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UNITED STATES 
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2010
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For
the transition period from
to
 Commission file number 000  51481
 MELA SCIENCES, INC.
 (Exact name of Registrant as specified in its charter)
 Delaware
    
    13-3986004(State or Other Jurisdiction of 
Incorporation or Organization)
    
    (I.R.S. Employer
Identification No.)50 South Buckhout Street, Suite 1
Irvington, New York
    
    10533(Address of Principal Executive offices)
    
    (Zip Code)
 Registrants Telephone Number, including area code:
(914) 591-3783
Electro-Optical Sciences, Inc.  (Former name if changed since last report
  þ o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
  o o
  o þ




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MELA Sciences, Inc.
Table of Contents
 PagePART I. FINANCIAL INFORMATIONITEM 1. Financial StatementsCondensed Balance Sheets as of March 31, 2010 (unaudited) and December 31, 2009
    
    
    2Condensed Statements of Operations (unaudited) for the three month period ended March 31, 2010 and 2009
    
    
    3Condensed Statements of Cash Flows (unaudited) for the three month period ended March 31, 2010 and 2009
    
    
    4Notes to Condensed Financial Statements (unaudited)
    
    
    5ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    14ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    20ITEM 4. Controls and Procedures
    
    
    20PART II. OTHER INFORMATIONITEM 1. Legal Proceedings
    
    
    20ITEM 1A. Risk Factors
    
    
    20ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    23ITEM 3. Defaults Upon Senior Securities
    
    
    23ITEM 4. Reserved
    
    
    23ITEM 5. Other Information
    
    
    23ITEM 6. Exhibits
    
    
    24SIGNATURES
    
    
    25EXHIBIT INDEX
    
    
    26EX-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32.1: CERTIFICATIONEX-31.1EX-31.2EX-32.1
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MELA SCIENCES, INC.
 
 CONDENSED BALANCE SHEETS
 March 31,
    
    
    December 31,2010
    
    
    2009(unaudited)
    
    
    *ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    30,042,823
    
    
    $
    29,673,420Prepaid expenses and other current assets
    
    
    478,156
    
    
    
    664,962Total Current Assets
    
    
    30,520,979
    
    
    
    30,338,382Property and equipment, net
    
    
    1,803,500
    
    
    
    1,571,956Patents and trademarks, net
    
    
    80,033
    
    
    
    83,008Deferred financing costs
    
    
    62,391
    
    
    
    85,570Other assets
    
    
    48,000
    
    
    
    48,000Total Assets
    
    $
    32,514,903
    
    
    $
    32,126,916LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Accounts payable (includes related parties of $7,497 as of March 31, 2010 and $6,921 as of December 31, 2009)
    
    $
    1,089,177
    
    
    $
    1,187,201Accrued expenses
    
    
    520,704
    
    
    
    590,600Other current liabilities
    
    
    33,034
    
    
    
    33,285Total Current Liabilities
    
    
    1,642,915
    
    
    
    1,811,086COMMITMENTS AND CONTINGENCIES (Note 7)Stockholders EquityPreferred stock  $.10 par value; authorized 10,000,000 shares; issued and outstanding: noneCommon stock
 $.001 par value; authorized 30,000,000 shares; issued and outstanding 23,026,035 shares at March 31, 2010 and 22,354,317 at December 31, 2009
    
    
    23,026
    
    
    
    22,354Additional paid-in capital
    
    
    115,120,326
    
    
    
    109,513,582Accumulated deficit
    
    
    (84,271,364
    )
    
    
    (79,220,106
    )Stockholders Equity
    
    
    30,871,988
    
    
    
    30,315,830Total Liabilities and Stockholders Equity
    
    $
    32,514,903
    
    
    $
    32,126,916
 
 *
    
    Derived from the audited balance sheet as of December 31, 2009  2




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MELA SCIENCES, INC.
 
 CONDENSED STATEMENTS OF OPERATIONS
 (unaudited)
 Three months ended March 31,2010
    
    
    2009Operating expenses:Research and development
    
    $
    2,787,070
    
    
    $
    2,534,414General and administrative
    
    
    2,271,165
    
    
    
    1,526,740Operating loss
    
    
    (5,058,235
    )
    
    
    (4,061,154
    )Interest income
    
    
    952
    
    
    
    25,483Other income, net
    
    
    7,498
    
    
    
    46,085Loss on disposal of fixed assets
    
    
    (1,473
    )
    
    
    Net loss
    
    $
    (5,051,258
    )
    
    $
    (3,989,586
    )Basic and diluted net loss per common share
    
    $
    (0.22
    )
    
    $
    (0.23
    )Basic and diluted weighted average number of
common shares outstanding
    
    
    22,743,497
    
    
    
    17,635,331
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MELA SCIENCES, INC.
 
 CONDENSED STATEMENTS OF CASH FLOWS
 (unaudited)
 Three Months Ended March 31,2010
    
    
    2009Cash flows from operating activities:Net loss
    
    $
    (5,051,258
    )
    
    $
    (3,989,586
    )Adjustments to reconcile net loss to net cash used in
operating activities:Depreciation and amortization
    
    
    120,123
    
    
    
    80,070Noncash compensation
    
    
    182,692
    
    
    
    118,567Loss on disposal of fixed assets
    
    
    1,473
    
    
    
    Changes in operating assets and liabilities:Increase in other assets
    
    
    
    
    
    
    (1,063
    )Decrease in prepaid expenses and other current assets
    
    
    186,806
    
    
    
    71,212Decrease in accounts payable and accrued expenses
    
    
    (167,920
    )
    
    
    (57,983
    )Decrease in deferred income
    
    
    
    
    
    
    (36,085
    )Decrease in other current liabilities
    
    
    (251
    )
    
    
    (3,600
    )Net cash used in operating activities
    
    
    (4,728,335
    )
    
    
    (3,818,468
    )Cash flows from investing activities:Purchases of property and equipment
    
    
    (350,165
    )
    
    
    Net cash used in investing activities
    
    
    (350,165
    )
    
    
    Cash flows from financing activities:Proceeds from exercise of stock options
    
    
    6,270
    
    
    
    2,300Proceeds from exercise of warrants
    
    
    1,691,633
    
    
    
    Proceeds from Committed Equity Financing Facility
    
    
    3,750,000
    
    
    
    Net cash provided by financing activities
    
    
    5,447,903
    
    
    
    2,300Net increase (decrease) in cash and cash equivalents
    
    
    369,403
    
    
    
    (3,816,168
    )Cash and cash equivalents at beginning of period
    
    
    29,673,420
    
    
    
    15,069,939Cash and cash equivalents at end of period
    
    $
    30,042,823
    
    
    $
    11,253,771Supplemental Schedule of Non-cash Investing and Financing
ActivitiesUnrealized loss on marketable securities
    
    $
    
    
    
    $
    1,468Deferred financing costs charged to additional paid-in capital
    
    $
    23,179
    
    
    $
    
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MELA SCIENCES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(In thousands, except for share and per share data)
(unaudited)
 1. ORGANIZATION AND BASIS OF PRESENTATION
 ®
 ®
 
    
    a hand-held imaging device, which employs high precision optics and multi-spectral illumination
(multiple colors of light including near infra-red);
    
    a proprietary databaseof pigmented skin lesions, which we believe to be the largest in the U.S.; and
    
    lesion classifiers, which are sophisticated mathematical algorithms that extract lesion feature
information and classify lesions.
 ® ® ® ®
 ®
 ®
 ®
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®
   2. COMPREHENSIVE LOSS
   3. USE OF ESTIMATES
  4. RECENT ACCOUNTING PRONOUNCEMENTS
  6




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. NET LOSS PER COMMON SHARE
  March 31,2010
    
    
    2009Common stock options
    
    
    2,043,098
    
    
    
    2,051,580Warrants
    
    
    614,906
    
    
    
    1,124,544Total
    
    
    2,658,004
    
    
    
    3,176,124
 6. STOCK-BASED COMPENSATION
     For the Three Months
    
    For the Three MonthsEnded March 31, 2010
    
    Ended March 31, 2009Expected life
    
    5 years
    
    5 yearsExpected volatility
    
    
    66.93
    %
    
    
    60
    %Risk-free interest rate
    
    
    2.26-2.56
    %
    
    
    1.69
    %Dividend yield
    
    
    0
    %
    
    
    0
    %
 7




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WeightedWeighted
    
    
    AverageAverage
    
    
    RemainingExercise
    
    
    Contractual
    
    
    AggregateNumber of
    
    
    Price per
    
    
    Term in
    
    
    IntrinsicShares
    
    
    Share
    
    
    Years
    
    
    ValueOutstanding at December 31, 2009
    
    
    2,031,023
    
    
    $
    5.09
    
    
    
    5.2Granted
    
    
    35,000
    
    
    
    8.66
    
    
    
    4.9Exercised
    
    
    (1,425
    )
    
    
    4.40
    
    
    
    Forfeited or expired
    
    
    (21,500
    )
    
    
    4.37
    
    
    
    Outstanding at March 31, 2010
    
    
    2,043,098
    
    
    $
    5.15
    
    
    
    5.0
    
    
    $
    4,995Vested and exercisable at March 31, 2010
    
    
    890,210
    
    
    $
    5.12
    
    
    
    3.4
    
    
    $
    2,072
 Options OutstandingWeighted-
    
    
    
    
    
    
    Options ExercisableAverage
    
    
    Weighted
    
    
    
    
    
    
    Weighted-Remaining
    
    
    Average
    
    
    
    
    
    
    AverageNumber
    
    
    Contractual
    
    
    Exercise
    
    
    Number
    
    
    ExerciseRange of Exercise Prices
    
    Outstanding
    
    
    Life
    
    
    Price
    
    
    Exercisable
    
    
    Price$.01-$1.00
    
    
    55,971
    
    
    2.5 years
    
    $
    1.00
    
    
    
    55,971
    
    
    $
    1.00$1.01-$11.11
    
    
    1,987,127
    
    
    5.1 years
    
    $
    5.27
    
    
    
    834,239
    
    
    $
    5.40$.01-$11.11
    
    
    2,043,098
    
    
    5.0 years
    
    $
    5.15
    
    
    
    890,210
    
    
    $
    5.12
    8




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7. COMMITMENTS AND CONTINGENCIES
  Year ended December 31,2010
    
    $
    2662011
    
    
    3822012
    
    
    4102013
    
    
    4392014
    
    
    4552015
    
    
    4562016
    
    
    456$
    2,864
 ® ®
 ® ®
   8. STOCKHOLDERS EQUITY
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9. WARRANTS
     10. RELATED PARTY CONSULTING AGREEMENTS
  Consulting Agreement with Breaux Castleman
 ®
 Consulting Agreement with Marek Elbaum, Ph.D.
   Consulting Agreement with Robert Friedman, M.D.
 ®
 11




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Consulting Agreement with Gerald Wagner, Ph.D
   Consulting Agreement with Anne Egger
  11. OTHER INCOME
   ® ® ®
 12




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12. SUBSEQUENT EVENTS
 ®
  13




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MELA SCIENCES, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
   Overview
 ®
 ®
 ® ® ® ®
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®
 ® ®
 Liquidity and Capital Resources
      ®
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Cash Flows from Operating Activities (in thousands)
  Cash Flows from Investing Activities
  Cash Flows from Financing Activities
  Operating Capital and Capital Expenditure Requirements
 ® ® ® ® ®
  ®
 
    
    The schedule, costs, and results of our clinical trials;
    
    The success of our research and development efforts;
    
    The costs and timing of regulatory approval;
    
    Reimbursement amounts for the use of MelaFind®that we are able to obtain from Medicare and third party
payers, or the amount of direct payments we are able to obtain from
patients and/or physicians utilizing MelaFind®;
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
    
    The cost of commercialization activities, including product marketing
and building a domestic direct sales force;
    
    The emergence of competing or complementary technological developments;
    
    The costs of filing, prosecuting, defending and enforcing any patent
claims and other rights, including litigation costs and the results of
such litigation;
    
    The costs involved in defending any patent infringement actions
brought against us by third parties; and
    
    Our ability to establish and maintain any collaborative, licensing or
other arrangements, and the terms and timing of any such arrangements.
 Contractual Obligations
  Less than
    
    
    
    
    
    
    
    
    
    More thanTotal
    
    1 year
    
    1-3 years
    
    4-5 years
    
    5 yearsOperating leases
    
    $
    2,864
    
    
    $
    361
    
    
    $
    806
    
    
    $
    899
    
    
    $
    798
  Results of Operations
 ®
 Three Months Ended March 31, 2010 Compared to Three Months Ended March 31, 2009
 Research and Development Expense
 ®
 General and Administrative Expense
  17




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Interest Income
  Other Income
  Critical Accounting Policies and Significant Judgments and Estimates
   Revenue Recognition
  Stock-Based Compensation
 Stock Compensation
  18




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Equity-based Payments to Non-employees
 Accrued Expenses
  
    
    professional service fees;
    
    contract clinical service fees;
    
    fees paid to contract manufacturers in conjunction with
the production of clinical components or materials; and
    
    fees paid to third party data collection organizations and
investigators in conjunction with the clinical trials.
  Off-Balance Sheet Arrangements
  Recent Accounting Pronouncements
  19




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ITEM 3.
 Quantitative and Qualitative Disclosures about Market Risk
  
 ITEM 4.
 Controls and Procedures
 Evaluation of disclosure controls and procedures
  Change in internal control over financial reporting
  Limitations on the effectiveness of controls
  
 PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
 Our business and operations entail a variety of serious risks and uncertainties, including those
described in Item 1A of our Form 10-K for the year ended December 31, 2009. In addition, the
following risk factors have changed during the three months ended March 31, 2010:
 We have incurred losses for a number of years, and anticipate that we will incur continued losses
for the foreseeable future.
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® ® ®
 We may be unable to complete the development and commence commercialization of
MelaFind ® or other products without additional funding, and we will not be
able to achieve significant commercialization without additional funding.
 ®
  
    
    the schedule, costs, and results of our clinical trials;
    
    the success of our research and development efforts;
    
    the costs and timing of regulatory approval;
    
    reimbursement amounts for the use of MelaFind®
that we are able to obtain from Medicare and third-party payers, or
the amount of direct payments we are able to obtain from patients
and/or physicians utilizing MelaFind®;
    
    the cost of commercialization activities, including product marketing
and building a domestic direct sales force;
    
    the emergence of competing or complementary technological developments;
    
    the costs of filing, prosecuting, defending and enforcing any patent
claims and other rights, including litigation costs and the results of
such litigation;
    
    the costs involved in defending any patent infringement actions
brought against us by third parties; and
    
    our ability to establish and maintain any collaborative, licensing or
other arrangements, and the terms and timing of any such arrangements.
  21




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Our stock price is likely to be volatile, meaning purchasers of our common stock could incur
substantial losses.
  
    
    results of our research and development efforts and our clinical trials;
    
    the timing of regulatory approval for our products;
    
    failure of any of our products, if approved, to achieve commercial success;
    
    the announcement of new products or product enhancements by us or our competitors;
    
    regulatory developments in the US and foreign countries;
    
    ability to manufacture our products to commercial standards;
    
    developments concerning our clinical collaborators, suppliers or marketing partners;
    
    changes in financial estimates or recommendations by securities analysts;
    
    public concern over our products;
    
    developments or disputes concerning patents or other intellectual property rights;
    
    product liability claims and litigation against us or our competitors;
    
    the departure of key personnel;
    
    the strength of our balance sheet;
    
    variations in our financial results or those of companies that are perceived to be similar to us;
    
    changes in the structure of and third-party reimbursement in the US and other countries;
    
    changes in accounting principles or practices;
    
    general economic, industry and market conditions; and
    
    future sales of our common stock.
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Climate control policy changes, including legislation pending in the U.S. Congress and negotiated
international treaties, could have an impact on our Company.
 ®
 Results could be impacted by the effects of, and changes in, world-wide economic and capital market
conditions
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
   
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Reserved
 
 Item 5. Other Information
 (a)
    
    Not applicable
 (b)
    
    Not applicable
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Item 6. Exhibits
 ExhibitNumber
    
    Exhibit Title31.1#
    
    Certification of Chief Executive Officer Pursuant to Rule
13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act
of 1934, as amended.31.2#
    
    Certification of Chief Financial Officer Pursuant to Rule
13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act
of 1934, as amended.32.1#
    
    Certification of Chief Executive Officer and Chief Financial
Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 #
    
    Filed herewith 24




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SIGNATURES
  MELA SCIENCES, INC.By:
    /s/ Richard I. SteinhartRichard I. Steinhart
Vice President and Chief Financial Officer
(Principal Accounting and Financial Officer)  25




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EXHIBIT INDEX
 Exhibit No.
    
    Description31.1
    
    Certification by the Chief
Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) under
the Securities Exchange Act of 1934, as amended.31.2
    
    Certification by the Chief
Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) under
the Securities Exchange Act of 1934, as amended.32.1
    
    Certification Pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
 26