While the expedited review could shorten the MelaFind® FDA approval process, the Company can provide no assurances that this will be the case. The Company was notified by the FDA, pursuant to the submission of the MelaFind®Pre-Market Approval Application on June 3, 2009, that the application was suitable for filing, and the official filing date is June 9, 2009. The MelaFind® PMA is under review at the FDA, and the Company is actively working with the FDA during this process. The date for an anticipated FDA Advisory Panel to review the MelaFind® PMA has not been established, therefore, we expect the review of the MelaFind® PMA to continue into 2010.
We believe that period-to-period comparisons of our results of operations may not be meaningful and should not be relied on as indicative of our future performance.
Liquidity and Capital Resources
On July 31, 2007, the Company entered into a securities purchase agreement and a registration rights agreement with certain accredited investors for the private placement of 2,000,178 shares of the Company's common stock and warrants to purchase up to 500,041 shares of the Company's common stock for aggregate gross proceeds of approximately $11.5 million and net proceeds of approximately $10.7 million. This transaction closed August 3, 2007.
On June 26, 2008, the Company filed a Form S-3 shelf registration statement for an indeterminate number of shares of common stock, warrants to purchase shares of common stock and units consisting of a combination thereof having an aggregate initial offering price not to exceed $40 million. The SEC declared the registration statement effective on July 7, 2008. Management utilized this shelf registration statement to raise additional equity capital by completing a registered direct offering of 2,088,451 shares of the Company's common stock for aggregate gross proceeds of approximately $11.9 million (approximately $11 million net proceeds) to the Company at a per share offering price of $5.68. The offering closed August 8, 2008.
On May 7, 2009, the Company entered into a committed equity financing facility ("CEFF"), with Kingsbridge Capital Limited, pursuant to which Kingsbridge committed to purchase, subject to certain conditions, up to the lesser of $45 million or 3,327,000 shares of the Company's common stock. In connection with this CEFF, the Company issued a 5 year warrant, exercisable as of November 7, 2009, to Kingsbridge to purchase up to 200,000 shares of our common stock at an exercise price of $11.35 per share (refer to Note 10 for further details). The Company registered for resale on Form S-3 3,527,000 of its common shares under this financing arrangement. The registration statement was declared effective by the SEC on May 22, 2009.
On July 16, 2009, the Company completed, pursuant to the Company's shelf registration statement on Form S-3, a registered direct offering of 2,400,000 shares of the Company's common stock with a select group of institutional investors. The aggregate gross proceeds from the offering were $15 million (with net proceeds of approximately $13.75 million). The offering closed on July 22, 2009 for a purchase price of $6.25 per share of the Company's common stock. Approximately $13.1 million remains available for sale under the Company's shelf registration statement as of September 30, 2009.
Under the CEFF, during August and September of 2009, the Company sold 862,201 shares of common stock to Kingsbridge Capital Limited, at an average per share price of approximately $9.25, for gross proceeds of $7.977 million. A proportionate share of the CEFF originating expenses was allocated to this sale from deferred offering costs. Net of expenses, proceeds from this sale were approximately $7.928 million.
Subsequent to September 30, 2009 and through November 5, 2009, also under the CEFF, the Company sold 962,740 shares of common stock to Kingsbridge Capital Limited, at an average per share price of approximately $9.23, for gross proceeds of $8.886 million. A proportionate share of the CEFF originating expenses was allocated to this sale from deferred offering costs. Net of expenses, proceeds from this sale were approximately $8.831 million (see also Note 14).

Most of our expenditures to date have been for research and development activities and general and administrative expenses. Research and development expenses represent costs incurred for product development, clinical trials, activities related to regulatory filings, and manufacturing development efforts. We expense all of our research and development costs as they are incurred. To date, we have not borrowed (other than by issuing convertible notes, all of which have been converted into equity) or financed our operations through equipment leases, financing loans or other debt instruments.
As of September 30, 2009, the Company's total of cash, cash equivalents was $24.8 million. The existing cash balances and the availability of the Kingsbridge CEFF, will allow the Company to fund anticipated levels of operations for at least the next twelve months. However, there can be no assurances that the Company will be able to raise funds as needed from time to time, whether under the CEFF or by other types of financing. Funds that become available may not be on acceptable terms, and there can be no assurance that any additional funding that the Company does obtain will be sufficient to meet the Company's needs in the long term.
Our cash and cash equivalents at September 30, 2009 are liquid investments in money market accounts and deposits with commercial banks, which are held in amounts that substantially exceed FDIC limits. Cash Flows from Operating Activities (in thousands) Net cash used in operations was $12,271, for the nine months ended September 30, 2009. For the corresponding period in 2008, net cash used in operations was $12,069. In both periods, cash used in operations was attributable to net losses, after an adjustment for non-cash charges related to depreciation/amortization and share-based compensation, and other changes in operating assets and liabilities.
Cash Flows from Investing Activities
For the nine months ended September 30, 2009, there was $152 net cash provided by our investing activities. For the corresponding period in 2008, net cash provided by our investing activities was $636. In 2009, cash provided was related to the redemption of marketable securities offset by leasehold improvements, the purchase of information technology equipment, and the purchase of manufacturing related equipment in support of MelaFind®. In 2008, cash provided was related to the redemption of marketable securities offset by the purchase of information technology and manufacturing related equipment. Cash Flows from Financing Activities
For the nine months ended September 30, 2009, net cash provided by financing activities was $21,827. Cash was provided by net proceeds received from the sale of common stock under the Company's July 2009 registered direct offering ($13.75 million), from the exercise of options and warrants ($289), and from the sale of common stock under the CEFF with Kingsbridge Capital ($7.977 million) offset by $190 of deferred offering costs related to the CEFF transaction. For the nine months ended September 30, 2008, net cash provided by financing activities was $11,013, representing the exercise of options and warrants ($45) and the net proceeds of the June 2008 registered direct offering ($10,968). Operating Capital and Capital Expenditure Requirements We face certain risks and uncertainties, which are present in many emerging medical device companies. At September 30, 2009, we had an accumulated deficit of $73.6 million. To date, we have not commercialized our principal product, MelaFind®. We anticipate that we will continue to incur net losses for the foreseeable future as we pursue regulatory approvals for MelaFind®, continue to develop the MelaFind® system, expand our corporate infrastructure, and prepare for the potential commercial launch of MelaFind®.

We do not expect to generate significant product revenue until we successfully obtain PMA approval for and begin selling MelaFind®.
If additional funds are raised through the issuance of debt securities or preferred stock, these securities could have rights senior to those associated with our common stock and could contain covenants that would restrict our operations. If we are unable to obtain additional financing, we may be required to reduce the scope of, delay or eliminate some or all of planned product research and development and commercialization activities, which could harm our business.
Because of the numerous risks and uncertainties associated with the development of medical devices such as MelaFind®, we are unable to estimate the exact amounts of capital outlays and operating expenditures associated with our current and anticipated clinical trials. Our future funding requirements will depend on many factors, including, but not limited to:
• 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.

Contractual Obligations (in thousands)
The Company is party to a non-cancelable operating lease for 2,800 and 2,500 square feet of office space expiring in January 2011. The lease is subject to escalations for increases in operating expenses. A second lease for 5,000 square feet of office and laboratory space, that expired on June 30, 2009, has been continued on a month-to-month basis.
On July 14, 2009, the Company entered into a new lease agreement for 19,957 square feet of office and laboratory space. The following table summarizes our outstanding contractual obligations as of September 30, 2009, adjusted to give effect to the July 14, 2009 lease agreement.

                                        Less than                                 More than
                             Total       1 year       1-3 years     4-5 years      5 years
        Operating leases   $ 3,008      $    351      $    782      $    888      $    987

Results of Operations (in thousands)
Through the first nine months of 2009, the Company announced positive top line results from the pivotal clinical trial, submitted the MelaFind® PMA to the FDA, continued the development of processes and equipment to allow for the efficient manufacturing of MelaFind®, and focused on increasing corporate capabilities to meet the needs of product launch.
The Company was notified by the FDA, pursuant to the submission of the MelaFind®Pre-Market Approval Application on June 3, 2009, that the application was suitable for filing, and the official filing date is June 9, 2009. The MelaFind® PMA is under review at the FDA, and the Company is actively working with the FDA during this process. The date for an anticipated FDA Advisory Panel to review the MelaFind® PMA has not been established, therefore, we expect the review of the MelaFind® PMA to continue into 2010.
Three Months Ended September 30, 2009 Compared to Three Months Ended September 30, 2008
Research and Development Expense
Research and development expense overall decreased 16% for the three month period ended September 30, 2009 compared to the same period ended September 30, 2008. The R&D costs were refocused from clinical to regulatory principally attributable to:
• clinical studies costs - in the third quarter of 2009 the pivotal trial study sites were shut down leaving only ongoing data acquisition sites. In the third quarter of 2008, all sites of the pivotal clinical trial data acquisition phase were fully engaged. Clinical studies costs decreased $343.

• quality and regulatory costs - were increased in the third quarter of 2009 with activities in support of the review of our PMA , making extensive use of consultants to assist in this process. Quality and regulatory costs increased $48 period to period.

• development activities -in the third quarter of 2009, we experienced a significant decrease in design and process development costs for MelaFind® as the product had become defined and finalized. There were more extensive development efforts of 2008. Development costs decreased $229 from the prior year.

General and Administrative Expense
General and administrative expenses consist primarily of salaries and related expenses of general corporate activities, certain costs associated with our efforts to obtain PMA approval for MelaFind® and development of a commercial infrastructure to market and sell MelaFind® when approved.
General and Administrative expense for the three months ended September 30, 2009 increased 117% as compared to the same period ended September 30, 2008. This increase is reflective of:
• pre-marketing activities intensified during the third quarter of 2009 following the submission of the MelaFind® PMA. in June. There were limited pre-marketing efforts during the nine month period ended September 30, 2008 while the data acquisition phase of the pivotal clinical trial continued. Pre-marketing expenses in 2009 increased $492 over the same period in 2008.

• in the third quarter of 2009 there were increased legal activities relating to regulatory requirements and patent activities associated with protecting MelaFind®intellectual property. Legal and patent expense increased $108 over the same period a year earlier.

• information technology department upgrades and other one-time staffing related employee costs increased general and administrative related costs $466 in the three months ending September 30, 2009 over the same period a year earlier. For the quarter, non-cash expenses of depreciation and share-based compensation were $94 higher in 2009 than in 2008.

Nine Months Ended September 30, 2009 Compared to Nine Months Ended September 30, 2008
Research and Development Expense
Research and development expense overall decreased 24% for the nine month period ended September 30, 2009 compared to the same period ended September 30, 2008. The R&D costs were refocused from clinical to regulatory principally attributable to:
• clinical studies costs - in the first nine months of 2009 we closed down the pivotal clinical trial study sites which, in the same period in 2008,` were fully engaged. Clinical studies costs decreased $1,958 from the prior period.

• quality and regulatory -the nine month cost level was increased in 2009 as we intensified activities in support of the PMA submission and review, making extensive use of consultants to assist in this process. In the first nine months of 2008, we were not yet in the position to be preparing the PMA. Quality and regulatory costs increased $701 over the prior period.

• development activities -in the first nine months of 2009, we experienced a significant decrease in design costs and process development for MelaFind® as the product had become defined and finalized through the more extensive development efforts of 2008. Development costs decreased $1,101 from the prior period.

General and Administrative Expense
General and administrative expenses consist primarily of salaries and related expenses of general corporate activities, certain costs associated with our efforts to obtain PMA approval for MelaFind® and development of a commercial infrastructure to market and sell MelaFind®.
General and Administrative expense for the nine months ended September 30, 2009 increased 35% as compared to the same period ended September 30, 2008. This increase is reflective of:
• pre-marketing activities accelerated throughout the first nine months of 2009 following announcement of positive top-line results from the pivotal clinical trial and particularly in the third quarter, following the submission of the MelaFind® PMA. There were limited pre-marketing efforts during the nine month period ended September 30, 2008, while the data acquisition phase of the pivotal clinical trial continued. Pre-marketing expenses increased $603 over the prior period.

• in 2009 there has been increased legal and investor relations activities involving required disclosures and investor notification; such as the release of top-line results from our pivotal clinical trial and the submission of our PMA. Patent expenses have increased associated with protecting MelaFind® intellectual property. Legal, patent and investor relations expenses increased $188 over the same period in 2008.

• information technology department upgrades and other one-time staffing related employee costs increased general and administrative related costs $358 in the first nine months over the same period a year earlier. Non-cash expenses of depreciation and share-based compensation were $234 higher in 2009 than in 2008 through nine months.

Critical Accounting Policies and Significant Judgments and Estimates Our management's discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported revenues and expenses during the reporting periods. On an ongoing basis, we evaluate our judgments related to accounting estimates. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily

apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
We believe that the following accounting policies and significant judgments and estimates relating to revenue recognition, stock-based compensation charges, and accrued expenses are most critical to aid you in fully understanding and evaluating our reported financial results. Revenue Recognition
We currently do not have any commercialized products or any source of revenue. Stock-Based Compensation
We record compensation expense associated with stock options and other forms of equity compensation in accordance with FASB ASC-718, Stock Compensation ("FASB 718"), as interpreted by SEC Staff Accounting Bulletins No. 107 and No.110. A compensation charge is recorded when it is probable that performance conditions will be satisfied. The probability of vesting is updated at each reporting period and compensation is adjusted via a cumulative catch-up adjustment or prospectively depending on the nature of the change.
We have also granted to certain employees stock options that vest with the attainment of development milestones not under the Company's control. Upon the attainment of the relevant development milestones, there will be a significant compensation charge based on the fair value of such options on the date granted. Options or warrants issued to non-employees for goods or services are recorded at fair value and accounted for in accordance with FASB ASC 505, Equity-based payments to non-employees.
Accrued Expenses
As part of the process of preparing financial statements, we are required to estimate accrued expenses. This process involves identifying services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for such service where we have not been invoiced or otherwise notified of the actual cost. Examples of estimated accrued expenses include:
• 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.

In connection with such service fees, our estimates are most affected by our projections of the timing of services provided relative to the actual level of services incurred by such service providers. The majority of our service providers invoice us monthly in arrears for services performed. In the event that we do not identify certain costs that have begun to be incurred or we are under or over our estimate of the level of services performed or the costs of such services, our actual expenses could differ from such estimates. The date on which certain services commence, the level of services performed on or before a given date, and the cost of such services are often subjective determinations. We make these judgments based upon the facts and circumstances known to us in accordance with GAAP. This is done as of each balance sheet date in our financial statements.

Off-Balance Sheet Arrangements
We do not currently have, nor have we ever had, any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. In addition, we do not engage in trading activities involving non-exchange traded contracts. As such, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in these relationships. Recently Adopted Accounting Pronouncements In June 2009, the Financial Accounting Standards Board (FASB) issued guidance which is included in the Codification in FASB Accounting Standards Codification (ASC) 105, "Generally Accepted Accounting Principles." This guidance modifies the Generally Accepted Accounting Principles (GAAP) hierarchy by establishing only two levels of GAAP, authoritative and nonauthoritative accounting literature. Effective July 2009, the FASB ASC, also known collectively as the "Codification," is considered the single source of authoritative U.S. accounting and reporting standards, except for additional authoritative rules and . . .