##### Table of Contents



UNITED STATES SECURITIES AND
    EXCHANGE COMMISSION
 Washington, D.C.
    20549
  Form 10-K
  þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended
    December 31, 2006o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For 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
    incorporation or organization)

(I.R.S. Employer
    Identification No.)   3 West Main Street, Suite 201
 Irvington, New York 10533
 (Address, including zip code, of
    registrants principal executive offices)
  (914) 591-3783
 Registrants telephone number, including area code:
  Securities registered pursuant to Section 12(b) of the
    Act:
  Title of Each Class

Name of Each Exchange on Which RegisteredCommon stock, $0.001 par value

The NASDAQ Stock Market LLC   Securities registered pursuant to Section 12(g) of the
    Act:
 None
  o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. þ
  Rule 12b-2
 o o þ
  Rule 12b-2 o þ
    DOCUMENTS
    INCORPORATED BY REFERENCE
  Form 10-K.




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##### 



ELECTRO-OPTICAL
    SCIENCES, INC.
  2006
    FORM 10-K
    ANNUAL REPORT
 TABLE OF
    CONTENTS
  PagePART IItem 1.


Business


1Item 2.


Properties


40Item 3.


Legal
    Proceedings


41Item 4.


Submission of
    Matters to a Vote of Security Holders


41PART IIItem 5.


Market for
    Registrants Common Equity, Related Stockholder Matters and
    Issuer Purchases of Equity Securities


41Item 6.


Selected Financial
    Data


43Item 7.


Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations


44Item 7A.


Quantitative and
    Qualitative Disclosures About Market Risk


51Item 8.


Financial
    Statements and Supplementary Data


52Item 9.


Changes in and
    Disagreements With Accountants on Accounting and Financial
    Disclosure


74Item 9A.


Controls and
    Procedures


74Item 9B.


Other
    Information


74PART IIIItem 10.


Directors and
    Executive Officers of the Registrant


74Item 11.


Executive
    Compensation


74Item 12.


Security Ownership
    of Certain Beneficial Owners and Management and Related
    Stockholder Matters


74Item 13.


Certain
    Relationships and Related Transactions


74Item 14.


Principal
    Accountant Fees and Services


75PART IVItem 15.


Exhibits and
    Financial Statements Schedules


75EX-21.1: SUBSIDIARIES OF THE
    REGISTRANT


79EX-23.1: CONSENT OF INDEPENDENT
    REGISTERED PUBLIC ACCOUNTING FIRM


80EX-31.1: CERTIFICATION


81EX-31.2: CERTIFICATION


82EX-32.1: CERTIFICATIONS


83EX-21.1: SUBSIDIARIESEX-23.1: CONSENT OF EISNER LLPEX-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32.1: CERTIFICATION




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This Annual Report on
    Form 10-K,
    including the sections labeled Managements Discussion and
    Analysis of Financial Condition and Results of Operations,
    contains forward-looking statements that you should read in
    conjunction with the financial statements and notes to financial
    statements that we have included elsewhere in this report. These
    statements are based on our current expectations, assumptions,
    estimates and projections about our business and our industry,
    and involve known and unknown risks, uncertainties, and other
    factors that may cause our or our industrys results,
    levels of activity, performance or achievements to be materially
    different from any future results, levels of activity,
    performance or achievements expressed or implied in, or
    contemplated by, the forward-looking statements. We generally
    identify these statements by words or phrases such as
    believe, anticipate,
    assuming, expect, intend,
    plan, will, may,
    should, estimate, predict,
    potential, continue, or the negative of
    such terms or other similar expressions. Our actual results and
    the timing of events may differ significantly from the results
    discussed in the forward-looking statements, and you should not
    place undue reliance on these statements. Factors that might
    cause such a difference include those discussed below under the
    section Risk Factors, as well as those discussed
    elsewhere in this Annual Report on
    Form 10-K.
    We disclaim any intent or obligation to update any
    forward-looking statements as a result of developments occurring
    after the period covered by this report or otherwise.
  Item 1.
    Business  Overview
  point-of-care ®
  ®
  
    a hand-held imaging device, which employs high precision
    optics and multi-spectral illumination (multiple colors of light
    including near infra-red);
    our proprietary databaseof pigmented skin lesions, which
    we believe to be the largest in the US;
    our lesion classifiers, which are sophisticated
    mathematical algorithms that extract lesion feature information
    and classify lesions; and
    a central serverin our offices that is intended to
    perform quality control functions and, in commercial use, will
    be connected to physicians offices via the internet.  ® ® ® ® ®
  ®
 1




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and/or A B C D E
  ® ® sensitivity specificity ® ®
  ®
  ®
  ® ® ® ® ® re-launch ®
  The
    Market Opportunity
   2




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ages 20-30, ages 25-30, ages 30-35,
  Our
    Strategy
  ®
  
    Pursue the timely FDA approval of
    MelaFind®.  We
    have entered into a binding Protocol Agreement with the FDA for
    the conduct of the pivotal trial of
    MelaFind®.
    The study commenced in January 2007. On October 12, 2006,
    we announced that the FDA had informed us that when submitted,
    the
    MelaFind®
    premarket approval, or PMA, application would receive expedited
    review. Expedited review means that upon filing a PMA with the
    FDA, it is placed at the beginning of the FDAs queue and
    receives additional review resources. While the expedited review
    could shorten the
    MelaFind®
    FDA approval process, we can give no assurances that this will
    be the case. Upon obtaining premarket approval from the FDA, we
    plan to launch
    MelaFind®
    in the United States. If the pivotal trial and FDA approval
    process proceeds as anticipated, management believes that PMA
    approval could come as early as mid-2008.
    Establish
    MelaFind®as the leading technology for assisting in the detection of
    melanoma.  We have invested considerable capital
    and expertise into developing our core technology platform,
    which is protected by eight US patents. We will continue to
    refine and optimize this technology to ensure that
    MelaFind®
    is the leading system for assisting in the detection of melanoma.
    Obtain third party payer reimbursement to support our
    recurring revenue pricing model.  We intend to
    offer
    MelaFind®
    on a per patient basis, creating a recurring revenue stream. To
    do so, we will seek to obtain third party reimbursement as well
    as private pay alternatives. We are working with experts to
    create an evidence-based medicine evaluation model consistent
    with those used to support positive coverage decisions by the
    federal Centers for Medicare and Medicaid Services (CMS) and
    private payers for similar products. The value drivers in the
    model include the cost savings associated with early detection
    and fewer biopsies. We believe that the use of
    MelaFind®
    could result in substantial savings to the US healthcare system.
    Commercialize
    MelaFind®using multiple sales and marketing
    strategies.  Our internal sales and marketing
    effort will focus initially on high volume/key opinion
    leader dermatologists with specialties in the diagnosis
    and treatment of melanoma. To enter the larger US markets of
    general dermatologists, 3




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plastic surgeons, and primary care physicians, and for
    international markets, we intend to establish partnerships with
    pharmaceutical
    and/or
    diagnostic device companies with an established presence in
    these markets. While we believe obtaining a positive national
    coverage decision from CMS may take an additional 18 to
    36 months following PMA approval, and obtaining a positive
    coverage decision from private payers, managed care
    organizations and state Medicare administrative contractors may
    take at least 6 to 12 months following PMA approval, we
    intend to commence sales of
    MelaFind®
    immediately upon receiving PMA approval for physicians to offer
    MelaFind®
    to their patients on a self-pay basis and through negotiated
    payment arrangements with several third-party payers.    Limitations
    of Current Melanoma Diagnosis
  and/or ® ® 3-10
    MelaFind®
    Product Description
  ® ® point-of-care, ® ® ®
  A hand-held imaging device
  
    an illuminator that shines 10 different specific wavelengths of
    light, including near infra-red bands;
    a lens system composed of nine elements that creates images of
    the light reflected from the lesions;
    a photon (light) sensor; and
    an image processor employing proprietary algorithms to extract
    many discrete characteristics or features from the images.  Our proprietary database of pigmented skin lesions ®
 4




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Our lesion classifiers are sophisticated mathematical
    algorithms. ® Lesion Classifier, Lesion
    Classifiers Lesion Classifiers Lesion Classifier Lesion Classifiers ®
  ® sensitivity specificity ® Lesion Classifier ®
  ®
  A central server ® ® ®
  MelaFind®
    Regulatory Status
  ®
  ® ® ®
   5




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® ® ®
  ® scale-up ®
  ® ® ®
  Clinical
    Studies of
    MelaFind®
  Goals
    and Objectives
  ® in vivo ® ® Lesion Classifier ®
  ® Lesion Classifiers, Lesion Classifier ® Lesion Classifiers sensitivity specificity ® ® Lesion Classifiers Lesion Classifiers
  ®
 6




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##### Table of Contents



MelaFind®
    Development History  Hardware and
    Software
  ® ®
  ® Lesion Classifier ®
  ®
  ®
    Current
    Results of Training Studies and Blinded Tests
  ® ®
  February
    2006  Training Study and Blinded Test
    Results
  Training


Blinded testMelaFind®


MelaFind®


Study DermatologistsSensitivity


100
%


Missed 1 in situ Melanoma



Missed 1 invasive MelanomaSpecificity


50.7
%


45.1
%


20.0
%(p < 0.0001)Over-Biopsy Ratio


4.4:1



5:1



7.3:1  7




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® ® ®
  ® ® ®
  Would you Biopsy this Lesion toIs this a Melanoma?

Rule-Out Melanoma?Sensitivity / Specificity

Sensitivity/SpecificityExpert Dermatologists

38.78% / 82.32%

70.61% / 48.89%MelaFind®

Sensitivity - 98% / Specificity -
    44%   ® ® ® ®
  ® ®
  Sales and
    Marketing
  ® point-of-care and/or ®
  ® ®
 8




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®
  The
    MelaFind®
    Value Proposition for the Healthcare System
  ® ®
  Our
    Reimbursement Strategy
  ®
  ®
  ®
      ® ® ®
 9




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® ®
  ® ® ® ® ® ®
  ®
  ® ® ® ® ®
  Competition
  ®
 10




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DB-Mips ® DB-Mips ®
   11




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®
  ®
  Manufacturing
  ®
  ® ® ® follow-up ® ® ®
  Research
    and Development Efforts
  ® Lesion Classifiers.
     12




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® tm ® tm tm tm ®
  ® ®
  Intellectual
    Property
  ® ® ®
  and/or
  ®
  ® ® ® ® ® ®
 13




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US
    Patents Relating to Melanoma Detection
  Patent #


Title

Issued


Expiration6,081,612


Systems and Methods for the
    Multispectral Imaging and Characterization of Skin Tissue


06/27/00



02/27/186,208,749


Systems and Methods for the
    Multispectral Imaging and Characterization of Skin Tissue


03/27/01



02/27/186,307,957


Multispectral Imaging and
    Characterization of Biological Tissue


10/23/01



02/27/206,626,558


Apparatus for Uniform Illumination
    of an Object


09/30/03



08/31/216,657,798


Method for Optimizing the Number
    of Good Assemblies Manufacturable From a Number of Parts


12/02/03



02/10/236,710,947


Method for Assembling Lens Elements


03/23/04



02/27/237,102,672


Integrated CMOS Imaging
    Array & Dark Current Monitor


09/05/06



01/10/247,127,094


Method of Controlling Data
    Gathered at Remote Locations


10/24/06



03/11/25   Filed
    US Patent Relating to Melanoma Detection
  Patent #

Title

Filedn/a

Reducing noise in Digital Images


08/9/06n/a

Quantitative Analysis of Skin
    Characteristics


03/2/07   ® ® ® ® ®
  ® ®
  ® ®
  ®
   14




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®
  and/or
  FDA
    Regulation
  ®
  ®
  ® ®
 15




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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.      ® ®
 16




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
    the FDA, other regulatory authorities, or an IRB do not approve
    a clinical trial protocol or a clinical trial, or place a
    clinical trial on hold;
    patients do not enroll in clinical trials at the rate we expect;
    physicians do not comply with trial protocols;
    patient
    follow-up is
    not at the rate we expect;
    patients experience adverse events;
    IRBs and third-party clinical investigators may delay or reject
    our trial protocol;
    third-party clinical investigators decline to participate in a
    trial or do not perform a trial on our anticipated schedule or
    consistent with the clinical trial protocol, GCPs or other FDA
    requirements;
    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 may, 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.      
    establishment registration and device listing;
    QSR, which requires manufacturers to follow design, testing,
    control, documentation and other quality assurance procedures;
    labeling regulations, which prohibit the promotion of products
    for unapproved or off-label uses and impose other
    restrictions on labeling;
    medical device reporting regulations, which require that
    manufacturers report to the FDA if a device may have caused or
    contributed to a death or serious injury or malfunctioned in a
    way that would likely cause or contribute to a death or serious
    injury if it were to recur; and
    corrections and removal reporting regulations, which require
    that manufacturers report to the FDA field corrections and
    product recalls or removals if undertaken to reduce a risk to
    health posed by the device or to remedy a violation of the
    FD&C Act that may present a risk to health.   17




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
    warning letters;
    fines and civil penalties;
    unanticipated expenditures;
    delays in approving or refusal to approve our applications,
    including supplements;
    withdrawal of FDA approval;
    product recall or seizure;
    interruption of production;
    operating restrictions;
    injunctions; and
    criminal prosecution.    Government
    Regulation
  ® ®
  
    the anti-kickback statute prohibits certain business practices
    and relationships that might affect the provision and cost of
    healthcare services reimbursable under Medicare, Medicaid and
    other federal healthcare programs, including the payment or
    receipt of remuneration for the referral of patients whose care
    will be paid by Medicare or other federal healthcare programs;
    the physician self-referral prohibition, commonly referred to as
    the Stark Law, which prohibits referrals by physicians of
    Medicare or Medicaid patients to providers of a broad range of
    designated healthcare 18




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services in which the physicians or their immediate family
    members have ownership interests or with which they have certain
    other financial arrangements;  
    the anti-inducement law, which prohibits providers from offering
    anything to a Medicare or Medicaid beneficiary to induce that
    beneficiary to use items or services covered by either program;
    the Civil False Claims Act, which prohibits any person from
    knowingly presenting or causing to be presented false or
    fraudulent claims for payment by the federal government,
    including the Medicare and Medicaid programs; and the Civil
    Monetary Penalties Law, which authorizes the US Department of
    Health and Human Services (HHS) to impose civil penalties
    administratively for fraudulent or abusive acts.      qui tam
  Environmental
    Regulation
    International
    Regulation
   19




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country-by-country
  Product
    Liability and Insurance
  ® ® ® ® ®
  Employees
    Discontinued
    Business
  ® ® ® ® ® ®
 20




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Item 1A.
    Risk
    factors  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.
  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
    payers, 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®.
  ® ® ® ® ®
  
    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. 21




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® ® ® ® ® ® ®
  If
    MelaFind®
    is approved by the FDA, it may be approved only for narrow
    indications.
  ® ® ® ® ® ® ®
  ® ® ® ®
 22




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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 payers.
    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.
   23




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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.
  ® ® ®
  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.
  ®
 24




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®
  
    significantly greater name recognition;
    established relations with healthcare professionals, customers
    and third-party payers;
    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.
  ® ® 3-dimensional ® ® ® ® ®
 25




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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 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.
  ® ®
 26




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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.  ® ® ® ® ® ® ® ® ® ® ®
 27




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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 payers,
    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.
  ® ®
 28




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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.
  ® ® ® ®
  ® ®
  ® ®
 29




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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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and/or ® ®
  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.
  ® ® ® ® ®
 31




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® follow-up ®
  ® ® ® ® ®
  
    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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##### Table of Contents



® ®
  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.
  ® ® ®
  ® ® and/or
  and/or
 34




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##### Table of Contents



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.
  ® ® ® ® ® ®
  ® ®
   35




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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.
  ®
  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.
   36




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##### Table of Contents



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.
  ® ®
  ®
  Our
    success will depend on our ability to attract and retain our
    personnel.
  ®
   37




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##### Table of Contents



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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##### Table of Contents



Risks
    Relating to our Common Stock
  An
    active trading market for our common stock may not
    develop.
    Our
    stock price is likely to 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;
    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.   39




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##### Table of Contents



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.
    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.      Item 1B.
    Unresolved
    Staff Comments.    Item 2.
    Properties   40




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##### Table of Contents



Item 3.
    Legal
    Proceedings    Item 4.
    Submission
    of Matters to a Vote of Security Holders   PART II  Item 5.
    Market
    for Registrants Common Equity, Related Stockholder Matters
    and Issuer Purchases of Equity Securities  Market
    Information
    High


LowYear Ended December 31,
    2006October 1 
    December 31, 2006

$
8.10


$
5.26July 1 
    September 30, 2006

$
7.34


$
4.74April 1  June 30,
    2006

$
8.92


$
5.52January 1, 2006 
    March 31, 2006

$
6.20


$
5.20Year Ended December 31,
    2005October 28 
    December 31, 2005

$
8.68


$
5.26     Dividend
    Policy
     41




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##### Table of Contents



Securities
    Authorized For Issuance Under Equity Compensation
    Plans
  Note 8-
  Use of
    Proceeds from the Sale of Registered Securities
  Form S-1, No. 333-125517),
      Use of
    Proceeds from the Sale of Unregistered Securities
  Form S-3 (file #333-139056)
     42




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##### Table of Contents



Item 6.
    Selected
    Financial Data  The following table sets forth selected financial data. The
    financial information for the years ended December 31,
    2004, 2005 and 2006 and as of December 31, 2005 and 2006
    has been derived from our audited financial statements and
    related notes appearing in Part II Item 8 of this
    report and should be read together with such financial
    statements and the Managements Discussion and
    Analysis of Financial Condition and Results of Operations
    section appearing in Part II Item 7 of this report.
    The financial information for the years ended December 31,
    2002 and 2003 and as of December 31, 2002, 2003, and 2004
    has been derived from our audited financial statements not
    included in this report. The historical results are not
    necessarily indicative of results of any future periods.
  Year Ended December 31,2002


2003


2004


2005


2006(In thousands, except share and per share data)Statements of Operations
    Data:Revenue from grants

$
547


$



$



$



$Cost of grant revenue


564General and administrative expenses


511



1,034



1,234



2,636



4,526Research and development


404



828



1,892



3,822



7,574Operating loss from continuing
    operations


(932
)


(1,862
)


(3,126
)


(6,458
)


(12,100
)Interest (income)/expense


8



76



67



(174
)


(728
)(Loss) from continuing operations


(940
)


(1,938
)


(3,193
)


(6,284
)


(11,372
)(Loss) gain from discontinued
    operations


(201
)


(12
)


(426
)


(442
)


781Net loss


(1,141
)


(1,950
)


(3,619
)


(6,726
)


(10,591
)Preferred stock deemed dividends


(214
)


(322
)


(676
)


(1,199
)Preferred stock accretion


(180
)


(25
)


(258
)


(1,077
)Stock distribution of preferred
    Series Bshares






(102
)Net loss attributable to common
    stockholders

$
(1,535
)

$
(2,399
)

$
(4,553
)

$
(9,002
)

$
(10,591
)Net loss per share, basic and
    diluted:Continuing operations

$
(0.87
)

$
(1.48
)

$
(2.34
)

$
(2.44
)

$
(1.01
)Discontinued operations


(0.13
)


(0.01
)


(0.24
)


(0.13
)


.07Basic and diluted net loss per
    common share

$
(1.00
)

$
(1.49
)

$
(2.58
)

$
(2.57
)

$
(.94
)Basic and diluted weighted average
    number of shares outstanding


1,534,760



1,614,897



1,766,608



3,508,835



11,293,783   As of December 31,2002


2003


2004


2005


2006(In thousands, except share and per share data)Balance Sheet Data:Total current assets

$
111


$
217


$
6,813


$
18,873


$
21,771Total assets


344



432



7,096



19,166



22,476Total liabilities


529



650



691



916



1,162Redeemable convertible preferred
    stock


2,244



4,067



9,955Accumulated deficit


(8,518
)


(10,288
)


(13,907
)


(20,633
)


(31,225
)Total stockholders
    equity/(deficiency)


(4,657
)


(4,285
)


(3,550
)


18,249



21,314  43




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##### Table of Contents



Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  The following discussion contains forward looking statements,
    which involve risks and uncertainties. Our actual results could
    differ from those anticipated in these forward-looking
    statements as a result of various factors, including those set
    forth above under the caption Business-Risk Factors.
    You should read the following discussion and analysis of our
    financial condition and results of operations together with our
    financial statements for the year ended December 31, 2006
    and the related notes appearing in Part II Item 8 of
    this report.
  Overview
  point-of-care ® ® ® ® ® ® ® ®
    ® period-to-period
  ® ®
  ®
   44




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##### Table of Contents



® ®
  ® ® ®
    Critical
    Accounting Policies and Significant Judgments and
    Estimates
      Revenue
    Recognition
  ® ® ® ® 30-day 30-day ® ®
   45




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##### Table of Contents



Stock-Based
    Compensation
  No. 96-18,
    Share-Based Payment Accounting for
    Stock-Based Compensation catch-up
      Accrued
    Expenses
   46




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##### Table of Contents




    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.    Results
    of Operations (in thousands)
  Year
    Ended December 31, 2006 Compared to Year Ended
    December 31, 2005
  Research
    and Development Expense
  step-up ®
    General
    and Administrative Expense
     47




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##### Table of Contents



Interest
    (Income)/Expense
  ®
  Gain
    (Loss) from Discontinued Operations
  ® ®
  Year
    Ended December 31, 2005 Compared to Year Ended
    December 31, 2004
  Research
    and Development Expense
  ® ®
  General
    and Administrative Expense
    Interest
    (Income)/Expense
    Liquidity
    and Capital Resources
   48




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##### Table of Contents



Cash
    Flows from Operating Activities
    Cash
    Flows from Investing Activities
  ®
  Cash
    Flows from Financing Activities
    Operating
    Capital and Capital Expenditure Requirements
  ® ® ® ® ®
  ®
 49




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##### Table of Contents




    the schedule, costs, and results of our clinical trials;
    the success of our research and development efforts;
    the costs and timing of regulatory approval;
    reimbursement amounts for the use of
    MelaFind®
    that we are able to obtain from Medicare and third party payers,
    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.  Contractual
    Obligations
    Payments
    Due by Period
  Less Than








More ThanContractual Obligations

Total


1 Year


1-3 Years


3-5 Years


5 Years(Dollars in thousands)Operating Leases

$
795


$
249


$
441


$
105



Total

$
795


$
249


$
441


$
105



     Related
    Party Transactions
    Off-Balance
    Sheet Arrangements
    Recent
    Accounting Developments
   50




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##### Table of Contents



), Share-Based Payment , , Stock-Based
    Payment
  Item 7A.
    Quantitative
    and Qualitative Disclosures about Market Risk   51




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##### Table of Contents



Item 8.
    Financial
    Statements and Supplementary Data  INDEX TO
    FINANCIAL STATEMENTS
  PageReport of
    Independent Registered Public Accounting Firm


53Balance Sheets as
    of December 31, 2005 and 2006


54Statements of
    Operations for the years ended December 31, 2004, 2005 and
    2006


55Statements of
    Stockholders Equity (Deficiency) for the years ended
    December 31, 2004, 2005 and 2006


56Statements of Cash
    Flows for the years ended December 31, 2004, 2005 and
    2006


57Notes to Financial
    Statements


58  52




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##### Table of Contents



Report
    of Independent Registered Public Accounting Firm             
    53




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##### Table of Contents



ELECTRO-OPTICAL
    SCIENCES, INC.
 BALANCE
    SHEETS  December 31,


December 31,2005


2006ASSETSCurrent Assets:Cash and cash equivalents
    (includes $12,000,000 in certificates of deposit as of
    December 31, 2006)

$
18,505,030


$
20,939,527Receivable from sale and licensing
    of discontinued operations, net






487,680Prepaid expenses and other current
    assets


210,940



343,634Assets held for sale


156,677Total Current Assets


18,872,647



21,770,841Property and equipment, net


175,369



564,471Patents and trademarks, net


84,052



100,630Other assets


33,612



39,758Total Assets

$
19,165,680


$
22,475,700LIABILITIES AND
    STOCKHOLDERS EQUITYCurrent Liabilities:Accounts payable (includes related
    parties of $11,263 as of December 31, 2005, and $53,987 as
    of December 31, 2006)

$
329,462


$
641,036Accrued expenses (includes related
    parties of $15,000 as of December 31, 2005, and 34,257 as
    of December 31, 2006)


570,052



504,670Other current liabilities


16,828



16,077Total Current
    Liabilities


916,342



1,161,783COMMITMENTS AND CONTINGENCIES
    (Note 5)Stockholders
    Equity:Common stock 
    $0.001 par value; authorized 30,000,000 shares:Issued and outstanding
    10,837,833 shares at December 31, 2005 and
    13,296,448 shares at December 31, 2006


10,838



13,296Additional paid-in capital


38,934,420



52,525,408Deferred compensation


(62,610
)Accumulated deficit


(20,633,310
)


(31,224,787
)Stockholders
    Equity


18,249,338



21,313,917Total Liabilities and
    Stockholders Equity

$
19,165,680


$
22,475,700    54




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##### Table of Contents



ELECTRO-OPTICAL
    SCIENCES, INC.
 STATEMENTS
    OF OPERATIONS  Year EndedDecember 31,


December 31,


December 31,2004


2005


2006Operating expenses:Research and development

$
1,891,551


$
3,821,712


$
7,574,744General and administrative


1,234,210



2,636,064



4,525,789Operating loss from continuing
    operations


(3,125,761
)


(6,457,776
)


(12,100,533
)Interest income


(27,935
)


(173,888
)


(728,053
)Interest expense


94,97667,041



(173,888
)


(728,053
)Loss from continuing operations


(3,192,802
)


(6,283,888
)


(11,372,480
)Loss from discontinued operations


(426,344
)


(442,459
)Gain on sale and licensing of
    discontinued operations










781,003Net loss


(3,619,146
)


(6,726,347
)


(10,591,477
)Less:Preferred stock deemed dividends


676,218



1,198,439Preferred stock accretion


257,545



1,077,492Net Loss Attributable to Common
    Stockholders

$
(4,552,909
)

$
(9,002,278
)

$
(10,591,477
)Net loss per common share, basic
    and diluted:Continuing operations


(2.34
)


(2.44
)


(1.01
)Discontinued operations


(0.24
)


(0.13
)


.07Basic and diluted net loss per
    common share

$
(2.58
)

$
(2.57
)

$
(.94
)Basic and diluted weighted average
    number of common shares outstanding


1,766,608



3,508,835



11,293,783    55




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##### Table of Contents



ELECTRO-OPTICAL
    SCIENCES, INC.
 STATEMENTS
    OF STOCKHOLDERS EQUITY (DEFICIENCY)

Years Ended December 31, 2004, 2005 and 2006 Convertible




















TotalPreferred Stock








Additional











StockholdersSeries A


Common Stock


Paid-in


Notes


Deferred


Accumulated


EquityShares


Amount


Shares


Amount


Capital


Receivable


Compensation


Deficit


(Deficiency)Balance at January 1, 2004


198,000


$
972,311



1,684,760


$
1,685


$
5,119,923


$
(69,000
)

$
(22,500
)

$
(10,287,817
)

$
(4,285,398
)Sale of common stock










124,998



125



137,375















137,500Deferred compensation on-stock
    option awards to employees


















159,300







(159,300
)Issuance of options to non-employee
    directors


















150,450















150,450Preferred stock accretion


















(257,545
)














(257,545
)Warrants issued in connection with
    preferred Series C stock


















2,643,392















2,643,392Beneficial conversion feature in
    connection with preferred Series C stock


















1,465,003















1,465,003Issuance of options to consultants


















72,800















72,800Issuance of warrants to consultant


















120,396















120,396Amortization of deferred
    compensation


























22,500







22,500Net loss






























(3,619,146
)


(3,619,146
)Balance at December 31, 2004


198,000


$
972,311



1,809,758


$
1,810


$
9,611,094


$
(69,000
)

$
(159,300
)

$
(13,906,963
)

$
(3,550,048
)Preferred stock accretion


















(1,077,492
)














(1,077,492
)Value of employee options vesting
    on attainment of milestone


















479,000















479,000Issuance of options to consultant


















138,000















138,000Exercise of option by non-employee
    directors










27,500



28



15,322















15,350Exercise of options by former
    employees










23,361



23



23,359















23,382Restricted stock award to employee










11,488



12



62,598







(62,610
)Retirement of note receivable






















69,000











69,000Amortization of deferred
    compensation


























159,300







159,300Warrants exchanged
    for          common
    stock










1,305,321



1,305



(1,305
)Conversion of preferred stock in
    connection with the Initial Public offering


(198,000
)


(972,311
)


3,398,105



3,398



12,001,578















11,032,665Issuance of shares of common stock
    in connection with the Initial Public Offering (net of expenses)










4,262,300



4,262



17,682,266















17,686,528Net loss






























(6,726,347
)


(6,726,347
)Balance at December 31, 2005










10,837,833


$
10,838


$
38,934,420






$
(62,610
)

$
(20,633,310
)

$
18,249,338Exercise of options










135,450



136



87,929















88,065Exercise of warrants










10,781



10



26,418















26,428Amortization of deferred
    compensation


























62,610







62,610Issuance of shares of common stock
    and warrants in connection with private placement (net of
    expenses)










2,312,384



2,312



12,503,075















12,505,387Issuance of options to consultant


















161,934















161,934Share-based compensation expense


















811,632















811,632Net loss






























(10,591,477
)


(10,591,477
)Balance at December 31, 2006










13,296,448


$
13,296


$
52,525,408










$
(31,224,787
)

$
21,313,917    56




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##### Table of Contents



ELECTRO-OPTICAL
    SCIENCES, INC.
 STATEMENTS
    OF CASH FLOWS  Year EndedDecember 31,


December 31,


December 31,2004


2005


2006Cash flows from operating
    activities:Loss from continuing operations

$
(3,192,802
)

$
(6,283,888
)

$
(11,372,480
)Loss from discontinued operations


(426,344
)


(442,459
)Gain on sale and licensing of
    discontinued operations










781,003Net loss


(3,619,146
)


(6,726,347
)


(10,591,477
)Adjustments to reconcile net loss
    to net cash used in operating activities:Allowance for doubtful accounts


(9,000
)


(1,000
)Gain on sale of discontinued
    operations










(781,003
)Depreciation and amortization


35,860



49,098



138,358Noncash compensation and
    amortization of deferred compensation


172,950



672,800



874,241Common stock options and warrants
    issued for consulting fees


193,196



138,000



161,934Retirement of stock subscription
    receivable for consulting services






34,500Amortization of discount on
    marketable securities


(10,001
)


(33,502
)Imputed interest expense from
    bridge loan


80,000Changes in operating assets and
    liabilities:Decrease (increase) in receivables


20,662



8,128Decrease (increase) in inventories


3,110



(16,122
)Increase in prepaid expenses and
    other current assets


(36,211
)


(181,507
)


(132,694
)(Decrease) increase in accounts
    payable and accrued expenses


(7,676
)


332,110



196,193Increase (decrease) in deferred
    revenues


106,335



(106,335
)Increase (decrease) in other
    current liabilities


5,308



(456
)


(751
)Increase in other assets










(6,146
)Net cash used in operating
    activities


(3,064,613
)


(5,830,633
)


(10,141,345
)Cash flows from investing
    activities:Patent costs


(3,166
)


(5,316
)


(35,491
)Purchases of property and equipment


(88,884
)


(121,239
)


(508,547
)(Purchase) sale of marketable
    securities


(6,584,750
)


6,628,253Proceeds from sale and licensing of
    discontinued operations










500,000Net cash (used in) provided by
    investing activities


(6,676,800
)


6,501,698



(44,038
)Cash flows from financing
    activities:Proceeds from private placement
    financing










13,180,598Expenses related to private
    placement financing










(675,211
)Proceeds from exercise of stock
    options










88,065Proceeds from exercise of stock
    warrants










26,428Proceeds from Initial Public
    Offering






21,311,500Expenses related to Initial Public
    Offering






(3,624,972
)Proceeds from issuance of
    Series C preferred stock


9,171,480Expenses related to Series C
    preferred stock offering


(447,553
)Repayment of notes payable to
    stockholders


(48,000
)Proceeds from issuance of notes
    payable


920,000Proceeds from sale of common stock


137,500



38,732Net cash provided by financing
    activities


9,733,427



17,725,260



12,619,880Net (decrease) increase in cash and
    cash equivalents


(7,986
)


18,396,325



2,434,497Cash and cash equivalents at
    beginning of year


116,691



108,705



18,505,030Cash and cash equivalents at end
    of year

$
108,705


$
18,505,030


$
20,939,527Supplemental Cash Flow
    Information:Cash paid for interest

$
14,976Supplemental Schedule of Noncash
    Investing and Financing Activities:Receivable from sale and licensing
    of discontinued operations









$
487,680Notes payable exchanged for
    Series C preferred stock

$
1,015,000Preferred stock accretion

$
257,545


$
1,077,492Reclassification of inventories and
    patents to assets held for sale





$
156,677    57




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##### Table of Contents



ELECTRO-OPTICAL
    SCIENCES, INC.
  Notes
    to Financial Statements
 (In thousands, except for share and per share data)
 (For the Years Ended December 31, 2006, 2005 and
    2004)
  1.
    Principal
    Business Activities and Summary of Significant Accounting
    Policies:  Organization
    and Business
  point-of-care ® ® ® ®
  ® ® ® ® ® ®
  ® ®
  Business
    Segments
  Disclosures about Segments of an Enterprise and Related
    Information ®
  Cash
    and Cash Equivalents
   58




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##### Table of Contents



ELECTRO-OPTICAL
    SCIENCES, INC.
  Notes to
    Financial Statements  (Continued)
    Marketable
    Securities
  Accounting for Certain
    Investments in Debt and Equity Securities. Held-to-maturity
  Assets
    Held for Sale
  ®
  Property
    and Equipment
    Patents
    Revenue
    Recognition
  ® ®
  Income
    Taxes
      Estimates
   59




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##### Table of Contents



ELECTRO-OPTICAL
    SCIENCES, INC.
  Notes to
    Financial Statements  (Continued)
   Long-lived
    Assets
    Research
    and Development
    Stock-Based
    Compensation
  Accounting for Stock-Based
    Compensation Accounting for Stock-Based Compensation, Transition and
    Disclosure
  Year Ended December 31,2004


2005Net loss attributable to common
    stockholders, as reported

$
(4,553
)

$
(9,002
)Add: stock-based employee
    compensation included in reported net loss, net of income tax
    effect


173



638Deduct: stock-based employee
    compensation expense determined under fair-value-based method,
    net of related tax effect


(186
)


(539
)Pro forma net loss

$
(4,566
)

$
(8,903
)Basic and diluted loss per share,
    as reported

$
(2.58
)

$
(2.57
)Basic and diluted loss per share,
    pro forma

$
(2.58
)

$
(2.54
)     Year Ended December 31,2004

2005Expected volatility

60%


60
%Risk free interest rate

3.17% to 3.94%


4.39
%Stock option life (in years)

5


5Expected dividend yield

0%


0
%  60




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##### Table of Contents



ELECTRO-OPTICAL
    SCIENCES, INC.
  Notes to
    Financial Statements  (Continued)
  Share-Based Payment Accounting for Stock-Based Compensation catch-up
    No. 96-18, Accounting for Equity Instruments That Are Issued to Other
    Than Employees for Acquiring, or in Conjunction with Selling,
    Goods or Services. EITF 96-18.
  Financial
    Instruments
    Net
    Loss per Common Share
  Earnings Per
    Share
 61




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##### Table of Contents



ELECTRO-OPTICAL
    SCIENCES, INC.
  Notes to
    Financial Statements  (Continued)
    Year Ended December 31,2004


2005


2006Common stock options


965,203



1,115,415



1,689,412Warrants


2,758,923



298,280



626,845Redeemable convertible preferred
    stock


3,398,105



Total


7,122,231



1,413,695



2,316,257   Comprehensive
    loss
  available-for-sale available-for-sale available-for-sale
  Recent
    Accounting Developments
        Share-Based Payment
 62




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##### Table of Contents



ELECTRO-OPTICAL
    SCIENCES, INC.
  Notes to
    Financial Statements  (Continued)
    2.
    Marketable
    Securities:  held-to-maturity held-to-maturity available-for-sale
  3.
    Property
    and Equipment:    December 31,Estimated2005


2006


Useful LifeLeasehold improvements

$
86


$
154



Lease TermLaboratory and research equipment


131



497



5 yearsOffice furniture and equipment


190



265



5 years407



916Accumulated depreciation and
    amortization


232



352$
175


$
564     4.
    Patents:  ® ®
 63




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##### Table of Contents



ELECTRO-OPTICAL
    SCIENCES, INC.
  Notes to
    Financial Statements  (Continued)
   5.
    Commitments
    and Contingencies:    Year ended
    December 31,2007

$
2492008


2532009


1882010


105$
795     ®
    ® ® ® month-to-month
     64




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##### Table of Contents



ELECTRO-OPTICAL
    SCIENCES, INC.
  Notes to
    Financial Statements  (Continued)
     6.
    Employee
    Benefit Plan:    7.
    Stockholders
    Equity             65




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##### Table of Contents



ELECTRO-OPTICAL
    SCIENCES, INC.
  Notes to
    Financial Statements  (Continued)
      Accretion


Year EndedTotal


Period in


December 31,Amount


Months


2004


20052003 Series C financing costs

$
252



60


$
51


$
422004 Series C financing costs


448



44



20



102Value of Series C warrants


2,643



44



120



601Beneficial Conversion 
    Series C


1,465



44



67



333Total

$
4,808






$
258


$
1,078   Form S-1, No. 33-125517),
     66




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##### Table of Contents



ELECTRO-OPTICAL
    SCIENCES, INC.
  Notes to
    Financial Statements  (Continued)
  Form S-3 (file #333-139056)
    8.
    Stock-Based
    Compensation and Warrants:  Stock
    Options
            For the TwelveMonths EndedDecember 31, 2006Expected life


5 yearsExpected volatility


60
%Risk-free interest rate


5.04
%Dividend yield


0
%      67




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##### Table of Contents



ELECTRO-OPTICAL
    SCIENCES, INC.
  Notes to
    Financial Statements  (Continued)
     WeightedWeighted


AverageAverage


RemainingExercise


Contractual


AggregateNumber of


Price per


Term in


IntrinsicShares


Share


Years


ValueOutstanding at January 1, 2004


290,678


$
1.12Granted


679,525



.46ExercisedForfeited or expired


(5,000
)


1.00Outstanding at December 31,
    2004


965,203



.66Granted


212,780



2.43






$
248Exercised


(50,881
)


.76Forfeited or expired


(11,687
)


4.85Outstanding at December 31,
    2005


1,115,415



.95



4.4



4,935Granted


748,822



5.56



4.1



1,259Exercised


(135,450
)


.65



N/A



730Forfeited or expired


(39,375
)


6.76



N/A



11Outstanding at December 31,
    2006


1,689,412



2.88



4.2



7,331Vested and exercisable at
    December 31, 2006


588,284



2.47



4.2



2,783       Options OutstandingWeighted-





Options ExercisableAverage


Weighted-





Weighted-Remaining


Average





AverageNumber


Contractual


Exercise


Number


ExerciseRange of Exercise Prices

Outstanding


Life


Price


Exercisable


Price$ .01-$ .46


851,508



2.6 years


$
.46



208,753


$
.46$ .47-$1.00


182,904



5.2 years



1.00



181,031



1.00$1.01-$7.75


655,000



4.4 years



6.55



198,500



5.92$ .01-$7.75


1,689,412



4.2 years


$
2.88



588,284


$
2.47      68




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##### Table of Contents



ELECTRO-OPTICAL
    SCIENCES, INC.
  Notes to
    Financial Statements  (Continued)
      ® ® ®
           69




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##### Table of Contents



ELECTRO-OPTICAL
    SCIENCES, INC.
  Notes to
    Financial Statements  (Continued)
       Warrants
  5-year 7-year
  5-year
    9.
    Related
    Party Consulting Agreements (see Note 5):    Consulting
    Agreement with Breaux Castleman
  ®
  Consulting
    Agreement with Marek Elbaum, Ph.D.
    Consulting
    Agreement with Robert Friedman, M.D.
   70




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##### Table of Contents



ELECTRO-OPTICAL
    SCIENCES, INC.
  Notes to
    Financial Statements  (Continued)
  ®
  Consulting
    Agreement with Gerald Wagner, Ph.D. (see also Note 5
    and Note 8)
  ®
    10.
    Sale and
    Licensing of Discontinued Operations:  ® ® ® ® ®
  ®
  ®
  11.
    Income
    Taxes:   71




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##### Table of Contents



ELECTRO-OPTICAL
    SCIENCES, INC.
  Notes to
    Financial Statements  (Continued)
     Year Ended December 31,2004


2005


2006Computed expected tax benefit

$
(1,085
)

$
(2,136
)

$
(3,866
)State tax benefit, net of federal
    effect


(192
)


(377
)


(682
)Increase in the valuation allowance


1,277



2,513



4,548Provision for income taxes

$



$



$
     December 31,2005


2006Deferred tax assets:Net operating loss carryforwards

$
5,599


$
6,621Capitalized research and
    developmental costs


1,452



4,252Non-cash compensation


505



919Total deferred tax assets


7,556



11,792Less valuation allowance


(7,556
)


(11,792
)Net deferred tax assets

$



$
      72




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##### Table of Contents



ELECTRO-OPTICAL
    SCIENCES, INC.
  Notes to
    Financial Statements  (Continued)
  12.
    Quarterly
    Operating Results (Unaudited)    Quarter EndedMarch 31,


June 30,


September 30,


December 31,2006Loss from continuing operations

$
(2,889
)

$
(2,928
)

$
(2,425
)

$
(3,130
)Gain on sale of discontinued
    operations













$
781Net Loss

$
(2,889
)

$
(2,928
)

$
(2,425
)

$
(2,349
)Net loss attributable to common
    stockholders

$
(2,889
)

$
(2,928
)

$
(2,425
)

$
(2,349
)Basic and diluted net loss per
    share of common stock

$
(0.27
)

$
(0.27
)

$
(0.22
)

$
(0.18
)2005Loss from continuing operations

$
(1,114
)

$
(1,365
)

$
(1,371
)

$
(2,434
)Loss from discontinued operations

$
(129
)

$
(201
)

$
(72
)

$
(40
)Net Loss

$
(1,243
)

$
(1,566
)

$
(1,443
)

$
(2,474
)Net loss attributable to
    common stockholders

$
(1,928
)

$
(2,247
)

$
(2,125
)

$
(2,702
)Basic and diluted net loss per
    share of common stock

$
(1.07
)

$
(1.24
)

$
(1.14
)

$
(0.32
)  73




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##### Table of Contents



Item 9.
    Changes
    in and Disagreements With Accountants on Accounting and
    Financial Disclosure    Item 9A.
    Controls
    and Procedures.  Evaluation
    of disclosure controls and procedures
  Rules 13a-15(e) 15d-15(e) Form 10-K Form 10-K.
  Change
    in internal control over financial reporting
    Limitations
    on the effectiveness of controls
    Item 9B.
    Other
    Information.   PART III  Item 10.
    Directors
    and Executive Officers of the Registrant    Item 11.
    Executive
    Compensation    Item 12.
    Security
    Ownership of Certain Beneficial Owners and
    Management    Item 13.
    Certain
    Relationships and Related Transactions   74




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##### Table of Contents



Item 14.
    Principal
    Accountant Fees and Services   PART IV  Item 15.
    Exhibits
    and Financial Statement Schedules  Exhibits and Financial Statement Schedules:
  Financial Statements
    Financial Statement Schedules
    Exhibits
  Regulation S-K
 75




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##### Table of Contents



EXHIBIT INDEX
  ExhibitNumber

Exhibit Title3
.1

Fourth Amended and Restated
    Certificate of Incorporation of the Registrant.(1)3
.2

Third Amended and Restated Bylaws
    of the Registrant.(2)4
.1

Specimen Stock Certificate.(2)4
.2

Second Amended and Restated
    Investors Rights Agreement dated as of October 26,
    2004 by and among the Registrant and the parties listed
    therein.(3)4
.3

Form of Warrant.(7)10
.1*

Form of Indemnification Agreement
    for directors and executive officers.(2)10
.2*

1996 Stock Option Plan.(3)10
.3*

2003 Stock Incentive Plan, as
    amended.(3)10
.4*

2005 Stock Incentive Plan.(2)10
.5*

Employment Agreement dated as of
    January 5, 2004 between the Registrant and Joseph V.
    Gulfo.(3)10
.6

Consulting Agreement dated as of
    May 31, 2005 between the Registrant and Marek Elbaum.(3)10
.7

Lease Agreement dated as of
    December 16, 1998, by and between the Registrant and Bridge
    Street Properties LLC, for office space located at One Bridge
    Street, Irvington, New York.(3)10
.8

First Amendment to the Lease
    Agreement dated as of May 17, 2001 by and between the
    Registrant and Bridge Street Properties LLC.(3)10
.9

Second Amendment to the Lease
    Agreement dated as of June 19, 2003 by and between the
    Registrant and Bridge Street Properties LLC.(3)10
.10

Lease Agreement dated as of
    November 23, 2004, by and between the Registrant and Bridge
    Street Properties LLC, for office space located at 3 West
    Main Street, Irvington, New York.(3)10
.11*

Consulting Agreement dated as of
    June 1, 2005 between the Registrant and Gerald Wagner
    Consulting, LLC.(1)10
.12*

Consulting Agreement dated as of
    June 20, 2003 between the Registrant and Breaux Castleman,
    as amended.(1)10
.13

Consulting Agreement dated as of
    June 1, 2005 between the Registrant and Robert Friedman,
    M.D.(1)10
.14

Task Order Agreement dated as of
    July 13, 2005 between the Registrant and Battelle Memorial
    Institute.(2)10
.15

Third Amendment dated as of
    June 6, 2005, by and between the Registrant and Bridge
    Street Properties LLC, for office space located at 1 Bridge
    Street, Irvington, New York.(1)10
.16

Production Agreement between the
    Registrant and ASKION GmbH dated as of January 25, 2006.(4)10
.17*

Amended and Restated Consulting
    Agreement effective as of April 1, 2006 between the
    Registrant and Gerald Wagner Consulting LLC.(11)10
.18*

Resignation Agreement, dated
    April 24, 2006, between the Registrant and Karen
    Krumeich.(5)10
.19*

Employment Offer Letter, dated
    April 24, 2006, between the Registrant and Richard I.
    Steinhart.(5)10
.20*

Employment Offer Letter, dated
    May 30, 2006, between the Registrant and Christiano S.
    Butler.(6)10
.21

Securities Purchase Agreement
    among the Registrant and the purchasers identified on the
    signature pages thereto, dated as of October 31, 2006.(8)10
.22

Securities Purchase Agreement
    among the Registrant and the purchasers identified on the
    signature pages thereto, dated as of October 31, 2006.(8)10
.23

Registration Rights Agreement
    among the Registrant and the purchasers identified on the
    signature pages thereto, dated as of October 31, 2006.(8)10
.24

Placement Agency Agreement by and
    between the Registrant and Jefferies & Company, Inc.,
    dated as of October 31, 2006.(7)10
.25

Licensing Agreement between the
    Registrant and KaVo Dental GmbH, dated as of December 5,
    2006.(9)10
.26*

Amendment No. 1 to Amended
    and Restated Consulting Agreement dated as of January 30,
    2007 by and among the Registrant, Gerald Wagner and Gerald
    Wagner Consulting LLC. (10) 76




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##### Table of Contents



ExhibitNumber

Exhibit Title21
.1#

Subsidiaries of Registrant.23
.1#

Consent of Eisner LLP31
.1#

Certification of Chief Executive
    Officer Pursuant to Section 302 of the Sarbanes-Oxley Act
    of 2002.31
.2#

Certification of Chief Financial
    Officer Pursuant to Section 302 of the Sarbanes-Oxley Act
    of 2002.32
.1#

Certification of Chief Executive
    Officer and Chief Financial Officer Pursuant to Section 906
    of the Sarbanes-Oxley Act of 2002.     *
    
    Indicates management compensatory plan, contract or arrangement(1)
    
    Incorporated by reference to the Registrants Registration
    Statement on
    Form S-1,
    as amended (File
    No. 333-125517),
    as filed on July 15, 2005.(2)
    
    Incorporated by reference to the Registrants Registration
    Statement on
    Form S-1,
    as amended (File
    No. 333-125517),
    as filed on August 8, 2005.(3)
    
    Incorporated by reference to the Registrants Registration
    Statement on
    Form S-1,
    as amended (File
    No. 333-125517),
    as filed on June 3, 2005.(4)
    
    Incorporated by reference to the Registrants Current
    Report on
    Form 8-K
    filed on January 31, 2006.(5)
    
    Incorporated by reference to the Registrants Current
    Report on
    Form 8-K
    filed on April 27, 2006.(6)
    
    Incorporated by reference to the Registrants Current
    Report on
    Form 8-K
    filed on June 2, 2006.(7)
    
    Incorporated by reference to the Registrants Current
    Report on
    Form 8-K
    filed on November 1, 2006.(8)
    
    Incorporated by reference to the Registrants Current
    Report on
    Form 8-K
    filed on November 8, 2006.(9)
    
    Incorporated by reference to the Registrants Current
    Report on
    Form 8-K
    filed on December 11, 2006.(10)
    
    Incorporated by reference to the Registrants Current
    Report on
    Form 8-K
    filed on January 31, 2007.(11)
    
    Incorporated by reference to the Registrants Annual Report
    on
    Form 10-K
    filed on March 29, 2006.#
    
    Filed herewith. 77




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##### Table of Contents



SIGNATURES
    ELECTRO-OPTICAL SCIENCES, INC.
  By:
    /s/  Joseph
    V. Gulfo          Signature

Title

Date/s/  Joseph
    V. Gulfo, M.D.Joseph
    V. Gulfo, M.D.

Director, President and
    Chief Executive Officer
    (Principal Executive Officer)

March 15, 2007/s/  Richard
    I. SteinhartRichard
    I. Steinhart

Vice President, Finance and
    Chief Financial Officer
    (Principal Financial and Accounting Officer)

March 15, 2007/s/  Breaux
    CastlemanBreaux
    Castleman

Chairman of the Board of Directors

March 15, 2007/s/  Sidney
    BraginskySidney
    Braginsky

Director

March 15, 2007/s/  George
    C. ChryssisGeorge
    C. Chryssis

Director

March 15, 2007/s/  Martin
    D. ClearyMartin
    D. Cleary

Director

March 15, 2007/s/  Dan
    W. LufkinDan
    W. Lufkin

Director

March 15, 2007/s/  Gerald
    Wagner, PhD.Gerald
    Wagner, PhD.

Director

March 15, 2007  78