10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

     For the quarterly period ended June 30, 2012

or

[  ] 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: 000-23017

ECHO THERAPEUTICS, INC.

(Exact name of registrant as specified in its charter)

Delaware	41-1649949
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

8 Penn Center 1628 JFK Blvd, Suite 300 Philadelphia, PA	19103
(Address of principal executive offices)	(Zip code)

(215) 717-4100

(Registrant’s telephone number, including area code)

 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X]  No [  ]

 Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X]  No [  ]

 Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer [  ]	Accelerated filer [X]	Non-accelerated filer [  ]	Smaller reporting company [  ]
(Do not check if a smaller reporting company)

 Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ]   No [X]

 As of August 7, 2012, 39,838,586 shares of the registrant’s Common Stock. $0.01 par value, were issued and outstanding.

ECHO THERAPEUTICS, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED JUNE 30, 2012

TABLE OF CONTENTS

Item		Page
	PART I - FINANCIAL INFORMATION
1.	Consolidated Financial Statements:
	Consolidated Balance Sheets as of June 30, 2012 and December 31, 2011	1
	Consolidated Statements of Operations for the three and six months ended June 30, 2012 and 2011	2
	Consolidated Statements of Cash Flows for the three and six months ended June 30, 2012 and 2011	3
	Notes to Consolidated Financial Statements	5
2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12
4.	Controls and Procedures	18
	PART II - OTHER INFORMATION
1.	Legal Proceedings	18
6.	Exhibits	18
SIGNATURES		19
EXHIBIT INDEX		20

-i-

PART I—FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

Echo Therapeutics, Inc.

Consolidated Balance Sheets

	June 30, 2012			December 31, 2011
	(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents	$	3,111,342		$	8,995,571
Cash restricted pursuant to letters of credit		407,463			250,000
Accounts receivable		3,552			37,065
Stock subscriptions receivable		—			6,667
Prepaid expenses and other current assets		218,409			274,208
Total current assets		3,740,766			9,563,511
Property and Equipment, at cost:
Computer equipment		332,287			298,290
Office and laboratory equipment (including assets under capitalized leases)		689,077			624,817
Furniture and fixtures		169,581			186,837
Manufacturing equipment		341,620			156,435
Leasehold improvements		187,264			187,264
		1,719,829			1,453,643
Less-Accumulated depreciation and amortization		(1,156,232	)		(1,135,912	)
Net property and equipment (including assets under capitalized leases)		563,597			317,731
Other Assets:
Intangible assets, net of accumulated amortization		9,625,000			9,625,000
Deposits and other assets		10,816			20,565
Total other assets		9,635,816			9,645,565
Total assets	$	13,940,179		$	19,526,807
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	683,672		$	365,298
Deferred revenue		123,721			123,708
Current portion of notes payable and capital lease obligation, net of discounts		2,405			2,288
Derivative warrant liability		392,536			1,035,337
Accrued expenses and other liabilities		742,979			965,832
Total current liabilities		1,945,313			2,492,463
Notes payable and capital lease obligation, net of current portion and discounts		2,656			3,888
Deferred revenue, net of current portion		—			61,867
Total liabilities		1,947,969			2,558,218
Commitments
Stockholders’ Equity:
Convertible Preferred Stock:
Series C, $0.01 par value, authorized 10,000 shares, issued and outstanding 9,974.185 shares at June 30, 2012 and December 31, 2011		100			100
Series D, $0.01 par value, authorized 3,600,000 shares, issued and outstanding 3,006,000 shares at June 30, 2012 and December 31, 2011 (preference in liquidation of $3,006,000 at June 30, 2012)		30,060			30,060
Common Stock, $0.01 par value, authorized 150,000,000 shares, issued and outstanding 39,615,344 and 38,543,944 shares at June 30, 2012 and December 31, 2011, respectively		396,156			385,442
Additional paid-in capital		99,276,015			98,116,327
Common stock subscribed for but not paid for or issued, 0 and 33,333 shares at June 30, 2012 and December 31, 2011, respectively		—			6,667
Accumulated deficit		(87,710,121	)		(81,570,007	)
Total stockholders’ equity		11,992,210			16,968,589
Total liabilities and stockholders’ equity	$	13,940,179		$	19,526,807

The accompanying notes are an integral part of these consolidated financial statements.

-1-

Echo Therapeutics, Inc.

Consolidated Statements of Operations

(Unaudited)

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2012			2011			2012			2011
Licensing revenue	$	30,927		$	121,455		$	61,854		$	242,910
Other revenue		-			37,065			-			145,152
Total revenues		30,927			158,520			61,854			388,062
Operating Expenses:
Research and development		2,200,307			996,149			3,591,952			1,862,099
Selling, general and administrative		1,334,852			978,150			3,194,256			1,900,265
Total operating expenses		3,535,159			1,974,299			6,786,208			3,762,364
Loss from operations		(3,504,232	)		(1,815,779	)		(6,724,354	)		(3,374,302	)
Other Income (Expense):
Interest income		1,556			1,210			4,515			3,289
Interest expense		(134	)		(604	)		(284	)		(13,354	)
Loss on extinguishment of debt/payables		-			-			-			(1,514	)
Gain (loss) on disposals of assets		(21,272	)		(2,531	)		(21,272	)		834
Derivative warrant liability gain (loss)		369,738			(122,011	)		601,281			(3,151,908	)
Other income (expense), net		349,888			(123,936	)		584,240			(3,162,653	)
Net loss		(3,154,344	)		(1,939,715	)		(6,140,114	)		(6,536,955	)
Deemed dividend on beneficial conversion feature of Series D Convertible Preferred Stock		-			-			-			(1,975,211	)
Accretion of dividends on Convertible Perpetual Redeemable Preferred Stock		-			(47,558	)		-			(93,242	)
Net loss applicable to common shareholders	$	(3,154,344	)	$	(1,987,273	)	$	(6,140,114	)	$	(8,605,408	)
Net loss per common share, basic and diluted	$	(0.08	)	$	(0.06	)	$	(0.16	)	$	(0.26	)
Basic and diluted weighted average common shares outstanding		39,160,643			33,911,459			38,951,809			33,277,823

The accompanying notes are an integral part of these consolidated financial statements.

-2-

Echo Therapeutics, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

	For the Six Months Ended June 30,
	2012			2011
Cash Flows From Operating Activities:
Net loss	$	(6,140,114	)	$	(6,536,955	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		43,757			14,200
Share-based compensation, net		436,056			286,508
Fair value of common stock and warrants issued for services		50,299			380,763
Derivative warrant liability (gain) loss		(601,281	)		3,151,908
Non-cash loss on extinguishment of debt		—			1,514
Non-cash interest expense		—			12,159
Non-cash loss on disposal of assets		21,272			2,731
Changes in assets and liabilities:
Accounts receivable		33,513			104,423
Stock subscriptions receivable		—			285,000
Prepaid expenses and other current assets		55,799			(83,602	)
Deposits and other assets		9,749			(10,566	)
Accounts payable		318,374			(175,345	)
Deferred revenue		(61,854	)		(242,910	)
Accrued expenses and other liabilities		67,147			207,238
Net cash used in operating activities		(5,767,283	)		(2,602,934	)
Cash Flows from Investing Activities:
Purchase of property and equipment		(310,895	)		(249,127	)
Increase in restricted cash		(157,463	)		(128,250	)
Net cash used in investing activities		(468,358	)		(377,377	)
Cash Flows From Financing Activities:
Proceeds from the exercise of warrants		151,680			576,224
Proceeds from issuance of common stock and warrants, net of issuance costs		6,667			794,761
Principal payments for capital lease obligations		(1,115	)		(1,009	)
Proceeds from issuance of Series D Convertible Preferred Stock, net of issuance costs		—			2,478,702
Proceeds from bridge notes		—			1,000,000
Repayment of bridge notes		—			(75,000	)
Proceeds from exercise of stock options		194,180			64,250
Net cash provided by financing activities		351,412			4,837,928
Net increase (decrease) in cash and cash equivalents		(5,884,229	)		1,857,617
Cash and cash equivalents, beginning of period		8,995,571			1,342,044
Cash and cash equivalents, end of period	$	3,111,342		$	3,199,661

The accompanying notes are an integral part of these consolidated financial statements.

-3-

Echo Therapeutics, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

	Six Months Ended June 30,
	2012		2011
Supplemental Disclosure of Cash Flow Information and    Non-Cash Financing Transactions:
Cash paid for interest	$	284	$	1,196
Accretion of dividend on Series B Perpetual Redeemable Preferred Stock	$	—	$	93,242
Deemed dividend on beneficial conversion feature of Series D Convertible Preferred Stock	$	—	$	1,975,211
Issuance of common stock in settlement of short term note	$	—	$	25,000
Conversion of notes payable and accrued interest into Series D Convertible    Preferred  Stock	$	—	$	1,006,000
Reclassification of derivative warrant liability to additional paid-in capital	$	41,520	$	2,170,727
Fair value of warrants issued to investor relations services	$	—	$	173,000
Fair value of common stock issued for short-term note extension	$	—	$	10,500
Fair value of warrants issued to financial advisors as financing costs	$	—	$	41,363
Fair value of common stock issued in connection with settlement agreement	$	208,000	$	—
Cancellation of restricted common stock	$	—	$	5,250

The accompanying notes are an integral part of these consolidated financial statements.

-4-

Echo Therapeutics, Inc.

Notes To Consolidated Financial Statements

Quarter Ended June 30, 2012 (Unaudited)

(1)  ORGANIZATION AND BASIS OF PRESENTATION

Echo Therapeutics, Inc. (the “Company”) is a transdermal medical device company with significant expertise in advanced skin permeation technology that is primarily focused on continuous glucose monitoring and needle-free drug delivery.  The Company is developing its Prelude® SkinPrep System (“Prelude”) as a platform technology to allow for significantly enhanced and painless skin permeation that will enable two important applications:

● analyte extraction, with the Symphony® tCGM System (“Symphony”) for needle-free, continuous glucose monitoring for use in hospital critical care units and for people with diabetes; and

● enhanced needle-free drug delivery.

The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Sontra Medical, Inc., a Delaware corporation. All significant intercompany balances and transactions have been eliminated in consolidation.

The accompanying unaudited consolidated financial statements have been prepared in conformity with generally accepted accounting principles (“GAAP”) in the United States consistent with those applied in, and should be read in conjunction with, the Company’s audited consolidated financial statements and related footnotes for the year ended December 31, 2011 included in the Company’s Annual Report on Form 10-K as filed with the United States Securities and Exchange Commission (“SEC”) on March 15, 2012. These unaudited consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, which are, in the opinion of management, necessary for a fair presentation of the Company’s financial position as of June 30, 2012 and its results of operations and cash flows for the interim periods presented and are not necessarily indicative of results for subsequent interim periods or for the full year. The interim financial statements do not include all of the information and footnotes required by GAAP for complete financial statements and allowed by the relevant SEC rules and regulations; however, the Company believes that its disclosures are adequate to ensure that the information presented is not misleading. Certain amounts in prior periods have been reclassified to conform to current presentation.

The accompanying consolidated financial statements have been prepared on a basis assuming that the Company is a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.  As of June 30, 2012, the Company had cash of approximately $3,111,000, working capital of approximately $1,795,000 and an accumulated deficit of approximately $87,710,000.  We will require additional capital to fund our product development, research, manufacturing and clinical programs in accordance with our current projected level of operations.  The Company has funded its operations in the past primarily through debt and equity issuances.  Management intends to pursue additional financing to fund its operations.  Although management believes that it will be successful in securing additional financing, no assurances can be given as to the success of these plans or that such capital will be available to the Company in sufficient amounts to meet its operating cash needs or on terms acceptable to the Company.  The consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.

(2)  CASH AND CASH EQUIVALENTS

As of June 30, 2012, the Company held approximately $3,100,000 in cash and cash equivalents. The Company’s cash equivalents consist solely of bank money market funds. From time to time, the Company may have cash balances in excess of federal insurance limits. The Company has never experienced any previous losses related to these balances. All of the Company’s non-interest bearing cash balances were fully insured at June 30, 2012 due to a temporary federal program in effect from December 31, 2010 through December 31, 2012.  Under the program, there is no limit on the amount of insurance for eligible accounts.  Beginning in 2013, insurance coverage will revert to $250,000 per depositor at each financial institution and non-interest bearing cash balances may again exceed federally insured limits.

-5-

(3)  INTANGIBLE ASSETS

The Company’s intangible assets are related to the acquisition of assets from Durham Pharmaceuticals Ltd. in 2007 and are summarized as follows:

				June 30, 2012				December 31, 2011
	Estimated Life	Cost		Accumulated Amortization		Net		Net
Contract related intangible asset:
Cato Research discounted contract	3 years	$	355,000	$	355,000	$	—	$	—
Technology related intangible assets:
Patents for the AzoneTS-based product candidates and formulation	6 years		1,305,000		—		1,305,000		1,305,000
Drug Master Files containing formulation, clinical and safety documentation used by the FDA	6 years		1,500,000		—		1,500,000		1,500,000
In-process pharmaceutical products for 2 indications	6 years		6,820,000		—		6,820,000		6,820,000
Total technology related intangible assets			9,625,000		—		9,625,000		9,625,000
Intangible assets, net		$	9,980,000	$	355,000	$	9,625,000	$	9,625,000

Intangible assets related to technology are expected to be amortized on a straight-line basis over the period ending 2019, when the underlying patents expire, and will commence upon revenue generation which the Company estimates may occur as early as 2013.  The contract related intangible asset was amortized over a three year period which ended in 2010.

(4)  OPERATING LEASE COMMITMENTS

The Company leases approximately 13,000 square feet of manufacturing, laboratory and office space in a single facility located in Franklin, Massachusetts under a lease expiring March 31, 2014.  Beginning June 1, 2012, a lease amendment increased the total space to 37,050 square feet and extended the expiration date to October 31, 2017.

The Company also leases approximately 5,400 square feet of corporate office space in a single facility located in Philadelphia, Pennsylvania under a lease expiring April 30, 2014.  Beginning June 1, 2012, a lease amendment increased the total space to 7,861 square feet and extended the expiration date to May 31, 2017.

Future minimum lease payments for each of the next 5 years under these operating leases are as follows:

	Franklin		Philadelphia		Total
For the period ending December 31,
2012	$	209,000	$	90,000	$	299,000
2013		424,000		183,000		607,000
2014		434,000		187,000		621,000
2015		444,000		192,000		636,000
2016		454,000		196,000		650,000
Total	$	1,965,000	$	848,000	$	2,813,000

The Company’s facilities lease expense was approximately $74,000 and $53,000 for the three months ended June 30, 2012 and 2011, respectively, and $151,000 and $86,000 for the six months ended June 30, 2012 and 2011, respectively.

-6-

(5)  DERIVATIVE WARRANT LIABILITY

At June 30, 2012 and December 31, 2011, the Company had outstanding warrants to purchase 7,268,974 and 7,527,529 shares of its Common Stock, respectively. Included in these outstanding warrants at June 30, 2012 are warrants to purchase 516,587 shares that are considered to be derivative financial instruments because the warrant agreements contain “down round” provisions whereby the number of shares covered by the warrants is subject to change in the event of certain future dilutive stock issuances. The fair value of these derivative instruments at June 30, 2012 was approximately $393,000, is considered Level 3 under the fair value hierarchy on a recurring basis, and is included in Derivative Warrant Liability, a current liability, in the Consolidated Balance Sheet. Changes in fair value of the derivative financial instruments are recognized in the Consolidated Statement of Operations as a Derivative Warrant Liability Gain or Loss. The Derivative Warrant Liability Gain for the three and six months ended June 30, 2012 was approximately $370,000 and $602,000, respectively. The Derivative Warrant Liability Loss for the three and six months ended June 30, 2011 was approximately $122,000 and $3,152,000, respectively.

The derivative warrant liability represents the risk exposure pertaining to the warrants and is based on the fair value of the underlying common stock and the gain or loss on the derivative warrant liability is a result of the change in fair value of the underlying common stock.  For the six months ended June 30, 2012, holders exercised warrants with “down round” provisions to purchase 118,500 shares, which resulted in a reclassification of approximately $42,000 from the Derivative Warrant Liability to Additional Paid-in Capital.  For the six months ended June 30, 2011, holders exercised warrants with “down round” provisions to purchase 602,693 shares, which resulted in a reclassification of approximately $2,171,000 from the Derivative Liability to Additional Paid-in Capital.

The table below presents the changes in the derivative warrant liability for the six months ended June 30, 2012 and 2011:

	2012			2011
Derivative warrant liability as of January 1	$	1,035,337		$	1,544,996
Total unrealized losses included in net loss (1)		—			2,191,147
Total realized losses included in net loss (1)		—			978,678
Total unrealized gains included in net loss (1)		(539,648	)		(17,917	)
Total realized gains included in net loss (1)		(61,633	)		—
Reclassification of derivative warrant liability to additional paid-in capital for derivative warrants exercised		(41,520	)		(2,170,726	)
Derivative warrant liability as of June 30	$	392,536		$	2,526,178

————————

(1)Included in derivative warrant liability gain or loss in the Consolidated Statement of Operations.

(6)  PREFERRED STOCK

The Company is authorized to issue up to 40,000,000 shares of preferred stock with such rights, preferences and privileges as are determined by the Board of Directors.

Series C Convertible Preferred Stock

The Company has authorized 10,000 shares of Series C Preferred Stock (the “Series C Stock”), of which 9,974.185 shares were issued and outstanding as of June 30, 2012 and December 31, 2011.

Series D Convertible Preferred Stock

The Company has authorized 3,600,000 shares of Series D Preferred Stock (the “Series D Stock”), of which 3,006,000 shares were issued and outstanding as of June 30, 2012 and December 31, 2011.

-7-

(7)  COMMON STOCK

The Company has authorized 150,000,000 shares of Common Stock, of which 39,615,344 and 38,543,944 shares were issued and outstanding as of June 30, 2012 and December 31, 2011, respectively.

Stock Issued in Exchange for Services

During the six months ended June 30, 2012 and 2011, the Company issued 28,666 and 100,000 shares, respectively, of Common Stock with a fair value of $50,299 and $339,000, respectively, to vendors in exchange for their services.  Expenses associated with these transactions were included in Selling, General and Administrative Expenses in the Consolidated Statements of Operations.

(8)  STOCK OPTIONS AND RESTRICTED STOCK

In March 2003, the Company’s shareholders approved its 2003 Stock Option and Incentive Plan (the “2003 Plan”). Pursuant to the 2003 Plan, the Company’s Board of Directors (or its committees and/or executive officers delegated by the Board of Directors) may grant incentive and nonqualified stock options, restricted stock, and other stock-based awards to the Company’s employees, officers, directors, consultants and advisors. As of June 30, 2012, the maximum aggregate number of shares that may be authorized for issuance under the 2003 Plan for all periods is 1,600,000 shares. As of June 30, 2012, there were 161,250 restricted shares of Common Stock issued and options to purchase an aggregate of 514,000 shares of Common Stock outstanding under the 2003 Plan and 560,000 shares available for future grants.

In May 2008, the Company’s shareholders approved the 2008 Equity Compensation Plan (the “2008 Plan”). The 2008 Plan provides for grants of incentive stock options to employees and nonqualified stock options and restricted stock to employees, consultants and non-employee directors of the Company. In July 2010, the Company’s shareholders approved an amendment to the 2008 Plan to increase the maximum number of shares of Common Stock available under the Plan by 2,000,000 shares to 4,700,000 shares.  In June 2012, the Company’s shareholders approved an amendment to the 2008 Plan to increase the maximum number of shares available under the Plan by 5,300,000 shares to 10,000,000 shares.  As of June 30, 2012, there were restricted shares of Common Stock issued and options to purchase an aggregate of 3,978,406 shares of Common Stock outstanding under the 2008 Plan and 5,891,594 shares available for future grants.

	Stock Option Plans
	2003 Plan			2008 Plan
Shares Available For Issuance
Total reserved for stock options and restricted stock		1,600,000			10,000,000
Net restricted stock issued net of cancellations		(161,250	)		(2,208,406	)
Stock options granted		(1,544,491	)		(2,275,000	)
Add back options cancelled before exercise		678,491			375,000
Options cancelled by plan vote		—			—
Remaining shares available for future grants		572,750			5,891,594

					Not Pursuant to a Plan
Total granted	1,544,491		2,275,000			3,100,000
Less:   Restricted stock cancelled	—		—			—
Options cancelled	(678,491	)	(375,000	)		(1,383,334	)
Options exercised	(352,000	)	(130,000	)		(666,666	)
Net shares outstanding before restricted stock	514,000		1,770,000			1,050,000
Net restricted stock issued net of cancellations	161,250		2,208,406			284,844
Outstanding shares at March 31, 2012	675,250		3,978,406			1,334,844

-8-

Share-Based Compensation – Options

 For stock options issued and outstanding during the six months ended June 30, 2012 and 2011, the Company recorded additional paid-in capital and non-cash compensation expense of approximately $407,000 and $287,000, respectively, each net of estimated forfeitures.

The fair value of each stock option award is estimated on the date of grant using the Black-Scholes option pricing model with certain assumptions noted below. Expected volatilities are based on historical volatility of the Common Stock using historical periods consistent with the expected term of the options. The Company uses historical data, as well as subsequent events occurring prior to the issuance of the financial statements, to estimate option exercise and employee termination and forfeitures within the valuation model. The expected term of stock options granted under the Company’s stock plans is based on the average of the contractual term (generally 10 years) and the vesting period (generally 24 to 42 months).  The risk-free rate is based on the yield of a U.S. Treasury security with a term consistent with the option.

The assumptions used principally for stock options granted to employees and members of the Company’s Board of Directors in the six months ended June 30, 2012 and 2011 were as follows:

	2012			2011
Risk-free interest rate		0.94% — 2.05	%		2.43% — 3.47	%
Expected dividend yield		—			—
Expected term	6.5 years			6.0 — 6.5 years
Forfeiture rate (excluding fully vested stock options)		15	%		0% — 15	%
Expected volatility		131% — 137	%		140% — 142	%

A summary of stock option activity as of and for the six months ended June 30, 2012 is as follows:

Stock Options	Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at January 1, 2012		3,395,103		$	1.68
Granted		430,000			1.84
Exercised		(233,666	)		0.96
Forfeited or expired		(257,437	)		4.58
Outstanding at June 30, 2012		3,334,000		$	1.53	7.3 years	$	1,866,200
Exercisable at June 30, 2012		2,112,830		$	0.91	6.1 years	$	1,861,033

The weighted-average grant-date fair value of stock options granted during the six months ended June 30, 2012 was $1.84 per share. Share-based compensation expense recognized in the six months ended June 30, 2012 and 2011 was approximately $407,000 and $287,000, respectively. As of June 30, 2012, there was approximately $2,537,000 of total unrecognized compensation expense related to non-vested share-based option compensation arrangements. With the exception of the unrecognized share-based compensation related to certain restricted stock grants to officers and employees that contain performance conditions related to United States Food and Drug Administration (“FDA”) approval for Symphony or the sale of substantially all of the stock or assets of the Company (see Restricted Stock section below), unrecognized compensation is expected to be recognized over the next four years.

Share-Based Compensation – Restricted Stock

During the six months ended June 30, 2012, the Company granted an aggregate of 703,656 restricted shares of Common Stock to certain officers, employees, directors and consultants of the Company.  The grants were issued pursuant to the 2008 Plan.  The grant date fair value of these restricted stock grants was approximately $1,369,000.

-9-

A summary of the Company’s nonvested restricted stock activity as of and for the six months ended June 30, 2012, is as follows:

Restricted Stock	Shares			Weighted- Average Grant-Date Fair Value
Nonvested at January 1, 2012		1,819,594		$	1.72
Granted this period		703,656			1.95
Grants made in prior periods, now becoming restricted		220,000			0.92
Vested		(110,000	)		2.24
Forfeited		—			—
Nonvested at June 30, 2012		2,633,250		$	1.78

Among the 2,633,250 shares of non-vested restricted stock, the various vesting criteria include the following:

·   1,679,594 shares of restricted stock vest upon the FDA approval of Symphony or the sale of the Company;

·   220,000 shares of restricted stock vest upon the sale of the Company; and

·   733,656 shares of restricted stock vest over one to four years, at each of the anniversary dates of the grants.

As of June 30, 2012, there was approximately $1,378,000 of total unrecognized compensation expense related to non-vested share-based restricted stock arrangements granted pursuant to the Company’s equity compensation plans that vest over time in the forseeable future. As of June 30, 2012, the Company cannot estimate the timing of completion of performance vesting requirements required by certain of these restricted stock grant arrangements.  Compensation expense related to these restricted share grants will be recognized when the Company concludes that achievement of the performance vesting conditions is probable.

-10-

(9)  WARRANTS

At June 30, 2012, the Company had the following outstanding warrants:

	Number of Shares Exercisable		Exercise Price		Date of Expiration
Outstanding warrants accounted for as derivative warrant liability:
Granted to investors and placement agent in private placement		112,148	$	1.28	7/16/2012
Granted to financial investment advisor		3,000		1.38	7/25/2012
Granted to financial advisor in connection with an acquisition		61,625		1.75	9/14/2012
Granted to financial investment advisor		7,500		1.30	2/11/2013
Granted to investors in private placement		154,990		0.50	2/11/2013
Granted to investors in private placement		177,324		1.50	3/24/2013
Total outstanding warrants accounted for as derivative warrant liability		516,587
Weighted average exercise price			$	1.18
Weighted average time to expiration in years					0.48 years
Outstanding warrants accounted for as equity:
Granted to investors in private placement of preferred stock		32,249	$	1.00	9/30/2013
Granted to investors in private placement of preferred stock		198,333		1.50	10/28/2013
Granted to investors in private placement of preferred stock		390,000		0.75	2/28/2014
Granted to vendor		60,000		0.60	3/15/2014
Granted to investors in private placement		400,000		1.59	6/30/2014
Granted to investors in private placement		768,000		2.00	11/13/2014
Granted to placement agent in private placement		256,906		1.50	11/13/2014
Granted to vendor		50,000		2.00	12/1/2012
Granted to investors in private placement		63,000		2.00	12/3/2014
Granted to investors in private placement		341,325		2.25	2/9/2015
Granted to placement agents in private placement		28,500		2.25	2/9/2015
Granted to investor in private placement		6,375		2.25	3/18/2015
Granted to financial investment advisor		100,000		1.50	2/10/2013
Granted to financial investment advisor		10,367		2.00	3/3/2013
Granted to investors in private placement		187,500		1.50	11/5/2012
Granted to investors in private placement		187,500		2.50	11/5/2012
Granted to placement agent in private placement		5,000		1.50	11/5/2012
Granted to placement agent in private placement		5,000		2.50	11/5/2012
Granted to investors in private placement		35,000		1.50	11/26/2012
Granted to investors in private placement		35,000		2.50	11/26/2012
Granted to investors in private placement		495,000		1.50	12/29/2012
Granted to investors in private placement		512,500		2.50	12/29/2012
Granted to placement agent in private placement		30,000		1.50	12/29/2012
Granted to placement agent in private placement		30,000		2.50	12/29/2012
Granted to investors in private placement		245,750		1.50	1/4/2013
Granted to investors in private placement		245,750		2.50	1/4/2013
Granted to placement agent in private placement		18,125		1.50	1/4/2013
Granted to placement agent in private placement		18,125		2.50	1/4/2013
Granted to investors in private placement		255,000		1.50	2/3/2013
Granted to investors in private placement		280,000		2.50	2/3/2013
Granted to placement agent in private placement		1,250		1.50	2/3/2013
Granted to placement agent in private placement		1,250		2.50	2/3/2013
Granted to investors in private placement		250,000		1.50	2/8/2013
Granted to investors in private placement		250,000		2.50	2/8/2013
Granted to investors in private placement		959,582		3.00	12/7/2014
Total outstanding warrants accounted for as equity		6,752,387
Weighted average exercise price			$	2.00
Weighted average time to expiration in years					0.92 years
Totals for all warrants outstanding:
Total		7,268,974
Weighted average exercise price			$	1.95
Weighted average time to expiration in years					0.89 years

-11-

A summary of warrant activity for the six months ended June 30, 2012 is as follows:

Warrants	Shares			Weighted- Average Exercise Price
Outstanding at January 1, 2012		7,527,529		$	1.92
Granted		—			—
Exercised		(118,500	)		1.28
Forfeited or expired		(140,055	)		1.07
Outstanding at June 30, 2012		7,268,974		$	1.95

Exercise of Common Stock Warrants

During the six months ended June 30, 2012, the Company issued 118,500 shares of Common Stock upon the exercise of warrants.

(10)  LICENSING AND OTHER REVENUE

In 2009, the Company entered into a License Agreement with Handok Pharmaceuticals Co., Ltd. (“Handok”) pursuant to which the Company granted Handok a license to develop, use, market, sell and import Symphony for continuous glucose monitoring for use by medical facilities and/or individual consumers in South Korea (the “Handok License”). The Handok License has a minimum term of 10 years from the date of the first commercial sale of Symphony in South Korea.

The Company received a licensing fee of approximately $500,000 upon execution of the Handok License as well as future milestone payments and royalties. The Company recognizes the upfront, nonrefundable payments as revenue on a straight-line basis over the contractual or estimated performance period. During the six months ended June 30, 2012 and 2011, the Company recorded approximately $62,000 and $243,000, respectively, of nonrefundable license revenue.  As of June 30, 2012, approximately $124,000 of deferred revenue remains unrecognized, which is recognizable over the next 12 months and shown as Deferred Revenue amongst current liabilities on the Consolidated Balance Sheet.

(11)  LITIGATION

Harry G. Mitchell, the former Chief Operating Officer of the Company, resigned from that position in June 2011.  On August 25, 2011, Mr. Mitchell filed a complaint in the Norfolk County Superior Court in Massachusetts against the Company and its Chief Executive Officer, Patrick T. Mooney, claiming, among other things, that he resigned for good reason (as defined under his employment agreement) and was therefore entitled to certain benefits and also to certain payments under state wage payment statutes.  Mr. Mitchell sought compensatory damages, an award of attorneys’ fees and costs and other relief.  The Company responded to the complaint by serving a partial motion to dismiss on September 28, 2011.  The Company had accrued approximately $400,000 in settlement liability as of September 30, 2011 with respect to this matter, reflecting the Company’s best estimate then of probable loss exposure.

On December 20, 2011, the Company and Dr. Mooney entered into a Settlement and Release Agreement (the “Settlement Agreement”) with Mr. Mitchell in order to enable the Company’s senior management team to focus its full attention on product development and business operations.  In accordance with the Settlement Agreement, the Company agreed to (i) pay Mr. Mitchell a settlement payment in the gross amount of $125,000, to be paid in installments over a three month period, (ii) pay Mr. Mitchell’s full monthly COBRA premium for six months, and (iii) fully vest 100,000 shares of restricted Common Stock (the “Shares”) held by Mr. Mitchell.  The Shares vested in January 2012, the date when the Company received confirmation of Mr. Mitchell’s dismissal of his lawsuit, and resulted in an outstanding settlement accrued liability relating to the settlement of $290,000, representing the then fair value of the Common Stock to be issued, in the Company’s consolidated balance sheet as of December 31, 2011.  As of June 30, 2012, this matter has been completely resolved.

When the Shares were issued in January 2012, the accrued liability was largely satisfied and $82,000 of the previously recorded share-based compensation was reversed in that period due to a decline in the market value of the underlying Common Stock.

-12-

(12)  SUBSEQUENT EVENT

Financing Arrangement with Platinum-Montaur Life Sciences LLC

On August 8, 2012, the Company and Platinum-Montaur Life Sciences LLC, a Delaware limited liability company (“Montaur”) signed a commitment letter (the “Commitment Letter”) pursuant to which Montaur agreed to make a non-revolving draw credit facility available to the Company in an initial aggregate principal amount of $5,000,000 (the “Draw Credit Maximum Amount”). The term of the credit facility will be five years from the date of closing (the “Maturity Date”). Pursuant to the terms of the Commitment Letter, the Company may make an aggregate principal amount of draws which do not exceed the Draw Credit Maximum Amount. The Company may not re-borrow the amount of any repaid draw. The Draw Credit Maximum Amount available pursuant to the Loan Agreement will increase in additional $3,000,000 increments, in an amount not to exceed $20,000,000, upon the occurrence of certain regulatory and clinical study milestones. The principal balance of each draw will bear interest from the applicable draw date at a rate equal to 10.0% per annum. Interest payable by the Company will compound monthly.  The Company will make interest-only payments on the principal amount due in connection with each draw on the first business day of each month until the Maturity Date. The Company will have the right to permanently prepay any draw, in whole or in part.

On closing, the Company will issue Montaur a warrant to purchase 4,000,000 shares of Common Stock, with an exercise price of $2.00 per share and a term of five years.  In addition, for each $1,000,000 draw, the Company will issue Montaur a warrant to purchase 1,000,000 shares of Common Stock, with a term of five years and an exercise price equal to the lesser of: (a) 150% of the market price of the Common Stock at the time of the draw (but in no event less than $2.00 per share), or (b) $4.00 per share.

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of our financial condition and results of operations should be read in conjunction with the financial statements and the related notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011 and elsewhere in this report. The matters discussed herein contain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 27A of the Securities Act of 1933, as amended, which involve risks and uncertainties. All statements other than statements of historical information provided herein may be deemed to be forward-looking statements. Without limiting the foregoing, the words “believes”, “anticipates”, “plans”, “expects” and similar expressions are intended to identify forward-looking statements. The factors that could cause actual future results to differ materially from current expectations include, but are not limited to, risks related to regulatory approvals and the success of our ongoing studies, including the safety and efficacy of Symphony and Prelude, the failure of future development and preliminary marketing efforts related to Symphony and Prelude, risks and uncertainties relating to our ability to develop, market and sell diagnostic products based on our skin permeation platform technologies, the availability of substantial additional capital to support our research, development and product commercialization activities, the success of our research, development, and regulatory approval, marketing and distribution plans and strategies, including those plans and strategies related to Symphony and Prelude and those discussed in “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011 and elsewhere in this report and the risks discussed in our other filings with the SEC. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s analysis, judgment, belief or expectation only as of the date hereof. We undertake no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date hereof.

Business

We are a transdermal medical device company with significant expertise in advanced skin permeation technology.  We are developing our Prelude®SkinPrep System (“Prelude”) as a platform technology to allow for painless and significantly enhanced skin permeation that will enable both needle-free drug delivery and analyte extraction.  Utilizing this technology, we are developing our needle-free Symphony® tCGM System (“Symphony”) as a non-invasive, wireless, transdermal continuous glucose monitoring (“tCGM”) system for use in hospital critical care units and for people with diabetes.

Our specialty pharmaceuticals pipeline is based on our proprietary AzoneTSTM transdermal drug reformulation technology.  Our most advanced drug candidate is Durhalieve, an AzoneTS formulation of triamcinolone acetonide.

Research and Development

We believe that ongoing research and development efforts are essential to our success.  A major portion of our operating expenses to date is related to our research and development activities. R&D expenses generally consist of internal salaries and related costs, and third-party vendor expenses for product design and development, product engineering and contract manufacturing. In addition, R&D costs include regulatory consulting, feasibility product testing (internal and external) and conducting nonclinical and clinical studies. R&D expenses were approximately $3,592,000 for the six months ended June 30, 2012 and $3,796,000 for the year ended December 31, 2011. We intend to maintain our strong commitment to R&D as an essential component of our product development efforts. Licensed or acquired technology developed by third parties may be an additional source of potential products; however, our ability to raise sufficient financing may impact our level of R&D spending.

Critical Accounting Policies and Estimates

Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

-13-

On an ongoing basis, we evaluate our estimates and judgments for all assets and liabilities, including those related to stock-based compensation expense and the fair value of stock purchase warrants classified as derivative liabilities. We base our estimates and judgments on historical experience, current economic and industry conditions and on various other factors that are believed to be reasonable under the circumstances. This forms the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. There have been no changes in our critical accounting policies and estimates subsequent to those disclosed in our Annual Report on Form 10-K as filed with the SEC on March 15, 2012.

We believe that full consideration has been given to all relevant circumstances that we may be subject to, and the consolidated financial statements accurately reflect our best estimate of the results of operations, financial position and cash flows for the periods presented.

Results of Operations

Comparison of the Three Months ended June 30, 2012 and 2011

Licensing Revenue — We signed two licensing agreements during fiscal year 2009, each with a minimum term of ten years, that required non-refundable license payments by the licensees. The non-refundable license payments received in cash totaled $1,250,000 across both transactions. We are recognizing the non-refundable payments as revenue on a straight-line basis over our contractual or estimated performance period. During 2011 and 2010, we adjusted our amortization period for revenue recognition for each of our license arrangements to reflect a revision in the estimated timing of regulatory approval (or clearance).  Accordingly, we determined that approximately $31,000 and $121,000 license revenue was recognizable in the three months ended June 30, 2012 and 2011, respectively.

Other Revenue — We retain contract engineering and development services in connection with our product development for one of our licensees and such costs are reimbursed by that licensee and recorded as other revenue.  We recognized approximately $37,000 related to these contract engineering services during the three months ended June 30, 2011. The costs from the contract engineering services are included in research and development expenses on the Statements of Operations. There was no markup on the contract engineering services recorded as other revenue.  We did not have any such other revenue during the three months ended June 30, 2012.

Research and Development Expenses — Research and development expenses increased by approximately $1,204,000, or 121%, to approximately $2,200,000 for the three months ended June 30, 2012 from approximately $996,000 for the three months ended June 30, 2011. R&D expenses increased primarily as a result of increased engineering and design expenses incurred with outside contractors and personnel relating to Prelude and Symphony.

 R&D expenses for Prelude and Symphony amounted to approximately 62% and 50% of total operating expenses during the three months ended June 30, 2012 and 2011, respectively.  For the three months ended June 30, 2012, expenses consisted of primarily development, regulatory and manufacturing of $1,892,000, $289,000 and $7,000, respectively.  For the three months ended June 30, 2011, expenses consisted of primarily development, regulatory and clinical of $934,000, $12,000 and $8,000, respectively.

Selling, General and Administrative Expenses — Selling, general and administrative expenses increased by approximately $357,000, or 36%, to approximately $1,335,000 for the three months ended June 30, 2012 from approximately $978,000 for the three months ended June 30, 2011. We have experienced increases in personnel costs, legal costs, and expenses related to the addition of the corporate office in Philadelphia.

Selling, general and administrative expenses represented 38% and 50% of total operating expenses during the three months ended June 30, 2012 and 2011, respectively. We are not engaged in selling activities and, accordingly, general and administrative expenses relate principally to salaries and benefits for our executive, financial and administrative staff, public company reporting costs, investor relations, legal, accounting and media costs, capital-raising costs, and facilities costs.

Interest Income — Interest income was approximately $2,000 and $1,000 for the three months ended June 30, 2012 and 2011, respectively.

Interest Expense — Interest expense was approximately $100 and $600 for the three months ended June 30, 2012 and 2011, respectively.

-14-

Derivative Warrant Liability Gain (Loss) — Changes in the fair value of the derivative financial instruments are recognized in the Consolidated Statement of Operations as a derivative gain (loss). The primary underlying risk exposure pertaining to the warrants is the change in fair value of the underlying Common Stock. The derivative gain on warrants subject to “down round” provisions for the three months ended June 30, 2012 was approximately $370,000. The derivative loss on warrants subject to “down round” provisions for the three months ended June 30, 2011 amounted to approximately $122,000.  During the three months ended June 30, 2012, warrants with anti-dilution provisions were exercised to purchase 118,500 shares of Common Stock, which resulted in a $42,000 reclassification from derivative warrant liability to additional paid-in capital.  During the three months ended June 30, 2011, warrants with anti-dilution provisions were exercised to purchase 237,500 shares of common stock, which resulted in a $916,000 reclassification from derivate warrant liability to additional paid-in capital.

Net Loss Applicable to Common Shareholders — As a result of the factors described above, we had a net loss applicable to common shareholders of approximately $3,154,000 for the three months ended June 30, 2012 compared to approximately $1,987,000 for the three months ended June 30, 2011.

Comparison of the Six Months ended June 30, 2012 and 2011

Licensing Revenue — We signed two licensing agreements during fiscal year 2009, each with a minimum term of ten years, that required non-refundable license payments by the licensees. The non-refundable license payments received in cash totaled $1,250,000 across both transactions. We are recognizing the non-refundable payments as revenue on a straight-line basis over our contractual or estimated performance period. During 2011 and 2010, we adjusted our amortization period for revenue recognition for each of our license arrangements to reflect a revision in the estimated timing of regulatory approval (or clearance).  Accordingly, we determined that approximately $61,000 and $243,000 of license revenue was recognizable in the six months ended June 30, 2012 and 2011, respectively.

Other Revenue — We retain contract engineering and development services in connection with our product development for one of our licensees and such costs are reimbursed by that licensee and recorded as other revenue.  We recognized approximately $145,000 related to these contract engineering services during the six months ended June 30, 2011. The costs from the contract engineering services are included in research and development expenses on the Statements of Operations. There was no markup on the contract engineering services recorded as other revenue.  We did not have any such other revenue during the six months ended June 30, 2012.

Research and Development Expenses — Research and development expenses increased by approximately $1,730,000, or 93%, to approximately $3,592,000 for the six months ended June 30, 2012 from approximately $1,862,000 for the six months ended June 30, 2011. R&D expenses increased primarily as a result of increased engineering and design expenses incurred with outside contractors and personnel relating to Prelude and Symphony.

 R&D expenses for Prelude and Symphony amounted to approximately 53% and 49% of total operating expenses during the six months ended June 30, 2012 and 2011, respectively.  For the six months ended June 30, 2012, expenses consisted of primarily development, regulatory and manufacturing of $3,182,000, $372,000 and $14,000, respectively.  For the six months ended June 30, 2011, expenses consisted of primarily development, regulatory and clinical of $1,757,000, $22,000 and $17,000, respectively.

Selling, General and Administrative Expenses — Selling, general and administrative expenses increased by approximately $1,294,000, or 68%, to approximately $3,194,000 for the six months ended June 30, 2012 from approximately $1,900,000 for the six months ended June 30, 2011. We have experienced increases in personnel costs, legal costs, and expenses related to the addition of the corporate office in Philadelphia.

Selling, general and administrative expenses represented 47% and 51% of total operating expenses during the six months ended June 30, 2012 and 2011, respectively. We are not engaged in selling activities and, accordingly, general and administrative expenses relate principally to salaries and benefits for our executive, financial and administrative staff, public company reporting costs, investor relations, legal, accounting and media costs, capital-raising costs, and facilities costs.

Interest Income — Interest income was approximately $5,000 and $3,000 for the six months ended June 30, 2012 and 2011, respectively.

Interest Expense — Interest expense was approximately $300 and $13,000 for the six months ended June 30, 2012 and 2011, respectively.

-15-

Derivative Warrant Liability Gain (Loss) — Changes in the fair value of the derivative financial instruments are recognized in the Consolidated Statement of Operations as a derivative gain (loss). The primary underlying risk exposure pertaining to the warrants is the change in fair value of the underlying Common Stock. The derivative gain on warrants subject to “down round” provisions for the six months ended June 30, 2012 was approximately $601,000. The derivative loss on warrants subject to “down round” provisions for the six months ended June 30, 2011 amounted to approximately $3,152,000.    During the six months ended June 30, 2012, warrants with anti-dilution provisions were exercised to purchase 118,500 shares of Common Stock, which resulted in a $42,000 reclassification from derivative warrant liability to additional paid-in capital.  During the six months ended June 30, 2011, warrants with anti-dilution provisions were exercised to purchase 602,693 shares of common stock, which resulted in a $2,171,000 reclassification from derivate warrant liability to additional paid-in capital.

Net Loss Applicable to Common Shareholders — As a result of the factors described above, we had a net loss applicable to common shareholders of approximately $6,140,000 for the six months ended June 30, 2012 compared to approximately $8,605,000 for the six months ended June 30, 2011.

Liquidity and Capital Resources

We have financed our operations since inception primarily through private sales of our Common Stock and preferred stock, the issuance of convertible promissory notes, unsecured and secured promissory notes, non-refundable payments received under license agreements and cash received in connection with exercises of Common Stock purchase options and warrants. As of June 30, 2012, we had approximately $3,111,000 of cash and cash equivalents, with no other short term investments.

Net cash used in operating activities was approximately $5,767,000 for the six months ended June 30, 2012. The use of cash in operating activities was primarily attributable to the net loss of approximately $6,140,000.

Net cash used in investing activities of approximately $468,000 for the six months ended June 30, 2012.  Cash of approximately $157,000 was used in increasing restricted cash in escrow for the benefit of a vendor and a facility leaseholder during the six month period ended June 30, 2012. Also, cash of approximately $311,000 was used to purchase property and equipment for manufacturing equipment, computers and office furniture during the six month period ended June 30, 2012.

Net cash provided by financing activities was approximately $351,000 for the six months ended June 30, 2012. We received approximately $346,000 from the exercise of Common Stock warrants and options and approximately $7,000 in proceeds from the issuance of Common Stock and warrants. Principal payments on capitalized lease obligations used approximately $1,100 during the six months ended June 30, 2012.

At June 30, 2012, we had outstanding warrants to purchase 7,268,974 shares of Common Stock at exercise prices ranging from $0.50 to $3.00.  If exercised, these could provide cash proceeds to the Company of approximately $14,143,000.

We continue to aggressively pursue additional financing from existing relationships (prior shareholders, investors and lenders) and from new investors through placement agents and investment bankers to support operations, including our product and clinical development programs.

In August 2011 we filed a universal shelf registration statement on Form S-3 with the SEC to raise up to $75 million in capital.  This registration statement was declared effective on October 28, 2011.  In December 2011 we raised $5.4 million in capital, thereby reducing the amount available remaining under this shelf registration statement to $69.6 million.

We have demonstrated the ability to manage our costs aggressively and increase our operating efficiencies while advancing our medical device product development and clinical programs.  During the six months ended June 30, 2012, we managed our medical device product development, clinical and operating costs while pursuing necessary funding. In order to advance our product and clinical development programs, establish contract manufacturing and support our licensee for the manufacture of Prelude, pursue FDA approval for Symphony and support our operating activities, we expect our monthly operating costs associated with salaries and benefits, regulatory and public company consulting, contract engineering and manufacturing, legal and other working capital costs to increase. In the past, we have relied primarily on raising capital in order to meet our operating budget and to achieve our business objectives, and we plan to continue that practice in the future. Although we have been successful in the past with raising sufficient capital to conduct our operations, we will continue to vigorously pursue additional financing as necessary to meet our business objectives; however, there can be no guarantee that additional capital will be available in sufficient amounts on terms favorable to us, if at all.

-16-

Our ability to fund our future operating requirements will depend on many factors, including the following:

• our ability to obtain funding from third parties, including any future collaborative partners, on reasonable terms;

• our progress on research and development programs;

• the time and costs required to gain regulatory approvals;

• the costs of manufacturing, marketing and distributing our products, if successfully developed and approved;

• the costs of filing, prosecuting and enforcing patents, patent applications, patent claims and trademarks;

• the status of competing products; and

• the market acceptance and third-party reimbursement of our products, if successfully developed and approved.

The economic conditions occurring during 2011 and continuing in 2012, including the tightening of available funding in the financial markets, had a significant impact on the extent of advancement on our product development and clinical programs in accordance with our original projected level of operations. Although we have recently raised sufficient capital to conduct our operations in the past, we believe that uncertainties in the financial markets may occur in the future, resulting in fund raising challenges for emerging medical device and pharmaceutical companies. Our future product and clinical development programs and regulatory activities may be dependent on available additional funding from investors. Without sufficient funding for our programs, our plan to obtain regulatory approval for Symphony and other product candidates may be delayed.

Facilities, Property and Equipment — We conduct our operations primarily in leased facilities in Philadelphia, PA and Franklin, MA and have executed leases through May 31, 2017 and October 31, 2017, respectively, for each facility.  Our property and equipment does not include manufacturing machinery and is limited to laboratory testing equipment, office furniture and computer systems.

Contractual Obligations

The following table outlines our current contractual obligations:

	Payments due by period
	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Facility Lease – Franklin, MA	$	2,348,000	$	419,000	$	868,000	$	908,000	$	153,000
Facility Lease – Philadelphia, PA		930,000		181,000		375,000		374,000		—
Operating Lease Obligations		15,000		8,000		7,000		—		—
Capital Lease Obligation		6,000		3,000		3,000		—		—
Total	$	3,299,000	$	611,000	$	1,253,000	$	1,282,000	$	153,000

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements, including unrecorded derivative instruments that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. We have certain warrants and options outstanding but we do not expect to receive sufficient proceeds from the exercise of these instruments unless and until the trading price of our Common Stock is significantly greater than the applicable exercise prices of the options and warrants for a sustained period of time.

Effect of Inflation and Changes in Prices

We do not believe that inflation and changes in price will have a material effect on our operations.

-17-

ITEM 4.  CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operations of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report were effective in ensuring that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that the information required to be disclosed by us in such reports is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

In designing and evaluating our disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible control and procedures.

Internal Control over Financial Reporting

There was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that occurred during the fiscal quarter to which this report relates that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

The material set forth in Note 11 of the Notes to Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q is incorporated herein by reference.

ITEM 6.  EXHIBITS

The Exhibits listed in the Exhibit Index immediately preceding such Exhibits are filed with or incorporated by reference in this report, except as noted.

-18-

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

ECHO THERAPEUTICS, INC.

Date: August 9, 2012

By:	/s/ Patrick T. Mooney
	Patrick T. Mooney, M.D.
	Chief Executive Officer and Chairman of the Board
	(Principal Executive Officer)
By:	/s/ Christopher P. Schnittker
	Christopher P. Schnittker, CPA
	Chief Financial Officer and Treasurer
	(Principal Financial Officer)

-19-

EXHIBIT INDEX

Exhibit No.	Item
3.1	Amended and Restated Certificate of Incorporation dated June 20, 2012.
3.2	Certificate of Designation, Preferences and Rights of Series C Preferred Stock dated July 19, 2012.
3.3	Certificate of Designation, Preferences and Rights of Series D Preferred Stock dated July 19, 2012.
5.1	Opinion of Morgan Lewis & Bockius LLP is incorporated by reference to Exhibit 5.1 of the Registrant’s Quarterly Report on Form 10-Q filed May 10, 2012.
10.1	At Market Issuance Sales Agreement with MLV & Co. dated May 9, 2012 is incorporated by reference to Exhibit 10.1 of the Registrant’s Quarterly Report on Form 10-Q filed May 10, 2012.***
10.2	Amended and Restated License Agreement between the Company and Ferndale Pharma Group, Inc. dated July 3, 2012.**
31.1	Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of the Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of the Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101	The following materials from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012, formatted in XBRL (Extensible Business Reporting Language), (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Cash Flows, and (iv) Notes to Consolidated Financial Statements.*
*     Pursuant to Rule 406T of Regulation S-T, the XBRL (Extensible Business Reporting Language) information included in Exhibit 101 hereto is deemed furnished and not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
**   Confidential treatment has been requested as to certain portions, which portions have been omitted and filed separately with the Securities and Exchange Commission.
*** In response to shareholder feedback and concerns, the Company terminated the At Market Issuance Sales Agreement between the Company and MLV & Co. LLC effective as of May 28, 2012.  No shares were sold under the Sales Agreement prior to the termination date.

EX-3.1

Exhibit 3.1

AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION

OF

ECHO THERAPEUTICS, INC.

Echo Therapeutics, Inc. (the “Corporation”), a corporation organized and existing under the General Corporation Law of the State of Delaware (the “DGCL”) hereby certifies as follows:

 1. That the Corporation was originally incorporated under the name “Durham Pharmaceuticals Acquisition Co.” on September 10, 2007 pursuant to the DGCL.

 2. Pursuant to Section 242 of the DGCL, the amendments and restatement herein set forth have been duly approved by the Board of Directors and stockholders of Echo Therapeutics, Inc.

 3. Pursuant to Section 245 of the DGCL, this Amended and Restated Certificate of Incorporation restates and integrates and further amends the provisions of the Amended and Restated Certificate of Incorporation of this Corporation.

 4. The text of the Amended and Restated Certificate of Incorporation is hereby amended and restated in its entirety as follows:

FIRST:  The name of the Corporation is Echo Therapeutics, Inc.

SECOND:  The address of the Corporation’s registered office in the State of Delaware is 2711 Centerville Road, Suite 400, City of Wilmington, County of New Castle, 19808; and the name of the Corporation’s registered agent at such address is Corporation Service Company.

THIRD:  The nature of the business or purposes to be conducted or promoted of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the Delaware General Corporation Law.

FOURTH:  The total number of shares of stock which the Corporation shall have authority to issue is 190,000,000 shares, consisting of 150,000,000 shares of Common Stock with a par value of $.01 per share (the “Common Stock”) and 40,000,000 shares of Preferred Stock with a par value of $.01 per share (the “Preferred Stock”).

 A.  Common Stock.

 1.  General.  All shares of Common Stock will be identical and will entitle the holders thereof to the same rights, powers and privileges. The rights, powers and privileges of the holders of the Common Stock are subject to and qualified by the rights of holders of the Preferred Stock.

 2.  Dividends.  Dividends may be declared and paid on the Common Stock from funds lawfully available therefor as and when determined by the Board of Directors and subject to any preferential dividend rights of any then outstanding Preferred Stock.

 3.  Dissolution, Liquidation or Winding Up.  In the event of any dissolution, liquidation or winding up of the affairs of the Corporation, whether voluntary or involuntary, each issued and outstanding share of Common Stock shall entitle the holders thereof to receive an equal portion of the net assets of the Corporation available for distribution to the holders of Common Stock, subject to any preferential rights of any the outstanding Preferred Stock.

-1-

 4.  Voting Rights.  Except as otherwise required by law or this Certificate of Incorporation, each holder of Common Stock shall have one vote in respect of each share of stock held of record by such holder on the books of the Corporation for the election of directors and on all matters submitted to a vote of stockholders of the Corporation. Except as otherwise required by law or provided herein, holders of Common Stock shall vote together with holders of the Preferred Stock as a single class, subject to any special or preferential voting rights of any then outstanding Preferred Stock. There shall be no cumulative voting.

 B.  Preferred Stock.

 The Preferred Stock may be issued in one or more series at such time or times and for such consideration or considerations as the Board of Directors of the Corporation may determine. Each series shall be so designated as to distinguish the shares thereof from the shares of all other series and classes. Except as otherwise provided in this Certificate of Incorporation, different series of Preferred Stock shall not be construed to constitute different classes of shares for the purpose of voting by classes.

 The Board of Directors is expressly authorized to provide for the issuance of all or any shares of the undesignated Preferred Stock in one or more series, each with such designations, preferences, voting powers (or special, preferential or no voting powers), relative, participating, optional or other special rights and privileges and such qualifications, limitations or restrictions thereof as shall be stated in the resolution or resolutions adopted by the Board of Directors to create such series. The authority of the Board of Directors with respect to each such series shall include, without limitation of the foregoing, the right to provide that the shares of each such series may be: (i) subject to redemption at such time or times and at such price or prices; (ii) entitled to receive dividends (which may be cumulative or non-cumulative) at such rates, on such conditions, and at such times, and payable in preference to, or in such relation to, the dividends payable on any other class or classes or any other series; (iii) entitled to such rights upon the dissolution of, or upon any distribution of the assets of, the Corporation; (iv) convertible into, or exchangeable for, shares of any other class or classes of stock, or of any other series of the same or any other class or classes of stock of the Corporation at such price or prices or at such rates of exchange and with such adjustments, if any; (v) entitled to the benefit of such limitations, if any, on the issuance of additional shares of such series or shares of any other series of Preferred Stock; or (vi) entitled to such other preferences, powers, qualifications, rights and privileges, all as the Board of Directors may deem advisable and as are not inconsistent with law and the provisions of this Certificate of Incorporation.

 FIFTH:  The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors of the Corporation. The number of directors which shall constitute the whole Board of Directors shall be determined by resolution of the Board of Directors, but in no event shall be less than three. The Directors of the Corporation shall be divided into three classes, designated Class I, Class II and Class III. All classes shall be as nearly equal in number of directors as possible. The term of office of Class I will expire at the first annual meeting of stockholders following the initial classification of directors, the term of office of Class II will expire at the second annual meeting of stockholders following the initial classification of directors, and the term of office of Class III will expire at the third annual meeting of stockholders following the initial classification of directors. Each director so classified shall hold office until the annual meeting at which his term expires and until his successor has been elected and qualified. The number of directors may be decreased at any time and from time to time by a majority of the directors then in office, but only to eliminate vacancies existing by reason of the death, resignation, removal or expiration of the term of one or more directors. The Board of Directors is authorized to assign members of the Board already in office to such classes as it may determine at the time the classification of the Board of Directors pursuant to this Certificate of Incorporation becomes effective.

    SIXTH:  In furtherance and not in limitation of the general powers conferred by the laws of the State of Delaware, the Board of Directors is expressly authorized to make, adopt, amend, alter or repeal the by-laws of the Corporation, except as specifically otherwise provided therein. The stockholders shall also have the power to adopt, amend or repeal the by-laws of the Corporation; provided, however, that, in addition to any vote of the holders of any class or series of stock of the Corporation required by law or by this Certificate of Incorporation, the affirmative vote of the holders of at least seventy-five percent (75%) of the voting power of all of the then outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to adopt, amend or repeal any provision of the By-Laws of the Corporation.

-2-

 SEVENTH:  To the fullest extent permitted by the Delaware General Corporation Law as the same exists or may hereafter be amended, no director (including any advisory director) of the Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. No amendment to or repeal of this paragraph SEVENTH shall apply to or have any effect on the liability or alleged liability of any director of the Corporation for or with respect to any acts or omissions of such director occurring prior to such amendment or repeal.

 EIGHTH:  Any action required or permitted to be taken by the stockholders at a stockholders’ meeting may be taken without a meeting by unanimous written consent signed by all the stockholders entitled to vote on such action.

 NINTH:  The Corporation reserves the right to amend or repeal any provision contained in this Certificate of Incorporation in the manner prescribed by the laws of the State of Delaware and all rights conferred upon stockholders are granted subject to this reservation.

-3-

 IN WITNESS WHEREOF, this Amended and Restated Certificate of Incorporation is executed on behalf of the Company this 20th day of June, 2012.

ECHO THERAPEUTICS, INC.

By: /s/ Patrick T. Mooney, M.D.

Name: Patrick T. Mooney, M.D.

Title: Chief Executive Officer

EX-3.2

Exhibit 3.2

CERTIFICATE OF DESIGNATION,

PREFERENCES AND RIGHTS

of

SERIES C PREFERRED STOCK

of

ECHO THERAPEUTICS, INC.

(Pursuant to Section 151 of the Delaware General Corporation Law)

Echo Therapeutics, Inc., a corporation organized and existing under the laws of the State of Delaware (the “Company”), hereby certifies that the Board of Directors of the Company (the “Board of Directors”), pursuant to authority of the Board of Directors as required by Section 151 of the Delaware General Corporation Law, and in accordance with the provisions of its Certificate of Incorporation and Bylaws, each as amended and restated through the date hereof, has and hereby authorizes a series of the Company’s previously authorized Preferred Stock, par value $.01 per share (the “Preferred Stock”), and hereby states the designation and number of shares, and fixes the relative rights, preferences, privileges, powers and restrictions thereof, as follows:

1.­Designation and Rank.  The designation of such series of the Preferred Stock shall be the Series C Convertible Preferred Stock, par value $.01 per share (the “Series C Preferred Stock”).  The maximum number of shares of Series C Preferred Stock shall be Ten Thousand (10,000) shares.  The Series C Preferred Stock shall rank junior to the Series B Perpetual Preferred Stock, shall rank prior to the common stock, par value $.01 per share (the “Common Stock”), and shall rank senior to all other classes and series of equity securities of the Company that by their terms do not rank senior to the Series C Preferred Stock (“Junior Stock”).

2.­Dividends.  Whenever the Board of Directors declares a dividend on the Common Stock each holder of record of a share of Series C Preferred Stock, or any fraction of a share of Series C Preferred Stock, on the date set by the Board of Directors to determine the owners of the Common Stock of record entitled to receive such dividend (the “Record Date”) shall be entitled to receive, out of any assets at the time legally available therefore, an amount equal to such dividend declared on one share of Common Stock multiplied by the number of shares of Common Stock into which such share, or such fraction of a share, of Series C Preferred Stock could be converted on the Record Date.

3.­Voting Rights.

(a)­Class Voting Rights.  The Series C Preferred Stock shall have the following class voting rights.  So long as any shares of the Series C Preferred Stock remain outstanding, the Company shall not, without the affirmative vote or consent of the holders of at least sixty-seven percent (67%) of the shares of the Series C Preferred Stock outstanding at the time, given in person or by proxy, either in writing or at a meeting, in which the holders of the Series C Preferred Stock vote separately as a class: (i) amend, alter or repeal the provisions of the Series C Preferred Stock so as to adversely affect any right, preference, privilege or voting power of the Series C Preferred Stock; or (ii) effect any distribution with respect to Junior Stock except that the Company may effect a distribution on the Common stock if the Company makes a like kind distribution on each share, or fraction of a share, of Series C Preferred Stock in an amount equal to the distribution on one share of Common Stock multiplied by the number of shares of Common Stock into which such one share, or such fraction of a share, of Series C Preferred Stock can be converted at the time of such distribution.

(b)­General Voting Rights.  Except with respect to transactions upon which the Series C Preferred Stock shall be entitled to vote separately as a class pursuant to Section 3(a) above, the Series C Preferred Stock shall have no voting rights.  The Common Stock into which the Series C Preferred Stock is convertible shall, upon issuance, have all of the same voting rights as other issued and outstanding Common Stock of the Company.

-1-

4.­Liquidation Preference.

(a)In the event of the liquidation, dissolution or winding up of the affairs of the Company, whether voluntary or involuntary, after payment or provision for payment of the debts and other liabilities of the Company, the holders of shares of the Series C Preferred Stock then outstanding shall be entitled to receive, out of the assets of the Company, whether such assets are capital or surplus of any nature, an amount per share of Series C Preferred Stock calculated by taking the total amount available for distribution to holders of all the Company’s outstanding Common Stock before deduction of any preference payments for the Series C Preferred Stock, divided by the total of (x) all of the then outstanding shares of the Company’s Common Stock, plus (y) all of the shares of the Company’s Common Stock into which all of the outstanding shares of the Series C Preferred Stock can be converted (the “Liquidation Preference Amount”) before any payment shall be made or any assets distributed to the holders of the Common Stock or any other Junior Stock.  If the assets of the Company are sufficient to pay in part, but are not sufficient to pay in full, the Liquidation Preference Amount payable to the holders of outstanding shares of the Series C Preferred Stock and any series of preferred stock or any other class of stock on a parity, as to rights on liquidation, dissolution or winding up, with the Series C Preferred Stock, then all of said assets available to pay a part of the Liquidation Preference Amount to the holders of the outstanding shares of Series C Preferred Stock and the other classes of stock on a parity as to rights on liquidation, dissolution or winding up, will be distributed among the holders of the Series C Preferred Stock and the other classes of stock on a parity with the Series C Preferred Stock, if any, ratably in accordance with the respective amounts that would be payable on such shares if all amounts payable thereon were paid in full.  The liquidation payment with respect to each outstanding fractional share of Series C Preferred Stock shall be equal to a ratably proportionate amount of the liquidation payment with respect to each outstanding share of Series C Preferred Stock.  All payments for which this Section 4(a) provides shall be in cash, property (valued at its fair market value as determined by an independent appraiser reasonably acceptable to the holders of a majority of the Series C Preferred Stock), or a combination thereof; provided, however, that no cash shall be paid to holders of Junior Stock unless each holder of the outstanding shares of Series C Preferred Stock has been paid in cash the full Liquidation Preference Amount to which such holder is entitled as provided herein.  After payment of the full Liquidation Preference Amount to which each holder is entitled, such holders of shares of Series C Preferred Stock will not be entitled to any further participation as such in any distribution of the assets of the Company.

(b)A consolidation or merger of the Company with or into any other corporation or corporations, or a sale of all or substantially all of the assets of the Company, or the effectuation by the Company of a transaction or series of transactions in which more than 50% of the voting shares of the Company is disposed of or conveyed, or other acquisition type transaction shall be, at the election of a majority of the holders of the Series C Preferred Stock, deemed to be a liquidation, dissolution, or winding up within the meaning of this Section 4.  In the event of the merger or consolidation of the Company with or into another corporation that is not treated as a liquidation pursuant to this Section 4(b), the Series C Preferred Stock shall maintain its relative powers, designations and preferences provided for herein and no merger shall result inconsistent therewith.

(c)Written notice of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company, stating a payment date and the place where the distributable amounts shall be payable, shall be given by mail, postage prepaid, no less than forty-five (45) days prior to the payment date stated therein, to the holders of record of the Series C Preferred Stock at their respective addresses as the same shall appear on the books of the Company.

5.­Conversion.  The holder of Series C Preferred Stock shall have the following conversion rights (the “Conversion Rights”):

(a)­Right to Convert.  At any time on or after the Issuance Date, the holder of any such shares of Series C Preferred Stock may, at such holder’s option, subject to the limitations set forth in Section 7 herein, elect to convert (a “Voluntary Conversion”) all or any portion of the shares of Series C Preferred Stock held by such person into a number of fully paid and nonassessable shares of Common Stock at a conversion rate of One Thousand (1,000) shares of Common Stock for each share of Preferred Stock (subject to adjustments set forth in Section 7(e) herein, the “Conversion Rate”).  The Company shall keep written records of the conversion of the shares of Series C Preferred Stock converted by each holder.  A holder shall be required to deliver the original certificates representing the shares of Series C Preferred Stock upon any conversion of the Series C Preferred Stock as provided in Section 5(b) below.

-2-

(b)­Mechanics of Voluntary Conversion.  The Voluntary Conversion of Series C Preferred Stock shall be conducted in the following manner:

(i)­Holder’s Delivery Requirements.  To convert Series C Preferred Stock into full shares of Common Stock on any date (the “Voluntary Conversion Date”), the holder thereof shall (A) transmit by facsimile (or otherwise deliver), for receipt on or prior to 5:00 p.m., New York time on such date, a copy of a fully executed notice of conversion in the form attached hereto as Exhibit A (the “Conversion Notice”), to the Company, and (B) with respect to the conversion of shares of Series C Preferred Stock held by any holder, such holder shall surrender to a common carrier for delivery to the Company as soon as practicable following such Conversion Date, but in no event later than five (5) business days after such date, the original certificates representing the shares of Series C Preferred Stock being converted (or an indemnification undertaking with respect to such shares in the case of their loss, theft or destruction) (the “Preferred Stock Certificates”).

(ii)­Company’s Response.  Upon receipt by the Company of a facsimile copy of a Conversion Notice, the Company shall immediately send, via facsimile, a confirmation of receipt of such Conversion Notice to such holder and the Company or its designated transfer agent (the “Transfer Agent”), as applicable, shall, within five (5) business days following the date of receipt by the Company of the certificate representing the shares of Series C Preferred Stock being converted, (x) issue and deliver to the Depository Trust Company (“DTC”) account on the holder’s behalf via the Deposit Withdrawal Agent Commission System (“DWAC”) as specified in the Conversion Notice, registered in the name of the holder or its designee, for the number of shares of Common Stock to which the holder shall be entitled, and (y) if the certificate so surrendered represents more shares of Series C Preferred Stock than those being converted, issue and deliver to the holder a new certificate for such number of shares of Series C Preferred Stock represented by the surrendered certificate which were not converted.

(iii)­Intentionally Omitted.

(iv)­Record Holder.  The person or persons entitled to receive the shares of Common Stock issuable upon a conversion of the Series C Preferred Stock shall be treated for all purposes as the record holder or holders of such shares of Common Stock on the Conversion Date.

 (v)Company's Failure to Timely Convert.  If within five (5) business days of the Company's receipt of the Conversion Notice (the “Share Delivery Period”) the Company shall fail to issue and deliver to a holder the number of shares of Common Stock to which such holder is entitled upon such holder's conversion of the Series C Preferred Stock (a “Conversion Failure”), in addition to all other available remedies which such holder may pursue hereunder, the Company shall pay additional damages to such holder on each business day after such fifth (5th) business day that such conversion is not timely effected in an amount equal to 0.5% of the product of (A) the sum of the number of shares of Common Stock not issued to the holder on a timely basis pursuant to Section 5(b)(ii) and to which such holder is entitled and (B) the closing bid price of the Common Stock on the last possible date which the Company could have issued such Common Stock to such holder without violating Section 5(b)(ii).  If the Company fails to pay the additional damages set forth in this Section 5(b)(v) within five (5) business days of the date incurred, then such payment shall bear interest at the rate of 2% per month (pro rated for partial months) until such payments are made.

(c)Intentionally Omitted.

(d)­Intentionally Omitted.

(e)­Adjustments of Conversion Rate.

 (i)­Adjustments for Stock Splits and Combinations.  If the Company shall at any time or from time to time after the Issuance Date, effect a stock split of the outstanding Common Stock, the Conversion Rate shall be proportionately increased.  If the Company shall at any time or from time to time after the Issuance Date, combine the outstanding shares of Common Stock, the Conversion Rate shall be proportionately decreased.  Any adjustments under this Section 5(e)(i) shall be effective at the close of business on the date the stock split or combination occurs.

-3-

 (ii)­Adjustments for Certain Dividends and Distributions.  If the Company shall at any time or from time to time after the Issuance Date, make or issue or set a record date for the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in shares of Common Stock, then, and in each event, the Conversion Rate shall be increased as of the time of such issuance or, in the event such record date shall have been fixed, as of the close of business on such record date, by multiplying, as applicable, the Conversion Rate then in effect by a fraction:

(1)the numerator of which shall be the total number of shares of Common Stock issued and outstanding immediately after such issuance on the close of business on such record date; and

(2)the denominator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance on the close of business on such record date.

(iii)­Adjustment for Other Dividends and Distributions.  If the Company shall, at any time or from time to time after the Issuance Date, make or issue or set a record date for the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in securities of the Company other than shares of Common Stock, then, and in each event, an appropriate revision to the applicable Conversion Rate shall be made and provision shall be made (by adjustments of the Conversion Rate or otherwise) so that the holders of Series C Preferred Stock shall receive upon conversions thereof, in addition to the number of shares of Common Stock receivable thereon, the number of securities of the Company which they would have received had their Series C Preferred Stock been converted into Common Stock on the date of such event and had thereafter, during the period from the date of such event to and including the Conversion Date, retained such securities (together with any distributions payable thereon during such period), giving application to all adjustments called for during such period under this Section 5(e)(iii) with respect to the rights of the holders of the Series C Preferred Stock.

(iv)­Adjustments for Reclassification, Exchange or Substitution.  If the Common Stock issuable upon conversion of the Series C Preferred Stock at any time or from time to time after the Issuance Date shall be changed to the same or different number of shares of any class or classes of stock, whether by reclassification, exchange, substitution or otherwise (other than by way of a stock split or combination of shares or stock dividends provided for in Sections 5(e)(i), (ii) and (iii), or a reorganization, merger, consolidation, or sale of assets provided for in Section 5(e)(v)), then, and in each event, an appropriate revision to the Conversion Rate shall be made and provisions shall be made so that the holder of each share of Series C Preferred Stock shall have the right thereafter to convert such share of Series C Preferred Stock into the kind and amount of shares of stock and other securities receivable upon reclassification, exchange, substitution or other change, by holders of the number of shares of Common Stock into which such share of Series C Preferred Stock might have been converted immediately prior to such reclassification, exchange, substitution or other change, all subject to further adjustment as provided herein.

(v)­Adjustments for Reorganization, Merger, Consolidation or Sales of Assets.  If at any time or from time to time after the Issuance Date there shall be a capital reorganization of the Company (other than by way of a stock split or combination of shares or stock dividends or distributions provided for in Section 5(e)(i), (ii) and (iii), or a reclassification, exchange or substitution of shares provided for in Section 5(e)(iv)), or a merger or consolidation of the Company with or into another corporation, or the sale of all or substantially all of the Company’s properties or assets to any other person (an “Organic Change”), then as a part of such Organic Change an appropriate revision to the Conversion Rate shall be made and provision shall be made so that the holder of each share of Series C Preferred Stock shall have the right thereafter to convert such share of Series C Preferred Stock into the kind and amount of shares of stock and other securities or property of the Company or any successor corporation resulting from the Organic Change which the holder of such share of Series C Preferred Stock would have received if such share of Series C Preferred Stock had been converted prior to such Organic Change.

(vi)­Record Date.  In case the Company shall take record of the holders of its Common Stock or any other Preferred Stock for the purpose of entitling them to subscribe for or purchase Common Stock or Convertible Securities, then the date of the issue or sale of the shares of Common Stock shall be deemed to be such record date.

-4-

(f)No Impairment.  The Company shall not, by amendment of its Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of this Section 5 and in the taking of all such action as may be necessary or appropriate in order to protect the Conversion Rights of the holders of the Series C Preferred Stock against impairment.  In the event a holder shall elect to convert any shares of Series C Preferred Stock as provided herein, the Company cannot refuse conversion based on any claim that such holder or any one associated or affiliated with such holder has been engaged in any violation of law, unless an injunction from a court, on notice, restraining and/or adjoining conversion of all or of said shares of Series C Preferred Stock shall have been issued.

(g)­Certificates as to Adjustments.  Upon occurrence of each adjustment or readjustment of the Conversion Rate or number of shares of Common Stock issuable upon conversion of the Series C Preferred Stock pursuant to this Section 5, the Company at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to each holder of such Series C Preferred Stock a certificate setting forth such adjustment and readjustment, showing in detail the facts upon which such adjustment or readjustment is based.  The Company shall, upon written request of the holder of such affected Series C Preferred Stock, at any time, furnish or cause to be furnished to such holder a like certificate setting forth such adjustments and readjustments, the Conversion Rate in effect at the time, and the number of shares of Common Stock and the amount, if any, of other securities or property which at the time would be received upon the conversion of a share of such Series C Preferred Stock.  Notwithstanding the foregoing, the Company shall not be obligated to deliver a certificate unless such certificate would reflect an increase or decrease of at least one percent of such adjusted amount.

(h)­Issue Taxes.  The Company shall pay any and all issue and other taxes, excluding federal, state or local income taxes, that may be payable in respect of any issue or delivery of shares of Common Stock on conversion of shares of Series C Preferred Stock pursuant hereto; provided, however, that the Company shall not be obligated to pay any transfer taxes resulting from any transfer requested by any holder in connection with any such conversion.

(i)­Notices.  All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally or by facsimile or three (3) business days following (x) being mailed by certified or registered mail, postage prepaid, return-receipt requested, or (y) delivered to an express mail delivery service such as Federal Express, with written receipt by the addressee required, in either case addressed to the holder of record at its address appearing on the books of the Company.  The Company will give written notice to each holder of Series C Preferred Stock at least twenty (20) days prior to the date on which the Company closes its books or takes a record (I) with respect to any dividend or distribution upon the Common Stock, (II) with respect to any pro rata subscription offer to holders of Common Stock or (III) for determining rights to vote with respect to any Organic Change, dissolution, liquidation or winding-up and in no event shall such notice be provided to such holder prior to such information being made known to the public.  The Company will also give written notice to each holder of Series C Preferred Stock at least twenty (20) days prior to the date on which any Organic Change, dissolution, liquidation or winding-up will take place and in no event shall such notice be provided to such holder prior to such information being made known to the public.

(j)­Fractional Shares.  No fractional shares of Common Stock shall be issued upon conversion of the Series C Preferred Stock.  In lieu of any fractional shares to which the holder would otherwise be entitled, the Company, at its option, shall (i) pay cash equal to the product of such fraction multiplied by the average of the closing bid prices of the Common Stock for the five (5) consecutive trading immediately preceding the Voluntary Conversion Date, or (ii) issue one whole share of Common Stock to the holder.

(k)­Reservation of Common Stock.  The Company shall, so long as any shares of Series C Preferred Stock are outstanding, reserve and keep available out of its authorized and unissued Common Stock, solely for the purpose of effecting the conversion of the Series C Preferred Stock, such number of shares of Common Stock as shall from time to time be sufficient to effect the conversion of all of the Series C Preferred Stock then outstanding (without giving effect to the limitations set forth in Section 7 hereof).

-5-

(l)­Retirement of Series C Preferred Stock.  Conversion of Series C Preferred Stock shall be deemed to have been effected on the applicable Voluntary Conversion Date.  The Company shall keep written records of the conversion of the shares of Series C Preferred Stock converted by each holder.  A holder shall be required to deliver the original certificates representing the shares of Series C Preferred Stock upon any conversion of the Series C Preferred Stock represented by such certificates.

(m)­Regulatory Compliance.  If any shares of Common Stock to be reserved for the purpose of conversion of Series C Preferred Stock require registration or listing with or approval of any governmental authority, stock exchange or other regulatory body under any federal or state law or regulation or otherwise before such shares may be validly issued or delivered upon conversion, the Company shall, at its sole cost and expense, in good faith and as expeditiously as possible, endeavor to secure such registration, listing or approval, as the case may be.

6.­No Preemptive or Redemption Rights.  No holder of the Series C Preferred Stock shall be entitled to rights to subscribe for, purchase or receive any part of any new or additional shares of any class, whether now or hereafter authorized, or of bonds or debentures, or other evidences of indebtedness convertible into or exchangeable for shares of any class, but all such new or additional shares of any class, or any bond, debentures or other evidences of indebtedness convertible into or exchangeable for shares, may be issued and disposed of by the Board of Directors on such terms and for such consideration (to the extent permitted by law), and to such person or persons as the Board of Directors in their absolute discretion may deem advisable.  Except as provided in Section 5 neither the Company nor the holder has the right to have the Company redeem the Series C Preferred Stock.

7.­Conversion Restriction.  Notwithstanding anything to the contrary set forth in Section 5 of this Certificate of Designation, at no time may a holder of shares of Series C Preferred Stock convert shares of the Series C Preferred Stock if the number of shares of Common Stock to be issued pursuant to such conversion would exceed, when aggregated with all other shares of Common Stock owned by such holder at such time, the number of shares of Common Stock which would result in such holder beneficially owning (as determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended, and the rules thereunder)  more than 9.99% of all of the Common Stock outstanding at such time; provided, however, that upon a holder of Series C Preferred Stock  providing the Company with sixty-one (61) days notice (pursuant to Section 5(i) hereof) that such holder would like to waive Section 7 of this Certificate of Designation with regard to any or all shares of Common Stock issuable upon conversion of Series C Preferred Stock, this Section 7 shall be of no force or effect with regard to those shares of Series C Preferred Stock referenced in the Waiver Notice.

8.­Inability to Fully Convert.

(a)           ­Holder’s Option if Company Cannot Fully Convert.  If, upon the Company’s receipt of a Conversion Notice, the Company cannot issue shares of Common Stock for any reason, including, without limitation, because the Company (x) does not have a sufficient number of shares of Common Stock authorized and available or (y) is otherwise prohibited by applicable law or by the rules or regulations of any stock exchange, interdealer quotation system or other self-regulatory organization with jurisdiction over the Company or its securities, from issuing all of the Common Stock which is to be issued to a holder of Series C Preferred Stock pursuant to a Conversion Notice, then the Company shall issue as many shares of Common Stock as it is able to issue in accordance with such holder’s Conversion Notice and with respect to the unconverted Series C Preferred Stock (the “Unconverted Preferred Stock”) the holder, solely at such holder’s option, can elect, at any time after receipt of notice from the Company that there is Unconverted Preferred Stock, to void the holder’s Conversion Notice as to the number of shares of Common Stock the Company is unable to issue and retain or have returned, as the case may be, the certificates for the shares of the Unconverted Preferred Stock.

In the event a Holder shall elect to convert any shares of Series C Preferred Stock as provided herein, the Company cannot refuse conversion based on any claim that such Holder or any one associated or affiliated with such Holder has been engaged in any violation of law, violation of an agreement to which such Holder is a party or for any reason whatsoever, unless, an injunction from a court, on notice, restraining and or enjoining conversion of all or any of said shares of Series C Preferred Stock shall have issued.

-6-

(b)­Mechanics of Fulfilling Holder’s Election.  The Company shall immediately send via facsimile to a holder of Series C Preferred Stock, upon receipt of a facsimile copy of a Conversion Notice from such holder which cannot be fully satisfied as described in Section 8(a) above, a notice of the Company’s inability to fully satisfy such holder’s Conversion Notice (the “Inability to Fully Convert Notice”).  Such Inability to Fully Convert Notice shall indicate (i) the reason why the Company is unable to fully satisfy such holder’s Conversion Notice and (ii) the number of shares of Series C Preferred Stock which cannot be converted.

9.­Vote to Change the Terms of or Issue Preferred Stock.  The affirmative vote at a meeting duly called for such purpose, or the written consent without a meeting, of the holders of not less than sixty-seven percent (67%) of the then outstanding shares of Series C Preferred Stock, shall be required for any change to this Certificate of Designation or the Company’s Certificate of Incorporation which would amend, alter, change or repeal any of the powers, designations, preferences and rights of the Series C Preferred Stock.

10.­Lost or Stolen Certificates.  Upon receipt by the Company of evidence satisfactory to the Company of the loss, theft, destruction or mutilation of any Preferred Stock Certificates representing the shares of Series C Preferred Stock, and, in the case of loss, theft or destruction, of any indemnification undertaking by the holder to the Company and, in the case of mutilation, upon surrender and cancellation of the Preferred Stock Certificate(s), the Company shall execute and deliver new preferred stock certificate(s) of like tenor and date.

11.­Remedies, Characterizations, Other Obligations, Breaches and Injunctive Relief.  The remedies provided in this Certificate of Designation shall be cumulative and in addition to all other remedies available under this Certificate of Designation, at law or in equity (including a decree of specific performance and/or other injunctive relief), no remedy contained herein shall be deemed a waiver of compliance with the provisions giving rise to such remedy and nothing herein shall limit a holder’s right to pursue actual damages for any failure by the Company to comply with the terms of this Certificate of Designation.  Amounts set forth or provided for herein with respect to conversion and the like (and the computation thereof) shall be the amounts to be received by the holder thereof and shall not, except as expressly provided herein, be subject to any other obligation of the Company (or the performance thereof).  The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the holders of the Series C Preferred Stock and that the remedy at law for any such breach may be inadequate.  The Company therefore agrees that, in the event of any such breach or threatened breach, the holders of the Series C Preferred Stock shall be entitled, in addition to all other available remedies, to an injunction restraining any breach, without the necessity of showing economic loss and without any bond or other security being required.

12.­Specific Shall Not Limit General; Construction.  No specific provision contained in this Certificate of Designation shall limit or modify any more general provision contained herein.

13.­Failure or Indulgence Not Waiver.  No failure or delay on the part of a holder of Series C Preferred Stock in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege.

[Remainder of page intentionally left blank]

-7-

 IN WITNESS WHEREOF, this Certificate of Designation is executed on behalf of the Company this 19th day of July, 2012.

 ECHO THERAPEUTICS, INC.

By: /s/ Kimberly Burke

Name: Kimberly Burke

Title: General Counsel

-8-

EXHIBIT A

ECHO THERAPEUTICS, INC.

CONVERSION NOTICE

Reference is made to the Certificate of Designation of the Relative Rights and Preferences of the Series C Preferred Stock of Echo Therapeutics, Inc. (the “Certificate of Designation”).  In accordance with and pursuant to the Certificate of Designation, the undersigned hereby elects to convert the number of shares of Series C Preferred Stock, par value $.01 per share (the “Preferred Shares”), of Echo Therapeutics, Inc., a Delaware corporation (the “Company”), indicated below into shares of Common Stock, par value $.01 per share (the “Common Stock”), of the Company, by tendering the stock certificate(s) representing the share(s) of Preferred Shares specified below as of the date specified below.

	Date of Conversion:
	Number of Preferred Shares to be converted:
	Stock certificate no(s). of Preferred Shares to be converted:
	The Common Stock have been sold:	YES	NO
Please confirm the following information:
	Conversion Rate:
	Number of shares of Common Stock to be issued:
	Number of shares of Common Stock beneficially owned or deemed beneficially owned by the Holder on the Date of Conversion determined in accordance with Section 16 of the Securities Exchange Act of 1934, as amended:
Please issue the Common Stock into which the Preferred Shares are being converted and, if applicable, any check drawn on an account of the Company in the following name and to the following address:
	Issue to:
	Facsimile Number:
	Authorization:
		By:
		Title:
	Dated:

EX-3.3

Exhibit 3.3

CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS

OF

SERIES D CONVERTIBLE PREFERRED STOCK

OF

ECHO THERAPEUTICS, INC.

(Pursuant to Section 151 of the Delaware General Corporation Law)

Echo Therapeutics, Inc., a corporation organized and existing under the laws of the State of Delaware (the “Company”), hereby certifies that the Board of Directors of the Company (the “Board”), pursuant to authority of the Board as required by Section 151 of the Delaware General Corporation Law, and in accordance with the provisions of its Certificate of Incorporation, as amended and restated through the date hereof (the “Certificate of Incorporation”), has and hereby authorizes a series of the Company’s previously authorized Preferred Stock, par value $.01 per share (the “Preferred Stock”), and hereby states the designation and number of shares, and fixes the relative rights, preferences, privileges, powers and restrictions thereof, as follows:

1.­Designation and Rank.

(a)Designation.  The designation of such series of the Preferred Stock shall be the Series D Convertible Preferred Stock, par value $0.01 per share (the “Series D Preferred Stock”).  The maximum number of shares of Series D Preferred Stock shall be Three Million Six Hundred Thousand (3,600,000) shares.

(b)Rank.  The Series D Preferred Stock shall rank senior as to liquidation to each of (i) the common stock, par value $0.01 per share (the “Common Stock”), (ii) the Company’s Series C Preferred Stock (the “Series C Preferred Stock”), and (iii) any series of capital stock of the Company that is issued subsequent to the date hereof that by its terms ranks junior to the Series D Preferred Stock (the “Junior Stock”), and shall rank pari passu to the Company’s Series B Perpetual Preferred Stock (the “Pari Passu Preferred Stock”).

2.No Dividends.

The holders of shares of the Series D Preferred Stock shall not be entitled to receive dividends.

3.­Voting Rights.

An affirmative vote, or the written consent without a meeting, of at least two thirds of the outstanding shares of the Series D Preferred Stock shall be required to permit the Company to do any of the following: (i) alter or change the rights, preferences or privileges of the Series D Preferred Stock; (ii) increase the authorized number of shares of Series D Preferred Stock; (iii) create or incur any debt in excess of $250,000 (other than trade payables and accrued expenses incurred in the ordinary course of business in an amount not to exceed $2,500,000 and purchase money indebtedness secured only by the equipment so financed); (iv) issue any class of Preferred Stock that is on a parity with or is senior to the Series D Preferred Stock; or (v) enter into any agreement, commitment, understanding or other arrangement or execute and/or deliver any document or instrument to take any of the foregoing actions.  The Common Stock into which the Series D Preferred Stock is convertible shall, upon issuance, have all of the same voting rights as other issued and outstanding Common Stock of the Company.

-1-

4.­Liquidation Preference.

(a)In the event of the liquidation, dissolution or winding up of the affairs of the Company, whether voluntary or involuntary, after payment or provision for payment of the debts and other liabilities of the Company, the holders of shares of the Series D Preferred Stock then outstanding shall be entitled to receive, out of the assets of the Company whether such assets are capital or surplus of any nature, an amount per share equal to one dollar ($1) (as adjusted for splits, combinations and the like of the Series D Preferred Stock), the stated value of the Series D Preferred Stock (the “Liquidation Preference Amount”), before any payment shall be made or any assets distributed to the holders of the Common Stock or any other Junior Stock.  If the assets of the Company are not sufficient to pay in full the Liquidation Preference Amount payable to the holders of outstanding shares of the Series D Preferred Stock and any series of preferred stock or any other class of stock on a parity as to rights on liquidation, dissolution or winding up, with the Series D Preferred Stock, then all of said assets will be distributed among the holders of the Series D Preferred Stock, the Pari Passu Preferred Stock and the other classes of stock on a parity with the Series D Preferred Stock, if any, ratably in accordance with the respective amounts that would be payable on such shares if all amounts payable thereon were paid in full.  The liquidation payment with respect to each outstanding fractional share of Series D Preferred Stock shall be equal to a ratably proportionate amount of the liquidation payment with respect to each outstanding share of Series D Preferred Stock.  All payments for which this Section 4(a) provides shall be in cash, property (valued at its fair market value as determined by an independent appraiser reasonably acceptable to the holders of a majority of the Series D Preferred Stock) or a combination thereof; provided, however, that no cash shall be paid to holders of Junior Stock unless each holder of the outstanding shares of Series D Preferred Stock has been paid in cash the full Liquidation Preference Amount to which such holder is entitled as provided herein.  After payment of the full Liquidation Preference Amount to which each holder is entitled, such holders of shares of Series D Preferred Stock will not be entitled to any further participation as such in any distribution of the assets of the Company.

(b)A consolidation or merger of the Company with or into any other corporation or corporations, or a sale of all or substantially all of the assets of the Company, or the effectuation by the Company of a transaction or series of transactions in which more than 50% of the voting shares of the Company is disposed of or conveyed, shall be, at the election of the holders of a majority of the Series D Preferred Stock, deemed to be a liquidation, dissolution, or winding up within the meaning of this Section 4.  In the event of the merger or consolidation of the Company with or into another corporation that is not treated as a liquidation pursuant to this Section 4(b), the Series D Preferred Stock shall maintain its relative powers, designations and preferences provided for herein and no merger shall result inconsistent therewith.

(c)Written notice of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company, stating a payment date and the place where the distributable amounts shall be payable, shall be given by mail, postage prepaid, no less than forty-five (45) days prior to the payment date stated therein, to the holders of record of the Series D Preferred Stock at their respective addresses as the same shall appear on the books of the Company.

5.­Conversion.  Each holder of Series D Preferred Stock shall have the following conversion rights (the “Conversion Rights”):

(a)Right to Convert.  At any time on or after the issuance of the Series D Preferred Stock (the “Issuance Date”), the holder of any such shares of Series D Preferred Stock may, at such holder's option, subject to the limitations set forth in Section 7 herein, elect to convert (a “Conversion”) all or any portion of the shares of Series D Preferred Stock held by such person into a number of fully paid and non-assessable shares of Common Stock equal to the quotient of (i) the Liquidation Preference Amount of the shares of Series D Preferred Stock being converted thereon divided by (ii) the “Conversion Price” (as defined in Section 5(d) below) then in effect as of the date of the delivery by such holder of its notice of election to convert.  The Company shall keep written records of the conversion of the shares of Series D Preferred Stock converted by each holder.  A holder shall be required to deliver the original certificates representing the shares of Series D Preferred Stock upon any conversion of the Series D Preferred Stock.

-2-

(b)Mechanics of Conversion.  The Conversion of Series D Preferred Stock shall be conducted in the following manner:

(i)Holder's Delivery Requirements.  To convert Series D Preferred Stock into full shares of Common Stock on any date (the “Conversion Date”), the holder thereof shall (A) transmit by facsimile (or otherwise deliver), for receipt on or prior to 5:00 p.m., New York time on such date, a copy of a fully executed notice of conversion in the form attached hereto as Exhibit A (the “Conversion Notice”), to the Company, and (B) with respect to the final conversion of shares of Series D Preferred Stock held by any holder, such holder shall surrender to a common carrier for delivery to the Company as soon as practicable following such Conversion Date but in no event later than six (6) business days after such date the original certificates representing the shares of Series D Preferred Stock being converted (or an indemnification undertaking with respect to such shares in the case of their loss, theft or destruction) (the “Preferred Stock Certificates”).

(ii)Company's Response.  Upon receipt by the Company of a copy of a Conversion Notice, the Company shall immediately send a confirmation of receipt of such Conversion Notice to such holder and the Company or its designated transfer agent (the “Transfer Agent”), as applicable, shall, within five (5) business days following the date of receipt by the Company of the certificate representing the shares of Series D Preferred Stock being converted, issue and deliver to the Depository Trust Company (“DTC”) account on the holder’s behalf via the Deposit Withdrawal Agent Commission System (“DWAC”) as specified in the Conversion Notice, registered in the name of the holder or its designee, for the number of shares of Common Stock to which the holder shall be entitled, and if the certificate so surrendered represents more shares of Series D Preferred Stock than those being converted, issue and deliver to the holder a new certificate for such number of shares of Series D Preferred Stock represented by the surrendered certificate which were not converted.

(iii)Dispute Resolution.  In the case of a dispute as to the arithmetic calculation of the number of shares of Common Stock to be issued upon conversion, the Company shall promptly issue to the holder the number of shares of Common Stock that is not disputed and shall submit the arithmetic calculations to the holder via facsimile or other agreed-upon method as soon as possible, but in no event later than two (2) business days after receipt of such holder's Conversion Notice.  If such holder and the Company are unable to agree upon the arithmetic calculation of the number of shares of Common Stock to be issued upon such conversion within one (1) business day of such disputed arithmetic calculation being submitted to the holder, then the Company shall within one (1) business day submit via facsimile or other agreed-upon method the disputed arithmetic calculation of the number of shares of Common Stock to be issued upon such conversion to the Company’s independent, outside accountant.  The Company shall cause the accountant to perform the calculations and notify the Company and the holder of the results no later than seventy-two (72) hours from the time it receives the disputed calculations.  Such accountant's calculation shall be binding upon all parties absent manifest error.  The reasonable expenses of such accountant in making such determination shall be paid by the Company, in the event the holder's calculation was correct, or by the holder, in the event the Company's calculation was correct, or equally by the Company and the holder in the event that neither the Company's or the holder's calculation was correct.  The period of time in which the Company is required to effect conversions or redemptions under this Certificate of Designation shall be tolled with respect to the subject conversion or redemption pending resolution of any dispute by the Company made in good faith and in accordance with this Section 5(b)(iii).

(iv)Record Holder.  The person or persons entitled to receive the shares of Common Stock issuable upon a conversion of the Series D Preferred Stock shall be treated for all purposes as the record holder or holders of such shares of Common Stock on the Conversion Date.

-3-

(v)Company's Failure to Timely Convert.  If within five (5) business days of the Company's receipt of a Conversion Notice (the “Share Delivery Period”) the Company shall fail to issue and deliver to a holder the number of shares of Common Stock to which such holder is entitled upon such holder's conversion of the Series D Preferred Stock (a “Conversion Failure”), in addition to all other available remedies which such holder may pursue, the Company shall pay additional damages to such holder on each business day after such fifth (5th) business day that such conversion is not timely effected in an amount equal 0.5% of the product of (A) the sum of the number of shares of Common Stock not issued to the holder on a timely basis pursuant to Section 5(b)(ii) and to which such holder is entitled and (B) the “Closing Bid Price” (as defined in Section 5(d)(ii) hereof) of the Common Stock on the last possible date which the Company could have issued such Common Stock to such holder without violating Section 5(b)(ii).  If the Company fails to pay the additional damages set forth in this Section 5(b)(v) within five (5) business days of the date incurred, then such payment shall bear interest at the rate of 2% per month (pro rated for partial months) until such payments are made.

(c)[Intentionally Omitted]

(d)Conversion Price.

(i)The term “Conversion Price” shall mean $1 per share, subject to adjustment under Section 5(e) hereof.  Notwithstanding any adjustment hereunder, at no time shall the Conversion Price be greater than $1 per share other than pursuant to Section 5(e)(iv), Section 5(e)(v), or the second sentence of Section 5(e)(i) in connection with a reverse stock split effected by the Company.

(ii)The term “Closing Bid Price” shall mean, for any security as of any date, the last closing bid price of such security on the OTC Bulletin Board or other applicable principal trading market for such security as reported by Bloomberg, or, if no closing bid price is reported for such security by Bloomberg, the last closing trade price of such security as reported by Bloomberg, or, if no last closing trade price is reported for such security by Bloomberg, the average of the bid prices of any market makers for such security as reported in the “pink sheets” by the National Quotation Bureau, Inc.  If the Closing Bid Price cannot be calculated for such security on such date on any of the foregoing bases, the Closing Bid Price of such security on such date shall be the fair market value as mutually determined by the Company and the holders of a majority of the outstanding shares of Series D Preferred Stock.

(e)Adjustments of Conversion Price.

(i)Adjustments for Stock Splits and Combinations.  If the Company shall at any time or from time to time after the Issuance Date, effect a stock split of the outstanding Common Stock, the Conversion Price shall be proportionately decreased.  If the Company shall at any time or from time to time after the Issuance Date, combine the outstanding shares of Common Stock, the Conversion Price shall be proportionately increased.  Any adjustments under this Section 5(e)(i) shall be effective at the close of business on the date the stock split or combination occurs.

(ii)Adjustments for Certain Dividends and Distributions.  If the Company shall at any time or from time to time after the Issuance Date, make or issue or set a record date for the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in shares of Common Stock, then, and in each event, the Conversion Price shall be decreased as of the time of such issuance or, in the event such record date shall have been fixed, as of the close of business on such record date, by multiplying, as applicable, the Conversion Price then in effect by a fraction:

-4-

(1)   the numerator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date; and

(2)   the denominator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date plus the number of shares of Common Stock issuable in payment of such dividend or distribution.

(iii)Adjustment for Other Dividends and Distributions.  If the Company shall at any time or from time to time after the Issuance Date, make or issue or set a record date for the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in securities of the Company other than shares of Common Stock, then, and in each event, an appropriate revision to the applicable Conversion Price shall be made and provision shall be made (by adjustments of the Conversion Price or otherwise) so that the holders of Series D Preferred Stock shall receive upon conversions thereof, in addition to the number of shares of Common Stock receivable thereon, the number of securities of the Company which they would have received had their Series D Preferred Stock been converted into Common Stock immediately prior to such event (or the record date for such event, if applicable) and had thereafter, during the period from the date of such event to and including the Conversion Date, retained such securities (together with any distributions payable thereon during such period), giving application to all adjustments called for during such period under this Section 5(e)(iii) with respect to the rights of the holders of the Series D Preferred Stock.

(iv)Adjustments for Reclassification, Exchange or Substitution.  If the Common Stock issuable upon conversion of the Series D Preferred Stock at any time or from time to time after the Issuance Date shall be changed to the same or different number of shares of any class or classes of stock, whether by reclassification, exchange, substitution or otherwise (other than by way of a stock split or combination of shares or stock dividends provided for in Sections 5(e)(i), (ii) and (iii), or a reorganization, merger, consolidation, or sale of assets provided for in Section 5(e)(v)), then, and in each event, an appropriate revision to the Conversion Price shall be made and provisions shall be made (by adjustments of the Conversion Price or otherwise) so that the holder of each share of Series D Preferred Stock shall have the right thereafter to convert such share of Series D Preferred Stock into the kind and amount of shares of stock and other securities receivable upon reclassification, exchange, substitution or other change, by holders of the number of shares of Common Stock into which such share of Series D Preferred Stock might have been converted immediately prior to such reclassification, exchange, substitution or other change, all subject to further adjustment as provided herein

(v)Adjustments for Reorganization, Merger, Consolidation or Sales of Assets.  If at any time or from time to time after the Issuance Date there shall be a capital reorganization of the Company (other than by way of a stock split or combination of shares or stock dividends or distributions provided for in Section 5(e)(i), (ii) and (iii), or a reclassification, exchange or substitution of shares provided for in Section 5(e)(iv)), or a merger or consolidation of the Company with or into another corporation, or the sale of all or substantially all of the Company's properties or assets to any other person that is not deemed a liquidation pursuant to Section 4(b) (an “Organic Change”), then as a part of such Organic Change an appropriate revision to the Conversion Price shall be made and provision shall be made (by adjustments of the Conversion Price or otherwise) so that the holder of each share of Series D Preferred Stock shall have the right thereafter to convert such share of Series D Preferred Stock into the kind and amount of shares of stock and other securities or property of the Company or any successor corporation resulting from the Organic Change as the holder would have received as a result of the Organic Change and if the holder had converted its Series D Preferred Stock into the Company’s Common Stock prior to the Organic Change.  In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 5(e)(v) with respect to the rights of the holders of the Series D Preferred Stock after the Organic Change to the end that the provisions of this Section 5(e)(v) (including any adjustment in the Conversion Price then in effect and the number of shares of stock or other securities deliverable upon conversion of the Series D Preferred Stock) shall be applied after that event in as nearly an equivalent manner as may be practicable.

-5-

(vi)Record Date.  In case the Company shall take record of the holders of its Common Stock or any other Preferred Stock for the purpose of entitling them to subscribe for or purchase Common Stock or convertible securities, then the date of the issue or sale of the shares of Common Stock shall be deemed to be such record date.

(f)No Impairment.  The Company shall not, by amendment of its Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith, assist in the carrying out of all the provisions of this Section 5 and in the taking of all such action as may be necessary or appropriate in order to protect the Conversion Rights of the holders of the Series D Preferred Stock against impairment.  In the event a holder shall elect to convert any shares of Series D Preferred Stock as provided herein, the Company cannot refuse conversion based on any claim that such holder or anyone associated or affiliated with such holder has been engaged in any violation of law, unless, an injunction from a court, on notice, restraining and/or enjoining conversion of all or of said shares of Series D Preferred Stock shall have been issued.

(g)Certificates as to Adjustments.  Upon occurrence of each adjustment or readjustment of the Conversion Price or number of shares of Common Stock issuable upon conversion of the Series D Preferred Stock pursuant to this Section 5, the Company at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to each holder of such Series D Preferred Stock a certificate setting forth such adjustment and readjustment, showing in detail the facts upon which such adjustment or readjustment is based.  The Company shall, upon written request of the holder of such affected Series D Preferred Stock, at any time, furnish or cause to be furnished to such holder a like certificate setting forth such adjustments and readjustments, the Conversion Price in effect at the time, and the number of shares of Common Stock and the amount, if any, of other securities or property which at the time would be received upon the conversion of a share of such Series D Preferred Stock.  Notwithstanding the foregoing, the Company shall not be obligated to deliver a certificate unless such certificate would reflect an increase or decrease of at least one percent of such adjusted amount.

(h)Issue Taxes.  The Company shall pay any and all issue and other taxes, excluding federal, state or local income taxes, that may be payable in respect of any issue or delivery of shares of Common Stock on conversion of shares of Series D Preferred Stock pursuant thereto; provided, however, that the Company shall not be obligated to pay any transfer taxes resulting from any transfer requested by any holder in connection with any such conversion.

(i)Notices.  All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally or by facsimile or three (3) business days following being mailed by certified or registered mail, postage prepaid, return-receipt requested, or delivered to an express mail delivery service such as Federal Express, with written receipt by the addressee required, in either case addressed to the holder of record at its address appearing on the books of the Company.  The Company will give written notice to each holder of Series D Preferred Stock at least twenty (20) days prior to the date on which the Company closes its books or takes a record (I) with respect to any dividend or distribution upon the Common Stock, (II) with respect to any pro rata subscription offer to holders of Common Stock or (III) for determining rights to vote with respect to any Organic Change, dissolution, liquidation or winding-up and in no event shall such notice be provided to such holder prior to such information being made known to the public.  The Company will also give written notice to each holder of Series D Preferred Stock at least twenty (20) days prior to the date on which any Organic Change, dissolution, liquidation or winding-up will take place and in no event shall such notice be provided to such holder prior to such information being made known to the public.

(j)Fractional Shares.  No fractional shares of Common Stock shall be issued upon conversion of the Series D Preferred Stock.  In lieu of any fractional shares to which a holder of the Series D Preferred Stock would otherwise be entitled, the Company shall at its option either (i) pay cash equal to the product of such fraction multiplied by the average of the Closing Bid Prices of the Common Stock for the five (5) consecutive trading days immediately preceding the Conversion Date or (ii) in lieu of issuing such fractional shares issue one additional whole share to the holder of the Series D Preferred Stock.

-6-

(k)Reservation of Common Stock.  The Company shall, so long as any shares of Series D Preferred Stock are outstanding, reserve and keep available out of its authorized and unissued Common Stock, solely for the purpose of effecting the conversion of the Series D Preferred Stock, such number of shares of Common Stock as shall from time to time be sufficient to effect the conversion of all of the Series D Preferred Stock then outstanding.  The initial number of shares of Common Stock reserved for conversions of the Series D Preferred Stock and each increase in the number of shares so reserved shall be allocated pro rata among the holders of the Series D Preferred Stock based on the number of shares of Series D Preferred Stock held by each holder at the time of issuance of the Series D Preferred Stock or increase in the number of reserved shares, as the case may be.  In the event a holder shall sell or otherwise transfer any of such holder's shares of Series D Preferred Stock, each transferee shall be allocated a pro rata portion of the number of reserved shares of Common Stock reserved for such transferor.  Any shares of Common Stock reserved and which remain allocated to any person or entity which does not hold any shares of Series D Preferred Stock shall be allocated to the remaining holders of Series D Preferred Stock, pro rata based on the number of shares of Series D Preferred Stock then held by such holder.

(l)Retirement of Series D Preferred Stock.  Conversion of Series D Preferred Stock shall be deemed to have been effected on the Conversion Date.  The Company shall keep written records of the conversion of the shares of Series D Preferred Stock converted by each holder.  A holder shall be required to deliver the original certificates representing the shares of Series D Preferred Stock upon complete conversion of the Series D Preferred Stock.

(m)Regulatory Compliance.  If any shares of Common Stock to be reserved for the purpose of conversion of Series D Preferred Stock require registration or listing with or approval of any governmental authority, stock exchange or other regulatory body under any federal or state law or regulation or otherwise before such shares may be validly issued or delivered upon conversion, the Company shall, at its sole cost and expense, in good faith and as expeditiously as possible, endeavor to secure such registration, listing or approval, as the case may be.

6.­No Preemptive Rights.  No holder of the Series D Preferred Stock shall be entitled to rights to subscribe for, purchase or receive any part of any new or additional shares of any class, whether now or hereinafter authorized, or of bonds or debentures, or other evidences of indebtedness convertible into or exchangeable for shares of any class, but all such new or additional shares of any class, or any bond, debentures or other evidences of indebtedness convertible into or exchangeable for shares, may be issued and disposed of by the Board on such terms and for such consideration (to the extent permitted by law), and to such person or persons as the Board in their absolute discretion may deem advisable.

7.­Conversion Restriction.

(a)Notwithstanding anything to the contrary set forth in Section 5 hereof, at no time may a holder of shares of Series D Preferred Stock convert shares of the Series D Preferred Stock if the number of shares of Common Stock to be issued pursuant to such conversion would exceed, when aggregated with all other shares of Common Stock owned by such holder at such time, the number of shares of Common Stock which would result in such holder owning more than 4.99% of all of the Common Stock outstanding at such time; provided, however, that upon a holder of Series D Preferred Stock  providing the Company with sixty-one (61) days’ notice (pursuant to Section 5(i) hereof) (a “Waiver Notice”) that such holder would like to waive Section 7(a) of this Certificate of Designation with regard to any or all shares of Common Stock issuable upon conversion of Series D Preferred Stock, this Section 7(a) shall be of no force or effect with regard to those shares of Series D Preferred Stock referenced in the Waiver Notice.

(b)Notwithstanding anything to the contrary set forth in Section 5 of this Certificate of Designation, at no time may a holder of shares of Series D Preferred Stock convert shares of the Series D Preferred Stock if the number of shares of Common Stock to be issued pursuant to such conversion would exceed, when aggregated with all other shares of Common Stock owned by such holder at such time, the number of shares of Common Stock which would result in such holder beneficially owning (as determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended, and the rules thereunder) in excess of 9.99% of all of the Common Stock outstanding at such time; provided, however, that upon a holder of Series D Preferred Stock  providing the Company with a Waiver Notice that such holder would like to waive Section 7 of this Certificate of Designation with regard to any or all shares of Common Stock issuable upon conversion of Series D Preferred Stock, this Section 7 shall be of no force or effect with regard to those shares of Series D Preferred Stock referenced in the Waiver Notice.

-7-

8.­Inability to Fully Convert.

(a)           ­Holder’s Option if Company Cannot Fully Convert.  If, upon the Company’s receipt of a Conversion Notice, the Company cannot issue shares of Common Stock for any reason, including, without limitation, because the Company (x) does not have a sufficient number of shares of Common Stock authorized and available or (y) is otherwise prohibited by applicable law or by the rules or regulations of any stock exchange, interdealer quotation system or other self-regulatory organization with jurisdiction over the Company or its securities, from issuing all of the Common Stock which is to be issued to a holder of Series D Preferred Stock pursuant to a Conversion Notice, then the Company shall issue as many shares of Common Stock as it is able to issue in accordance with such holder’s Conversion Notice and with respect to the unconverted Series D Preferred Stock (the “Unconverted Preferred Stock”) the holder, solely at such holder’s option, can elect, at any time after receipt of notice from the Company that there is Unconverted Preferred Stock, to void the holder’s Conversion Notice as to the number of shares of Common Stock the Company is unable to issue and retain or have returned, as the case may be, the certificates for the shares of the Unconverted Preferred Stock.

In the event that a holder of the Series D Preferred Stock shall elect to convert any shares of Series D Preferred Stock as provided herein, the Company cannot refuse conversion based on any claim that such holder or any one associated or affiliated with such holder has been engaged in any violation of law, violation of an agreement to which such holder is a party or for any reason whatsoever, unless, an injunction from a court, on notice, restraining and or enjoining conversion of all or any of said shares of Series D Preferred Stock shall have issued.

(b)­Mechanics of Fulfilling Holder’s Election.  The Company shall immediately send via facsimile to a holder of Series D Preferred Stock, upon receipt of a facsimile copy of a Conversion Notice from such holder which cannot be fully satisfied as described in Section 8(a) above, a notice of the Company’s inability to fully satisfy such holder’s Conversion Notice (the “Inability to Fully Convert Notice”).  Such Inability to Fully Convert Notice shall indicate (i) the reason why the Company is unable to fully satisfy such holder’s Conversion Notice and (ii) the number of shares of Series D Preferred Stock which cannot be converted.

9.­­Lost or Stolen Certificates.  Upon receipt by the Company of evidence satisfactory to the Company of the loss, theft, destruction or mutilation of any Preferred Stock Certificates representing the shares of Series D Preferred Stock, and, in the case of loss, theft or destruction, of any indemnification undertaking by the holder to the Company and, in the case of mutilation, upon surrender and cancellation of the Preferred Stock Certificate(s), the Company shall execute and deliver new preferred stock certificate(s) of like tenor and date.

10.­Remedies, Characterizations, Other Obligations, Breaches and Injunctive Relief.  The remedies provided in this Certificate of Designation shall be cumulative and in addition to all other remedies available under this Certificate of Designation, at law or in equity (including a decree of specific performance and/or other injunctive relief), no remedy contained herein shall be deemed a waiver of compliance with the provisions giving rise to such remedy and nothing herein shall limit a holder's right to pursue actual damages for any failure by the Company to comply with the terms of this Certificate of Designation.  Amounts set forth or provided for herein with respect to payments, conversion and the like (and the computation thereof) shall be the amounts to be received by the holder thereof and shall not, except as expressly provided herein, be subject to any other obligation of the Company (or the performance thereof).  The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the holders of the Series D Preferred Stock and that the remedy at law for any such breach may be inadequate.  The Company therefore agrees that, in the event of any such breach or threatened breach, the holders of the Series D Preferred Stock shall be entitled, in addition to all other available remedies, to an injunction restraining any breach, without the necessity of showing economic loss and without any bond or other security being required.

-8-

11.­Specific Shall Not Limit General.  No specific provision contained in this Certificate of Designation shall limit or modify any more general provision contained herein.

12.­Failure or Indulgence Not Waiver.  No failure or delay on the part of a holder of Series D Preferred Stock in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege.

[Signature Page Follows]

-9-

IN WITNESS WHEREOF, the undersigned has executed and subscribed this Certificate of Designation and does affirm the foregoing as true this 19th day of July, 2012.

ECHO THERAPEUTICS, INC.

By: /s/ Kimberly Burke

Name:  Kimberly Burke

Title:  General Counsel

-10-

EXHIBIT A

ECHO THERAPEUTICS, INC.

CONVERSION NOTICE

Reference is made to the Certificate of Designation of the Relative Rights and Preferences of the Series D Preferred Stock of Echo Therapeutics, Inc. (the “Certificate of Designation”).  In accordance with and pursuant to the Certificate of Designation, the undersigned hereby elects to convert the number of shares of Series D Preferred Stock, par value $0.01 per share (the “Preferred Stock”), of Echo Therapeutics, Inc., a Delaware corporation (the “Company”), indicated below into shares of Common Stock, par value $0.01 per share (the “Common Stock”), of the Company, by tendering the stock certificate(s) representing the share(s) of Preferred Stock specified below as of the date specified below.

	Date of Conversion:
	Number of shares of Preferred Stock to be converted:
	Stock certificate no(s). of Preferred Stock to be converted:
	The Common Stock have been sold:	YES	NO
Please confirm the following information:
	Number of shares of Common Stock to be issued:
	Number of shares of Common Stock beneficially owned or deemed beneficially owned by the holder on the Date of Conversion determined in accordance with Section 16 of the Securities Exchange Act of 1934, as amended:
Please issue the Common Stock into which the Preferred Stock are being converted and, if applicable, any check drawn on an account of the Company in the following name and to the following address:
	Issue to:
	Facsimile Number:
	Authorization:
		By:
		Title:
	Dated:

EX-10.2

Confidential treatment requested under 17 C.F.R. §§ 200.80(b)(4) and 230.406. The confidential portions of this exhibit have been omitted and are marked accordingly. The confidential portions have been filed separately with the Securities and Exchange Commission pursuant to a Confidential Treatment Request.

Exhibit 10.2

AMENDED AND RESTATED LICENSE AGREEMENT

 This Amended and Restated License Agreement (“Agreement”) is effective as of May 27, 2009 (“Effective Date”), and is amended and restated as of the 3rd day of July, 2012 (the “Restatement Date”) between Echo Therapeutics, Inc., a corporation existing under the laws of the State of Delaware, having its principal place of business at 8 Penn Center, 1628 JFK Blvd, Suite 300, Philadelphia, Pennsylvania 19103 (“Licensor”), and Ferndale Pharma Group, Inc., a corporation existing under the laws of the State of Michigan, having its principal place of business at 780 West Eight Mile Road, Ferndale, Michigan 48220 (“Licensee”).

RECITALS

    A.           Licensor is engaged in the business of research, development, production and commercialization of transdermal medical devices and pharmaceuticals, with emphasis on (i) transdermal continuous glucose monitoring (tCGM) systems for use in clinical settings and by people with diabetes and (ii) transdermal drug delivery technologies;

B.           Licensor has developed and is commercializing the Prelude Technology (as defined below);

C.           Licensor has developed Know-How (as defined below) relating to the Prelude Technology; and

     D.           Subject to the terms and conditions of this Agreement, Licensee desires to obtain from Licensor an exclusive license under the Patents (as defined below) and the Know-How in order to develop, have developed, assemble, use, market, have marketed, sell and have sold, and export the Products (as defined below) within the scope of the Field (as defined below) and in the Territory (as defined below);

NOW, THEREFORE, in consideration of the mutual promises herein contained, it is agreed as follows:

1. Definitions.

“50% Royalty” has the meaning given in Section 6.2.

“510(k) Clearance” means approval, authorization or 510(k) medical device clearance from the United States FDA for the Device or the Products.

“Affiliate” means any company, corporation, firm, partnership or other entity that controls, is controlled by or is under common control with the party in question.  As used in this definition, the term “control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a party, whether through ownership of voting securities, by contract, or otherwise.

“Available Product Opportunity” means a combination of lidocaine and Azone TS™.

“Clearance” means any approvals (including pricing and reimbursement approvals), licenses, registrations or authorizations of any federal, state or local regulatory agency, department, bureau or other governmental entity, necessary for the marketing and commercial sale of the Device or Products in the Field in the Territory.

“Commercially Reasonable Efforts” means, with respect to the efforts to be expended by a party to achieve any objective, the reasonable, diligent efforts to accomplish such objective as a similarly situated party in the medical device industry would normally use to accomplish a similar objective under similar circumstances, with a product at a similar stage in its development or product life and of similar market potential.

“Commercial Sale” means a commercial sale of the Products to a non-Affiliate third-party within the scope of the Field in the Territory.

-1-

“Confidential Information” means, with respect to a party, all information of any kind whatsoever, and all tangible and intangible embodiments thereof of any kind whatsoever, which is disclosed by such party to the other party and is marked, identified or otherwise indicated to be confidential at the time of disclosure to the other party.  Notwithstanding the foregoing, Confidential Information of a party shall not include information which the other party can establish by written documentation (a) to have been publicly known prior to disclosure of such information by the disclosing party to the other party, (b) to have become publicly known, without fault on the part of the other party, subsequent to disclosure of such information by the disclosing party to the other party, (c) to have been received by the other party at any time from a source, other than the disclosing party, rightfully having possession of and the right to disclose such information, (d) to have been otherwise known by the other party prior to disclosure of such information by the disclosing party to the other party, or (e) to have been independently developed by employees or agents of the other party without access to or use of such information disclosed by the disclosing party to the other party.

“Contract Year” has the meaning given in Section 6.2.

“Defense Action” means a lawsuit or claim that arises out of Licensee’s practice of the composition or method of preparing the composition as set forth in one or more of the claims of the Patents.

“Device” means the mechanical skin ablation device developed using the Prelude Technology meeting the description and specifications provided in Schedule B, including the embedded software and charging stand described in Schedule B.  For clarity, “Device” does not include Licensor’s transdermal continuous glucose monitoring (tCGM) system, currently known as the Symphony® tCGM System, or any components thereof.

“European Community” means all of the countries in Europe listed in Schedule E.

“FDA” means the United States Food and Drug Administration.

“Field” means the temporary disruption of the outer layer of the skin prior to the application of topical anesthetic or analgesic cream, for local dermal anesthesia or analgesia prior to a needle insertion or IV procedure.

“Final Patent Refusal” means a final, non-appealable denial or refusal (not subject to re-examination) to issue a patent in a certain country by that country’s patent reviewing body.

“Improvements” means any replacements, improvements or modifications to the Device or Product Components in each case in the Field.

“Know-How” means trade secret and other know-how rights in all information and data that is not generally known (including, but not limited to, information and data regarding formulae, procedures, protocols, techniques and results of experimentation and testing), which is necessary or useful to use, develop, sell, or seek Clearance for the Products for use in the Field.

“Joint Inventions” means inventions, discoveries, know-how, trade secrets, and other information, that are made jointly by the parties in the course of the performance of this Agreement.

“Joint Patents” means any and all patents claiming Joint Inventions.

“Net Sales” means the gross amounts or cash equivalents actually received by Licensee or its Affiliates, subsidiaries, Sublicensees or assigns for the Products (including where such is received for the Device or Product Components individually) during the term of this Agreement less amounts directly attributable to: (i) rebates actually paid or taken (including government rebates such as Medicaid chargebacks or rebates), administrative fees in lieu of rebates paid to managed care and similar institutions, chargebacks and retroactive price adjustments for the Products; (ii) refunds, credits or allowances actually granted upon claims, rejections or returns of such sales of the Products, including recalls, regardless of the party requesting the claim, rejection, or return; (iii) separately itemized freight, postage, packaging, shipping, and insurance charges actually incurred by Licensee for delivery of the Products; (iv) taxes (but not income taxes on sales), duties, or other governmental charges levied on or measured by the invoiced amount for the Products, and actually paid by Licensee; and (v) normal and customary trade, quantity and cash discounts and allowances actually allowed for the Products.

-2-

“Option” has the meaning given in Section 2.4.

“Option Period” has the meaning given in Section 2.4.

“Patents” means the patents and patent applications identified on attached Schedule A, including (i) all patent applications which are renewals, divisions, continuations, continuations-in-part, substitutions, or additions of the patents listed on Schedule A, (ii) all foreign counterparts of the patents listed on Schedule A, and (iii) all patents, including reissues, re-examinations and extensions which may issue on any of the preceding.

“Prelude Technology” means Licensor’s proprietary technology known as the Prelude® SkinPrep System that is intended to temporarily disrupt the outer layer of the skin for the purpose of administering, among other things, a topical anesthetic or analgesic and accelerating the time to onset for topical anesthetic or analgesic drugs including, but not limited to, lidocaine.

“Product Components” means, collectively, an abrasive tip, a reference electrode ring, Benzalkonium Chloride for skin preparation, and topical 4% lidocaine cream.

“Products” means the Device and the Product Components assembled in a kit.

“Recipient” means the party receiving Confidential Information.

“Sublicense Consideration” means payments made by a Sublicensee, such as up-front license fees, maintenance fees, milestone fees, and minimum unearned royalties; but excluding all earned running royalties (since earned running royalties on Licensee’s Net Sales are payable to Licensor pursuant to Section 6.2).

“Sublicensee” means any party, other than an Affiliate, that obtains a right to develop, have developed, assemble, use, market, have marketed, sell, have sold, distribute, and export the Products pursuant to Section 2.3 by entering into an agreement or arrangement with Licensee.  “Sublicense” shall be construed accordingly.

“Sublicensee Breach” means a breach by a Sublicensee of the payment obligations affecting Licensor or any other material terms and conditions of a sublicense that would constitute a breach of the terms and conditions of this Agreement if such acts were performed by Licensee.

“Territory” means the United States and its territories and possessions, Canada, Mexico, Australia, New Zealand, Switzerland, the countries of the European Community and the countries of South America.

“Total Claim Amount” means all amounts expended by Licensor and/or Licensee in connection with any third party claim of infringement or misappropriation in a Defense Action, including, but not limited to, attorney fees and legal costs, and/or a royalty or other amount that must be paid to a third party as a result of a final claim or judgment or settlement.

“Trademarks” means the trademarks set forth on the attached Schedule C.

2.           Grant of License; Sublicenses; Licensee’s Right of First Refusal; Improvements; Licensor’s Supply and Sale of Certain Goods to Licensee.

 2.1           Subject to the terms and conditions of this Agreement, Licensor grants to Licensee the exclusive right and license under the Patents, and the Know-How to develop, have developed, assemble, use, market, have marketed, sell and have sold, and export the Products, within the scope of the Field in the Territory.

-3-

 2.2           Licensee may use the Trademarks solely as necessary to use, offer for sale, sell, lease and/or export the Products in accordance with the terms and conditions of this Agreement.  Licensee acknowledges that all use of the Trademarks pursuant to this Agreement must be in accordance with Licensor’s policies and must meet Licensor’s quality standards.  Licensee understands and agrees that its use of the Trademarks does not create any right, title or interest in or to the use of the Trademarks and that all such use and goodwill associated with the Trademarks will inure to the benefit of Licensor.  Except as expressly permitted by Licensor in writing, Licensee shall not adopt nor attempt to register any trademark, trade name or service mark which is confusingly similar to the Trademarks.  In addition to the Trademarks, Licensee, in Licensee’s sole discretion, may use other trademarks to use, offer for sale, sell, lease and/or export the Products in accordance with the terms and conditions of this Agreement.  Licensee shall be responsible for developing and registering trademarks for the Products, and shall own all such trademarks.  Licensee shall not be obligated to use the Trademarks, but may do so in its sole discretion and otherwise in accordance with the terms and conditions of this Agreement.

 2.3           Licensee shall have the unconditional right to grant a Sublicense subject to the following conditions:

 2.3.1In each such Sublicense, the Sublicensee will be permitted to grant further Sublicenses, and so forth for further sub-tier sublicenses, but only on the condition that any such Sublicense will be subject to the terms and conditions of the license granted to Licensee under this Agreement, including payments to Licensor of royalties and other fees set forth in Section 6 based upon consideration paid by any further Sublicensee for any such further Sublicense.

 2.3.2Licensee will forward to Licensor, within thirty (30) days following its execution, a fully executed, complete and accurate copy of each Sublicense granted under this Agreement.  Licensor’s receipt of such Sublicense will not constitute a waiver of any of Licensor’s rights or Licensee’s obligations under this Agreement.  Each such Sublicense shall be treated as the Confidential Information of Licensee.

 2.3.3Each Sublicense will contain a right of termination by Licensee in the event of a Sublicensee Breach.  In the event of a Sublicensee Breach, and if after a reasonable opportunity to cure as provided in any such Sublicensee’s Sublicense, such Sublicensee fails to cure such Sublicensee Breach, then Licensee will terminate the Sublicense unless Licensor agrees in writing that such Sublicense need not be terminated.  Such Sublicensee Breach and termination of a Sublicensee’s Sublicense will not affect the term of Licensee’s license hereunder or the Sublicense of any non-breaching Sublicensee.

 2.3.4Upon termination of this Agreement for any reason, all Sublicenses will be assigned to Licensor, and Licensor will have no greater duties or lesser rights under such Sublicenses than Licensor has under the Agreement.

       Licensee shall have the sole discretion to determine the financial and other terms on which any Sublicenses shall be granted under this Agreement; however, no such Sublicense shall alter any obligation owed by Licensee to Licensor under this Agreement.

 2.4           For a period of twelve (12) months from the Restatement Date (the “Option Period”), Licensor grants to Licensee the right of first negotiation (“Option”) to obtain an exclusive license to develop, have developed, assemble, use, market, have marketed, sell and have sold, and import and export all products that fall within the definition of Available Product Opportunity. Whether to exercise such Option is solely at the discretion of Licensee, but if Licensee does exercise the Option, Licensee must exercise the Option within the Option Period by written notice of exercise and payment of a [**] Option fee. Upon exercise of the Option, the parties will exclusively negotiate the terms of the exclusive license for a period of ninety (90) days. If the parties fail to enter into the exclusive license within such ninety (90) day period, Licensee will have no further rights to the Available Product Opportunity and Licensor will have the right to license it to any other third party. The Option fee shall be paid at the time of Licensee’s exercise of the Option and shall be fully creditable against any subsequent license fee due for such technology under the terms of the agreed to license.

** Echo Therapeutics, Inc. has requested confidential treatment of this competitive and financial information, the disclosure of which could result in competitive harm.

-4-

 2.5           Any Improvements made by or for Licensor during the term of this Agreement shall be deemed included within the scope of the licensed rights (i.e. for the Field in the Territory) under this Agreement without any additional consideration on the part of Licensee.

 2.6           Promptly following the Effective Date, Licensor shall disclose to Licensee all Know-How and assist Licensee in the use of all such Know-How to enable Licensee to perform its obligations under this Agreement.  In addition, Licensor shall make available to Licensee during the term of this Agreement, at Licensor’s expense, upon reasonable notice and during normal business hours, the reasonable assistance of Licensor’s employees who are knowledgeable about the Know-How in order to facilitate Licensee’s efforts to develop and commercialize the Products in accordance with the terms and conditions of this Agreement.

 2.7           In consideration for the sums paid pursuant to this Agreement, Licensor shall not, during the term of this Agreement, conduct, fund, license or participate in the development, distribution or commercialization in any country in the Territory, of any product that competes with the Products within the scope of the Field in the Territory.  Notwithstanding the foregoing, the restrictions in this Section 2.7 shall not apply to any product relating to Licensor’s Symphony or AzoneTS-based technologies, as identified on attached Schedule D (“Retained Technologies”).

 2.8           Licensee shall notify Licensor of the occurrence of the first Commercial Sale of the Products in a country no later than ten (10) days after such sale.

 2.9           Exclusively for the purposes of this Agreement, Licensor shall supply all of Licensee’s requirements of the Devices, the abrasive tips and the reference electrode rings pursuant to the terms and conditions of a Supply Agreement to be negotiated in good faith and executed by the parties subsequent to the Effective Date of this Agreement.  Licensee, at Licensee’s cost and expense, shall supply and/or have supplied the Benzalkonium Chloride for skin preparation and the topical 4% lidocaine cream.

3.           Representations and Warranties.

Licensor represents and warrants to Licensee that as of the Effective Date:

 3.1           Licensor is the exclusive owner or licensee of all rights to the Patents, the Trademarks and the Know-How, has the right to grant this exclusive license to Licensee, and has not granted to any other person, firm or corporation any right, license, shop right, or privilege to the Patents, the Trademarks or the Know-How within the scope of the Field in the Territory.

 3.2           Other than the Patents, Licensor has not (i) filed, or caused to be filed, any pending patent applications based on or claiming the Prelude Technology for use in the Field, or (ii) obtained in its name or caused to be obtained in the name of others any letters patent based on or claiming the Prelude Technology for use in the Field.

 3.3           By execution of this Agreement, Licensor does not violate any other agreements, rights or obligations existing between Licensor and any other person, firm, corporation or other entity.

 3.4           To Licensor’s knowledge, there are no existing or threatened actions, suits or claims pending against Licensor with respect to Licensor’s right to enter into and perform its obligations under this Agreement.

 3.5           Licensor is not aware of any third party intellectual property rights that are infringed by the Patents, the Trademarks or by the Prelude Technology.

 3.6           Licensor has disclosed to Licensee all the information in Licensor’s possession or control concerning side effects, injury, toxicity or sensitivity reaction and incidents associated with the use of the Prelude Technology in the Field, whether or not obtained from any clinical or non-clinical studies.

 3.7           This Agreement is a legal and valid obligation binding upon Licensor and enforceable in accordance with its terms.

-5-

Licensee represents, warrants and covenants to Licensor that:

 3.8           Licensee shall use Commercially Reasonable Efforts to develop or have developed and commercialize the Products in the Territory.  Without limiting the generality of the foregoing, Licensee shall use Commercially Reasonable Efforts to (i) obtain necessary Clearances for the Products in the Territory, and (ii) manufacture or have manufactured, market and sell the Products to meet market needs in the Territory.

4.           The Patents and Inventions.

 4.1           Subject to the terms and conditions of this Agreement, all right, title and interest, in and to the Patents vests solely in Licensor. Licensor shall have the right, in its discretion, to file, prosecute and maintain all Patents in the Territory at its sole expense during the term of this Agreement. Licensor shall pay all expenses in connection with its filing, prosecution and maintenance of the Patents in the Territory.

 4.2           Subject only to the rights expressly granted to the other party hereunder, each party retains its entire right, title and interest in and to any inventions, discoveries, know-how, trade secrets, and other information made or developed solely by such party and/or its consultants in the course of the performance of this Agreement (“Sole Inventions”), and shall have the right, but not the obligation, at its own expense, to file, prosecute and maintain any patents claiming its Sole Inventions in all countries of the world.

 4.3           Both parties shall jointly own any and all Joint Inventions, provided, however, that Licensor shall be granted an exclusive fully-paid, royalty free license to any and all Joint Inventions that are based on, related to or in any way incorporate the Patents and/or the Prelude Technology. Licensor and Licensee shall designate one of them to be responsible for filing, prosecuting and maintaining any and all Joint Patents. All costs and expenses of filing, prosecuting, maintaining, defending and enforcing such Joint Patents will be borne equally by both Licensor and Licensee. The party designated to perform patenting activities shall seek the comments of the other party and shall keep the other informed of the progress of such prosecution by providing quarterly status reports and copies of all correspondence between their patent counsel and the patent offices of the countries where such applications were filed. Such other party shall reasonably assist the party designated in the prosecution of Joint Patents, including, without limitation, by executing any necessary powers of attorney. Each party shall provide the other party with quarterly written updates on its commercialization efforts under any Joint Patents. Each party shall notify the other party of any infringement of a Joint Patent known to such party and, if it takes action to enforce a Joint Patent, it shall provide the other party with quarterly updates on the status of its enforcement efforts.

 4.4           Licensor shall not, during the term of this Agreement, abandon the Patents in any country in the Territory without first consulting with Licensee and considering in good faith Licensee’s position for such abandonment.

 4.5           Licensor may conspicuously mark all Devices with the word “Prelude®” and shall include the words “This product is patented by Echo Therapeutics, Inc. and distributed under license by Ferndale Pharma Group, Inc. [or the name of an Affiliate of Licensee, as directed by Licensee]”, or such alternate wording as the parties may agree upon from time to time.

 5.           Information; Confidentiality.

 5.1           Licensor shall, upon request and to the best of its ability, furnish to Licensee and/or its nominees, copies of all information and documents in Licensor’s possession which are reasonably necessary to commercialize the Products within the scope of the Field in the Territory.

-6-

 5.2           During the term of this Agreement, and for a period of seven (7) years following the expiration or earlier termination hereof, each party shall maintain in confidence all Confidential Information disclosed by the other party, and shall not use, disclose or grant the use of the Confidential Information, except on a need-to-know basis to those Affiliates, directors, officers, employees, consultants, clinical investigators, contractors, Sublicensees, distributors, permitted assignees, partners, investors, or advisors, to the extent such disclosure is reasonably necessary in connection with such party’s activities as expressly authorized by this Agreement.  To the extent that disclosure is authorized by this Agreement, prior to disclosure, each party shall obtain agreement of any such person or entity to hold in confidence and not make use of the Confidential Information for any purpose other than those permitted by this Agreement.  Each party shall notify the other promptly upon discovery of any unauthorized use or disclosure of the other party’s Confidential Information.

 5.3           Except as otherwise provided in Section 5.2 above, neither party shall disclose any terms or conditions of this Agreement to any third party without the prior written consent of the other party.

 5.4           The confidentiality obligations contained in this Section 5 shall not apply to the extent that the Recipient is required (a) to disclose information by law, order or regulation of a governmental agency or a court of competent jurisdiction, provided that the Recipient shall provide written notice thereof to the other party and sufficient opportunity to object to any such disclosure or to request confidential treatment thereof, (b) to disclose information for purposes of compliance with applicable rules and regulations of the United States Securities and Exchange Commission or any exchange upon which Licensor is listed at the time of disclosure, or (c) to disclose information to any regulatory authority for purposes of obtaining a Clearance for the Products.

6.           License Fees, Sublicense Consideration, Milestone Payments and Payment of Royalties.

 6.1           Licensee has paid to Licensor a license fee of Seven Hundred Fifty Thousand Dollars ($750,000) on the Effective Date. Licensee shall pay to Licensor (i) a milestone payment of Seven Hundred Fifty Thousand Dollars ($750,000) within ninety (90) days of Licensee’s receipt of a copy of the FDA’s written grant of the 510(k) Clearance and (ii) the “License Fee” listed alongside each country on Schedule E (“License Fees”) attached hereto within ninety (90) days following the issuance of Clearance in such country.  Additionally, Licensee shall pay to Licensor the following milestone payments based on aggregate Net Sales of Product Components:

Aggregate Net Sales	Milestone Payment Amounts
$[**]	$[**]
$[**]	$[**]
$[**]	$[**]
$[**]	$[**]

** Echo Therapeutics, Inc. has requested confidential treatment of this competitive and financial information, the disclosure of which could result in competitive harm.

-7-

 6.2(a)           Royalty payments due to Licensor shall be equal to:  (i) for all Net Sales in a Contract Year up to $[**], [**] percent ([**]%) of all Net Sales of the Product Components within the scope of the Field in the Territory, and (ii) for all Net Sales in a Contract Year over $[**], [**] percent ([**]%) of all Net Sales of the Product Components within the scope of the Field in the Territory; however, where a Licensor patent application has received a Final Patent Refusal, all such royalty payments from sales in such country shall be reduced by one-half (the “50% Royalty”).  Notwithstanding the foregoing, if a Product has market exclusivity or similar commercial protection granted by a regulatory authority in a Territory in which there is a Final Patent Refusal, then the 50% Royalty shall not be applicable until the market exclusivity period has expired. Regardless of the amount of Net Sales for such year, Licensee shall pay a minimum annual royalty to Licensor for Licensee’s sales of Products in the United States for each Contract Year in the U.S. as set forth below.

Contract Year	Minimum Annual Royalty
1	$[**]
2	$[**]
3	$[**]
4	$[**]
5 – 10	$[**]

Licensee shall pay a Minimum Annual Royalty to Licensor for Licensee’s sales of Products in the other countries of the Territory for each Contract Year in such country pursuant to Schedule E hereof.

With respect to each country of the Territory, Year 1 of the Minimum Annual Royalty obligation for such country shall commence on the date of the first Commercial Sale in such country and each of the nine (9) successive 12-month periods shall represent Years 2-10 (each, a “Contract Year”).  For the avoidance of doubt, Licensee shall not be required to pay any minimum royalties with respect to any country of the Territory until such time as a the Product has been commercialized in such country.

Such minimum annual royalty amounts shall not be construed as a limitation in any way on the annual royalty payment due from Licensee to Licensor, it being understood that the royalty in any Contract Year for Net Sales for any country shall not exceed the higher of (a) the applicable royalty amount as described in this Section 6.2 (i.e., [**]% and/or [**]% of Net Sales, as the case may be), or (b) the minimum royalty for that Contract Year for such country.  If the royalty actually due under this Agreement based on Net Sales is less than the applicable annual minimum royalty, Licensee shall pay Licensor, no later than thirty (30) days after the end of the preceding 12-month period, the applicable annual minimum royalty amount to meet its obligations in this Section

 6.2(b)           If Licensee does not pay Licensor the minimum annual royalty amount in any Contract Year, then Licensor shall have the right to terminate this License Agreement upon thirty (30) days prior written notice to Licensee.  For purposes of clarity, Licensee's failure to pay quarterly royalties based upon actual sales of the Products shall be considered a material breach of this Agreement.

 6.3             With respect to the United States Licensee shall pay to Licensor [**] percent ([**]%) of all Sublicense Consideration.  With respect to any other country of the Territory Licensee shall pay to Licensor [**] percent ([**]%) of all Sublicense Consideration received for that country that is in excess of the milestone license fee previously paid for that country set forth in Schedule E hereof.

 6.4             Licensee shall keep accurate records of all sales of Products, shall render written statements thereof to Licensor within thirty (30) days after the end of each Contract Year quarter during the term of this Agreement, and shall pay to Licensor with each such statement the amount of all royalties earned during the corresponding Contract Year quarter.  For purposes of clarity, Licensee shall make quarterly royalty payments based upon actual Net Sales of the Products in such quarter.  The written statements will provide details of Net Sales by Products and by package, including reasonable detail as to the computation of the Net Sales during such quarter.  The written statements shall be mailed (via certified mail, return receipt requested) to Licensor at the addresses indicated above.  Licensee shall impose the same reporting requirements upon its Sublicensees, except that the information shall be determined within twenty (20) days from the end of each Contract Year quarter so that Licensee may pay the royalties earned on sales by Sublicensees simultaneously with Licensee’s royalties.  Payment of royalties and license fees shall be made by wire transfer, in U.S. Dollars, in accordance with wire transfer instructions provided to Licensee, or in such other manner as the parties may agree in writing.

** Echo Therapeutics, Inc. has requested confidential treatment of this competitive and financial information, the disclosure of which could result in competitive harm.

-8-

 6.5           Upon expiration of all of the Patents, or if all of the Patents shall be determined by the final, non-appealable order of a court or courts of competent jurisdiction to be invalid (either, a “Patent Default”), notwithstanding the term in Section 8.1, Licensee shall continue to have all rights under this Agreement, but shall only have the obligation to pay Licensor the 50% Royalty on sales of Product Components made after the date of expiration or invalidity covered only by the Patents expired or invalidated.

 6.6           Once per calendar year during the term of this Agreement, Licensor shall have the right to have Licensee's books and records audited by an accountant of Licensor's choosing to ascertain the accuracy of Licensee's reports.  Such audits shall be scheduled within thirty (30) days following delivery of notice by Licensor to Licensee and shall be performed during Licensee's normal business hours and shall be conducted in a manner that does not interfere unreasonably with Licensee's business.  In the event that any audit determines that the reported Net Sales was less than ninety-five percent (95%) of actual Net Sales for the period in question, Licensee agrees to pay the additional royalties, plus a late fee equal to 1½% per month of the amount of all royalty payments that were not accurately and timely made, and the actual cost of such audit.  If any audit determines that the reported Net Sales was not less than ninety-five percent (95%) of actual Net Sales for the period in question, Licensee agrees to pay the additional royalties (if any), plus a late fee equal to 1½% per month of the amount of all royalty payments that were not accurately and timely made (if any); however, the actual cost of such audit shall be paid by Licensor.

7.           Product Development and Regulatory Approval; Commercialization.

 7.1           Licensee shall be responsible for all Product development fees and costs, and for all FDA and regulatory filings, in the Territory.  Licensee shall obtain all required authorizations from all governmental bodies and regulatory agencies relating to Licensee’s marketing, sale and distribution of the Products within the scope of the Field in the Territory.  Licensee and Licensee’s Sublicensees shall be solely responsible for obtaining and securing all such required authorizations, and Licensee shall have the final decision-making authority with respect to all aspects of the required authorizations of the Products.

 7.2           Licensee shall be responsible for commercializing the Products within the scope of the Field in the Territory.  Decisions regarding matters such as advertising and promotion shall be the sole responsibility of Licensee, provided however that Licensee’s commercialization activities shall be consistent and in compliance with governmental authorizations for the Products and with the terms of this Agreement.

 7.3           Licensee shall set prices for Products in the Territory and shall obtain all governmental pricing approvals as may be required.  Licensee shall also be responsible for distribution of the Products within the scope of the Field in the Territory.

 7.4           Licensee will prepare or have prepared all Promotional Materials. Any placement, use or distribution of Promotional Materials which contains any Trademark or any reference to Licensor shall be subject to Licensor’s prior written approval, which approval shall not be unreasonably withheld or delayed. Licensee shall submit to Licensor for approval drafts of all Promotional Materials, prior to use. Licensor shall promptly evaluate Promotional Materials submitted to it by Licensee and shall use reasonable efforts to approve or disapprove such Promotional Materials in writing within ten (10) business days after receipt. Any submission which is not revised or disapproved in writing by Licensor within a fifteen (15) business day period shall be deemed approved. Printing of Promotional Materials in advance of receiving Licensor’s written approval is done at Licensee’s own risk. Licensee shall have no such obligation with respect to any of Licensee’s Mark(s). Licensee shall provide to Licensor two (2) samples of all printed Promotional Materials.

 7.5           Licensor shall be responsible for all product development as such development relates to the Device, the abrasive tip, and the reference electrode ring.  As set forth in Section 7.1 above, Licensee shall be responsible for all Product development fees and costs.

-9-

8.           Term and Termination.

 8.1          This Agreement and the rights and licenses granted hereunder shall commence on the Effective Date and, unless earlier terminated pursuant to this Agreement, shall extend on a country-by-country basis until the later of (i) the tenth anniversary of the first Commercial Sale within the scope of the Field in such country or (ii) expiration of the last to expire of the Patents in such country. Notwithstanding the foregoing, upon the expiration of the term, Licensee shall have a paid-up license and shall continue to have all rights under this Agreement, but shall have no obligation to pay Licensor any further royalties on sales of the Products.

 8.2           Upon any material breach or default under this Agreement, the non-breaching party may terminate this Agreement by providing thirty (30) days’ written notice to the breaching party.  Said termination shall become effective at the end of such thirty (30) day period unless, during such period, the breaching party cures such defect or default.

 8.3           Any party may immediately terminate this Agreement if a party is adjudicated a bankrupt or becomes insolvent, or enters into a composition with creditors, or if a receiver is appointed for it.

 8.4           Upon termination of this Agreement for any reason, (a) Licensee shall fully account for, and pay to, Licensor all royalties within sixty (60) days of such termination; (b) Licensee shall immediately transfer to Licensor (i) copies of all information, reports, submissions and data relating to the Products and generated during the term of this Agreement, and (ii) all rights which Licensee may have gained under this Agreement; and (c) all rights and licenses granted to Licensee pursuant to this Agreement shall immediately terminate.  Upon termination of this Agreement for any reason, nothing herein shall be construed to release either party of any obligation which accrued prior to the effective date of such termination.

 8.5           Notwithstanding Section 8.4, upon termination of this Agreement for any reason, Licensee and its Sublicensees, Affiliates, distributors, agents and wholesalers shall, without restriction, and in their sole discretion, have the right to market and sell Products remaining in their inventory for a total of one hundred eighty (180) days after receipt of notice of termination.  Any and all royalty payments due Licensor shall be made pursuant to Section 6.

9.           Patent Enforcement.

 9.1           Infringement of Patents by Third Party.  Licensor, at its own expense, shall have the first option to police the Patents for use in the Field in the Territory against infringement by other parties within the Territory, but Licensor shall, when practicable, notify Licensee in writing twenty (20) days before filing any suit.  This right to police includes the right to institute and prosecute an action or proceeding to abate such infringement and to resolve such matter by settlement or otherwise at Licensor’s expense and through counsel of its selection.  Licensor has full authority to settle on such terms as Licensor determines, except that Licensor shall not reach any settlement whereby it provides a license for future activities to a third party under the Patents for use in the Field in the Territory without the consent of Licensee, which consent Licensee can withhold for any reason.  Licensee shall provide reasonable assistance to Licensor with respect to such actions, but only if Licensor reimburses Licensee for out-of-pocket expenses incurred in connection with any such assistance rendered at Licensor’s request or reasonably required by Licensee and if Licensor notifies Licensee, when practicable, in writing twenty (20) days before filing any suit.  Licensee retains the right to participate, with counsel of its own choosing and at its own expense, in any action under this Section 9.1.

 If Licensor exercises its option to police the Patents pursuant to this Section 9.1, Licensor shall retain one hundred percent (100%) of any recovery or settlement received after reimbursement of Licensee’s out-of-pocket expenses incurred under this Section 9.1.

-10-

 If Licensor does not exercise its option to police the Patents under this Section 9.1, Licensee shall have the option, but not the obligation, to so police the Patents for use in the Field within the Territory, and Licensee may withhold up to fifty percent (50%) of the payments otherwise thereafter due during the course of any such litigation to Licensor under this Agreement under the following terms.  Licensee may apply the amounts withheld to pay Licensee’s out-of-pocket litigation expenses, including reasonable attorneys’ fees.  If Licensee recovers damages in the patent litigation, the award shall be applied first to satisfy Licensee’s unreimbursed expenses and legal fees for the litigation, next to reimburse Licensor for any payments under this Agreement which are past due or were withheld pursuant to this Section 9.1, and then to reimburse Licensor for any other unreimbursed expenses and legal fees for the litigation.  The remaining balance shall be divided equally between Licensor and Licensee.

 Notwithstanding the foregoing, Licensor and Licensee each has the right to institute and prosecute a separate additional action or proceeding against a third party if Licensor or Licensee determines that it has suffered damages as a result of the alleged infringement.

 9.2Infringement of Third Party Rights.  If Licensor and/or its Affiliates, or Licensee, its Affiliates, Sublicensees, distributors or other customers are sued or threatened with suit by a third party alleging infringement of patents or other intellectual property rights that are alleged to cover the manufacture, use, sale, importation, exportation or distribution of one or more Products, the sued or threatened party shall promptly notify the other in writing and provide a copy of the lawsuit or claim.  Licensor and Licensee shall each be permitted at all times to defend itself, through counsel of its own choice.

 If a Defense Action arises, Licensor shall in each instance have the first option to control the defense in any such claim or suit.  Within ten (10) calendar days of learning of the claim or suit, Licensor shall provide notice to Licensee of whether or not it will control the defense of such claim or suit.  If Licensor exercises its option to control the Defense Action, Licensee shall fully cooperate with Licensor in the defense of any such suit.  Licensor shall keep Licensee timely informed of material developments in the defense of such claim or suit.  If Licensor does not exercise its option to control the Defense Action, Licensee shall control the Defense Action, and Licensor shall fully cooperate with Licensee in the defense of any such suit.  Licensee shall keep Licensor timely informed of material developments in the defense of such claim or suit.  The Total Claim Amount expended by each of Licensor and Licensee shall be shared equally (subject to the below limitation on quarterly royalty payments) by Licensor and Licensee.  Licensee shall deduct royalty payments otherwise due to Licensor under this Agreement to account for Licensor’s share in the Total Claim Amount.  Notwithstanding the foregoing, if amounts are paid in response to a Defense Action, (i) Licensor shall at no time be paid royalty amounts less than 6% of Net Sales, regardless of the amounts paid in satisfaction of the Total Claim Amount, and (ii) Licensee's sole means of collecting Licensor's share of the Total Claim Amount shall be through the reduction of royalties otherwise due to Licensor from Licensee.

 The terms of this Section 9.2 shall not apply to or affect Licensor’s or Licensee’s indemnity obligations per Section 10.

 9.3           In the event any party learns of facts that might reasonably result in a lawsuit involving the Patents, the Trademarks, the Products and/or this Agreement, or in the event any party is sued for matters involving the Patents, the Trademarks, the Products and/or this Agreement, such party shall promptly notify all other parties to this Agreement.

-11-

10.           Indemnity.  Licensee shall defend, indemnify and hold Licensor (and its directors, officers, medical and professional staff, employees and agents) and their respective successors, heirs and assigns harmless from and against all costs, liabilities, damages, expenses, and losses (including reasonable attorney fees and costs) incurred through claims, suits, actions, demands, or judgments of third parties against Licensor based on, or arising out of, (a) Licensee’s breach of any representation, warranty, covenant or obligation in this Agreement, (b) the clinical development, regulatory development, marketing, manufacture, use, sale and/or export of the Device or the Products by Licensee, (c) the clinical development, regulatory development, marketing, use, sale and/or export of any Device or the Products by Licensee, or (d) the exercise of the licenses granted under this Agreement.  Licensor shall defend, indemnify and hold Licensee and its directors, officers, medical and professional staff, employees and agents and their respective successors, heirs and assigns harmless against all costs, liabilities, damages, expenses, and losses (including reasonable attorney fees and costs) incurred through claims, suits, actions, demands, or judgments of third parties against Licensee based on, or arising out of, (a) Licensor’s breach of any representation, warranty, covenant or obligation in this Agreement, or (b) the development (excluding clinical and regulatory development), use, and/or manufacture of any Device or any Product Component manufactured by Licensor.  Nothing herein is intended to relieve any party from liability for its own act, omission or negligence.  No party shall have any liability to another party for consequential damages of the other party.  Notwithstanding the above, the indemnity obligations provided here extend to the parties only and no right shall be established or inferred to benefit any third person.

11.           Insurance.  Licensee shall, throughout the term of this Agreement, obtain and maintain at its own cost and expense from a qualified insurance company licensed to do business in the Territory product liability insurance in such amounts as is customary in the industry, but in no event less than $2,000,000.  Such product liability insurance shall name Licensor as an additional named insured.  Within thirty (30) days of receiving written request, Licensee agrees to furnish Licensor with a certificate of insurance evidencing such coverage, and in no event shall Licensee manufacture, distribute, or sell the Products prior to obtaining such insurance.  Licensor shall, throughout the term of this Agreement, obtain and maintain at its own cost and expense from a qualified insurance company licensed to do business in the Territory standard comprehensive general liability insurance.  Within thirty (30) days of receiving written request, Licensor agrees to furnish Licensee with a certificate of insurance evidencing such coverage.  Notwithstanding the foregoing, Licensor’s obligation to maintain such insurance shall extend for five (5) years beyond the date that Licensor entirely ceases distributing and selling products.  Licensor shall provide notice to Licensee if and when Licensor intends on terminating any such insurance policy.

12.           Notices.  Any notice required by this Agreement must be in writing and sent to an executive officer at the appropriate party’s address first written above (or to another address designated by the party to receive such notice) by registered mail or by an internationally-recognized courier service, in either case with a signature proof of receipt.

13.           Assignment.  The parties shall not have the right to assign this Agreement, or any rights or obligations granted hereunder without the prior written consent of the other party (such consent not to be unreasonably withheld).  An assignment shall not release the assignor or affect the rights of the non-assigning party against the assignor.  Notwithstanding the foregoing, provided the assigning party remains liable for all its obligations under this Agreement, Licensee and Licensor may assign any of their respective rights and/or delegate any of its duties to their respective Affiliates.  Notwithstanding the foregoing, any party may transfer its rights and delegate its duties under this Agreement in connection with its merger, acquisition or consolidation with another person or firm, provided that such person or firm shall first have agreed with Licensor and Licensee in writing to perform the transferring party’s obligations and duties hereunder.

14.           Bankruptcy.  All rights and licenses granted under or pursuant to this Agreement by Licensor to Licensee are, and shall otherwise be deemed to be, for purposes of Section 365(n) of the Bankruptcy Code, licenses of rights to "intellectual property" as defined under Section 101(52) of the Bankruptcy Code. The parties agree that Licensee, as a licensee of such rights under this Agreement, shall retain and may fully exercise all of its rights and elections under the Bankruptcy Code. The parties further agree that in the event of the commencement of a bankruptcy proceeding by or against Licensor under the Bankruptcy Code, Licensee shall be entitled to a complete duplicate of, or complete access to, as appropriate, any such intellectual property and all embodiments of such intellectual property, and same, if not already in its possession, shall be promptly delivered to Licensee (i) upon any such commencement of a bankruptcy proceeding upon written request therefor by Licensee unless Licensor elects to continue to perform all of its obligations under this Agreement, or (ii) if not delivered under (i) above, upon the rejection of this Agreement by or on behalf of Licensor upon written request therefor by Licensee.

-12-

     15.           Binding Effect.  This Agreement shall inure to the benefit of and be binding upon the parties and their respective heirs, representatives, successors and permitted assigns, but nothing contained in this paragraph shall be deemed to grant a right to make assignments other than as is above provided.

16.           Governing Law; Jurisdiction.  Any and all disputes, controversies, differences or claims arising from or related to this Agreement, or the interpretation, making, performance, breach or termination thereof or transactions conducted pursuant to the rights and duties granted by this Agreement shall be governed by and interpreted in accordance with the laws of the State of Delaware, excluding Delaware’s conflict of laws principles.  Neither party shall commence any litigation against the other arising out of this Agreement or the termination of this Agreement except in a court located in the State of Delaware.  Each party consents to jurisdiction over it by and exclusive venue in such a court.

17.           Complete Agreement.  This Agreement, including its attached exhibits, contains the entire agreement between the parties regarding its subject matter, and supersedes all previous agreements and negotiations, including, but not limited to the License Agreement entered into by the parties as of the Effective Date.

18.           Amendment.  None of the terms of this Agreement shall be amended or modified except in a writing signed by both parties.

19.           Counterparts.  This Agreement may be executed in counterparts, and each counterpart shall be deemed an original hereof.

20.           Waiver.  No failure of a party to take any action or assert any right hereunder shall be deemed to be a waiver of such right in the event the continuance or repetition of the circumstances giving rise to such right.

21.           Cumulative Remedies.  All rights and remedies existing under this Agreement are cumulative to, and not exclusive of, any right and remedies otherwise available at law or in equity.

22.           Headings.  Article and section headings in this Agreement are included for convenience of reference only, and shall not constitute a part of this Agreement for any other purpose or be given any substantive effect.

23.           Independent Contractor Relationship.  Licensor and Licensee shall act solely as independent contractors and nothing in this Agreement shall be construed to create a partnership or joint venture, principal/agent, employer/employee or other fiduciary relationship.  No party has the power or authority to act for, bind or commit any other party in any way.  No party is authorized to make any statement, claims, representation or warranties, or to act on behalf of another party, except as specifically authorized in writing by the other.

24.           Survival of Sections.  Sections 2.1-2.7 (inclusive), 3, 4.2, 6, 8.4, 8.5, 9, 10, 12, 13, 15, 16, 17, 18, 19, 21, 23 and 24 shall survive termination or expiration (as the case may be) of this Agreement and shall remain in full force and effect.  The provisions of this Agreement which do not survive termination or expiration hereof (as the case may be) shall nonetheless be controlling on, and shall be used in construing and interpreting the rights and obligations of the parties hereto with regard to any dispute, controversy or claim which may arise under, out of, in connection with, or relating to this Agreement.

25.           Severability.  In the event that any one or more of the provisions contained in this Agreement or in any other agreement or instrument referred to herein, shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement or any other such agreement or instrument and such invalid or unenforceable provision shall be construed by limiting it so as to be valid and enforceable to the maximum extent compatible with, and possible under, applicable law.

-13-

26.           Use of Name.Licensor and Licensee shall consult with each other before issuing any press release or otherwise making any public statements with respect to this Agreement and the transactions contemplated hereby and shall not issue any such press release or make any such public statement except as they may mutually agree and except as required under Federal securities laws or other laws applicable to Licensor and Licensee.  Neither party shall use the name of the other party in any advertising, promotional or sales literature, or in any other form of publicity without prior written consent obtained from the other party in each case, which consent shall not be unreasonably withheld.

27.  Third Party Beneficiaries.  This Agreement confers no benefits, rights, or remedies on any individual, entity, or other person who is not a party to this Agreement.

[SIGNATURE PAGE FOLLOWS]

-14-

IN WITNESS WHEREOF the parties have caused this Agreement to be executed as of the Effective Date.

ECHO THERAPEUTICS, INC.

/s/ Patrick T. Mooney

By:Patrick T. Mooney

Its: CEO

ECHO THERAPEUTICS, INC.

/s/ Kimberly Burke

By: Kimberly Burke

Its: General Counsel

FERNDALE PHARMA GROUP, INC.

/s/ Michael Burns

By: Michael Burns

Its: President

-15-

SCHEDULE A

THE PATENTS

“Skin Permeation Device for Analyte Sensing or Transdermal Drug Delivery”

Patents Granted

Country	Patent No.	Date Issued	Expires
AT	E 499.967	9/26/11	4/25/2008
AU	2008245585	1/19/12	4/25/2028
BE	2,152,358	6/7/11	4/25/2028
DK	DK/EP2152358	6/27/11	4/25/2028
GR	GR 3075105	5/30/11	4/25/2028
HK	1,140,709	12/5/11	4/25/2028
HR	P20110396	8/4/11	4/25/2028
HU	2,152,358	8/17/11	4/25/2028
IE	2,152,358	6/24/11	4/25/2028
LT	2,152,358	9/26/11	4/25/2028
NO	NO/EP2152358	7/18/11	4/25/2028
NZ	580997	12/5/11	4/25/2028
RU	2435616	12/10/11	4/25/2028
SK	E 9561	9/5/11	4/25/2028
TR	TR201105270 T4		4/25/2028
EP	2152358	3/2/11	National patents in all designated countries: Bulgaria, Switzerland and Liechtenstein, Cyprus, Czech Republic, Germany, Estonia, Spain, Finland, France, United Kingdom, Iceland, Italy, Luxembourg, Latvia, Monaco, Malta, Netherlands,  Poland, Portugal, Romania, Sweden and Slovenia,

Applications Pending

Country	Serial No.	Date Filed
US	12/110,034	04/25/08
BR	PI 0810969-9	10/27/09
CA	2,685,423	12/14/09
CN	200880020556	4/25/08

-16-

SCHEDULE B

THE PRODUCTS

The abrader described in US Patent Application No. 29/392,348 entitled “Abrasion Device with Reference Ring and Abrasive Tip.”

Product Components:

-      an abrasive tip;

-      a reference electrode ring;

-      Benzalkonium Chloride for skin preparation; and

-      topical 4% lidocaine cream.

-17-

SCHEDULE C

THE TRADEMARKS

Trademark	Country	Application No.
Prelude	United States	77/732,793

-18-

SCHEDULE D

RETAINED TECHNOLOGIES

1.         Licensor’s proprietary wireless, needle-free, transdermal continuous glucose monitoring system known as the Symphony® tCGM System.

2.         Licensor’s proprietary AzoneTS™ platform-based drug products, with the exception of a combination of lidocaine and Azone TS™.

-19-

SCHEDULE E

LICENSE FEES

Country of Territory	License Fee*	Year 1 Minimum Annual Royalty**
Germany	$   [**]	$    [**]
France	$   [**]	$    [**]
United Kingdom	$    [**]	$    [**]
Italy	$    [**]	$    [**]
Spain	$    [**]	$    [**]
Netherlands	$    [**]	$    [**]
Belgium	$    [**]	$    [**]
Sweden	$    [**]	$    [**]
Switzerland	$    [**]	$    [**]
Austria	$    [**]	$    [**]
Canada	$    [**]	$    [**]
Mexico	$    [**]	$    [**]
Brazil	$    [**]	$    [**]
Argentina	$    [**]	$    [**]
Chile	$    [**]	$    [**]
Australia	$    [**]	$    [**]

With respect to each Country of Territory in the above table, the Minimum Annual Royalty set forth in the above table shall increase in successive years as follows:

Year 2 = Year 1 Minimum Annual Royalty x [**]

Year 3 = Year 1 Minimum Annual Royalty x [**]

Year 4 = Year 1 Minimum Annual Royalty x [**]

Years 5-10 = Year 1 Minimum Royalty x [**]

** Echo Therapeutics, Inc. has requested confidential treatment of this competitive and financial information, the disclosure of which could result in competitive harm.

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Patrick T. Mooney, M.D., certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Echo Therapeutics, Inc. (the “Company”) for the quarter ended June 30, 2012;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of and for the periods presented in this report;

4. The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:

(a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period on which this report is being prepared;

(b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)   Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

(d)   Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and

5. The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors:

(a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and

(b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

Date: August 9, 2012

/s/ Patrick T. Mooney                                                                           

Patrick T. Mooney, M.D.

Chief Executive Officer and Chairman of the Board

(Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Christopher P. Schnittker, CPA, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Echo Therapeutics, Inc. (the “Company”) for the quarter ended June 30, 2012;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of and for the periods presented in this report;

4. The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:

(a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period on which this report is being prepared;

(b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)   Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

(d)   Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and

5. The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors:

(a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and

(b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

Date: August 9, 2012

/s/ Christopher P. Schnittker                                                                           

Christopher P. Schnittker, CPA

Chief Financial Officer and Treasurer

(Principal Financial Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Echo Therapeutics, Inc. (the “Company”) for the quarter ended June 30, 2012 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Patrick T. Mooney, M.D., Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Patrick T. Mooney                                                                           

Patrick T. Mooney, M.D.

Chief Executive Officer and Chairman of the Board

(Principal Executive Officer)

August 9, 2012

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Echo Therapeutics, Inc. (the “Company”) for the quarter ended June 30, 2012 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Christopher P. Schnittker, CPA, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Christopher P. Schnittker                                                                                

Christopher P. Schnittker, CPA

Chief Financial Officer and Treasurer

(Principal Financial Officer)

August 9, 2012

XML

WARRANTS (Details) (USD $)	Jun. 30, 2012
Warrants
Total outstanding warrants accounted for as derivative warrant liability	516,587
Weighted average exercise price	$ 1.18
Weighted average time to expiration in years	5 months 23 days
Grantedtoplacementagentsinprivateplacement1Member
Warrants
Number of Shares Exercisable	112,148
Exercise Price	$ 1.28
Date of Expiration Range Start	Jun. 15, 2012
Date of Expiration	Jul. 16, 2012
Grantedtofinancialinvestmentadvisor1Member
Warrants
Number of Shares Exercisable	3,000
Exercise Price	$ 1.38
Date of Expiration	Jul. 25, 2012
Grantedtofinancialadvisorinconnectionwithanacquisition1Member
Warrants
Number of Shares Exercisable	61,625
Exercise Price	$ 1.75
Date of Expiration	Sep. 14, 2012
Grantedtofinancialinvestmentadvisor2Member
Warrants
Number of Shares Exercisable	7,500
Exercise Price	$ 1.3
Date of Expiration	Nov. 02, 2013
Grantedtoinvestorsinprivateplacement1Member
Warrants
Number of Shares Exercisable	154,990
Exercise Price	$ 0.5
Date of Expiration	Nov. 02, 2013
Grantedtoinvestorsinprivateplacement2Member
Warrants
Number of Shares Exercisable	177,324
Exercise Price	$ 1.5
Date of Expiration	Mar. 24, 2013

XML

STOCK OPTIONS AND RESTRICTED STOCK (Details) (USD $)	6 Months Ended
	Jun. 30, 2012
Shares Available For Issuance
Total reserved for stock options and restricted stock	$ 1,369,000
Add back options cancelled before exercise	(4,257,437)
Outstanding Options and Restricted Stock
Options exercised	(233,666)
Ending Balance	1,334,844
Plan2003Member
Shares Available For Issuance
Total reserved for stock options and restricted stock	1,600,000
Net restricted stock issued net of cancellations	(161,250)
Stock options granted	(1,544,491)
Add back options cancelled before exercise	678,491
Options cancelled by plan vote
Remaining shares available for future grants	572,750
Outstanding Options and Restricted Stock
Total granted	1,544,491
Cancelled restricted stock
Options cancelled	(678,491)
Options exercised	(352,000)
Net shares outstanding before restricted stock	514,000
Net restricted stock issued net of cancellations	161,250
Plan2008Member
Shares Available For Issuance
Total reserved for stock options and restricted stock	10,000,000
Net restricted stock issued net of cancellations	(2,208,406)
Stock options granted	(2,275,000)
Add back options cancelled before exercise	375,000
Options cancelled by plan vote
Remaining shares available for future grants	5,891,594
Outstanding Options and Restricted Stock
Total granted	2,275,000
Cancelled restricted stock
Options cancelled	(375,000)
Options exercised	(130,000)
Net shares outstanding before restricted stock	1,770,000
Net restricted stock issued net of cancellations	2,208,406
NotPursuanttoaPlanMember
Outstanding Options and Restricted Stock
Total granted	3,100,000
Cancelled restricted stock
Options cancelled	$ (1,383,334)
Options exercised	(666,666)
Net shares outstanding before restricted stock	1,050,000
Net restricted stock issued net of cancellations	284,844

XML

CASH AND CASH EQUIVALENTS (Details Narrative) (USD $)	Jun. 30, 2012
Cash And Cash Equivalents
Cash and cash equivalents	$ 3,100,000
Insurance coverage	$ 250,000

XML

Warrants (Details Narrative)	6 Months Ended
	Jun. 30, 2012
Warrants
Shares of Common Stock issued upon the exercise of warrants	118,500

XML

STOCK OPTIONS AND RESTRICTED STOCK (Details Narrative) (USD $)	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Dec. 31, 2011
Stock Options And Restricted Stock
Common Stock outstanding	38,836,022
Maximum authorized shares	150,000,000		150,000,000
Additional paid-in capital and non-cash compensation expense	$ 407,000	$ 287,000
Weighted-average grant-date fair value of stock options granted	$ 1.84
Share-based compensation expense	407,000	287,000
Total unrecognized compensation expense	$ 2,537,000
Plan2003Member
Stock Options And Restricted Stock
Common Stock outstanding	514,000
Restricted shares of Common Stock issued and options to purchase an aggregate	161,250
Maximum authorized shares	1,600,000
Shares Future grants	560,000
Plan2008Member
Stock Options And Restricted Stock
Restricted shares of Common Stock issued and options to purchase an aggregate	3,978,406
Maximum authorized shares	10,000,000
Shares Future grants	5,891,594

XML

OPERATING LEASE COMMITMENTS

6 Months Ended

Jun. 30, 2012

Notes to Financial Statements

Note 4. OPERATING LEASE COMMITMENTS

The Company leases approximately 13,000 square feet of manufacturing, laboratory and office space in a single facility located in Franklin, Massachusetts under a lease expiring March 31, 2014. Beginning June 1, 2012, a lease amendment increased the total space to 37,050 square feet and extended the expiration date to October 31, 2017.

The Company also leases approximately 5,400 square feet of corporate office space in a single facility located in Philadelphia, Pennsylvania under a lease expiring April 30, 2014. Beginning June 1, 2012, a lease amendment increased the total space to 7,861 square feet and extended the expiration date to May 31, 2017.

Future minimum lease payments for each of the next 5 years under these operating leases are as follows:

	Franklin		Philadelphia		Total
For the period ending December 31,
2012	$	209,000	$	90,000	$	299,000
2013		424,000		183,000		607,000
2014		434,000		187,000		621,000
2015		444,000		192,000		636,000
2016		454,000		196,000		650,000
Total	$	1,965,000	$	848,000	$	2,813,000

The Company’s facilities lease expense was approximately $74,000 and $53,000 for the three months ended June 30, 2012 and 2011, respectively, and $151,000 and $86,000 for the six months ended June 30, 2012 and 2011, respectively.

XML

LICENSING AND OTHER REVENUE (Details Narrative) (USD $)	3 Months Ended
	Jun. 30, 2012	Jun. 30, 2011
Licensing And Other Revenue Details Narrative
Received a licensing fee	$ 500,000
Non refundable license revenue	62,000	43,000
Deferred revenue unrecognized	$ 124,000

XML

DERIVATIVE WARRANT LIABILITY (Details) (USD $)	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011
DERIVATIVE WARRANT LIABILITY
Beginning balance	$ 1,035,337	$ 1,544,996
Total unrealized losses included in net loss		2,191,147
Total realized losses included in net loss		978,678
Total unrealized gains included in net loss	(539,648)	(17,917)
Total realized gains included in net loss	(61,633)
Reclassification of derivative warrant liability	(41,520)	(2,170,726)
Ending balance	$ 392,536	$ 2,526,178

XML

OPERATING LEASE COMMITMENTS (Details Narrative) (USD $)	3 Months Ended	6 Months Ended
	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012 ManufacturinglaboratoryandofficespaceMember sqft	May 31, 2017 CorporateofficespaceMember sqft	Jun. 30, 2012 CorporateofficespaceMember sqft	Jun. 30, 2012 ManufacturinglaboratoryandofficespacemMember sqft
Operating Lease Commitments
Company leases				13,000		5,400
Lease amendment					7,861		37,050
Facilities lease expense	$ 53,000	$ 74,000	$ 86,000
Office lease expiry date				Mar. 31, 2014	May 31, 2017	Apr. 30, 2014	Oct. 31, 2017

XML

LITIGATION (Details Narrative) (USD $)	Dec. 20, 2011	Sep. 30, 2011
Litigation Details Narrative
Accrued settlement liability		$ 400,000
outstanding settlement accrued liability	290,000
settlement payment	$ 125,000
shares of restricted Common Stock	100,000

XML

DERIVATIVE WARRANT LIABILITY (Details Narrative) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012
Derivative Warrant Liability Details Narrative
Outstanding warrants			$ 7,527,529		$ 7,268,974
Derivative financial instruments	516,587		516,587
Fair value of derivative instruments on recurring basis	393,000		393,000
Derivative Warrant Liability Gain	370,000		602,000
Derivative Warrant Liability Loss		122,000		3,152,000
Exercised warrants Shares			0.96	602,693
Reclassification of Derivative Warrant Liability to Additional Paid-in Capital			$ 42,000	$ 2,171,000

XML

PREFERRED STOCK (Details Narrative)	Jun. 30, 2012	Dec. 31, 2011
Class of Stock [Line Items]
Authorized Preferred Stock	40,000,000
SeriesCPreferredStock [Member]
Class of Stock [Line Items]
Authorized Preferred Stock	10,000	10,000
Issued and outstanding	9,974.185	9,974.185
SeriesDPreferredStock [Member]
Class of Stock [Line Items]
Authorized Preferred Stock	3,600,000	3,600,000
Issued and outstanding	3,006,000	3,006,000

XML

INTANGIBLE ASSETS

6 Months Ended

Jun. 30, 2012

Notes to Financial Statements

Note 3. INTANGIBLE ASSETS

The Company’s intangible assets are related to the acquisition of assets from Durham Pharmaceuticals Ltd. in 2007 and are summarized as follows:

				June 30, 2012				December 31, 2011
	Estimated				Accumulated
	Life		Cost		Amortization		Net		Net
Contract related intangible asset:
Cato Research discounted contract	3 years	$	355,000	$	355,000	$	—	$	—
Technology related intangible assets:
Patents for the AzoneTS-based product candidates and formulation	6 years		1,305,000		—		1,305,000		1,305,000
Drug Master Files containing formulation, clinical and safety documentation used by the FDA	6 years		1,500,000		—		1,500,000		1,500,000
In-process pharmaceutical products for 2 indications	6 years		6,820,000		—		6,820,000		6,820,000
Total technology related intangible assets			9,625,000		—		9,625,000		9,625,000
Intangible assets, net		$	9,980,000	$	355,000	$	9,625,000	$	9,625,000

Intangible assets related to technology are expected to be amortized on a straight-line basis over the period ending 2019, when the underlying patents expire, and will commence upon revenue generation which the Company estimates may occur as early as 2013. The contract related intangible asset was amortized over a three year period which ended in 2010.

XML

COMMON STOCK (Details Narrative) (USD $)	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Dec. 31, 2011
Common Stock Details Narrative
Common stock, shares authorized	150,000,000		150,000,000
Common stock, Shares issued	39,615,344
Common stock, shares outstanding	38,543,944		38,543,944
Shares issued to vendors in exchange of services	28,666	100,000
Value of shares issued to vendors in exchange of services	$ 50,299	$ 339,000

XML

WARRANTS (Details 1) (USD $)	Jun. 30, 2012
Warrants
Total Warrants Outstanding	7,268,974
Total Weighted average exercise price	$ 1.95
Total Weighted average time to expiration in years	10 months 20 days
Grantedtoinvestorsinprivateplacementofpreferredstock1Member
Warrants
Number of Shares Exercisable	32,249
Exercise Price	$ 1
Date of Expiration	Sep. 30, 2013
Grantedtoinvestorsinprivateplacementofpreferredstock2Member
Warrants
Number of Shares Exercisable	198,333
Exercise Price	$ 1.5
Date of Expiration	Oct. 28, 2013
Grantedtoinvestorsinprivateplacementofpreferredstock3Member
Warrants
Number of Shares Exercisable	390,000
Exercise Price	$ 0.75
Date of Expiration	Feb. 28, 2014
Grantedtovendor1Member
Warrants
Number of Shares Exercisable	60,000
Exercise Price	$ 0.6
Date of Expiration	Mar. 15, 2014
Grantedtoinvestorsinprivateplacement1Member
Warrants
Number of Shares Exercisable	400,000
Exercise Price	$ 1.59
Date of Expiration	Jun. 30, 2014
Grantedtoinvestorsinprivateplacement2Member
Warrants
Number of Shares Exercisable	768,000
Exercise Price	$ 2
Date of Expiration	Nov. 13, 2014
Grantedtoinvestorsinprivateplacement3Member
Warrants
Number of Shares Exercisable	256,906
Exercise Price	$ 1.5
Date of Expiration	Nov. 13, 2014
Grantedtovendor2Member
Warrants
Number of Shares Exercisable	50,000
Exercise Price	$ 2
Date of Expiration	Dec. 01, 2012
Grantedtoinvestorsinprivateplacement4Member
Warrants
Number of Shares Exercisable	63,000
Exercise Price	$ 2
Date of Expiration	Dec. 03, 2014
Grantedtoinvestorsinprivateplacement5Member
Warrants
Number of Shares Exercisable	341,325
Exercise Price	$ 2.25
Date of Expiration	Feb. 09, 2015
Grantedtoplacementagentsinprivateplacement1Member
Warrants
Number of Shares Exercisable	28,500
Exercise Price	$ 2.25
Date of Expiration	Feb. 09, 2015
Grantedtoinvestorinprivateplacement6Member
Warrants
Number of Shares Exercisable	6,375
Exercise Price	$ 2.25
Date of Expiration	Mar. 18, 2015
Grantedtofinancialinvestmentadvisor1Member
Warrants
Number of Shares Exercisable	100,000
Exercise Price	$ 1.5
Date of Expiration	Feb. 10, 2013
Grantedtofinancialinvestmentadvisor2Member
Warrants
Number of Shares Exercisable	10,367
Exercise Price	$ 2
Date of Expiration	Mar. 03, 2013
Grantedtoinvestorsinprivateplacement7Member
Warrants
Number of Shares Exercisable	187,500
Exercise Price	$ 1.5
Date of Expiration	Nov. 05, 2012
Grantedtoinvestorsinprivateplacement8Member
Warrants
Number of Shares Exercisable	187,500
Exercise Price	$ 2.5
Date of Expiration	Nov. 05, 2012
Grantedtoplacementagentinprivateplacement2Member
Warrants
Number of Shares Exercisable	5,000
Exercise Price	$ 1.5
Date of Expiration	Nov. 05, 2012
Grantedtoplacementagentinprivateplacement3Member
Warrants
Number of Shares Exercisable	5,000
Exercise Price	$ 2.5
Date of Expiration	Nov. 05, 2012
Grantedtoinvestorsinprivateplacement9Member
Warrants
Number of Shares Exercisable	35,000
Exercise Price	$ 1.5
Date of Expiration	Nov. 26, 2012
Grantedtoinvestorsinprivateplacement10Member
Warrants
Number of Shares Exercisable	35,000
Exercise Price	$ 2.5
Date of Expiration	Nov. 26, 2012
Grantedtoinvestorsinprivateplacement11Member
Warrants
Number of Shares Exercisable	495,000
Exercise Price	$ 1.5
Date of Expiration	Dec. 29, 2012
Grantedtoinvestorsinprivateplacement12Member
Warrants
Number of Shares Exercisable	512,500
Exercise Price	$ 2.5
Date of Expiration	Dec. 29, 2012
Grantedtoplacementagentinprivateplacement4Member
Warrants
Number of Shares Exercisable	30,000
Exercise Price	$ 1.5
Date of Expiration	Dec. 29, 2012
Grantedtoplacementagentinprivateplacement5Member
Warrants
Number of Shares Exercisable	30,000
Exercise Price	$ 2.5
Date of Expiration	Dec. 29, 2012
Grantedtoinvestorsinprivateplacement13Member
Warrants
Number of Shares Exercisable	245,750
Exercise Price	$ 1.5
Date of Expiration	Jan. 04, 2013
Grantedtoinvestorsinprivateplacement14Member
Warrants
Number of Shares Exercisable	245,750
Exercise Price	$ 2.5
Date of Expiration	Jan. 04, 2013
Grantedtoplacementagentinprivateplacement6Member
Warrants
Number of Shares Exercisable	18,125
Exercise Price	$ 1.5
Date of Expiration	Jan. 04, 2013
Grantedtoplacementagentinprivateplacement7Member
Warrants
Number of Shares Exercisable	18,125
Exercise Price	$ 2.5
Date of Expiration	Jan. 04, 2013
Grantedtoinvestorsinprivateplacement15Member
Warrants
Number of Shares Exercisable	255,000
Exercise Price	$ 1.5
Date of Expiration	Feb. 03, 2013
Grantedtoinvestorsinprivateplacement16Member
Warrants
Number of Shares Exercisable	280,000
Exercise Price	$ 2.5
Date of Expiration	Feb. 03, 2013
Grantedtoplacementagentinprivateplacement8Member
Warrants
Number of Shares Exercisable	1,250
Exercise Price	$ 1.5
Date of Expiration	Feb. 03, 2013
Grantedtoplacementagentinprivateplacement9Member
Warrants
Number of Shares Exercisable	1,250
Exercise Price	$ 2.5
Date of Expiration	Feb. 03, 2013
Grantedtoinvestorsinprivateplacement17Member
Warrants
Number of Shares Exercisable	250,000
Exercise Price	$ 1.5
Date of Expiration	Feb. 08, 2013
Grantedtoinvestorsinprivateplacement18Member
Warrants
Number of Shares Exercisable	250,000
Exercise Price	$ 2.5
Date of Expiration	Feb. 08, 2013
Grantedtoinvestorsinprivateplacement19Member
Warrants
Number of Shares Exercisable	959,582
Exercise Price	$ 3
Date of Expiration	Dec. 07, 2014
TotaloutstandingwarrantsaccountedforasequityMember
Warrants
Number of Shares Exercisable	6,752,387
WeightedaverageexercisepriceMember
Warrants
Exercise Price	$ 2
WeightedaveragetimetoexpirationinyearsMember
Warrants
Expiration period	11 months 1 day

XML

Consolidated Balance Sheets (USD $)	Jun. 30, 2012	Dec. 31, 2011
Current Assets:
Cash and cash equivalents	$ 3,111,342	$ 8,995,571
Cash restricted pursuant to letters of credit	407,463	250,000
Accounts receivable	3,552	37,065
Stock subscriptions receivable		6,667
Prepaid expenses and other current assets	218,409	274,208
Total current assets	3,740,766	9,563,511
Property and Equipment, at cost:
Computer equipment	332,287	298,290
Office and laboratory equipment (including assets under capitalized leases)	689,077	624,817
Furniture and fixtures	169,581	186,837
Manufacturing equipment	341,620	156,435
Leasehold improvements	187,264	187,264
Property and equipment, at cost	1,719,829	1,453,643
Less-Accumulated depreciation and amortization	(1,156,232)	(1,135,912)
Net property and equipment (including assets under capitalized leases)	563,597	317,731
Other Assets:
Intangible assets, net of accumulated amortization	9,625,000	9,625,000
Deposits and other assets	10,816	20,565
Total other assets	9,635,816	9,645,565
Total assets	13,940,179	19,526,807
Current Liabilities:
Accounts payable	683,672	365,298
Deferred revenue	123,721	123,708
Current portion of notes payable and capital lease obligation, net of discounts	2,405	2,288
Derivative warrant liability	392,536	1,035,337
Accrued expenses and other liabilities	742,979	965,832
Total current liabilities	1,945,313	2,492,463
Notes Payable and capital lease obligation, net of current portion and discounts	2,656	3,888
Deferred revenue, net of current portion		61,867
Total liabilities	1,947,969	2,558,218
Series C, $0.01 par value, authorized 10,000 shares, issued and outstanding 9,974.185 shares at June 30, 2012 and December 31, 2011	100	100
Series D, $0.01 par value, authorized 3,600,000 shares, issued and outstanding 3,006,000 shares at June 30, 2012 and December 31, 2011 (preference in liquidation of $3,006,000 at June 30, 2012)	30,060	30,060
Common Stock, $0.01 par value, authorized 150,000,000 shares, issued and outstanding 39,615,344 and 38,543,944 shares at June 30, 2012 and December 31, 2011, respectively	396,156	385,442
Additional paid-in capital	99,276,015	98,116,327
Common stock subscribed for but not paid for or issued, 0 and 33,333 shares at June 30, 2012 and December 31, 2011, respectively		6,667
Accumulated deficit	(87,710,121)	(81,570,007)
Total stockholders' equity	11,992,210	16,968,589
Total liabilities and stockholders' equity	$ 13,940,179	$ 19,526,807

XML

SUBSEQUENT EVENTS (Details) (Non-revolving draw credit facility [Member], USD $)	6 Months Ended
	Jun. 30, 2012
Non-revolving draw credit facility [Member]
Related Party Transaction [Line Items]
Non-revolving draw credit facility initial aggregate principal amount	$ 5,000,000
Term of the credit facility	5 years
Draw Credit Maximum Amount available, additional increase	3,000,000
Increment in amount maximum	20,000,000
Interest rate on credit draw	10.00%
Issuance of warrants to purchase common stock	$ 4,000,000
exercise price	$ 2.0
Subsequent event description	In addition, for each $1,000,000 draw, the Company will issue Montaur a warrant to purchase 1,000,000 shares of Common Stock, with a term of five years and an exercise price equal to the lesser of: (a) 150% of the market price of the Common Stock at the time of the draw (but in no event less than $2.00 per share), or (b) $4.00 per share.

XML

ORGANIZATION AND BASIS OF PRESENTATION

6 Months Ended

Jun. 30, 2012

Notes to Financial Statements

Note 1. ORGANIZATION AND BASIS OF PRESENTATION

Echo Therapeutics, Inc. (the “Company”) is a transdermal medical device company with significant expertise in advanced skin permeation technology that is primarily focused on continuous glucose monitoring and needle-free drug delivery. The Company is developing its Prelude® SkinPrep System (“Prelude”) as a platform technology to allow for significantly enhanced and painless skin permeation that will enable two important applications:

· analyte extraction, with the Symphony® tCGM System (“Symphony”) for needle-free, continuous glucose monitoring for use in hospital critical care units and for people with diabetes; and

· enhanced needle-free drug delivery.

The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Sontra Medical, Inc., a Delaware corporation. All significant intercompany balances and transactions have been eliminated in consolidation.

The accompanying unaudited consolidated financial statements have been prepared in conformity with generally accepted accounting principles (“GAAP”) in the United States consistent with those applied in, and should be read in conjunction with, the Company’s audited consolidated financial statements and related footnotes for the year ended December 31, 2011 included in the Company’s Annual Report on Form 10-K as filed with the United States Securities and Exchange Commission (“SEC”) on March 15, 2012. These unaudited consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, which are, in the opinion of management, necessary for a fair presentation of the Company’s financial position as of June 30, 2012 and its results of operations and cash flows for the interim periods presented and are not necessarily indicative of results for subsequent interim periods or for the full year. The interim financial statements do not include all of the information and footnotes required by GAAP for complete financial statements and allowed by the relevant SEC rules and regulations; however, the Company believes that its disclosures are adequate to ensure that the information presented is not misleading. Certain amounts in prior periods have been reclassified to conform to current presentation.

The accompanying consolidated financial statements have been prepared on a basis assuming that the Company is a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As of June 30, 2012, the Company had cash of approximately $3,111,000, working capital of approximately $1,795,000 and an accumulated deficit of approximately $87,710,000. We will require additional capital to fund our product development, research, manufacturing and clinical programs in accordance with our current projected level of operations. The Company has funded its operations in the past primarily through debt and equity issuances. Management intends to pursue additional financing to fund its operations. Although management believes that it will be successful in securing additional financing, no assurances can be given as to the success of these plans or that such capital will be available to the Company in sufficient amounts to meet its operating cash needs or on terms acceptable to the Company. The consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.

XML

STOCK OPTIONS AND RESTRICTED STOCK (Details 2) (USD $)	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011
Shares
Beginning Balance	3,395,103
Granted	430,000
Exercised	(233,666)
Forfeited or expired	(4,257,437)
Ending Balance	3,334,000
Exercisable at March 31, 2012	2,112,830
Beginning Balance	$ 1.68
Granted	1.84
Exercised	0.96	602,693
Forfeited or expired	$ 4.58
Ending Balance	$ 1.53
Exercisable at March 31, 2012	$ 0.91
Weighted-Average Remaining Contractual Term
Beginning Balance	7 years 3 months 18 days
Ending Balance	6 years 1 month 6 days
Aggregate Intrinsic Value
Beginning Balance	$ 1,866,200
Ending Balance	$ 1,861,033

XML

STOCK OPTIONS AND RESTRICTED STOCK (Tables)

3 Months Ended

Jun. 30, 2012

Stock Options And Restricted Stock Tables

Share based compensation options

	Stock Option Plans
	2003 Plan			2008 Plan
Shares Available For Issuance
Total reserved for stock options and restricted stock		1,600,000			10,000,000
Net restricted stock issued net of cancellations		(161,250	)		(2,208,406	)
Stock options granted		(1,544,491	)		(2,275,000	)
Add back options cancelled before exercise		678,491			375,000
Options cancelled by plan vote		—			—
Remaining shares available for future grants		572,750			5,891,594

							Not Pursuant to a Plan
Total granted	1,544,491			2,275,000			3,100,000
Less:  Restricted stock cancelled		—			—			—
Options cancelled		(678,491	)		(375,000	)		(1,383,334	)
Options exercised		(352,000	)		(130,000	)		(666,666	)
Net shares outstanding before restricted stock		514,000			1,770,000			1,050,000
Net restricted stock issued net of cancellations		161,250			2,208,406			284,844
Outstanding shares at March 31, 2012		675,250			3,978,406			1,334,844

Assumption used for stock option granted

The assumptions used principally for stock options granted to employees and members of the Company’s Board of Directors in the six months ended June 30, 2012 and 2011 were as follows:

	2012	2011
Risk-free interest rate	0.94% — 2.05%	2.43% — 3.47%
Expected dividend yield	—	—
Expected term	6.5 years	6.0— 6.5 years
Forfeiture rate (excluding fully vested stock options)	15%	0% — 15%
Expected volatility	131% — 137%	140% — 142%

A summary of stock option activity as of and for thesix months endedJune 30, 2012 is as follows:

Stock Options	Shares	Weighted- Average Exercise Price	Weighted- Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at January 1, 2012	3,395,103	$        1.68
Granted	430,000	1.84
Exercised	(233,666)	0.96
Forfeited or expired	(257,437)	4.58
Outstanding at June 30, 2012	3,334,000	$        1.53	7.3 years	$ 1,866,200
Exercisable at June 30,2012	2,112,830	$        0.91	6.1 years	$ 1,861,033

Share based compensation restricted stock

A summary of the Company’s nonvested restricted stock activity as of and for the six months ended June 30, 2012, is as follows:

Restricted Stock	Shares			Weighted- Average Grant-Date Fair Value
Nonvested at January 1, 2012		1,819,594		$	1.72
Granted this period		703,656			1.95
Grants made in prior periods, now becoming restricted		220,000			0.92
Vested		(110,000	)		2.24
Forfeited		—			—
Nonvested at June 30, 2012		2,633,250		$	1.78

XML

STOCK OPTIONS AND RESTRICTED STOCK (Details 3) (USD $)	6 Months Ended
	Jun. 30, 2012
Shares
Nonvested at January 1, 2012	1,819,594
Granted this period	703,656
Grants made in prior periods, now becoming restricted	220,000
Vested	(110,000)
Forfeited
Nonvested at March 31, 2012	2,633,250
Nonvested at January 1, 2012	$ 1.72
Granted this period	$ 1.95
Grants made in prior periods, now becoming restricted	$ 0.92
Vested	$ 2.24
Forfeited
Nonvested at March 31, 2012	$ 1.78

XML

ORGANIZATION AND BASIS OF PRESENTATION (Details Narrative) (USD $)	Jun. 30, 2012
Organization And Basis Of Presentation
Cash	$ 3,111,000
Working capital	1,795,000
Accumulated deficit	$ 87,710,000

XML

CASH AND CASH EQUIVALENTS

6 Months Ended

Jun. 30, 2012

Notes to Financial Statements

Note 2. CASH AND CASH EQUIVALENTS

As of June 30, 2012, the Company held approximately $3,100,000 in cash and cash equivalents. The Company’s cash equivalents consist solely of bank money market funds. From time to time, the Company may have cash balances in excess of federal insurance limits. The Company has never experienced any previous losses related to these balances. All of the Company’s non-interest bearing cash balances were fully insured at June 30, 2012 due to a temporary federal program in effect from December 31, 2010 through December 31, 2012. Under the program, there is no limit on the amount of insurance for eligible accounts. Beginning in 2013, insurance coverage will revert to $250,000 per depositor at each financial institution and non-interest bearing cash balances may again exceed federally insured limits.

XML

Consolidated Balance Sheets (Parenthetical) (USD $)	Jun. 30, 2012	Dec. 31, 2011
Stockholders' Equity:
Convertible Preferred Stock: Series C, par value	0.01	0.01
Convertible Preferred Stock:Series C, authorized	10,000	10,000
Convertible Preferred Stock:Series C, outstanding	9,974.185	9,974.185
Convertible Preferred Stock:Series C, Share Issued	9,974.185	9,974.185
Convertible Preferred Stock:Series D, par value	$ 0.01	$ 0.01
Convertible Preferred Stock:Series D, authorized	3,600,000	3,600,000
Convertible Preferred Stock:Series D, outstanding	3,006,000	3,006,000
Convertible Preferred Stock:Series D, Share Issued	3,006,000	3,006,000
Convertible Preferred Stock:Series D,preference in liquidation	3,006,000	3,006,000
Common stock, par value	$ 0.01	$ 0.01
Common stock, authorized	150,000,000	150,000,000
Common stock, outstanding	38,543,944	38,543,944
Common stock, Share Issued	39,615,344

XML

SUBSEQUENT EVENTS

6 Months Ended

Jun. 30, 2012

Notes to Financial Statements

Note 12. SUBSEQUENT EVENTS

Financing Arrangement with Platinum-Montaur Life Sciences LLC

On August 8, 2012, the Company and Platinum-Montaur Life Sciences LLC, a Delaware limited liability company (“Montaur”) signed a commitment letter (the “Commitment Letter”) pursuant to which Montaur agreed to make a non-revolving draw credit facility available to the Company in an initial aggregate principal amount of $5,000,000 (the “Draw Credit Maximum Amount”). The term of the credit facility will be five years from the date of closing (the “Maturity Date”). Pursuant to the terms of the Commitment Letter, the Company may make an aggregate principal amount of draws which do not exceed the Draw Credit Maximum Amount. The Company may not re-borrow the amount of any repaid draw. The Draw Credit Maximum Amount available pursuant to the Loan Agreement will increase in additional $3,000,000 increments, in an amount not to exceed $20,000,000, upon the occurrence of certain regulatory and clinical study milestones. The principal balance of each draw will bear interest from the applicable draw date at a rate equal to 10.0% per annum. Interest payable by the Company will compound monthly.  The Company will make interest-only payments on the principal amount due in connection with each draw on the first business day of each month until the Maturity Date. The Company will have the right to permanently prepay any draw, in whole or in part.

On closing, the Company will issue Montaur a warrant to purchase 4,000,000 shares of Common Stock, with an exercise price of $2.00 per share and a term of five years.  In addition, for each $1,000,000 draw, the Company will issue Montaur a warrant to purchase 1,000,000 shares of Common Stock, with a term of five years and an exercise price equal to the lesser of: (a) 150% of the market price of the Common Stock at the time of the draw (but in no event less than $2.00 per share), or (b) $4.00 per share.

XML

Document and Entity Information (USD $)	6 Months Ended
	Jun. 30, 2012	Aug. 07, 2012
Document And Entity Information
Entity Registrant Name	Echo Therapeutics, Inc.
Entity Central Index Key	0001031927
Document Type	10-Q
Document Period End Date	Jun. 30, 2012
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Is Entity a Well-known Seasoned Issuer?	No
Is Entity a Voluntary Filer?	No
Is Entity's Reporting Status Current?	Yes
Entity Filer Category	Accelerated Filer
Entity Public Float		$ 39,838
Entity Common Stock, Shares Outstanding		39,838,586
Document Fiscal Period Focus	Q2
Document Fiscal Year Focus	2012

XML

ORGANIZATION AND BASIS OF PRESENTATION (Policies)

3 Months Ended

Jun. 30, 2012

Organization And Basis Of Presentation Policies

ORGANIZATION AND BASIS OF PRESENTATION

Echo Therapeutics, Inc. (the “Company”) is atransdermal medical device company with significant expertise in advanced skin permeation technology that is primarily focused on continuous glucose monitoring and needle-free drug delivery. The Company is developing its Prelude® SkinPrep System (“Prelude”) as a platform technology to allow for significantly enhanced and painless skin permeation that will enable two important applications:

· analyte extraction, with the Symphony® tCGM System(“Symphony”) for needle-free, continuous glucose monitoring for use in hospital critical care units and for people with diabetes; and

· enhanced needle-free drug delivery.

The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Sontra Medical, Inc., a Delaware corporation. All significant intercompany balances and transactions have been eliminated in consolidation.

The accompanying unaudited consolidated financial statements have been prepared in conformity with generally accepted accounting principles (“GAAP”) in the United States consistent with those applied in, and should be read in conjunction with, the Company’s audited consolidated financial statements and related footnotes for the year ended December 31, 2011 included in the Company’s Annual Report on Form 10-K as filed with the United States Securities and Exchange Commission (“SEC”) on March 15, 2012. These unaudited consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, which are, in the opinion of management, necessary for a fair presentation of the Company’s financial position as of June 30, 2012 and its results of operations and cash flows for the interim periods presented and are not necessarily indicative of results for subsequent interim periods or for the full year. The interim financial statements do not include all of the information and footnotes required by GAAP for complete financial statements and allowed by the relevant SEC rules and regulations; however, the Company believes that its disclosures are adequate to ensure that the information presented is not misleading.Certain amounts in prior periods have been reclassified to conform to current presentation.

 The accompanying consolidated financial statements have been prepared on a basis assuming that the Company is a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As of June 30, 2012, the Company had cash of approximately $3,111,000, working capital of approximately $1,795,000 and an accumulated deficit of approximately $87,710,000. We will require additional capital to fund our product development, research, manufacturing and clinical programs in accordance with our current projected level of operations. The Company has funded its operations in the past primarily through debt and equity issuances. Management intends to pursue additional financing to fund its operations. Although management believes that it will be successful in securing additional financing, no assurances can be given as to the success of these plans or that such capital will be available to the Company in sufficient amounts to meet its operating cash needs or on terms acceptable to the Company. The consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.

XML

Consolidated Statements of Operations (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Income Statement [Abstract]
Licensing revenue	$ 30,927	$ 121,455	$ 61,854	$ 242,910
Other revenue		37,065		145,152
Total revenues	30,927	158,520	61,854	388,062
Operating Expenses:
Research and development	2,200,307	996,149	3,591,952	1,862,099
Selling, general and administrative	1,334,852	978,150	3,194,256	1,900,265
Total operating expenses	3,535,159	1,974,299	6,786,208	3,762,364
Loss from operations	(3,504,232)	(1,815,779)	(6,724,354)	(3,374,302)
Other Income (Expense):
Interest income	1,556	1,210	4,515	3,289
Interest expense	(134)	(604)	(284)	(13,354)
Loss on extinguishment of debt/payables				(1,514)
Gain (loss) on disposals of assets	(21,272)	(2,531)	(21,272)	834
Derivative warrant liability gain (loss)	369,738	(122,011)	601,281	(3,151,908)
Other income (expense), net	349,888	(123,936)	584,240	(3,162,653)
Net loss	(3,154,344)	(1,939,715)	(6,140,114)	(6,536,955)
Deemed dividend on beneficial conversion feature of Series D Convertible Preferred Stock				(1,975,211)
Accretion of dividends on Convertible Perpetual Redeemable Preferred Stock		(47,558)		(93,242)
Net loss applicable to common shareholders	$ (3,154,344)	$ (1,987,273)	$ (6,140,114)	$ (8,605,408)
Net loss per common share, basic and diluted	$ (0.08)	$ (0.06)	$ (0.16)	$ (0.26)
Basic and diluted weighted average common shares outstanding	39,160,643	33,911,459	38,951,809	33,277,823

XML

COMMON STOCK

6 Months Ended

Jun. 30, 2012

Notes to Financial Statements

Note 7. COMMON STOCK

The Company has authorized 150,000,000 shares of Common Stock, of which 39,615,344 and 38,543,944 shares were issued and outstanding as of June 30, 2012 and December 31, 2011, respectively.

Stock Issued in Exchange for Services

During the six months ended June 30, 2012 and 2011, the Company issued 28,666 and 100,000 shares, respectively, of Common Stock with a fair value of $50,299 and $339,000, respectively, to vendors in exchange for their services. Expenses associated with these transactions were included in Selling, General and Administrative Expenses in the Consolidated Statements of Operations.

XML

PREFERRED STOCK

6 Months Ended

Jun. 30, 2012

Notes to Financial Statements

Note 6. PREFERRED STOCK

The Company is authorized to issue up to 40,000,000 shares of preferred stock with such rights, preferences and privileges as are determined by the Board of Directors.

Series C Convertible Preferred Stock

The Company has authorized 10,000 shares of Series C Preferred Stock (the “Series C Stock”), of which 9,974.185 shares were issued and outstanding as of June 30, 2012 and December 31, 2011.

Series D Convertible Preferred Stock

The Company has authorized 3,600,000 shares of Series D Preferred Stock (the “Series D Stock”), of which 3,006,000 shares were issued and outstanding as of June 30, 2012 and December 31, 2011.

XML

WARRANTS (Tables)

3 Months Ended

Jun. 30, 2012

Warrants Tables

Outstanding Warrants

At June 30, 2012, the Company had the following outstanding warrants:

	Number of Shares Exercisable		Exercise Price		Date of Expiration
Outstanding warrants accounted for as derivative warrant liability:
Granted to investors and placement agent in private placement		112,148	$	1.28	7/16/2012
Granted to financial investment advisor		3,000		1.38	7/25/2012
Granted to financial advisor in connection with an acquisition		61,625		1.75	9/14/2012
Granted to financial investment advisor		7,500		1.30	2/11/2013
Granted to investors in private placement		154,990		0.50	2/11/2013
Granted to investors in private placement		177,324		1.50	3/24/2013
Total outstanding warrants accounted for as derivative warrant liability		516,587
Weighted average exercise price			$	1.18
Weighted average time to expiration in years					0.48years
Outstanding warrants accounted for as equity:
Granted to investors in private placement of preferred stock		32,249	$	1.00	9/30/2013
Granted to investors in private placement of preferred stock		198,333		1.50	10/28/2013
Granted to investors in private placement of preferred stock		390,000		0.75	2/28/2014
Granted to vendor		60,000		0.60	3/15/2014
Granted to investors in private placement		400,000		1.59	6/30/2014
Granted to investors in private placement		768,000		2.00	11/13/2014
Granted to placement agent in private placement		256,906		1.50	11/13/2014
Granted to vendor		50,000		2.00	12/1/2012
Granted to investors in private placement		63,000		2.00	12/3/2014
Granted to investors in private placement		341,325		2.25	2/9/2015
Granted to placement agents in private placement		28,500		2.25	2/9/2015
Granted to investor in private placement		6,375		2.25	3/18/2015
Granted to financial investment advisor		100,000		1.50	2/10/2013
Granted to financial investment advisor		10,367		2.00	3/3/2013
Granted to investors in private placement		187,500		1.50	11/5/2012
Granted to investors in private placement		187,500		2.50	11/5/2012
Granted to placement agent in private placement		5,000		1.50	11/5/2012
Granted to placement agent in private placement		5,000		2.50	11/5/2012
Granted to investors in private placement		35,000		1.50	11/26/2012
Granted to investors in private placement		35,000		2.50	11/26/2012
Granted to investors in private placement		495,000		1.50	12/29/2012
Granted to investors in private placement		512,500		2.50	12/29/2012
Granted to placement agent in private placement		30,000		1.50	12/29/2012
Granted to placement agent in private placement		30,000		2.50	12/29/2012
Granted to investors in private placement		245,750		1.50	1/4/2013
Granted to investors in private placement		245,750		2.50	1/4/2013
Granted to placement agent in private placement		18,125		1.50	1/4/2013
Granted to placement agent in private placement		18,125		2.50	1/4/2013
Granted to investors in private placement		255,000		1.50	2/3/2013
Granted to investors in private placement		280,000		2.50	2/3/2013
Granted to placement agent in private placement		1,250		1.50	2/3/2013
Granted to placement agent in private placement		1,250		2.50	2/3/2013
Granted to investors in private placement		250,000		1.50	2/8/2013
Granted to investors in private placement		250,000		2.50	2/8/2013
Granted to investors in private placement		959,582		3.00	12/7/2014
Total outstanding warrants accounted for as equity		6,752,387
Weighted average exercise price			$	2.00
Weighted average time to expiration in years					0.92 years
Totals for all warrants outstanding:
Total		7,268,974
Weighted average exercise price			$	1.95
Weighted average time to expiration in years					0.89 years

A summary of warrant activity for the six months ended June 30, 2012 is as follows:

Warrants	Shares			Weighted- Average Exercise Price
Outstanding at January 1, 2012		7,527,529		$	1.92
Granted		—			—
Exercised		(118,500	)		1.28
Forfeited or expired		(140,055	)		1.07
Outstanding at June 30, 2012		7,268,974		$	1.95

XML

INTANGIBLE ASSETS (Tables)

3 Months Ended

Jun. 30, 2012

Intangible Assets Tables

INTANGIBLE ASSETS

The Company’s intangible assets are related to the acquisition of assets from Durham Pharmaceuticals Ltd. in 2007 and are summarized as follows:

					June 30, 2012				December 31, 2011
	Estimated				Accumulated
	Life		Cost		Amortization		Net		Net
Contract related intangible asset:
Cato Research discounted contract		3 years	$	355,000	$	355,000	$	—	$	—
Technology related intangible assets:
Patents for the AzoneTS-based product candidates and formulation		6 years		1,305,000		—		1,305,000		1,305,000
Drug Master Files containing formulation, clinical and safety documentation used by the FDA		6 years		1,500,000		—		1,500,000		1,500,000
In-process pharmaceuticalproducts for 2 indications		6 years		6,820,000		—		6,820,000		6,820,000
Total technology related intangible assets				9,625,000		—		9,625,000		9,625,000
Intangible assets, net			$	9,980,000	$	355,000	$	9,625,000	$	9,625,000

XML

LICENSING AND OTHER REVENUE

6 Months Ended

Jun. 30, 2012

Notes to Financial Statements

Note 10. LICENSING AND OTHER REVENUE

In 2009, the Company entered into a License Agreement with Handok Pharmaceuticals Co., Ltd. (“Handok”) pursuant to which the Company granted Handok a license to develop, use, market, sell and import Symphony for continuous glucose monitoring for use by medical facilities and/or individual consumers in South Korea (the “Handok License”). The Handok License has a minimum term of 10 years from the date of the first commercial sale of Symphony in South Korea.

The Company received a licensing fee of approximately $500,000 upon execution of the Handok License as well as future milestone payments and royalties. The Company recognizes the upfront, nonrefundable payments as revenue on a straight-line basis over the contractual or estimated performance period. During the six months ended June 30, 2012 and 2011, the Company recorded approximately $62,000 and $243,000, respectively, of nonrefundable license revenue. As of June 30, 2012, approximately $124,000 of deferred revenue remains unrecognized, which is recognizable over the next 12 months and shown as Deferred Revenue amongst current liabilities on the Consolidated Balance Sheet.

XML

STOCK OPTIONS AND RESTRICTED STOCK

6 Months Ended

Jun. 30, 2012

Notes to Financial Statements

Note 8. STOCK OPTIONS AND RESTRICTED STOCK

In March 2003, the Company’s shareholders approved its 2003 Stock Option and Incentive Plan (the “2003 Plan”). Pursuant to the 2003 Plan, the Company’s Board of Directors (or its committees and/or executive officers delegated by the Board of Directors) may grant incentive and nonqualified stock options, restricted stock, and other stock-based awards to the Company’s employees, officers, directors, consultants and advisors. As of June 30, 2012, the maximum aggregate number of shares that may be authorized for issuance under the 2003 Plan for all periods is 1,600,000 shares. As of June 30, 2012, there were 161,250 restricted shares of Common Stock issued and options to purchase an aggregate of 514,000 shares of Common Stock outstanding under the 2003 Plan and 560,000 shares available for future grants.

In May 2008, the Company’s shareholders approved the 2008 Equity Compensation Plan (the “2008 Plan”). The 2008 Plan provides for grants of incentive stock options to employees and nonqualified stock options and restricted stock to employees, consultants and non-employee directors of the Company. In July 2010, the Company’s shareholders approved an amendment to the 2008 Plan to increase the maximum number of shares of Common Stock available under the Plan by 2,000,000 shares to 4,700,000 shares. In June 2012, the Company’s shareholders approved an amendment to the 2008 Plan to increase the maximum number of shares available under the Plan by 5,300,000 shares to 10,000,000 shares. As of June 30, 2012, there were restricted shares of Common Stock issued and options to purchase an aggregate of 3,978,406 shares of Common Stock outstanding under the 2008 Plan and 5,891,594 shares available for future grants.

	Stock Option Plans
	2003 Plan		2008 Plan
Shares Available For Issuance
Total reserved for stock options and restricted stock	1,600,000		10,000,000
Net restricted stock issued net of cancellations	(161,250	)	(2,208,406	)
Stock options granted	(1,544,491	)	(2,275,000	)
Add back options cancelled before exercise	678,491		375,000
Options cancelled by plan vote	—		—
Remaining shares available for future grants	572,750		5,891,594
	Not Pursuant to a Plan
Total granted	1,544,491		2,275,000		3,100,000
Less:  Restricted stock cancelled	—		—		—
Options cancelled	(678,491	)	(375,000	)	(1,383,334	)
Options exercised	(352,000	)	(130,000	)	(666,666	)
Net shares outstanding before restricted stock	514,000		1,770,000		1,050,000
Net restricted stock issued net of cancellations	161,250		2,208,406		284,844
Outstanding shares at March 31, 2012	675,250		3,978,406		1,334,844

Share-Based Compensation – Options 

For stock options issued and outstanding during the six months ended June 30, 2012 and 2011, the Company recorded additional paid-in capital and non-cash compensation expense of approximately $407,000 and $287,000, respectively, each net of estimated forfeitures.

The fair value of each stock option award is estimated on the date of grant using the Black-Scholes option pricing model with certain assumptions noted below. Expected volatilities are based on historical volatility of the Common Stock using historical periods consistent with the expected term of the options. The Company uses historical data, as well as subsequent events occurring prior to the issuance of the financial statements, to estimate option exercise and employee termination and forfeitures within the valuation model. The expected term of stock options granted under the Company’s stock plans is based on the average of the contractual term (generally 10 years) and the vesting period (generally 24 to 42 months). The risk-free rate is based on the yield of a U.S. Treasury security with a term consistent with the option.

The assumptions used principally for stock options granted to employees and members of the Company’s Board of Directors in the six months ended June 30, 2012 and 2011 were as follows:

	2012			2011
Risk-free interest rate		0.94% — 2.05%			2.43% — 3.47%
Expected dividend yield		—			—
Expected term		6.5 years			6.0 — 6.5 years
Forfeiture rate (excluding fully vested stock options)		15	%		0% — 15%
Expected volatility		131% — 137%			140% — 142%

A summary of stock option activity as of and for the six months ended June 30, 2012 is as follows:

Stock Options	Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at January 1, 2012		3,395,103		$	1.68
Granted		430,000			1.84
Exercised		(233,666	)		0.96
Forfeited or expired		(257,437	)		4.58
Outstanding at June 30, 2012		3,334,000		$	1.53	7.3 years	$	1,866,200
Exercisable at June 30, 2012		2,112,830		$	0.91	6.1 years	$	1,861,033

The weighted-average grant-date fair value of stock options granted during the six months ended June 30, 2012 was $1.84 per share. Share-based compensation expense recognized in the six months ended June 30, 2012 and 2011 was approximately $407,000 and $287,000, respectively. As of June 30, 2012, there was approximately $2,537,000 of total unrecognized compensation expense related to non-vested share-based option compensation arrangements. With the exception of the unrecognized share-based compensation related to certain restricted stock grants to officers and employees that contain performance conditions related to United States Food and Drug Administration (“FDA”) approval for Symphony or the sale of substantially all of the stock or assets of the Company (see Restricted Stock section below), unrecognized compensation is expected to be recognized over the next four years.

Share-Based Compensation – Restricted Stock

During the six months ended June 30, 2012, the Company granted an aggregate of 703,656 restricted shares of Common Stock to certain officers, employees, directors and consultants of the Company. The grants were issued pursuant to the 2008 Plan. The grant date fair value of these restricted stock grants was approximately $1,369,000.

A summary of the Company’s nonvested restricted stock activity as of and for the six months ended June 30, 2012, is as follows:

Restricted Stock	Shares			Weighted- Average Grant-Date Fair Value
Nonvested at January 1, 2012		1,819,594		$	1.72
Granted this period		703,656			1.95
Grants made in prior periods, now becoming restricted		220,000			0.92
Vested		(110,000	)		2.24
Forfeited		—			—
Nonvested at June 30, 2012		2,633,250		$	1.78

Among the 2,633,250 shares of non-vested restricted stock, the various vesting criteria include the following:

· 1,679,594 shares of restricted stock vest upon the FDA approval of Symphony or the sale of the Company;

· 220,000 shares of restricted stock vest upon the sale of the Company; and

· 733,656 shares of restricted stock vest over one to four years, at each of the anniversary dates of the grants.

As of June 30, 2012, there was approximately $1,368,000 of total unrecognized compensation expense related to non-vested share-based restricted stock arrangements granted pursuant to the Company’s equity compensation plans that vest over time in the forseeable future. As of June 30, 2012, the Company cannot estimate the timing of completion of performance vesting requirements required by certain of these restricted stock grant arrangements. Compensation expense related to these restricted share grants will be recognized when the Company concludes that achievement of the performance vesting conditions is probable.

XML

WARRANTS

6 Months Ended

Jun. 30, 2012

Notes to Financial Statements

Note 9. WARRANTS

At June 30, 2012, the Company had the following outstanding warrants:

	Number of Shares Exercisable		Exercise Price		Date of Expiration
Outstanding warrants accounted for as derivative warrant liability:
Granted to investors and placement agent in private placement		112,148	$	1.28	7/16/2012
Granted to financial investment advisor		3,000		1.38	7/25/2012
Granted to financial advisor in connection with an acquisition		61,625		1.75	9/14/2012
Granted to financial investment advisor		7,500		1.30	2/11/2013
Granted to investors in private placement		154,990		0.50	2/11/2013
Granted to investors in private placement		177,324		1.50	3/24/2013
Total outstanding warrants accounted for as derivative warrant liability		516,587
Weighted average exercise price			$	1.18
Weighted average time to expiration in years					0.48 years
Outstanding warrants accounted for as equity:
Granted to investors in private placement of preferred stock		32,249	$	1.00	9/30/2013
Granted to investors in private placement of preferred stock		198,333		1.50	10/28/2013
Granted to investors in private placement of preferred stock		390,000		0.75	2/28/2014
Granted to vendor		60,000		0.60	3/15/2014
Granted to investors in private placement		400,000		1.59	6/30/2014
Granted to investors in private placement		768,000		2.00	11/13/2014
Granted to placement agent in private placement		256,906		1.50	11/13/2014
Granted to vendor		50,000		2.00	12/1/2012
Granted to investors in private placement		63,000		2.00	12/3/2014
Granted to investors in private placement		341,325		2.25	2/9/2015
Granted to placement agents in private placement		28,500		2.25	2/9/2015
Granted to investor in private placement		6,375		2.25	3/18/2015
Granted to financial investment advisor		100,000		1.50	2/10/2013
Granted to financial investment advisor		10,367		2.00	3/3/2013
Granted to investors in private placement		187,500		1.50	11/5/2012
Granted to investors in private placement		187,500		2.50	11/5/2012
Granted to placement agent in private placement		5,000		1.50	11/5/2012
Granted to placement agent in private placement		5,000		2.50	11/5/2012
Granted to investors in private placement		35,000		1.50	11/26/2012
Granted to investors in private placement		35,000		2.50	11/26/2012
Granted to investors in private placement		495,000		1.50	12/29/2012
Granted to investors in private placement		512,500		2.50	12/29/2012
Granted to placement agent in private placement		30,000		1.50	12/29/2012
Granted to placement agent in private placement		30,000		2.50	12/29/2012
Granted to investors in private placement		245,750		1.50	1/4/2013
Granted to investors in private placement		245,750		2.50	1/4/2013
Granted to placement agent in private placement		18,125		1.50	1/4/2013
Granted to placement agent in private placement		18,125		2.50	1/4/2013
Granted to investors in private placement		255,000		1.50	2/3/2013
Granted to investors in private placement		280,000		2.50	2/3/2013
Granted to placement agent in private placement		1,250		1.50	2/3/2013
Granted to placement agent in private placement		1,250		2.50	2/3/2013
Granted to investors in private placement		250,000		1.50	2/8/2013
Granted to investors in private placement		250,000		2.50	2/8/2013
Granted to investors in private placement		959,582		3.00	12/7/2014
Total outstanding warrants accounted for as equity		6,752,387
Weighted average exercise price			$	2.00
Weighted average time to expiration in years					0.92 years
Totals for all warrants outstanding:
Total		7,268,974
Weighted average exercise price			$	1.95
Weighted average time to expiration in years					0.89 years

A summary of warrant activity for the six months ended June 30, 2012 is as follows:

Warrants	Shares			Weighted- Average Exercise Price
Outstanding at January 1, 2012	7,527,529		$	1.92
Granted	—			—
Exercised	(118,500	)		1.28
Forfeited or expired	(140,055	)		1.07
Outstanding at June 30, 2012	7,268,974		$	1.95

Exercise of Common Stock Warrants

During the six months ended June 30, 2012, the Company issued 118,500 shares of Common Stock upon the exercise of warrants.

XML

LITIGATION

6 Months Ended

Jun. 30, 2012

Notes to Financial Statements

Note 11. LITIGATION

Harry G. Mitchell, the former Chief Operating Officer of the Company, resigned from that position in June 2011. On August 25, 2011, Mr. Mitchell filed a complaint in the Norfolk County Superior Court in Massachusetts against the Company and its Chief Executive Officer, Patrick T. Mooney, claiming, among other things, that he resigned for good reason (as defined under his employment agreement) and was therefore entitled to certain benefits and also to certain payments under state wage payment statutes. Mr. Mitchell sought compensatory damages, an award of attorneys’ fees and costs and other relief. The Company responded to the complaint by serving a partial motion to dismiss on September 28, 2011. The Company had accrued approximately $400,000 in settlement liability as of September 30, 2011 with respect to this matter, reflecting the Company’s best estimate then of probable loss exposure.

On December 20, 2011, the Company and Dr. Mooney entered into a Settlement and Release Agreement (the “Settlement Agreement”) with Mr. Mitchell in order to enable the Company’s senior management team to focus its full attention on product development and business operations. In accordance with the Settlement Agreement, the Company agreed to (i) pay Mr. Mitchell a settlement payment in the gross amount of $125,000, to be paid in installments over a three month period, (ii) pay Mr. Mitchell’s full monthly COBRA premium for six months, and (iii) fully vest 100,000 shares of restricted Common Stock (the “Shares”) held by Mr. Mitchell. The Shares vested in January 2012, the date when the Company received confirmation of Mr. Mitchell’s dismissal of his lawsuit, and resulted in an outstanding settlement accrued liability relating to the settlement of $290,000, representing the then fair value of the Common Stock to be issued, in the Company’s consolidated balance sheet as of December 31, 2011. As of June 30, 2012, this matter has been completely resolved.

When the Shares were issued in January 2012, the accrued liability was largely satisfied and $82,000 of the previously recorded share-based compensation was reversed in that period due to a decline in the market value of the underlying Common Stock.

XML

STOCK OPTIONS AND RESTRICTED STOCK (Details 1)	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011
STOCK OPTIONS AND RESTRICTED STOCK
Risk-free interest rate	0.94%	2.43%
Risk-free interest rate	2.05%	3.47%
Expected term, minimum		6 years
Expected term, maximum	6 years 6 months	6 years 6 months
Forfeiture rate (excluding fully vested stock options)		0.00%
Forfeiture rate (excluding fully vested stock options)	15.00%	15.00%
Expected volatility	131.00%	140.00%
Expected volatility	137.00%	142.00%

XML

DERIVATIVE WARRANT LIABILITY (Tables)

3 Months Ended

Jun. 30, 2012

Derivative Warrant Liability Tables

Derivative warrant liability

The table below presents the changes in the derivative warrant liability for the six months ended June 30, 2012 and 2011:

	2012			2011
Derivative warrant liability as of January 1	$	1,035,337		$	1,544,996
Total unrealized losses included in net loss (1)		—			2,191,147
Total realized losses included in net loss (1)		—			978,678
Total unrealized gains included in net loss (1)		(539,648	)		(17,917	)
Total realized gains included in net loss (1)		(61,6333	)		—
Reclassification of derivative warrant liability to additional paid-in capital for derivative warrants exercised		(41,520	)		(2,170,726	)
Derivative warrant liability as of June 30	$	392,536		$	2,526,178

XML

INTANGIBLE ASSETS (Details) (USD $)	Jun. 30, 2012	Dec. 31, 2011
Finite-Lived Intangible Assets [Line Items]
Cost	$ 9,980,000
Accumulated Amortization	355,000
Total	9,625,000	9,625,000
ResearchMember
Finite-Lived Intangible Assets [Line Items]
Estimated Life	3 years
Cost	355,000
Accumulated Amortization	355,000
Total
PatentsMember
Finite-Lived Intangible Assets [Line Items]
Estimated Life	6 years
Cost	1,305,000
Accumulated Amortization
Total	1,305,000
DrugMember
Finite-Lived Intangible Assets [Line Items]
Estimated Life	6 years
Cost	1,500,000
Accumulated Amortization
Total	1,500,000
PharmaceuticalMember
Finite-Lived Intangible Assets [Line Items]
Estimated Life	6 years
Cost	6,820,000
Accumulated Amortization
Total	6,820,000
PatentedTechnologyMember
Finite-Lived Intangible Assets [Line Items]
Cost	9,625,000
Accumulated Amortization
Total	9,625,000
IntangibleassetsMember
Finite-Lived Intangible Assets [Line Items]
Cost	9,980,000
Accumulated Amortization	355,000
Total	$ 9,625,000

XML

WARRANTS (Details 2) (USD $)	6 Months Ended
	Jun. 30, 2012
Warrants Details 2
Beginning Balance	7,527,529
Granted
Exercised	(118,500)
Forfeited or expired	(140,055)
Ending Balance	7,268,974
Weighted-Average Exercise Price
Beginning Balance	$ 1.92
Granted
Exercised	1.28
Forfeited or expired	1.07
Ending Balance	$ 1.95

XML

Consolidated Statements of Cash Flows (USD $)	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011
Cash Flows From Operating Activities:
Net loss	$ (6,140,114)	$ (6,536,955)
Depreciation and amortization	43,757	14,200
Share-based compensation, net	436,056	286,508
Fair value of common stock and warrants issued for services	50,299	380,763
Derivative warrant liability (gain) loss	(601,281)	3,151,908
Non-cash (gain) loss on extinguishment of debt		1,514
Non-cash interest expense		12,159
Non-cash loss on disposal of assets	21,272	2,731
Accounts receivable	33,513	104,423
Stock subscriptions receivable		285,000
Prepaid expenses and other current assets	55,799	(83,602)
Deposits and other assets	9,749	(10,566)
Accounts payable	318,374	(175,345)
Deferred revenue	(61,854)	(242,910)
Accrued expenses and other liabilities	67,147	207,238
Net cash used in operating activities	(5,767,283)	(2,602,934)
Cash Flows from Investing Activities:
Purchase of property and equipment	(310,895)	(249,127)
Increase in restricted cash	(157,463)	(128,250)
Net cash provided by (used in) investing activities	(468,358)	(377,377)
Cash Flows From Financing Activities:
Proceeds from the exercise of warrants	151,680	576,224
Proceeds from issuance of common stock and warrants, net of issuance costs	6,667	794,761
Principal payments for capital lease obligations	(1,115)	(1,009)
Proceeds from issuance of Series D Convertible Preferred Stock and warrants, net of issuance costs		2,478,702
Proceeds from bridge notes		1,000,000
Repayment of bridge notes		(75,000)
Proceeds from exercise of stock options	194,180	64,250
Net cash provided by financing activities	351,412	4,837,928
Net increase (decrease) in cash and cash equivalents	(5,884,229)	1,857,617
Cash and cash equivalents, beginning of period	8,995,571	1,342,044
Cash and cash equivalents, end of period	3,111,342	3,199,661
Supplemental Disclosure of Cash Flow Information and Non Cash Financing Transactions:
Cash paid for interest	284	1,196
Accretion of dividend on Series B Perpetual Redeemable Preferred Stock		93,242
Deemed dividend on beneficial conversion of Series D Convertible Preferred Stock		1,975,211
Issuance of common stock in settlement of short term note		25,000
Conversion of notes payable and accrued interest into Series D Convertible Preferred Stock		1,006,000
Reclassification of derivative warrant liability to additional paid-in capital	41,520	2,170,727
Fair value of warrants issued to investor relations services		173,000
Fair value of common stock issued for short-term note extension		10,500
Fair value of warrants issued to financial advisors as financing costs		41,363
Fair value of common stock issued in connection with settlement agreement	208,000
Cancellation of restricted common stock		$ 5,250

XML

DERIVATIVE WARRANT LIABILITY

6 Months Ended

Jun. 30, 2012

Notes to Financial Statements

Note 5. DERIVATIVE WARRANT LIABILITY

At June 30, 2012 and December 31, 2011, the Company had outstanding warrants to purchase 7,268,974 and 7,527,529 shares of its Common Stock, respectively. Included in these outstanding warrants at June 30, 2012 are warrants to purchase 516,587 shares that are considered to be derivative financial instruments because the warrant agreements contain “down round” provisions whereby the number of shares covered by the warrants is subject to change in the event of certain future dilutive stock issuances. The fair value of these derivative instruments at June 30, 2012 was approximately $393,000, is considered Level 3 under the fair value hierarchy on a recurring basis, and is included in Derivative Warrant Liability, a current liability, in the Consolidated Balance Sheet. Changes in fair value of the derivative financial instruments are recognized in the Consolidated Statement of Operations as a Derivative Warrant Liability Gain or Loss. The Derivative Warrant Liability Gain for the three and six months ended June 30, 2012 was approximately $370,000 and $602,000, respectively. The Derivative Warrant Liability Loss for the three and six months ended June 30, 2011 was approximately $122,000 and $3,152,000, respectively.

The derivative warrant liability represents the risk exposure pertaining to the warrants and is based on the fair value of the underlying common stock and the gain or loss on the derivative warrant liability is a result of the change in fair value of the underlying common stock. For the six months ended June 30, 2012, holders exercised warrants with “down round” provisions to purchase 118,500 shares, which resulted in a reclassification of approximately $42,000 from the Derivative Warrant Liability to Additional Paid-in Capital. For the six months ended June 30, 2011, holders exercised warrants with “down round” provisions to purchase 602,693 shares, which resulted in a reclassification of approximately $2,171,000 from the Derivative Liability to Additional Paid-in Capital.

The table below presents the changes in the derivative warrant liability for the six months ended June 30, 2012 and 2011:

	2012			2011
Derivative warrant liability as of January 1	$	1,035,337		$	1,544,996
Total unrealized losses included in net loss (1)		—			2,191,147
Total realized losses included in net loss (1)		—			978,678
Total unrealized gains included in net loss (1)		(539,648	)		(17,917	)
Total realized gains included in net loss (1)		(61,633	)		—
Reclassification of derivative warrant liability to additional paid-in capital for derivative warrants exercised		(41,520	)		(2,170,726	)
Derivative warrant liability as of June 30	$	392,536		$	2,526,178
(1)Included in derivative warrant liability gain or loss in the Consolidated Statement of Operations.

XML

OPERATING LEASE COMMITMENTS (Details) (USD $)	Jun. 30, 2012
OPERATING LEASE COMMITMENTS
2012	$ 299,000
2013	607,000
2014	621,000
2015	636,000
2016	650,000
Total	2,813,000
FranklinMember
OPERATING LEASE COMMITMENTS
2012	209,000
2013	424,000
2014	434,000
2015	444,000
2016	454,000
Total	1,965,000
PhiladelphiaMember
OPERATING LEASE COMMITMENTS
2012	90,000
2013	183,000
2014	187,000
2015	192,000
2016	196,000
Total	$ 848,000

XML

STOCK OPTIONS AND RESTRICTED STOCK (Details Narrative 1) (USD $)	6 Months Ended
	Jun. 30, 2012
Stock Options And Restricted Stock
Aggregate restricted shares of Common Stock	703,656
Fair Value of restricted stock	$ 1,369,000
Outstanding Non Vested restricted stock grants	2,643,250
Total unrecognized compensation expense	$ 1,378,000

XML

OPERATING LEASE COMMITMENTS (Tables)

3 Months Ended

Jun. 30, 2012

Operating Lease Commitments Tables

Future minimum lease payments

Future minimum lease payments for each of the next 5 years under these operating leases are as follows:

		Franklin		Philadelphia		Total
For the period ending December 31,
	2012	$	209,000	$	90,000	$	299,000
	2013		424,000		183,000		607,000
	2014		434,000		187,000		621,000
	2015		444,000		192,000		636,000
	2016		454,000		196,000		650,000
	Total	$	1,965,000	$	848,000	$	2,813,000