Note C — Acquisitions

Clarient

On December 30, 2015 (the “Acquisition Date”), the Company acquired from GE Medical Holding AB (“GE Medical”), a subsidiary of General Electric Company (“GE”), all of the issued and outstanding shares of common stock of Clarient, Inc., a wholly owned subsidiary of GE Medical, for a purchase price consisting of (i) cash consideration of approximately $73.8 million, which includes an approximately $6.7 million estimated working capital adjustment and adjustments for estimated cash on hand and estimated indebtedness of Clarient on the Closing Date, (ii) 15,000,000 shares of NeoGenomics ’common stock, and (iii) 14,666,667 shares of NeoGenomics’ Series A Redeemable Convertible Preferred Stock (“Series A Preferred Stock”) pursuant to the Stock Purchase Agreement.

The cash consideration paid as part of the purchase price was funded through the following:

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The Company paid approximately $10.7 million using cash on hand

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Approximately $9.5 million, net of transaction costs was funded using a revolving credit facility

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Approximately $53.6 million, net of transaction costs was funded using a term loan

On December 21, 2015 shareholders approved and on December 28, 2015, NeoGenomics filed with the Secretary of State of the State of Nevada amendments to its Articles of Incorporation to increase the authorized number of shares of common stock from 100.0 million shares to 250.0 million shares and to increase the authorized number of shares of preferred stock from 10.0 million shares to 50.0 million shares in order to fund the common and preferred stock portion of the purchase price, among other things.

The Company issued 15,000,000 shares of common stock as partial consideration for the acquisition of Clarient. The common stock includes restrictions imposed on the holder in the Investor Board Rights, Lockup and Standstill Agreement. We estimated the fair value of the common stock consideration using inputs not observable in the market and thus represents a Level 3 measurement as defined in ASC 820. The key assumption in the fair value determination was a 15 percent discount due to lack of marketability of the common stock as a result of the restrictions imposed on the holder. The Acquisition Date fair value of common stock transferred is calculated below ($ in thousands, except share and per share amounts):

The Acquisition Date fair value of common stock transferred is calculated below ($ in thousands, except share and per share amounts):

Common Stock Valuation	Amount
Shares of common stock issued as consideration		15,000,000
Stock price per share on closing date	$	8.04
Value of common stock issued as consideration	$	120,600
Issue discount due to lack of marketability	$	(18,090	)
Fair value of common stock at December 30, 2015	$	102,510

The Company issued 14,666,667 shares of Series A Preferred Stock as consideration for the acquisition of Clarient. The rights of the Series A Preferred Stock are described in Note F. We estimated the fair value of the Series A Preferred Stock consideration using significant inputs not observable in the market and thus represents a Level 3 measurement as defined in ASC 820. The fair value of the Series A Preferred Stock at the Acquisition Date was $73.2 million or $4.99 per share. This fair value was further reduced by the intrinsic value assigned to the beneficial conversion feature to arrive at a carrying amount of $28.6 million.

On a fully diluted basis, assuming full conversion of the Series A Preferred Stock, GE Medical would own approximately 32% of NeoGenomics. In addition, pursuant to the Investor Board Rights, Lockup and Standstill Agreement, NeoGenomics has appointed a director designated by GE Medical to its Board of Directors.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the Acquisition Date. The Company is in the process of obtaining information to measure the assets acquired and liabilities assumed; thus, the provisional measurements of current assets, property and equipment, intangible assets, goodwill, current liabilities, net deferred tax liabilities and long-term liabilities are subject to change.

The preliminary acquisition fair values below are presented as of December 30, 2015 (in thousands):

	December 30, 2015 (As Initially Reported)			Measurement Period Adjustments			December 30, 2015 (As Adjusted)
Current assets, including cash and cash equivalents of $890	$	31,978		$	-		$	31,978
Property and equipment		19,241			-			19,241
Identifiable intangible assets – customer relationships		84,000			-			84,000
Goodwill		143,493			(242	)		143,251
Total assets acquired		278,712			(242	)		278,470
Current liabilities		(12,631	)		242			(12,389	)
Deferred tax liability		(17,904	)		-			(17,904	)
Long-term liabilities		(103	)		-			(103	)
Net assets acquired	$	248,074		$	-		$	248,074

Of the $84.0 million of acquired intangible assets, $81.0 million was provisionally assigned to customer relationships which are being amortized over fifteen years and $3.0 million was provisionally assigned to trade names which are being amortized over two years. For the three and nine months ending September 30, 2016, we recorded approximately $1.7 million and $5.2 million of amortization expense respectively.

Goodwill arising from the acquisition of Clarient includes revenue synergies as a result of our existing customers and Clarient’s customers having access to each other’s testing menus and capabilities and also from the new product lines which Clarient adds to the Company’s product portfolio. None of the goodwill is expected to be deductible for income tax purposes.

The provisional fair value of accounts receivable acquired was approximately $27.6 million as of the Acquisition Date.

The Company recognized acquisition related transaction costs of approximately $4.7 million during the year ended December 31, 2015. These costs include due diligence, legal, consulting and other transaction related expenses associated with the acquisition of Clarient. These expenses were included in general and administrative expenses in our consolidated statements of operations for the year ended December 31, 2015. The Company also incurred debt issuance costs of $3.3 million which are recorded as reductions in the carrying amount of the related liabilities and are being amortized over the term of the loans.

The following unaudited pro forma information (in thousands), has been provided for illustrative purposes and is not necessarily indicative of results that would have occurred had the acquisition of Clarient been in effect since January 1, 2014, nor is it necessarily indicative of future results.

	Three Months Ended September 30, 2015			Nine Months Ended September 30, 2015
Revenue	$	52,647		$	160,993
Net (loss) attributable to common stockholders		(5,845	)		(55,403	)
(Loss) per share:
Basic		(0.08	)		(0.73	)
Diluted		(0.08	)		(0.73	)

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

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Removal of transaction expenses from the year ended December 31, 2015 and record them in the year ended September 31, 2014.

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Adjustments to reflect amortization and depreciation expense associated with the acquired assets, partially offset by the elimination of the amortization and depreciation expense associated with Clarient’s historical assets.

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Removal of costs associated with MultiOmyx^TM, assets not acquired in the transaction, and to record royalty fees due to GE for continued use of the MultiOmyx^TM product through a licensing agreement.

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Removal of general and administrative expenses related to a Lab Services Agreement with the Saudi Arabian National Guard Health Affairs, as GE Medical has retained this agreement.

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Record interest expense under the Credit Facilities and amortization of financing costs classified as interest expense.

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Removal of royalty costs associated with the use of the GE brand as NeoGenomics will discontinue the use of the GE brand.

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Accrue for dividends on the Series A Preferred stock and to amortize a portion of the beneficial conversion feature.

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.