NOTE D — ACQUISITION

On July 8, 2014, NeoGenomics Laboratories, Inc., (“NeoGenomics Laboratories”) a wholly-owned subsidiary of the registrant NeoGenomics, Inc. (referred to individually as the “Parent Company” or collectively with its subsidiaries as “NeoGenomics” or the “Company”) entered into a membership interest purchase agreement with Path Labs, LLC d/b/a Path Logic, a Delaware limited liability company (“Path Logic”), and Path Labs Holdings, LLC, a Delaware limited liability company (“PL Holdings”), whereby NeoGenomics Laboratories acquired all of the outstanding equity ownership interests in Path Logic from PL Holdings for a purchase price (in thousands) of $5,908. NeoGenomics Laboratories paid the purchase price using cash on hand and borrowings on its revolving credit facility.

The following table summarizes the consideration paid and presents the preliminary allocation of these amounts to the net tangible and identifiable intangible assets based on the estimated fair values as of the acquisition date. Any excess of the purchase price over the estimated fair value of the net assets acquired has been recorded as goodwill. These allocations require the significant use of estimates and are based on the information that was available to management at the time these consolidated financial statements were prepared. The final determination of these fair values will be completed as soon as possible but no later than one year from the acquisition date. Although the final determination may result in asset and liability fair values that are different than the preliminary estimates of these amounts included herein, it is not expected that those differences will be material to an understanding of the impact of this transaction to our financial results.

Estimated Preliminary Acquisition Consideration Allocation (in thousands)


Current assets, including cash and cash equivalents of $79	$	1,881
Property, plant and equipment		804
Identifiable intangible assets – customer relationships		1,860
Goodwill		2,561

Total assets acquired		7,106
Current liabilities		(1,185	)
Long-term liabilities		(13	)


Net assets acquired	$	5,908

The amounts above are considered preliminary and are subject to change once NeoGenomics receives certain information it believes is necessary to finalize its determination of the fair value of assets acquired and liabilities assumed under the acquisition method. Thus these amounts are subject to refinement, and additional adjustments to record fair value of all assets acquired and liabilities assumed may be required.

Acquired intangible assets of $1.86 million consist of customer relationships which are being amortized over thirteen years. We recorded approximately $33,000 of amortization expense in the three and nine months ended September 30, 2014.

The estimated amortization expense related to the acquired intangible assets for each of the five succeeding fiscal years and thereafter as of September 30, 2014 is as follows (in thousands):


Year Ending December 31,
Remainder of 2014	$	36
2015		143
2016		143
2017		143
2018		143
2019		143
Thereafter		1,076

Total	$	1,827

The goodwill arising from the acquisition of Path Logic includes revenue synergies as a result of our existing customers and Path Logic’s customers having access to each other’s testing menus and capabilities. It also arises from the new product lines which Path Logic adds to the Company’s product portfolio.

We incurred approximately $361,000 of due diligence and transaction related expenses during the three and nine months ended September 30, 2014. These costs included pre-acquisition due diligence costs and transaction related expenses. These costs were included in general and administrative expenses in our consolidated statements of operations for the three and nine months ended September 30, 2014.

The following unaudited pro forma information (in thousands) have been provided for illustrative purposes only and are not necessarily indicative of results that would have occurred had the Acquisition been in effect since January 1, 2013, nor are they necessarily indicative of future results.


	Three Months Ended September 30,					Nine Months Ended September 30,
	2014			2013		2014			2013

Revenue	$	23,405		$	19,469	$	67,289		$	56,351
Net income (loss)		(35	)		219		(450	)		(1,272	)
Earnings (loss) per share
Basic	$	(0.00	)	$	0.00	$	(0.01	)	$	(0.03	)
Diluted	$	(0.00	)	$	0.00	$	(0.01	)	$	(0.03	)

The unaudited pro forma consolidated results during the three and nine months ended September 30, 2014 and 2013 have been prepared by adjusting our historical results to include the Acquisition as if it occurred on January 1, 2013. These unaudited pro forma consolidated historical results were then adjusted for the following:

•

adjustments to reflect the impact of $361,000 of transaction costs related to the 2014 acquisition as of January 1, 2013,

•

a net reduction in amortization expense during the three and nine months ended September 30, 2014 and 2013 due to decreased intangible assets recorded related to the acquisition,

•

a net reduction in interest expense during the three and nine months ended September 30, 2014 and 2013 as we did not acquire the existing debt from the acquisition offset by our interest expense on net borrowings under capital leases and notes payable,

•

a net reduction in depreciation expense during the three and nine months ended September 30, 2014 and 2013 due to decreased fixed asset values recorded related to the acquisition,

•

a net reduction in general and administrative expenses for the three and nine months ended September 30, 2014 and 2013 to remove the management fees from the private equity company and the Chief Executive Officer’s salary from the results,

•

a net reduction to adjust for the tax effect of the losses that were acquired which is based on an estimate of the state income taxes and federal alternate minimum tax which would not be required based on the losses for all periods.

As noted above, the unaudited pro forma results of operations do not purport to be indicative of the actual results that would have been achieved by the combined company for the periods presented or that may be achieved by the combined company in the future.