~~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)

(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.

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,~~October 27, 2020, the registrant had ~~80,409,557~~111,029,644 shares of Common Stock, par value $0.001 per share outstanding.

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 28, 2020.

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 the sufficiency of our insurance to cover such claims;

•Our ability to implement our business strategy;

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

•The application, to our business and the services we provide, of existing laws, rules and regulations, including without limitation, Medicare laws, anti-kickback laws, Health Insurance Portability and Accountability Act of 1996 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;

•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 “Convertible Notes”) in the aggregate principal amount of $201.3 million and our ability to make debt service payments under the Convertible Notes if such Convertible Notes are not converted;

•Our ability to protect our intellectual property from infringement;

•The anticipated impact to our business operations, customer demand and supply chain due to the recent global pandemic of a novel strain of the coronavirus (“COVID-19”);

•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 our 1.25% Convertible Senior Notes due May 2025; and

•The dilutive impact of the conversion of our 1.25% Convertible Senior Notes due May 2025.

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)~~


								September 30, 2020 (unaudited)		December 31, 2019
ASSETS	September 30, 2017			December 31, 2016			ASSETS
Current assets							Current assets
Cash and cash equivalents	$	12,211		$	12,525		Cash and cash equivalents	$	233,233	$	173,016
Accounts receivable (net of allowance for doubtful accounts of $10,937 and $13,699, respectively)		62,723			55,512

Marketable securities, at fair value							Marketable securities, at fair value	50,375		0
Accounts receivable, net							Accounts receivable, net	103,697		94,242
Inventories		6,088			6,253		Inventories	20,643		14,405
Prepaid assets							Prepaid assets	10,459		6,327
Other current assets		4,725			4,535		Other current assets	3,968		2,748
Total current assets		85,747			78,825		Total current assets	422,375		290,738
Property and equipment (net of accumulated depreciation of $37,496 and $27,102, respectively)		34,549			34,036
Property and equipment (net of accumulated depreciation of $85,987 and $68,809, respectively)							Property and equipment (net of accumulated depreciation of $85,987 and $68,809, respectively)	85,449		64,188
Operating lease right-of-use assets							Operating lease right-of-use assets	45,856		26,492

Intangible assets, net		76,330			77,064		Intangible assets, net	123,353		126,640
Goodwill		147,019			147,019		Goodwill	210,833		198,601
Restricted cash, non-current							Restricted cash, non-current	32,003		0
Prepaid lease asset							Prepaid lease asset	10,142		0
Investment in non-consolidated affiliate							Investment in non-consolidated affiliate	25,600		0
Other assets		250			174		Other assets	3,817		2,847
Total assets	$	343,895		$	337,118		Total assets	$	959,428	$	709,506
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY
LIABILITIES AND STOCKHOLDERS’ EQUITY							LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities							Current liabilities
Accounts payable	$	14,823		$	16,782		Accounts payable	$	17,735	$	19,568
Accrued compensation		11,805			8,351		Accrued compensation	26,083		21,365
Accrued expenses and other liabilities		5,000			4,247		Accrued expenses and other liabilities	8,677		7,548
Short-term portion of capital leases		4,687			4,891
Short-term portion of loans		3,799			3,842
Short-term portion of financing obligations							Short-term portion of financing obligations	3,700		5,432
Short-term portion of operating leases							Short-term portion of operating leases	4,701		3,381

Short-term portion of term loan							Short-term portion of term loan	0		5,000
Pharma contract liability							Pharma contract liability	3,716		1,610
Total current liabilities		40,114			38,113		Total current liabilities	64,612		63,904
Long-term liabilities							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
Convertible senior notes, net							Convertible senior notes, net	166,440		0
Long-term portion of financing obligations							Long-term portion of financing obligations	1,399		3,199
Long-term portion of operating leases							Long-term portion of operating leases	43,123		24,034

Long-term portion of term loan, net							Long-term portion of term loan, net	0		91,829
Other long-term liabilities							Other long-term liabilities	3,937		3,566
Deferred income tax liability, net		7,548			14,973		Deferred income tax liability, net	13,554		15,566
Total long-term liabilities		104,123			112,409		Total long-term liabilities	228,453		138,194
Total liabilities		144,237			150,522		Total liabilities	293,065		202,098
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							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
Common stock, $0.001 par value, (250,000,000 shares authorized; 111,010,418 and 104,781,236 shares issued and outstanding, respectively)							Common stock, $0.001 par value, (250,000,000 shares authorized; 111,010,418 and 104,781,236 shares issued and outstanding, respectively)	111		105
Additional paid-in capital		229,006			216,104		Additional paid-in capital	688,832		520,278
Accumulated other comprehensive loss							Accumulated other comprehensive loss	22		(1,618)
Accumulated deficit		(59,553	)		(52,460	)	Accumulated deficit	(22,602)		(11,357)
Total stockholders’ equity		169,533			163,723		Total stockholders’ equity	666,363		507,408
Total liabilities, redeemable convertible preferred stock and stockholders' equity	$	343,895		$	337,118
Total liabilities and stockholders' equity							Total liabilities and stockholders' equity	$	959,428	$	709,506

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

statements.

NEOGENOMICS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(unaudited)

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

2017

2016

2017

2016

NET REVENUE

Clinical testing

$
56,186

$
55,739

$
172,668

$
166,674

Pharma Services

6,866

5,022

18,150

16,919

Total Revenue

63,052

60,761

190,818

183,593

COST OF REVENUE

34,242

33,416

103,634

100,471

GROSS PROFIT

28,810

27,345

87,184

83,122

Operating expenses:

General and administrative

23,267

19,025

66,743

55,810

Research and development

1,270

967

3,080

3,719

Sales and marketing

6,577

5,958

18,466

18,084

Loss on sale of Path Logic

1,058

—

1,058

—

Total operating expenses

32,172

25,950

89,347

77,613

INCOME (LOSS) FROM OPERATIONS

(3,362
)

1,395

(2,163
)

5,509

Interest expense, net

1,398

1,468

4,173

4,509

Income (loss) before taxes

(4,760
)

(73
)

(6,336
)

1,000

Income tax (benefit) expense

340

(6
)

(539
)

500

NET INCOME (LOSS)

(5,100
)

(67
)

(5,797
)

500

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

Basic

$
(0.10
)

$
(0.07
)

$
(0.17
)

$
(0.21
)
Diluted

$
(0.10
)

$
(0.07
)

$
(0.17
)

$
(0.21
)

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:

Basic

79,617

78,145

79,208

77,224

Diluted

79,617

78,145

79,208

77,224


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
NET REVENUE:
Clinical Services	$	108,733	$	92,565	$	275,599	$	267,757
Pharma Services	16,711		12,107		42,852		34,205
Total revenue	125,444		104,672		318,451		301,962

COST OF REVENUE	71,379		53,840		190,011		155,049

GROSS PROFIT	54,065		50,832		128,440		146,913
Operating expenses:
General and administrative	36,128		33,054		107,085		94,773
Research and development	1,964		2,611		6,129		6,407
Sales and marketing	11,304		11,508		34,757		35,048
Total operating expenses	49,396		47,173		147,971		136,228
INCOME (LOSS) FROM OPERATIONS	4,669		3,659		(19,531)		10,685
Interest expense, net	2,458		203		4,825		3,333
Other (income) expense, net	(11)		(35)		(7,639)		5,124
Loss on extinguishment of debt	0		0		1,400		1,018
Loss on termination of cash flow hedge	0		0		3,506		0
Income (loss) before taxes	2,222		3,491		(21,623)		1,210
Income tax (benefit) expense	(335)		1,348		(10,378)		(500)
NET INCOME (LOSS)	$	2,557	$	2,143	$	(11,245)	$	1,710

Adjustment to the numerator for convertible notes in diluted EPS (1)
NET INCOME (LOSS)	$	2,557	$	2,143	$	(11,245)	$	1,710
Convertible note accretion, amortization, and interest, net of tax	1,975		0		0		0
NET INCOME (LOSS) USED IN DILUTED EPS	$	4,532	$	2,143	$	(11,245)	$	1,710

NET INCOME (LOSS) PER SHARE
Basic	$	0.02	$	0.02	$	(0.10)	$	0.02
Diluted	$	0.04	$	0.02	$	(0.10)	$	0.02

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic	110,461		103,899		107,605		99,149
Diluted	119,191		107,880		107,605		102,766

(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, the numerator is adjusted to reverse any recognized interest expense (including any amortization of discounts).

See the accompanying notes to the unaudited consolidated financial statements.

NEOGENOMICS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

(unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
NET INCOME (LOSS)	$	2,557	$	2,143	$	(11,245)	$	1,710

OTHER COMPREHENSIVE (LOSS) INCOME:

Unrealized loss on marketable securities, net	(21)		0		(21)		0
Loss on effective cash flow hedges	0		(217)		(1,000)		(1,801)
Cash flow hedge termination reclassified to earnings	0		0		2,661		0
Total other comprehensive (loss) income, net of tax	(21)		(217)		1,640		(1,801)
COMPREHENSIVE INCOME (LOSS)	$	2,536	$	1,926	$	(9,605)	$	(91)

See the accompanying notes to the unaudited consolidated financial statements.

NEOGENOMICS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(unaudited, in thousands, except share amounts)


	Common Stock		Additional Paid-In Capital			Accumulated Other Comprehensive Income (Loss)		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
Stock issuance fees and expenses		—	—			(15)		—		—		(15)

Loss on effective cash flow hedge		—	—			—		(1,038)		—		(1,038)
Issuance of restricted stock, net of forfeitures		76,618	—			(212)		—		—		(212)


Issuance of common stock for stock options		503,873	—			2,897		—		—		2,897
ESPP expense		—	—			194		—		—		194
Stock-based compensation expense - options and restricted stock		—	—			1,991		—		—		1,991
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
Stock issuance fees and expenses		—	—			(209)		—		—		(209)

Gain on effective cash flow hedge		—	—			—		38		—		38
Cash flow hedge termination reclassified to earnings		—	—			—		2,661		—		2,661
Issuance of restricted stock, net of forfeitures		24,786	—			(824)		—		—		(824)

Issuance of common stock - public offering, net of underwriting discounts		4,751,500	5			127,288		—		—		127,293
Issuance of common stock for stock options		183,443	—			2,014		—		—		2,014
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)
Convertible note debt issuance costs		—	—			(108)		—		—		(108)
Net loss		—	—			—		—		(6,824)		(6,824)
Balance, June 30, 2020		110,396,844	$	110		$	679,235	$	43	$	(25,159)	$	654,229
Common stock issuance ESPP Plan		29,853	—			808		—		—		808
Stock issuance fees and expenses		—	—			(29)		—		—		(29)

Unrealized loss on securities, net		—	—			—		(21)		—		(21)
Issuance of restricted stock, net of forfeitures		(1,124)	—			(237)		—		—		(237)
Issuance of common stock for stock options		584,845	1			4,845		—		—		4,846
ESPP expense		—	—			222		—		—		222
Stock-based compensation expense - options and restricted stock		—	—			2,494		—		—		2,494
Adjustment to tax liability related to convertible note issuance		—	—			1,524		—		—		1,524
Convertible note debt issuance costs		—	—			(30)		—		—		(30)
Net income		—	—			—		—		2,557		2,557
Balance, September 30, 2020		111,010,418	$	111		$	688,832	$	22	$	(22,602)	$	666,363

See the accompanying notes to the unaudited consolidated financial statements.

NEOGENOMICS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(unaudited, in thousands, except share amounts)


	Common Stock		Additional Paid-In Capital			Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit		Total
		Shares			Amount
Balance, December 31, 2018		94,465,440	$	94		$	340,291	$	(579)	$	(19,363)	$	320,443
Common stock issuance ESPP Plan		36,032	—			419		—		—		419
Stock issuance fees and expenses		—	—			(66)		—		—		(66)
Loss on effective cash flow hedge		—	—			—		(557)		—		(557)
Issuance of restricted stock, net of forfeitures		182,502	—			—		—		—		—
Issuance of common stock for stock options		619,536	1			3,893		—		—		3,894
ESPP expense		—	—			119		—		—		119
Stock based compensation expense - options and restricted stock		—	—			2,020		—		—		2,020
Net loss		—	—			—		—		(2,424)		(2,424)
Balance, March 31, 2019		95,303,510	$	95		$	346,676	$	(1,136)	$	(21,787)	$	323,848
Common stock issuance ESPP Plan		37,255	—			653		—		—		653
Stock issuance fees and expenses		—	—			(211)		—		—		(211)
Loss on effective cash flow hedge		—	—			—		(1,027)		—		(1,027)
Issuance of restricted stock, net of forfeitures		(633)	—			—		—		—		—
Working capital adjustment related to acquisition		(99,524)	—			(1,977)		—		—		(1,977)
Issuance of common stock - public offering		8,050,000	8			160,766		—		—		160,774
Issuance of common stock for stock options		543,604	1			3,369		—		—		3,370
ESPP expense		—	—			162		—		—		162
Stock based compensation expense - options and restricted stock		—	—			2,151		—		—		2,151
Net income		—	—			—		—		1,991		1,991
Balance, June 30, 2019		103,834,212	$	104		$	511,589	$	(2,163)	$	(19,796)	$	489,734
Common stock issuance ESPP Plan		28,672	—			564		—		—		564
Stock issuance fees and expenses		—	—			23		—		—		23
Loss on effective cash flow hedge		—	—			—		(217)		—		(217)
Issuance of restricted stock, net of forfeitures		(6,070)	—			(688)		—		—		(688)
Issuance of common stock for stock options		289,081	—			2,173		—		—		2,173
ESPP expense		—	—			144		—		—		144
Stock based compensation expense - options and restricted stock		—	—			3,131		—		—		3,131
Net income		—	—			—		—		2,143		2,143
Balance, September 30, 2019		104,145,895	$	104		$	516,936	$	(2,380)	$	(17,653)	$	497,007

See the accompanying notes to the unaudited consolidated financial statements.

NEOGENOMICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

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

$
-


	Nine Months Ended September 30,
	2020		2019
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income	$	(11,245)	$	1,710
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	18,705		15,200
Loss on disposal of assets	371		451
Loss on debt extinguishment	1,400		1,018
Loss on termination of cash flow hedge	3,506		0
Amortization of intangibles	7,387		7,482
Amortization of debt issue costs	138		323
Amortization of convertible debt discount	2,705		0
Non-cash stock-based compensation	7,536		7,727
Non-cash operating lease expense	6,365		3,224

Changes in assets and liabilities, net
Accounts receivable, net	(9,455)		(14,219)
Inventories	(5,704)		(3,982)
Prepaid and other assets	(4,189)		(1,013)
Prepaid lease asset	(10,142)		0
Other current assets	(2,568)		(381)
Accounts payable, accrued and other liabilities	(9,335)		2,470
Net cash (used in) provided by operating activities	(4,525)		20,010
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of marketable securities	(53,396)		0
Proceeds from sale of marketable securities	3,000		0
Purchases of property and equipment	(17,591)		(13,953)
Business acquisition	(37,000)		0
Investment in non-consolidated affiliate	(25,600)		0
Acquisition working capital adjustment	0		399
Net cash used in investing activities	(130,587)		(13,554)
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of revolving credit facility	0		(5,000)
Repayment of equipment financing obligations	(4,331)		(5,481)
Proceeds from term loan	0		100,000
Repayment of term loan	(97,540)		(96,750)
Cash flow hedge termination	(3,317)		0
Payments of debt issuance costs	0		(1,051)
Issuance of common stock, net	10,761		10,132

Proceeds from issuance of convertible debt, net of issuance costs	194,466		0

Proceeds from equity offering, net of issuance costs	127,293		160,774
Net cash provided by financing activities	227,332		162,624

Net change in cash, cash equivalents and restricted cash	92,220		169,080
Cash, cash equivalents and restricted cash, beginning of period	173,016		9,811
Cash, cash equivalents and restricted cash, end of period	$	265,236	$	178,891

See the accompanying notes to the unaudited consolidated financial statements.


	Nine Months Ended September 30,
	2020		2019
Reconciliation of cash, cash equivalents and restricted cash to the Consolidated Balance Sheets:
Cash and cash equivalents	$	233,233	$	178,891

Restricted cash, non-current	32,003		0
Total cash, cash equivalents and restricted cash	$	265,236	$	178,891

Supplemental disclosure of cash flow information:
Interest paid	$	1,638	$	4,295
Income taxes paid, net	$	209	$	316
Supplemental disclosure of non-cash investing and financing information:
Working capital adjustment related to acquisition	$	0	$	1,977
Equipment acquired under financing obligations	$	428	$	3,665
Property and equipment included in accounts payable	$	3,521	$	810

See the accompanying notes to the unaudited consolidated financial statements.

NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~Unaudited~~

(unaudited)

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

and Significant Accounting Policies

Nature of 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”), and is dedicated to the delivery of clinical diagnostic services to pathologists, oncologists, urologists, hospitals, and other laboratories ~~throughout the United States and Europe.~~

as well as providing clinical trial services to pharmaceutical firms.

Basis of Presentation

The accompanying interim consolidated financial statements are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States of America (“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.

Unaudited Interim Financial Information

Certain information and footnote disclosures normally included in the Company’s annual audited 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 included herein should be read in conjunction with the audited 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.~~

2019.

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 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.

~~We have one~~

Principles of Consolidation

The Company reports its activities in 2 operating segments; the Clinical Services Segment and the Pharma Services Segment. These reportable ~~operating segment that delivers~~segments deliver testing services to hospitals, pathologists, oncologists, ~~other~~ clinicians, pharmaceutical firms and researchers ~~which~~and represents 100% of the Company’s consolidated assets, net revenues and net income ~~(loss)~~for each period presented. For further financial information about these segments see Note 15. Segment Information, in the accompanying notes to the consolidated financial statements.

The Company determines whether investments in affiliates are a Variable Interest Entity (“VIE”) at the start of each new venture and when a reconsideration event has occurred. A reporting entity must consolidate a VIE if that reporting entity has a variable interest (or combination of variable interests) and is determined to be the primary beneficiary. The primary beneficiary has both the power to direct the activities of the VIE that most significantly impact the entity’s economic performance and the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE.

The Company accounts for its equity investments that are under 20% of the total equity outstanding and for which the Company does not have significant influence by applying the cost method. Investments that are under 20% of the total equity outstanding and for which the entity does have significant influence are accounted for using the equity method unless a scope exception is applicable. Investments in which the Company holds a non-controlling interest and are between 20-50% equity are accounted for using the equity method. For any equity investments in which the Company holds over 50% of the outstanding stock, or for investments in which the Company controls the investee, the Company consolidates those entities into their consolidated financial statements.

Marketable Securities

The Company classifies all securities as available-for-sale, including those with maturity dates beyond 12 months, and therefore these securities are classified within current assets on the consolidated balance sheets as they are available to support current operational liquidity needs

Marketable securities are carried at fair value, with the unrealized holding gains and losses, net of income taxes, reflected in accumulated other comprehensive income until realized. We evaluate our marketable securities for other-than-temporary impairment on a quarterly basis. Unrealized losses are charged against net earnings when a decline in fair value is determined to be other-than-temporary. We review several factors to determine whether a loss is other-than-temporary, such as the length and extent of the fair value decline, the financial condition and near-term prospects of the issuer and whether we have the intent to sell or will more likely than not be required to sell before the securities' anticipated recovery. Regardless of our intent to sell a security, we perform additional analysis on all securities with unrealized losses to evaluate losses associated with the

NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

creditworthiness of the security. Credit losses are identified where we do not expect to receive cash flows sufficient to recover the amortized cost basis of a security.

For the purposes of computing realized and unrealized gains and losses, cost and fair value are determined on a specific identification basis.

Income Taxes

We compute income taxes in accordance with FASB ASC Topic 740, Income Taxes, under which 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. During the quarter the Company performed an analysis of its historical research and development expenses and determined that federal and state research and development tax credits for the tax years 2016 – 2019 are available. The Company recorded a tax benefit of $1.9 million as a tax benefit in the reporting period for the expected realizable amount of such credits.

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 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 are likely to continue to be materially adversely affected, particularly if the pandemic persists for a significant amount of time.

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 (“HHS”) 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 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 under 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.

During the nine months ended September 30, 2020, the Company recognized $7.9 million in grant income related to the CARES Act. This amount was recorded during the second quarter of 2020. NaN such amounts were recorded in the third quarter of 2020. CARES Act grant income is classified in “Other (income) expense, net”, on the Consolidated Statements of Operations. There was 0 grant income recognized for the three and nine month periods ended September 30, 2019.

The CARES Act also 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 September 30, 2020, the accrued deferred social security taxes related to the CARES Act were $2.9 million. This amount was recorded in “Other long-term liabilities” on the Consolidated Balance Sheets. There were 0 such amounts recorded on the Consolidated Balance Sheets as of December 31, 2019.

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. During the nine months ended September 30, 2020, the Company recognized $1.1 million under the ERTC. This amount was recorded during the third quarter of 2020.

NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 2. Recently Adopted and Issued Accounting Guidance

Recently Adopted Accounting Guidance

In August 2018, the FASB issued ASU No. 2018-15, Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which changes the accounting for implementation costs incurred in a cloud computing arrangement that is a service contract. The update aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The implementation costs should be presented accordingly as other assets, current and non-current on the balance sheet and expensed over the term of the hosting arrangement. The Company adopted this pronouncement on January 1, 2020 and the impact was not material to the Company's Consolidated Financial Statements.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement: Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement, which adds and modifies certain disclosure requirements for fair value measurements. Under the new guidance, entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, or valuation processes for Level 3 fair value measurements. However, public companies are required to disclose the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and related changes in unrealized gains and losses included in other comprehensive income. The Company adopted this pronouncement on January 1, 2020 and the impact was not material to the Company's Consolidated Financial Statements.

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (“Topic 230”): Restricted Cash. The new guidance requires that the reconciliation of the beginning-of-period and end-of-period amounts shown in the statement of cash flows include cash, cash equivalents and restricted cash. ASU 2016-08 was effective for fiscal years beginning after December 15, 2017, including interim periods within those periods, using a retrospective transition method to each period presented. As a result, restricted cash of approximately $32 million as of September 30, 2020 is included in cash and cash equivalents when reconciling the beginning and ending balances in the Consolidated Statements of Cash Flows. Please refer to Note 4. Leases, for additional information regarding the use of restricted cash. There were no restricted cash balances in any reportable period prior to January 2020.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (“Topic 326”): Measurement of Credit Losses on Financial Instruments, as modified by subsequently issued ASUs 2018-19 (issued November 2018), 2019-04 (issued April 2019), 2019-05 (issued May 2019), 2019-11 (issued November 2019), 2020-02 (issued February 2020) and 2020-03 (issued March 2020). Topic 326 modifies the measurement and recognition of credit losses for most financial assets and certain other instruments. The standard was effective January 1, 2020 and requires the use of forward-looking expected credit loss models based on historical experience, current economic conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount, which may result in earlier recognition of credit losses under the new standard. It also requires that credit losses related to available-for-sale debt securities be recorded as an allowance through net income rather than reducing the carrying amount under the current, other-than-temporary-impairment model. The standard required a modified retrospective approach with a cumulative effect adjustment to retained earnings. The Company adopted and applied the standard as of January 1, 2020. Based on management’s analysis, Topic 326 is applicable to the Company’s trade receivables as well as contract assets recognized within the Pharma Services segment. An assessment was performed on historical trends, current economic conditions, supportable forecasts, and customer and credit risks. The adoption of Topic 326 did not result in a material impact on the Company's Consolidated Financial Statements.

Accounting Pronouncements Pending Adoption

In August 2020, the FASB issued ASU No. 2020-06, Debt - Debt with Conversion and 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 simplifies the accounting for convertible instruments by removing the separation models for (1) convertible debt with a cash conversion feature and (2) convertible instruments with a beneficial conversion feature. As a result, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost. These changes will reduce reported interest expense and increase reported net income for entities that have issued a convertible instrument that was bifurcated according to previously existing rules. In addition, ASU 2020-06 requires the application of the if-converted method for calculating diluted earnings per share and the treasury stock method will be no longer available. The new guidance is effective for fiscal years beginning after December 15, 2021, with early adoption permitted no earlier than fiscal years beginning after December 15, 2020. The Company is currently evaluating when it will adopt this pronouncement and the impact that this new guidance will have on its Consolidated Financial Statements.

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (“Topic 848”): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU 2020-04 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

NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

transition from the London Inter-bank Offered Rate (“LIBOR”) or other reference rates to alternative reference rates. The guidance is effective upon issuance and can be applied through December 31, 2022. The Company does not expect the adoption of this standard to have a material impact on its Consolidated Financial Statements.

In January 2020, the FASB issued ASU No. 2020-01, Investments-Equity Securities (“Topic 321”), Investments-Equity Method and Joint Ventures (“Topic 323”) and Derivatives and Hedging (“Topic 815”) (ASU 2020-01). ASU 2020-01 clarifies the interaction of the accounting for equity securities under Topic 321, the accounting for the equity method investments in Topic 323 and the accounting for certain forward contracts and purchased options in Topic 815. ASU 2020-01 is effective for fiscal years beginning after December 15, 2020 on a prospective basis and early adoption is permitted. The Company is currently evaluating the impact of the provisions of this standard on its Consolidated Financial Statements.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes: Simplifying the Accounting for Income Taxes (“Topic 740”), which simplifies the accounting for income taxes, eliminates certain exceptions within Topic 740 and clarifies certain other aspects of the current guidance to promote consistency among reporting entities. The new standard is effective for fiscal years beginning after December 15, 2020 on a prospective basis and early adoption is permitted. The Company will adopt this pronouncement on January 1, 2021 and is currently evaluating the impact of the provisions of this standard on its Consolidated Financial Statements.

NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 3. 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.

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 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 table sets 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 September 30, 2020. There were 0 such amounts as of December 31, 2019.


	September 30, 2020
(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Financial Assets:

U.S. Treasury securities	$	18,412	$	1	$	(7)	$	18,406

Commercial paper	13,734		0		0		13,734
Asset-backed securities	9,927		1		(7)		9,921
Corporate bonds	8,323		2		(11)		8,314
Total	$	50,396	$	4	$	(25)	$	50,375

The Company had $0.1 million of accrued interest receivable at September 30, 2020 included in other assets on its Consolidated Balance Sheets related to its marketable securities. There were no realized gains or losses on marketable securities for the three and nine months ended September 30, ~~2017~~2020 and ~~2016. We have evaluated our segments~~2019.

NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

The following table sets forth the fair value of available-for-sale marketable securities by contractual maturity at September 30, 2020. There were no such amounts at December 31, 2019.


	September 30, 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	$	3,033	$	15,373	$	0	$	18,406

Commercial paper	13,734		0		0		13,734
Asset-backed securities	0		9,921		0		9,921
Corporate bonds	2,657		5,657		0		8,314
Total	$	19,424	$	30,951	$	0	$	50,375

The following table sets 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 ~~how~~ the ~~Chief Operating Decision Maker (“CODM”), our Chief Executive Officer, reviews performance and makes decisions in managing the Company. At~~fair value hierarchy as of September 30, ~~2017, we provided services within~~2020. As of December 31, 2019, the ~~United States and Europe and~~Company 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 services to support their studies and clinical trials. As we grow, we continue to assess the information available to the CODM. Currently, discrete financial information is not available 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~~only money market fund cash equivalents (Level 1) in the ~~third quarter~~amount 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-Q~~$163.8 million.


	September 30, 2020
(in thousands)	Level 1		Level 2		Level 3		Total
Financial Assets:
Cash equivalents:
Money market funds	$	213,624	$	0	$	0	$	213,624
Commercial paper	$	0	$	4,749	$	0	$	4,749
Marketable securities:
U.S. Treasury securities	$	18,406	$	0	$	0	$	18,406

Commercial paper	$	0	$	13,734	$	0	$	13,734
Asset-backed securities	$	0	$	9,921	$	0	$	9,921
Corporate bonds	$	0	$	8,314	$	0	$	8,314
Total	$	232,030	$	36,718	$	0	$	268,748

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~~nine months ended ~~June~~September 30, ~~2017.~~ 2020 and 2019.

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, including our prior revolving credit facility are considered reasonable estimates of their respective fair values at September 30, 2020 and December 31, 2019 due to their short-term nature.

We also measure 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. We estimate 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 4. Leases

The Company leases corporate offices and laboratory space throughout the world, all of which are classified as operating leases expiring at various dates and generally have ~~concluded~~terms ranging from 1 to 15 years. Leases with an initial term of 12 months or less are not recorded on the balance sheet.

Some of the Company’s real estate lease agreements include options to either renew or early terminate the lease. Leases with renewal options allow the Company to extend the lease term typically between 1 and 5 years. When it is reasonably certain that the ~~error identified was not material~~Company will exercise an option to ~~any prior annual~~renew or ~~interim periods. We~~terminate a lease, these options are considered in determining the classification and measurement of the lease.

Lease liabilities are recorded based on the present value of the future lease payments over the lease term and assessed as of the commencement date. Incentives received from landlords, such as reimbursements for tenant improvements and rent abatement periods, effectively reduce the total lease payments owed for leases.

Certain real estate leases also include executory costs such as common area maintenance (non-lease component), as well as property insurance and property taxes (non-components). Lease payments, which may include lease components, non-lease components and non-components, are included in the measurement of the Company’s lease liabilities to the extent ~~of this error and it was corrected~~that such payments are either fixed amounts or variable amounts based on a rate or index (fixed in substance) as stipulated in the ~~third quarter~~lease contract. Any actual costs in excess of ~~2017, resulting~~such amounts are expensed as incurred as variable lease cost.

The Company utilizes its incremental borrowing rate by lease term in order to calculate the present value of its future lease payments. The discount rate represents a ~~reduction~~risk-adjusted rate on a secured basis, and is the rate at which the Company would borrow funds to satisfy the scheduled lease liability payment streams commensurate with the lease term. The discount rate is determined using the incremental borrowing rate at lease commencement and based on the lease term.

Operating Leases

Operating lease costs include an immaterial amount of variable lease cost, and are recorded in cost of revenue and ~~thus~~general and administrative expenses, depending on the nature of the leased asset. Aside from variable lease costs, operating lease costs represent fixed lease payments recognized on a straight-line basis over the lease term.

As of September 30, 2020, the maturities of our operating lease liabilities and a reconciliation to the present value of lease liabilities were as follows (in thousands):


	Remaining Lease Payments
Remainder of 2020	$	1,129
2021	7,662
2022	5,414
2023	5,289
2024	5,349

Thereafter	37,570
Total remaining lease payments	62,413
Less: imputed interest	(14,589)
Total operating lease liabilities	47,824
Less: current portion	(4,701)
Long-term operating lease liabilities	$	43,123
Weighted-average remaining lease term (in years)	12.0
Weighted-average discount rate	4.4		%

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Operating lease costs	$	1,747	$	1,271	$	6,024	$	4,365

NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)


	Nine Months Ended September 30,
	2020		2019
Right-of-use assets obtained in exchange for operating lease liabilities	$	23,766	$	19,341
Cash paid for operating leases	$	5,101	$	2,878

Lease contracts that have been executed but have not yet commenced are excluded from the tables above. As of September 30, 2020 the Company has entered into $34.6 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 expected to commence in 2021. In addition to the minimum lease payments, the 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 are classified as “Restricted cash, non-current”, on the Consolidated Balance Sheets. Disbursements to the landlord will take place from time to time to pay for the costs of the landlord’s work. These disbursements will be 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 facility commenced in the first quarter of 2020. The Company is not expected to control the underlying assets during the construction period and therefore is not considered the owner of the underlying assets for accounting purposes.

Note 5. Revenue Recognition and Contractual Adjustments

The Company has 2 operating segments for which it recognizes revenue; Clinical Services and 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. The Pharma Services segment supports pharmaceutical firms in their drug development programs by providing testing services and data analytics for clinical trials and research.

Clinical Services Revenue

The Company’s specialized diagnostic services are performed based on a written test requisition form or electronic 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 client direct billing, commercial insurance, Medicare and other government payers, and patients. Revenue is recorded for all payers based on the amount expected to be collected, which considers implicit price concessions. Implicit price concessions represent differences between amounts billed and the estimated consideration the Company expects to 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 60 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 Contract Research Organizations (“CROs”) to provide research and clinical trial services ranging in duration from 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 estimated based on historical experience of total contracted units compared to realized units as 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 completion of performance obligations. The value of these upfront fees or final settlement amounts is usually recognized over time based on the number of 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, for which the sole deliverable is a final report that is sent to sponsors at the completion of contracted activities. For these contracts, revenue is recognized at a point in time upon delivery of the final report to the sponsor. 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 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

NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

the customer is invoiced and a corresponding ~~reduction~~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 following table summarizes the values of contract assets, capitalized commissions and contract liabilities as of September 30, 2020 and December 31, 2019 (in thousands):


	September 30, 2020		December 31, 2019
Current pharma contract assets (1)	$	1,533	$	1,000
Long-term pharma contract assets (2)	271		153
Total pharma contract assets	$	1,804	$	1,153


Current pharma capitalized commissions (1)	$	160	$	133
Long-term pharma capitalized commissions (2)	809		798
Total pharma capitalized commissions	$	969	$	931


Current pharma contract liabilities	$	3,716	$	1,610
Long-term pharma contract liabilities (3)	657		1,171
Total pharma contract liabilities	$	4,373	$	2,781

(1) Current pharma contract assets and Current pharma capitalized commissions are classified as “Other current assets” on the 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 $0.7 million, or 56%, from December 31, 2019 to September 30, 2020. Pharma contract liabilities increased $1.6 million, or 57%, during the same period, while there was a slight increase in ~~accounts receivable~~capitalized commissions. Revenue recognized for the three and nine months ended September 30, 2020 related to Pharma contract liability balances outstanding at the beginning of ~~$2.4~~the period was $0.5 million and $2.1 million, respectively. Amortization of capitalized commissions for both three and nine months ended September 30, 2020 was $0.3 million and $0.6 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 our type of customer due to similarities of billing method, level of reimbursement and timing of cash receipts. Unbilled amounts are accrued and allocated to payor categories based on historical experience. In future periods, actual billings by payor category may differ from accrued amounts. Pharma Services revenue was not further disaggregated as substantially all of our 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 similar and primarily driven by individual contract terms.

NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

The following table details the disaggregation of revenue for both the Clinical and Pharma Services Segments (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Clinical Services:
Client direct billing	$	72,896	$	53,555	$	172,431	$	155,999
Commercial Insurance	19,218		20,956		56,360		63,052
Medicare and Medicaid	16,460		17,818		46,484		47,961
Self-Pay	159		236		324		745
Total Clinical Services	$	108,733	$	92,565	$	275,599	$	267,757
Pharma Services:	16,711		12,107		42,852		34,205
Total Revenue	$	125,444	$	104,672	$	318,451	$	301,962

Note 6. Acquisition

Human Longevity, Inc.

On January 10, 2020 (the “Acquisition Date”), the Company acquired the Oncology Division assets of Human Longevity, Inc. (“HLI - Oncology”) for a purchase price of $37 million in cash. Acquisition and integration costs related to HLI - Oncology were approximately $0.4 million and $1.9 million for the three and nine months ended September 30, ~~2017, respectively. See Item 4. Controls~~2020, respectively, and ~~Procedures~~are reported as general and administrative expenses in the Company's Consolidated Statements of Operations.

HLI - Oncology performs Next-Generation Sequencing for ~~additional details regarding this error.~~

~~Note B – Recently Adopted~~pharmaceutical customers. The acquisition of HLI - Oncology adds whole exome and ~~Issued Accounting Guidance~~

~~Adopted~~

~~In January 2017, the FASB issued ASU No. 2017-01,~~ ~~Business Combinations~~. This standard clarifies 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 guidancewhole genome sequencing capabilities to the Company's current Pharma Services offerings. Revenue related to HLI - Oncology is reported in the Pharma Services segment. The acquisition included assets, primarily consisting of lab equipment, inventory, maintenance agreements for acquired equipment, backlog contracts with HLI - Oncology's customers, as well as HLI - Oncology’s molecular workforce that is experienced with Next-Generation Sequencing.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the Acquisition Date (in thousands):


	January 10, 2020
Inventory	$	534
Prepaid assets	185
Property and equipment	16,839
Internally developed software	3,110
Customer relationships (1)	4,100
Long-term assets	346
Goodwill (2)	12,232
Total assets acquired	$	37,346
Long-term liabilities	(346)
Net assets acquired	$	37,000

(1) Acquired intangible assets consisted of customer ~~list~~

relationships which are amortized over seven years.

(2) The goodwill arising from the acquisition of HLI - Oncology is the amount the Company paid in excess of the fair value of the net assets acquired and was primarily for (i) the expected future cash flows derived from the existing business capabilities and infrastructure, (ii) expanding the Company's scientific expertise as a leading provider of Pharma Services and Next-Generation Sequencing and (iii) an enhanced Pharma Services menu including germline, whole exome and whole genome sequencing. All of the goodwill resulting from the acquisition of HLI - Oncology is expected to be deductible for income tax purposes.

NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~Unaudited~~

~~that was~~

(unaudited)

The above purchase price and purchase price allocation are preliminary and subject to future revision as the 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.

~~The Company adopted this ASU on January 1, 2017 using the transition method prescribed for each applicable provision:~~

Based 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~~liabilities assumed are dependent upon the finalization of the related valuations. The fair values assigned to ~~retained earnings of $6.6 million~~assets acquired and liabilities assumed for HLI - Oncology are based upon management's best estimates and assumptions as of ~~January 1, 2017 for excess tax benefits not previously recognized.~~

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 the FASB issued ASU No. 2017-04,~~ ~~Intangibles – Goodwill and Other: Simplifying the Test for Goodwill Impairment~~. This standard eliminates Step 2 of the goodwill impairment test. Instead, an entity should perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting ~~unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. This update is effective for annual~~date, 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 adoption is permitted. The Company does not expect the adoption of ASU 2016-15 to have a material effect on its consolidated financial statements.

~~In February 2016, the FASB issued ASU~~ ~~No. 2016-02,~~ ~~Leases.~~ ~~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~~

~~NEOGENOMICS, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~Unaudited~~

~~lessee should recognize a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term on the balance sheet.~~ ~~ASU 2016-02 is effective for periods beginning after December 15, 2018 and interim periods within those periods.~~ The adoption of this ASU will result in an increase on the balance sheet for lease liabilities and right-of-use assets. The Company 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 in the revenue recognition rules. In August 2015, the FASB deferred the effective date of this ASU to the first quarter of 2018, with optional early adoption beginning in the first quarter of 2017. The ASU can be applied using a full retrospective method or a modified retrospective method of adoption. The Company expects to adopt this ASU in the first quarter 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 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.

preliminary.

Note ~~C –~~7. Goodwill and Intangible Assets

Goodwill as of September 30, ~~2017~~2020 and December 31, ~~2016~~2019 was ~~$147.0 million. There were no changes in the carrying amount of goodwill during these periods.~~

$210.8 million and $198.6 million, respectively.

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

		September 30, 2017
	Amortization Period	Cost		Accumulated Amortization		Net				September 30, 2020
Trade Name	24 months	$	3,000	$	2,633	$	367
									Amortization Period	Cost		Accumulated Amortization		Net

Customer Relationships	156 - 180 months		85,437		9,502		75,935	Customer Relationships	84-180 months	143,371		33,465		109,906
Non-Compete Agreement	24 months		29		1		28
Trade Name - Indefinite-lived								Trade Name - Indefinite-lived	—	13,447		—		13,447
Total		$	88,466	$	12,136	$	76,330	Total		$	156,818	$	33,465	$	123,353

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~~$2.5 million and ~~$1.8~~$2.4 million in straight-line amortization expense of intangible assets for the three ~~month period~~months ended September 30, ~~2017~~2020 and ~~2016, respectively. We recorded~~2019, respectively, and approximately ~~$5.2~~$7.4 million and ~~$5.5~~$7.5 million ~~in straight-line amortization expense of intangible assets~~ for the nine ~~month period~~months ended September 30, ~~2017~~2020 and ~~2016,~~2019, respectively. The Company ~~recorded~~records amortization expense ~~from customer relationships and trade names~~ as a general and administrative expense.

~~NEOGENOMICS, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~Unaudited~~

The estimated amortization expense related to amortizable intangible assets for each of the ~~five~~four succeeding fiscal years and thereafter as of September 30, ~~2017~~2020 is as follows (in thousands):

NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

The following table summarizes the ~~long term~~long-term debt, net at September 30, ~~2017~~2020 and December 31, ~~2016~~2019 (in thousands):

At September 30, 2020 and December 31, 2019, the carrying value of the Company’s ~~long-term capital lease~~financing obligations ~~and term debt approximates its~~approximated fair value based on the current market conditions for similar instruments.

~~Term Loan~~

At December 31, 2019, the carrying value of the Company’s term loan approximated fair value based on the current market conditions for similar instruments.

1.25% Convertible Senior Notes

On ~~December 22, 2016,~~May 4, 2020 (the “Closing Date”), 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 “Convertible Notes”), unless earlier converted, redeemed, or repurchased. The Convertible Notes were issued at a discounted price of 97% of their principal amount. The total net proceeds from the issuance of the Convertible Notes and exercise of the Over-allotment Option was approximately $194.4 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 Convertible Notes.

Prior to February 1, 2025, noteholders may convert their 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 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 Convertible Notes at any time, regardless of the foregoing circumstances.

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 Convertible Notes is 27.5198 shares of common stock per $1,000 in principal amounts of Convertible Note, 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 Convertible Notes in connection with such a corporate event in certain circumstances. The value of the Convertible Notes, if-converted, exceeds it's principal amount by $3.1 million based on a closing stock price of $36.89 on September 30, 2020. For the three months ended September 30, 2020 the Company included 5,538,360 shares in diluted weighted average common shares outstanding for the if-converted impact of

NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

the Convertible Notes. For the nine months ended September 30, 2020 the Company is in a net loss position, therefore, the shares that would be issued upon conversion of the Convertible Notes are excluded from the net loss per share calculation as it would have an antidilutive effect. For further details on the impact of the Convertible Notes on net (loss) income per share please refer to Note 12. Net Income (Loss) Per Share.

The Company may not redeem the Convertible Notes prior to May 6, 2023. The Company may redeem for cash all or any portion of the 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 Convertible Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. No sinking fund is provided for the 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 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 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 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 Convertible Notes at a cash repurchase price equal to the principal amount of the Convertible Notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the fundamental change repurchase date.

The 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 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 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 Convertible Notes includes $0.6 million, $1.8 million and $25,600 for the contractual coupon interest, the accretion of the debt discount and the amortization of the debt issuance costs, respectively, for the three months ended September 30, 2020. For the nine months ended September 30, 2020, the interest expense recognized on the Convertible Notes for the contractual coupon interest, the accretion of the debt discount and the amortization of the debt issuance costs includes $1.0 million, $2.7 million and $44,700, respectively. The effective interest rate on the Convertible Notes is 5.5%, which includes the interest on the Convertible Notes and amortization of the debt discount and debt issuance costs. Interest on the Convertible Notes began accruing upon issuance and is payable semi-annually.

The Convertible Notes are accounted for as separate liability and equity components. The allocation was performed in a manner that reflected the Company’s non-convertible debt borrowing rate for similar debt. The equity component of the Convertible Notes was recognized as a debt discount and represents the difference between the proceeds from the issuance of the Convertible Notes and the fair value of the liability of the Convertible Notes on the date of issuance. At the Closing Date, the equity component representing the conversion option was determined to be $21.6 million, net of tax, and was initially recorded by deducting the carrying value of the liability component from the initial proceeds from the Convertible Notes. During the three months ended September 30, 2020 the Company adjusted the equity component representing the conversion option. At September 30, 2020 the equity component of the conversion option was $23.1 million, net of tax. The excess of the principal amount of the Convertible Notes over the carrying amount of the liability component represents a debt discount that is amortized to interest expense over the term of the Convertible Notes under the effective interest rate method. The equity component is not re-measured as long as it continues to meet the conditions for equity classification.

NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Prior Senior Secured Credit Agreement

On May 4, 2020, the Company terminated its Senior Secured Credit Agreement (the “Prior Senior Secured Credit Agreement”) and used $96.3 million of the net proceeds from the Convertible Notes to repay all outstanding amounts owed thereunder.

On June 27, 2019 (the “Prior Closing Date”), the Company entered into the Prior Senior Secured Credit Agreement with ~~Regions~~PNC Bank National Association (“PNC”), as administrative agent, and ~~collateral agent.~~the lenders party thereto. The Prior Senior Secured Credit Agreement provided for a ~~$75.0~~$100.0 million revolving credit facility (the “Prior Revolving Credit Facility”), a $100.0 million term loan facility (the ~~“Term~~“Prior Term Loan Facility”), and a $50.0 million delayed draw term loan (the “Prior Delayed Draw Term Loan”). ~~The~~

Borrowings under the Prior Senior Secured Credit Agreement ~~also provides incremental facility capacity of $50 million, subject to certain conditions~~. On September 30, 2017 and December 31, 2016, the Company had current outstanding borrowings under the Term Loan of approximately $3.8 million and long-term outstanding borrowings of approximately $67.5 million and $70.1 million, net of unamortized debt issuance costs of $939,000 and $1.1 million, respectively. The debt issuance costs were recorded as a reduction in the carrying amount of the related liability and are being amortized over the life of the loan.

~~The Term Loan Facility bears~~bore interest at a rate per annum equal to an applicable margin plus, at ~~NeoGenomics Laboratories’~~the Company’s option, either (1) the Adjusted LIBOR rate for the relevant interest period, as defined within the agreement (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, (b) the prime lending rate of PNC and (c) the ~~one month~~daily LIBOR rate plus 1% per annum, or (3) a combination of (1) and (2). The applicable margin ~~will range~~ranged from ~~2.25%~~1.25% to ~~3.50%~~2.25% for LIBOR loans and ~~1.25%~~0.25% to ~~2.50%~~1.25% for base rate loans, in each case based on ~~NeoGenomics Laboratories’ consolidated leverage ratio~~NeoGenomics’ Consolidated Leverage Ratio (as defined in the New Credit Agreement). Interest on borrowings under the Revolving Credit Facility is 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 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~~New 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~~

~~The Company has entered into capital leases to purchase laboratory and office equipment. These leases expire at various dates through 2020 and the weighted average interest rate under such leases~~ was approximately 4.81% at September 30, 2017. Most of these leases contain bargain purchase options that allow us to purchase the leased property for a minimal amount upon the expiration of the lease term. 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 Company had previously entered into an interest rate swap agreements to hedge against changes in the variable rate for a portion of our long term debt. See Note 9. Derivative Instruments and Hedging Activities, for more information on these instruments.

The Prior Revolving Credit Facility included a $10.0 million swing loan sublimit, with swing loans that bore interest at the alternate base rate plus the applicable margin. Any principal outstanding under the Prior Revolving Credit Facility was due and payable on June 27, 2024 or such earlier date as the obligations under the Prior Senior Secured Credit Agreement ~~requires NeoGenomics Laboratories~~became due and payable pursuant to the terms of the Prior Senior Secured Credit Agreement. No amounts were outstanding under the Prior Revolving Credit Facility as of December 31, 2019.

Principal payments on the Prior Term Loan Facility were due on the last day of each fiscal quarter with an annual principal amortization of 5% in the first year, 5% in the second year, 7.5% in the third year, 7.5% in the fourth year, and 10% in each year thereafter, with the remainder due upon maturity on June 27, 2024 or such earlier date as the obligations under the Prior Senior Secured Credit Agreement become due and payable pursuant to the terms of the Prior Senior Secured Credit Agreement.

On December 31, 2019, the Company had current outstanding borrowings under the Prior Term Loan Facility of approximately $5.0 million, and long-term outstanding borrowings of approximately $91.8 million, net of unamortized debt issuance costs of $0.7 million. In association with the early termination of the debt, the Company incurred a loss on the extinguishment of debt of $1.4 million.

In addition to paying interest on outstanding principal under the Prior Senior Secured Credit Agreement, the Company was required to pay a commitment fee in respect of the unutilized portion of the commitments under the Prior Revolving Credit Facility and the Prior Delayed Draw Term Loan. The commitment fee rate ranged from 0.15% to 0.35% depending on NeoGenomics’ Consolidated Leverage Ratio. The Company also paid customary letter of credit and agency fees.

The Prior Term Loan Facility contained various covenants including entering into certain indebtedness; 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 into certain burdensome agreements; make investments, loans and acquisitions; merge or consolidate with any other person; dispose of assets; enter into certain sale and leaseback transactions; engage in transactions with its affiliates, and materially alter the business it conducts. In addition, the Company was required to meet certain maximum leverage ratios and fixed charge coverage ratios as of the end of each fiscal quarter.

The Prior Term Loan Facility required the Company to mandatorily prepay the Prior Term Loan Facility and amounts borrowed under the Prior Revolving Credit Facility with (i) 100% of net cash proceeds from certain sales and dispositions, subject to certain reinvestment rights, and (ii) 100% of net cash proceeds from certain issuances or incurrences of additional ~~debt, (iii) beginning~~debt.

Financing Obligations

The Company has entered into loans with various banks to finance the ~~fiscal year ending~~purchase of laboratory equipment, office equipment and leasehold improvements. These loans mature at various dates through 2022 and the weighted average interest rate under such loans was approximately 4.91% as of September 30, 2020 and 4.64% as of 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

2019.

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.

(unaudited)

Maturities of Long-Term Debt

Maturities of long-term debt atas of September 30, ~~2017~~2020 are summarized as follows (in thousands):

NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

As of September 30, 2020, the Company did not have any outstanding interest rate swap agreements. In ~~December~~June of ~~2016,~~2018, the Company entered into an interest rate swap agreement to reduce ~~our~~the Company’s exposure to interest rate fluctuations on ~~our~~the Company’s variable rate debt obligations. This derivative financial instrument iswas accounted for at fair value as a cash flow hedge ~~which~~to effectively ~~modifies our~~modify the Company’s exposure to interest rate risk by converting a portion of ~~our~~its prior 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~~the swap agreement, ~~we receive~~the Company received a variable rate of interest based on LIBOR and ~~we pay~~paid a fixed rate of ~~interest at 1.59%.~~ interest. The following table summarizes the previous interest rate swap agreement.


	June 2018 Hedge
Notional Amount	$	70	million
Effective Date	June 29, 2018
Index	One month LIBOR
Maturity	December 31, 2021
Fixed Rate	2.98		%

As discussed in Note 8. Debt, concurrently with the closing of the Convertible Notes, the proceeds from this transaction were used to pay off all amounts outstanding under our Prior Senior Secured Credit Agreement, after which the Company had no outstanding debt with variable rate interest. On May 1, 2020, the remaining obligation to make any further payments under the swap agreement was ~~effective as~~terminated. As a result of ~~December 30, 2016 and~~the termination, the company paid a termination ~~date~~fee of $3.3 million, which is included within Loss on Termination of Cash Flow Hedge in the Consolidated Statements of Operations.

As of December 31, ~~2019.~~ ~~As of September 30, 2017 and December 31, 2016,~~2019, the ~~total notional amount~~fair value of the ~~Company’s interest rate swaps~~derivative financial instruments included in other long-term liabilities was approximately $2.0 million. Fair value adjustments were ~~$50 million.~~

~~The fair value~~historically recorded as an adjustment to Accumulated Other Comprehensive Income (“AOCI”), except that any gains and losses on ineffectiveness of the interest rate swap ~~will be included in other long term assets or liabilities, when applicable. As~~were recorded as an adjustment to “Other (income) expense, net”. In the second quarter of ~~September 30, 2017 and December 31, 2016, the fair value~~2020, upon termination of the interest rate swap, ~~was not considered~~the accumulated losses of $2.7 million, net of tax, related to ~~be significant due to~~ the change in LIBOR over that time period outstanding, therefore, no amount is included on the balance sheet for this instrument. As the specific terms and notional amounts of the derivative financial instrument match those of the fixed-rate debt being hedged, the derivative instruments are assumed to be perfectly effective hedges and accordingly, there is no impact to the Company's consolidated statements of operations. ~~Gains and losses on this~~ interest rate swap ~~agreement will be recorded in accumulated other comprehensive income and will be~~were reclassified from AOCI to ~~interest expense~~Loss on Termination of Cash Flow Hedge in the ~~period during which~~Consolidated Statements of Operations.

Underwritten Public Equity Offering

On April 29, 2020, the ~~hedged transaction affects earnings. At September 30, 2017~~Company entered into an underwriting agreement relating to the issuance and ~~December 31, 2016, there~~sale of 4,400,000 shares of the Company’s common stock, $0.001 par value per share (the “Common Stock Offering”). The price to the public in this offering was ~~no impact~~$28.50 per share. The net proceeds to ~~accumulated other comprehensive income (AOCI) as it was determined that there was not~~the Company from the Common Stock Offering were approximately $117.9 million, after deducting underwriting discounts and commissions of approximately $7.5 million.

Under the terms of the underwriting agreement, the Company also granted the Underwriters a ~~significant change~~30-day option to ~~record.~~purchase up to 660,000 additional shares of Common Stock at the public offering price, less underwriting discounts and commissions. On May 29, 2020, the Underwriters partially exercised their option and on June 3, 2020, purchased an additional 351,500 shares. The ~~fair value~~net proceeds related to the option exercise were approximately $9.4 million, after deducting underwriting commissions 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.~~ 11. Stock-Based Compensation

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 ofrecorded approximately $2.7 million ~~the accretion of the beneficial conversion feature of approximately $5.1~~and $3.3 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~~

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 million and the liquidation value of $110 million represents a discount of $36.8 million from the initial face value as a result of assessing the impact the rights and features of the instrument and their effect on the value to 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~~

The fair value of the common stock into which the Series A Preferred Stock is convertible exceeded the allocated purchase price fair 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 recognizedstock-based compensation expense for the three ~~and nine~~ months ended September 30, ~~2017 was~~2020 and 2019, respectively, and approximately ~~$1.7~~$7.5 million and ~~$5.1~~$7.7 million ~~respectively.~~

In addition to the beneficial conversion feature (“BCF”) recorded at the original issue date, we recorded additional BCF discounts for payment-in-kind shares accrued for quarters ended March 31, 2017, June 30, 2017 and September 30, 2017, as dividends. After 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 dividendsin stock-based compensation expense for the year ending December 31, 2017, the first year dividends are payable. 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 discount recorded for the three and nine ~~months~~month periods ended September 30, ~~2017 was approximately $201,240~~2020 and ~~$603,720~~2019, respectively.

~~NEOGENOMICS, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~Unaudited~~

~~Automatic Conversion~~

Each share of Series A Preferred Stock issued and outstanding as of the tenth anniversary of the original issue date will automatically convert into fully paid 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 – 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, and revenues are recognized once the diagnostic services have been performed, and the results have been delivered to the ordering physician. These diagnostic services are billed to various payers, including Medicare, commercial insurance companies, other directly billed healthcare institutions such as hospitals and clinics, and individuals. The Company reports revenues from contracted payers, including Medicare, certain insurance companies and certain healthcare institutions, based on the contractual rate, or in the case of Medicare, published fee schedules. The Company reports revenues from non-contracted payers, including certain insurance companies and individuals, based on the amount expected to be collected. The difference between the amount billed and the amount estimated to be collected from non-contracted payers is recorded as an allowance to arrive at the reported net revenues. The expected revenues from non-contracted payers are based on the historical collection experience of each payer or payer group, as appropriate. The Company records revenues from patient pay tests net of a large discount and as a result recognizes minimal revenue on those tests. The Company regularly reviews its historical collection experience for non-contracted payers and adjusts its expected revenues for current and subsequent periods accordingly. 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 (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

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


	Number of Shares	Weighted Average Exercise Price
Options outstanding at December 31, 2019	5,318,759	$	9.97
Options granted	845,120	$	28.33
Less:
Options exercised	1,276,144	$	7.75
Options forfeited	63,169	$	15.82
Options outstanding at September 30, 2020	4,824,566	$	13.72
Exercisable at September 30, 2020	2,552,710	$	8.86

The fair value of each stock option award granted during the nine months ended September 30, ~~2017~~2020 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


			Nine Months Ended September 30, 2020
Expected term (in years)			4.0 - 5.5
Risk-free interest rate (%)			0.7%
Expected volatility (%)			39.9% - 44.6%
Dividend yield (%)			0
Weighted average fair value/share at grant date			$8.88

As of September 30, ~~2017,~~2020, there was approximately ~~$6.5~~$7.3 million of unrecognized ~~share based~~stock-based compensation expense related to stock options that will be recognized over a weighted-average period of approximately ~~1.3~~1.93 years. This includes approximately $1.9 million 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 recognized for stock options 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

A summary of the ~~warrant~~restricted stock activity ~~for~~under the ~~six months ended September 30, 2017 is as follows:~~

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 both the three months ended September 30, 2017 and 2016, we recorded $0 of warrant compensation expense. During~~Company’s plans for 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 presented2020 is ~~recorded in research and development~~ as ~~the expense is related to unvested performance based warrants that were granted to a non-employee.~~ follows:


	Number of Restricted Shares	Weighted Average Grant Date Fair Value
Nonvested at December 31, 2019	335,298	$	15.75
Granted	149,012	$	28.44
Vested	(183,532)	$	12.88
Forfeited	(5,540)	$	21.10
Nonvested at September 30, 2020	295,238	$	23.78

As of September 30, ~~2017,~~2020, there ~~were no outstanding warrants.~~

~~NEOGENOMICS, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~Unaudited~~

~~Restricted Stock~~

~~On August 31, 2017, we issued 450,000 shares~~was approximately $4.2 million of unrecognized stock-based compensation expense related to restricted ~~common~~ stock ~~to Ascend Genomics as purchase consideration for the customer list acquired. The customer list was recorded as an intangible asset, see Note C – Goodwill and Intangible Assets. As~~that will be recognized over a ~~condition of the purchase, Ascend is prohibited from trading the shares for a~~weighted-average period of ~~six months from the closing date.~~

approximately 1.90 years.

Employee Stock Purchase Plan

~~We offer~~ (“ESPP”)

The Company offers an ~~employee stock purchase plan (“ESPP”)~~ESPP through which eligible employees may purchase shares of ~~our~~the Company's common stock at a ~~discount. On May 25, 2017, the Company amended the ESPP, increasing the~~ discount ~~from 5% to~~of 15% of the fair market value of the Company’s common stock. ~~As a result of this change, we have recorded stock based compensation expense related to the ESPP for the quarter ended September 30, 2017.~~

During the three months ended September 30, ~~2017~~2020 and ~~2016,~~2019, employees purchased ~~23,664~~29,853 and ~~26,092~~28,672 shares, respectively, under the ESPP. The expense recorded for these periods was ~~$41,907~~approximately $0.2 million and ~~$0,~~$0.1 million, respectively. During the nine months ended September 30, ~~2017~~2020 and ~~2016,~~2019, employees purchased ~~74,756~~105,241 and ~~75,623~~101,959 shares, respectively, under the ESPP. The expense recorded for these periods was ~~$41,907~~approximately $0.6 million and ~~$0.~~

$0.4 million, respectively.

NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note ~~I – Commitments~~

~~During~~12. Net Income (Loss) Per Share

We present 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 outstanding for the period. Diluted EPS reflects the potential dilution that could occur if stock awards were exercised and if our Convertible Notes were converted. The potential dilution from stock awards is accounted for using the treasury stock method based on the average market value of the Company's common stock. The potential dilution from conversion of the Convertible Notes is accounted for using the if-converted method, which requires that all of the shares of the Company's common stock issuable upon conversion of the Convertible Notes will be included in the calculation of diluted EPS assuming conversion of the Convertible Notes at the beginning of the reporting period (or at time of issuance, if later).

The following table shows the calculations for the three and nine months ended September 30, ~~2017,~~2020 and 2019 (in thousands, except per share amounts).


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Numerator - basic
Net income (loss)	$	2,557	$	2,143	$	(11,245)	$	1,710

Numerator - diluted
Net income (loss)	$	2,557	$	2,143	$	(11,245)	$	1,710
Convertible note accretion, amortization, and interest, net of tax	1,975		0		0		0
Net income (loss) used in diluted EPS	$	4,532	$	2,143	$	(11,245)	$	1,710

Denominator
Basic weighted average shares outstanding	110,461		103,899		107,605		99,149
Dilutive effect of stock options	3,017		3,650		0		3,349
Dilutive effect of restricted stock awards	175		331		0		268
Dilutive effect of Convertible Notes	5,538		0		0		0
Diluted weighted average shares outstanding	119,191		107,880		107,605		102,766

Basic net income (loss) per share	$	0.02	$	0.02	$	(0.10)	$	0.02
Diluted net income (loss) per share	$	0.04	$	0.02	$	(0.10)	$	0.02

The following potential dilutive shares were excluded from the ~~Company entered into leases~~calculation of ~~approximately $683,000~~diluted net loss per share because their effect would be anti-dilutive for the three and $3.2 million in laboratory and computer equipment, respectively. These leases have 36 month terms, a $1.00 buyout option at the end of the terms and interest rates ranging from 0.0% to 19.5%. The Company accounted for these lease agreements as capital leases.

~~During the~~ nine months ended September 30, ~~2017,~~2020 and 2019:


	Three Months Ended September 30,		Nine Months Ended September 30,
	2020	2019	2020	2019
Stock options	0	0	3,069,286	0
Restricted stock awards	0	0	201,579	0
Convertible Notes	0	0	3,112,801	0

NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 13. Related Party Transactions

On May 22, 2020, the Company formed a strategic alliance with Inivata Limited, a company incorporated in England and Wales (“Inivata”), and entered into a ~~construction contract for the expansion of our~~Strategic Alliance Agreement and Laboratory Services Agreement whereas Inivata will render and perform certain laboratory ~~in Houston, Texas. The contract is for approximately $5.0 million,~~testing which the Company ~~intends~~will make available to ~~finance through~~customers.

For further details on the investment made in Inivata, please refer to Note 14. Investment in Non-Consolidated Affiliate.

NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 14. Investment in Non-Consolidated Affiliate

On May 22, 2020, the Company formed a ~~capital lease~~strategic alliance with Inivata Limited, a ~~36 month term~~company incorporated in England and Wales (“Inivata”), and entered into a ~~$1.00 buyout option.~~Strategic Alliance Agreement and Laboratory Services Agreement whereas Inivata will render and perform certain laboratory testing which the Company will make available to customers. The terms and conditions of the Laboratory Services Agreement are consistent with those that would be negotiated between willing parties on an arm's length basis. Related party amounts related to Inivata for the third quarter were immaterial.

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 Series C1 Preference Shares (the “Preference Shares”) for $25 million in cash (the “Investment”) resulting in a minority interest ~~rate~~in Inivata’s outstanding equity and an Option Deed which provides the Company with an option to purchase Inivata (the “Purchase Option”). The Investment was made in 2 equal installments, with the initial installment made in May 2020 and the second installment in August 2020.

Inivata is a VIE and the Company's investment is under ~~this lease will vary~~20% of the total equity outstanding. The Company considers qualitative factors in assessing the primary beneficiary of the VIE which include understanding the purpose and design of the VIE, associated risks that the VIE creates, 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 is not the primary beneficiary of Inivata.

The power to control the activities that most significantly impact Inivata’s economic performance are the sole responsibility of Inivata's management, however the Company does 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 do not have readily determinable fair values, the Company has 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. There were no such events and the Company determined no adjustments to the carrying amounts of the Preference Shares and the Purchase Option were necessary at September 30, 2020.

Upon acquisition, the Investment was allocated between the Preference Shares and the Purchase Option based on the ~~timing~~relative fair value of each and is recorded, along with associated transaction costs, as “Investment in non-consolidated affiliate” on the Consolidated Balance Sheets. As of September 30, 2020, the investment is classified as Level 3 in the fair value hierarchy as its equity is not traded on a public exchange. At September 30, 2020, the carrying amount of the ~~construction payments. We anticipate this project~~investment in non-consolidated affiliate is $25.6 million. The value is comprised of $19.2 million in Preference Shares, a $5.8 million Purchase Option and $0.6 million of associated transaction costs.

The Company and Inivata also entered into a line of credit agreement in the amount of $15 million (the “Line of Credit”). The Line of Credit will be available to be ~~complete in~~drawn by Inivata beginning on January 1, 2021 and has a maturity date of December 1, 2025. The Line of Credit bears interest at 0% per annum and the ~~first quarter~~unpaid principal balance is payable on January 1, 2026. The Line of ~~2018.~~

~~Note J – Other Related Party Transaction~~

~~During each~~Credit is subject to evaluation for current expected credit losses. The impact of the three and nine month periods ended September 30, 2017 and 2016, Steven C. Jones was an officer, director and shareholder of the Company. In connection with his duties as Executive Vice President, Mr. Jones earned approximately $46,000 and $66,000such losses were determined to be immaterial 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~~2020.

At September 30, 2020, the maximum exposure to losses does not exceed the carrying amount of the investment combined with the contractual obligation to fund to Line of Credit.

NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 15. Segment Information

The Company has 2 operating segments for which it recognizes revenue; Clinical Services and ~~2016, Mr. Jones earned approximately $164,000~~Pharma Services. Our Clinical Services segment provides various clinical testing services to community-based pathology practices, hospital pathology labs and ~~$197,000, respectively~~academic centers with reimbursement from various payers including client direct billing, commercial insurance, Medicare and other government payers, and patients. Our Pharma Services segment supports pharmaceutical firms in ~~connection with his duties~~their drug development programs by supporting various clinical trials and research as ~~Executive Vice President. Mr. Jones also~~well as providing informatics related services often supporting Pharma commercialization efforts.

The financial information reviewed by the Chief Operating Decision Maker (“CODM”) includes revenues, cost of revenue and gross margin for each of the 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 September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Net revenues:
Clinical Services	$	108,733	$	92,565	$	275,599	$	267,757
Pharma Services	16,711		12,107		42,852		34,205
Total revenue	125,444		104,672		318,451		301,962

Cost of revenue:
Clinical Services	60,607		47,526		158,287		136,557
Pharma Services	10,772		6,314		31,724		18,492
Total cost of revenue	71,379		53,840		190,011		155,049

Gross Profit:
Clinical Services	48,126		45,039		117,312		131,200
Pharma Services	5,939		5,793		11,128		15,713
Total gross profit	54,065		50,832		128,440		146,913

Operating expenses:
General and administrative	36,128		33,054		107,085		94,773
Research and development	1,964		2,611		6,129		6,407
Sales and marketing	11,304		11,508		34,757		35,048
Total operating expenses	49,396		47,173		147,971		136,228
Income (loss) from operations	4,669		3,659		(19,531)		10,685
Interest expense, net	2,458		203		4,825		3,333
Other (income) expense, net	(11)		(35)		(7,639)		5,124
Loss on extinguishment of debt	0		0		1,400		1,018
Loss on termination of cash flow hedge	0		0		3,506		0
Income (loss) before taxes	2,222		3,491		(21,623)		1,210
Income tax (benefit) expense	(335)		1,348		(10,378)		(500)
Net income (loss)	$	2,557	$	2,143	$	(11,245)	$	1,710

NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 16. Subsequent Event

On October 22, 2020, HHS issued an updated Post-Payment Notice of Reporting Requirements and a Reporting Requirements Policy Update (together, the “October 22, 2020 Notice”) which, among other changes, effectively reinstates the definition of lost revenues that was the basis for the $7.9 million of grant income received ~~approximately $85,000~~ and ~~$79,000~~recognized 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~~2020. For further details on the ~~Board, Mr. Jones earned $25,500~~grant income received and ~~$0 for the nine months ended September 30, 2017 and 2016, respectively.~~

~~During each~~recognized please refer to Note 1. Nature of the ~~three~~Business, Basis of Presentation and ~~nine month periods ending September 30, 2017 and 2016, Kevin Johnson was a director and shareholder~~Significant Accounting Policies. The Company’s evaluation of the ~~Company. In May~~October 22, 2020 Notice is ongoing and the amount by which the $7.9 million of ~~2017, the Company engaged Mr. Johnson to provide services~~grant income may be utilized as a ~~consultant. This engagement ended in June~~result 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~~

October 22, 2020 Notice is not yet known.

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”.

The following discussion and analysis should be read in conjunction with the unaudited 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.

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 clinical test volumes in 2020. Demand may fluctuate to historically low levels 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 implemented significant actions to protect our employees and maintain a safe environment while maintaining a 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 its 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 are positioned to recover from the effects of the COVID-19 pandemic. The addition of COVID-19 PCR testing capabilities and our broad test menu enables our sales teams to identify opportunities for increasing revenues.

For additional information on risk factors related to the pandemic or other risks that could impact our results, please refer to “Risk Factors” in Part II, Item 1A of this Form 10-Q, and in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and our Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31, 2020 and June 30, 2020.

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 the World’s leading cancer testing and information company by delivering uncompromising quality, exceptional service and innovative solutions.

As of September 30, ~~2017,~~2020, the Company had laboratory locations in Fort Myers and Tampa, Florida; Aliso Viejo, Carlsbad and ~~Fresno, CA; Tampa~~San Diego, California; Houston, Texas; Atlanta, Georgia; Nashville, Tennessee; Rolle, Switzerland and ~~Fort Myers, FL; Houston, TX and Nashville, TN.~~ Singapore. The Company currently offers 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

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

in normal chromosomes. Cytogenetic studies are often performed to provide diagnostic, prognostic and occasionally predictive information for patients with hematological malignancies.

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 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

NEOGENOMICS, INC.

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

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 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

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 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~~development phase as compounds come out of translational research departments as well as work with clients from Phase 1 clinical trials through Phases II and III as the ~~past several years,~~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 ~~has experienced rapid growth including organic growth from offering new~~is able to offer these CDx tests to ~~existing customers, growth from gaining~~the market ~~share from~~immediately after FDA approval as part of our ~~competitors,~~Day 1 readiness program. This ability helps to speed the commercialization of their drug and ~~growth from acquisitions. We expect~~enables Pharma sponsors to ~~continue to grow our business~~reach patients through NeoGenomics broad distribution channel 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~~

Clinical Services segment.

We are building informatics and data-related tools to leverage our ~~high performance culture by empowering~~unique market position and oncology expertise to help our ~~employees~~stakeholders solve real-world problems such as identifying patients for clinical trials or providing clinical decision support tools for physicians and ~~investing in their growth.~~ providers.

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 use of team performance incentive plans as well as other meaningful recognition and rewards. To cultivate teamwork we are committed to improving ~~communication by providing better tools for today’s connected society. Our organization uses weekly employee surveys and takes actions based on~~patient care while being an innovative leader in our industry. Over the ~~feedback from those surveys. We believe that a culture of engaged employees provides superior service to~~past two years we have grown our clients 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 in the fast moving field of cancer diagnostics.

~~Inspire and “Own” Quality~~

~~Since~~business organically as well as through the acquisition of ~~Clarient, Inc.~~Genesis Acquisition Holding Corp (“Genesis”), 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 business to ensure that we were able to maintain our high level of quality and create best practices

NEOGENOMICS, INC.

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

~~throughout~~

wholly owned subsidiary, Genoptix, Inc. (“Genoptix”, and collectively with its subsidiaries and Genesis, referred to herein as “Genoptix”) in December of 2018, as well as the acquisition of the Oncology Division assets of Human Longevity, Inc. (“HLI - Oncology”) in January of 2020. Our focus for 2020 includes initiatives to drive profitable growth while pursuing innovation and maintaining exceptional service levels. We expect these initiatives to allow the Company to continue becoming one of the world’s leading cancer testing and information company.

Strengthen Our World-Class Culture

Enhancing 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. We also believe these initiatives are necessary to ensure the success of our Company.

We actively promote the health and well-being of our employees. We recognize that health goes beyond greater health benefits and preventative care and includes the quality of the physical work environment and programs that encourage social responsibility and community engagement.

Additionally, inclusive communication is a key element in our high performance culture. Effective communication facilitates collaboration and enhances our employees’ understanding of their contributions to the Company’s overall objectives. We will foster employee engagement through collaborative forums, frequent team dialogue and recognition programs to reward teams for exceptional performance. Our employee retention rate is above average for our industry and continuing to strengthen our culture will enable us to recruit and retain world-class talent.

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~~2020 include ~~many~~ initiatives to continue ~~our strong organic~~to drive profitable 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.innovate. 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 continued progress towards liquid biopsy, minimal residual disease (“MRD”) and other high-quality tests. We expect this to result in increased market share as well as 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.

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 consistent timeliness of results by our ~~average 4-5 day turnaround~~

Clinical Services segment is a competitive strength and

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 is a competitive strength and

a driver of additional testing requests by ~~our~~ referring physicians. Rapid turnaround times allow for the performance of other adjunctive tests within an acceptable diagnosis window in order to augment or confirm results and more fully inform treatment options. 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 30, ~~2017,~~2020, we employed or ~~are~~ contracted with ~~approximately 28 full-time~~over 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 and~~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 ~~industry. We train pathologists how to use and interpret genetic testing services so that they can better interpret technical data and render their diagnosis.~~

including whole exome 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 regions ~~(Northeast,~~- Northeast, Southeast, North Central, South Central and ~~West), and we have a separate sales team for our~~West. 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.

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~~

NEOGENOMICS, INC.

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

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~~testing volume does vary based on the terms of the 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 ~~Houston laboratory for three days and Hurricane Irma forced~~long term contracts contain specific performance obligations where the ~~closure of our Fort Myers facility for five days. Therefore, comparison of the~~testing is performed on a specific schedule. This results ~~of successive periods may~~in revenue that is not ~~accurately reflect trends for future~~consistent among periods.

~~Please see the section captioned Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”~~ In addition, this results 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.~~

backlog that can be significant.

Results of Operations for the Three and Nine Months Ended September 30, ~~2017~~2020 as Compared to the Three and Nine Months Ended September 30, ~~2016~~

2019

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

Clinical and Pharma Services revenue ~~by type~~ for the periods ~~indicated~~presented are as follows ($ in thousands):

Clinical ~~testing~~Services revenue ~~increased~~ for ~~both~~ the three and nine month periods ending September 30, ~~2017 as~~2020 increased $16.2 million and $7.8 million when compared to the same periods in ~~2016. Testing volumes also~~2019. These increases in revenue were primarily driven by COVID-19 PCR testing revenue of $17.0 million in the three month period ended September 30, 2020. Clinical testing volume(1) increased ~~in our clinical genetic testing business~~ by approximately ~~16.6%~~2.0% and ~~16.0%~~decreased by approximately 3.3% for the three and nine month periods ending September 30, 2020, respectively, compared to the same periods in 2019.

Pharma Services revenue 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 volumes2020 increased ~~quarter over quarter and year over year, we believe the impact of hurricanes Harvey and Irma depressed our revenues by approximately $1.0~~$4.6 million and ~~volumes by approximately 1.5% during the third quarter of 2017. Our sales team has largely finished integration related~~

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

~~Pharma Services revenue increased approximately 37% and 7% for the three and nine month periods ended September 30, 2017 as~~$8.6 million compared to the same periods in ~~2016.~~2019, primarily due to the impact of an increase in revenues related to clinical trials and the acquisition of HLI - Oncology. This growth was partially offset by an overall decrease in revenue due to the COVID-19 pandemic. In addition, our backlog of signed contracts has continued to grow from ~~$46.5~~$130.3 million as of ~~June 30, 2017~~December 31, 2019 to ~~$58.0~~$185.4 million as of September 30, ~~2017.~~2020. 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.

NEOGENOMICS, INC.

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


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 34
Item 3. Quantitative and Qualitative Disclosures About Market Risk						34 46
Item 4. Controls and Procedures						34 46
PART II OTHER INFORMATION
Item 1. Legal Proceedings						36 47
Item 1A. Risk Factors						36 47
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds						36 47
Item 3. Defaults Upon Senior Securities						36 47
Item 4. Mine Safety Disclosures						36 47
Item 5. Other Information						36 48
Item 6. Exhibits						37 49
SIGNATURES						38 50

	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


	September 30, 2020		December 31, 2019
1.25% Senior Convertible Notes due 2025
Principal	$	201,250	$	0
Unamortized debt discount	(34,245)		0
Unamortized debt issuance costs	(565)		0
Total 1.25% Senior Convertible Notes due 2025	166,440		0

Term loan
Principal	$	0	$	97,500
Unamortized debt issuance costs	0		(671)
Total term loan	0		96,829

Financing obligations	5,099		8,631

Total debt	$	171,539	$	105,460
Less: Current portion of long-term debt	0		(5,000)
Less: Current portion of financing obligations	(3,700)		(5,432)
Total long-term debt, net	$	167,839	$	95,028

	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


	1.25% Convertible Senior Notes		Financing Obligations		Total Debt
Remainder of 2020	$	0	$	1,252	$	1,252
2021	0		2,880		2,880
2022	0		916		916
2023	0		51		51
2024	0		0		0
2025	167,005		0		167,005
Total Debt	167,005		5,099		172,104
Less: Current portion of long-term debt	0		(3,700)		(3,700)
Less: Debt issuance costs	(565)		—		(565)
Long-term debt, net	$	166,440	$	1,399	$	167,839


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

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

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2017			2016			2017			2016
NET REVENUE
Clinical testing	$	56,186		$	55,739		$	172,668		$	166,674
Pharma Services		6,866			5,022			18,150			16,919
Total Revenue		63,052			60,761			190,818			183,593

COST OF REVENUE		34,242			33,416			103,634			100,471

GROSS PROFIT		28,810			27,345			87,184			83,122
Operating expenses:
General and administrative		23,267			19,025			66,743			55,810
Research and development		1,270			967			3,080			3,719
Sales and marketing		6,577			5,958			18,466			18,084
Loss on sale of Path Logic		1,058			—			1,058			—
Total operating expenses		32,172			25,950			89,347			77,613
INCOME (LOSS) FROM OPERATIONS		(3,362	)		1,395			(2,163	)		5,509
Interest expense, net		1,398			1,468			4,173			4,509
Income (loss) before taxes		(4,760	)		(73	)		(6,336	)		1,000
Income tax (benefit) expense		340			(6	)		(539	)		500
NET INCOME (LOSS)		(5,100	)		(67	)		(5,797	)		500
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
Basic	$	(0.10	)	$	(0.07	)	$	(0.17	)	$	(0.21	)
Diluted	$	(0.10	)	$	(0.07	)	$	(0.17	)	$	(0.21	)

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic		79,617			78,145			79,208			77,224
Diluted		79,617			78,145			79,208			77,224

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 2020	$	2,468
2021	9,870
2022	9,870
2023	9,870
2024	9,870
Thereafter	67,958
Total	$	109,906

	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							Three Months Ended September 30,				Nine Months Ended September 30,
	2017			2016			2017			2016				2020		2019		2020		2019
Net revenue		100.0	%		100.0	%		100.0	%		100.0	%	Net revenue	100.0	%	100.0	%	100.0	%	100.0	%
Cost of revenue		54.3	%		55.0	%		54.3	%		54.7	%	Cost of revenue	56.9	%	51.4	%	59.7	%	51.3	%
Gross Profit		45.7	%		45.0	%		45.7	%		45.3	%	Gross Profit	43.1	%	48.6	%	40.3	%	48.7	%
Operating expenses:													Operating expenses:
General and administrative		36.9	%		31.3	%		35.0	%		30.4	%	General and administrative	28.8	%	31.6	%	33.6	%	31.4	%
Research and development		2.0	%		1.6	%		1.6	%		2.0	%	Research and development	1.6	%	2.5	%	1.9	%	2.1	%
Sales and marketing		10.4	%		9.8	%		9.7	%		9.9	%	Sales and marketing	9.0	%	11.0	%	10.9	%	11.6	%
Loss on sale of Path Logic		1.7	%		—			0.6	%		—
Total operating expenses		51.0	%		42.7	%		46.9	%		42.3	%	Total operating expenses	39.4	%	45.1	%	46.4	%	45.1	%
Income (loss) from operations		(5.3	)%		2.3	%		(1.2	)%		3.0	%	Income (loss) from operations	3.7	%	3.5	%	(6.1)	%	3.6	%
Interest expense, net		2.2	%		2.4	%		2.2	%		2.5	%	Interest expense, net	2.0	%	0.2	%	1.5	%	1.1	%
Net income (loss) before income taxes		(7.5	)%		(0.1	)%		(3.4	)%		0.5	%
Other (income) expense													Other (income) expense	—	%	—	%	(2.4)	%	1.7	%
Loss on extinguishment of debt													Loss on extinguishment of debt	—	%	—	%	0.4	%	0.3	%
Loss on termination of cash flow hedge													Loss on termination of cash flow hedge	—	%	—	%	1.1	%	—	%
Income (loss) before taxes													Income (loss) before taxes	1.7	%	3.3	%	(6.7)	%	0.5	%
Income tax (benefit) expense		0.5	%		0.0	%		(0.3	)%		0.3	%	Income tax (benefit) expense	(0.3)	%	1.3	%	(3.3)	%	(0.2)	%
Net income (loss)		(8.0	)%		(0.1	)%		(3.1	)%		0.2	%	Net income (loss)	2.0	%	2.0	%	(3.4)	%	0.7	%

	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)	2020			2019			% Change		2020			2019			% Change
Cost of revenue:
Clinical Services	$	60,607		$	47,526		27.5	%	$	158,287		$	136,557		15.9	%
Pharma Services	10,772			6,314			70.6	%	31,724			18,492			71.6	%
Total cost of revenue	$	71,379		$	53,840		32.6	%	$	190,011		$	155,049		22.5	%
Cost of revenue as a % of revenue	56.9		%	51.4		%			59.7		%	51.3		%

Gross profit:
Clinical Services	$	48,126		$	45,039		6.9	%	$	117,312		$	131,200		(10.6)	%
Pharma Services	5,939			5,793			2.5	%	11,128			15,713			(29.2)	%
Total gross profit	$	54,065		$	50,832		6.4	%	$	128,440		$	146,913		(12.6)	%
Gross profit margin	43.1		%	48.6		%			40.3		%	48.7		%

	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%


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
July 1, 2020 - July 31, 2020	21	$	33.08	—	—
August 1, 2020 - August 31, 2020	6,010	38.24		—	—
September 1, 2020 - September 30, 2020	196	35.79		—	—
Total	6,227	$	38.14	—	—

~~EXHIBIT~~ ~~NO.~~	~~DESCRIPTION~~
~~31.1~~ EXHIBIT NO.		DESCRIPTION
10.1		Board of Directo rs Appointment Letter A greement between Rachel A. Stahler and NeoGenomics, Inc.dated August 24 , 2 020

10.2		Board of Directors Appointment Letter Agreement between Michael A. Kelly and NeoGenomics, Inc. dated August 11, 2020

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 30, ~~2017~~2020, 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 September 30, 2020, formatted in iXBRL (included within Exhibit 101 attachments)