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ORGANIZATION AND BASIS OF PRESENTATION
3 Months Ended
Mar. 31, 2015
Accounting Policies [Abstract]  
ORGANIZATION AND BASIS OF PRESENTATION

1. ORGANIZATION AND BASIS OF PRESENTATION

 

The Company is a medical technology company dedicated to designing and developing innovative software-driven technology for the early detection and prevention of skin cancer. The Company is focused on the commercialization of its flagship product, the MelaFind® System, or (“MelaFind”), as well as the further design and development of this technology. MelaFind is a non-invasive, point-of-care (in the doctor’s office) instrument to aid in the detection of melanoma. The system features a hand-held component that emits light of multiple wavelengths to capture digital data from clinically atypical pigmented skin lesions. The data are then analyzed utilizing sophisticated classification algorithms that have been “trained” by the Company’s proprietary database of melanomas and benign lesions. This result provides information to assist in the management of the patient’s disease, including information useful in the decision of whether to biopsy the lesion.

 

Sales of MelaFind have not met the Company’s expectations. Beginning in 2013, the Company undertook several steps that it believes may significantly improve MelaFind’s commercial acceptance by: 1) changing its business model from solely a rental-based model to include a capital sales option; 2) refocusing its marketing efforts on medical dermatology, and particularly those dermatologists who treat patients at high risk for melanoma; and 3) beginning the process of obtaining a coverage determination from the Centers for Medicare & Medicaid Services (“CMS”), the federal agency that administers Medicare, in order to obtain reimbursement by Medicare and ultimately by private insurers for the use of MelaFind. During 2014, the Company made significant strides in each of these areas, although it anticipates that it will require a few years of continued effort before the success of this strategy can be assessed. Specifically, the Company anticipates that the insurance reimbursement process could take several years to complete.

 

In July 2014, MELA announced that it took the first step in the process of obtaining insurance reimbursement for its Multi-Spectral Digital Skin Lesion Analysis (“MSDSLA”) procedure that is performed by dermatologists utilizing MelaFind as an aid in the detection of melanoma. The Company submitted an application for a Current Procedural Terminology (“CPT”) code, which is necessary for Medicare Part B reimbursement by the Centers for Medicare and Medicaid Services (“CMS”). On March 9, 2015, the February 2015 CPT® Editorial Summary of Panel Actions was posted to the website of the American Medical Association (the “AMA”). The CPT Editorial Panel accepted the addition of Category III codes 039XX1T and 039XX2T to report MSDSLA of atypical cutaneous lesions, which applies to MelaFind. Barring any further action by the Panel, the Company expects that these codes will be posted to the AMA CPT website by July 1, 2015, with an effective date of January 1, 2016, and will provide the basis for pursuing third party and CMS insurance coverage for MelaFind. Efforts to obtain reimbursement from private insurers are underway, but could take several years to complete.

 

During the first quarter of 2015, the Company voluntarily removed certain aspects of MelaFind’s user interface on systems in service in the United States after completing an internal review of the device’s Pre-Market Approval (“PMA”) requirements related to the user interface. The Company took this voluntary action in order to facilitate FDA review of other aspects of MelaFind’s user interface. Upon the completion of the review, the Company will re-assess and make appropriate revisions to the user interface. Our MelaFind systems in use outside the United States were not affected by this action.

 

On March 26, 2015, the Company implemented a plan of termination that resulted in a workforce reduction of nine employees in order to reduce operating costs. The workforce reduction was completed by April 1, 2015, which was the termination date for all of the affected employees. As a result of the workforce reduction, the Company accrued severance-related charges of $110,000 in the first quarter of 2015. Substantially all of the severance-related charges are expected to be paid during the second quarter of 2015.

 

Until the Company obtains insurance reimbursement from the CMS and private insurers, it expects that revenues will not be sufficient to cover operating and other expenses. The Company’s financial success will depend on a number of factors, primary among which is the ability to sell MelaFind, increase the penetration with dermatologists, encourage the usage of these systems, and control costs. Currently, the Company cannot determine when it will have sufficient revenues to cover continuing developmental costs, manufacturing, marketing and other operational expenses and has experienced recurring losses and negative cash flow from operations. As a result of these factors, the Company has been and continues to be dependent on raising capital from the sale of securities in order to operate and to meet its obligations in the ordinary course of business. In February 2014, the Company raised net proceeds of approximately $11.5 million from the sale of Series A convertible preferred stock and warrants to purchase common stock to strengthen the Company’s financial position (see Footnote 11 “STOCKHOLDERS’ EQUITY”). In July 2014, the Company issued Series B convertible preferred stock, senior secured convertible debt and warrants, raising an additional $13.8 million in net proceeds (see Footnote 9 “DEBT”). The proceeds from the sale of the Series B convertible preferred stock were used to redeem all outstanding shares of Series A convertible preferred stock.

 

The unaudited condensed financial statements included herein have been prepared from the books and records of the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for reporting on Form 10-Q. The information and note disclosures normally included in complete financial statements prepared in accordance with generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. Interim results may not be indicative of the results that may be expected for the year. The interim financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.

 

The accompanying financial statements have been prepared on a basis which assumes that the Company will continue as a going concern and which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The Company has devoted substantially all of its cash resources to the development and marketing of the MelaFind system and general and administrative expenses, and to date it has not generated any significant revenues from the sale of products. As a result, MELA has an accumulated deficit of $189,565,791 as of March 31, 2015. The Company’s recurring losses from operations and the accumulated deficit raise substantial doubt about its ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Even if the Company succeeds in commercializing the MelaFind system it may never become profitable. The Company expects to continue to incur significant losses over the next several years.