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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 
 FORM 10-QSB
 
 þ
    
    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2007
 OR
 o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
 For the transition period from  to
 Commission file number
 
 ECHO THERAPEUTICS, INC.
 (Exact name of small business issuer as specified in its charter)
 
 Minnesota
    
    41-1649949(State or other jurisdiction of incorporation or organization)
    
    (IRS Employer Identification Number)10 Forge Parkway, Franklin, MA
    
    02038(Address of principal executive offices)
    
    (Zip Code)
 (508) 553-8850
(Issuers telephone number)
 Sontra Medical Corporation
(Former name, former address and former fiscal year, if changed since last report)
 
 þ o
 o þ
  o þ




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##### 



FORM 10-QSB INDEX
 PageNumberPART I. FINANCIAL INFORMATION
    
    2Item 1. Consolidated Financial Statements
    
    2Consolidated Balance Sheets as of September 30, 2007 (Unaudited) and December 31, 2006
    
    2Consolidated Statements of Operations for the Three and Nine Months Ended September
30, 2007 and 2006 (Unaudited)
    
    3Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2007
and 2006 (Unaudited)
    
    4Notes to Consolidated Financial Statements (Unaudited)
    
    5Item 2. Managements Discussion and Analysis or Plan of Operation
    
    13Item 3. Controls and Procedures
    
    33PART II. OTHER INFORMATION
    
    34Item 1. Legal Proceedings
    
    34Item 6. Exhibits
    
    34SIGNATURES
    
    35
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PART I. FINANCIAL INFORMATION
 
 Item 1. Consolidated Financial Statements
 Echo Therapeutics, Inc.
(Formerly Sontra Medical Corporation)
 
 Consolidated Balance Sheets
 As of,September 30,
    
    
    December 31,2007
    
    
    2006(Unaudited)Assets:Current Assets:Cash and cash equivalents
    
    $
    2,218,246
    
    
    $
    559,017Inventory, net of reserve for obsolescence
    
    
    
    
    
    
    1,556Prepaid expenses and other current assets
    
    
    74,484
    
    
    
    12,994Total current assets
    
    
    2,292,730
    
    
    
    573,567Property and Equipment, at cost:Computer equipment
    
    
    248,272
    
    
    
    245,694Office and laboratory equipment
    
    
    590,926
    
    
    
    590,926Furniture and fixtures
    
    
    14,288
    
    
    
    14,288Manufacturing equipment
    
    
    197,888
    
    
    
    197,888Leasehold improvements
    
    
    177,768
    
    
    
    177,7681,229,142
    
    
    
    1,226,564Less-Accumulated depreciation and amortization
    
    
    (1,105,441)
    
    
    
    (1,017,051
    )Net property and equipment
    
    
    123,701
    
    
    
    209,513Other Assets:Restricted cash
    
    
    10,250
    
    
    
    19,949Deposits and other assets
    
    
    2,000
    
    
    
    2,000Intangible assets, net
    
    
    10,420,000
    
    
    
    Total other assets
    
    
    10,432,250
    
    
    
    21,949Total assets
    
    $
    12,848,681
    
    
    $
    805,029LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Accounts payable
    
    $
    363,057
    
    
    $
    45,817Deferred revenue
    
    
    8,333
    
    
    
    45,833Current portion of notes payable, net of unamortized discount
    
    
    55,208
    
    
    
    89,808Accrued expenses
    
    
    488,650
    
    
    
    103,365Total current liabilities
    
    
    915,248
    
    
    
    284,823Notes Payable, net of current portion
    
    
    
    
    
    
    54,508CommitmentsStockholders EquitySeries A Convertible Preferred Stock, $0.01 par value, authorized 7,000,000 shares,
issued and outstanding no shares at September 30, 2007 and 73,334 shares
at December 31, 2006
    
    
    
    
    
    
    76,291Common stock, $0.01 par value, authorized 60,000,000 shares, issued and outstanding
17,707,679 shares at September 30, 2007 and 2,776,192 shares at December 31, 2006
    
    
    177,079
    
    
    
    27,762Additional paid-in capital
    
    
    56,494,899
    
    
    
    34,822,306Accumulated deficit
    
    
    (44,738,545
    )
    
    
    (34,460,661
    )Total stockholders equity
    
    
    11,933,433
    
    
    
    465,698Total liabilities and stockholders equity
    
    $
    12,848,681
    
    
    $
    805,029
 The accompanying notes are an integral part of these consolidated financial statements.
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Echo Therapeutics, Inc.
(Formerly Sontra Medical Corporation)
 
 Consolidated Statements of Operations
 (Unaudited)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Revenue:Product revenues
    
    $
    
    
    
    $
    10,679
    
    
    $
    12,120
    
    
    $
    37,619Licensing revenue
    
    
    12,500
    
    
    
    12,500
    
    
    
    37,500
    
    
    
    37,501Total revenue
    
    
    12,500
    
    
    
    23,179
    
    
    
    49,620
    
    
    
    75,120Operating Expenses:Cost of product revenue
    
    
    
    
    
    
    9,445
    
    
    
    1,556
    
    
    
    61,734Research and development
    
    
    323,078
    
    
    
    803,754
    
    
    
    923,172
    
    
    
    2,489,996Purchased research and development
    
    
    6,556,048
    
    
    
    
    
    
    
    6,556,048
    
    
    
    Selling, general and administrative
    
    
    1,767,587
    
    
    
    622,518
    
    
    
    2,812,002
    
    
    
    1,843,534Total operating expenses
    
    
    8,646,713
    
    
    
    1,435,717
    
    
    
    10,292,778
    
    
    
    4,395,264Loss from operations
    
    
    (8,634,213
    )
    
    
    (1,412,538
    )
    
    
    (10,243,158
    )
    
    
    (4,320,144
    )Other income (Expense):Interest income
    
    
    21,657
    
    
    
    28,604
    
    
    
    35,563
    
    
    
    109,687Interest expense
    
    
    (64,131
    )
    
    
    (4,469
    )
    
    
    (70,289
    )
    
    
    (14,439
    )Other income, net
    
    
    (42,474
    )
    
    
    24,135
    
    
    
    (34,726
    )
    
    
    95,248Net loss
    
    
    (8,676,687
    )
    
    
    (1,388,403
    )
    
    
    (10,277,884
    )
    
    
    (4,224,896
    )Accretion of dividend on Series A Convertible
Preferred Stock
    
    
    
    
    
    
    (1,479
    )
    
    
    (483
    )
    
    
    (4,389
    )Net loss applicable to common shareholders
    
    $
    (8,676,687
    )
    
    $
    (1,389,882
    )
    
    $
    (10,278,367
    )
    
    $
    (4,229,285
    )Net loss per common share, basic and diluted
    
    $
    (0.70
    )
    
    $
    (0.49
    )
    
    $
    (1.05
    )
    
    $
    (1.60
    )Basic and diluted weighted average common
shares outstanding
    
    
    12,438,201
    
    
    
    2,839,201
    
    
    
    9,771,183
    
    
    
    2,640,691
 The accompanying notes are an integral part of these consolidated financial statements.
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Echo Therapeutics, Inc.
(Formerly Sontra Medical Corporation)
 
 Consolidated Statements of Cash Flows
 (Unaudited)
 Nine Months EndedSeptember 30,2007
    
    
    2006Cash Flows From Operating Activities:Net loss
    
    $
    (10,277,884
    )
    
    $
    (4,224,896
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization
    
    
    88,390
    
    
    
    135,454Stock based compensation
    
    
    1,677,374
    
    
    
    159,295Purchased research and development
    
    
    6,556,048
    
    
    
    Interest expense  beneficial conversion feature on Senior Notes
    
    
    55,208
    
    
    
    Provision for excess or obsolete inventory
    
    
    
    
    
    
    6,000Changes in assets and liabilities:Accounts receivable
    
    
    
    
    
    
    1,085Inventory
    
    
    1,556
    
    
    
    (23,160
    )Prepaid expenses and other current assets
    
    
    (61,490
    )
    
    
    4,013Accounts payable
    
    
    282,065
    
    
    
    (56,427
    )Deferred revenue
    
    
    (37,500
    )
    
    
    (37,501
    )Accrued expenses
    
    
    56,128
    
    
    
    209,530Net cash used in operating activities
    
    
    (1,660,105
    )
    
    
    (3,826,607
    )Cash Flows from Investing Activities:Cash paid for Acquisition of Durham
    
    
    (60,000
    )
    
    
    Purchase of property and equipment
    
    
    (2,578
    )
    
    
    (106,598
    )Decrease in restricted cash
    
    
    9,699
    
    
    
    9,299Sales of short term investments
    
    
    
    
    
    
    2,000,000Net cash (used in) provided by investing activities
    
    
    (52,879
    )
    
    
    1,902,701Cash Flows From Financing ActivitiesRepurchase of Series A Preferred Stock
    
    
    (73,334
    )
    
    
    Proceeds from the sale of common stock, net of expenses
    
    
    2,233,326
    
    
    
    1,624,086Proceeds from exercise of warrants
    
    
    30,187
    
    
    
    Proceeds from the exercise of stock options
    
    
    1,350
    
    
    
    Proceeds from Senior Promissory Bridge Notes
    
    
    1,325,000
    
    
    
    Payments on equipment note payable
    
    
    (144,316
    )
    
    
    (39,715
    )Net cash provided by financing activities
    
    
    3,372,213
    
    
    
    1,584,371Net Increase in Cash and Cash Equivalents
    
    
    1,659,229
    
    
    
    (339,535
    )Cash and Cash Equivalents, beginning of period
    
    
    559,017
    
    
    
    1,016,792Cash and Cash Equivalents, end of period
    
    $
    2,218,246
    
    
    $
    677,257Supplemental Disclosure of Non Cash Transactions:Fair value of common stock issued for accrued 401(k) plan
contributions
    
    $
    
    
    
    $
    257,667Fair value of Common stock issued for Durham acquisition
    
    $
    15,562,500
    
    
    $
    Beneficial conversion feature on Senior Notes
    
    $
    1,325,000
    
    
    $
    Fair value of warrants issued for costs of Durham acquisition
    
    $
    989,215
    
    
    $
    Fair value of Common stock issued for equity financing costs
    
    $
    241,539
    
    
    $
    Deposits reclassified to property and equipment
    
    $
    
    
    
    $
    205,012
 The accompanying notes are an integral part of these consolidated financial statements.
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ECHO THERAPEUTICS, INC.
(Formerly Sontra Medical Corporation)
 
 Notes to Consolidated Financial Statements
 (Unaudited)
 (1) BASIS OF PRESENTATION
     (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
  Use of Estimates
  Intangible Assets, Amortization and Impairment
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Purchased Research and Development
   (3) ACQUISITION OF ETI
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Intangible assets subject to amortization:Contract-related
    
    $
    160,000Technology-related
    
    
    10,260,000Total intangible assets
    
    
    10,420,000Other current assets
    
    
    3,952Current liabilities
    
    
    (50,000
    )Net assets acquired
    
    
    10,373,952Purchased research and development
    
    
    6,556,048Total estimated preliminary purchase price
    
    $
    16,930,000
  EstimatedAmortizationYear
    
    
    
    Expense2008
    
    
    
    $
    54,0002009
    
    
    
    
    624,0002010
    
    
    
    
    1,193,0002011
    
    
    
    
    1,140,0002012
    
    
    
    
    1,140,000$
    4,151,000
  (4) NOTES PAYABLE
  2007
    
    
    2006Senior Notes:Senior notes payable
    
    $
    1,325,000
    
    
    $
    Unamortized discount on debt issued
    
    
    (1,269,792
    )
    
    
    Senior notes, net of unamortized discount
    
    
    55,208
    
    
    
    Equipment Note:Equipment note payable
    
    
    
    
    
    
    144,316Notes
payable, net of unamortized discount
    
    
    55,208
    
    
    
    144,316Less current portion of notes payable
    
    
    55,208
    
    
    
    89,808Notes Payable, net of current portion
    
    $
    
    
    
    $
    54,508
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Senior Notes
      Settlement Options
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Equipment Note Payable
  (5) COMMON STOCK
 ETI Acquisition
  Burnham Hill Partners Investment Banking and Financial Advisory Agreements
   Private Placement of Common Stock
    Legend Merchant Group Placement Agent and Financial Advisory Agreements
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(6) STOCK OPTION PLANS
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Share-Based Compensation
    2007
    
    2006Risk-free interest rate
    
    
    4.72%
    
    
    
    5.00%Expected dividend yield
    
    
    
    
    
    
    Expected term (employee grants)
    
    6 -6.75years
    
    
    6.75yearsForfeiture rate (excluding fully vested options)
    
    
    11%-36%
    
    
    
    6%Expected volatility
    
    
    118%-164%
    
    
    
    108%
  Weighted-Weighted-
    
    
    AverageAverage
    
    
    Remaining
    
    
    AggregateExercise
    
    
    Contractual
    
    
    IntrinsicOptions
    
    Shares
    
    
    Price
    
    
    Term
    
    
    ValueOutstanding at January 1, 2007
    
    
    275,974
    
    
    $
    16.02Granted
    
    
    1,977,500
    
    
    
    1.93Exercised
    
    
    (5,000
    )
    
    
    .27Forfeited or expired
    
    
    (187,203
    )
    
    
    15.22Outstanding at September 30, 2007
    
    
    2,061,271
    
    
    $
    2.62
    
    
    9.65 years
    
    $
    731,525Exercisable at September 30, 2007
    
    
    1,001,397
    
    
    $
    3.10
    
    
    9.40 years
    
    $
    519,935
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Weighted-AverageNonvested Shares
    
    Shares
    
    Grant-Date Fair ValueNonvested at January 1, 2007
    
    
    52,500
    
    
    $
    1.77Granted
    
    
    129,750
    
    
    
    1.85Vested
    
    
    (137,250
    )
    
    
    1.85Forfeited
    
    
    (28,125
    )
    
    
    1.77Nonvested at September 30, 2007
    
    
    16,875
    
    
    $
    1.77
   (7) BAYER AGREEMENT
  (8) SUBSEQUENT EVENT
 Form S-8 Registration Statement
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Item 2. Managements Discussion and Analysis or Plan of Operation
 Special Note Regarding Forward-Looking Statements
  Overview
 ®
   ® ®
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Strategic Acquisition of a Specialty Therapeutics Company
      
    
    Two leading-edge transdermal penetration platform technologies, with emphasis on
development and commercialization of improved formulations of well-established, FDA-approved
products in concert with a 505(b)(2) development and regulatory strategy and a next
generation wireless, needle-free CTGM system for the diabetes home
use and hospital intensive and critical care markets;
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
    
    Diverse, late-stage specialty therapeutics and diabetes management device pipeline with
one FDA-approved product, a next generation CTGM system utilizing the ultrasound technology
incorporated in that FDA-approved product, a therapeutic dermatology product candidate
covered by a pending NDA filed with the FDA, and ten (10) product development programs.;
    
    Flexible, strategic partnership with Cato Research to maximize development and regulatory
efficiencies; and,
    
    Scalable, growth-oriented business model to monetize our two transdermal technology
platforms.
 Preliminary Purchase Price Allocation
  Intangible assets subject to amortization:Contract-related
    
    $
    160,000Technology-related
    
    
    10,260,000Total intangible assets
    
    
    10,420,000Other current assets
    
    
    3,952Current liabilities
    
    
    (50,000
    )Net assets acquired
    
    
    10,373,952Purchased research and development
    
    
    6,556,048Total estimated preliminary purchase price
    
    $
    16,930,000
  EstimatedAmortizationYear
    
    Expense2008
    
    $
    54,0002009
    
    
    624,0002010
    
    
    1,193,0002011
    
    
    1,140,0002012
    
    
    1,140,000$
    4,151,000
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Results of Operations
  Comparison of the three months ended September 30, 2007 and 2006
 Licensing Revenue
  Product Revenue and Cost of Product Revenue
  Research and Development Expenses
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Purchased Research and Development Expenses
  Selling, General and Administrative Expenses
  Other Income (Expense)
   Comparison of the nine months ended September 30, 2007 and 2006
 Licensing Revenue
  Product Revenue and Cost of Product Revenue
 ® ®
 Research and Development Expenses
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Purchased Research and Development Expenses
  Selling, General and Administrative Expenses
  Other Income (Expense)
   Liquidity and Capital Resources
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
    
    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.
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Risk Factors
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We operate in a rapidly changing environment that involves a number of risks, some of which are
beyond our control. Forward-looking statements in this document and those made from time to time by
us through our senior management are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. Forward-looking statements concerning the expected future
revenues or earnings or concerning projected plans, performance, or development of products and
services, as well as other estimates related to future operations are necessarily only estimates of
future results and there can be no assurance that actual results will not materially differ from
expectations. Forward-looking statements represent managements current expectations and are
inherently uncertain. You should carefully consider the risks described below, in addition to the
other information in this report on Form 10-QSB and our report on Form 10-KSB for the year ended
December 31, 2006, before making an investment decision. Each of these risk factors could adversely
affect our business, financial condition, and operating results as well as adversely affect the
value of an investment in our Common Stock. We do not undertake any obligation to update any
forward-looking statements. Factors that could cause actual results to differ materially from
results anticipated in forward-looking statements include, but are not limited to, the following:
 If we fail to raise additional capital, we will be unable to continue our business.
 ®
  We have a history of operating losses, and we expect our operating losses to continue for the
foreseeable future and we may not continue as a going concern.
 ®
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Our principal shareholders own a significant percentage of our stock and will be able to exercise
significant influence.
  Our future success is dependent upon successful collaborations with strategic partners.
    
    
    such strategic partners are likely to be larger, better capitalized companies and
therefore have significant leverage in negotiating terms of such collaborative
arrangements;
    
    such collaborative arrangements could terminate upon the expiration of certain notice
periods;
    
    collaboration partners may insist on and obtain significant interests in our
intellectual property rights, for example, Bayer received an exclusive worldwide right and
license of our intellectual property rights to make, have made, use, import and sell a
continuous transdermal glucose monitoring system utilizing ultrasonic techniques;
    
    funding by collaborative partners may be dependent upon the satisfaction of certain
goals or milestones by certain specified dates, the realization or satisfaction of which
may be outside of our control, for example, our receipt of a future milestone payment from
Bayer is dependent on Bayers successful product development
efforts by December 31, 2007 and its desire to maintain such
exclusive rights, which may not occur;
    
    collaborative partners may retain a significant degree of discretion regarding the
timing of these activities and the amount and quality of financial, personnel and other
resources that they devote to these activities;
    
    disputes may arise between us and any future collaborative partner regarding their
respective rights and obligations under the collaborative arrangements, which may be
costly; and
    
    any future collaborative partner may not be able to satisfy its obligations under its
arrangement with us or may intentionally or unintentionally breach its obligations under
the arrangement.
 The trading price of our common stock entails additional regulatory requirements, which may
negatively affect such trading price.
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Our stock price has been volatile and may fluctuate in the future.
  
    
    our financial condition, performance and prospects;
    
    the depth and liquidity of the market for our common stock;
    
    our ability to enter into successful collaborative arrangements with strategic
partners for research and development, clinical testing, and sales and marketing;
    
    sales by selling shareholders of shares issued and issuable in connection with our
private placements in 2003, 2004, 2006 and 2007;
    
    investor perception of us and the industry in which we operate;
    
    general financial and other market conditions; and
    
    domestic and international economic conditions.
  Securities we issue to fund our operations could dilute or otherwise adversely affect our
shareholders.
  Anti-takeover effects of Minnesota law could discourage delay or prevent a change in control.
  Risks related to our discovery, development and commercialization of new medicines
 Our failure to commercialize Durhalieve and initiate and complete preclinical studies and clinical
trials for our other AzoneTS product candidates would adversely affect our business.
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Our results to date provide no basis for predicting whether any of our product candidates will be
safe or effective, or receive regulatory approval.
  We may not be able to gain market acceptance of our product candidates, which would prevent us from
becoming profitable.
  
    
    Our establishment and demonstration to the medical community of the clinical efficacy
and safety of our product candidates;
    
    Our ability to create products that are superior to alternatives currently on the
market; and
    
    Our ability to establish in the medical community the potential advantage of our
treatments over alternative treatment methods;
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We may not be able to manufacture our product candidates in clinical or commercial quantities,
which would prevent us from commercializing our product candidates .
  We may not be able to obtain and maintain the third party relationships that are necessary to
develop, commercialize and manufacture some or all of our product candidates.
     We have no experience in sales, marketing and distribution and may have to enter into agreements
with third parties to perform these functions, which could prevent us from successfully
commercializing our product candidates.
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We may fail to select or capitalize on the most scientifically, clinically or commercially
promising or profitable product candidates.
  If we are not able to retain our current senior management team and our scientific advisors or
continue to attract and retain qualified scientific, technical and business personnel, our business
will suffer.
   Disputes under key agreements or conflicts of interest with our scientific advisors or clinical
investigators could delay or prevent development or commercialization of our product candidates.
   We may encounter difficulties in managing our growth, which could adversely affect our operations.
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We may have challenges in managing our outside contractors for product and regulatory
accomplishments.
  Risks related to regulatory approvals
 None of our product candidates has received regulatory approvals. If we are unable to obtain
regulatory approvals to market one or more of our product candidates, our business will be
adversely affected.
   Our product candidates must undergo rigorous clinical trials and regulatory approvals, which could
delay or prevent commercialization of our product candidates.
  
    
    ongoing discussions with the FDA or comparable foreign authorities regarding the scope
or design of our clinical trials;
    
    delays or the inability to obtain required approvals from institutional review boards
or other governing entities at clinical sites selected for participation in our clinical
trials;
    
    delays in enrolling patients and volunteers into clinical trials;
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
    
    lower than anticipated retention rates of patients and volunteers in clinical trials;
    
    the need to repeat clinical trials as a result of inconclusive or negative results or
poorly executed testing;
    
    insufficient supply or deficient quality of product candidate materials or other
materials necessary to conduct our clinical trials;
    
    unfavorable FDA inspection and review of a clinical trial site or records of any
clinical or preclinical investigation;
    
    serious and unexpected drug-related side effects or adverse device effects experienced
by participants in our clinical trials; or
    
    the placement of a clinical hold on a trial.
   The regulatory approval process is costly and lengthy and we may not be able to successfully obtain
all required regulatory approvals.
  
    
    failure of our product candidates to meet a regulatory agencys requirements for
safety, efficacy and quality;
    
    limitation on the indicated uses for which a product may be marketed;
    
    unforeseen safety issues or side effects; and
    
    governmental or regulatory delays and changes in regulatory requirements and
guidelines.
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Even if we receive regulatory approvals for marketing our product candidates, if we fail to comply
with continuing regulatory requirements, we could lose our regulatory approvals, and our business
would be adversely affected.
  Even if we are able to obtain regulatory approvals for any of our product candidates, if they
exhibit harmful side effects after approval, our regulatory approvals could be revoked or otherwise
negatively impacted, and we could be subject to costly and damaging product liability claims.
  Failure to obtain regulatory and pricing approvals in foreign jurisdictions could delay or prevent
commercialization of our products abroad.
  Healthcare reform measures could adversely affect our business.
  New federal legislation may increase the pressure to reduce prices of pharmaceutical products paid
for by Medicare, which could adversely affect our revenues, if any.
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New federal laws or regulations on drug importation could make lower cost versions of our future
products available, which could adversely affect our revenues, if any.
    If we fail to obtain adequate reimbursement for our product candidates, the use of our
potential products could be severely limited.
  Risks related to our discovery, development and commercialization of biotechnology devices
 Our medical device products are based on new technologies and are in early stages of development,
and may not be successfully developed or achieve market acceptance.
 ® ®
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®
  Our future success may be dependent in part upon successful development of our continuous glucose
monitor for the hospital intensive care unit and critical care unit markets.
 ®
 Our potential markets are highly competitive and most participants are larger, better capitalized,
and more experienced than Echo.
 ®
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Risks related to the pharmaceutical industry
 Our competitors and potential competitors may develop products and technologies that are superior
to or more cost-effective than ours, which may impact the commercial viability of our technologies
and which may significantly damage our ability to sustain operations.
  We may have significant product liability exposure which may harm our business and our reputation.
  Risks related to our intellectual property.
 Our original intellectual property is owned by the Massachusetts Institute of Technology.
  We will need to protect our current intellectual property.
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We may be subject to litigation or other proceedings relating to our intellectual property rights.
  
 Item 3. Controls and Procedures
 Disclosure Controls and Procedures.
 Internal Control over Financial Reporting.
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PART II: OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 6. Exhibits
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SIGNATURES
  ECHO THERAPEUTICS, INC.Date: November 19, 2007
    By:

/s/ PATRICK T. MOONEY, MDPatrick T Mooney, MDChief Executive Officer By:

/s/ HARRY G. MITCHELLHarry G. MitchellChief Operating Officer and

Chief Financial Officer 35




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EXHIBIT INDEX
 10.1
    
    
    Form of Warrant to Purchase Shares of Common Stock31.1
    
    
    Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    
    Certification of the Chief Operating Officer and Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.32.1
    
    
    Certification of the Chief 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 Chief Operating Officer and Chief Financial Officer pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 36