On November 18, 2010, the Company's PMA application for MelaFind® was reviewed by the FDA's General and Plastic Surgery Devices Panel ("Panel"). The Panel voted favorably on all three questions instructed by the FDA. The FDA advisory Panel vote is non-binding on the FDA. In February 2011, the Company submitted a PMA amendment containing a revised 'indications for use' statement limiting MelaFind® to use by dermatologists, based on discussions that ensued during the Panel meeting. Also, on May 12, 2011, the Company submitted a second PMA amendment containing a training program for clinicians, an outline of which was presented at the Panel meeting. The Company has requested a meeting with the FDA to review the Panel outcome as well as the Company's PMA and PMA amendments. On May 9, 2011, the Company filed a Citizen's Petition with the FDA requesting the Commissioner of the FDA to enforce the binding Protocol Agreement, as well as FDA laws and regulations, in completing the review of the MelaFind®PMA. Upon obtaining approval from the FDA, we plan to launch MelaFind® commercially in the United States.
Also, in the first six months of 2011, the Company continued the process, initiated in 2010, toward being able to introduce the MelaFind® device commercially in Europe. The Company is actively planning representation, conducting market research activities and working with European regulatory agencies on achieving Conformite Europeenne ("CE") marking of MelaFind®. Our revenue for the foreseeable future will depend on the approval of MelaFind® by the FDA and /or European regulatory agencies and the commercialization of MelaFind®, and may vary substantially from year to year and quarter to quarter. 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 (in thousands) 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. Management utilized this shelf registration statement in August 2008 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 ($11 million approximate net proceeds to the Company), and in July 2009 by completing a registered direct offering of 2,400,000 shares of the Company's common stock for aggregate gross proceeds of $15 million ($13.75 million approximate net proceeds to the Company). Approximately $13.1 million remained available under the Company's 2008 shelf registration statement as of June 30, 2011; however, the shelf registration statement subsequently expired on July 7, 2011.
In May 2009, the Company entered into a committed equity financing facility ("CEFF") with Kingsbridge Capital Limited ("Kingsbridge"), pursuant to which Kingsbridge committed to purchase from time to time at the Company's sole discretion, up to the lesser of $45 million or 3,327,000 shares of the Company's common stock, prior to May 7, 2012 subject to various conditions for individual sales, including dollar, timing, and trading volume limitations, a minimum market per share price, and other contractual and regulatory requirements. There is no assurance that the Company will satisfy all the various conditions for individual sales enabling it to use all of the CEFF. 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 the Company's common stock at an exercise price of $11.35 per share with a Black Scholes Fair Value of $678. The issuance of this warrant was deemed to be a cost of the offering. The Company did not sell any stock to Kingsbridge under the CEFF in the six months ended June 30, 2011. Under the CEFF, during the six month period ended June 30, 2010, the Company sold 406,744 shares of common stock to Kingsbridge Capital Limited, at an average per share price of approximately $9.22, for gross proceeds of approximately $3.75 million. A proportionate share of the CEFF originating expenses was allocated to these sales from deferred offering costs. Net of expenses, proceeds from the 2010 sales were approximately $3.727 million.

In May 2010, 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 $75 million. The registration statement was declared effective by the SEC on June 1, 2010. On June 30, 2010, the Company entered into an underwriting agreement, relating to the public offering of 2,200,000 shares of the Company's common stock, at a price to the public of $7.50 per share less underwriting discounts and commissions. The common stock was offered and sold pursuant to the Company's Prospectus dated June 1, 2010 and the Company's Prospectus Supplement filed with the SEC on June 30, 2010, in connection with a takedown from the Company's effective shelf registration statement that closed on July 6, 2010. The gross proceeds to the Company from the sale of the common stock totaled $16.5 million. After deducting the underwriters' discounts and commissions and other offering expenses, net proceeds were approximately $15.2 million. Approximately $58.5 million remains available under the Company's 2010 shelf registration statement as of June 30, 2011.
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 June 30, 2011, the Company's total of cash and cash equivalents was approximately $20.9 million. Management believes that this cash balance will be sufficient to fund the Company's anticipated level of operations for at least the next twelve months. However, the Company will require additional funds to achieve significant commercialization of MelaFind®. There can be no assurances that the Company will be able to raise additional financing in the future. Additional funds may not become available 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. In the event that the Company is unable to raise additional funds, the Company has the ability and intent to reduce certain discretionary expenditures.
Our cash and cash equivalents at June 30, 2011 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
Net cash used in operations was $9,547 for the six months ended June 30, 2011. For the corresponding period in 2010, net cash used in operations was $9,054. 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 six months ended June 30, 2011, there was $31 net cash used in our investing activities for the purchase of fixed assets. For the corresponding period in 2010, $636 net cash was used in our investing activities, for the purchase of fixed assets.
Cash Flows from Financing Activities
For the six months ended June 30, 2011, no net cash was provided by or used in our financing activities. For the six months ended June 30, 2010, net cash provided by our financing activities was $5,331, representing proceeds from the Committed Equity Financing Facility, as well as the exercise of options and warrants.

Operating Capital and Capital Expenditure Requirements We face certain risks and uncertainties, which are present in many emerging medical device companies. At June 30, 2011, we had an accumulated deficit of $108.9 million. 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 the 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 are successful in obtaining PMA approval and/or CE Marking for MelaFind®.
If additional funds are raised through the issuance of debt securities, 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;

• 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.

Contractual Obligations (in thousands)
The following table summarizes our outstanding contractual obligations as of
June 30, 2011, and the effect those obligations are expected to have on our
liquidity and cash flows in future periods:

                                        Less than                                 More than
                             Total       1 year       1-3 years     4-5 years      5 years
        Operating leases   $ 2,407      $    396      $    872      $    911      $    228

Our long-term obligations represent a non-cancelable operating lease for our laboratory, assembly, and office space. The lease on approximately 20,000 square feet of space expires in December 2016.
Results of Operations (in thousands)
Through the first six months of 2011, the Company actively supported the FDA's PMA review process, continued to develop procedures and equipment to allow for the efficient manufacture of MelaFind®, intensified pre-commercialization activities in preparation for product launch and continued its efforts to achieve CE marking of MelaFind®in Europe.
Three Months Ended June 30, 2011 Compared to Three Months Ended June 30, 2010 Research and Development Expense
Research and development ("R&D") expenses experienced an overall increase of $68 or 3% in the three months ended June 30, 2011, as compared to the corresponding three month period a year earlier. Within R&D non-cash compensation associated with stock option grants increased $210, with the balance of R&D spending decreasing $142. The decrease was primarily in US research and development expenses with decreases of $113 in consulting and design subcontracting and $27 in product improvement.
General and Administrative Expense
General and Administrative ("G&A") expenses experienced an overall increase of $160 or 8% for the three months ended June 30, 2011, as compared to the corresponding three month period a year earlier. Non-cash compensation associated with stock option grants increased by $170 in 2011 compared to 2010, with the balance of G&A spending decreasing $10. Decreased costs experienced within G&A include a $92 decrease in salaries and benefits, $66 decrease in marketing consulting costs, a $32 decrease in travel and living expenditures and facility costs which were lower by $63. Corporate consulting and legal fees increased by $257 from the 2010 level reflecting activity associated with the continued review of the MelaFind® PMA application along with work associated with legal actions brought against certain officers and directors of the Company.
Interest Income
Interest income for the three months ended June 30, 2011 increased to $14 from $3 in the comparable period of 2010. Interest income increased as a reflection of the improvement in interest rates obtained on our cash balances. Other Income
Other income remained essentially the same in 2011 from a year earlier.

Six Months Ended June 30, 2011 Compared to Six Months Ended June 30, 2010 Research and Development Expense
Research and development expenses experienced an overall decrease of $143 or 3% in the six months ended June 30, 2011, as compared to the corresponding six month period a year earlier. Within R&D, non-cash compensation associated with stock option grants increased $262, with the balance of R&D spending decreasing $405. The decrease was primarily in US research and development with a $280 decrease in consulting and design subcontracting and a $117 decrease in product improvement. Development costs at Askion decreased $109 and overall salaries and benefits within R&D increased by$104.
General and Administrative Expense
General and Administrative ("G&A") expenses experienced an overall increase of $282 or 7% for the six months ended June 30, 2011, as compared to the corresponding six month period a year earlier. Non-cash compensation associated with stock option grants increased by $106 in 2011 compared to 2010, with the balance of G&A spending increasing $176. Corporate consulting and legal fees increased by $628 from the 2010 level reflecting activity associated with the continued review of the MelaFind® PMA application along with work associated with legal actions brought against certain officers and directors of the Company. Decreased costs experienced within G&A include a $68 decrease in salaries and benefits, $248 decrease in marketing consulting, a $112 decrease in office supplies, and facility costs which were lower by $29. Interest Income
Interest income for the six months ended June 30, 2011 increased to $34 from $4 in the comparable period of 2010. Interest income increased as a reflection of the improvement in interest rates obtained on our cash balances. Other Income
Other income remained essentially the same in 2011 from a year earlier. 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 generally accepted accounting principles ("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
The Company records compensation expense associated with stock options and other forms of equity compensation.
The Company grants to certain employees stock options that vest over a requisite service period or with the attainment of performance milestones over which the Company has control of the timing required to satisfy. A compensation charge is recorded over the service period or the probable period estimated to satisfy the performance condition. The probability of vesting is updated at each reporting period and compensation is adjusted prospectively.
The Company also grants to certain employees stock options that vest with the attainment of performance milestones over which the Company has no control of the timing required to satisfy. Upon the attainment of these performance milestones, there will be a significant compensation charge based on the fair value of such options on the date granted.
The Company accounts for non-employee stock-based awards in which goods or services are the consideration received for the equity instruments issued based on the fair value of the equity instruments issued. 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 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.

Recent Accounting Pronouncements
None
ITEM 3.
Quantitative and Qualitative Disclosures about Market Risk Our exposure to market risk is confined to our cash, cash equivalents, and short-term investments. We invest in high-quality financial instruments, primarily money market funds, with the average effective duration of the portfolio within one year which we believe are subject to limited credit risk. We currently do not hedge interest rate exposure. Due to the short-term nature of our investments, we do not believe that we have any material exposure to interest rate risk arising from our investments. The Company is exposed to credit risks in the event of default by the financial institutions or issuers of investments in excess of FDIC insured limits. The Company performs periodic evaluations of the relative credit standing of these financial institutions and limits the amount of credit exposure with any institution.
ITEM 4.
Controls and Procedures
Evaluation of disclosure controls and procedures Based on their evaluation as of June 30, 2011, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended, were effective to ensure that the information required to be disclosed by us in this Quarterly Report on Form 10-Q was recorded, processed, summarized and reported within the time periods specified in the SEC's rules and Form l0-Q, and that such information was accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Change in internal control over financial reporting There were no changes in our internal control over financial reporting during the quarter ended June 30, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Limitations on the effectiveness of controls Our disclosure controls and procedures are designed to provide reasonable, not absolute, assurance that the objectives of our disclosure control system are met. Because of inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected.