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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 1934
 For the fiscal year ended December 31, 2009
 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.)
 50 South Buckhout Street, Suite 1
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
 o
 o o
  Large accelerated filer o
Accelerated filer þ
Non-accelerated filer o(Do not check if a smaller reporting company)
Smaller reporting company o o þ
  DOCUMENTS INCORPORATED BY REFERENCE




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ELECTRO-OPTICAL SCIENCES, INC.
2009 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
 PagePART IItem 1.
    
    Business
    
    
    2Item 1A.
    
    Risk Factors
    
    
    19Item 1B.
    
    Unresolved Staff Comments
    
    
    37Item 2.
    
    Properties
    
    
    37Item 3.
    
    Legal Proceedings
    
    
    37Item 4.
    
    Reserved
    
    
    37PART IIItem 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    38Item 6.
    
    Selected Financial Data
    
    
    39Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    40Item 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    49Item 8.
    
    Financial Statements and Supplementary Data
    
    
    49Item 9.
    
    Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
    
    
    68Item 9A.
    
    Controls and Procedures
    
    
    68Item 9B.
    
    Other Information
    
    
    70PART IIIItem 10.
    
    Directors, Executive Officers, and Corporate Governance
    
    
    70Item 11.
    
    Executive Compensation
    
    
    70Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    70Item 13.
    
    Certain Relationships and Related Transactions, and Director Independence
    
    
    71Item 14.
    
    Principal Accountant Fees and Services
    
    
    71PART IVItem 15.
    
    Exhibits and Financial Statements Schedules
    
    
    71EX-21.1: SUBSIDIARIES OF THE REGISTRANT
    
    
    76EX-23.1: CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
    
    
    77EX-31.1: CERTIFICATION
    
    
    78EX-31.2: CERTIFICATION
    
    
    79EX-32.1: CERTIFICATIONS
    
    
    80EX-21.1EX-23.1EX-31.1EX-31.2EX-32.1
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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
 ®
 ®
 
    
    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; and
    
    our lesion classifiers, which are sophisticated mathematical algorithms that extract lesion feature
information and classify lesions.
 ® ® ® ® ®
 ®
  2




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A B C D E
 ® ®
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 The Market Opportunity
  3




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Journal of Investigative
Dermatology
 Our Strategy
 ®
 
    
    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 ten US patents. We will
continue to refine and optimize this technology in order to
position MelaFind® as the leading system for
assisting in the detection of melanoma.
    
    Pursue the timely FDA approval of MelaFind®.
We have entered into a binding Protocol Agreement with the US Food
and Drug Administration (FDA), which is an agreement for the
conduct of the pivotal trial in order to establish the safety and
effectiveness of MelaFind®. The FDA has
informed us that the MelaFind® premarket
approval, or PMA, application would receive expedited review.
Expedited review means that the FDA will conduct a team review and
prioritize the PMA application. Upon obtaining PMA approval from
the FDA, we plan to commercially launch
MelaFind® in the United States.
    
    Commercialize MelaFind®using multiple sales
and marketing strategies.Our internal sales and marketing effort
will commence following PMA approval and it will focus initially on
high volume, integrated dermatology practices and skin cancer
specialists, in key regions of the US. To enter the larger general
dermatology and primary care markets in the US, and for
international markets, we may establish partnerships with
pharmaceutical and/or diagnostic/device companies which have an
established presence in these markets. We intend to commence sales
of MelaFind® in selected US markets
immediately upon receiving PMA approval. The plan is for
physicians to offer examinations with
MelaFind® to their patients on a self-pay per
patient basis creating a recurring revenue stream. Once there is
sufficient evidence to support favorable coding and coverage
decisions and to obtain appropriate payment levels, we may pursue
national coverage decisions from the Centers for Medicare and
Medicaid Services (CMS) and private payers for third-party
reimbursement.
  Limitations of Current Melanoma Diagnosis
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MelaFind ® Product Description
 ® ® ® ®
 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 in vivo ®
 Our lesion classifiers . ® Lesion Classifier, Lesion Classifiers Lesion
Classifiers Lesion Classifier Lesion Classifiers ®
 ® sensitivity specificity ® Lesion Classifier ®
 ®
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History of MelaFind ®
 MelaFind ® Pivotal Clinical Trial History
 ®
 ®
 ®
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®
 ® ®
  Hardware and Software History
 ® ®
 ® ®
 ® ®
 ® ®
 MelaFind ® Sales and Marketing
 ®
 ® ®
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##### Table of Contents



The MelaFind ®
 ® ®
 ® ®
 Our Reimbursement Strategy
 ®
 ®
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® ® ® ® ® ®
 ®
 Competition
 ®
 A B C D E
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®
   tm tm tm tm
 ®
 Manufacturing
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Research and Development Efforts
  ® tm ® tm tm tm ®
 ® ®
  Intellectual Property
 ® ® ® ®
  ®
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® ® ®
 www.melasciences.com www.eo-sciences.com www.eosciences.com www.melafind.com www.mela.us.com www.melafind.info www.melafind.net www.melafind.org www.melafind.us melafinder.com www.melainc.com, www.difoti.com www.skinsurf.com.
  US Patents Relating to Melanoma Detection
 Patent #
    
    
    Title
    
    Issued
    
    ExpirationSystems and Methods for the
Multispectral Imaging and6,081,612
    
    
    Characterization of Skin Tissue
    
    06/27/00
    
    02/27/18Systems and Methods for the
Multispectral Imaging and6,208,749
    
    
    Characterization of Skin Tissue
    
    03/27/01
    
    02/27/18Multispectral Imaging and Characterization of Biological6,307,957
    
    
    Tissue
    
    10/23/01
    
    02/27/20Apparatus for Uniform Illumination6,626,558
    
    
    of an Object
    
    09/30/03
    
    08/31/21Method for Optimizing the Number
of Good Assemblies Manufacturable6,657,798
    
    
    From a Number of Parts
    
    12/02/03
    
    02/10/236,710,947
    
    
    Method for Assembling Lens Elements
    
    03/23/04
    
    02/27/23Integrated
CMOS Imaging Array & Dark Current Monitor7,102,672
    
    
    Method of Controlling Data
    
    09/05/06
    
    01/10/247,127,094
    
    
    Gathered at Remote Locations
    
    10/24/06
    
    03/11/25D xxx,xxxx
    
    
    Medical Cart
    
    TBD
    
    TBDD xxx,xxxx
    
    
    Table Structure of a Medical Cart
    
    TBD
    
    TBD
 Filed Non-Provisional US Patent Applications Relating to Melanoma Detection
 Published Pat Appl Ser #
    
    Title
    
    FiledUS2008/0031537A1
    
    Reducing noise in Digital Images
    
    08/09/06US2008/0214907A1
    
    Quantitative Analysis of Skin Characteristics
    
    03/02/07US2008/0312952A1
    
    Regulating Use of a Device to Perform a
Procedure on a Subject
    
    06/12/07US2009/0154781A1
    
    Characterizing a Texture of an Image
    
    12/14/07US2009/0060304A1
    
    Dermatology Information
    
    09/04/08WO2009/079367A1
    
    Characterizing a Texture of an Image
(Continuation-in-Part)
    
    12/12/08Not yet published
    
    Medical Cart
    
    07/30/09Not yet published
    
    Storage Card
    
    07/30/09
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® ® ® ® ®
 ® ®
 ® ® ®
 ® ® ® ® ®
 ®
  FDA Regulation
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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.
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®
 ®
   
    
    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
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
    
    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.
   
    
    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.
  Non-FDA Government Regulation
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
    
    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 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 U.S. Department of Health and Human
Services (HHS) to impose civil penalties administratively for fraudulent or abusive acts.
   qui tam
 Environmental Regulation
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International Regulation
   Product Liability and Insurance
 ® ® ® ® ®
 Employees
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Discontinued Business
 ® ®
 Other
 www.melasciences.com www.eosciences.com www.melasciences.com www.eosciences.com
 
 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 to the FDAs satisfaction;
    
    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 continuing 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 continued
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.
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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.
 ® ® ® ® ®
 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 payers. The markets for
MelaFind ® may also be limited by the indications for which its use may be
reimbursed.
  ® ® ® ®
 ® ®
  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 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.
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tm tm ® ® ® ® ®
 For any additional clinical trials required for MelaFind ® by the FDA or with
respect to clinical trials relating to the development of our core technology for other
applications, we depend on clinical investigators and clinical sites 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.
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
    
    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.
 ® ®
 ® ®
 MelaFind ® may never achieve market acceptance even if we obtain regulatory
approvals.
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
    
    perceived effectiveness of MelaFind®;
    
    convenience of use;
    
    cost of 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.
 ® ® ® ® ® ® ® ® ® ®
 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 clinical trials;
    
    the success of our research and development efforts;
    
    the costs and timing of regulatory approval;
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
    
    reimbursement amounts for the use of MelaFind® that we are able
to obtain from Medicare and third party payers;the amount of direct payments we are able to obtain from patients and/or physicians utilizing
MelaFind®;
    
    the cost of commercialization activities, including products, product marketing and
building a domestic direct sales force;
    
    the emergence of competing or complementary technological developments;
    
    the costs of filing, prosecuting, defending and enforcing any patent claims and other
rights, including litigation costs and the results of such litigation;
    
    the costs involved in defending any patent infringement actions brought against us by
third parties; and
    
    our ability to establish and maintain any collaborative, licensing or other
arrangements, and the terms and timing of any such arrangements.
   If we are unable to establish sales, marketing and distribution capabilities or enter into and
maintain arrangements with third parties to sell, market and distribute
MelaFind ® , our business may be harmed.
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We have limited manufacturing capabilities and manufacturing personnel, and if our manufacturing
capabilities are insufficient to produce an adequate supply of MelaFind ® , our growth
could be limited and our business could be harmed.
 ® ® ®
 ® ®
 ® ®
 ®
 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.
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
    
    suppliers may make errors in manufacturing components that could negatively impact 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.
  ® ®
 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 U.S.
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.
  Healthcare policy changes, including legislation pending in the U.S. Congress to reform the U.S.
healthcare system, may have a material adverse effect on us.
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We must comply with complex statutes prohibiting fraud and abuse, and both we and physicians
utilizing MelaFind ® could be subject to significant penalties for
noncompliance.
 ® ® ®
 The application of the privacy provisions of HIPAA is uncertain.
 ®
 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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® ®
  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.
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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.
 ® ®
 ®
 Our success will depend on our ability to attract and retain our personnel.
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®
  Our financial results for future periods will be affected by the attainment of milestones.
 ®
 Risks Relating to our Common Stock
 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 could have
an adverse effect on our stock price.
  An active trading market for our common stock may not be sustained.
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Our stock price may 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, which could be dilutive to our shareholders.
  Our charter documents and Delaware law may inhibit a takeover that stockholders consider favorable
and could also limit the market price of our stock.
  36




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##### Table of Contents




    
    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
  
 Item 3. Legal Proceedings
  
 Itelm 4. Reserved
 37




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##### Table of Contents



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, 2009October 1  December 31, 2009
    
    $
    11.73
    
    
    $
    7.85July 1  September 30, 2009
    
    $
    10.95
    
    
    $
    6.18April 1  June 30, 2009
    
    $
    8.75
    
    
    $
    4.35January 1 March 31, 2009
    
    $
    7.50
    
    
    $
    3.00Year Ended December 31, 2008October 1  December 31, 2008
    
    $
    5.37
    
    
    $
    2.29July 1  September 30, 2008
    
    $
    7.98
    
    
    $
    4.50April 1  June 30, 2008
    
    $
    9.99
    
    
    $
    5.71January 1 March 31, 2008
    
    $
    6.50
    
    
    $
    3.84
  Dividend Policy
   Securities Authorized For Issuance Under Equity Compensation Plans
  Use of Proceeds from the Sale of Registered Securities
  38




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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, 2007, 2008, and 2009 and as of December 31, 2008 and 2009 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, 2005 and 2006 and as of
December 31, 2005, 2006, and 2007 have 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 31,2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009(In thousands, except share and per share data)Statements of Operations Data:Research and development expenses
    
    $
    3,822
    
    
    $
    7,574
    
    
    $
    7,678
    
    
    $
    12,508
    
    
    $
    10,950General and administrative expenses
    
    
    2,636
    
    
    
    4,526
    
    
    
    5,400
    
    
    
    5,766
    
    
    
    7,631Operating loss from continuing
operations
    
    
    (6,458
    )
    
    
    (12,100
    )
    
    
    (13,078
    )
    
    
    (18,274
    )
    
    
    (18,581
    )Interest income
    
    
    (174
    )
    
    
    (728
    )
    
    
    (1,054
    )
    
    
    (468
    )
    
    
    (45
    )Other income, net
    
    
    
    
    
    
    
    
    
    
    (59
    )
    
    
    (201
    )
    
    
    (83
    )Loss from continuing operations
    
    
    (6,284
    )
    
    
    (11,372
    )
    
    
    (11,965
    )
    
    
    (17,605
    )
    
    
    (18,453
    )(Loss) gain from discontinued
operations
    
    
    (442
    )
    
    
    781
    
    
    
    28
    
    
    
    
    
    
    
    Net loss
    
    
    (6,726
    )
    
    
    (10,591
    )
    
    
    (11,937
    )
    
    
    (17,605
    )
    
    
    (18,453
    )Preferred stock deemed dividends
    
    
    (1,199
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Preferred stock accretion
    
    
    (1,077
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net loss attributable to
common stockholders
    
    $
    (9,002
    )
    
    $
    (10,591
    )
    
    $
    (11,937
    )
    
    $
    (17,605
    )
    
    $
    (18,453
    )Net loss per share, basic and
diluted:Continuing operations
    
    $
    (2.44
    )
    
    $
    (1.01
    )
    
    $
    (0.84
    )
    
    $
    (1.08
    )
    
    $
    (.96
    )Discontinued operations
    
    
    (0.13
    )
    
    
    .07
    
    
    
    
    
    
    
    
    
    
    
    Basic and diluted net loss per
common share
    
    $
    (2.57
    )
    
    $
    (.94
    )
    
    $
    (.84
    )
    
    $
    (1.08
    )
    
    $
    (.96
    )Basic and diluted weighted
average number of common shares
outstanding
    
    
    3,508,835
    
    
    
    11,293,783
    
    
    
    14,220,466
    
    
    
    16,282,176
    
    
    
    19,293,761
 As of December 31,2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009(In thousands, except share and per share data)Balance Sheet Data:Total current assets
    
    $
    18,873
    
    
    $
    21,771
    
    
    $
    21,328
    
    
    $
    15,836
    
    
    $
    30,338Total assets
    
    
    19,166
    
    
    
    22,476
    
    
    
    22,108
    
    
    
    16,620
    
    
    
    32,127Total liabilities
    
    
    916
    
    
    
    1,162
    
    
    
    1,336
    
    
    
    1,530
    
    
    
    1,811Accumulated deficit
    
    
    (20,633
    )
    
    
    (31,225
    )
    
    
    (43,162
    )
    
    
    (60,767
    )
    
    
    (79,220
    )Total stockholders equity
    
    
    18,249
    
    
    
    21,314
    
    
    
    20,772
    
    
    
    15,089
    
    
    
    30,316
 39




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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, 2009 and the related notes appearing in Part II Item 8 of this report.
 Overview
 ® ® ®
 ®
  ® ® ® ® ®
  ®
  40




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##### Table of Contents



We believe that the proceeds from these transactions will be sufficient to fund our
anticipated level of operations for at least the next twelve months. We will however need to raise
additional funds in order to achieve significant commercialization of
MelaFind® and generate significant revenues.
    ® ® ® ®
 General and administrative expenses consist primarily of salaries and related expenses and
general corporate activities and costs associated with our efforts toward development of a
commercial infrastructure to market and sell MelaFind®. We expect selling,
general and administrative expenses to increase as we build our sales force and marketing
capabilities to support placing MelaFind® in selected markets.
 41




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##### Table of Contents



Critical Accounting Policies and Significant Judgments and Estimates
   Revenue Recognition
 ® ®
 Stock-Based Compensation
  We record compensation expense associated with stock options and other forms of equity
compensation in accordance with FASB ASC 718, Compensation-Stock Compensation, as interpreted by
SEC Staff Accounting Bulletins No. 107 and No. 110. A compensation charge is recorded, when it is
probable that performance conditions will be satisfied, over the period estimated to satisfy the
performance condition. The probability of vesting is updated at each reporting period and
compensation is adjusted prospectively.
  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
 42




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##### Table of Contents




    
    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, 2009 Compared to Year Ended December 31, 2008
 Research and Development Expense
 ®
 General and Administrative Expense
 ®
 Interest (Income)/Expense
  Other Income, net
   ® ® ® ® ®
  43




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##### Table of Contents



Year Ended December 31, 2008 Compared to Year Ended December 31, 2007
 Research and Development Expense
  ® ® ®
 General and Administrative Expense
  Interest (Income)/Expense
  Other Income, net
 ® ® ®
 Liquidity and Capital Resources (in thousands)
   44




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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
 ® ® ® ® ®
 ®
 
    
    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®;
 45




---



##### Table of Contents




    
    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;
    
    our ability to establish and maintain any collaborative, licensing or other arrangements, and the
terms and timing of any such arrangements; and
    
    Our sales model, which limits the capital cost of MelaFind® to the physician, thereby
increasing the initial capital burden on us.
 Contractual Obligations
   Contractual ObligationsLess Than
    
    
    
    
    
    
    
    
    
    More ThanTotal
    
    1 Year
    
    1-3 Years
    
    3-5 Years
    
    5 Years(Dollars in thousands)Operating Leases
    
    $
    2,952
    
    
    $
    354
    
    
    $
    792
    
    
    $
    894
    
    
    $
    912Total
    
    $
    2,952
    
    
    $
    354
    
    
    $
    792
    
    
    $
    894
    
    
    $
    912
  Related Party Transactions
 Consulting Agreement with Breaux Castleman
 ®
 Consulting Agreement with Marek Elbaum, Ph.D.
  Consulting Agreement with Robert Friedman, M.D.
  46




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##### Table of Contents



Consulting Agreement with Gerald Wagner, Ph.D. (see also Note 8)
 ®
  Consulting Agreement with Anne Egger
  Off-Balance Sheet Arrangements
  Recently Adopted Accounting Pronouncements
  47




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Recent Accounting Pronouncements
    48




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##### Table of Contents



Item 7A. Quantitative and Qualitative Disclosures about Market Risk
  
 Item 8. Financial Statements and Supplementary Data
 INDEX TO FINANCIAL STATEMENTS
 PageReport of Independent Registered Public Accounting Firm
    
    
    50Balance Sheets as of December 31, 2008 and 2009
    
    
    51Statements of Operations for the years ended December 31, 2007, 2008 and 2009
    
    
    52Statements of Stockholders Equity for the years ended December 31, 2007, 2008 and 2009
    
    
    53Statements of Cash Flows for the years ended December 31, 2007, 2008 and 2009
    
    
    54Notes to Financial Statements
    
    
    55
 49




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Report of Independent Registered Public Accounting Firm
 
      
 50




---



##### Table of Contents



ELECTRO-OPTICAL SCIENCES, INC.
BALANCE SHEETS
 December 31,
    
    
    December 31,2008
    
    
    2009ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    15,069,939
    
    
    $
    29,673,420Marketable securities
    
    
    390,512
    
    
    
    Prepaid expenses and other current assets
    
    
    375,612
    
    
    
    664,962Total Current Assets
    
    
    15,836,063
    
    
    
    30,338,382Property and equipment, net
    
    
    643,383
    
    
    
    1,571,956Patents and trademarks, net
    
    
    94,908
    
    
    
    83,008Deferred financing costs
    
    
    
    
    
    
    85,570Other assets
    
    
    45,276
    
    
    
    48,000Total Assets
    
    $
    16,619,630
    
    
    $
    32,126,916LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Accounts payable (includes related parties of $17,500 as of
December 31, 2008, and $6,921 as of December 31, 2009)
    
    $
    634,394
    
    
    $
    1,187,201Accrued expenses
    
    
    832,228
    
    
    
    590,600Deferred income
    
    
    36,085
    
    
    
    Other current liabilities
    
    
    27,466
    
    
    
    33,285Total Current Liabilities
    
    
    1,530,173
    
    
    
    1,811,086COMMITMENTS AND CONTINGENCIES (Note 5)Stockholders Equity:Preferred stock  $0.10 par value; authorized 10,000,000 shares:Issued and outstanding: none
    
    
    
    
    
    
    Common stock  $0.001 par value; authorized 30,000,000 shares:Issued and outstanding 17,634,498 and 22,354,317 shares at
December 31, 2008 and 2009, respectively.
    
    
    17,634
    
    
    
    22,354Additional paid-in capital
    
    
    75,845,953
    
    
    
    109,513,582Accumulated other comprehensive loss
    
    
    (6,868
    )
    
    
    Accumulated deficit
    
    
    (60,767,262
    )
    
    
    (79,220,106
    )Total Stockholders Equity
    
    
    15,089,457
    
    
    
    30,315,830Total Liabilities and Stockholders Equity
    
    $
    16,619,630
    
    
    $
    32,126,916
  51




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ELECTRO-OPTICAL SCIENCES, INC.
STATEMENTS OF OPERATIONS
 Year EndedDecember 31,
    
    
    December 31,
    
    
    December 31,2007
    
    
    2008
    
    
    2009Operating expenses:Research and development
    
    $
    7,677,578
    
    
    $
    12,507,959
    
    
    $
    10,950,114General and administrative
    
    
    5,400,371
    
    
    
    5,766,238
    
    
    
    7,631,251Operating loss from continuing operations
    
    
    (13,077,949
    )
    
    
    (18,274,197
    )
    
    
    (18,581,365
    )Interest income
    
    
    (1,054,130
    )
    
    
    (467,587
    )
    
    
    (45,259
    )Other income, net
    
    
    (58,567
    )
    
    
    (201,579
    )
    
    
    (83,262
    )(1,112,697
    )
    
    
    (669,166
    )
    
    
    (128,521
    )Loss from continuing operations
    
    
    (11,965,252
    )
    
    
    (17,605,031
    )
    
    
    (18,452,844
    )Gain on sale and licensing of discontinued operations
    
    
    27,808
    
    
    
    
    
    
    
    Net loss
    
    $
    (11,937,444
    )
    
    $
    (17,605,031
    )
    
    $
    (18,452,844
    )Basic and diluted net loss per common share
    
    $
    (0.84
    )
    
    $
    (1.08
    )
    
    $
    (.96
    )Basic and diluted weighted average number of
common shares outstanding
    
    
    14,220,466
    
    
    
    16,282,176
    
    
    
    19,293,761
  52




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ELECTRO-OPTICAL SCIENCES, INC.
STATEMENTS OF STOCKHOLDERS EQUITY
Years Ended December 31, 2007, 2008 and 2009
 Accumulated
    
    
    
    
    
    
    TotalAdditional
    
    
    Other
    
    
    
    
    
    
    StockholdersCommon Stock
    
    
    Paid-in
    
    
    Comprehensive
    
    
    Accumulated
    
    
    EquityShares
    
    
    Amount
    
    
    Capital
    
    
    Loss
    
    
    Deficit
    
    
    (Deficiency)Balance at January 1, 2007
    
    
    13,296,448
    
    
    $
    13,296
    
    
    $
    52,525,408
    
    
    
    
    
    
    $
    (31,224,787
    )
    
    $
    21,313,917Exercise of options
    
    
    105,256
    
    
    
    106
    
    
    
    114,421
    
    
    
    
    
    
    
    
    
    
    
    114,527Issuance of shares of common
stock and warrants in
connection with private
placement (net of expenses)
    
    
    2,000,178
    
    
    
    2,000
    
    
    
    10,713,847
    
    
    
    
    
    
    
    
    
    
    
    10,715,847Issuance of options to
consultant
    
    
    
    
    
    
    
    
    
    
    139,703
    
    
    
    
    
    
    
    
    
    
    
    139,703Share-based compensation
expense
    
    
    
    
    
    
    
    
    
    
    437,310
    
    
    
    
    
    
    
    
    
    
    
    437,310Other comprehensive
income/(loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,136
    )
    
    
    
    
    
    
    (12,136
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,937,444
    )
    
    
    (11,937,444
    )Comprehensive loss
(sub-total)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,949,580
    )Balance at December 31, 2007
    
    
    15,401,882
    
    
    $
    15,402
    
    
    $
    63,930,689
    
    
    $
    (12,136
    )
    
    $
    (43,162,231
    )
    
    $
    20,771,724Exercise of options
    
    
    141,823
    
    
    
    141
    
    
    
    73,234
    
    
    
    
    
    
    
    
    
    
    
    73,375Exercise of warrants
    
    
    2,342
    
    
    
    2
    
    
    
    10,584
    
    
    
    
    
    
    
    
    
    
    
    10,586Issuance of shares of common
stock in connection with a
public offering(net of
expenses)
    
    
    2,088,451
    
    
    
    2,089
    
    
    
    10,970,695
    
    
    
    
    
    
    
    
    
    
    
    10,972,784Share-based compensation
expense
    
    
    
    
    
    
    
    
    
    
    860,751
    
    
    
    
    
    
    
    
    
    
    
    860,751Other comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,268
    
    
    
    
    
    
    
    5,268Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (17,605,031
    )
    
    
    (17,605,031
    )Comprehensive loss
(sub-total)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (17,599,763
    )Balance at December 31, 2008
    
    
    17,634,498
    
    
    $
    17,634
    
    
    $
    75,845,953
    
    
    $
    (6,868
    )
    
    $
    (60,767,262
    )
    
    $
    15,089,457Exercise of options
    
    
    151,457
    
    
    
    152
    
    
    
    212,119
    
    
    
    
    
    
    
    
    
    
    
    212,271Exercise of warrants
    
    
    343,421
    
    
    
    343
    
    
    
    2,174,756
    
    
    
    
    
    
    
    
    
    
    
    2,175,099Issuance of shares of common
stock in connection with a
public offering(net of
expenses)
    
    
    2,400,000
    
    
    
    2,400
    
    
    
    13,696,779
    
    
    
    
    
    
    
    
    
    
    
    13,699,179Issuance of shares of common
stock in connection with a
Committed Equity Financing
Facility (CEFF) (net of
expenses)
    
    
    1,824,941
    
    
    
    1,825
    
    
    
    16,757,222
    
    
    
    
    
    
    
    
    
    
    
    16,759,047Share-based compensation
expense
    
    
    
    
    
    
    
    
    
    
    826,753
    
    
    
    
    
    
    
    
    
    
    
    826,753Other comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,868
    
    
    
    
    
    
    
    6,868Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (18,452,844
    )
    
    
    (18,452,844
    )Comprehensive loss (sub-total)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (18,445,976
    )Balance at December 31, 2009
    
    
    22,354,317
    
    
    $
    22,354
    
    
    $
    109,513,582
    
    
    
    
    
    
    $
    (79,220,106
    )
    
    $
    30,315,830
  53




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ELECTRO-OPTICAL SCIENCES, INC.
STATEMENTS OF CASH FLOWS
 Year EndedDecember 31,
    
    
    December 31,
    
    
    December 31,2007
    
    
    2008
    
    
    2009Cash flows from operating activities:Loss from continuing operations
    
    $
    (11,965,252
    )
    
    $
    (17,605,031
    )
    
    $
    (18,452,844
    )Gain on sale and licensing of discontinued operations
    
    
    27,808
    
    
    
    
    
    
    
    Net loss
    
    
    (11,937,444
    )
    
    
    (17,605,031
    )
    
    
    (18,452,844
    )Adjustments to reconcile net loss to net cash used in operating
activities:Gain on sale of discontinued operations
    
    
    (27,808
    )
    
    
    
    
    
    
    Loss on disposal/abandonment of fixed assets
    
    
    
    
    
    
    
    
    
    
    20,186Depreciation and amortization
    
    
    223,706
    
    
    
    308,977
    
    
    
    314,352Noncash compensation
    
    
    437,310
    
    
    
    860,751
    
    
    
    826,753Amortization of unearned interest income-discontinued operations
    
    
    (12,320
    )
    
    
    
    
    
    
    Common stock options and warrants issued for consulting fees
    
    
    139,703
    
    
    
    
    
    
    
    Amortization of discount on marketable securities
    
    
    (519
    )
    
    
    519
    
    
    
    Changes in operating assets and liabilities:(Increase) decrease in prepaid expenses and other current assets
    
    
    (67,920
    )
    
    
    35,942
    
    
    
    (289,350
    )Increase in accounts payable and accrued expenses
    
    
    124,800
    
    
    
    223,924
    
    
    
    311,179Increase in other current liabilities
    
    
    2,727
    
    
    
    8,662
    
    
    
    5,819(Increase) decrease in other assets
    
    
    (6,118
    )
    
    
    600
    
    
    
    (2,724
    )Increase (decrease) in deferred income
    
    
    74,946
    
    
    
    (38,861
    )
    
    
    (36,085
    )Net cash used in operating activities
    
    
    (11,048,937
    )
    
    
    (16,204,517
    )
    
    
    (17,302,714
    )Cash flows from investing activities:Patent costs
    
    
    (40,006
    )
    
    
    
    
    
    
    Purchases of property and equipment
    
    
    (252,847
    )
    
    
    (313,020
    )
    
    
    (1,251,211
    )(Purchase) sale of marketable securities
    
    
    (1,731,522
    )
    
    
    1,334,142
    
    
    
    397,380Proceeds from sale and licensing of discontinued operations
    
    
    500,000
    
    
    
    
    
    
    
    Net cash (used in) provided by investing activities
    
    
    (1,524,375
    )
    
    
    1,021,122
    
    
    
    (853,831
    )Cash flows from financing activities:Proceeds from private placements/public offering
    
    
    11,501,023
    
    
    
    11,909,057
    
    
    
    15,000,000Expenses related to private placement/public offering
    
    
    (785,176
    )
    
    
    (936,273
    )
    
    
    (1,300,821
    )Proceeds from Committed Equity Financing Facility
    
    
    
    
    
    
    
    
    
    
    16,863,000Expenses related to Committed Equity Financing Facility
    
    
    
    
    
    
    
    
    
    
    (189,523
    )Proceeds from exercise of stock options
    
    
    114,527
    
    
    
    73,375
    
    
    
    212,271Proceeds from exercise of stock warrants
    
    
    
    
    
    
    10,586
    
    
    
    2,175,099Net cash provided by financing activities
    
    
    10,830,374
    
    
    
    11,056,745
    
    
    
    32,760,026Net (decrease) increase in cash and cash equivalents
    
    
    (1,742,938
    )
    
    
    (4,126,650
    )
    
    
    14,603,481Cash and cash equivalents at beginning of year
    
    
    20,939,527
    
    
    
    19,196,589
    
    
    
    15,069,939Cash and cash equivalents at end of year
    
    $
    19,196,589
    
    
    $
    15,069,939
    
    
    $
    29,673,420Supplemental Schedule of Noncash Investing and Financing
Activities:Unrealized loss (gain) on marketable securities
    
    $
    12,136
    
    
    $
    (5,268
    )
    
    $
    (6,868
    )
  54




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##### Table of Contents



ELECTRO-OPTICAL SCIENCES, INC.
Notes to Financial Statements
(In thousands, except for share and per share data)
 1. Principal Business Activities and Summary of Significant Accounting Policies:
 Organization and Business
 ® ® ® ® ® ®
 ® ® ® ® ®
 ® ® ®
 Business Segments
 ®
 Cash and Cash Equivalents
  55




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##### Table of Contents



Marketable Securities
   Level 1:
    
    Observable inputs such as quoted prices in active markets;Level 2:
    
    Inputs, other than the quoted prices in active markets, that are observable either
directly or indirectly; andLevel 3:
    
    Unobservable inputs in which there is little or no market data requiring the
reporting entity to develop its own assumptions.
  Property and Equipment
  Patents
  Revenue Recognition
 ® ®
 Income Taxes
    56




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##### Table of Contents



Estimates
  Long-lived Assets
  Research and Development
  Stock-Based Compensation
      Financial Instruments
  57




---



##### Table of Contents



Net Loss per Common Share
  Year Ended December 31,2007
    
    2008
    
    2009Common stock options
    
    
    1,812,084
    
    
    
    2,069,080
    
    
    
    2,031,023Warrants
    
    
    1,126,886
    
    
    
    1,124,544
    
    
    
    929,629Total
    
    
    2,938,970
    
    
    
    3,193,624
    
    
    
    2,960,652
 Comprehensive loss
  Recently Adopted Accounting Pronouncements
    58




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##### Table of Contents



Recent Accounting Pronouncements
     2. Marketable Securities:
  59




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##### Table of Contents



3. Property and Equipment:
  December 31,
    
    
    Estimated2008
    
    
    2009
    
    
    Useful LifeLeasehold improvements
    
    $
    186
    
    
    $
    519
    
    
    Lease TermLaboratory and research equipment
    
    
    821
    
    
    
    936
    
    
    5 yearsOffice furniture and equipment
    
    
    475
    
    
    
    1,061
    
    
    3-5 years1,482
    
    
    
    2,516Accumulated depreciation and amortization
    
    
    839
    
    
    
    944$
    643
    
    
    $
    1,572
  4. Patents:
  5. Commitments and Contingencies:
  Total
    
    

    2010

    
    2011
    
    
    2012
    
    
    2013
    
    
    2014
    
    
    2015
    
    
    2016$
    2,952
    
    
    $
    354
    
    
    $
    382
    
    
    $
    410
    
    
    $
    439
    
    
    $
    455
    
    
    $
    456
    
    
    $
    457
  ® ®
 ® ®
 60




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##### Table of Contents



6. Employee Benefit Plan:
  7. Stockholders Equity
       61




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##### Table of Contents



®
  8. Stock-Based Compensation and Warrants:
 Stock Options
    62




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##### Table of Contents



®
   For the Year EndedDecember 31, 2007

    

December 31, 2008

    
    December 31, 2009Expected life
    
    5 years
    
    5-10 years
    
    5-10 yearsExpected volatility
    
    
    60
    %
    
    
    60
    %
    
    
    60-66
    %Risk-free interest rate
    
    
    3.41 - 5.02
    %
    
    
    1.67 - 3.86
    %
    
    
    1.69 - 2.67
    %Dividend yield
    
    
    0
    
    
    
    0
    
    
    
    0
    WeightedWeighted
    
    AverageAverage
    
    RemainingExercise
    
    Contractual
    
    AggregateNumber of
    
    Price per
    
    Term in
    
    IntrinsicShares
    
    Share
    
    Years
    
    ValueOutstanding at January 1, 2007
    
    
    1,689,412
    
    
    $

    2.88
    
    
    
    4.2Granted
    
    
    277,407
    
    
    
    3.11
    
    
    
    3.9Exercised
    
    
    (105,256
    )
    
    
    1.09Forfeited or expired
    
    
    (49,479
    )
    
    
    5.24Outstanding at December 31, 2007
    
    
    1,812,084
    
    
    
    2.96
    
    
    
    3.5Granted
    
    
    1,165,539
    
    
    
    3.61
    
    
    
    8.2Exercised
    
    
    (141,823
    )
    
    
    0.52Forfeited or expired
    
    
    (766,720
    )
    
    
    0.52Outstanding at December 31, 2008
    
    
    2,069,080
    
    
    
    4.39
    
    
    
    5.8Granted
    
    
    213,400
    
    
    
    8.60
    
    
    
    4.7Exercised
    
    
    (151,457
    )
    
    
    1.40Forfeited or expired
    
    
    (100,000
    )
    
    
    3.84Outstanding at December 31,2009
    
    
    2,031,023
    
    
    
    5.09
    
    
    
    5.2
    
    
    $
    10,637
 63




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##### Table of Contents



Options OutstandingWeighted-
    
    
    
    
    
    
    Options ExercisableAverage
    
    
    Weighted-
    
    
    
    
    
    
    Weighted-Remaining
    
    
    Average
    
    
    
    
    
    
    AverageNumber
    
    
    Contractual
    
    
    Exercise
    
    
    Number
    
    
    ExerciseRange of Exercise Prices
    
    Outstanding
    
    
    Life
    
    
    Price
    
    
    Exercisable
    
    
    Price$1.00
    
    
    65,971
    
    
    2.3 years
    
    
    1.00
    
    
    
    65,971
    
    
    
    1.00$1.01-$11.11
    
    
    1,965,052
    
    
    5.3 years
    
    
    5.22
    
    
    
    827,614
    
    
    
    5.39$1.00-$11.11
    
    
    2,031,023
    
    
    5.2 years
    
    $
    5.09
    
    
    
    893,585
    
    
    $
    5.06
  ®
 Warrants
     9. Related Party Agreements (see also Note 5):
  64




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##### Table of Contents



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. (see also Note 8)
 ®
  Consulting Agreement with Anne Egger
  65




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##### Table of Contents



10. Other Income (including gain on sale of discontinued operations):
   ® ® ® ®
  11. Income Taxes:
   Year Ended December 31,2007
    
    
    2008
    
    
    2009Computed expected tax benefit
    
    $
    (4,068
    )
    
    $
    (5,986
    )
    
    $
    (6,274
    )State tax benefit, net of federal effect
    
    
    (718
    )
    
    
    (1,056
    )
    
    
    (1,107
    )Increase in the valuation allowance
    
    
    4,786
    
    
    
    7,042
    
    
    
    7,381Provision for income taxes
    
    $
    
    
    
    $
    
    
    
    $
    
  December 31,2008
    
    
    2009Deferred tax assets:Net operating loss carryforwards
    
    $
    10,389
    
    
    $
    13,289Capitalized research and developmental costs
    
    
    11,868
    
    
    
    16,019Non-cash compensation
    
    
    1,352
    
    
    
    1,682Total deferred tax assets
    
    
    23,609
    
    
    
    30,990Less valuation allowance
    
    
    (23,609
    )
    
    
    (30,990
    )Net deferred tax assets
    
    $
    
    
    
    $
    
 66




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##### Table of Contents



12. Quarterly Operating Results (Unaudited)
  Quarter EndedMarch 31,
    
    June 30,
    
    September 30,
    
    December 31,2009Loss from continuing operations
    
    $
    (3,990
    )
    
    $
    (3,835
    )
    
    $
    (5,048
    )
    
    $
    (5,580
    )Net loss
    
    $
    (3,990
    )
    
    $
    (3,835
    )
    
    $
    (5,048
    )
    
    $
    (5,580
    )Basic and diluted net loss per
share of common stock
    
    $
    (0.23
    )
    
    $
    (0.22
    )
    
    $
    (0.26
    )
    
    $
    (0.25
    )2008Loss from continuing operations
    
    $
    (4,277
    )
    
    $
    (4,951
    )
    
    $
    (4,200
    )
    
    $
    (4,177
    )Net loss
    
    $
    (4,277
    )
    
    $
    (4.951
    )
    
    $
    (4,200
    )
    
    $
    (4,177
    )Basic and diluted net loss per share
of common stock
    
    $
    (0.28
    )
    
    $
    (0.32
    )
    
    $
    (0.25
    )
    
    $
    (0.23
    )
 13. Subsequent Events
  67




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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
   Report of Management on Internal Control Over Financial Reporting.
   Internal ControlIntegrated Framework
 68




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
       
 69




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##### Table of Contents



Change in internal control over financial reporting
  Limitations on the effectiveness of controls
  
 Item 9B. Other Information
  
 
 PART III
 
 Item 10. Directors, Executive Officers, and Corporate Governance
  
 Item 11. Executive Compensation
  
 Item 12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters
  70




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##### Table of Contents



Item 13. Certain Relationships and Related Transactions, and Director Independence
  
 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
  71




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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)4 .4
    
    Form of Warrant.(13)4 .5
    
    Warrant dated May 7, 2009 issued by Electro-Optical Sciences, Inc. to
Kingsbridge Capital Limited (16)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 20, 2003 between the Registrant and
Breaux Castleman, as amended.(1)10 .12
    
    Consulting Agreement dated as of June 1, 2005 between the Registrant and
Robert Friedman, M.D.(1)10 .13
    
    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 .14
    
    Production Agreement between the Registrant and ASKION GmbH dated as of
January 25, 2006.(4)10 .15*
    
    Amended and Restated Consulting Agreement effective as of April 1, 2006
between the Registrant and Gerald Wagner Consulting LLC.(11)10 .16*
    
    Employment Offer Letter, dated April 24, 2006, between the Registrant and
Richard I. Steinhart.(5)10 .17*
    
    Employment Offer Letter, dated May 30, 2006, between the Registrant and
Christiano S. Butler.(6)10 .18
    
    Securities Purchase Agreement among the Registrant and the purchasers
identified on the signature pages thereto, dated as of October 31, 2006.(8)10 .19
    
    Securities Purchase Agreement among the Registrant and the purchasers
identified on the signature pages thereto, dated as of October 31, 2006.(8)10 .20
    
    Registration Rights Agreement among the Registrant and the purchasers
identified on the signature pages thereto, dated as of October 31, 2006.(8)10 .21
    
    Licensing Agreement between the Registrant and KaVo Dental GmbH, dated as of
December 5, 2006.(9)10 .22*
    
    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)10 .23
    
    Research and Feasibility Agreement between Registrant and LOreal S.A. dated
as of March 26, 2007.(12)10 .24
    
    Securities Purchase Agreement among the Registrant and the purchasers
identified on the signature pages thereto, dated as of July 31, 2007.(13)10 .25
    
    Registration Rights Agreement among the Registrant and the purchasers
identified on the signature pages thereto, dated as of July 31, 2007.(13)10 .26
    
    Fifth Amendment dated as of August 24, 2007, by and between the Registrant
and Bridge Street Commercial, LLC, for office space located at 1 Bridge
Street, Irvington, New York. (14)
 72




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##### Table of Contents



ExhibitNumber
    
    Exhibit Title10. 27
    
    Placement Agency Agreement by and between the Registrant and Needham & Company,
LLC, dated as of July 31, 2008.(15)10. 28
    
    Form of Subscription Agreement between and Registrant and each investor.(15)10. 29
    
    Common Stock Purchase Agreement
dated as of May 7, 2009 between Electro-Optical
Sciences, Inc. and Kingsbridge Capital Limited.(16)10. 30
    
    Registration Rights Agreement dated as of May 7, 2009 between Electro-Optical
Sciences, Inc. and Kingsbridge Capital Limited.(16)10. 31
    
    Agreement of Lease, dated as of July 14, 2009, by and between Stanford Bridge
LLC and Electro-Optical Sciences, Inc. (17)10. 32
    
    Placement Agency Agreement dated July 16, 2009 among the Company, Needham &
Company, LLC and Oppenheimer & Co, Inc.(18)10. 33
    
    Form of Subscription Agreement between the Company and each investor thereto (18)21 .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#
    
    Certifications of Chief Executive Officer and Chief Financial Officer Pursuant
to 18 U.S.C. Section 1350, as Adopted 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. Portions of this agreement have been omitted pursuant to a request for confidential
treatment.(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.(12)
    
    Incorporated by reference to the Registrants Current Report on Form 8-K filed on March 28, 2007.(13)
    
    Incorporated by reference to the Registrants Current Report on Form 8-K filed on August 1, 2007. 73




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##### Table of Contents



(14)
    
    Incorporated by reference to the Registrants Quarterly Report on Form 10-Q filed on November 8,
2007.(15)
    
    Incorporated by reference to the Registrants Current Report on Form 8-K filed on July 31, 2008.(16)
    
    Incorporated by reference to the Registrants Current Report on Form 8-K filed on May 8, 2009.(17)
    
    Incorporated by reference to the Registrants Current Report on Form 8-K filed on July 14, 2009.(18)
    
    Incorporated by reference to the Registrants Current Report on Form 8-K filed on July 17, 2009.  74




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##### Table of Contents



SIGNATURES
  ELECTRO-OPTICAL SCIENCES, INC.By:
    /s/  Joseph V. Gulfo, M.D.Joseph V. Gulfo, M.D.President and Chief Executive Officer
(Principal Executive Officer)   Signature
    
    Title
    
    Date/s/ Joseph V. Gulfo, M.D.

Joseph V. Gulfo, M.D.
    
    Director, President and
Chief Executive Officer
(Principal Executive Officer)
    
    March 4, 2010/s/ Richard I. Steinhart

Richard I. Steinhart
    
    Vice President, Finance and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
    
    March 4, 2010/s/ Breaux Castleman

Breaux Castleman
    
    Chairman of the Board of Directors
    
    March 4, 2010/s/ Sidney Braginsky

Sidney Braginsky
    
    Director
    
    March 4, 2010/s/ George C. Chryssis

George C. Chryssis
    
    Director
    
    March 4, 2010/s/ Martin D. Cleary

Martin D. Cleary
    
    Director
    
    March 4, 2010/s/ Anne Egger

Anne Egger
    
    Director
    
    March 4, 2010/s/ Dan W. Lufkin

Dan W. Lufkin
    
    Director
    
    March 4, 2010/s/ Charles Stiefel

Charles Stiefel
    
    Director
    
    March 4, 2010/s/ Gerald Wagner, PhD.

Gerald Wagner, PhD.
    
    Director
    
    March 4, 2010
 75