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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, 2011
 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.
  Delaware(State or Other Jurisdiction of 
Incorporation or Organization)
    
    13-3986004(I.R.S. Employer
Identification No.)50 South Buckhout Street, Suite 1
Irvington, New York(Address of Principal Executive offices)
    
    10533(Zip Code)
 Registrants Telephone Number, including area code:
(914) 591-3783  (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, 2011 (unaudited) and December 31, 2010
    
    
    2Condensed Statements of Operations (unaudited) for the three month period ended March 31, 2011 and 2010
    
    
    3Condensed Statements of Cash Flows (unaudited) for the three month period ended March 31, 2011 and 2010
    
    
    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
    
    
    21PART II. OTHER INFORMATIONITEM 1. Legal Proceedings
    
    
    21ITEM 1A. Risk Factors
    
    
    22ITEM 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-31.1EX-31.2EX-32.1
  1




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MELA SCIENCES, INC.
 
 CONDENSED BALANCE SHEETS
 March 31,
    
    
    December 31,2011
    
    
    2010(unaudited)
    
    
    *ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    26,041,172
    
    
    $
    30,520,812Prepaid expenses and other current assets
    
    
    367,658
    
    
    
    523,672Total Current Assets
    
    
    26,408,830
    
    
    
    31,044,484Property and equipment, net
    
    
    1,937,136
    
    
    
    2,073,602Patents and trademarks, net
    
    
    68,133
    
    
    
    71,108Deferred financing costs
    
    
    62,391
    
    
    
    62,391Other assets
    
    
    337,705
    
    
    
    337,705Total Assets
    
    $
    28,814,195
    
    
    $
    33,589,290LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Accounts payable (includes related parties of
$5,652 as of March 31, 2011)
    
    $
    853,593
    
    
    $
    1,096,505Accrued expenses
    
    
    783,644
    
    
    
    559,975Other current liabilities
    
    
    36,631
    
    
    
    29,538Total Current Liabilities
    
    
    1,673,868
    
    
    
    1,686,018Long Term Liabilities:Deferred rent
    
    
    112,782
    
    
    
    104,304Total Long Term Liabilities
    
    
    112,782
    
    
    
    104,304Total Liabilities
    
    
    1,786,650
    
    
    
    1,790,322COMMITMENTS, CONTINGENCIES and LITIGATION
(Note 7)Stockholders EquityPreferred stock  $.10 par value; authorized
10,000,000 shares; issued and outstanding: noneCommon stock  $.001 par value; authorized
45,000,000 shares; issued and outstanding
25,262,538 shares at March 31, 2011 and
December 31, 2010
    
    
    25,263
    
    
    
    25,263Additional paid-in capital
    
    
    131,086,972
    
    
    
    130,916,326Accumulated deficit
    
    
    (104,084,690
    )
    
    
    (99,142,621
    )Stockholders Equity
    
    
    27,027,545
    
    
    
    31,798,968Total Liabilities and Stockholders Equity
    
    $
    28,814,195
    
    
    $
    33,589,290
 
 *
    
    Derived from the audited balance sheet as of December 31, 2010  2




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MELA SCIENCES, INC.
 
 CONDENSED STATEMENTS OF OPERATIONS
 (unaudited)
 Three months ended March 31,2011
    
    
    2010Operating expenses:Research and development
    
    $
    2,576,128
    
    
    $
    2,787,070General and administrative
    
    
    2,393,120
    
    
    
    2,271,165Operating loss
    
    
    (4,969,248
    )
    
    
    (5,058,235
    )Interest income
    
    
    20,531
    
    
    
    952Other income, net
    
    
    6,648
    
    
    
    6,025Net loss
    
    $
    (4,942,069
    )
    
    $
    (5,051,258
    )Basic and diluted net
loss per common share
    
    $
    (0.20
    )
    
    $
    (0.22
    )Basic and diluted weighted
average number of common
shares outstanding
    
    
    25,262,538
    
    
    
    22,743,497
  3




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MELA SCIENCES, INC.
 
 CONDENSED STATEMENTS OF CASH FLOWS
 (unaudited)
 Three Months Ended March 31,2011
    
    
    2010Cash flows from operating activities:Net loss
    
    $
    (4,942,069
    )
    
    $
    (5,051,258
    )Adjustments to reconcile net loss to net cash used in
operating activities:Depreciation and amortization
    
    
    147,086
    
    
    
    120,123Noncash compensation
    
    
    170,646
    
    
    
    182,692Loss on disposal of fixed assets
    
    
    
    
    
    
    1,473Changes in operating assets and liabilities:Decrease in prepaid expenses and other current
assets
    
    
    156,014
    
    
    
    186,806Decrease in accounts payable and accrued expenses
    
    
    (19,243
    )
    
    
    (167,920
    )Increase in deferred rent
    
    
    8,478
    
    
    
    Increase (decrease) in other current liabilities
    
    
    7,093
    
    
    
    (251
    )Net cash used in operating activities
    
    
    (4,471,995
    )
    
    
    (4,728,335
    )Cash flows from investing activities:Purchases of property and equipment
    
    
    (7,645
    )
    
    
    (350,165
    )Net cash used in investing activities
    
    
    (7,645
    )
    
    
    (350,165
    )Cash flows from financing activities:Proceeds from exercise of stock options
    
    
    
    
    
    
    6,270Proceeds from exercise of warrants
    
    
    
    
    
    
    1,691,633Proceeds from Committed Equity Financing Facility
    
    
    
    
    
    
    3,750,000Net cash provided by financing activities
    
    
    
    
    
    
    5,447,903Net (decrease) increase in cash and cash equivalents
    
    
    (4,479,640
    )
    
    
    369,403Cash and cash equivalents at beginning of period
    
    
    30,520,812
    
    
    
    29,673,420Cash and cash equivalents at end of period
    
    $
    26,041,172
    
    
    $
    30,042,823Supplemental Schedule of Non-cash Investing and Financing
ActivitiesDeferred 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.
 ® ® ®
 ® ®
 ®
 ® ®
 ®
 5




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®
  ®
   2. COMPREHENSIVE LOSS
   3. USE OF ESTIMATES
  6




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4. RECENT ACCOUNTING PRONOUNCEMENTS
  . NET LOSS PER COMMON SHARE
  March 31,2011
    
    2010Common stock options
    
    
    2,142,879
    
    
    
    2,043,098Warrants
    
    
    546,781
    
    
    
    614,906Total
    
    
    2,689,660
    
    
    
    2,658,004
 6. STOCK-BASED COMPENSATION
    7




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For the Three Months
    
    For the Three MonthsEnded March 31, 2011
    
    Ended March 31, 2010Expected life
    
    6.5 years
    
    5 yearsExpected volatility
    
    76.32%
    
    66.93%Risk-free interest rate
    
    2.72-2.92%
    
    2.26-2.56%Dividend yield
    
    0%
    
    0%
     WeightedWeighted
    
    AverageAverage
    
    RemainingExercise
    
    Contractual
    
    AggregateNumber of
    
    Price per
    
    Term in
    
    IntrinsicShares
    
    Share
    
    Years
    
    ValueOutstanding at December 31, 2010
    
    
    2,132,879
    
    
    $
    5.19
    
    
    
    5.4Granted
    
    
    129,500
    
    
    
    3.21
    
    
    
    9.9Exercised
    
    
    
    
    
    
    
    
    
    
    Forfeited or expired
    
    
    (119,500
    )
    
    
    5.98
    
    
    
    Outstanding at March 31, 2011
    
    
    2,142,879
    
    
    $
    5.02
    
    
    
    5.3
    
    
    $
    170Vested and exercisable at March 31, 2011
    
    
    866,466
    
    
    $
    5.32
    
    
    
    3.4
    
    
    $
    130
 Options OutstandingWeighted-
    
    
    
    
    
    Options ExercisableAverage
    
    Weighted
    
    
    
    
    
    Weighted-Remaining
    
    Average
    
    
    
    
    
    AverageNumber
    
    Contractual
    
    Exercise
    
    Number
    
    ExerciseRange of Exercise Prices
    
    Outstanding
    
    Life
    
    Price
    
    Exercisable
    
    Price$.01-$1.00
    
    
    48,952
    
    
    1.7 years
    
    $
    1.00
    
    
    
    48,952
    
    
    $
    1.00$1.01-$4.50
    
    
    1,268,652
    
    
    7.0 years
    
    $
    3.77
    
    
    
    394,164
    
    
    $
    3.85$4.51-$11.11
    
    
    825,275
    
    
    2.8 years
    
    $
    7.19
    
    
    
    423,350
    
    
    $
    7.19$.01-$11.11
    
    
    2,142,879
    
    
    5.3 years
    
    $
    5.02
    
    
    
    866,466
    
    
    $
    5.32
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7. COMMITMENTS, CONTINGENCIES AND LITIGATION
  2011 Remaining nine months
    
    $
    2862012
    
    
    4102013
    
    
    4392014
    
    
    4552015
    
    
    4562016
    
    
    456$
    2,502
  ® ®
 ® ®
  Randall J. Pederson, Individually and on Behalf of All
Others Similarly Situated v. MELA Sciences, Inc., Joseph V. Gulfo, Richard I. Steinhart, and Breaux
Castleman, Amy Steigman, Individually
and on Behalf of All Others Similarly Situated v. MELA Sciences, Inc., Joseph V. Gulfo, Richard I.
Steinhart, and Breaux Castleman Martin Slove and Linda Slove,
Individually and on Behalf of All Others Similarly Situated v. MELA Sciences, Inc., Joseph V.
Gulfo, Richard I. Steinhart, and Breaux Castleman, In re MELA Sciences,
Inc. Securities Litigation
 9




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®
   8. STOCKHOLDERS EQUITY
     10




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11




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9. WARRANTS
  2007
    
    2009
    
    TotalOutstanding at December 31, 2010
    
    
    346,781
    
    
    
    200,000
    
    
    
    546,781Exercised
    
    
    
    
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    
    
    
    
    Expired
    
    
    
    
    
    
    
    
    
    
    Outstanding at March 31, 2011
    
    
    346,781
    
    
    
    200,000
    
    
    
    546,781
    10. RELATED PARTY CONSULTING AGREEMENTS
  Consulting Agreement with Breaux Castleman
 ®
 Consulting Agreement with Gerald Wagner, Ph.D
  12




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Consulting Agreement with Anne Egger
  11. OTHER INCOME
 ® ® ®
 12. SUBSEQUENT EVENTS
  ®
 13




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MELA SCIENCES, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
   Overview
 ®
 ®
 ® ® ®
 14




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® ®
 ®
 ® ®
 ® ®
  Liquidity and Capital Resources
    15




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®
  Cash Flows from Operating Activities
  Cash Flows from Investing Activities
  Cash Flows from Financing Activities
  16




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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;
    
    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;
    
    The costs involved in defending any patent infringement actions or other litigation claims
brought against us by third parties;
    
    The costs of maintaining or potentially building our inventory and other manufacturing
expenses; and
    
    Our ability to establish and maintain any collaborative, licensing or other arrangements,
and the terms and timing of any such arrangements.
 17




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Contractual Obligations
  Less than
    
    
    
    
    
    
    
    
    
    More thanTotal
    
    1 year
    
    1-3 years
    
    4-5 years
    
    5 yearsOperating leases
    
    $
    2,502
    
    
    $
    389
    
    
    $
    861
    
    
    $
    910
    
    
    $
    342
  Results of Operations
 ® ®
 Three Months Ended March 31, 2011 Compared to Three Months Ended March 31, 2010
 Research and Development Expense
  General and Administrative Expense
 ®
 Interest Income
  Other Income
  18




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Critical Accounting Policies and Significant Judgments and Estimates
   Revenue Recognition
  Stock-Based Compensation
     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
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
    
    fees paid to third party data collection organizations and
investigators in conjunction with the clinical trials.
  Off-Balance Sheet Arrangements
  Recent Accounting Pronouncements
  
 ITEM 3.
 Quantitative and Qualitative Disclosures about Market Risk
  20




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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
 Randall J. Pederson, Individually and on Behalf of All Others
Similarly Situated v. MELA Sciences, Inc., Joseph V. Gulfo, Richard I. Steinhart, and Breaux
Castleman, Amy Steigman, Individually
and on Behalf of All Others Similarly Situated v. MELA Sciences, Inc., Joseph V. Gulfo, Richard I.
Steinhart, and Breaux Castleman Martin Slove and Linda Slove,
Individually and on Behalf of All Others Similarly Situated v. MELA Sciences, Inc., Joseph V.
Gulfo, Richard I. Steinhart, and Breaux Castleman, In re MELA Sciences,
Inc. Securities Litigation ®
  21




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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, 2010. In addition, the
following risk factors have materially changed during the three months ended March 31, 2011:
 We have incurred losses for a number of years, and anticipate that we will incur continued losses
for the foreseeable future.
 ® ® ®
 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.
 ® ® ®
 
 
 
  ®
 
  ®
 
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
 
 
 
   
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. [Reserved]
 
 Item 5. Other Information
   23




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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
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SIGNATURES
  MELA SCIENCES, INC.By:
    /s/ Richard I. SteinhartRichard I. SteinhartVice 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