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MELA Sciences Reports 2014 Financial Results and Provides a Business Update

IRVINGTON, N.Y., March 30, 2015 (GLOBE NEWSWIRE) -- MELA Sciences, Inc. (Nasdaq:MELA), developer of the MelaFind® system, a non-invasive software-driven image analysis device intended to provide a dermatologist with objective data of clinically irregular pigmented moles when they choose to obtain additional info to help them decide whether or not to biopsy (at the most curable and cost-effective stage), today reported financial results and provided a business update.

Fourth Quarter 2014 and Subsequent Weeks Operational Highlights:

  • Named Michael R. Stewart as the Company's President and Chief Executive Officer. Mr. Stewart has been a member of the MELA Sciences Board of Directors since August 2014 and was most recently a senior executive at NASDAQ-traded PhotoMedex, Inc. Mr. Stewart was previously CEO of publicly traded Surgical Laser Technologies, Inc. prior to its sale to PhotoMedex.
  • Announced that the CPT Editorial Panel accepted the addition of Category III codes 039XX1T and 039XX2T to report multi-spectral digital skin lesion analysis of atypical cutaneous lesions, which applies to the MelaFind System. The Company expects that these codes will become effective on January 1, 2016 and will provide the basis to begin pursuing insurance coverage and reimbursement for MelaFind.
  • Reported that highly favorable results were obtained in a clinical and healthcare management study using MelaFind to help identify lesions most at risk for atypia and malignancy in patients at a high risk for melanoma, potentially allowing some patients to avoid an unnecessary surgical procedure. The results were included in the 2013 Outcomes for Cleveland Clinic's Dermatology & Plastic Surgery Institute.
  • Conducted a fourth U.S. "reader" study in October at the Fall Clinical Dermatology Conference in Las Vegas, Nevada. These studies measure the impact of MelaFind on physician biopsy management.

Michael R. Stewart, President and CEO of MELA Sciences, stated, "We are pleased to have learned that, barring any further action by the American Medical Association, Category III CPT Codes for the use of MelaFind will become effective on January 1, 2016. Obtaining insurance reimbursement for physicians' use of the MelaFind system in the U.S. is a critical step toward MelaFind becoming broadly adopted by the dermatology community, and this is the first tangible success of our decision to pursue that strategy. More broadly, we are seeking to expand MelaFind's use both domestically and internationally, particularly by placing MelaFind in key institutions with a particular focus on dermatologists who treat high risk patients; increasing our visibility through abstracts, posters and clinical presentations at dermatology conferences; as well as continuously improving the MelaFind device. I believe we are making progress on all of these fronts."

2014 Financial Results (All comparisons are to results for the year ended December 31, 2013):

  • Revenue increased to $0.9 million, from $0.5 million, and was the result of MelaFind system revenue under the Company's capital sale model, partially offset by a decline in deferred placement revenue. The Company's first commercial sale occurred in the second quarter of 2014.
  • Cost of revenue was $4.9 million, up 14% from $4.3 million in 2013. This increase was the result of several factors, including a reserve for obsolete inventory, deferred repairs of certain of our MelaFind system units, and direct costs of MelaFind systems sold under our capital sale model, partially offset by lower depreciation and other expenses. Research and development (R&D) expenses declined 58% to approximately $1.6 million in 2014, compared with $3.8 million for 2013. The decrease was the result of the cost reduction plan initiated in August 2013. Ongoing R&D efforts are focused on product enhancements.
  • Selling, general and administrative (SG&A) expenses declined 29% to approximately $11.0 million, compared with $15.5 million for 2013. The decrease is the result of salary and headcount reductions, lower stock compensation expense, lower consulting and temporary help expenses, and other cost reduction initiatives.
  • Interest expense was $2.4 million, compared with $0.6 million in 2013. In 2014, interest expense was related to the issuance of 4% Convertible Debentures and to the subsequent conversion of approximately $1.6 million in the debentures during the year, and included $1.9 million in amortization of debt discount, $0.3 million in interest payments, and $0.2 million in amortization of deferred financing costs. The conversion of the debentures resulted in approximately $1.2 million of accelerated interest expense. In 2013, interest expense was incurred as a result of a $6 million senior debt financing in March 2013, which was prepaid in September 2013.
  • The change in fair value of the Company's warrant liability, which is marked to market, resulted in a benefit of $8.1 million for 2014, compared with a charge of $0.3 million for 2013 and was primarily related to a lower stock price for the period.

The Company had cash and cash equivalents totaling $11.4 million at December 31, 2014, compared with $3.8 million at December 31, 2013.

As reported in the Company's Form 10-K for the year ended December 31, 2014, management concluded that the Company's internal controls specifically related to proper review and monitoring were not operating effectively at December 31, 2014. Since December 31, 2014, all accounts have been reconciled appropriately. Management has updated the Company's quarterly closing procedures and implemented a timeline by which to actively monitor the Company's progress with respect to the quarterly close, specifically to permit adequate review. Upon completion of the closing process following the end of the first quarter of 2015, management will determine whether the material weakness cited at December 31, 2014 has been remediated.

About MELA Sciences, Inc. (www.melasciences.com)

MELA Sciences is a medical technology company dedicated to designing and developing innovative software-driven technology for physician clinical use for the early detection of skin cancer. MELA Sciences conducted the largest, positive prospective study ever done on the melanoma disease, and is the first and only medical technology company to receive both FDA Pre-Market Approval (PMA) for the U.S. and CE Marking certification for the European Union for their flagship product MelaFind.

Safe Harbor

This press release includes "forward-looking statements" within the meaning of the Securities Litigation Reform Act of 1995. These statements include but are not limited to the Company's plans, objectives, expectations and intentions and may contain words such as "will," "may," "seeks," and "expects," that suggest future events or trends. These statements, including the effective date of the CPT codes for physicians' use of the MelaFind system, the Company's ability to gain Medicare Part B reimbursement from CMS and reimbursement from private insurance companies, study results, acceptance of MelaFind by practitioners and key opinion leaders and institutions, the Company's ability to expand MelaFind's use domestically and internationally and increase its visibility, the Company's ability to develop, launch and improve its products, and the Company's effectiveness in mitigating or preventing significant deficiencies or material weaknesses in its internal control over financial reporting in the future, are based on the Company's current expectations and are inherently subject to significant uncertainties and changes in circumstances. Actual results may differ materially from the Company's expectations due to financial, economic, business, competitive, market, regulatory and political factors or conditions affecting the Company and the medical device industry in general, as well as more specific risks and uncertainties set forth in the Company's SEC reports on Forms 10-Q and 10-K. Given such uncertainties, any or all of these forward-looking statements may prove to be incorrect or unreliable. The Company assumes no duty to update its forward-looking statements and urges investors to carefully review its SEC disclosures available at www.sec.gov and www.melasciences.com.

MELA SCIENCES, INC.
BALANCE SHEETS
(in thousands, except for share data)
December 31, December 31,
2014 2013
ASSETS
Current Assets:
Cash and cash equivalents $11,434 $3,783
Accounts receivable (net of allowance of $95 and $46 as of December 31, 2014 and 2013, respectively) 220 57
Inventory (net of reserve $1,409 and $325 as of December 31, 2014 and 2013, respectively) 5,275 5,631
Prepaid expenses and other current assets 274 880
Total Current Assets 17,203 10,351
Property and equipment, net 1,961 3,691
Patents and trademarks, net 37 42
Deferred financing costs 821 --
Other assets 48 48
Total Assets $20,070 $14,132
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable (includes related parties of $74 and $33 as of December 31, 2014 and 2013, respectively) $1,240 $1,479
Accrued expenses (includes related parties of $0 and $48 as of December 31, 2014 and 2013, respectively) 842 844
Deferred revenue 43 244
Warrant liability 499 3,017
Other current liabilities 62 68
Total Current Liabilities 2,686 5,652
Long-Term Liabilities:
Deferred revenue 27 64
Deferred rent 80 120
Senior secured convertible debentures (net of discount of $8,410 at December 31, 2014) 5,001 --
Total Long-Term Liabilities 5,108 184
Total Liabilities 7,794 5,836
COMMITMENTS AND CONTINGENCIES
Stockholders' Equity:
Series B convertible preferred stock -- $0.10 par value; authorized 10,000,000 shares: issued and outstanding: 11,787 and 0 at December 31, 2014 and 2013, respectively 1 --
Common stock -- $0.001 par value; authorized 50,000,000 shares:
Issued and outstanding 6,037,232 and 4,750,160 shares at December 31, 2014 and 2013, respectively. 6 5
Additional paid-in capital 194,562 176,439
Accumulated deficit (182,293) (168,148)
Total Stockholders' Equity 12,276 8,296
Total Liabilities and Stockholders' Equity $20,070 $14,132
MELA SCIENCES, INC.
STATEMENTS OF OPERATIONS
(in thousands, except for share and per share data)
December 31, December 31,
2014 2013
Net revenues $915 $536
Cost of revenue 4,935 4,341
Gross profit (4,020) (3,805)
Operating expenses:
Research and development 1,641 3,782
Selling, general and administrative 10,961 15,536
Impairment of long-lived assets -- 1,011
Total operating expenses 12,602 20,329
Operating loss (16,622) (24,134)
Other income (expenses):
Interest income 8 8
Interest expense (2,380) (564)
Change in fair value of warrant liability 8,103 (296)
Write-off of unamortized loan costs -- (983)
Gain on sale of fixed assets 16 --
Registration rights liquidated damages (3,420) --
Other income, net 150 21
2,477 (1,814)
Net loss $(14,145) $(25,948)
Deemed dividend related to beneficial conversion feature on convertible preferred stock (1,887) --
Net loss attributable to common stockholders $(16,032) $(25,948)
Basic and diluted net loss per common share $(3.03) $(6.05)
Basic and diluted weighted average number of common shares outstanding 5,295,929 4,289,450
MELA SCIENCES, INC.
STATEMENTS OF CASH FLOWS
(in thousands)
December 31, December 31,
2014 2013
Cash flows from operating activities:
Net loss $(14,145) $(25,948)
Adjustments to reconcile net loss:
Write-off of unamortized loan costs -- 983
Depreciation and amortization 1,790 2,439
Impairment of long-lived assets -- 1,011
Bad debt expense 52 46
Write-off of unamortized financing costs -- 41
Share-based compensation expense 413 1,301
Amortization of deferred financing costs 191 250
Amortization of debt discount 1,943 --
Change in fair value of warrant liability (8,103) 296
Inventory reserve 1,084 325
Gain on sale of fixed assets (16) --
Changes in operating assets and liabilities:
Accounts receivable (215) 77
Inventory (784) 121
Prepaid expenses and other current assets 606 86
Other assets -- 36
Accounts payable and accrued expenses (241) (484)
Other current liabilities (6) 27
Deferred rent (40) (24)
Deferred revenue (238) 4
Net cash used in operating activities (17,709) (19,413)
Cash flows from investing activities:
Purchases of property and equipment -- (5,188)
Proceeds from the sale of fixed assets 17 --
Net cash provided by (used in) investing activities 17 (5,188)
Cash flows from financing activities:
Net proceeds from private placements/public offerings 11,458 21,174
Proceeds from long-term debt 15,000 6,000
Expenses related to long-term debt (1,012) (245)
Expenses related to issuance of Series B convertible preferred stock (103)
Repayment of long-term debt -- (6,425)
Proceeds from exercise of stock options -- 18
Net cash provided by financing activities 25,343 20,522
Net increase (decrease) in cash and cash equivalents 7,651 (4,079)
Cash and cash equivalents at beginning of period 3,783 7,862
Cash and cash equivalents at end of period $11,434 $3,783
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest $116 $ --
Supplemental Disclosure of Non-cash Investing and Financing Activities:
Conversion of convertible preferred stock into common stock $513 $ --
Conversion of senior secured convertible debentures into common stock $1,589 $ --
Recognition of debt discount on senior secured convertible debentures $5,788 $ --
Recognition of beneficial conversion feature on senior secured convertible debentures $4,565 $ --
Exchange of series A convertible preferred stock for series B convertible preferred stock $12,300 $ --
Reclassification of warrant liability to stockholders equity $ -- $ 652
Reclassification of MelaFind components from property and equipment to inventory $ -- $5,402

CONTACT: Media Diana Garcia Redruello MELA Sciences, Inc. 914-373-6960 dgarcia@melasciences.com Investors Andrew McDonald LifeSci Advisors, LLC 646-597-6987 Andrew@LifeSciAdvisors.comSource:MELA Sciences