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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2006
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from            to
 Commission file number 000  51481
 ELECTRO-OPTICAL SCIENCES, INC.
 (Exact name of Registrant as specified in its charter)
 Delaware(State or Other Jurisdiction of 
Incorporation or Organization)
    
    13-3986004(I.R.S. Employer
Identification No.)3 West Main Street, Suite 201
Irvington, New York(Address of Principal Executive offices)
    
    10533(Zip Code)
 Registrants Telephone Number, including area code:
(914) 591-3783
  þ o
  o o þ
  o þ




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Electro-Optical Sciences, Inc.
Table of Contents
  
 PagePART I. FINANCIAL INFORMATIONITEM 1. Financial StatementsCondensed Balance Sheets as of September 30, 2006 (unaudited) and December 31, 2005
    
    
    2Condensed Statements of Operations (unaudited) for the three and nine months ended September 30, 2006 and 2005
    
    
    3Condensed Statements of Cash Flows (unaudited) for the nine months ended September 30, 2006 and 2005
    
    
    4Notes to Financial Statements (unaudited)
    
    
    5ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    14ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    42ITEM 4. Controls and Procedures
    
    
    42PART II. OTHER INFORMATIONITEM 1. Legal Proceedings
    
    
    42ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    42ITEM 3. Defaults Upon Senior Securities
    
    
    42ITEM 4. Submission of Matters to a Vote of Security Holders
    
    
    42ITEM 5. Other Information
    
    
    43ITEM 6. Exhibits
    
    
    44SIGNATURES
    
    
    45EXHIBIT INDEX
    
    
    46EX-10.10: RESIGNATION AGREEMENTEX-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32.1: CERTIFICATION
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ELECTRO-OPTICAL SCIENCES, INC.
 
 CONDENSED BALANCE SHEETS
 September 30,
    
    
    December 31,2006
    
    
    2005(unaudited)
    
    
    *ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    9,598,868
    
    
    $
    18,505,030Marketable securities
    
    
    998,170
    
    
    
    Prepaid expenses and other current assets
    
    
    97,557
    
    
    
    210,940Assets held for sale
    
    
    156,677
    
    
    
    156,677Total Current Assets
    
    
    10,851,272
    
    
    
    18,872,647Property and equipment, net
    
    
    552,065
    
    
    
    175,369Patents and trademarks, net
    
    
    100,751
    
    
    
    84,052Other assets
    
    
    39,758
    
    
    
    33,612Total Assets
    
    $
    11,543,846
    
    
    $
    19,165,680LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Accounts payable (includes related parties of
$24,500 as of September 30, 2006 and $11,263
as of December 31, 2005)
    
    $
    384,140
    
    
    $
    329,462Accrued expenses (includes related parties of
$15,000 as of December 31, 2005)
    
    
    291,845
    
    
    
    570,052Other current liabilities
    
    
    13,703
    
    
    
    16,828Total Current Liabilities
    
    
    689,688
    
    
    
    916,342COMMITMENTS AND CONTINGENCIESStockholders EquityCommon stock  $.001 par value; authorized
30,000,000 shares; issued and outstanding
10,952,602 shares at September 30, 2006 and
10,837,833 shares at December 31, 2005
    
    
    10,953
    
    
    
    10,838Additional paid-in capital
    
    
    39,718,744
    
    
    
    38,934,420Deferred compensation
    
    
    
    
    
    
    (62,610
    )Other comprehensive loss
    
    
    (401
    )
    
    
    Accumulated deficit
    
    
    (28,875,138
    )
    
    
    (20,633,310
    )Stockholders Equity
    
    
    10,854,158
    
    
    
    18,249,338Total Liabilities and Stockholders Equity
    
    $
    11,543,846
    
    
    $
    19,165,680
 
 *
    
    Derived from the audited balance sheet as of December 31, 2005  2




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ELECTRO-OPTICAL SCIENCES, INC.
 
 CONDENSED STATEMENTS OF OPERATIONS
 (Unaudited)
 Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Operating expenses:Research and development
    
    $
    1,647,892
    
    
    $
    876,193
    
    
    $
    5,653,768
    
    
    $
    2,422,017General and administrative
    
    
    928,861
    
    
    
    491,976
    
    
    
    3,093,144
    
    
    
    1,487,907Operating loss from continuing operations
    
    
    (2,576,753
    )
    
    
    (1,368,169
    )
    
    
    (8,746,912
    )
    
    
    (3,909,924
    )Interest income (expense)
    
    
    151,543
    
    
    
    (2,574
    )
    
    
    505,084
    
    
    
    60,195Loss from continuing operations
    
    
    (2,425,210
    )
    
    
    (1,370,743
    )
    
    
    (8,241,828
    )
    
    
    (3,849,729
    )Loss from discontinued operations
    
    
    
    
    
    
    (71,966
    )
    
    
    
    
    
    
    (402,077
    )Net loss
    
    
    (2,425,210
    )
    
    
    (1,442,709
    )
    
    
    (8,241,828
    )
    
    
    (4,251,806
    )Less:Preferred stock deemed dividends
    
    
    
    
    
    
    359,531
    
    
    
    
    
    
    
    1,078,595Preferred stock accretion
    
    
    
    
    
    
    323,247
    
    
    
    
    
    
    
    969,743Net Loss Attributable to Common
Stockholders
    
    $
    (2,425,210
    )
    
    $
    (2,125,487
    )
    
    $
    (8,241,828
    )
    
    $
    (6,300,144
    )Net loss per common share, basic and diluted:Continuing operations
    
    $
    (0.22
    )
    
    $
    (1.10
    )
    
    $
    (0.76
    )
    
    $
    (3.22
    )Discontinued operations
    
    
    
    
    
    
    (0.04
    )
    
    
    
    
    
    
    (0.22
    )Basic and diluted net loss per common share
    
    $
    (0.22
    )
    
    $
    (1.14
    )
    
    $
    (0.76
    )
    
    $
    (3.44
    )Basic and diluted weighted average number of
Common shares outstanding
    
    
    10,938,732
    
    
    
    1,869,011
    
    
    
    10,886,985
    
    
    
    1,829,726
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ELECTRO-OPTICAL SCIENCES, INC.
 
 CONDENSED STATEMENTS OF CASH FLOWS
 Nine Months Ended September 30,2006
    
    
    2005(unaudited)
    
    
    (unaudited)Cash flows from operating activities:Loss from continuing operations
    
    $
    (8,241,828
    )
    
    $
    (3,849,729
    )Loss from discontinued operations
    
    
    
    
    
    
    (402,077
    )Net loss
    
    
    (8,241,828
    )
    
    
    (4,251,806
    )Adjustments to reconcile net loss to net cash used in operating
activities:Allowance for doubtful accounts
    
    
    
    
    
    
    (1,000
    )Depreciation and amortization
    
    
    88,025
    
    
    
    36,480Noncash compensation and amortization of deferred compensation
    
    
    778,119
    
    
    
    129,195Amortization of discount on marketable securities
    
    
    
    
    
    
    (33,502
    )Changes in operating assets and liabilities:Decrease in receivables
    
    
    
    
    
    
    8,128Increase in inventories
    
    
    
    
    
    
    (16,122
    )Decrease in prepaid expenses and other current assets
    
    
    113,383
    
    
    
    23,654Increase in other assets
    
    
    (6,146
    )
    
    
    (Decrease)/ increase in accounts payable and accrued expenses
    
    
    (223,529
    )
    
    
    38,505Decrease in deferred revenues
    
    
    
    
    
    
    (106,335
    )Decrease in other current liabilities
    
    
    (3,125
    )
    
    
    (6,408
    )Net cash used in operating activities
    
    
    (7,495,101
    )
    
    
    (4,179,211
    )Cash flows from investing activities:Patent costs
    
    
    (30,637
    )
    
    
    (2,822
    )Purchases of property and equipment
    
    
    (450,783
    )
    
    
    (115,830
    )Net (purchase) redemption of marketable securities
    
    
    (998,571
    )
    
    
    6,628,253Net cash (used in) provided by investing activities
    
    
    (1,479,991
    )
    
    
    6,509,601Cash flows from financing activities:Payment for stock subscription receivable
    
    
    
    
    
    
    34,500Proceeds from exercise of stock options
    
    
    68,930
    
    
    
    Deferred registration costs
    
    
    
    
    
    
    (1,135,122
    )Proceeds from sale of common stock
    
    
    
    
    
    
    7,300Net cash provided by (used in) financing activities
    
    
    68,930
    
    
    
    (1,093,322
    )Net (decrease) increase in cash and cash equivalents
    
    
    (8,906,162
    )
    
    
    1,237,068Cash and cash equivalents at beginning of period
    
    
    18,505,030
    
    
    
    108,705Cash and cash equivalents at end of period
    
    $
    9,598,868
    
    
    $
    1,345,773Supplemental Schedule of Noncash Financing Activities:Preferred stock accretion
    
    
    
    
    
    $
    969,743Reclassification of inventories and patents to assets held for sale
    
    
    
    
    
    $
    156,677
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ELECTRO-OPTICAL SCIENCES, INC.
 
 NOTES TO CONDENSED FINANCIAL STATEMENTS
 (In thousands, except for share and per share data)
 (Unaudited)
 1. ORGANIZATION AND BASIS OF PRESENTATION
 ® ® ® ®  ®
 ® ® ® ® ® ® ®
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2. MARKETABLE SECURITIES
   3. COMPREHENSIVE LOSS
  4. USE OF ESTIMATES
  5. RECENT ACCOUNTING DEVELOPMENTS
    6




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Share-Based Payment Accounting for Stock
Issued to Employees Accounting for Stock-Based Compensation
   Three Months Ended
    
    
    Nine Months EndedSeptember 30, 2005
    
    
    September 30, 2005(In thousands except per share amounts)Net loss attributable to common stockholders, as reported
    
    $
    (2,125
    )
    
    $
    (6,300
    )Add: Stock-based employee compensation expense included in
reported net loss, net of related tax effect
    
    
    8
    
    
    
    95Deduct: Stock-based employee compensation expense determined
under fair-value-based method, net of related tax effect
    
    
    (9
    )
    
    
    (99
    )Pro forma net loss attributable to common stockholders
    
    $
    (2,126
    )
    
    $
    (6,304
    )Basic and diluted net loss per common share:As reported
    
    $
    (1.14
    )
    
    $
    (3.44
    )Pro forma
    
    $
    (1.14
    )
    
    $
    (3.45
    )
 6. NET LOSS PER COMMON SHARE
 Earnings Per
Share
 7




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September 30,2006
    
    
    2005Common stock options
    
    
    1,571,934
    
    
    
    919,035Warrants
    
    
    285,835
    
    
    
    2,729,916Redeemable convertible preferred stock
    
    
    
    
    
    
    3,398,105Total
    
    
    1,857,769
    
    
    
    7,047,056
 7. STOCK-BASED COMPENSATION AND DEFERRED COMPENSATION
     For the Nine MonthsEnded September 30, 2006Expected life
    
    5 yearsExpected volatility
    
    60%Risk-free interest rate
    
    5.04%
   WeightedWeighted
    
    
    AverageAverage
    
    
    RemainingExercise
    
    
    Contractual
    
    
    AggregateNumber of
    
    
    Price per
    
    
    Term in
    
    
    IntrinsicShares
    
    
    Share
    
    
    Years
    
    
    ValueOutstanding at December 31, 2005
    
    
    1,115,415
    
    
    $
    0.95
    
    
    
    4.4
    
    
    $
    4,935Granted
    
    
    598,958
    
    
    
    6.40
    
    
    
    4.6
    
    
    $
    (655
    )Exercised
    
    
    (109,835
    )
    
    
    .63
    
    
    
    N/A
    
    
    $
    573Forfeited or expired
    
    
    (32,604
    )
    
    
    6.75
    
    
    
    N/A
    
    
    
    (35
    )Outstanding at September 30, 2006
    
    
    1,571,934
    
    
    
    2.93
    
    
    
    4.4
    
    
    $
    3,764Vested and exercisable at September 30, 2006
    
    
    532,524
    
    
    
    1.79
    
    
    
    4.5
    
    
    $
    1,873
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® ®
     9




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Deferred Compensation
 Accounting for Equity
Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling,
Goods or Services.
 ®
  8. COMMITMENTS AND CONTINGENCIES
   4Q 2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010$
    61

    
    
    $
    249

    
    
    $
    253

    
    
    $
    188

    
    
    $
    105
 ®
  ® ® ®
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®
    9. INITIAL PUBLIC OFFERING
  10. WARRANTS
    11




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11. RELATED PARTY CONSULTING AGREEMENTS (see Note 7)
  Consulting Agreement with Breaux Castleman
 ®
 Consulting Agreement with Marek Elbaum, Ph.D.
  Consulting Agreement with Robert Friedman, M.D.
 ®
 Consulting Agreement with Gerald Wagner, Ph.D.
 ®
 12. DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE
 ®
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® ® ® ® ®
 ®
 13.
SUBSEQUENT EVENTS
     13




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ITEM 2
 ELECTRO-OPTICAL SCIENCES, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
   Overview
 ® ® ® ® ® ®
 ®
 ® ®
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®
  ® ® ® ®
 ® ® ®
 Critical Accounting Policies and Significant Judgments and Estimates
   Revenue Recognition
 ® ® ®
  15




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Stock-Based Compensation and Deferred Compensation
 Share-Based Payment Accounting for Stock
Issued to Employees Accounting for Stock-Based Compensation
  Accounting for Equity
Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling,
Goods or Services.
 Accrued Expenses
  
    
    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.
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Results of Operations (in thousands)
 ® ®
  Three Months Ended September 30, 2006 Compared to Three Months Ended September 30, 200
 Research and Development Expense
   General and Administrative Expense
   Nine Months Ended September 30, 2006 Compared to Nine Months Ended September 30, 200
  Research and Development Expense
 ®
  17




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General and Administrative Expense
   Interest Income/Expense.
  Liquidity and Capital Resources (in thousands)
   Cash Flows from Operating Activities.
  Cash Flows from Investing Activities.
 ®
 Cash Flows from Financing Activities.
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Operating Capital and Capital Expenditure Requirements
 ® ® ® ® ®
 ®
 ®
 
    
    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 payors, 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.
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Contractual Obligations
  Less than
    
    
    
    
    
    
    
    
    
    
    More thanTotal
    
    
    1 year
    
    
    1-3 years
    
    
    4-5 years
    
    
    5 years(dollars in thousands)Operating leases
    
    $
    882
    
    
    $
    254
    
    
    $
    490
    
    
    $
    138
    
    
    
    
   Related Party Transactions
 ®
    Off-Balance Sheet Arrangements
  20




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Recent Accounting Developments
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Risk factors
 Investing in our common stock involves a high degree of risk. You should carefully consider the
following risk factors, as well as the other information contained in this report. If any of the
following risks actually occur, our business, financial condition and results of operations would
suffer. In that case, the trading price of our common stock would likely decline and you might lose
all or part of your investment in our common stock.
 Risks Relating to Our Business
 We currently do not have, and may never develop, any commercialized products.
 ® ®
 
    
    we may not be able to obtain regulatory approvals for MelaFind®, or the approved
indication may be narrower than we seek;
    
    MelaFind® may not prove to be safe and effective in clinical trials;
    
    physicians may not receive any reimbursement from third-party payors, or the level of reimbursement
may be insufficient to support widespread adoption of MelaFind®;
    
    we may experience delays in our development program;
    
    any products that are approved may not be accepted in the marketplace by physicians or patients;
    
    we may not have adequate financial or other resources to complete the development or to commence the
commercialization of MelaFind® and we will not have adequate financial or other
resources to achieve significant commercialization of MelaFind®;
    
    we may not be able to manufacture our products in commercial quantities or at an acceptable cost; and
    
    rapid technological change may make our technology and products obsolete.
 ® ®
 We have not received, and may never receive, FDA approval to market MelaFind ®
 ® ® ® ® ®
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
    
    MelaFind® may not be safe or effective to the FDAs satisfaction;
    
    the data from our pre-clinical studies and clinical trials may be insufficient to support approval;
    
    the manufacturing process or facilities we use may not meet applicable requirements; and
    
    changes in FDA approval policies or adoption of new regulations may require additional data.
 ® ® ® ® ® ® ®
 If MelaFind ® is approved by the FDA, it
may be approved only for narrow indications.
 ® ® ® ® ® ® ®
 ® ®
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® ®
 MelaFind ® may not be commercially viable if
we fail to obtain an adequate level
of reimbursement by Medicare and other third party payors. The markets for
MelaFind ® may also be limited by the indications for which its use may be
reimbursed.
  ® ® ® ®
 ® ®
  Any adverse results in our clinical trials, or difficulties in conducting our clinical trials,
could have a material adverse effect on our business.
  24




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®
 Risk of delay in product development.
 ®
  ®
 We have incurred losses for a number of years, and anticipate that we will incur continued losses
for the foreseeable future.
 ® ® ®
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We expect to operate in a highly competitive market, we may face competition from large,
well-established medical device manufacturers with significant resources, and we may not be able to
compete effectively.
 ® ®
 
    
    significantly greater name recognition;
    
    established relations with healthcare professionals, customers and third-party payors;
    
    established distribution networks;
    
    additional lines of products, and the ability to offer rebates, higher discounts or
incentives to gain a competitive advantage;
    
    greater experience in conducting research and development, manufacturing, clinical
trials, obtaining regulatory approval for products, and marketing approved products;
and
    
    greater financial and human resources for product development, sales and marketing,
and patent litigation.
  Technological breakthroughs in the diagnosis or treatment of melanoma could render
MelaFind ® obsolete.
 ® ® ® ® ®
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® ®
 We depend on clinical investigators and clinical sites to enroll patients in our clinical trials
and other third parties to manage the trials and to perform related data collection and analysis,
and, as a result, we may face costs and delays that are outside of our control.
 ® ®
  
    
    the FDA, an Institutional Review Board (IRB) or other regulatory authorities place our clinical
trial on hold;
    
    patients do not enroll in clinical trials at the rate we expect;
    
    patient follow-up is not at the rate we expect;
    
    IRBs and third-party clinical investigators delay or reject our trial protocol;
    
    third-party organizations do not perform data collection and analysis in a timely or accurate manner;
    
    regulatory inspections of our clinical trials or manufacturing facilities, among other things,
require us to undertake corrective action or suspend or terminate our clinical trials, or invalidate
our clinical trials;
    
    changes in governmental regulations or administrative actions; and
    
    the interim or final results of the clinical trial are inconclusive or unfavorable as to safety or
effectiveness.
 If MelaFind ® is approved for reimbursement,
we anticipate experiencing
significant pressures on pricing.
 ®
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®
 ® ®
 MelaFind ® may never achieve market
acceptance even if we obtain
regulatory approvals.
 ® ® ® ® ® ® ®
 
    
    perceived effectiveness of MelaFind®;
    
    convenience of use;
    
    cost of the use of MelaFind®;
    
    availability and adequacy of third-party coverage or reimbursement;
    
    approved indications and product labeling;
    
    publicity concerning MelaFind® or competitive products;
    
    potential advantages over alternative diagnostic methodologies;
    
    introduction and acceptance of competing products or technologies; and
    
    extent and success of our sales, marketing and distribution efforts.
 ® ® ® ® ®
 ® ® ® ® ® ®
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We may be unable to complete the development and commence commercialization of
MelaFind ® or other products without additional funding and we will not be able
to achieve significant commercialization without additional funding.
 ® ® ® ®
 
    
    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 payors, 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.
   If we are unable to establish sales, marketing and distribution capabilities or enter into and
maintain arrangements with third parties to sell, market and distribute
MelaFind ® , our business may be harmed.
 ® ® ®
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®
 We have limited manufacturing capabilities and manufacturing personnel, and if our manufacturing
capabilities are insufficient to produce an adequate supply of MelaFind ® , our
growth could be limited and our business could be harmed.
 ® ® ® ®
  ® ®
 ® ®
 ®
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Our manufacturing operations are dependent upon third-party suppliers, making us vulnerable to
supply problems and price fluctuations, which could harm our business. We anticipate contracting
for final device assembly and integration, but no contract for such services on a commercial basis
has yet been procured.
 ®
 
    
    suppliers may make errors in manufacturing components that could negatively affect the
effectiveness or safety of our products, or cause delays in shipment of our products;
    
    we may not be able to obtain adequate supply in a timely manner or on commercially reasonable
terms;
    
    we may have difficulty locating and qualifying alternative suppliers for our sole-source suppliers;
    
    switching components may require product redesign and submission to the FDA of a PMA supplement or
possibly a separate PMA, either of which could significantly delay production;
    
    our suppliers manufacture products for a range of customers, and fluctuations in demand for the
products these suppliers manufacture for others may affect their ability to deliver components to
us in a timely manner; and
    
    our suppliers may encounter financial hardships unrelated to our demand for components, which
could inhibit their ability to fulfill our orders and meet our requirements.
  ®
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® ®
 We
will not be able to sell MelaFind ® unless
and until its design is
verified and validated in accordance with current good manufacturing practices as set forth in the
US medical device Quality System Regulation.
 ® ® ® ® ® ® ®
 Assuming that MelaFind ® is approved by
regulatory authorities, if we or
our suppliers fail to comply with ongoing regulatory requirements, or if we experience
unanticipated problems with MelaFind ® , it could be subject to restrictions or
withdrawal from the market.
 ® ® ® ® ® ® ®
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
    
    warning letters;
    
    fines and civil penalties;
    
    unanticipated expenditures;
    
    delays in approving or refusal to approve MelaFind®;
    
    withdrawal of approval by the FDA or other regulatory bodies;
    
    product recall or seizure;
    
    interruption of production;
    
    operating restrictions;
    
    injunctions; and
    
    criminal prosecution.
  We are involved in a heavily regulated sector, and our ability to remain viable will depend on
favorable government decisions at various points by various agencies.
 ®
   
    
    billing for services;
    
    quality of medical equipment and services;
    
    confidentiality, maintenance and security issues associated with
medical records and individually identifiable health information;
    
    false claims; and
    
    labeling products.
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We must comply with complex statutes prohibiting fraud and abuse, and both we and physicians
utilizing MelaFind ® could be subject to significant penalties for
noncompliance.
  ® ® ®
 The application of the privacy provisions of HIPAA is uncertain.
 ®
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We may become subject to claims of infringement or misappropriation of the intellectual property
rights of others, which could prohibit us from shipping affected products, require us to obtain
licenses from third parties or to develop non-infringing alternatives, and subject us to
substantial monetary damages and injunctive relief. Our patents may also be subject to challenge on
validity grounds, and our patent applications may be rejected.
 ® ® ®
 ®
 ®
  New product development in the medical device industry is both costly and labor intensive with very
low success rates for successful commercialization; if we cannot successfully develop or obtain
future products, our growth would be delayed.
 ® ®
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We face the risk of product liability  claims and may not be able to obtain or maintain adequate insurance.
 ® ® ® ® ® ®
 ® ®
  We may be adversely affected by a data center failure.
 ® ® ®
 We may be adversely affected by breaches of online security.
 ®
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We are dependent upon telecommunications and the internet.
 ®
  We
will be obligated to comply with Federal Communications Commission regulations for radio transmissions used by our products.
 ® ®
 All of our operations are conducted at a single location. Any disruption at our facility could
increase our expenses.
  We may be liable for contamination or other harm caused by materials that we handle, and changes in
environmental regulations could cause us to incur additional expense.
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Failure to obtain and maintain regulatory approval in foreign jurisdictions will prevent us from
marketing abroad.
 ® ®
 ®
 Our success will depend on our ability to attract and retain our personnel.
 ®
  Our financial results for future periods may be adversely affected by changes required by financial
and accounting regulatory agencies.
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Our financial results for future periods will be affected by the attainment of milestones.
  If we fail to maintain the adequacy of our internal controls, our ability to provide accurate
financial statements could be impaired and any failure to maintain our internal controls and
provide accurate financial statements could cause our stock price to decrease substantially.
   Risks Relating to our Common Stock
 An active trading market for our common stock may not develop.
  Our stock price will be volatile, meaning purchasers of our common stock could incur substantial
losses.
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
    
    results of our research and development efforts and our clinical trials;
    
    the timing of regulatory approval for our products;
    
    failure of any of our products, if approved, to achieve commercial success;
    
    the announcement of new products or product enhancements by us or our competitors;
    
    regulatory developments in the US and foreign countries;
    
    ability to manufacture our products to commercial standards;
    
    developments concerning our clinical collaborators, suppliers or marketing partners;
    
    changes in financial estimates or recommendations by securities analysts;
    
    public concern over our products;
    
    developments or disputes concerning patents or other intellectual property rights;
    
    product liability claims and litigation against us or our competitors;
    
    the departure of key personnel;
    
    the strength of our balance sheet;
    
    variations in our financial results or those of companies that are perceived to be similar to us;
    
    changes in the structure of and third-party reimbursement in the US and other countries;
    
    changes in accounting principles or practices;
    
    general economic, industry and market conditions; and
    
    future sales of our common stock.
  If our directors, executive officers, and principal stockholders choose to act together, they may
have the ability to influence all matters submitted to stockholders for approval.
  If there are substantial sales of our common stock, our stock price could decline.
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Our charter documents and Delaware law may inhibit a takeover that stockholders consider favorable
and could also limit the market price of our stock.
  
    
    set limitations on the removal of directors;
    
    limit who may call a special meeting of stockholders;
    
    establish advance notice requirements for nominations for election to
our board of directors or for proposing matters that can be acted upon
at stockholder meetings;
    
    do not permit cumulative voting in the election of our directors,
which would otherwise permit less than a majority of stockholders to
elect directors;
    
    prohibit stockholder action by written consent, thereby requiring all
stockholder actions to be taken at a meeting of our stockholders; and
    
    provide our board of directors the ability to designate the terms of
and issue a new series of preferred stock without stockholder
approval.
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ITEM 3.
 Quantitative and Qualitative Disclosures about Market Risk
  
 ITEM 4.
 Controls and Procedures
 Evaluation
of disclosure controls and procedures
  Change in internal control over financial reporting
  Limitations on the effectiveness of controls
  
 PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings.
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
  
 Item 3. Defaults Upon Senior Securities.
  
 Item 4. Submission of Matters to a Vote of Security Holders
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Item 5. Other Information.
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Item 6. Exhibits
 3.1
    
    Fourth Amended and Restated Certificate of Incorporation. (1)3.2
    
    By-laws. (2)4.1
    
    Specimen Common Stock Certificate. (2)4.2
    
    Specimen Warrant Certificate (incorporated by reference from Exhibit 4.3). (3)4.3
    
    Form of Warrant Agreement entered into by and between the Registrant, ThinkEquity Partners
LLC and Stanford Group Company. (3)4.4
    
    Form of Warrant. (4)10.1
    
    Production Agreement between the Registrant and Askion GmbH dated as of January 25, 2006.
(4)10.2
    
    Amended and Restated Consulting Agreement effective as of April 1, 2006 between the
Registrant and Gerald Wagner. (5)10.3
    
    Resignation Agreement, dated April 24, 2006, between the Registrant and Karen Krumeich. (6)10.4
    
    Employment Offer Letter, dated April 24, 2006, between the Registrant and Richard I.
Steinhart. (6)10.5
    
    Employment Offer Letter, dated May 30, 2006, between the Registrant and Christiano S.
Butler. (7)10.6
    
    Securities Purchase Agreement among
the Registrant and the purchasers identified on the signature pages
thereto, dated as of October 31, 2006. (9)10.7
    
    Securities Purchase Agreement among
the Registrant and the purchasers identified on the signature pages
thereto, dated as of October 31, 2006. (9)10.8
    
    Registration Rights Agreement among
the Registrant and the purchasers identified on the signature pages
thereto, dated as of October 31, 2006. (9)10.9
    
    Placement Agency Agreement by and
between the Registrant and Jefferies & Company, Inc., dated as of
October 31, 2006. (10)10.10
    
    Resignation Agreement, dated
November 9, 2006, between the Registrant and William R. Bronner.31.1
    
    Certification by the Chief Executive Officer pursuant to Rule 13a-14(a) under the
Securities Exchange Act of 1934.31.2
    
    Certification by the Chief Financial Officer pursuant to Rule 13a-14(a) under the
Securities Exchange Act of 1934.32.1
    
    Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
 
 (1)
    
    Previously filed in connection with Amendment No. 1 to Electro-Optical Sciences, Inc. Registration Statement on Form S-1 (file No.
333-125517) filed on July 15, 2005.(2)
    
    Previously filed in connection with Amendment No. 2 to Electro-Optical Sciences, Inc. Registration Statement on Form S-1 (file No.
333-125517) filed on August 8, 2005.(3)
    
    Previously filed in connection with Amendment No. 4 to Electro-Optical Sciences, Inc. Registration Statement on Form S-1 (file 333-125517)
filed on September 27, 2005, as an exhibit to the Form of Underwriting Agreement.(4)
    
    Previously filed in connection with Registrants Form 8-K
filed on November 1, 2006.(5)
    
    Previously filed in connection with Registrants Form 8-K filed in January 31, 2006.(6)
    
    Previously filed in connection with Registrants Annual Report on Form 10-K filed on March 29, 2006 as Exhibit 10.17 thereto.(7)
    
    Previously filed in connection with Registrants Form 8-K filed on April 27, 2006.(8)
    
    Previously filed in connection with Registrants Form 8-K filed on June 2, 2006.(9)
    
    Previously filed in connection with Registrants Form 8-K filed on November 8, 2006.(10)
    
    Previously filed in connection with Registrants Form 8-K
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SIGNATURES




ELECTRO-OPTICAL SCIENCES, INC.By:
    
    /s/ Richard I. SteinhartRichard I. SteinhartVice President & Chief Financial Officer(Principal Financial and Accounting Officer)Date: November 14, 2006


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EXHIBIT INDEX


Exhibit Number
    
    Description10.10
    
    Resignation Agreement, dated
November 9, 2006, between the Registrant and William R. Bronner.31.1
    
    Certification by the Chief Executive Officer pursuant
to Rule 13a-14(a) under the Securities Exchange Act
of 193431.2
    
    Certification by the Chief Financial Officer pursuant
to Rule 13a-14(a) under the Securities Exchange Act
of 193432.1
    
    Certification Pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002


46