##### Table of Contents



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 June 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
    
    13-3986004(State or Other Jurisdiction of
    
    (I.R.S. EmployerIncorporation or Organization)
    
    Identification No.)3 West Main Street, Suite 201
    
    10533Irvington, New York
    
    (Zip Code)(Address of Principal Executive offices)
 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 June 30, 2006 (unaudited) and December 31, 2005
    
    2Condensed Statements of Operations (unaudited) for the three and six months ended June 30, 2006 and 2005
    
    3Condensed Statements of Cash Flows (unaudited) for the six months ended June 30, 2006 and 2005
    
    4Notes to Financial Statements (unaudited)
    
    5ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    13ITEM 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-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32.1: CERTIFICATION









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ELECTRO-OPTICAL SCIENCES, INC.
 
 CONDENSED BALANCE SHEETS
 June 30,
    
    
    December 31,2006
    
    
    2005(unaudited)
    
    
    *ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    6,536,710
    
    
    $
    18,505,030Marketable securities
    
    
    6,478,998
    
    
    
    Prepaid expenses and other current assets
    
    
    209,733
    
    
    
    210,940Assets held for sale
    
    
    156,677
    
    
    
    156,677Total Current Assets
    
    
    13,382,118
    
    
    
    18,872,647Property and equipment, net
    
    
    451,464
    
    
    
    175,369Patents and trademarks, net
    
    
    85,391
    
    
    
    84,052Other assets
    
    
    39,758
    
    
    
    33,612Total Assets
    
    $
    13,958,731
    
    
    $
    19,165,680LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Accounts payable (includes related parties of $23,500 as of June 30, 2006
and $11,263 as of December 31, 2005)
    
    $
    256,431
    
    
    $
    329,462Accrued expenses (includes related parties of $6,417 as of June 30, 2006
and $15,000 as of December 31, 2005)
    
    
    650,610
    
    
    
    570,052Other current liabilities
    
    
    11,746
    
    
    
    16,828Total Current Liabilities
    
    
    918,787
    
    
    
    916,342COMMITMENTS AND CONTINGENCIESStockholders EquityCommon stock  $.001 par value; authorized 30,000,000 shares;
issued and outstanding 10,879,668 shares at June 30, 2006 and 10,837,833
shares at December 31, 2005
    
    
    10,880
    
    
    
    10,838Additional paid-in capital
    
    
    39,731,273
    
    
    
    38,934,420Deferred compensation
    
    
    (247,944
    )
    
    
    (62,610
    )Other comprehensive loss
    
    
    (4,337
    )
    
    
    Accumulated deficit
    
    
    (26,449,928
    )
    
    
    (20,633,310
    )Stockholders Equity
    
    
    13,039,944
    
    
    
    18,249,338Total Liabilities and Stockholders Equity
    
    $
    13,958,731
    
    
    $
    19,165,680
 
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ELECTRO-OPTICAL SCIENCES, INC.
 
 CONDENSED STATEMENTS OF OPERATIONS
 (Unaudited)
 Three months ended June 30,
    
    
    Six months ended June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Operating expenses:Research and development
    
    $
    2,020,643
    
    
    $
    909,557
    
    
    $
    4,005,876
    
    
    $
    1,545,824General and administrative
    
    
    1,080,596
    
    
    
    491,720
    
    
    
    2,164,283
    
    
    
    995,931Operating loss from continuing operations
    
    
    (3,101,239
    )
    
    
    (1,401,277
    )
    
    
    (6,170,159
    )
    
    
    (2,541,755
    )Interest income
    
    
    173,489
    
    
    
    36,509
    
    
    
    353,541
    
    
    
    62,769Loss from continuing operations
    
    
    (2,927,750
    )
    
    
    (1,364,768
    )
    
    
    (5,816,618
    )
    
    
    (2,478,986
    )Loss from discontinued operations
    
    
    
    
    
    
    (201,568
    )
    
    
    
    
    
    
    (330,111
    )Net loss
    
    
    (2,927,750
    )
    
    
    (1,566,336
    )
    
    
    (5,816,618
    )
    
    
    (2,809,097
    )Less:Preferred stock deemed dividends
    
    
    
    
    
    
    357,025
    
    
    
    
    
    
    
    719,064Preferred stock accretion
    
    
    
    
    
    
    323,248
    
    
    
    
    
    
    
    646,496Net Loss Attributable to Common Stockholders
    
    $
    (2,927,750
    )
    
    $
    (2,246,609
    )
    
    $
    (5,816,618
    )
    
    $
    (4,174,657
    )Net loss per common share, basic and diluted:Continuing operations
    
    $
    (0.27
    )
    
    $
    (1.13
    )
    
    $
    (0.54
    )
    
    $
    (2.13
    )Discontinued operations
    
    
    
    
    
    
    (0.11
    )
    
    
    
    
    
    
    (0.18
    )Basic and diluted net loss per common share
    
    $
    (0.27
    )
    
    $
    (1.24
    )
    
    $
    (0.54
    )
    
    $
    (2.31
    )Basic and diluted weighted average number of
common shares outstanding
    
    
    10,869,393
    
    
    
    1,809,758
    
    
    
    10,860,682
    
    
    
    1,809,758
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ELECTRO-OPTICAL SCIENCES, INC.
 
 CONDENSED STATEMENTS OF CASH FLOWS
 Six Months Ended June 30,2006
    
    
    2005(unaudited)
    
    
    (unaudited)Cash flows from operating activities:Loss from continuing operations
    
    $
    (5,816,618
    )
    
    $
    (2,478,986
    )Loss from discontinued operations
    
    
    
    
    
    
    (330,111
    )Net loss
    
    
    (5,816,618
    )
    
    
    (2,809,097
    )Adjustments to reconcile net loss to net cash used in operating activities:Allowance for doubtful accounts
    
    
    
    
    
    
    (1,000
    )Depreciation and amortization
    
    
    48,872
    
    
    
    25,098Noncash compensation and amortization of deferred compensation
    
    
    573,911
    
    
    
    121,230Amortization of discount on marketable securities
    
    
    
    
    
    
    (30,072
    )Changes in operating assets and liabilities:Decrease in receivables
    
    
    
    
    
    
    8,128Increase in inventories
    
    
    
    
    
    
    (16,122
    )Decrease in prepaid expenses and other current assets
    
    
    1,208
    
    
    
    9,293Deferred registration costs
    
    
    
    
    
    
    (79,169
    )Increase in other assets
    
    
    (6,146
    )
    
    
    Increase in accounts payable and accrued expenses
    
    
    7,527
    
    
    
    5,382Decrease in deferred revenues
    
    
    
    
    
    
    (106,335
    )Decrease in other current liabilities
    
    
    (5,082
    )
    
    
    (17,284
    )Net cash used in operating activities
    
    
    (5,196,328
    )
    
    
    (2,889,948
    )Cash flows from investing activities:Patent costs
    
    
    (10,377
    )
    
    
    (2,822
    )Purchases of property and equipment
    
    
    (315,930
    )
    
    
    (81,337
    )(Purchase) redemption of marketable securities
    
    
    (6,483,335
    )
    
    
    3,007,110Net cash (used in) provided by investing activities
    
    
    (6,809,642
    )
    
    
    2,922,951Cash flows from financing activities:Payment for stock subscription receivable
    
    
    
    
    
    
    34,500Proceeds from exercise of stock options
    
    
    37,650
    
    
    
    Net cash provided by financing activities
    
    
    37,650
    
    
    
    34,500Net (decrease) increase in cash and cash equivalents
    
    
    (11,968,320
    )
    
    
    67,503Cash and cash equivalents at beginning of period
    
    
    18,505,030
    
    
    
    108,705Cash and cash equivalents at end of period
    
    $
    6,536,710
    
    
    $
    176,208Supplemental Schedule of Noncash Financing Activities:Preferred stock accretion
    
    
    
    
    
    $
    646,496Reclassification 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
 ® ® ®
 ® ® ® ® ® ® ®
   2. MARKETABLE SECURITIES
  June 30, 2006UnrealizedFair Value
    
    
    Gain (Loss)Corporate debt securities
    
    $
    1,993
    
    
    $
    (3
    )Obligations of US government agencies
    
    
    4,486
    
    
    
    (1
    )Total
    
    $
    6,479
    
    
    $
    (4
    )
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3. COMPREHENSIVE LOSS
  4. USE OF ESTIMATES
  5. RECENT ACCOUNTING DEVELOPMENTS
  Share-Based Payment Accounting for Stock
Issued to Employees Accounting for Stock-Based
Compensation
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Three Months Ended
    
    
    Six Months EndedJune 30, 2005
    
    
    June 30, 2005(In thousands except per share amounts)Net loss attributable to common stockholders, as reported
    
    $
    (2,247
    )
    
    $
    (4,175
    )Add: Stock-based employee compensation expense included
in reported net loss, net of related tax effect
    
    
    8
    
    
    
    87Deduct: Stock-based employee compensation expense determined
    
    
    (9
    )
    
    
    (91
    )Pro forma net loss
    
    $
    (2,248
    )
    
    $
    (4,179
    )Basic and diluted earnings per share:As reported
    
    $
    (1.24
    )
    
    $
    (2.31
    )Pro forma
    
    $
    (1.24
    )
    
    $
    (2.31
    )
 6. NET LOSS PER COMMON SHARE
 Earnings Per
Share
 June 30,2006
    
    
    2005Common stock options
    
    
    1,651,705
    
    
    
    899,875Warrants
    
    
    298,280
    
    
    
    2,758,923Redeemable convertible preferred stock
    
    
    
    
    
    
    3,398,105Total
    
    
    1,949,985
    
    
    
    7,056,903
 7. STOCK-BASED COMPENSATION AND DEFERRED COMPENSATION
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For the Six MonthsEnded June 30, 2006Expected life
    
    5 yearsExpected volatility
    
    60%Risk-free interest rate
    
    5.15%
   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
    
    
    578,125
    
    
    
    6.42
    
    
    
    4.8
    
    
    $
    731Exercised
    
    
    (41,835
    )
    
    
    .90
    
    
    
    N/A
    
    
    $
    228Forfeited or expired
    
    
    0
    
    
    
    
    
    
    
    
    
    
    
    Outstanding at June 30, 2006
    
    
    1,651,705
    
    
    
    2.87
    
    
    
    4.6
    
    
    $
    7,969Vested and exercisable at June 30, 2006
    
    
    600,524
    
    
    
    1.64
    
    
    
    4.8
    
    
    $
    3,632
   ®
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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.
 ®
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8. COMMITMENTS AND CONTINGENCIES
   ® ® ® ®
    9. INITIAL PUBLIC OFFERING
  10. WARRANTS
  10




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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.
 ®
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12. DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE
 ®
 ® ® ® ® ®
 ®
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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
 ® ® ®
  14




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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 June 30, 2006 Compared to Three Months Ended June 30, 200
 Research and Development Expense
   General and Administrative Expense
    Six Months Ended June 30, 2006 Compared to Six Months Ended June 30, 200
  Research and Development Expense
 ®
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General and Administrative Expense
   Interest Income.
  Liquidity and Capital Resources (in thousands)
   Cash Flows from Operating Activities.
  Cash Flows from Investing Activities.
 ®
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Cash Flows from Financing Activities.
  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
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
    
    Our ability to establish and maintain any collaborative, licensing or
other arrangements, and the terms and timing of any such arrangements.
 Contractual Obligations
  Less than
    
    
    
    
    
    
    
    
    
    
    More thanTotal
    
    
    1 year
    
    
    1-3 years
    
    
    4-5 years
    
    
    5 years(dollars in thousands)Operating
Leases
    
    $
    916
    
    
    $
    244
    
    
    $
    509
    
    
    $
    163
    
    
    
    Total
    
    $
    916
    
    
    $
    244
    
    
    $
    509
    
    
    $
    163
    
    
    $
    
   Related Party Transactions
 ®
    Off-Balance Sheet Arrangements
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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.
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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.
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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.
 ® ® ®
 ®
 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;
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
    
    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.
  ® ® ®
 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.
 ® ® ® ® ® ® ®
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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.
 ® ® ® ® ® ® ®
 
    
    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.
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®
   
    
    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.
  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.
  33




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® ® ®
 The application of the privacy provisions of HIPAA is uncertain.
 ®
 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.
 ® ® ®
 ®
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®
  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.
 ® ®
 We face the risk of product liability claims and may not be able to obtain or maintain adequate
insurance.
 ® ® ® ® ® ®
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##### Table of Contents



® ®
  We may be adversely affected by a data center failure.
 ® ® ®
 We may be adversely affected by breaches of online security.
 ®
 We are dependent upon telecommunications and the internet.
 ®
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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.
  Failure to obtain and maintain regulatory approval in foreign jurisdictions will prevent us from
marketing abroad.
 ® ®
 ®
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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.
  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.
  38




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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.
  
    
    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;
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
    
    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.
  40




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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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##### Table of Contents



ITEM 3.
 Quantitative and Qualitative Disclosures about Market Risk
  
 ITEM 4.
 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
   42




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Proposal
    
    Shares For
    
    Shares Withheld
    
    Shares AbstainingElection of DirectorsJoseph V. Gulfo, MD
    
    
    8,689,521
    
    
    
    222,389Breaux Castleman
    
    
    7,689,521
    
    
    
    1,222,389Sidney Braginsky
    
    
    8,889,521
    
    
    
    22,389George C. Chryssis
    
    
    8,889,521
    
    
    
    22,389Martin D. Cleary
    
    
    8,889,521
    
    
    
    22,389Dan W. Lufkin
    
    
    8,889,521
    
    
    
    22,389Gerald Wagner, Ph.D.
    
    
    8,889,521
    
    
    
    22,389Ratification of Eisner LLP
    
    
    8,440,952
    
    
    
    3,789
    
    
    
    467,169
 
 Item 5. Other Information.
   43




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##### Table of Contents



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)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)31.2
    
    Certification by the Principal 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 in January 31, 2006.(5)
    
    Previously filed in connection with the Registrants Annual Report on Form 10-K filed on
March 29, 2006 as Exhibit 10.17 thereto.(6)
    
    Previously filed in connection with the Registrants Form 8-K filed on April 27, 2006.(7)
    
    Previously filed in connection with the Registrants Form 8-K filed on June 2, 2006. 44




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##### Table of Contents



SIGNATURES
  ELECTRO-OPTICAL SCIENCES, INC.By:
    /s/  Richard I. SteinhartRichard I. SteinhartVice President & Chief Financial Officer
(Principal Financial and Accounting
Officer)  45




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EXHIBIT INDEX
 Exhibit Number
    
    Description31.1
    
    
    Certification by the Chief Executive Officer pursuant to Rule 13a-14(a) under the
Securities Exchange Act of 193431.2
    
    
    Certification by the Principal 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