such as lymph nodes following additional processing steps. Cells are labeled with selective fluorescent antibodies and analyzed as they flow in a fluid stream through a beam of light. The properties measured in these antibodies include the relative size, relative granularity or internal complexity, and relative fluorescence intensity. These fluorescent antibodies bind to specific cellular antigens and are used to identify abnormal and/or malignant cell populations. Flow cytometry is typically utilized in diagnosing a wide variety of hematopoietic and lymphoid neoplasms. Flow cytometry is also used to monitor patients during the course of therapy to identify extremely low levels of residual malignant cells, known as minimal residual disease (“MRD”) monitoring.

d.Immunohistochemistry (“IHC”) and Digital Imaging – the process of localizing cellular proteins in tissue sections and relies on the principle of antigen-antibody binding. IHC is widely used in the diagnosis of abnormal cells such as those found in cancer. Specific surface membrane, cytoplasmic, or nuclear markers may be identified. IHC is also widely used to understand the distribution and localization of differentially expressed proteins. Digital imaging allows clients to visualize scanned slides, and also perform quantitative analysis for certain stains. Scanned slides are received online in real time and can be previewed often a full day before the glass slides can be shipped back to clients.

e.Molecular testing – a rapidly growing field which includes a broad range of laboratory techniques utilized in cancer testing. Most molecular techniques rely on the analysis of DNA and/or RNA, as well as the structure and function of genes at the molecular level. Molecular testing technologies include: liquid biopsy tests for advanced non-small cell lung cancer, all solid tumor types (pan-cancer), and certain breast cancer cases; DNA fragment length analysis; polymerase chain reaction (“PCR”) analysis; reverse transcriptase polymerase chain reaction (“RT-PCR”) analysis, real-time (or quantitative) polymerase chain reaction (“qPCR”) analysis; bi-directional Sanger sequencing analysis; and next-generation sequencing (“NGS”) analysis.

f.Morphologic analysis – the process of analyzing cells under the microscope by a pathologist, usually for the purpose of diagnosis. Morphologic analysis may be performed on a wide variety of samples, such as peripheral blood, bone marrow, lymph node, and from other sites such as lung, breast, etc. The services provided at NeoGenomics may include primary diagnosis, in which a sample is received for processing and our pathologists provide the initial diagnosis; or may include secondary consultations, in which slides and/or tissue blocks are received from an outside institution for second opinion. In the latter setting, the expert pathologists at NeoGenomics assist our client pathologists on their most difficult and complex cases.

Clinical ~~Cancer Testing~~ Services

Segment

The clinical cancer testing services we offer to community-based pathologists are designed to be a natural extension of, and complementary to, the services that they perform within their own practices. We believe our relationship as a non-competitive partner to community-based pathology practices, hospital pathology labs, reference labs, and academic centers empowers them to expand their breadth of testing and provide a menu of services that matches or exceeds the level of service found in any center of excellence around the world.

Community-based pathology practices and hospital pathology labs may order certain testing services on a technical component only (“TC” or “tech-only”) basis, which allows them to participate in the diagnostic process by performing the professional component (“PC”) interpretation services without having to hire laboratory technologists or purchase the sophisticated equipment needed to perform the technical component of the tests. We also support our pathology clients with interpretation and consultative services using our own specialized team of pathologists for difficult or complex cases and provide overflow interpretation services when requested by clients.

NeoGenomics is a leading provider of Molecular and next-generation sequencing (“NGS”) testing. These tests are interpreted by NeoGenomics’ team of Molecular experts and are often ordered in conjunction with other testing modalities. NGS panels are one of our fastest growing testing areas and clients can often receive a significant amount of biomarker information from very limited samples. These comprehensive panels can allow for faster treatment decisions for patients as compared to a series of single-gene molecular tests being ordered sequentially. NeoGenomics has one of the broadest Molecular menus in the industry and our targeted NeoTYPE panels include genes relevant to a particular cancer type, as well as other complementary tests such

NEOGENOMICS, INC.

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

as immunohistochemistry and FISH. This comprehensive menu means that NeoGenomics can be a “one-stop shop” for our clients who can get all of their oncology testing needs satisfied by our laboratory. This is attractive to our clients as patient samples do not need to be split and then managed across several laboratories. NeoGenomics expects our Molecular laboratory and NGS capabilities to be a key growth driver in the coming years.

In addition, we directly serve oncology, dermatology and other clinician practices that prefer to have a direct relationship with a laboratory for cancer-related genetic testing services. We typically service these types of clients with a comprehensive service offering where we perform both the technical and professional components of the tests ordered. In certain instances, larger clinician practices have begun to internalize pathology interpretation services, and our tech-only service offering allows these larger clinician practices to also participate in the diagnostic process by performing the PC interpretation services on TC testing performed by NeoGenomics. In these instances, NeoGenomics will typically provide all of the more complex, molecular testing services.

Pharma Services ~~and Clinical Trials~~

Segment

Our Pharma Services ~~division~~revenue consists of three revenue streams:

•Clinical trials and research;

•Validation laboratory services; and

•Informatics

Our Pharma Services segment supports pharmaceutical firms in their drug development programs by supporting various clinical ~~trials.~~trials and research. This portion of our business often involves working with the pharmaceutical firms (sponsors) on study design as well as performing the required testing. Our medical team often advises the sponsor and works closely with them as specimens are received from the enrolled sites. We also work on developing tests that will be used as part of a companion diagnostic to determine patients’ response to a particular drug. As studies unfold, our clinical trials team reports the data and often ~~provide~~provides key analysis and insights back to the sponsors.

Our Pharma Services ~~and Clinical Trials group~~segment provides comprehensive testing services in support of our pharmaceutical clients’ oncology programs from discovery to commercialization. In biomarker discovery, our aim is to help our customers discover the right content. We help our customers develop a biomarker hypothesis by recommending an optimal platform for molecular screening and backing our discovery tools with the informatics to capture meaningful data. In other ~~pre~~pre-clinical and non-clinical work, we can use our platforms to characterize markers of interest. Moving from discovery to development, we help our customers refine their biomarker strategy and, if applicable, develop a companion diagnostic pathway using the optimal technology for large-scale clinical trial testing.

Whether serving as the single contract research organization or partnering with one, our Pharma Services ~~and Clinical Trials~~ team provides significant technical expertise, working closely with our customers to support each stage of clinical trial development. Each trial we support comes with rapid turnaround time, dedicated project management and quality assurance oversight. We have experience in supporting submissions to the Federal Drug Administration (“FDA”) for companion diagnostics. Our Pharma Services strategy is focused on helping bring more effective oncology treatments to market through providing ~~world class~~world-class laboratory services in oncology to key pharmaceutical companies in the industry.

~~2017 Focus Areas: Develop High Performance Culture, Inspire & “Own” Quality, Accelerate Growth~~

We believe that NeoGenomics is uniquely positioned to service Pharma sponsors across the full continuum of the drug development process. Our Pharma Services team can work with them during the basic research and ~~Advance Our Strategy~~

Over the past several years, NeoGenomics has experienced rapid growth including organic growth from offering new tests to existing customers, growth from gaining market share from our competitors, and growth from acquisitions. We expect to continue to grow our business in 2017 and are focused on several initiatives to continue to build our Company to be the World’s leading cancer testing and information company.

~~Develop our High Performance Culture~~

We are building our high performance culture by empowering our employees and investing in their growth. We are providing skill based training, education, and mentoring our supervisors and managers to allow them to grow within the Company. We communicated career opportunities and performance objectives and hold each employee accountable for their own development. Teamwork is highly encouraged through the usedevelopment phase as compounds come out of ~~team performance incentive plans~~translational research departments as well as ~~other meaningful recognition~~work with clients from Phase 1 clinical trials through Phases II and ~~rewards. To cultivate teamwork we~~III as the sponsors work to prove the efficacy of their drugs. The laboratory biomarker tests that are developed during this process may become companion diagnostic, or CDx tests, that will be used on patients to determine if they could respond to a certain therapy. NeoGenomics is able to offer these CDx tests to the market immediately after FDA approval as part of our Day 1 readiness program. This ability helps to speed the commercialization of their drug and enables Pharma sponsors to reach patients through NeoGenomics broad distribution channel in the Clinical Services segment.

We are continuing to develop and broaden our informatics and data-related tools to leverage our unique market position and oncology expertise to help our stakeholders solve real-world problems such as identifying patients for clinical trials or providing clinical decision support tools for physicians and providers. We are committed to ~~improving communication by providing better tools for today’s connected society. Our organization uses weekly employee surveys~~connecting patients with life altering therapies and ~~takes actions based on~~trials. In carrying out these commitments, we aim to provide transparency and choice to patients regarding the ~~feedback from those surveys. We believe that a culture~~handling and use of ~~engaged employees provides superior service to~~their data through our ~~clients~~Notice of Privacy Practices, and ~~their patients battling cancer. We~~ have ~~employee retention targets that are set each year, and we believe our employee retention rate is above average for the laboratory industry. Recruiting and retaining talented employees is critical~~invested in ~~the fast moving field of cancer diagnostics.~~

~~Inspire and “Own” Quality~~

Since the acquisition of Clarient, Inc. and its wholly owned subsidiary Clarient Diagnostic Services, Inc. (together “Clarient”) we’ve focused on combining the very best of both NeoGenomics and Clarient testing menus and services. We’ve had functional teams work through every part of the businessleading technologies to ensure ~~that~~the data we ~~were able~~maintain is secured at all times.

2021 Focus Areas:

We are committed to ~~maintain~~sustainable growth while being an innovative leader in our ~~high level of quality~~industry. Our focus for 2021 includes initiatives to drive consistent and ~~create best practices~~

profitable growth while pursuing innovation and maintaining exceptional service levels. We

NEOGENOMICS, INC.

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

~~throughout~~

expect these initiatives to allow the Company to continue on its path to become the world’s leading cancer testing and information company.

Strengthen Our World-Class Culture

Fortifying our ~~organization.~~ culture to closely align with the values of our Company is a key priority. We will invest in the development of our people by creating mentoring, coaching and training opportunities to enhance and capitalize on the talent within our Company. We believe these initiatives will foster a culture of accountability and empowerment and are imperative to providing a meaningful work experience for our employees.

We value the health of our employees and want them to perform at their best, personally and professionally. We actively promote the health and well-being of our employees and recognize that overall health goes beyond greater health benefits and preventative care and includes a variety of areas such as physical, emotional and financial health. We provide a variety of programs to promote the improvement of our employees’ health in these and other areas.

Building a resilient, sustainable organization is central to the success of our Company. Our focus is on expanding our purpose to extend beyond the organization to include all stakeholders. This includes the communities we serve and our society as a whole. We build our talent through coaching and mentoring programs to meet the demands of our critical work of the future and our leadership needs. We will partner within our communities to remove barriers and sponsor educational opportunities needed to meet our highly-skilled workforce demands.

Continue to Provide Uncompromising Quality and Exceptional Service

Maintaining the highest quality laboratory operations and service ~~is enabling~~levels has enabled us to ~~retain existing clients while adding new ones.~~

consistently grow our business. We ~~have a variety of initiatives designed~~are continuously looking for ways to further enhance our company-wide quality program, provide training on the importance of quality, reinforce our quality principals, and recognize individuals and teams for providing quality service. By promoting and reinforcing quality principles, we believe we can strengthen our core processes. Our focus on continuous improvement, first timeimprove quality and ~~the work of our best-practice teams~~implement best practices to streamline processes. We are focused on increasing automation with solutions that will ~~enable us to continue reducing our cost per test as we have steadily over the past several years.~~

In 2016, we began work on our next generation Laboratory Information System (“LIS”) and our information technology team is working to complete the LIS for certain key areas of our Pharma Services divisionmaintain quality while improving efficiency in ~~2017.~~ operations.

We believe the new LIS will help to drive improvements in several laboratory areas and will allow for further automation and operational efficiencies. The new LIS will also meet the stringent requirements of our Pharma Services clients and will enable these clients the ability to track each step through the laboratory process. On June 30, 2017, we began using this new system in certain areas of our Pharma Services business and we will continue to ~~roll it out. Once all~~grow a culture of ~~the Pharma Services testing is on the new LIS, we intend~~quality through our leadership, coaching and employee training initiatives. We aim to ~~begin using it~~empower our employees to deliver high-quality results in ~~our Clinical Testing division.~~

their respective function. We ~~have renovated our Aliso Viejo, CA laboratory~~will implement initiatives to measure and ~~are currently working on the expansion~~improve turnaround times while maintaining a culture of ~~our Houston, TX facility~~quality, which we expect will continue to ~~complete by the end of the first quarter of 2018. We completed the consolidation of~~meet or exceed our ~~Irvine Lab facility into the Aliso Viejo Lab facility,~~customers’ expectations.

Pursue Innovation and we fully vacated the Irvine facility on April 30, 2017. We have also completed the sale of PathLogic on August 1, 2017 and therefore no longer have a laboratory in West Sacramento, CA. We expect these changes in our business to result in additional capacity, economies of scale and operating efficiencies.

~~Accelerate Profitable~~ Growth

Our plans for ~~2017~~2021 include ~~many~~ initiatives to continue ~~our strong organic~~to drive sustainable growth ~~by gaining market share, introducing new tests,~~ and expanding our Pharma business. Through the acquisition of Clarient we have significantly expanded our Pharma Services business, and plan to develop it further by creating an international presence and incorporating new technologies. Also, as a result of the Clarient acquisition, we have expanded our sales team and now offer our services in geographic areas where we did not previously have sales representation. We believe our highly trained sales team has been successful in competing against other laboratories because of our exceptional service levels, and because we have one of the broadest and most comprehensive test menus in our industry. Our broad menu of molecular and immunohistochemistry testing has helped make us a “one stop shop” for many clients who like the fact that all of their testing can be sent to one laboratory.

We currently perform comprehensive analyses for hematopoietic cancers such as leukemia and lymphoma (blood and lymphoid tumors) as well as solid tumors such as breast, lung, colon, and bladder cancers. Our sales team is experienced with the scientific complexity and medical necessity of our testing services, and understands the needs of our client pathologists and oncologists.innovation. We will continue to pursue market share gains by providing high complexity, cancer-related laboratory testing services to hospitals, community-based pathology and oncology practices, academic centers, clinicians, and ~~clinicians throughout the United States.~~

pharmaceutical companies. Additionally, we will focus on continued reimbursement effectiveness through improving coverage, streamlining processes and providing clients more efficient, automated ordering methods, which we believe will continue to fuel our growth and market share.

Our ~~growth has also been aided by strong~~laboratory and informatics teams will continue focus on new assays and product offerings, including liquid biopsy, MRD and other high-quality tests. We expect this to enhance our strategic position while enabling us to maintain our high levels of client retention. ~~We believe our client retention success is due to our strong service levels, our tech-only service offerings,~~

Our broad and a culture of customer focus in which our engaged employees seek to deliver highest customer satisfaction possible. Our strong service levels are reinforced by a disciplined management process with a system of detailed measures and metrics to ensure committed turnaround times and customer service. Our broadinnovative test menu of molecular, including NGS, immunohistochemistry, and ~~immunohistochemistry~~other testing has helped make us a ~~“one stop~~“one-stop shop” for many clients who ~~like the fact~~value that all of their testing can be sent to one laboratory.

~~In early 2017, we re-branded and created a new logo.~~ We ~~intend~~will continue to implement strategic marketing plans to further develop our brand and build brand awareness. We have re-designed our trade show booth incorporating our new logo and plan to improve new test launches by using social media to improve brand awareness. We believe by executing and developing our brand we will achieve growth in new and existing markets.

~~We also~~ look for growth opportunities ~~to grow our business~~ through mergers and/or ~~acquisitions. We~~acquisitions and are focused on strategic opportunities that would be complementary to our menu of services and would increase our earnings and cash flow in the short to medium ~~timeframe. In late 2015 we acquired Clarient which specialized in advanced oncology diagnostic services, this acquisition has enabled NeoGenomics to~~

~~NEOGENOMICS, INC.~~

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

broaden its offering of innovative cancer diagnostic tests to hospitals and physicians across the country, and to accelerate its growth in the fast-growing worldwide market for pharmaceutical clinical trials and research. Complementary product offerings and expanded geographical reach of the combined Company will provide customers with substantial benefits and create a significantly larger and more diversified provider of precision oncology diagnostics. The Clarient transaction is a good example of the type of acquisition opportunity we will consider in the future.

~~Advance Our Strategy~~

time frame. We are ~~committed~~also focused on investing in business development and informatics capabilities to ~~being an innovative leader~~partner with our key stakeholders, including patients, providers, payers and believe this has been and will be a key factor in our growth. We plan to accomplish this goal through strategic actions designed to: 1) advance the technology we use in our laboratories, 2) evaluate, develop and deploy new products and services, and 3) evaluate and experiment with value-based payment models in collaboration with oncology groups and other health care providers.

~~Our broad and innovative testing menu allows us to serve community-based pathologists and clinicians as well as~~ pharmaceutical customers and nationally recognized academic centers. Over the past year, we have developed approximately 50 new molecular oncology tests and disease-specific panels, and we believe we have one of the most comprehensive oncology test menus of any laboratory in the world. By launching new medically significant and necessary tests at a steady rate, we are ablecompanies to provide ~~cutting-edge developments in molecular genetics with clients~~solutions to current or near-term problems that they face.

Competitive Strengths

In addition to the competitive strengths discussed below, the Company believes that its superior testing technologies and ~~their patients~~instrumentation, laboratory information system, client education programs and ~~are developing our reputation as a leader in the field of molecular oncology. In many cases, customers who begin using us because of our new innovative test offerings~~broad domestic and growing international presence also ~~begin to refer portions of their other testing.~~

Our comprehensive test offering allows us to be a one-stop shop for all of the oncology testing needs of our clients. Pharmaceutical firms are also attracted to our laboratory based on extensive test menu, and based on our knowledgeable research and development team as well as our ability to offer tests at the forefront of medical developments.

~~We continue to pursue opportunities to offer “liquid biopsy” testing, particularly for hematological diseases. We have launched twelve NEOLAB~~^TM liquid biopsy tests for hematological disease using next generation sequencing and other advanced molecular technologies. Liquid Biopsy testing uses cell-free circulating DNA and RNA found in blood plasma to identify molecular abnormalities in the bone marrow without the need for a bone marrow biopsy. The technology is based on the concept that hematologic cells release their DNA, RNA, and protein into circulation as the cells are immersed in blood. The cell-free circulating DNA, RNA and protein are referred to as exosomes, microvesicles, apoptotic bodies or simply DNA- or RNA-protein complexes. Our new tests use proprietary methods to extract these circulating nucleic acids and analyze them using next generation sequencing and advanced methods in order to evaluate molecular abnormalities present in hematological cancers.

~~We also continue to develop new testing approaches by combining the capabilities of a variety of testing technologies. Our NeoTYPE~~^TM multimodality testing is somewhat unique in the industry and combines immunohistochemistry testing, molecular testing, and FISH testing into disease-specific panels that are very effective and efficient for improving patient care. We introduced a number of NeoTYPE^TM molecular panels that combine multiple molecular tests into multi-gene panels targeting specific types of cancer to help pathologists and oncologists determine cancer subtypes on difficult cases. Managed care payers have expressed interest in the more targeted panels as a more cost effective alternative to ordering large whole genome panels that include genes that have never been tied to a particular type of cancer.

Our NeoLAB (Liquid Biopsy) Prostate cancer test which is performed on blood plasma and urine rather than on prostate tissue biopsies is currently available as a Laboratory Developed Test and we have received clinical orders for it. There are two goals for this test: 1) to diagnose the presence of cancer in patients and 2) to distinguish high-gradedifferentiates NeoGenomics from low-grade cancer in patients with prostate cancer. We are working to gain reimbursement for this test which we believe could significantly increase the acceptance and the number of test orders we receive for this important test.

~~Competitive Strengths~~

its competitors.

Turnaround Times

We strive to provide industry leading turnaround times for test results to our clients ~~nationwide.~~nationwide, both in the Clinical Services and Pharma Services segments. By providing information to our clients in a rapid manner, physicians can begin treating their patients as soon as possible. ~~We believe our average 4-5 day turnaround~~

~~NEOGENOMICS, INC.~~

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

time for our cytogenetics testing services, our average 3-4 day turnaround time for FISH testing services, our 5-7 day turnaround time for molecular testing and our average 1 day turnaround time for flow cytometry and pathology testing services are industry-leading benchmarks for national laboratories. Our consistent timeliness of results by our Clinical Services segment is a competitive strength and a driver of additional testing requests by ~~our~~ referring physicians. Rapid turnaround times allow for the performance of other adjunctive tests within an acceptable diagnosis window in order to augment or confirm results and more fully inform treatment

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

options. WeAdditionally, we believe that our ~~fast~~rapid turnaround ~~times~~time on testing and our project milestones are a key differentiator ~~versus other national laboratories, and~~in our ~~clients often cite them as a key factor in their relationship with us.~~

Pharma Services segment.

World-class Medical and Scientific Team

Our team of medical professionals and Ph.Ds. are specialists in the field of genetics, oncology and pathology. As of ~~September~~June 30, ~~2017,~~2021, we employed or ~~are~~ contracted with approximately ~~28 full-time~~120 M.D.s and Ph.Ds. ~~The addition of Clarient’s pathology team has added increased depth~~We have many nationally and world-renowned pathologists on staff, which is a key differentiator from many smaller laboratories. Our clinical customers look to our staff and their expertise and they often call our medical team on challenging cases. For our Pharma Services segment, many sponsors work with our medical team on their study design and ~~has enhanced our ability~~on the interpretation of results from the studies. Our medical team is a key differentiator as we have a depth of medical expertise that many other laboratories cannot offer to ~~service a wider range of specialties.~~

~~Extensive Tech-Only~~Pharmaceutical companies.

Innovative Service Offerings

We believe we currently have the most extensive menu of tech-only FISH services in the country as well as extensive and advanced tech-only flow cytometry and IHC testing services. These types of testing services allow the professional interpretation component of a test to be performed and billed separately by our physician clients. Our FISH, flow cytometry and other tech-only service offerings allow properly trained and credentialed community-based pathologists to extend their own practices by performing professional interpretations services, which allows them to better service the needs of their local clientele without the need to invest in the lab equipment and personnel required to perform the technical component of genetic and molecular testing.

Our tech-only services are designed to give pathologists the option to choose, on a case by case basis, whether they want to order just the technical information and images relating to a specific test so they can perform the professional interpretation, or order “global” services and receive a comprehensive test report which includes a NeoGenomics ~~Pathologist’s~~pathologist’s interpretation of the test results. Our clients appreciate the flexibility to access NeoGenomics’ medical staff for difficult or complex cases or when they are otherwise unavailable to perform professional interpretations. We believe this innovative approach to serving the needs of pathology clients’ results in longer term, more committed client relationships that are, in effect, strategic partnerships. Our extensive tech-only service offerings have differentiated us and allowed us to compete more effectively against larger, more entrenched competitors in our niche of the industry.

~~Global Service Offerings~~

We offer a comprehensive suite of technical and interpretation services, to meet the needs of those clients who are not credentialed and trained in interpreting genetic tests and who require pathology specialists to interpret ~~the~~their testing ~~results for them.~~results. In our global service offerings, our lab performs the technical component of the tests and our M.D.s and Ph.Ds. provide the service of interpreting the results of those tests. Our professional staff is also available for post-test consultative services. Clients using our global service offering rely on the expertise of our medical team to give them the answers they need in a timely manner to help inform their diagnoses and treatment decisions. Many of our tech-only clients also rely on our medical team for difficult or challenging cases by ordering our global testing services on a case-by-case basis or our medical team can serve as a backup to support our clients who need help to satisfy the continued and demanding requirements of their practice. Our reporting capabilities allow for all relevant case data from our global services to be captured in one summary report. When providing global services, NeoGenomics bills for both the technical and professional component of the test, which results in a higher reimbursement level.

~~Client Education Programs~~

We believe we have one of the ~~most extensive client education programs~~broadest Molecular and Next Generation Sequencing test menus in the ~~genetic~~world. Clients have the ability to order single gene molecular tests, targeted NeoTYPE panels that include the relevant actionable genes for a particular cancer type as well as large NGS panels. Our Pharma Services Division offers a full range of sequencing testing including whole exome and ~~molecular testing industry. We train pathologists how to use and interpret genetic testing services so that they can better interpret technical data and render their diagnosis.~~

whole genome sequencing. Our educational programs include an extensive library of on-demand training modules, online courses, webinars and custom tailored on-site training programs that are designed to prepare clients to utilize our tech-only services. We offer training and information on new cancer tests and the latest developments in the field of molecular genetic testing. Each year, we also regularly sponsor seminars and webinars on emerging topics of interest in our field. Our medical staff is involved in many aspects of our training programs.

~~NEOGENOMICS, INC.~~

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

~~Superior Testing Technologies and Instrumentation~~

~~We use some of the most advanced testing technologies and instrumentation in the laboratory industry. The use of next generation sequencing in our molecular testing allows~~menu enables us to detect multiple mutations and our proprietary techniques allow us to achieve high sensitivity in our next generation sequencing testing. In addition, we use high sensitivity Sanger sequencing, RNA and DNA quantification, SNP/Cytogenetic arrays, Fragment Length analysis, and other molecular testing technologies. Our automated FISH and Cytogenetics tools allow us to deliver the highest quality testing tobe a true “one-stop shop” for our clients ~~and our flow cytometry laboratory uses 10-color flow cytometry analysis technology on a technical-only basis. NeoGenomics is continually~~as we can meet all of their oncology testing ~~new laboratory equipment in order to remain at the forefront of new developments in the testing field.~~

~~Laboratory Information System~~

We believe we have a state-of-the-art LIS that interconnects our locations and provides flexible reporting solutions to clients. This system allows us to standardize testing and deliver uniform test results and images throughout our network, regardless of the location that any specific portion of a test is performed within our network. This allows us to move specimens and image analysis work between locations to better balance our workload. Our LIS also allows us to offer highly specialized and customizable reporting solutions to our tech-only clients. For instance, our tech-only FISH and flow cytometry applications allow our community-based pathologist clients to tailor individual reports to their specifications and incorporate only the images they select and then issue and sign-out such reports using our system. Our customized reporting solution also allows our clients to incorporate test results performed on ancillary tests not performed at NeoGenomics into summary report templates. This FlexREPORT feature has been well-received by clients.

needs.

National Direct Sales Force

Our direct sales force has been trained extensively in cancer genetic testing and consultative selling skills to service the needs of clients. Our sales team for the clinical cancer testing services is organized into ~~five~~nine regions ~~(Northeast,~~- Northeast, Southeast, ~~North Central,~~ South Central, Great Lakes, Midwest, Southwest, Mid-Atlantic, Florida, and ~~West), and we have a separate sales team for our~~Capital. Our Pharma Services ~~division.~~segment has a dedicated team of business development specialists who are experienced in working with pharma sponsors and helping them with the testing needs of their research and development projects as well as Phase I, II and III studies. These sales representatives utilize our custom Customer Relationship Management System (“CRM”) to manage their territories, and we have integrated all of the important customer care functionality within our ~~LIS~~Laboratory Information Services (“LIS”) into the CRM so that our sales representatives can stay informed of emerging issues and opportunities within their regions. Our in-house customer care team is aligned with our field sales team to serve the needs of our clients by utilizing the same LIS and CRM. Our field teams can see in real-time when a client calls the laboratory, the reason for the call, the resolution, and if face-to-face interaction is needed for follow-up.

~~Geographic Locations~~

~~Many high complexity laboratories within the cancer testing niche have frequently operated a core facility~~ Our sales force educates clients on ~~either the West Coast or the East Coast of the United States to service the needs of~~new test offerings and their ~~customers around the country. We believe~~proper utilization and our clients and prospects desire to do business with a laboratory with national breadth and a local presence. We have six facilities including three large laboratory locations in Fort Myers, Florida, Aliso Viejo, California and Houston Texas. We also have three smaller laboratory locations in Fresno, California, Nashville, Tennessee and Tampa, Florida. Our objective is to “operate one lab with multiple locations” in order to deliver standardized, high quality, test results. We have completed renovations inrepresentatives are often seen as trusted advisors by our Aliso Viejo facility and have successfully transitioned all Irvine employees and tests into the much larger Aliso Viejo laboratory during late March 2017. We are also working to expand our Houston, Texas facility in order to increase capacity and plan to complete this expansion by the end of the first quarter of 2018. In addition, our new lab in Geneva, Switzerland is fully operational with a grand opening planned for early November of 2017. We intend to continue to develop and open new laboratories and/or expand our current facilities as market situations dictate and business opportunities arise.

~~Scientific Pipeline~~

In the past few years our field has experienced a rapid increase in tests that are tied to specific genomic pathways. These predictive tests are typically individualized for a small sub-set of patients with a specific subtype of cancer. The therapeutic target in the genomic pathway is typically a small molecule found at the level of the cell surface, within the cytoplasm and/or within the nucleus. These genomic pathways, known as the “Hallmarks of Cancer”, contain a target-rich environment for small-molecule anti-therapies. These anti-therapies target specific mutations in the major cancer pathways such as the Proliferation Pathway, the Apoptotic Pathway, the Angiogenic Pathway, the Metastasis Pathway, and the Signaling Pathways and Anti-Signaling Pathways.

~~NEOGENOMICS, INC.~~

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

clients.

Seasonality

The majority of our clinical testing volume is dependent on patients being treated by hematology/oncology professionals and other healthcare providers. The volume of our testing services generally declines modestly during the summer vacation season, year-end holiday periods and other major holidays, particularly when those holidays fall during the middle of the week. In addition, the volume of our testing tends to decline due to extreme adverse weather conditions, such as excessively hot or cold spells, heavy snow, hurricanes or ~~tornados~~tornadoes in certain regions, consequently reducing revenues and cash flows in any affected period. ~~During~~

In our Pharma Services segment, we enter into both short-term and long-term contracts, ranging from one month to several years. While the ~~third quarter~~volume of ~~2017, Hurricane Harvey forced~~this testing is not as directly affected by seasonality as described above, the closure of our Houston laboratory for three days and Hurricane Irma forced the closure of our Fort Myers facility for five days. Therefore, comparison of the results of successive periods may not accurately reflect trends for future periods.

Please see the section captioned Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2016; ~~as filed with the SEC on March 14, 2017~~ ~~for a detailed description of our business.~~

~~Results of Operations for the Three and Nine Months Ended September 30, 2017 as Compared to the Three and Nine Months Ended September 30, 2016~~

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

Three Months Ended
September 30

Nine Months Ended
September 30

2017

2016

2017

2016

Net revenue

100.0
%

100.0
%

100.0
%

100.0
%
Cost of revenue

54.3
%

55.0
%

54.3
%

54.7
%
Gross Profit

45.7
%

45.0
%

45.7
%

45.3
%
Operating expenses:

General and administrative

36.9
%

31.3
%

35.0
%

30.4
%
Research and development

2.0
%

1.6
%

1.6
%

2.0
%
Sales and marketing

10.4
%

9.8
%

9.7
%

9.9
%
Loss on sale of Path Logic

1.7
%

—

0.6
%

—

Total operating expenses

51.0
%

42.7
%

46.9
%

42.3
%
Income (loss) from operations

(5.3
)%

2.3
%

(1.2
)%

3.0
%
Interest expense, net

2.2
%

2.4
%

2.2
%

2.5
%
Net income (loss) before income taxes

(7.5
)%

(0.1
)%

(3.4
)%

0.5
%
Income tax (benefit) expense

0.5
%

0.0
%

(0.3
)%

0.3
%
Net income (loss)

(8.0
)%

(0.1
)%

(3.1
)%

0.2
%

~~The following table presents consolidated net revenue by type for the periods indicated ($ in thousands):~~

Three Months Ended September 30,

Nine Months Ended September 30,

2017

2016

$ Change

% Change

2017

2016

$ Change

% Change

Clinical testing

$
56,186

$
55,739

$
447

1
%

$
172,668

$
166,674

$
5,994

4
%
Pharma Services

6,866

5,022

1,844

37
%

18,150

16,919

1,231

7
%
Total Revenue

$
63,052

$
60,761

$
2,291

4
%

$
190,818

$
183,593

$
7,225

4
%

~~Revenue~~

~~Clinical~~ testing revenue increased for both the three and nine month periods ending September 30, 2017 as compared to the same periods in 2016. Testing volumes also increased in our clinical genetic testing business by approximately 16.6% and 16.0% for the three and nine month periods ended September 30, 2017, respectively. The increases in revenue and volume were due to strong growth in molecular and histology testing as well as growth in immuno-histochemistry tests due to demand for the PD-L1 test as a result of the FDA approving Pembrolizumab (Keytruda) in October 2016 as first-line treatment for PD-L1 positive non-small cell lung cancer. We have also seen accelerating growth in flow cytometry and FISH. While revenues and volumes increased quarter over quarter and year over year, we believe the impact of hurricanes Harvey and Irma depressed our revenues by approximately $1.0 million and volumes by approximately 1.5% during the third quarter of 2017. Our sales team has largely finished integration related

does

NEOGENOMICS, INC.

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

~~activities, which was a distraction from their efforts to sell new business. We believe~~

vary based on the ~~team can now be re-focused on growth and selling the benefits~~terms of the ~~combined company.~~

contract. Our volumes are often based on how quickly sponsors can get patient enrollees for their trials and seasonality can impact how quickly they can get patients enrolled. Many of our long-term contracts contain specific performance obligations where the testing is performed on a specific schedule. This results in revenue that is not consistent among periods. In addition, this results in backlog that can be significant.

Results of Operations for the Three and Six Months Ended June 30, 2021 as Compared to the Three and Six Months Ended June 30, 2020

The following table presents the Consolidated Statements of Operations as a percentage of net revenue:


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Net revenue	100.0	%	100.0	%	100.0	%	100.0	%
Cost of revenue	56.5	%	67.8	%	60.1	%	61.5	%
Gross Profit	43.5	%	32.2	%	39.9	%	38.5	%
Operating expenses:
General and administrative	44.9	%	39.8	%	40.1	%	36.7	%
Research and development	2.9	%	2.4	%	2.5	%	2.2	%
Sales and marketing	14.2	%	11.7	%	13.1	%	12.2	%
Total operating expenses	62.0	%	53.9	%	55.7	%	51.1	%
Loss from operations	(18.5)	%	(21.7)	%	(15.8)	%	(12.6)	%
Interest expense, net	0.7	%	1.8	%	0.9	%	1.2	%
Other income, net	(0.1)	%	(8.5)	%	(0.1)	%	(4.0)	%
Gain on investment in and loan receivable from non-consolidated affiliate, net	(79.3)	%	—	%	(38.6)	%	—	%
Loss on extinguishment of debt	—	%	1.6	%	—	%	0.7	%
Loss on termination of cash flow hedge	—	%	4.0	%	—	%	1.8	%
Income (loss) before taxes	60.2	%	(20.6)	%	22.0	%	(12.3)	%
Income tax benefit	(2.0)	%	(12.8)	%	(0.6)	%	(5.2)	%
Net income (loss)	62.2	%	(7.8)	%	22.6	%	(7.1)	%

Clinical and Pharma Services ~~revenue~~net revenues for the periods presented are as follows ($ in thousands):


	Three Months Ended June 30,								Six Months Ended June 30,
	2021		2020		$ Change		% Change		2021		2020		$ Change		% Change
Net revenue:
Clinical Services	$	101,405	$	73,884	$	27,521	37.2	%	$	197,892	$	166,866	$	31,026	18.6	%
Pharma Services	20,319		13,093		7,226		55.2	%	39,365		26,141		13,224		50.6	%
Total revenue	$	121,724	$	86,977	$	34,747	39.9	%	$	237,257	$	193,007	$	44,250	22.9	%

Revenue

Consolidated revenues increased ~~approximately 37% and 7%~~$34.7 million, or 39.9%, year-over-year. Clinical Services revenue for the three and ~~nine month periods~~six months ended ~~September~~June 30, ~~2017 as~~2021 increased $27.5 million and $31 million, respectively, when compared to the same periods in ~~2016.~~2020. Clinical testing volume(1) increased by approximately 37.3% and 19.1% for the three and six months ended June 30, 2021, respectively, compared to the same periods in 2020. These increases in revenue and testing volume were primarily driven by increased patient access to testing as recovery from the COVID-19 pandemic continued.

Due to the broad roll-out of the COVID-19 vaccine and a sharp decline in the demand for COVID-19 PCR testing, we made the decision at the end of the first quarter 2021 to exit from COVID-19 PCR testing which was included in Clinical Services segment revenue. The Clinical division’s continued focus is its broad and innovative testing menu as well as any future new product offerings.

Pharma Services revenue for the three and six months ended June 30, 2021 increased $7.2 million and $13.2 million, respectively, compared to the same periods in 2020. In addition, our backlog of signed contracts has continued to grow from ~~$46.5~~

NEOGENOMICS, INC.

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

$208.9 million as of December 31, 2020 to $238.1 million as of June 30, ~~2017 to $58.0 million as of September 30, 2017.~~2021. We expect this backlog to result in higher revenues in future quarters. We also expect to see growth in our Pharma Services division due to our international expansion into Geneva, Switzerland. This facility will be operational in the fourth quarter of 2017 and already has a backlog of approximately $1.5 million.

~~Revenue was also impacted due to an error that we identified during an internal analysis in~~ ~~the third quarter of 2017. The error impacted revenue reported~~ in our Form 10-K for the year ended December 31, 2016, Form 10-Q for the quarter ended March 31, 2017 and Form 10-Q for the quarter ended June 30, 2017. Specifically, we determined that certain unbillable tests were inadvertently included in the revenue accrual recorded for these periods. The Company assessed the extent of this error and it was corrected in the third quarter of 2017, resulting in an understatement of revenue of $2.4 million and $0.6 million for the three and nine months ended September 30, 2017, respectively. See Item 4. Controls and Procedures for additional details regarding this error.

The following table shows ~~clinical genetic testing~~Clinical revenue, cost of revenue, requisitions received and tests performed for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021 and ~~2016. This data excludes~~2020, excluding requisitions, tests, ~~performed~~revenue and costs of revenue for Pharma ~~customers~~Services and ~~tests performed by Path Logic, which was sold on August 1, 2017.~~COVID-19 PCR tests. Testing revenue and cost of revenue are presented in thousands below:

	Three Months Ended September 30,							Nine Months Ended September 30,
	2017		2016		% Change			2017		2016		% Change				Three Months Ended June 30,						Six Months Ended June 30,
Requisitions received (cases)		98,031		90,297		8.6	%		291,806		269,916		8.1	%
																2021		2020		% Change		2021		2020		% Change
Clinical(1):															Clinical(1):
Requisitions (cases) received															Requisitions (cases) received	163,128		114,413		42.6	%	314,273		258,732		21.5	%
Number of tests performed		163,289		140,089		16.6	%		482,476		415,815		16.0	%	Number of tests performed	281,335		204,844		37.3	%	542,276		455,220		19.1	%
Average number of tests/requisition		1.67	1.55			7.4	%		1.65	1.54			7.3	%
Average number of tests/requisitions															Average number of tests/requisitions	1.72		1.79		(3.9)	%	1.73		1.76		(1.7)	%

Total clinical genetic testing revenue	$	55,772	$	53,887		3.5	%	$	168,999	$	160,886		5.0	%
Clinical testing revenue															Clinical testing revenue	$	101,405	$	71,921	41.0	%	$	196,335	$	164,903	19.1	%
Average revenue/requisition	$	568	$	597		(4.7	%)	$	579	$	596		(2.8	%)	Average revenue/requisition	$	622	$	629	(1.1)	%	$	625	$	637	(1.9)	%
Average revenue/test	$	342	$	385		(11.2	%)	$	350	$	387		(9.5	%)	Average revenue/test	$	360	$	351	2.6	%	$	362	$	362	—	%

Cost of revenue	$	29,652	$	28,578		3.8	%	$	87,889	$	85,499		2.8	%	Cost of revenue	$	56,504	$	47,320	19.4	%	$	110,135	$	96,244	14.4	%
Average cost/requisition	$	302	$	316		(4.4	%)	$	301	$	317		(4.9	%)	Average cost/requisition	$	346	$	414	(16.4)	%	$	350	$	372	(5.9)	%
Average cost/test	$	181	$	204		(11.0	%)	$	182	$	206		(11.4	%)	Average cost/test	$	201	$	231	(13.0)	%	$	203	$	211	(3.8)	%

~~We continue to realize growth in our clinical testing~~

(1) Clinical tests exclude requisitions, tests, revenue ~~which we believe is~~and costs of revenue for Pharma Services, COVID-19 PCR tests. Cost of revenue excludes the direct result of our efforts to innovate by developing and maintaining one of the most comprehensive cancer testing menus in the industry. Our broad test menu enables our sales teams to identify opportunitiesamortization for increasing revenues from existing clients and allows us to gain market share from competitors. New immuno-histochemistry tests such as Micro Satellite Instability, DNA Mismatch Repair, PD1 and PD-L1 have continued to show solid growth and have increased our volume and revenue growth in the third quarter. We believe the field of immuno-therapy will continue to show substantial growth in coming years and our ability to offer multi-modality testing in one lab will allow us to capitalize on this increased demand.

acquired intangible assets.

Average revenue per test ~~decreased~~increased 2.6% for ~~both~~ the three months ended June 30, 2021 and ~~nine month periods~~was flat for the six months ended ~~September~~June 30, ~~2017 as~~2021 compared to the corresponding periods in the previous year. These decreases are primarily due to the change in test mix, specifically the increase in PD-L1 testing which has a lower average unit price (“AUP”) than our overall Company AUP. The 19% Medicare cut in Flow Cytometry reimbursement as a result of the 2017 Medicare Physician Fee Schedule also contributed to the lower revenue per test.

These decreases to our average revenue per test were offset by our higher volumes and reductions in cost per test. The cost per test reductions were partially a result of the change in test mix, specifically the higher mix of lower cost histology tests. In addition, we continue to have success in reducing costs in the laboratory as synergies are being realized from the consolidation of our Irvine and Aliso Viejo, California laboratories. We have also seen a reduction in send-out costs, as our extensive menu makes it rare for us to need to send a test to another laboratory.

~~NEOGENOMICS, INC.~~

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

2020.

Cost of Revenue and Gross Profit

Cost of revenue includes payroll and payroll related costs for performing tests, maintenance and 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.

Average cost per clinical test decreased 13.0% and 3.8% for the three and six months ended June 30, 2021, respectively, compared to the corresponding periods in 2020, reflecting an increase in volume due to the overall recovery from the COVID-19 pandemic and the fixed nature of many of our laboratory costs. In 2020, we did not reduce our workforce due to temporary declines in volume related to the COVID-19 pandemic.

The consolidated cost of revenue and gross profit metrics are as ~~follows ($ in thousands):~~

follows:


	Three Months Ended June 30,						Six Months Ended June 30,
($ in thousands)	2021		2020		% Change		2021		2020		% Change
Cost of revenue:
Clinical Services(2)	$	57,233	$	48,757	17.4	%	$	118,798	$	97,680	21.6	%
Pharma Services	11,501		10,214		12.6	%	23,895		20,952		14.0	%
Total cost of revenue	$	68,734	$	58,971	16.6	%	$	142,693	$	118,632	20.3	%
Cost of revenue as a % of revenue	56.5%		67.8%				60.1%		61.5%

Gross profit:
Clinical Services	$	44,172	$	25,127	75.8	%	$	79,094	$	69,186	14.3	%
Pharma Services	8,818		2,879		206.3	%	15,470		5,189		198.1	%
Total gross profit	$	52,990	$	28,006	89.2	%	$	94,564	$	74,375	27.1	%
Gross profit margin	43.5%		32.2%				39.9%		38.5%

Three Months Ended September 30,

Nine Months Ended September 30,

Consolidated

2017

2016

$ Change

2017

2016

$ Change

Cost of revenue

$
34,242

$
33,416

$
826

$
103,634

$
100,471

$
3,163

Cost of revenue as a % of revenue

54.3
%

55.0
%

54.3
%

54.7
%

Gross Profit

$
28,810

$
27,345

$
1,465

$
87,184

$
83,122

$
4,062

Gross Profit Margin

45.7
%

45.0
%

45.7
%

45.3
%

(2) Clinical cost of revenue for the three months ended June 30, 2021 includes $0.7 million amortization of acquired intangible assets. Clinical cost of revenue for the six months ended June 30, 2021 includes $0.7 million amortization of acquired

NEOGENOMICS, INC.

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

intangible assets and write-offs of $5.3 million for COVID-19 PCR testing inventory.

Consolidated cost of revenue ~~in dollars~~ increased for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021 when compared to the same periods in ~~2016 while cost of revenue as a percentage of revenue decreased slightly year-over-year. These~~2020 due to increases in ~~cost of revenue are largely~~supplies expense due to ~~the increase in~~higher volume, write-offs related to our exit from COVID-19 PCR testing, ~~volumes~~ and ~~additional costs incurred with the consolidation of our two largest testing facilities in southern California, specifically increased overtime and associated~~payroll related costs.

Gross profit margin ~~increased slightly~~improvement for ~~both~~ the three and ~~nine~~six months ended ~~September~~June 30, ~~2017, as~~2021, compared to the same ~~period last year. These increases~~periods in 2020 were ~~achieved despite~~ the reduction in our revenue per test over these time periods. We were able to increase gross profit margin due to our laboratories processing the increased test volumes more efficiently. We had only limited staffing increases in the laboratory to handle the increased volumes, and our laboratory teams have been extremely focused on reducing their cost per test across all departments. As a result of the ~~correction~~combined effect of higher testing volume and recovery from the ~~aforementioned error~~COVID-19 pandemic in ~~the third quarter of 2017, gross profit was understated by $2.4 million and $0.6 million for the three and nine months ended September 30, 2017, respectively.~~

both segments.

General and Administrative Expenses

General and administrative expenses consist of ~~employee-related~~payroll and payroll related costs ~~(salaries, fringe benefits, and stock based compensation expense)~~ for our executive, billing, finance, human resources, information technology and other administrative ~~personnel.~~personnel as well as stock-based compensation. We also allocate professional services, facilities expense, IT infrastructure costs, ~~bad debt expense,~~ depreciation, amortization and other administrative-related costs to general and administrative expenses.

Consolidated general and administrative expenses ~~for the periods presented~~ are as follows:


	Three Months Ended June 30,										Six Months Ended June 30,
($ in thousands)	2021			2020			$ Change		% Change		2021			2020			$ Change		% Change
General and administrative	$	54,638		$	34,613		$	20,025	57.9	%	$	95,114		$	70,957		$	24,157	34.0	%
As a % of revenue	44.9		%	39.8		%					40.1		%	36.7		%

Three Months Ended September 30,

Nine Months Ended September 30,

($ in thousands)

2017

2016

$ Change

2017

2016

$ Change

General and administrative

$
23,267

$
19,025

$
4,242

$
66,743

$
55,810

$
10,933

As a % of revenue

36.9
%

31.3
%

35.0
%

30.4
%

~~The increase in our general~~

General and administrative expenses increased $20 million and $24.2 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017 compared to the same periods in 2016 was largely due to increased expenses in the following areas: bad debt, professional fees and personnel fees (including stock based compensation).~~

Bad debt expense for the three months ended September 30, 2017 increased by approximately $2.3 million when compared to the same period in 2016. Bad debt as a percentage of revenue was 7.9%, which was higher than last year’s rate of 4.5%. Bad debt expense for the nine months ended September 30, 2017 increased by approximately $4.8 million when compared to the same period in 2016. Bad debt as a percentage of revenue was 6.8%, which was higher than last year’s rate of 4.5%. The increases in bad debt for both periods are primarily related to changes in payer dynamics including pre authorization denials as well as increased denials for next generation sequencing tests and disease specific multi-gene panels. In addition, there was an impact from the integration of Clarient into our billing system, which began in July of 2016. Clarient had higher bad debt rates than did NeoGenomics’ legacy business. Billings of the legacy Clarient billing system have now been either fully collected or written off. The performance of our billing team was also impacted by the integration which ultimately contributed to certain receivables not being collected and increased bad debt expense.

~~NEOGENOMICS, INC.~~

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

~~Professional fees increased by approximately $616,000 for the three months ended September 30, 2017 and $1.4 million for the nine months ended September 30, 2017~~2021, respectively, when compared to the same periods in ~~2016, primarily due to fees in 2017 related to the Pharma Services facility in Geneva, Switzerland opening in November~~2020. These increases reflect acquisition and integration costs of ~~2017~~approximately $11 million and ~~an increase in legal reserves for the three months ended September 30, 2017 related to a lawsuit brought against Clarient.~~

~~Payroll expenses increased~~$11.8 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017 when compared~~2021, respectively, related to the ~~same periods in 2016. This increase is partially due to additional staff hired for certain functions such as billing, IT~~acquisitions of Inivata and accounts payable that were performed by outside vendors or by General Electric in early 2016 under the Clarient “Transition Services Agreement”. We have also seen an increase in stock based compensation which has increased from $3.5 million for the nine months ended September 30, 2016, to $5.0 million for the nine months ended September 30, 2017. This increase is due to the increase in NeoGenomics stock priceTrapelo, as well as ~~increase~~higher payroll and payroll related costs due to increases in ~~stock option grants~~personnel to support our near and ~~restricted stock awards.~~

long-term growth.

We expect our general and administrative expenses to increase in total but decrease as a percentage of revenue over time as we add ~~personnel~~employee and ~~equity-related~~ compensation expenses, ~~increase our billing and collections activities;~~ incur additional expenses associated with the expansion of our facilities, and ~~backup systems; incur additional bad debt expense as sales increase and as we~~ continue to expand our physical and technological infrastructure to support our anticipated growth. A significant portion of our stock based compensation is for non-employee options which are subject to variable accounting, and our expenses will fluctuate based on the performance of our common stock. A rise in the price of our stock will increase our stock compensation expense, and a decline in our stock price will reduce this expense. However, we anticipate that general and administrative expenses as a percentage of consolidated revenue will drop over the coming years as we continue to grow.

Research and Development Expenses

Research and development expenses relate to ~~cost~~costs of developing new proprietary and non-proprietary genetic tests, including payroll and payroll related costs, maintenance ~~and depreciation~~ of laboratory equipment, laboratory supplies (reagents), and outside consultants and experts assisting our research and development team.

Consolidated research and development expenses for the periods presented are as follows:


	Three Months Ended June 30,										Six Months Ended June 30,
($ in thousands)	2021			2020			$ Change		% Change		2021			2020			$ Change		% Change
Research and development	$	3,495		$	2,105		$	1,390	66.0	%	$	5,951		$	4,165		$	1,786	42.9	%
As a % of revenue	2.9		%	2.4		%					2.5		%	2.2		%

Three Months Ended September 30,

Nine Months Ended September 30,

($ in thousands)

2017

2016

$ Change

2017

2016

$ Change

Research and development

$
1,270

$
967

$
303

$
3,080

$
3,719

$
(639
)
As a % of revenue

2.0
%

1.6
%

1.6
%

2.0
%

Research and development ~~expense~~expenses increased $1.4 million and $1.8 million for the three and six months ended ~~September~~June 30, ~~2017 as~~2021 when compared to the same ~~period~~periods in ~~2016. This increase is attributable to non-employee stock options which are subject to variable accounting and the increase~~2020. These increases were driven by investments in new test development, particularly in our ~~stock price during the third quarter of 2017. Excluding stock based compensation expense of approximately $531,000~~next-generation sequencing and $187,000 for the three months ended September 30, 2017 and 2016, research and development expense was approximately $739,000 and $780,000. This decrease is largely due to a decrease in amortization expense for the Health Discovery Corporation license agreements which were being amortized as intangible assets, but were fully impaired in the fourth quarter of 2016.

Research and development expense decreased for the nine months ended September 30, 2017 as compared to the same period in 2016. This decrease is partially attributable to the reduction in the balance of unvested options outstanding in 2017 as compared to 2016 in addition to the decrease in amortization expense for the Health Discovery Corporation license agreements. Excluding stock based compensation expense of approximately $858,000 and $550,000 for the nine months ended September 30, 2017 and 2016, research and development expense was approximately $2.2 million and $3.2 million. The increase in stock based compensation recorded in G&A expense is attributable to non-employee stock options which are subject to variable accounting and the increase in our stock price during the third quarter of 2017.

We expect our research and development expenses to fluctuate in future quarters because of increases or decreases in our stock price and the corresponding stock based compensation expense for non-employee stock options. Increases in our stock price result in additional expense and decreases in our stock price can result in recovery of previously recorded expense. FDA initiatives.

We anticipate research and development expenditures will significantly increase ~~over time~~in future quarters as we continue to invest in development costs for innovation projects and bringing new tests to market.

Sales and Marketing Expenses

Sales and marketing expenses are primarily attributable to employee-related costs including sales management, sales representatives, sales and marketing consultants and marketing and customer service personnel.

NEOGENOMICS, INC.

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

Consolidated sales and marketing expenses for the periods presented are as follows:


	Three Months Ended June 30,									Six Months Ended June 30,
($ in thousands)	2021		2020			$ Change		% Change		2021			2020			$ Change		% Change
Sales and marketing	$17,224		$	10,195		$	7,029	68.9	%	$	30,973		$	23,453		$	7,520	32.1	%
As a % of revenue	14.2	%	11.7		%					13.1		%	12.2		%

Three Months Ended September 30,

Nine Months Ended September 30,

($ in thousands)

2017

2016

$ Change

2017

2016

$ Change

Sales and marketing

$
6,577

$
5,958

$
619

$
18,466

$
18,084

$
382

As a % of revenue

10.4
%

9.8
%

9.7
%

9.9
%

Sales and marketing expenses increased $7 million and $7.5 million for ~~both~~ the three and ~~nine~~six months ended ~~September~~June 30, ~~2017 as~~2021 when compared to the same ~~period~~periods in ~~2016.~~2020. This increase is primarily ~~attributable to~~reflects higher commissions due to our increase in ~~revenues.~~revenues, the expansion of our sales team and continued investment in marketing. We expect higher commissions expense in the coming quarters as ~~the~~our sales ~~representatives’ focus on~~representatives continue generating new business ~~and increasing revenue. In addition, we have increased~~in both of our ~~investment in marketing related activities in 2017 including trade shows and on-line marketing.~~business segments. We expect our sales and marketing expenses over the long term to ~~increase as our test volumes increase, but to remain stable as a percentage of our overall sales.~~

align with changes in revenue.

Interest Expense, net

~~Interest~~

Net interest expense ~~net is comprised of interest incurred on our term debt, revolving credit facility~~decreased $0.6 million and ~~our capital lease obligations offset by the interest income we earn on cash deposits. Interest expense, net decreased in both~~$0.3 million for the three and ~~nine month periods ending September~~six months ended June 30, ~~2017~~2021 compared to the same periods in ~~2016. The decreases in~~2020. Interest expense reflects the effective interest ~~expense, net of $70,000 for~~rate on the ~~three month period~~2028 Convertible Notes and ~~$336,000 for~~ the ~~nine month period reflect~~2025 Convertible Notes which is 0.70% and 1.96%, respectively. Interest on the ~~significantly lower borrowing rate~~2028 Convertible Notes and 2025 Convertible Notes began accruing upon issuance and is payable semi-annually. For further details regarding the convertible notes, please refer to Note 8. Debt, in the ~~Loan Agreement entered into in December of 2016. Due~~accompanying notes to these lower interest rates, while total borrowings have been higher in 2017 compared to 2016, interest expense has been lower. In addition, we have entered into a swap agreement to hedge a significant portion of the ~~interest on our term loan, however part of that loan is not hedged and will continue to fluctuate as the LIBOR rates change.~~

~~Net~~ unaudited Consolidated Financial Statements.

Income

(Loss) Per Share

The following table provides consolidated net ~~loss available to common stockholders~~income (loss) for each period along with the computation of basic and diluted net ~~loss~~income (loss) per share for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017:~~

2021 and 2020 (in thousands, except net income (loss) per share data):

Three Months Ended
September 30 ,

Nine Months Ended
September 30 ,

(in thousands, except per share amounts)

2017

2016

2017

2016

Net loss available to common shareholders

$
(7,751
)

$
(5,634
)

$
(13,653
)

$
(16,200
)
Basic weighted average shares outstanding

79,617

78,145

79,208

77,224

Effect of potentially dilutive securities

—

—

—

—

Diluted weighted average shares outstanding

79,617

78,145

79,208

77,224

Basic net loss per share

$
(0.10
)

$
(0.07
)

$
(0.17
)

$
(0.21
)
Diluted net loss per share

$
(0.10
)

$
(0.07
)

$
(0.17
)

$
(0.21
)


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020


Adjustment to net income (loss) for convertible notes in diluted EPS(3)
Net income (loss)	$	75,873	$	(6,824)	$	53,759	$	(13,802)
Convertible note accretion, amortization, and interest, net of tax	1,552		—		2,997		—
Net income (loss) used in diluted EPS	$	77,425	$	(6,824)	$	56,756	$	(13,802)

Basic weighted average shares outstanding	118,287		107,887		117,249		106,209
Diluted weighted average shares outstanding	131,237		107,887		130,247		106,209

Basic net income (loss) per share	$	0.64	$	(0.06)	$	0.46	$	(0.13)
Diluted net income (loss) per share	$	0.59	$	(0.06)	$	0.44	$	(0.13)

(3) This adjustment compensates for the effects of the if-converted impact of convertible notes in adjusted net income. Since an entity using the if-converted method assumes that a convertible debt instrument was converted into common shares at the beginning of the reporting period, net income (loss) is adjusted to reverse any recognized interest expense (including any amortization of discounts).

Non-GAAP Measures

Use of ~~non-GAAP~~Non-GAAP Financial Measures

The ~~Company’s~~ financial results and financial guidance are provided in accordance with ~~accounting principles generally accepted in the United States of America (GAAP)~~GAAP and using certain non-GAAP financial measures. Management believes that the presentation of operating results using non-GAAP financial measures provides useful supplemental information to investors and facilitates the analysis of the ~~Company’s~~core operating results and comparison of core operating results across reporting ~~periods and between entities.~~periods. Management also uses non-GAAP financial measures for financial and operational decision making, planning and forecasting purposes and to manage the ~~Company’s~~ business. Management ~~believes that Adjusted EBITDA is a key metric for our business because it is used by our lenders in the calculation of our debt covenants. Management also~~ believes that these non-GAAP financial measures enable investors to evaluate ~~our~~the operating results and future prospects in the same manner as management. The non-GAAP financial measures do not replace the presentation of GAAP financial results and should only be used as a supplement to, and not as a substitute for, the ~~Company’s~~ financial results presented in accordance with GAAP. There are limitations inherent in ~~non-GAAP~~non-

NEOGENOMICS, INC.

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

GAAP financial measures because they exclude charges and credits that are required to be included in a GAAP presentation, and do not ~~therefore~~ present the full measure of the ~~Company’s~~ recorded costs against its net revenue. In addition, the ~~Company’s~~ definition of the non-GAAP financial measures below may differ from non-GAAP measures used by other companies.

~~NEOGENOMICS, INC.~~

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

Definitions of ~~non-GAAP measures~~

~~Non – GAAP~~Non-GAAP Measures

Non-GAAP Adjusted EBITDA

~~We define “EBITDA”~~

“Adjusted EBITDA” is defined by NeoGenomics as net income (loss) from continuing operations before: (i) interest expense, net, (ii) tax ~~expense, (iii) depreciation and amortization expense.~~

~~Non – GAAP Adjusted EBITDA~~

~~We define “Adjusted EBITDA” as net income from continuing operations before: (i) interest expense, (ii) tax expense,~~benefit, (iii) depreciation and amortization expense, (iv) non-cash stock-based compensation expense, and, if applicable in a reporting period, (v) ~~acquisition-related transaction~~acquisition and integration related expenses, (vi) write-off of COVID-19 PCR testing inventory and equipment, (vii) new headquarters moving expenses, (viii) gain on investment in and loan receivable from non-consolidated affiliate, net, and (ix) other significant non-recurring or non-operating ~~(income) or expenses.~~

~~Basis for Non-GAAP Adjustments~~

~~Our basis for excluding certain~~ expenses ~~from GAAP financial measures, are outlined below:~~

~~Interest expense~~ – The capital structure of companies significantly affects the amount of interest expense incurred. This expense can vary significantly between periods and between companies. In order to compare performance between periods and companies that have different capital structures and thus different levels of interest obligations, NeoGenomics excludes this expense.

(income), net.

~~Income tax expense (benefit)~~ –The tax positions of companies can vary because of their differing abilities to take advantage of tax benefits and because of the tax policies of the jurisdictions in which they operate. As a result, effective tax rates and the provision for income taxes can vary considerably among companies. ~~In order to compare performance between companies, NeoGenomics excludes this expense (benefit).~~

~~Depreciation expense~~ ~~– Co~~mpanies utilize assets with different useful lives and use different methods of both acquiring and depreciating these assets. These differences can result in considerable variability in the costs of productive assets and the depreciation and amortization expense among companies. ~~In order to compare performance between companies, NeoGenomics excludes this expense.~~

~~Amortization expense~~ – The intangible assets that give rise to this amortization expense relate to acquisitions, and the amounts allocated to such intangible assets and the terms of amortization vary by acquisition and type of asset. NeoGenomics excludes these items to provide a consistent basis for comparing operating results across reporting periods, pre and post-acquisition.

~~Stock-based compensation expenses~~ – Although stock-based compensation is an important aspect of the compensation paid to NeoGenomics employees and consultants, the related expense is substantially driven by changes in the Company’s stock price in any given quarter, which can fluctuate significantly from quarter to quarter and result in large positive or negative impacts to total operating expenses. The variable accounting treatment causing expense to be driven by changes in quarterly stock price is required because many of the Company’s full-time physicians reside in California and are classified as consultants rather than employees due to state regulations. GAAP provides that variable stock based compensation treatment be applied for consultants but not for employees. Without adjusting for these non-cash expenses, the Company believes it would be difficult to compare financial results from operations across reporting periods on a consistent basis.

~~Loss on sale of business~~ - The impact of disposals of assets or businesses have been excluded as these losses represent infrequent transactions that impact the comparability between operating periods. We believe the adjustment of these losses supplements the GAAP information by providing a measure that may be used to assess the sustainability of our operating performance.

•

~~Moving expenses~~ – These expenses include costs associated with the move of our Irvine, California facility into our Aliso Viejo facility. Irvine was the former NeoGenomics laboratory in Southern California and was eight miles from Clarient’s much larger facility in Aliso Viejo. After investing in updating and redesigning the Aliso Viejo facility, we combined the

~~NEOGENOMICS, INC.~~

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

two facilities in March of 2017. Equipment had to be moved and re-validated in the new location. There was also significant overtime and investment of resources to coordinate the move project. Our Irvine, California lease terminated on April 30, 2017 and we also incurred costs in cleaning out and restoring that facility to its original state. We are adjusting for these costs in Adjusted EBITDA as the move was the direct result of the Clarient acquisition and will not be an annually recurring item. Without adjusting for these expenses, the Company believes it would be difficult to compare financial results from operations across reporting periods on a consistent basis.

We believe that EBITDA and Adjusted EBITDA provide more consistent measures of operating performance between entities and across reporting periods by excluding cash and non-cash items of expense that can vary significantly between companies. In addition, adjusted EBITDA is a metric that is used by our lenders in the calculation of our debt covenants. Adjusted EBITDA also assists investors in performing analyses that are consistent with financial models developed by independent research analysts.

EBITDA and Adjusted EBITDA (as defined by us) are not measurements under GAAP and may differ from non-GAAP measures used by other companies. We believe there are limitations inherent in non-GAAP financial measures such as EBITDA and Adjusted EBITDA because they exclude a variety of charges and credits that are required to be included in a GAAP presentation, and do not therefore present the full measure of NeoGenomics recorded costs against its net revenue. Accordingly, we encourage investors to consider both non-GAAP results together with GAAP results in analyzing our financial performance.

The following is a reconciliation of GAAP net income (loss) to Non-GAAP EBITDA and Adjusted EBITDA for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017:~~

2021:


	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2021		2020		2021		2020
Net income (loss) (GAAP)	$	75,873	$	(6,824)	$	53,759	$	(13,802)
Adjustments to net income (loss):
Interest expense, net	902		1,548		2,079		2,367
Income tax benefit	(2,437)		(11,132)		(1,461)		(10,043)
Amortization of intangibles	3,751		2,467		6,209		4,919
Depreciation	6,949		5,937		13,629		12,177
EBITDA (non-GAAP)	$	85,038	$	(8,004)	$	74,215	$	(4,382)
Further adjustments to EBITDA:
Acquisition and integration related expenses	10,998		110		11,812		1,406
Write-off of COVID-19 PCR testing inventory and equipment	—		—		6,061		—

New headquarters moving expenses	368		—		368		—
Non-cash stock-based compensation expense	4,506		2,635		7,159		4,821
Gain on investment in and loan receivable from non-consolidated affiliate, net	(96,534)		—		(91,510)		—
Other significant non-recurring expenses (income), net (1)	174		(1,965)		631		(1,996)
Adjusted EBITDA (non-GAAP)	$	4,550	$	(7,224)	$	8,736	$	(151)

For the Three Months Ended
September 30,

For the Nine Months Ended
September 30,

(in thousands)

2017

2016

2017

2016

Net income (loss) (GAAP)

$
(5,100
)

$
(67
)

$
(5,797
)

$
500

Adjustments to net income (loss):

Interest expense, net

1,398

1,468

4,173

4,509

Income tax expense (benefit)

340

(6
)

(539
)

500

Amortization of intangibles

1,751

1,818

5,201

5,454

Depreciation

3,833

4,222

11,739

11,550

EBITDA

2,222

7,435

14,777

22,513

Further Adjustments to EBITDA:

Non-cash stock based compensation

2,760

1,686

5,812

4,024

Loss on sale of business

1,058

-

1,058

-

Facility moving expenses

5

-

620

-

Adjusted EBITDA (non-GAAP), as originally reported

6,045

9,121

22,267

26,537

Impact of accounting error

2,430

-

551

-

Adjusted EBITDA (non-GAAP), as corrected

$
8,475

$
9,121

$
22,818

$
26,537

As discussed above and in Item 4, revenue recognized from the fourth quarter of 2016 through the second quarter of 2017 was impacted due to an error relating to revenue accrued for unbilled tests. We assessed the extent of this error and it was corrected in the third quarter of 2017, resulting in a reduction of revenue, and thus a corresponding reduction in Adjusted EBITDA of $2.4 million and $0.6 million for the three and nine months ended September 30, 2017, respectively. See Item 4. Controls and Procedures for additional details regarding this error.

~~Trade Accounts Receivable and Allowance for Doubtful Accounts~~

~~Accounts receivable are reported~~

(1) Other significant non-recurring expenses (income), net, of an allowance for doubtful accounts, which is estimated based on the aging of accounts receivable with each payer category and the historical data on bad debts in these aging categories. In addition, the allowance is adjusted periodically for other relevant factors, including regularly assessing the state of our billing operations in order to identify issues which may impact the collectability of receivables or allowance estimates. Revisionsincludes CEO transition costs, reimbursements received related to the ~~allowance are recorded as an adjustment to bad~~CARES Act, cash flow hedge termination fees, debt ~~expense within general~~retirement fees, 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.

~~NEOGENOMICS, INC.~~

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

~~The following tables present the Company’s gross outstanding accounts receivable ($ in thousands) by payer group at September 30, 2017 and December 31, 2016:~~

~~AGING OF RECEIVABLES BY PAYER GROUP~~

~~September 30, 2017~~

other non-recurring items.

Payer Group

0-30

%

31-60

%

61-90

%

91-120

%

>120

%

Total

%

Client AR - Pharma

$
5,708

8%

$
1,367

2%

$
217

0%

$
249

0%

$
373

1%

$
7,914

11%

Client AR - Clinical

12,850

17%

8,797

12%

3,146

4%

2,268

3%

4,105

6%

31,166

42%

Total Client AR

18,558

10,164

3,363

2,517

4,478

39,080

Commercial Insurance

1,045

1%

1,815

3%

1,410

2%

1,493

2%

10,359

14%

16,122

22%

Medicaid

113

0%

289

1%

212

0%

278

0%

961

1%

1,853

2%

Medicare

898

1%

1,354

2%

900

1%

971

1%

5,615

8%

9,738

13%

Private Pay

-

0%

-

0%

-

0%

-

0%

-

0%

-

0%

Unbilled Revenue

6,110

9%

248

0%

34

0%

28

0%

447

1%

6,867

9%

Total

$
26,724

36%

$
13,870

20%

$
5,919

7%

$
5,287

6%

$
21,860

31%

$
73,660

100%

~~AGING OF RECEIVABLES BY PAYER GROUP~~

~~December 31, 2016~~

Payer Group

0-30

%

31-60

%

61-90

%

91-120

%

>120

%

Total

%

Client AR - Pharma

$
2,752

4%

$
629

1%

$
305

0%

$
1,191

2%

$
421

1%

$
5,298

8%

Client AR - Clinical

10,023

15%

5,891

8%

3,226

5%

1,678

2%

4,808

7%

25,626

37%

Total Client AR

$
12,775

$
6,520

$
3,531

$
2,869

$
5,229

$
30,924

Commercial Insurance

913

1%

1,947

3%

2,045

3%

1,824

3%

11,325

16%

18,054

26%

Medicaid

88

0%

203

0%

198

0%

180

0%

301

1%

970

1%

Medicare

840

1%

1,300

2%

779

1%

601

1%

3,167

5%

6,687

10%

Private Pay

16

0%

7

0%

10

0%

10

0%

(4
)

0%

39

0%

Unbilled Revenue

10,066

15%

1,250

2%

654

1%

225

0%

342

0%

12,537

18%

Total

$
24,698

36%

$
11,227

16%

$
7,217

10%

$
5,709

8%

$
20,360

30%

$
69,211

100%

The following table represents the balance in allowance for doubtful accounts (in thousands) and that allowance as a percentage of gross accounts receivable at September 30, 2017 and December 31, 2016:

September 30, 2017

December 31, 2016

$ Change

Allowance for doubtful accounts

$
10,937

$
13,699

$
(2,762
)
Allowance as a % of gross accounts receivable

14.8
%

19.8
%

Days Sales Outstanding

91

84

The allowance for doubtful accounts as well as the allowance as a percentage of gross accounts receivable has decreased for the period ended September 30, 2017 as compared to the period ended December 31, 2016. In December of 2016, due to the Clarient acquisition and integrated related activities; NeoGenomics did not perform a year-end write off of uncollectible receivables as had been done in previous years which resulted in a higher balance in accounts receivable and the allowance as of December 2016. The decreases are also due to changes in the timing of when items are written off and decisions to accelerate certain write-offs in 2017. In 2017, our mix of client billed accounts receivable has increased substantially which tends to lower our allowance as a percentage of gross receivables since client billed accounts receivable have historically had a lower percentage of bad debt than commercial insurance.

Days Sales Outstanding (“DSO”) has increased from 84 days at December 31, 2016 to 91 days as of September 30, 2017. The increase in DSO was partially attributable to an increase in client billed accounts receivable during the third quarter of 2017. Additionally Pharma Services DSO’s were 93 days on December 31, 2016 compared to 104 days on September 30, 2017.

~~NEOGENOMICS, INC.~~

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

Liquidity and Capital Resources

To date, we have financed our operations primarily through cash generated ~~thorough~~from operations, public and private sales of debt and equity securities, ~~borrowings against our accounts receivables balances~~ and ~~private debt.~~

bank debt borrowings.

The following table presents a summary of our consolidated cash flows for operating, investing and financing activities for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021 and ~~2016~~2020 as well ~~as the period ended~~balances of cash and cash equivalents and working ~~capital (in thousands).~~

capital:

Nine Months Ended September 30,

2017

2016

Net cash provided by (used in):

Operating activities

$
12,278

$
21,718

Investing activities

(10,167
)

(5,328
)
Financing activities

(2,425
)

(10,875
)
Net change in cash and cash equivalents

(314
)

5,515

Cash and cash equivalents, beginning of period

$
12,525

$
23,420

Cash and cash equivalents, end of period

$
12,211

$
28,935

Working Capital ⁽¹⁾, end of period

$
45,633

$
57,167

~~(1) Defined as current assets less current liabilities.~~

~~Cash Flows from Operating Activities~~

During the nine months ended September 30, 2017, cash flows from operating activities was $12.3 million, a $9.4 million decrease compared to the same period in 2016. The decrease was primarily due to an $11.5 million increase in our accounts receivable partially offset by increases in accrued expenses. Our receivables have increased over this period due to growth as well as our higher DSO. We have experienced reimbursement delays due to changes in payer dynamics for Medicare and insurance companies, specifically the increase in these payers requiring pre-authorization and the additional time it may take to get the required authorizations. We have enhanced procedures in our labs to identify requisitions that require pre-authorizations and also educate our clients in order to secure pre-authorizations before the samples arrive in our lab.

~~Cash Flows from Investing Activities~~

During the nine months ended September 30, 2017, cash used in investing activities increased by approximately $4.8 million compared to the same period in 2016. This increase was due to equipment purchases and building improvements, which were necessary to support our continued growth and efficiency. Specifically, we have remodeled and upgraded our laboratory facilities in Aliso Viejo, California, expanded our Houston, Texas facility, invested in additional laboratory equipment to accommodate our growth and update existing equipment that was acquired with the purchase of Clarient. Our Geneva laboratory was substantially finished at the end of the third quarter of 2017 and we have made significant investments in this laboratory facility. We have also invested in a new trade show booth as well as upgrades to our IT security environment and our next generation Laboratory Information System (LIS).

~~Cash Flows from Financing Activities~~

During the nine months ended September 30, 2017, cash flows from financing activities decreased by approximately $8.5 million compared to the same period in 2016, primarily due to a $10.0 million repayment on our 2016 revolving credit facility in the first quarter of 2016. The decrease also reflects $5.0 million in advances on our revolving credit facility during the first quarter of 2017, partially offset by a $2.5 million repayment on our revolving credit facility during the third quarter of 2017. The 2016 revolving credit facility was originally used to finance the acquisition of Clarient.

Cash flows from financing activities also include cash received for the issuance of our common stock upon exercise of stock options as well as cash received to purchase shares of our common stock through the Employee Stock Purchase Plan. These sources of cash were offset in 2017 as we made three quarterly repayments of $0.9 million each on our Term Loan as well as payments for various capital lease obligations in both 2016 and 2017. We will continue to have quarterly term loan repayments of $0.9 million in the fourth quarter of 2017 and throughout 2018.

NEOGENOMICS, INC.

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

~~Credit Facility~~


	Six Months Ended June 30,
(in thousands)	2021		2020
Net cash provided by (used in):
Operating activities	$	820	$	(5,051)
Investing activities	(608,098)		(59,871)
Financing activities	729,545		223,217

Net change in cash, cash equivalents and restricted cash	122,267		158,295
Cash, cash equivalents and restricted cash, beginning of period	$	250,632	$	173,016
Cash, cash equivalents and restricted cash, end of period	$	372,899	$	331,311
Working Capital (1), end of period	$	622,664	$	357,300

(1) Defined as current assets less current liabilities.

Cash Flows from Operating Activities

During ~~December~~the six months ended June 30, 2021, cash provided by operating activities was $0.8 million, consisting of ~~2016, we entered into a new senior secured credit facility in order~~net income of $53.8 million less adjustments to ~~reduce our exposure~~the net income of $53.0 million. Included in net income was $11.8 million of acquisition and integration costs. Included in the adjustments to ~~interest rate fluctuations~~the net income was $91.5 million of realized net gain on ~~this floating rate debt obligation, we also entered into~~investment in and loan receivable from non-consolidated affiliate and $6.1 million of write-offs of COVID-19 PCR testing inventory and equipment related to the exit from COVID-19 PCR testing. The cash flow impact of net changes in operating assets and liabilities did not impact income from operations. The change in operating assets and liabilities was primarily driven by an interest rate swap agreement. For more information on this hedging instrument, see Note E to Consolidated Financial Statements herein. The interest rate swap agreement effectively converts a portionincrease in amounts funded for the development of our ~~floating rate~~new headquarters and other prepaid assets offset by a decrease in inventory due to COVID-19 PCR testing inventory write-offs in the first quarter of 2021, an increase in accrued payroll liabilities due to increases in personnel, and an increase in accounts receivable, net, due to timing of cash receipts.

Cash Flows from Investing Activities

During the six months ended June 30, 2021, cash used in investing activities was $608.1 million, an increase of approximately $548.2 million compared to the same period in 2020. This was due to $419.4 million of net cash used for the acquisitions of Inivata and Trapelo as well as an increase of net investments in marketable securities of $136.5 million, $37.2 million of cash used for capital expenditures and the disbursement of a $15 million loan receivable from non-consolidated affiliate.

Cash Flows from Financing Activities

During the six months ended June 30, 2021, cash provided by financing activities was $729.5 million compared to $223.2 million in the same period in 2020. Cash provided by financing activities during the six months ended June 30, 2021 consisted of $418.3 million of net proceeds from equity offerings, convertible debt ~~to a fixed obligation, thus reducing~~proceeds of $334.4 million, net of issuance costs and $8.0 million for the ~~impact~~net issuance of ~~interest rate changes on future interest expense. We believe this strategy will enhance our ability to manage~~common stock. This activity was offset by the use of cash ~~flow within our Company.~~

in the amounts of $29.3 million for premiums paid for capped call confirmations and $1.9 million for the net repayment of equipment financing obligations.

Liquidity Outlook

We had ~~approximately $12.2~~$368.8 million in unrestricted cash and cash equivalents as of ~~September~~June 30, ~~2017. In~~2021 in addition ~~we have a revolving credit facility which provides for up~~ to ~~$75~~$203 million ~~in borrowing capacity~~ of ~~which at September 30, 2017, based on our level of adjusted EBITDA, approximately $9.3 million was available.~~marketable securities available to support current operational liquidity needs. We ~~believe~~anticipate that the cash on hand, ~~available credit lines~~marketable securities and ~~positive~~ cash ~~flows generated from operations will provide adequate resources~~collections are sufficient to ~~meet~~fund our near-term capital and operating ~~commitments and interest payments~~needs for at least the next 12 ~~months~~months. Operating needs include, but are not limited to, the planned costs to operate our business, including amounts required to fund working capital and capital expenditures, continued research and development efforts, and potential strategic acquisitions and investments.

On January 6, 2021, we entered into an underwriting agreement relating to the issuance and sale of 4,081,632 shares of our common stock (the “2021 Common Stock Offering”), $0.001 par value per share. The price to the public in this offering was $49.00 per share and we agreed to sell the shares to the Underwriters at the public offering price, less underwriting discounts and commission of $2.45 per share. Under the terms of the underwriting agreement, we also granted the Underwriters a 30-day option to purchase up to 612,244 additional shares of common stock at the public offering price, less underwriting discounts and commissions. On January 6, 2021, the Underwriters exercised their option and purchased all 612,244 shares. The net proceeds from the 2021 Common Stock Offering and full exercise of the Underwriters’ option were approximately $218.3 million, net of underwriting commissions of approximately $11.7 million.

NEOGENOMICS, INC.

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

On January 11, 2021, we completed the sale of $345 million of 0.25% Convertible Senior Notes due January 2028 (the “2028 Convertible Notes”), including the full exercise of the underwriters’ option to purchase an additional $45 million aggregate principal amount of the 2028 Convertible Notes (the “2028 Over-allotment Option”) on the same terms and conditions, solely to cover over-allotments with respect to the 2028 Convertible Notes offering. The total net proceeds from the issuance of ~~these financial statements.~~

~~Our Series A Preferred Stock has certain restrictions that will result~~the 2028 Convertible Notes and the total exercise of the 2028 Over-allotment Option was approximately $334.4 million, which includes approximately $10.6 million of discounts, commissions and offering expenses paid by the Company. For further details regarding the 2028 Convertible Notes, please refer to Note 8. Debt, in the ~~Company having~~accompanying notes to ~~dedicate fifty percent~~the unaudited Consolidated Financial Statements.

We used $29.3 million of the net proceeds from ~~any future equity raise,~~the offerings to ~~redeeming~~enter into capped call transactions. We intend to use the remaining net proceeds from the offerings for general corporate purposes and/or to acquire or invest in complementary businesses and technologies.

On June 18, 2021, we completed a private placement (“Private Placement”) to certain accredited investors of an aggregate of 4,444,445 shares of our common stock at a price of $45.00 per share. The net proceeds from the ~~Series A Preferred Stock until such time as all~~Private Placement were approximately $189.9 million, after deducting fees to the placement agents and other offering expenses of approximately $10.1 million. We used the ~~shares of Series A Preferred Stock have been redeemed. In addition, our Credit Agreement contains certain provisions beginning with~~net proceeds from the ~~Annual Compliance Certificate~~Private Placement for the ~~fiscal year ended December 31, 2017 (to be filed no later than March 31, 2018),~~acquisition of Inivata.

We anticipate that ~~would require a portion of~~ the ~~excess~~ cash ~~flow (as defined)~~on hand, marketable securities and cash collections are sufficient to ~~be repaid~~fund our near-term capital and operating needs for at least the next 12 months. Operating needs include, but are not limited to, the planned costs to operate our ~~lenders. The debt repayment would be~~business, including amounts required ~~five business days after the filing of our Annual Compliance Certificate.~~

to fund working capital and capital expenditures, continued research and development efforts, and potential strategic acquisitions and investments.

Capital Expenditures

We ~~currently~~ forecast capital expenditures in order to execute on our business plan and ~~keep up with the growth in our testing volumes, although~~maintain growth; however, the actual amount and timing of such capital expenditures will ultimately be determined by the volume of ~~our~~ business. We currently anticipate that our capital expenditures for the year ~~ended~~ending December 31, ~~2017~~2021 will be in the range of ~~$16.0~~$55 million to ~~$18.5 million.~~$70 million, including capital expenditures related to Trapelo and Inivata. During the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2021, we purchased, with cash, approximately ~~$10.2~~$37.2 million of capital equipment, software and leasehold ~~improvements and an additional $3.2 million was acquired through capital lease obligations.~~improvements. We have ~~in the past~~ funded and plan to continue funding these capital expenditures with ~~capital lease financing arrangements,~~ cash and ~~through bank loan facilities if necessary.~~

financing.

Critical Accounting Policies

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

~~While many operational aspects~~ Our management routinely makes judgments and estimates about the effects of matters that are inherently uncertain. Please refer to our business are subject to complex federal, state and local regulations, the accounting for our business is generally straightforward with net revenues primarily recognized upon completion of the testing process. Our revenues are primarily comprised of laboratory tests, and approximately one-half of total operating costs and expenses consist of employee compensation and benefits. Due to the nature of our business, several of ourcritical accounting policies ~~involve significant estimates and judgments. These accounting policies have been described~~as disclosed in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~

~~NEOGENOMICS, INC.~~

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

~~Related Party Transactions~~

~~Consulting Agreements~~

~~During each~~2020 and Note 2. Summary of Significant Accounting Policies, in the ~~three and nine month periods ended September 30, 2017 and 2016, Steven C. Jones was an officer, director and shareholder~~accompanying notes to the unaudited Consolidated Financial Statements for a complete description of the Company. In connection with his duties as Executive Vice President, Mr. Jones earned approximately $46,000 and $66,000 for the three months ended September 30, 2017 and 2016, respectively. In addition, as compensation for his services on the Board, Mr. Jones earned approximately $13,000 and $0 for the three months ended September 30, 2017 and 2016, respectively. During the nine months ended September 30, 2017 and 2016, Mr. Jones earned approximately $164,000 and $197,000, respectively in connection with his duties as Executive Vice President. Mr. Jones also received approximately $85,000 and $79,000 during the nine months ended September 30, 2017 and 2016, respectively, as payment of his annual bonus compensation for the previous fiscal years. In addition, as compensation for his services on the Board, Mr. Jones earned $25,000 and $0 for the nine months ended September 30, 2017 and 2016, respectively.

During each of the three and nine month periods ending September 30, 2017 and 2016, Kevin Johnson was a director and shareholder of the Company. In May of 2017, the Company engaged Mr. Johnson to provide services as a consultant, this engagement ended in June of 2017. In connection with his role as a consultant, Mr. Johnson earned approximately $0 and $0 for the three months ended September 30, 2017 and 2016, respectively. In addition, as compensation for his services on the Board, Mr. Johnson earned approximately $14,000 and $15,000, for the three months ended September 30, 2017 and 2016, respectively and approximately $44,000 and $45,000 for the nine months ended September 30, 2017 and 2016, respectively.

our significant accounting policies.

Off-balance Sheet Arrangements

As of June 30, 2021, we do not use or have special purpose entities or other off-balance sheet financing techniques that we believe have, or are reasonably likely to have, a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity or capital ~~resources~~.

resources.

NEOGENOMICS, INC.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the potential loss arising from adverse changes in market rates and prices, such as foreign currency exchange rates, interest rates and other relevant market rate or price changes. We are exposed to market ~~risk associated with~~risks, including changes in ~~the LIBOR~~ interest ~~rate~~rates and foreign currency exchange rates.

Interest Rate Risk

We ~~regularly evaluate~~are exposed to interest rate risk on our short-term investments. The primary objective of our investment activities is to preserve principal while at the same time maximizing yields without significantly increasing risk. To achieve this objective, we invest in highly liquid and high-quality U.S. government and other highly credit rated debt securities. To minimize our exposure due to ~~such changes~~adverse shifts in interest rates, we invest in short-term securities with short maturities. If a 1% change in interest rates were to have occurred on June 30, 2021, this change would not have had a material effect on the fair value of our investment portfolio as of that date. Due to the short holding period of our investments, we have concluded that we do not have a material financial market risk exposure.

Foreign Currency Exchange Risk

We have operations in Cambridge, United Kingdom; Rolle, Switzerland; Suzhou, China; and ~~may elect~~Singapore. Our international revenues and expenses denominated in foreign currencies (primarily British Pounds, Swiss Francs, Chinese Renminbi and Singapore Dollars), expose us to ~~minimize this~~the risk ~~through~~of fluctuations in foreign currency exchange rates against the use of interest rate swap agreements. For further details regarding our significant accounting policies relating to derivative instruments and hedging activities, see Note B to our Consolidated Financial Statements included in our Annual Report on Form 10-K.U.S. dollar. We do not ~~have any material foreign operations or foreign sales and thus have limited exposure to~~hedge foreign currency exchange ~~rate risk.~~

risks and do not currently believe that these risks are significant.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

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

As required by SEC Rule 15d-15, our management carried out an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on ~~this~~that evaluation, weour principal executive officer and principal financial officer concluded that our disclosure controls and procedures were ~~not~~ effective at a reasonable assurance level as ~~a result~~ of a control deficiency that has been identified as a material weakness in our internal control over financial reporting. This material weakness in our internal control over financial reporting and our remediation activities are described below.

~~Material Weakness in Internal Control over Financial Reporting~~

~~During an internal analysis conducted in the third quarter of 2017, we identified an error in the revenue reported~~ in our Form 10-K for the year ended December 31, 2016, Form 10-Q for the quarter ended March 31, 2017 and Form 10-Q for the quarter ended June 30, 2017. Specifically, we determined that certain unbillable tests were inadvertently included in the revenue accrual recorded for the periods beginning in the fourth quarter of 2016 through the second quarter of 2017. These unbillable tests were worked through our laboratory, however we were unable to produce a final result on the sample. The tests were reported back to the ordering physician as Quantity Not Sufficient (“QNS”) or Test Not Performed (“TNP”). Although we incur costs attempting to test these QNS and TNP samples, and often attempt to get a result more than once, we cannot bill payors for any tests in which a full result is not reported. As a result of the inclusion of these unbillable tests in the monthly revenue accrual, revenue was overstated. This error was corrected in the third quarter of 2017.

We have a policy of writing off any unbilled tests greater than six months old and many of these tests were written off via this process. We assessed the extent of the error on each reported period. As a result of the error, the net impact to revenue reported in the 10-K for the year ended December 31, 2016 has been determined to be immaterial. The net impact of the error in the first quarter of 2017, resulted in an overstatement of revenue by approximately $1.7 million. The net impact of the error in the second quarter of 2017, resulted in an overstatement of revenue by approximately $0.2 million. As a result of the cumulative misstatement through the second quarter of 2017, we recorded a correcting entry in the amount of $1.3 million at the end of the third quarter of 2017. This correction, in addition to approximately $1.1 million in revenues that were reversed earlier in the quarter through the automatic six month write off process, resulted in a reduction of revenueperiod covered by ~~$2.4 million for the third quarter of 2017.~~

~~The management review control that should have detected~~ this ~~error was determined to be ineffective.~~ Management has concluded that this deficiency constitutes a material weakness in our internal control over financial reporting. Nonetheless, we have concluded that this material weakness does not require a restatement or change in our consolidated financial statements for any prior annual or interim period. We have taken certain remediation steps to address the material weakness referenced above, and to improve our internal control over financial reporting as described below.

~~We have filled the open position of Vice President and Principal Accounting Officer and we are providing additional resources to our finance team by actively recruiting for a Corporate Controller.~~

~~NEOGENOMICS, INC.~~

•

~~We are re-designing and implementing effective review and approval controls over the accurate recording, presentation, and disclosure of revenue~~

report.

~~We have reviewed, identified and corrected errors in the recognition of revenue~~

~~We have established steps in our monthly closing process to improve our internal control over financial reporting. These steps include:~~

~~monthly review of revenue reports by the Director of Billing to ensure that all unbilled tests outstanding for 60 days or greater are appropriate for accrual and will ultimately be billed out~~

~~monthly review of revenue reports by the Assistant Controller to ensure that revenue is not being accrued for tests that based on laboratory results are determined to be unbillable~~

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the ~~three~~six months ended ~~September~~June 30, ~~2017~~2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

~~However, as noted above,~~

On July 1, 2021, we ~~will be implementing changes~~shifted from our existing Great Plains Dynamics enterprise resource planning (“ERP”) system to ~~our~~a hosted, cloud-based Oracle ERP system (“Oracle”). In connection with the Oracle implementation, we performed pre-implementation planning, design and testing of internal controls that became effective in the third quarter of 2021. We continue to conduct post-implementation monitoring and process modifications in order to maintain effective internal control over financial ~~reporting to address the material weakness described above.~~

reporting.

NEOGENOMICS, INC.

PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time the Company is engaged in legal proceedings in the ordinary course of business. ~~We do not believe any current~~For further information on legal proceedings, ~~are material~~please refer to ~~our business. No material proceedings were terminated during~~Note 14. Commitments and Contingencies, in the ~~quarter ended September 30, 2017.~~

notes to the unaudited Consolidated Financial Statements.

On January 20, 2021, Natera, Inc. filed a patent infringement complaint against the Company’s newly-acquired subsidiaries, Inivata, Inc. and Inivata, in United States District Court for the district of Delaware, alleging Inivata’s InVisionFirst-Lung cancer diagnostic test of infringing two patents. The litigation is presently in the pleadings stage. The Company intends to defend the matter vigorously, and believes that the Company has good and substantial defenses to the claims alleged in the suit, but there is no guarantee that the Company will prevail.

ITEM 1A. RISK FACTORS

~~There have been no material changes in our~~

The following risk factors ~~from those set forth~~are in addition to the risks described in Part I, Item 1A, “Risk Factors” contained in our Annual Report on Form 10-K for the ~~for the~~ year ended December 31, ~~2017;~~2020, as filed with the SEC on ~~March 14, 2017.~~

February 25, 2021. The effects of the events and circumstances described in the following risk factors may heighten the risks contained in the Company’s Form 10-K.

We may be unable to make, on a timely basis, necessary changes to our internal control structure resulting from the acquisitions of Trapelo and Inivata.

Trapelo and Inivata are now included in our reporting under the Securities Exchange Act of 1934. Under the Sarbanes-Oxley Act of 2002, we must maintain effective disclosure controls and procedures and internal control over financial reporting. We are in the process of migrating Trapelo’s and Inivata’s operations to our system of internal controls. Therefore, we may face difficulties or experience delays in developing changes or potentially necessary improvements to their internal controls and accounting systems in order to ensure compliance with the requirements of the Sarbanes-Oxley Act. We may need to commit substantial resources, including substantial time from existing accounting personnel and from external consultants, to implement additional procedures and improved controls. This in turn could have an adverse effect on our business, results of operations, or financial condition, harm our reputation, or otherwise cause a decline in investor confidence and our stock price.

Trapelo and Inivata may have liabilities that are not known, probable or estimable at this time.

Trapelo and Inivata are now wholly-owned subsidiaries of ours and there could be unasserted claims or assessments that we failed or were unable to discover or identify in the course of performing due diligence investigations of these entities. In addition, there may be liabilities that are neither probable nor estimable at this time which may become probable and estimable in the future. We may learn additional information about Trapelo and Inivata that adversely affects us, such as unknown, unasserted or contingent liabilities and issues relating to compliance with applicable laws, including federal healthcare laws. Any of the foregoing, individually or in the aggregate, if not covered by the indemnification obligations of the Trapelo or Inivata sellers or our representation and warranty insurance, could have a material adverse effect on our business.

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

Unregistered Sales of Equity Securities

None

for the quarterly period ended June 30, 2021 that have not previously been included in a Current Report on Form 8-K.

Issuer Purchases of Equity Securities

The following table sets forth information concerning our purchases of common stock for the periods indicated:


Period of Repurchase	Total Number of Shares Purchased(1)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs
April 1, 2021 - April 30, 2021	—	$	—	—	—
May 1, 2021 - May 31, 2021	3,212	48.92		—	—
June 1, 2021 - June 30, 2021	143	42.19		—	—
Total	3,355	48.64		—	—

(1) The Company’s Equity Incentive Plan, as amended on May 27, 2021, allows participants to surrender already-owned shares having a fair market value equal to the required withholding tax related to the vesting of restricted stock. Pursuant to a share withholding election made by participants in connection with the vesting of such awards, all of which were outside of a publicly-announced repurchase plan, we acquired from such participants the shares noted in the table above to satisfy tax withholding obligations related to the vesting of their restricted stock. The average prices listed in the above table are averages of the fair market prices at which we valued shares withheld for purposes of calculating the number of shares to be withheld.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not ~~applicable~~

applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not ~~applicable~~

applicable.

ITEM 5. OTHER INFORMATION

~~None~~

None.

NEOGENOMICS, INC.

ITEM 6. EXHIBITS

~~EXHIBIT~~ ~~NO.~~	~~DESCRIPTION~~
~~31.1~~ EXHIBIT NO.		DESCRIPTION

10.1		Securities Purchase Agreement, dated as of May 4, 2021, among NeoGenomics, Inc. and each purchaser party thereto. (Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the SEC on May 5, 2021.)

10.2		Registration Rights Agreement, dated as of May 4, 2021, among NeoGenomics, Inc. and each party thereto. (Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the SEC on May 5, 2021.)

10.3		Share Purchase Agreement, dated May 4, 2021. (Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the SEC on May 5, 2021.)

10.4*#		Services Agreement between Inivata Limited and Clive Morris dated June 18, 2021.

10.5*		Employment Agreement between NeoGenomics, Inc. and George Cardoza dated July 5, 2021.

10.6*		Employment Agreement between NeoGenomics, Inc. and Gina Wallar dated July 5, 2021.

31.1		Certification by Principal Executive Officer pursuant to Rule 13a-14(a)/ 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		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

32.1		Certification by Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101		The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended ~~September~~June 30, ~~2017~~2021, formatted in Inline Extensible Business Reporting Language ~~(XBRL)~~(iXBRL): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Cash Flows, (iv) the Consolidated Statements of Comprehensive Income (Loss) and ~~(iv)~~(v) related notes

104		The cover page of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2021, formatted in iXBRL (included within Exhibit 101 attachments)

*		Denotes a management contract or compensatory plan or arrangement.

#		Portions of this exhibit have been redacted in compliance with Regulation S-K Item 601(b)(10)(iv). The omitted information is not material and is the type of information that the Company treats as private.

~~NEOGENOMICS, INC.~~

~~SIGNATURES~~

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

~~Date: November 13, 2017~~

~~NEOGENOMICS, INC.~~

Date: August 9, 2021

NEOGENOMICS, INC.

~~By:~~

~~/s/ Douglas M. VanOort~~

~~Name:~~

By:

~~Douglas M. VanOort~~

/s/ Mark W. Mallon

~~Title:~~

Name:

Mark W. Mallon

Title:

Director and Chief Executive Officer

By:

/s/ ~~George Cardoza~~

Kathryn B. McKenzie

Name:

~~George Cardoza~~

Kathryn B. McKenzie

Title:

Chief Financial Officer


PART I FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)						4 5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations						17 41
Item 3. Quantitative and Qualitative Disclosures About Market Risk						34 53
Item 4. Controls and Procedures						34 53

PART II OTHER INFORMATION
Item 1. Legal Proceedings						36 54
Item 1A. Risk Factors						36 54
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds						36 54
Item 3. Defaults Upon Senior Securities						36 55
Item 4. Mine Safety Disclosures						36 55
Item 5. Other Information						36 55
Item 6. Exhibits						37 56
SIGNATURES						38 57


ASSETS	September 30, 2017			December 31, 2016
Current assets
Cash and cash equivalents	$	12,211		$	12,525
Accounts receivable (net of allowance for doubtful accounts of $10,937 and $13,699, respectively)		62,723			55,512
Inventories		6,088			6,253
Other current assets		4,725			4,535
Total current assets		85,747			78,825
Property and equipment (net of accumulated depreciation of $37,496 and $27,102, respectively)		34,549			34,036
Intangible assets, net		76,330			77,064
Goodwill		147,019			147,019
Other assets		250			174
Total assets	$	343,895		$	337,118
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	14,823		$	16,782
Accrued compensation		11,805			8,351
Accrued expenses and other liabilities		5,000			4,247
Short-term portion of capital leases		4,687			4,891
Short-term portion of loans		3,799			3,842
Total current liabilities		40,114			38,113
Long-term liabilities
Long-term portion of capital leases		4,583			5,378
Long-term portion of loans, net		67,531			70,259
Revolving credit facility, net		24,461			21,799
Deferred income tax liability, net		7,548			14,973
Total long-term liabilities		104,123			112,409
Total liabilities		144,237			150,522
Commitments and contingencies - see Note I
Redeemable convertible preferred stock
Series A Redeemable Convertible Preferred Stock, $0.001 par value, (50,000,000 shares authorized; 6,600,000 shares issued and outstanding)		30,125			22,873
Stockholders' equity
Common stock, $0.001 par value, (250,000,000 shares authorized; 80,346,946 and 78,571,158 shares issued and outstanding, respectively)		80			79
Additional paid-in capital		229,006			216,104
Accumulated deficit		(59,553	)		(52,460	)
Total stockholders’ equity		169,533			163,723
Total liabilities, redeemable convertible preferred stock and stockholders' equity	$	343,895		$	337,118

Remainder of 2017	$	1,796
2018		5,710
2019		5,706
2020		5,696
2021		5,695
2022		5,695
Thereafter		46,032
Total	$	76,330

	September 30, 2017			December 31, 2016
Term Loan Facility	$	72,188		$	75,000
Revolving Credit Facility		25,399			22,900
Auto Loans		82			202
Capital leases		9,270			10,269
Total Debt		106,939			108,371
Less: Debt issuance costs		(1,878	)		(2,202	)
Less: Current portion of long-term debt		(8,486	)		(8,733	)
Total Long-Term Debt, net	$	96,575		$	97,436

	Term Loan and Revolving Credit Facility			Capital Lease Obligations			Auto Loans			Total Long-Term Debt
Remainder of 2017	$	938		$	1,397		$	12		$	2,347
2018		3,750			4,677			49			8,476
2019		5,625			3,112			21			8,758
2020		5,625			617			-			6,242
2021		81,649			-			-			81,649
		97,587			9,803			82			107,472
Less: Interest on capital leases		-			(533	)		-			(533	)
		97,587			9,270			82			106,939
Less: Current portion of long-term debt		(3,750	)		(4,687	)		(49	)		(8,486	)
Less: Debt issuance costs		(1,878	)		-			-			(1,878	)
Long-term debt, net	$	91,959		$	4,583		$	33		$	96,575

	Number of		Weighted average
	shares		exercise price
Options outstanding at December 31, 2016		5,136,110	$	5.76
Options granted		2,070,498		7.56
Less:
Options exercised		503,320		3.73
Options canceled or expired		210,347		5.80
Options outstanding at September 30, 2017		6,492,941		6.47
Exercisable at September 30, 2017		2,137,259		5.47

	Nine Months Ended September 30, 2017
Expected term (in years)	3.0 - 4.5
Risk-free interest rate (%)		1.5%
Expected volatility (%)	43.5% - 53.0%
Dividend yield (%)		0.0%
Weighted average fair value/share at grant date	$	2.24

	Three Months Ended September 30						Nine Months Ended September 30
	2017			2016			2017			2016
Net revenue		100.0	%		100.0	%		100.0	%		100.0	%
Cost of revenue		54.3	%		55.0	%		54.3	%		54.7	%
Gross Profit		45.7	%		45.0	%		45.7	%		45.3	%
Operating expenses:
General and administrative		36.9	%		31.3	%		35.0	%		30.4	%
Research and development		2.0	%		1.6	%		1.6	%		2.0	%
Sales and marketing		10.4	%		9.8	%		9.7	%		9.9	%
Loss on sale of Path Logic		1.7	%		—			0.6	%		—
Total operating expenses		51.0	%		42.7	%		46.9	%		42.3	%
Income (loss) from operations		(5.3	)%		2.3	%		(1.2	)%		3.0	%
Interest expense, net		2.2	%		2.4	%		2.2	%		2.5	%
Net income (loss) before income taxes		(7.5	)%		(0.1	)%		(3.4	)%		0.5	%
Income tax (benefit) expense		0.5	%		0.0	%		(0.3	)%		0.3	%
Net income (loss)		(8.0	)%		(0.1	)%		(3.1	)%		0.2	%

	Three Months Ended September 30,								Nine Months Ended September 30,
Consolidated	2017			2016			$ Change		2017			2016			$ Change
Cost of revenue	$	34,242		$	33,416		$	826	$	103,634		$	100,471		$	3,163
Cost of revenue as a % of revenue		54.3	%		55.0	%				54.3	%		54.7	%
Gross Profit	$	28,810		$	27,345		$	1,465	$	87,184		$	83,122		$	4,062
Gross Profit Margin		45.7	%		45.0	%				45.7	%		45.3	%

	Three Months Ended September 30 ,						Nine Months Ended September 30 ,
(in thousands, except per share amounts)	2017			2016			2017			2016
Net loss available to common shareholders	$	(7,751	)	$	(5,634	)	$	(13,653	)	$	(16,200	)
Basic weighted average shares outstanding		79,617			78,145			79,208			77,224
Effect of potentially dilutive securities		—			—			—			—
Diluted weighted average shares outstanding		79,617			78,145			79,208			77,224
Basic net loss per share	$	(0.10	)	$	(0.07	)	$	(0.17	)	$	(0.21	)
Diluted net loss per share	$	(0.10	)	$	(0.07	)	$	(0.17	)	$	(0.21	)

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
(in thousands)	2017			2016			2017			2016
Net income (loss) (GAAP)	$	(5,100	)	$	(67	)	$	(5,797	)	$	500
Adjustments to net income (loss):
Interest expense, net		1,398			1,468			4,173			4,509
Income tax expense (benefit)		340			(6	)		(539	)		500
Amortization of intangibles		1,751			1,818			5,201			5,454
Depreciation		3,833			4,222			11,739			11,550
EBITDA		2,222			7,435			14,777			22,513
Further Adjustments to EBITDA:
Non-cash stock based compensation		2,760			1,686			5,812			4,024
Loss on sale of business		1,058			-			1,058			-
Facility moving expenses		5			-			620			-
Adjusted EBITDA (non-GAAP), as originally reported		6,045			9,121			22,267			26,537
Impact of accounting error		2,430			-			551			-
Adjusted EBITDA (non-GAAP), as corrected	$	8,475		$	9,121		$	22,818		$	26,537

Payer Group	0-30		%		31-60		%		61-90		%		91-120		%		>120		%		Total		%
Client AR - Pharma	$	5,708		8%	$	1,367		2%	$	217		0%	$	249		0%	$	373		1%	$	7,914		11%
Client AR - Clinical		12,850		17%		8,797		12%		3,146		4%		2,268		3%		4,105		6%		31,166		42%
Total Client AR		18,558				10,164				3,363				2,517				4,478				39,080
Commercial Insurance		1,045		1%		1,815		3%		1,410		2%		1,493		2%		10,359		14%		16,122		22%
Medicaid		113		0%		289		1%		212		0%		278		0%		961		1%		1,853		2%
Medicare		898		1%		1,354		2%		900		1%		971		1%		5,615		8%		9,738		13%
Private Pay		-		0%		-		0%		-		0%		-		0%		-		0%		-		0%
Unbilled Revenue		6,110		9%		248		0%		34		0%		28		0%		447		1%		6,867		9%
Total	$	26,724		36%	$	13,870		20%	$	5,919		7%	$	5,287		6%	$	21,860		31%	$	73,660		100%