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Summary of Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2014

Liquidity and Going Concern

The Company has experienced recurring losses and negative cash flow from operations and management expects these conditions to continue for the foreseeable future. As the result of these factors, the Company has been and continues to be dependent on raising capital from the sale of securities in order to continue to operate and to meet its obligations in the ordinary course of business. In mid-year 2013, management put in place a cost reduction program that included staff reductions, the elimination or deferral of all nonessential projects and activities and the scaling back or discontinuance of general corporate activities (referred to as “Cost Reduction Plan”) to preserve liquidity. In addition, in February 2014, the Company raised net proceeds of approximately $11,458 from the sale of convertible preferred stock, common stock and warrants and in July 2014, the Company raised proceeds of approximately $15,000 from the sale of senior secured convertible debentures, convertible preferred stock and warrants to strengthen the Company’s financial position.

The Company continues to incur net losses. These net losses have had a significant negative impact on the Company’s working capital and financial position and may impact its future ability to meet its obligations in the ordinary course of business. As a result, management believes that, even with cash and cash equivalents held at December 31, 2014, and estimated revenue, there is significant doubt about its ability to continue as a going concern. The Company continues to assess the effects of its previously announced Cost Reduction Plan and is prepared to further reduce various operational costs as necessary. Although the Company has no specific arrangements or plans, the Company will need additional capital during the next 12 months.

The Company expects to incur additional medical, marketing and sales expenses as well as additional contract manufacturing and inventory costs in the future that will require additional funding. As a result, the Company expects to continue to incur operating losses for the foreseeable future and cannot determine at this time when it will generate any significant revenues. As of December 31, 2014, the Company’s cash and cash equivalents was approximately $11,434. If existing cash is insufficient to satisfy its liquidity requirements, or if it develops additional products, the Company may seek to sell additional debt or equity securities. If additional funds are raised through the issuance of debt securities, these securities would have rights senior to those associated with the Company’s common stock and could contain covenants that would restrict the Company’s operations. Any additional financing may not be available in amounts or on terms acceptable to the Company, or at all. If the Company is unable to obtain any additional financing, it may be required to reduce the scope of, delay or eliminate some or all of planned product research development and commercialization activities, which could harm its business.

The Company’s financial statements are prepared in accordance with GAAP applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has not yet established an ongoing source of revenue sufficient to cover its operating costs and allow it to continue as a going concern. In addition, as of December 31, 2014, the Company had an accumulated deficit of $182,293, had incurred a net loss for the year ended December 31, 2014, of $14,145 and had positive working capital of $14,517. Funding has been provided by related parties as well as new investors committed to making it possible to maintain, expand, and ensure the advancement of the MelaFind product. The Company has not made any adjustment to the financial statement regarding this uncertainty and continues to report as a going concern.

Cash and cash equivalents

Cash and Cash Equivalents

Cash equivalents primarily represent funds invested in money market funds, bank certificates of deposit and U.S. government debt securities with an original maturity of three months or less at the date of acquisition.

At year end, the Company has maintained bank balances in excess of insurance limits established by the Federal Deposit Insurance Corporation. The Company has not experienced any losses with respect to its placement of cash. Management believes the Company is not exposed to any significant credit risk with respect to its cash and cash equivalents.

Use of Estimates

Use of Estimates

The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could materially differ from those estimates.

Allowance for Doubtful Accounts

Allowance for Doubtful Accounts

The Company establishes an allowance for uncollectible trade accounts receivable based on the age of outstanding invoices and management’s evaluation of collectability of outstanding balances. These provisions are established when the aging of outstanding amounts exceeds allowable terms and are re-evaluated at each quarter end for adequacy. In determining the adequacy of the provision, the Company considers known uncollectible or at risk receivables.

Inventories

Inventories

Inventories consist of finished products and raw materials that are stated at the lower of cost (first-in, first-out) or market value. As of December 31, 2014 the reserve for obsolete inventory totaled $870. The Company reserves for specific inventory items that are no longer being used in the devices.

Throughout the year, the Company deferred repairs of certain of its MelaFind system units that it determined were unlikely to be sold during the next several periods. The Company estimated the cost to restore its system units to sellable condition and created a repair reserve amounting to $539 at December 31, 2014.

In mid 2013, because the Company’s initial launch objectives for the MelaFind system were not met, a significant cost reduction program was put into place and as part of a strategy review, in December 2013; the Company amended its business model from solely a rental-based model to include a capital sales option for the MelaFind device.

Business Segments

Business Segments

The Company’s operations are confined to one business segment: the design, development and commercialization of the MelaFind system.

Revenue recognition

Revenue recognition

The Company considers revenue to be earned when all of the following criteria are met: persuasive evidence a sales arrangement exists; delivery has occurred or services have been rendered; the price is fixed or determinable; and collectability is reasonably assured. The Company’s agreements with dermatologists regarding the MelaFind system combine the elements noted above with a future service obligation. In December 2013, the Company changed its business model from solely a rental-based model to include a capital sales option for its MelaFind product. Therefore, the Company will recognize revenues for product sales when title and risk of loss transfer to customers, which occurs upon completion of installation and training on the MelaFind system, when reliable estimates of sales allowances and warranties can be made, and collectability is reasonably assured. The Company will regularly review the information related to these estimates and adjust the reserves accordingly.

The Company also generated revenues from usage, based on the number of patient sessions or lesions examined, or a fixed monthly fee. The Company charges an initial installation fee for each MelaFind system which covers training, delivery, initial supplies, maintenance and the right to use MelaFind. In accordance with the accounting guidance regarding multiple-element arrangements, the Company allocates total contract consideration to each element based upon the relative standalone selling prices of each element, and recognizes the associated revenue for each element as delivery occurs or over the related service period, generally expected to be two years. Revenues associated with undelivered elements are deferred until delivery occurs or services are rendered. The significant judgments the Company makes relate to allocation of the contract consideration to each element whereby changes in standalone selling price could impact the amount of revenue recognized in a specific period and estimates of uncollectible accounts receivables.

In Germany, the typical contract with dermatologists calls for an installation or fixed monthly fee. Additionally, the Company typically charges a per patient usage charge. Revenue generated from German contracts is recognized when earned.

Cost of Revenue

Cost of Revenue

Costs of revenue are associated with the costs of the Melafind system at time of sale and/or the costs to convert from a lease to a sale, warranty costs, repair costs, the placement costs of the MelaFind system in the doctor’s office on a lease, the cost of consumables delivered at installation, technical support costs and depreciation expense of the MelaFind system placed with the customer under lease which remains the property of the Company. Also, certain product quality and manufacturing overhead costs associated with supporting the contract manufacturers of MelaFind are allocated to costs of revenue.

Property and Equipment

Property and Equipment

For the year ended December 31, 2014 and 2013, the Company capitalized approximately $0 and $5,188, respectively of MelaFind system costs. Property and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful lives of the related assets (generally three to five years). Costs incurred for maintenance and repairs are expensed as incurred and expenditures for major replacements and improvements are capitalized and depreciated over their estimated remaining useful lives.

Deferred Financing Costs

Deferred Financing Costs

Financing costs incurred in connection with the 4% Senior Secured Convertible Debentures were deferred and are being amortized over the term of the debentures using the effective interest rate method. As of December 31, 2014 and 2013 the Company recorded deferred financing costs of $821 and $0, respectively.

Long-lived Assets

Long-lived Assets

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An asset is considered to be impaired when the sum of the undiscounted future net cash flows expected to result from the use of the asset and its eventual disposition does not exceed its carrying amount. The amount of impairment loss, if any, is measured as the difference between the net book value of the asset and its estimated fair value.

Research and Development

Research and Development

Expenditures for research and development are expensed as incurred.

Accrued Expenses

Accrued Expenses

As part of the process of preparing financial statements, management is required to estimate accrued expenses. This process involves identifying services that have been performed and estimating the level of service performed and the associated cost incurred for such service where it has not been invoiced or otherwise notified of the actual cost. Examples of estimated accrued expenses include:

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professional service fees;

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contract clinical and regulatory related service fees;

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fees paid to contract manufacturers in conjunction with the production of MelaFind components or materials; and

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fees paid to third party data collection organizations and investigators in conjunction with the clinical trials and FDA and other regulatory review.

In connection with such service fees, management estimates are most affected by projections of the timing of services provided relative to the actual level of services provided by such service providers. In the event that we do not identify certain costs that have begun to be incurred or we under or overestimate 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. The Company makes these judgments based upon the facts and circumstances known and accrues for such costs in accordance with accounting principles generally accepted in the U.S.

Deferred Rent

Deferred Rent

Operating lease agreements which contain provisions for future rent increases or periods in which rent payments are reduced or abated are recorded in monthly rent expense in the amount of the total payments over the lease term divided by the number of months of the lease term. The difference between rent expense recorded and the amount paid is credited or charged to deferred rent which is reflected on the accompanying balance sheet.

Stock-Based Compensation

Stock-Based Compensation

The Company records compensation expense associated with employee stock options, restricted stock awards and other forms of equity compensation in accordance with FASB ASC 718, Compensation-Stock Compensation. The fair value of an equity award is determined at the date of grant using the Black-Scholes Model and the fair value of the equity award is expensed over the service period. The most significant inputs used to value an equity award include current stock price, the amount the employee must pay to acquire the equity award, volatility rate, interest rate and estimated term. For equity awards that vest upon achieving a defined milestone, the underlying compensation charge is recorded when it is probable that the milestone will be achieved. It is then amortized over the estimated period to satisfy vesting requirements. The probability of vesting is updated at each reporting period and compensation is adjusted accordingly. The significant judgments relate to the assumptions used in the valuation model to determine the fair value of the equity instrument including the volatility rate, term and interest rate. Any increases (decreases) in either of the volatility rate, the term or the interest rate would increase (decrease) the value of the equity instrument and the corresponding compensation expense recognized each period. Estimates of performance based awards vesting can also have a significant impact on recognized stock compensation as the likelihood of a performance based award vesting can change from period-to-period with changes in estimates included in current period operations.

Stock-based compensation to non-employee consultants, accounted for pursuant to FASB ASC 505-50 “Equity, Equity Based Payments to Non-Employees”, is granted for services rendered and is completely vested on the grant date. The fair value of the award is determined on the date of grant using the Black-Sholes Model and the fair value is expensed in current period operations.

Income Tax Expense Estimates and Policies

Income Tax Expense Estimates and Policies

The Company accounts for income taxes using the asset and liability method for deferred income taxes.

The provision for income taxes includes federal, state and local income taxes currently payable and deferred taxes resulting from temporary differences between the financial statement and tax bases of assets and liabilities. Valuation allowances are recorded to reduce deferred tax assets when it is more-likely-than-not that a tax benefit will not be realized.

With respect to uncertain tax positions, the Company would recognize the tax benefit from an uncertain tax position only if it is more-likely-than-not that the tax position will be sustained upon examination by the taxing authorities, based on the technical merits of the position. The tax benefits to be recognized in the financial statements from such a position would be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution. The Company currently has no uncertain tax positions.

The Company does not have any unrecognized tax benefits or accrued penalties and interest. If such matters were to arise, the Company would recognize interest and penalties related to income tax matters in income tax expense. The earliest open tax year subject to examination is 2009.

Net Loss Per Common Share

Net Loss Per Common Share

Basic net loss per common share excludes dilution for potentially dilutive securities and is computed by dividing loss attributable to common stockholders by the weighted average number of common shares outstanding during the period. Diluted net loss per common share gives effect to dilutive options, warrants and other potential common shares outstanding during the period. Diluted net loss per common share is equal to the basic net loss per common share since all potentially dilutive securities are anti-dilutive for each of the periods presented. Potential common stock equivalents outstanding as of December 31, 2014 and 2013 consist of the following:

	Year Ended December 31,
	2014		2013

Warrants		13,078,920		1,209,361
Convertible debentures		5,228,465		-
Convertible prefered stock		4,595,321		-
Common stock options		1,308,835		306,616
Restricted stock Awards		-		9,941
Total		24,211,541		1,525,918

Comprehensive loss

Comprehensive loss

For all periods presented, the Company had no comprehensive income items and accordingly there is no difference between the reported net loss and per share amounts per the Statements of Operations and comprehensive net loss and related per share amounts.

Litigation

Litigation

From time to time, the Company may become involved in litigation and other legal actions. The Company estimates the range of liability related to any pending litigation where the amount and range of loss can be estimated. The Company records its best estimate of a loss when the loss is considered probable. Where a liability is probable and there is a range of estimated loss with no best estimate in the range, the Company records a charge equal to at least the minimum estimated liability for a loss contingency when both of the following conditions are met: (i) information available prior to issuance of the financial statements indicates that it is probable that a liability had been incurred at the date of the financial statements and (ii) the range of loss can be reasonably estimated. Through the date of these financial statements, the Company is not involved in litigation or other legal actions.

Fair Value Measurements

Fair Value Measurements

The Company has adopted the provisions of FASB ASC Topic 820, “Fair Value Measurements and Disclosures” as of January 1, 2008 for financial instruments. This standard defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. ASC 820 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. ASC 820 permits an entity to measure certain financial assets and financial liabilities at fair value with changes in fair value recognized in earnings each period.

Warrant Liability

Warrant Liability

The Company accounts for the 685,715 common stock warrants issued in connection with the October 31, 2013 financing and 1,329,731 common stock warrants issued in connection with the February 2014 financing in accordance with the guidance contained in ASC 815-40-15-7D, “Contracts in Entity’s Own Equity” whereby under that provision they do not meet the criteria for equity treatment and must be recorded as a liability. Accordingly, the Company classifies the warrant instrument as a liability at its fair value and adjusts the instrument to fair value at each reporting period. This liability is subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in the Company’s statements of operations. The fair value of the warrants issued by the Company in connection with the financing transactions has been estimated using the Black-Scholes valuation model. The Black-Scholes valuation model was deemed appropriate given the terms of the warrants, and the fact that the key inputs do not change throughout the life of the warrants.

Recently Issued Accounting Standards

Recently Issued Accounting Standards

In August 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update “ASU” No. 2014-15 on “Presentation of Financial Statements Going Concern (Subtopic 205-40) – Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern”. Currently, there is no guidance in U.S. GAAP about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern or to provide related footnote disclosures. The amendments in this update provide that guidance. In doing so, the amendments are intended to reduce diversity in the timing and content of footnote disclosures. The amendments require management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically, the amendments (1) provide a definition of the term substantial doubt, (2) require an evaluation every reporting period including interim periods, (3) provide principles for considering the mitigating effect of management’s plans, (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) require an express statement and other disclosures when substantial doubt is not alleviated, and (6) require an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). The amendments in this update are effective for annual periods ending after December 15, 2016. Early adoption is permitted. The Company is currently evaluating the new guidance to determine the impact the adoption of this guidance will have on the Company’s results of operations, cash flows or financial condition.

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606).” ASU 2014-09 outlines a new, single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. This new revenue recognition model provides a five-step analysis in determining when and how revenue is recognized. The new model will require revenue recognition to depict the transfer of promised goods or services to customers in an amount that reflects the consideration a company expects to receive in exchange for those goods or services. ASU 2014-09 is effective for public entities for annual reporting periods beginning after December 15, 2016 and interim periods within those periods. Early adoption is not permitted. Companies may use either a full retrospective or a modified retrospective approach to adopt ASU 2014-09. The Company is currently assessing the impact that adopting this new accounting guidance will have on its consolidated financial statements and footnote disclosures.

Foreign Exchange

Foreign Exchange

The Company’s operations in Germany use the U.S. dollar as its functional currency and from time to time conducts business in Euros. For all periods presented, aggregate foreign exchange transaction gains and losses were not material.