**SECURITIES AND EXCHANGE COMMISSION**

             

**Washington, D.C. 20549**

**Form 10-Q**

**(Mark One)**

| **x** | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)                            Of**

**THE SECURITIES EXCHANGE ACT OF 1934**

**For the quarterly period ended June 30,                            2007** |
|-------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

**or**

| **o** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)                            OF**

**THE SECURITIES EXCHANGE ACT OF 1934**

**For the Transition Period from ____ to                            ____** |
|-------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

**Commission file number 0-13634**

**MACROCHEM CORPORATION**

(Exact name of registrant as specified in its charter)

 

| **Delaware**                                                    |   | **04-2744744**                        |
|-----------------------------------------------------------------|--------|---------------------------------------|
| (State or Other Jurisdiction

of Incorporation or Organization) |   | (I.R.S. Employer

Identification No.) |

             

**40            Washington Street, Suite 220, Wellesley Hills, Massachusetts 02481**

(Address of principal executive offices, Zip Code)

 

**781-489-7310**

(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 is a large accelerated            filer, an accelerated filer, or a non-accelerated filer. See definition of            “accelerated filer and large accelerated filer” in Rule 12b-2 of the            Exchange Act.

             

| Large                            accelerated filer |   | Accelerated filer |   | Non-accelerated filer | X |
|----------------------------------------------------|--------|-------------------|--------|-----------------------|---|

 

Indicate by check mark whether the Registrant is a shell company (as            defined in Rule 12b-2 of the Exchange Act).

| Yes |   |   | No | X |
|-----|--------|--------|----|---|

 

Indicate the number of shares outstanding of each of the issuer’s            classes of common stock, as of the latest practicable date.

 

| Class                        |   | Outstanding at July 18, 2007: |
|------------------------------|--------|-------------------------------|
| Common Stock, $.01 par value |   | 3,680,346                     |

 

 

1

INDEX TO FORM 10-Q

 

|                 |                                                                                                               | Page Number |
|-----------------|--------------------------------------------------------------------------------------------------------------------|-------------|
| PART I          | FINANCIAL INFORMATION                                                                                              |        |
| Item 1          | Financial Statements                                                                                               |        |
|            | Condensed Balance Sheets

June 30, 2007 (Unaudited) and December 31,                            2006               | 3           |
|            |  

Condensed Statements of Operations for the

Three and Six Months Ended June 30, 2007

and 2006 (Unaudited) | 4           |
|            |  

Condensed Statements of Cash Flows for the

Six Months Ended June 30, 2007

and 2006 (Unaudited)           | 5-6         |
|            | Notes to Unaudited Condensed Financial

Statements                                                                 | 7-16        |
| Item 2          | Management’s Discussion and Analysis of

Financial Condition and Results of Operations                       | 17-25       |
| Item 3          | Qualitative and Quantitative Disclosures about Market                            Risk                              | 26          |
| Item 4          | Controls and Procedures                                                                                            | 26          |
|  

PART II |  

OTHER INFORMATION                                                                                          |        |
| Item 1A         | Risk Factors                                                                                                       | 27          |
| Item 4          | Submission of Matters to a Vote of Security                            Holders                                     | 27          |
| Item 6          | Exhibits                                                                                                           | 28          |
| SIGNATURES      |                                                                                                               | 29          |
| EXHIBIT INDEX   |                                                                                                               | 30          |
|                 |                                                                                                                    |             |  |

 

 

2

**Item            1. Financial Statements**

 

MACROCHEM CORPORATION

CONDENSED BALANCE SHEETS

             

|                                                                                                                                                                                                                                                                                                                        |   | **June 30, 2007****(Unaudited)** |        |   | **December 31, 2006** |        |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------|-------------|--------|-----------------------|-------------|
| **ASSETS**                                                                                                                                                                                                                                                                                                                  |   |                             |        |   |                  |        |   |
| Current assets:                                                                                                                                                                                                                                                                                                             |   |                             |        |   |                  |        |   |
| Cash and cash equivalents                                                                                                                                                                                                                                                                                                   |   | $                                | 760,957     |   | $                     | 738,264     |   |
| Short-term investments                                                                                                                                                                                                                                                                                                      |   |                             | 2,108,869   |   |                  | 4,157,038   |   |
| Prepaid expenses and other current assets                                                                                                                                                                                                                                                                                   |   |                             | 231,652     |   |                  | 153,660     |   |
| Total current assets                                                                                                                                                                                                                                                                                                        |   |                             | 3,101,478   |   |                  | 5,048,962   |   |
|                                                                                                                                                                                                                                                                                                                        |   |                             |        |   |                  |        |   |
| Property and equipment, net                                                                                                                                                                                                                                                                                                 |   |                             | 29,375      |   |                  | 37,391      |   |
|                                                                                                                                                                                                                                                                                                                        |   |                             |        |   |                  |        |   |
| Patents, net                                                                                                                                                                                                                                                                                                                |   |                             | 542,276     |   |                  | 567,604     |   |
|                                                                                                                                                                                                                                                                                                                        |   |                             |        |   |                  |        |   |
| Total assets                                                                                                                                                                                                                                                                                                                |   | $                                | 3,673,129   |   | $                     | 5,653,957   |   |
|                                                                                                                                                                                                                                                                                                                        |   |                             |        |   |                  |        |   |
| **LIABILITIES**                                                                                                                                                                                                                                                                                                             |   |                             |        |   |                  |        |   |
| Current liabilities:                                                                                                                                                                                                                                                                                                        |   |                             |        |   |                  |        |   |
| Accounts payable                                                                                                                                                                                                                                                                                                            |   | $                                | 48,486      |   | $                     | 85,473      |   |
| Accrued expenses and other liabilities                                                                                                                                                                                                                                                                                      |   |                             | 269,783     |   |                  | 183,362     |   |
| Total current liabilities                                                                                                                                                                                                                                                                                                   |   |                             | 318,269     |   |                  | 268,835     |   |
|                                                                                                                                                                                                                                                                                                                        |   |                             |        |   |                  |        |   |
| Warrants liability (Note 5)                                                                                                                                                                                                                                                                                                 |   |                             | 2,660,967   |   |                  | 870,098     |   |
| Total liabilities                                                                                                                                                                                                                                                                                                           |   |                             | 2,979,236   |   |                  | 1,138,933   |   |
|                                                                                                                                                                                                                                                                                                                        |   |                             |        |   |                  |        |   |
| Commitments and contingencies (Note 3)                                                                                                                                                                                                                                                                                      |   |                             |        |   |                  |        |   |
|                                                                                                                                                                                                                                                                                                                        |   |                             |        |   |                  |        |   |
| Preferred stock, $.01 par value, liquidation value of                            $7,522,500 and $8,053,400; 6,000,000 shares authorized, 752 and 805                            shares Series C Convertible issued and outstanding at June 30, 2007 and                            December 31, 2006, respectively (Note 5) |   |                             | 311,778     |   |                  | 333,783     |   |
|                                                                                                                                                                                                                                                                                                                        |   |                             |        |   |                  |        |   |
| **STOCKHOLDERS’ EQUITY**                                                                                                                                                                                                                                                                                              |   |                             |        |   |                  |        |   |
| Common stock, $.01 par value, 100,000,000 shares                            authorized; 3,680,875 and 2,620,679 shares issued at June 30, 2007 and                            December 31, 2006, respectively                                                                                                               |   |                             | 36,809      |   |                  | 26,206      |   |
| Additional paid-in capital                                                                                                                                                                                                                                                                                                  |   |                             | 86,304,380  |   |                  | 85,599,924  |   |
| Accumulated deficit                                                                                                                                                                                                                                                                                                         |   |                             | (85,899,964 | )      |                  | (81,385,779 | ) |
| Less treasury stock, at cost, 529 shares at June 30,                            2007 and December 31, 2006                                                                                                                                                                                                                  |   |                             | (59,110     | )      |                  | (59,110     | ) |
| Total stockholders’ equity                                                                                                                                                                                                                                                                                            |   |                             | 382,115     |   |                  | 4,181,241   |   |
|                                                                                                                                                                                                                                                                                                                        |   |                             |        |   |                  |        |   |
| Total liabilities and stockholders’                            equity                                                                                                                                                                                                                                                 |   | $                                | 3,673,129   |   | $                     | 5,653,957   |   |
|                                                                                                                                                                                                                                                                                                                             |        |                                  |             |        |                       |             |  |  |

 

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

 

3

 

 

MACROCHEM CORPORATION

CONDENSED STATEMENTS OF OPERATIONS

For            the three and six months ended June 30, 2007 and 2006

(Unaudited)

 

|                                                                                                                 |   | **For the Three Months Ended                            June 30,** |   | **For the Six Months Ended                            June 30,** |       |
|----------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------|--------|------------------------------------------------------------------|------------|
|                                                                                                                 |   | **2007**                                                           |   | **2006**                                                         |       | **2007** |   | **2006** |   |
| **OPERATING EXPENSES:**                                                                                              |   |                                                               |   |                                                             |       |   |   |   |   |   |   |   |
| Research and development                                                                                             | $      | 257,949                                                            |   | $                                                                | 90,243     |   | $ | 556,398 |   | $ | 156,225 |   |
| Marketing, general and administrative                                                                                |   | 897,953                                                            |   |                                                             | 976,560    |   |   | 1,902,264 |   |   | 2,117,687 |   |
| **TOTAL OPERATING EXPENSES**                                                                                         |   | 1,155,902                                                          |   |                                                             | 1,066,803  |   |   | 2,458,662 |   |   | 2,273,912 |   |
|                                                                                                                 |   |                                                               |   |                                                             |       |   |   |   |   |   |   |   |
| **LOSS FROM OPERATIONS**                                                                                             |   | (1,155,902                                                         | )      |                                                             | (1,066,803 | ) |   | (2,458,662 | ) |   | (2,273,912 | ) |
|                                                                                                                 |   |                                                               |   |                                                             |       |   |   |   |   |   |   |   |
| **OTHER INCOME:**                                                                                                    |   |                                                               |   |                                                             |       |   |   |   |   |   |   |   |
| Interest income                                                                                                      |   | 18,615                                                             |   |                                                             | 73,410     |   |   | 53,145 |   |   | 119,152 |   |
| Gain (loss) on change in value of warrant liability                                                                  |   | (1,515,006                                                         | )      |                                                             | 5,403,825  |   |   | (1,790,869 | ) |   | 4,573,832 |   |
| Gain (loss) on sale of equipment                                                                                     |   | 52,000                                                             |   |                                                             | -----      |   |   | 68,000 |   |   | ----- |   |
| **TOTAL OTHER INCOME (LOSS) (NOTE 5)**                                                                               |   | (1,444,391                                                         | )      |                                                             | 5,477,235  |   |   | (1,669,724 | ) |   | 4,692,984 |   |
|                                                                                                                 |   |                                                               |   |                                                             |       |   |   |   |   |   |   |   |
| **NET INCOME OR (LOSS)**                                                                                             | $      | (2,600,293                                                         | )      | $                                                                | 4,410,432  |   | $ | (4,128,386 | ) | $ | 2,419,072 |   |
|                                                                                                                 |   |                                                               |   |                                                             |       |   |   |   |   |   |   |   |
| **BENEFICIAL CONVERSION FEATURE (NOTE 5)**                                                                           |   | -----                                                              |   |                                                             | -----      |   |   | ----- |   |   | (11,895 | ) |
|                                                                                                                 |   |                                                               |   |                                                             |       |   |   |   |   |   |   |   |
| **DIVIDEND ON SERIES C CUMULATIVE PREFERRED STOCK**                                                                  |   | (193,100                                                           | )      |                                                             | (205,424   | ) |   | (385,799 | ) |   | (345,076 | ) |
|                                                                                                                 |   |                                                               |   |                                                             |       |   |   |   |   |   |   |   |
| **NET INCOME OR (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS**                                                         | $      | (2,793,393                                                         | )      | $                                                                | 4,205,008  |   | $ | (4,514,185 | ) | $ | 2,062,101 |   |
|                                                                                                                 |   |                                                               |   |                                                             |       |   |   |   |   |   |   |   |
| **BASIC NET INCOME OR (LOSS) PER COMMON SHARE**                                                                      | $      | (0.86                                                              | )      | $                                                                | 3.86       |   | $ | (1.48 | ) | $ | 1.98 |   |
|                                                                                                                 |   |                                                               |   |                                                             |       |   |   |   |   |   |   |   |
| **DILUTED NET INCOME OR (LOSS)                            PER COMMON SHARE**                                         | $      | (0.86                                                              | )      | $                                                                | 0.57       |   | $ | (1.48 | ) | $ | 0.31 |   |
|                                                                                                                 |   |                                                               |   |                                                             |       |   |   |   |   |   |   |   |
| **WEIGHTED AVERAGE SHARES USED TO COMPUTE BASIC NET INCOME OR (LOSS)                            PER COMMON SHARE**   |   | 3,256,959                                                          |   |                                                             | 1,089,441  |   |   | 3,048,776 |   |   | 1,043,969 |   |
|                                                                                                                 |   |                                                               |   |                                                             |       |   |   |   |   |   |   |   |
| **WEIGHTED AVERAGE SHARES USED TO COMPUTE DILUTED NET INCOME OR (LOSS)                            PER COMMON SHARE** |   | 3,256,959                                                          |   |                                                             | 7,722,863  |   |   | 3,048,776 |   |   | 7,677,391 |   |

 

The            accompanying notes are an integral part of these unaudited condensed financial            statements

4

 

 

MACROCHEM CORPORATION

CONDENSED STATEMENTS OF CASH FLOWS

For            the six months ended June 30, 2007 and 2006

(Unaudited)

 

|                                                                                                                  |   | **2007** |       | **2006** |   |
|-----------------------------------------------------------------------------------------------------------------------|--------|----------|------------|----------|--------|
|                                                                                                                  |   |     |       |     |   |   |   |
| **CASH FLOWS FROM OPERATING ACTIVITIES**                                                                              |   |     |       |     |   |   |   |
| Net income (loss)                                                                                                     |   | $        | (4,128,386 | )        | $      | 2,419,072 |   |
| Adjustments to reconcile net income (loss) to net cash                            used in operating activities:       |   |     |       |     |   |   |   |
| Depreciation and amortization                                                                                         |   |     | 33,344     |     |   | 47,455 |   |
| Stock-based compensation                                                                                              |   |     | 307,255    |     |   | 674,597 |   |
| Loss(Gain) on change in value of warrant                            liability                                         |   |     | 1,790,869  |     |   | (4,573,832 | ) |
| Change in assets and liabilities:                                                                                     |   |     |       |     |   |   |   |
| Prepaid expenses and other current assets                                                                             |   |     | (77,992    | )        |   | (203,230 | ) |
| Accounts payable and accrued expenses                                                                                 |   |     | 49,434     |     |   | (10,609 | ) |
| Net cash used in operating activities                                                                                 |   |     | (2,025,476 | )        |   | (1,646,547 | ) |
|                                                                                                                  |   |     |       |     |   |   |   |
| **CASH FLOWS FROM INVESTING                            ACTIVITIES**:                                                  |   |     |       |     |   |   |   |
| Sale of short-term investments                                                                                        |   |     | 2,048,169  |     |   | ----- |   |
| Purchases of short-term investments                                                                                   |   |     | -----      |     |   | (5,835,354 | ) |
| Expenditures for property and equipment                                                                               |   |     | -----      |     |   | (436 | ) |
| Additions to patents                                                                                                  |   |     | -----      |     |   | (35,733 | ) |
| Net cash provided by (used in) investing                            activities                                        |   |     | 2,048,169  |     |   | (5,871,523 | ) |
|                                                                                                                  |   |     |       |     |   |   |   |
| **CASH FLOWS FROM FINANCING                            ACTIVITIES**:                                                  |   |     |       |     |   |   |   |
| Net proceeds from issuance of Series C Cumulative                            Convertible Preferred Stock and Warrants |   |     | -----      |     |   | 5,186,908 |   |
| Net cash provided by financing activities                                                                             |   |     | -----      |     |   | 5,186,908 |   |
|                                                                                                                  |   |     |       |     |   |   |   |
| Net change in cash and cash equivalents                                                                               |   |     | 22,693     |     |   | (2,331,162 | ) |
| Cash and cash equivalents at beginning of                            period                                           |   |     | 738,264    |     |   | 3,023,436 |   |
|                                                                                                                  |   |     |       |     |   |   |   |
| Cash and cash equivalents at end of period                                                                            |   | $        | 760,957    |     | $      | 692,274 |   |
|                                                                                                                       |        |          |            |          |        |  |  |  |

 

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

 

(Continued)

 

5

**MACROCHEM CORPORATION**

**STATEMENTS OF CASH FLOWS (Continued)**

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

 

The            Company did not pay any cash for interest expense or income taxes during the six-month            periods ended June 30, 2007 and 2006.

 

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

 

6

**MACROCHEM CORPORATION**

**NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS**

 

All references to share amounts, share prices and per share data in the            Unaudited Condensed Financial Statements and these accompanying Notes reflect both the            1-for-7 reverse stock split effected on December 30, 2005 and the 1-for-6 reverse stock            split effected on February 9, 2006. Accordingly, where appropriate, share amounts,            share prices and per share data have been adjusted to give retroactive effect to the            reverse splits.

 

| **(1)** | **Basis of Presentation and                            Operations** |
|---------|---------------------------------------------------------------------|

             

The financial statements included herein have been prepared by MacroChem            Corporation (“MacroChem” or the “Company”) without audit,            pursuant to the rules and regulations of the Securities and Exchange Commission.            Certain information and footnote disclosures normally included in financial statements            prepared in accordance with accounting principles generally accepted in the United            States of America have been condensed or omitted pursuant to such rules and            regulations. In the opinion of management, the accompanying unaudited condensed            financial statements include all adjustments (consisting only of normal recurring            adjustments) necessary to present fairly the financial position, results of operations            and cash flows of the Company at the dates and for the periods indicated. The unaudited            condensed financial statements included herein should be read in conjunction with the            audited financial statements and the notes thereto included in the Company’s            Annual Report on Form 10-K for the fiscal year ended December 31, 2006.

             

The Company has been engaged primarily in research and development since            its inception in 1981 and has derived limited revenues from the commercial sale of its            products, licensing of certain technology and feasibility studies. The Company has had            no revenues relating to the sale of any products currently under development. The            Company has incurred losses from operations every year since its inception and the            Company anticipates that losses will continue for the foreseeable future. At June 30,            2007, the Company’s accumulated deficit was $85,899,964. At June 30, 2007, the            Company believes that its existing cash, cash equivalents and short-term investments            are sufficient to fund operations under the Company’s current operating plan into            the first quarter of 2008. The Company’s continuation as a going concern depends            on its ability to obtain additional financing, to consummate a strategic transaction or            to make alternative arrangements to fund its operations. There can be no assurance that            the Company will be able to obtain additional financing, to consummate a strategic            transaction, or to make alternative arrangements to fund its operations. The            Company’s cash requirements may vary materially from those now planned because of            changes in the focus and direction of its research and development programs,            identification of additional product candidates and technologies, competitive and            technical advances, patent developments or other developments related to the status of            fund raising.

             

The Company organizes itself as one segment reporting to the Chief            Executive Officer. Products and services consist primarily of research and development            activities in the pharmaceutical industry.

 

7

             

The results disclosed in the Statement of Operations for the three and            six months ended June 30, 2007 are not necessarily indicative of the results to be            expected for the full year.

             

|   | **(2)** | **Stock Based Compensation** |
|--------|---------|------------------------------|

 

*Stock Incentive Plans*

             

The Company has granted options to purchase the Company’s common            stock to employees and directors under various stock incentive plans. Under the plans,            employees and non-employee directors are eligible to receive awards of various forms of            equity-based incentive compensation, including stock options, restricted stock, and            performance awards, among others. The plans are administered by the Board of Directors            or the Compensation Committee of the Board of Directors, which determine the terms of            the awards granted. Stock options are generally granted with an exercise price equal to            the market value of a share of common stock on the date of grant, have a term of ten            years or less, and vest over terms of two to three years from the date of            grant.

             

*Stock Based Compensation*

             

The Company has classified stock-based compensation within the same            operating expense line items as cash compensation paid to employees. For the three and            six months ended June 30, 2007, the charge to operations for stock based compensation            was $150,813 and $307,255, respectively. For the three and six months ended June 30,            2006, the charge to operations for stock based compensation was $216, 240 and $674,597,            respectively.

             

*Valuation Assumptions for Stock Options*

             

The fair value of stock options granted during the three and six months            ended June 30, 2007 and 2006 was estimated using the Black-Scholes option-pricing model            with the following assumptions:

             

|                                                                                                               | **Three and Six Months Ended June                            30,** |
|--------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------|
|                                                                                                               | **2007**                                                           | **2006** |
|                                                                                                               |                                                               |   |
| Risk-free interest rate                                                                                            | 4.49%                                                              | 4.72% |
| Expected life of option grants                                                                                     | 6 years                                                            | 6 years |
| Expected volatility of underlying stock                                                                            | 113%                                                               | 102% |
| Expected dividend payment rate, as a percentage of the                            stock price on the date of grant | 0%                                                                 | 0% |

 

The dividend yield assumption is based on the Company’s history            and expectation of future dividend payouts. The expected volatility is based on a            combination of the Company’s historical stock price and volatility. The risk-free            interest rate assumption is based upon the U.S. Treasury yield curve in effect at the            time of grant for periods corresponding with the expected life of the option. The            expected life of employee stock

             

8

options represents the weighted-average period the stock options are            expected to remain outstanding.

             

Stock option activity for the six months ended June 30, 2007 was as            follows:

             
|                           | **Number of                        Options** |   | **Weighted                        Average                        Exercise Price** |    | **Weighted                        Average                        Remaining Life** |   | **Weighted                        Average                        Remaining Life** |
|--------------------------------|----------------------------------------------|--------|-----------------------------------------------------------------------------------|---------|-----------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------|
| Outstanding, December 31, 2006 | 1,055,693                                    |   | $                                                                                 | 10.21   |                                                                              |   | 8.92                                                                              |   |   |   |
| Granted                        | 982,000                                      |   | $                                                                                 | 0.65    |                                                                              |   | 9.50                                                                              |   |   |   |
| Exercised                      | ——                               |   |                                                                              | — |                                                                              |   |                                                                              |   |   |   |
| Canceled or Expired            | (51,634                                      | )      |                                                                              |    |                                                                              |   |                                                                              |   |   |   |
| Outstanding, June 30, 2007     | 1,986,059                                    |   | $                                                                                 | 5.72    |                                                                              |   | 9.03                                                                              |   | $ | 0 |
| Exercisable, June 30, 2007     | 725,726                                      |   | $                                                                                 | 14.03   |                                                                              |   | 8.41                                                                              |   | $ | 0 |

 

 

The weighted average grant date fair value of options granted during the            six months ended June 30, 2007 was $546,592. The remaining unrecognized compensation            cost related to unvested awards at June 30, 2007 was approximately $774,000 and the            weighted average period of time over which this cost will be recognized is 2.25            years.                                                                                                                                                      

| **(3)** | **Commitments and Contingencies** |
|---------|-----------------------------------|

             

Lease Commitments- In accordance with            certain capital lease contracts, in the event that they are terminated early,            approximately $132,400 would be owed as early termination payments.

             

 

9

**(4)** **Basic            and Diluted Income or (Loss) Per Share**

             

The following is a reconciliation of net income (loss) and weighted            average common shares outstanding for purposes of calculating basic and diluted income            (loss) per share:

             

 

|                                                                                                                                                                               | **Three Months Ended June 30,** |       | **Six Months Ended June 30,** |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------|------------|-------------------------------|--------|
|                                                                                                                                                                               |                            | **2007**   |                          |   | **2006** |   |   | **2007** |   |   | **2006** |   |
|                                                                                                                                                                               |                            |       |                          |   |   |   |   |   |   |   |   |   |
| Basic income (loss) per common share computation:                            Numerator:                            Net income (loss) used for basic income (loss) per common share | $                               | (2,793,392 | )                             | $      | 4,205,008 |   | $ | (4,514,183 | ) | $ | 2,062,101 |   |
| Denominator:                            Weighted average shares used for basic income (loss) per common                            share                                           |                            | 3,256,959  |                          | $      | 1,089,441 |   |   | 3,048,776 |   |   | 1,043,969 |   |
|                                                                                                                                                                               |                            |       |                          |   |   |   |   |   |   |   |   |   |
| Basic income (loss) per common share                                                                                                                                               | $                               | (0.86      | )                             | $      | 3.86 |   | $ | (1.48 | ) | $ | 1.98 |   |
| Diluted income (loss) per common share Computation:                                                                                                                                |                            |       |                          |   |   |   |   |   |   |   |   |   |
| Numerator:                                                                                                                                                                         |                            |       |                          |   |   |   |   |   |   |   |   |   |
| Net income (loss) used for basic income (loss) per common share                                                                                                                    | $                               | (2,793,392 | )                             | $      | 4,205,008 |   | $ | (4,514,183 | ) | $ | 2,062,101 |   |
| Dividend on convertible preferred                                                                                                                                                  |                            |       |                          |   | 205,424 |   |   |   |   |   | 345,076 |   |
| Net income (loss) used for diluted income (loss) per common share                                                                                                                  | $                               | (2,793,392 | )                             | $      | 4,410,432 |   | $ | (4,514,183 | ) | $ | 2,407,177 |   |
| Denominator:                                                                                                                                                                       |                            |       |                          |   |   |   |   |   |   |   |   |   |
| Weighted average shares used for basic income (loss) per common                            share                                                                                   |                            | 3,256,959  |                          |   | 1,089,441 |   |   | 3,048,776 |   |   | 1,043,969 |   |
| Effect of dilutive securities:                                                                                                                                                     |                            |       |                          |   |   |   |   |   |   |   |   |   |
| Convertible preferred stock and warrants                                                                                                                                           |                            | ------     |                          |   | 6,633,422 |   |   | ------ |   |   | 6,633,422 |   |
| Weighted average shares used for diluted income (loss) per common                            share                                                                                 |                            | 3,256,959  |                          |   | 7,722,863 |   |   | 3,048,776 |   |   | 7,677,391 |   |
| Diluted income (loss) per common share                                                                                                                                             | $                               | (0.86      | )                             | $      | 0.57 |   | $ | (1.48 | ) | $ | 0.31 |   |

             

Potential common shares are not included in the per share calculations            for diluted loss per share, because the effect of their inclusion would be            anti-dilutive. Dilutive shares not included in the loss per share calculation for the            three and six months ended June 30, 2007 were 17,863,822.

             

| **(5)** | **Stockholders’ Equity** |
|---------|--------------------------------|

             

Authorized Capital Stock– Authorized            capital stock consists of 100,000,000 shares of $.01 par value common stock of which            3,680,875 shares are issued (3,680,346 are outstanding) and 17,938,822 are reserved for            issuance upon exercise of common stock options, warrants and conversion of Series C            Cumulative Convertible Preferred Stock and restricted stock at June 30, 2007.            Authorized preferred stock totals 6,000,000 shares, of

             

10

which 500,000 shares have been designated Series A Preferred Stock,            600,000 shares have been designated Series B Preferred Stock and 1,500 shares have been            designated Series C Cumulative Convertible Preferred Stock (752.25 shares were            outstanding at June 30, 2007). The Series C Preferred Stock has a liquidation value of            $10,000 per share, is entitled to a dividend of 10% per annum, payable in cash or            shares of our common stock at our option, which dividend rate is subject to increase to            14% upon the occurrence of certain events. The Series C Preferred Stock is redeemable            at the holder’s election in the event the Company fails or refuses to convert any            shares of Series C Preferred Stock in accordance with the terms of the Certificate of            Designation, Rights and Preferences of the Series C Preferred Stock. The number of            shares of common stock into which each share of Series C Preferred Stock is convertible            is determined by dividing the liquidation value per share plus all accrued and unpaid            dividends thereon by $1.05.

             

During 1998, the Company’s Board of Directors authorized the            repurchase of up to 23,809 shares of common stock at market price. The Company            repurchased no shares in 2004, 2005 and 2006. At June 30, 2007, 529 repurchased shares            remain available for future use and 16,180 shares are available to be            repurchased.

             

***Relevant Material Terms***:The terms and provisions of the Series C Preferred Stock are set forth            in the Certificate of Designations, Rights and Preferences of Series C Cumulative            Convertible Preferred Stock (the “Certificate of Designations”). Certain            material terms of the Series C Preferred Stock relevant to this response are summarized            below:

 

***Obligations to Register Shares***: When            issued, the securities offered and sold to the Purchasers in the Series C Financing            were not registered under the Securities Act of 1933, as amended (the “Securities            Act”) and were sold in reliance upon the exemption from securities registration            afforded by Regulation D under the Securities Act. All of the Purchasers represented to            MacroChem that they were “accredited investors”, as defined in Rule 501 of            Regulation D. In connection with the Series C Financing, MacroChem entered into an            Investor Rights Agreement with the Purchasers, pursuant to which MacroChem was required            to file a registration statement with the Securities and Exchange Commission covering            the resale of the common stock issuable upon conversion of the Series C Preferred            Stock, issuable as payment of dividends on the Series C Preferred Stock and issuable            upon exercise of the Warrants and the warrants issued to the placement agent. The            registration statement was filed and became effective on April 18, 2006.

 

***Dividends:***The Series C Preferred            Stock accrues dividends at the rate of 10% of the stated price annually, payable            quarterly in cash or common stock. All dividends payable to date have been paid in            Common Stock.

 

***Liquidation**:*Upon liquidation, dissolution or winding up, the holders of Series C            Preferred Stock are entitled, before any distributions are made to the holders of the            common stock, or any other class or series of capital stock of the Company ranking            junior to the Series C Preferred Stock as to such distributions, to be paid an amount            equal to $10,000 per share and any unpaid dividends thereon, subject to            adjustment.

 

11

             

***Voting:***The Certificate of            Designations contains a provision that restricts a holder of Series C Preferred Stock            from (i) converting Series C Preferred Stock into common stock to the extent that such            conversion would result in the holder owning more than 4.95% of the issued and            outstanding common stock of the Company or (ii) voting together with the common stock            on an as-if-converted to common stock basis in respect of more than 4.95% of the issued            and outstanding common stock of the Company. The Warrants issued pursuant to the            purchase agreement contain a similar restriction (collectively, the “Beneficial            Ownership Cap”). A holder of Series C Preferred Stock or a Warrant may elect,            subject to certain conditions, to be exempt from the Beneficial Ownership Cap. Subject            to the Beneficial Ownership Cap restrictions, as of the date of the second closing of            the private placement financing in February 2006 (the “Second Closing”),            the Series C Preferred Stock acquired by the purchasers was convertible into 4,967,920            shares of common stock and the holders of the Series C Preferred Stock vote on an            as-converted basis with the holders of our common stock, and therefore held            approximately 63.5% of the voting power of our outstanding securities. Assuming both            the conversion of the Series C Preferred Stock and the exercise of all of the Warrants            acquired by the purchasers, in each case subject to the Beneficial Ownership Cap            restrictions, the purchasers would have held approximately 84.9% of the outstanding            common stock of the Company as of the date of the Second Closing.

             

***Redemption:***If the Company fails or            refuses to convert any shares of Series C Preferred Stock in accordance with the terms            of the Series C Preferred Stock, the holders of the Series C Preferred Stock are            entitled to elect to require the Company to redeem their Series C Preferred Stock. In            the event of a redemption, the redemption price per share of Series C Preferred Stock            is an amount in cash equal to the greater of (1) all accrued but unpaid dividends as of            the date the holder makes the demand for redemption with respect to each share to be            redeemed plus the $10,000 liquidation preference per share or (2) the total number of            shares of common stock into which such Series C Preferred Stock is convertible            multiplied by the then-current market price of the common stock.

             

Given that the redemption provision described above does not embody an            unconditional obligation requiring the Company to redeem the instrument at a specified            or determinable date or upon an event certain to occur, the Series C Preferred Stock is            not a mandatorily redeemable financial instrument. Therefore, the Company determined            that the guidance in FAS 150,*Accounting for Certain Financial            Instruments with Characteristics of both Liabilities and            Equity*, which requires liability classification for            mandatorily redeemable financial instruments, does not apply.

             

Rule 5-02.28 of Regulation S-X requires securities with redemption            features that are not solely within the control of the issuer to be classified outside            of permanent equity. The holders of the Series C Preferred Stock control a majority of            the voting power of the Company’s common stock and, as a result of this control,            could directly or indirectly influence the triggering of the redemption provision by,            for example, refusing to approve an increase in the authorized but unissued shares of            common stock of the Company if, in the future, such increase were necessary to effect            the conversion of the Series C Preferred

             

12

Stock. Accordingly, the redemption provision is not solely within the            Company’s control, and thus the Series C Preferred Stock is not permanent            equity.

             

Because the Series C Preferred Stock did not qualify for treatment as a            liability or as permanent equity as described above, the Company recorded the portion            of the proceeds attributable to the Series C Preferred Stock as mezzanine equity            pursuant to EITF Topic D-98,*Classification and Measurement of            Redeemable Securities*. Because the Company has a substantial            amount of authorized but unissued common stock (in excess of 95 million shares), the            occurrence of a redemption event is not considered probable, and thus the carrying            value of the Series C Preferred Stock was not accreted to its redemption            value.

             

***Conversion*****:**Each convertible preferred share is convertible into shares of common            stock. The number of shares of common stock into which each share of Series C Preferred            Stock is convertible is determined by dividing the liquidation value per share plus all            accrued but unpaid dividends thereon by $1.05.

             

The Company evaluated whether the embedded conversion feature in the            Series C Preferred Stock required bifurcation and determined, in accordance with            paragraph 12 of SFAS 133, that the economic characteristics and risks of the embedded            conversion feature in the Series C Preferred Stock were clearly and closely related to            the underlying common stock. In conducting this evaluation, the Company recognized that            the cumulative fixed dividend and the potential redemption requirement of the Series C            Preferred Stock are characteristics of debt. The Company also recognized, however, that            the Series C Preferred Stock had the following equity like characteristics: the Series            C Preferred Stock clearly gives the stockholders both existing and ongoing rights of            ownership (i.e., a residual interest), as the holders of Series C Preferred Stock are            entitled to vote on an as-converted basis with the holders of our common stock; the            dividend, while fixed, is payable quarterly in cash or common stock at the            Company’s election, and, to date, the Company’s Board of Directors has            declared each quarterly dividend to be paid in shares of common stock; the redemption            rights of the Series C preferred stock are perpetual and do not have a stated maturity            or redemption date, unlike debt instruments; and the right of the holders of the Series            C Preferred stock to receive payments, including the liquidation preference, is not            secured by any collateral. Consequently, when all of the economic characteristics and            risks of the Series C Preferred Stock are considered as a whole, the Company concluded            that the Series C Preferred Stock is more akin to equity than to debt and, as a result,            the Company concluded that bifurcation was not required under SFAS 133.

Pursuant to the guidance in paragraph 5 of EITF 00-27,*Application of Issue No.* *98-5 to Certain Convertible Instruments*, we            allocated the proceeds from the Series C financing between the Series C Preferred Stock            and the warrants based upon their estimated fair values as of the closing date. We then            calculated the intrinsic value of the beneficial conversion feature embedded in the            Series C Preferred Stock. As the amount of the beneficial conversion feature exceeded            the value allocated to the Series C Preferred Stock, the amount of the beneficial            conversion feature recorded was limited to the proceeds allocated to the Series C            Preferred Stock. The beneficial conversion value of

             

13

$330,243 was recognized as an additional discount on the Series C            Preferred Stock which amount was immediately accreted and treated as a deemed dividend            to the holder of the shares of Series C Preferred Stock as all of the Series C            Preferred Stock was eligible for conversion upon issuance.

Stock Sales–In March 2004, the            Company sold 128,619 shares of common stock and warrants to purchase 25,723 shares of            common stock to primarily institutional investors. Gross proceeds were $7,292,700            ($6,681,274 net of issuance costs) and were allocated between the common stock and the            warrants based on the relative fair value of the warrants and common stock. In April            2005, the Company sold approximately 65,040 shares of common stock and warrants to            purchase 32,520 shares of common stock to institutional investors and to certain            executive officers and directors of the Company. Gross proceeds were $815,000 ($601,342            net of cash issuance costs) and were allocated between the common stock and the            warrants based on the relative fair value of the warrants and common stock. In December            2005, the Company sold 250 shares of Series C Cumulative Convertible Preferred Stock            and warrants to purchase 2,380,951 shares of common stock to institutional investors.            Gross proceeds were $2,500,000 ($2,125,943 net of cash issuance costs) and were            allocated between the Series C Cumulative Convertible Preferred Stock and the warrants            based on the fair value of the warrants. In February 2006, the Company sold 575.5            shares of Series C Cumulative Convertible Preferred Stock and warrants to purchase            5,480,952 shares of common stock to institutional investors. Gross proceeds were            $5,755,000 ($5,186,908 net of cash issuance costs) and were allocated between the            Series C Cumulative Convertible Preferred Stock and the warrants based on the fair            value of the warrants.

             

Warrants– On February 13, 2006, the            Company closed a private placement in which institutional investors received six-year            warrants to purchase 5,480,961 shares of the Company’s common stock at an            exercise price of $1.26 per share (“Investor Warrants”). As of June 30,            2007, none of the $1.26 Investor Warrants had been exercised. The placement agent in            the transaction received a warrant to purchase approximately 548,095 shares of common            stock at a purchase price of $1.05 for a period of six years (“Placement Agent            Warrants”). As of June 30, 2007, none of these $1.05 Placement Agent Warrants had            been exercised. On December 23, 2005, the Company closed a private placement in which            institutional investors received warrants to purchase 2,380,951 shares of common stock            at an exercise price of $1.26 per share for a period of six years (“Investor            Warrants”). As of June 30, 2007, none of these $1.26 Investor Warrants had been            exercised. The placement agent in this transaction received a warrant to purchase            approximately 238,905 shares of common stock at a purchase price of $1.05 for a period            of six years (“Placement Agent Warrants”). As of June 30, 2007, none of the            $1.05 Placement Agent Warrants had been exercised. In accordance with EITF 00-19,            “*Accounting for Derivative Financial Instruments Indexed            to, and Potentially Settled in, a Company’s Own            Stock*,” the Investor Warrants and the Placement Agent            Warrants are included as a liability and valued at fair market value until the Company            meets the criteria under EITF 00-19 for permanent equity. Changes in the fair value of            such warrants are recorded as a charge or credit to operations each reporting period.            The Company valued the Investor Warrants and the Placement Agent Warrants at            $2,660,967

             

14

on June 30, 2007 using the Black-Scholes method with the following            assumptions: a risk-free interest rate of 4.57, volatility of 100%, and a dividend            yield of 0%.

             

On April 19, 2005, the Company closed a private placement in which            institutional investors and certain executive officers and directors of the Company            received warrants to purchase approximately 32,520 shares of common stock for a period            of five years. The exercise price of the warrants is $14.70 per share for the            institutional investors and $21.84 for the participating executive officers and            directors. As of June 30, 2007, approximately 6,012 of the $14.70 warrants issued to            the institutional investors had been exercised and none of the $21.84 warrants issued            to participating executive officers and directors had been exercised. The placement            agent in this transaction received a warrant to purchase approximately 1,190 shares of            common stock at a purchase price of $14.70 for a period of five years. As of June 30,            2007, none of the $14.70 warrants issued to the placement agent had been            exercised.

             

During 2004, the Company conducted a private placement in which            primarily institutional investors received warrants to purchase an aggregate of 25,723            shares of common stock at a purchase price of $87.78 per share for a period of five            years. As of June 30, 2007, none of the $87.78 warrants had been exercised.

             

Stock Option Plans– The Company has            two stock option plans, the 1994 Equity Incentive Plan (1994 Plan) and the 2001            Incentive Plan (the 2001 Plan).

             

Under the terms of the 1994 Plan, the Company may no longer award any            options. All options previously granted under the 1994 Plan may be exercised at any            time up to ten years from the date of award. During the six-month period ended June 30,            2007, no options were granted or exercised and 47 options were cancelled under the 1994            Plan.

             

Under the terms of the 2001 Plan, the Company may grant options to            purchase up to a maximum of 2,373,809 shares of common stock to certain employees,            directors and consultants. During the six months ended June 30, 2007, 970,000 options            were granted, no options were exercised and 1,587 options were cancelled under the 2001            Plan.

             

Stock and Stock Option Issuances Outside the Stock Option            Plans– During the six months ended June 30, 2006,            options to purchase an aggregate of 945,000 shares of common stock were granted to            executive officers and directors of the Company, of which 50,000 options have been            cancelled. One third of the options vested on the date of grant and the remaining            options vest over a two year period with an exercise price of $1.62 per            share.

             

During the six months ended June 30, 2006, 75,000 shares of restricted            stock were granted to Robert J. DeLuccia, the Company’s Chief Executive Officer.            The restricted stock vests if and when the Company’s common stock trades at or            above $4.00 per share for thirty consecutive trading days.

No stock or stock options were issued outside the Stock Option Plans            during the six month period ended June 30, 2007.

 

15

**(6)**    **Comprehensive Loss**

 

Comprehensive loss is equal to the Company’s net loss for the six            months ended June 30, 2007 and 2006.

 

| **(7)** | **Recent Accounting                            Pronouncements** |
|---------|-----------------------------------------------------------------|

 

In June of 2006, the FASB issued Financial Interpretation            (“FIN”) 48, “Accounting for Uncertainty in Income Taxes - an            interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48            clarifies the accounting for uncertainty in income taxes recognized in the financial            statements in accordance with SFAS 109, “Accounting for Income Taxes”. The            interpretation was effective for fiscal years beginning after December 15, 2006. The            adoption of this new standard did not have a material impact on our financial position,            results of operations or cash flows.

             

On September 15, 2006, the FASB issued SFAS Statement No. 157,            “Fair Value Measurements” (“SFAS 157”). This statement provides            enhanced guidance for using fair value to measure assets and liabilities. This            statement also responds to investors’ requests for expanded information about the            extent to which companies measure assets and liabilities at fair value, the information            used to measure fair value and the effect of fair value measurements on earnings. SFAS            157 applies whenever other standards require (or permit) assets or liabilities to be            measured at fair value. SFAS 157 does not expand the use of fair value in any new            circumstances. This statement is effective for financial statements issued for fiscal            years beginning after November 15, 2007. We do not expect our adoption of this new            standard to have a material impact on our financial position, results of operations or            cash flows.

             

In February of 2007, the FASB issued SFAS Statement No. 159, “The            Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS            159”). SFAS 159 permits entities to choose to measure many financial assets and            financial liabilities at fair value. Unrealized gains and losses on items for which the            fair value option has been elected are reported in earnings. SFAS 159 is effective for            fiscal years beginning after November 15, 2007. We are currently assessing the impact            of SFAS 159 on our financial results.

             

| **(8)** | **Subsequent Event** |
|---------|----------------------|

 

On July 3, 2007, the Company signed an exclusive option to acquire            exclusive worldwide license rights for drug uses of pexiganan, a novel, small peptide            anti-infective for topical treatment of patients with mild diabetic foot infection            (DFI), from Genaera Corporation (Genaera). The option agreement gives the Company a            90-day exclusive right to enter into a license agreement with Genaera. MacroChem paid            Genaera $250,000 for the option agreement.

 

16

**Item            2.**           **Management’s Discussion and Analysis of Financial Condition and            Results of Operations**

             

**Note            Regarding Forward Looking Statements**

 

This report and the documents incorporated in this report by reference            may contain “forward-looking statements” within the meaning of Section 21E            of the Securities Exchange Act of 1934, as amended (the            “Exchange Act”). These            statements may be identified by the use of forward-looking words or phrases such as            “anticipate,” “believe,” “could,”            “expect,” “intend,” “look forward,”            “may,” “planned,” “potential,”            “should,” “will,” and “would.” These            forward-looking statements reflect our current expectations and are based upon            currently available data. The Private Securities Litigation Reform Act of 1995 provides            a “safe harbor” for such forward-looking statements. In order to comply            with the terms of the safe harbor, we note that a variety of factors could cause actual            results and experience to differ materially from the anticipated results or other            expectations expressed in the forward-looking statements. These factors include, but            are not limited to: our history of operating losses, our decision to discontinue            research and development activities and our need for additional external financing; our            need for significant additional product development efforts and additional financing;            technological uncertainty relating to transdermal drug delivery systems; the early            stage of development of our proposed products; the lack of success of our prior            development efforts; uncertainties related to clinical trials of our proposed products;            uncertainties relating to government regulation and regulatory approvals; our            dependence on third parties for the FDA application process; uncertainties regarding            market acceptance of our product candidates; uncertainties regarding the potential            health risks of hormone replacement therapies; our ability to identify and obtain            rights to products or technologies in order to build our portfolio of product            candidates; our ability to recruit additional key employees; our limited personnel and            our dependence on continued access to scientific talent; no assurance of our entering            into license arrangements; our lack of laboratory facilities and scientific personnel            and uncertainties regarding our reliance on third parties to conduct research and            development activities for our technologies and product candidates; uncertainties            relating to competition, patents and proprietary technology; our dependence on third            parties to conduct research and development activities; our dependence on third-party            suppliers and manufacturers; uncertainties relating to risks of product liability            claims, lack of product liability insurance, and expense and difficulty of obtaining            adequate insurance coverage; our majority shareholders, who own a large portion of our            voting stock, could control company decisions and could substantially lower the market            price of our common stock if they were to sell large blocks of our common stock in the            future; uncertainty of pharmaceutical pricing and related matters; volatility of our            stock price; the effect that our quotation on the OTC Bulletin Board will have on the            liquidity of our common stock; and dilution of our shares as a result of our            contractual obligation to issue shares in the future. Additional information on these            and other factors which could affect the Company’s actual results and experience            are included in the Company’s Annual Report on Form 10-K for the year ended            December 31, 2006 and, in particular, the section entitled “Risk            Factors”.

These or other events or circumstances could cause our actual            performance or financial results in future periods to differ materially from those            expressed in the forward-looking statements. We undertake no obligation to make any            revisions to the forward-looking statements contained in this report or the documents            incorporated by reference in this report, or to update

 

17

the            forward-looking statements to reflect events or circumstances occurring after the date            of this report.

             

| **General** |
|-------------|

             

On December 30, 2005 we implemented a 1-for-7 reverse stock split of our            common stock and on February 9, 2006 we implemented a subsequent 1-for-6 reverse stock            split of our common stock. Unless otherwise noted, data used throughout this Quarterly            Report on Form 10-Q has been adjusted to reflect these reverse splits.

             

We are a specialty pharmaceutical company that develops and seeks to            commercialize pharmaceutical products. Currently, our portfolio of patented product            candidates is based on our drug delivery technologies: SEPA®, MacroDermTM and            DermaPassTM. Our SEPA topical drug delivery technology (SEPA is an acronym for            “Soft Enhancement of Percutaneous Absorption,” where “soft”            refers to the reversibility of the skin effect, and “percutaneous” means            “through the skin”) enhances the efficiency and rate of diffusion of drugs            into and through the skin. Our patented MacroDerm drug delivery technology encompasses            a family of low to moderate molecular weight polymers that impede dermal drug or            chemical penetration. We have also filed a patent application for our DermaPass family            of transdermal absorption enhancers that have a different drug delivery profile than            SEPA, which we believe could be used with a wider range of active pharmaceutical            ingredients. Currently, we have two clinical stage investigational new drugs: EcoNail,            our lead product, for the treatment of fungal infections of the nails and Opterone, for            the treatment of male hypogonadism. We believe that products incorporating our drug            delivery technologies may allow selected drugs to be administered more effectively and            with improved patient compliance compared to alternative methods of drug            administration, such as ingestion and injection.

             

Since inception, we have been engaged primarily in research and            development. We have not generated any meaningful revenues from operations and we have            sustained significant operating losses. We anticipate that we will continue to incur            significant losses for the foreseeable future. We cannot guarantee that we will be            successful in commercializing our products, or that we will ever become profitable. As            of June 30, 2007, we had an accumulated deficit of $85,899,964. Our product candidates            are in discovery or developmental stages and must undergo a rigorous regulatory            approval process, which includes costly and extensive pre-clinical and clinical            testing, to demonstrate safety and efficacy before we can market any resulting product.            To date, neither the FDA nor any of its international equivalents has approved any of            our product candidates for marketing.

             

Our results of operations can vary significantly from year-to-year and            quarter-to-quarter, and depend, among other factors, on:

             

|   | **•** | the progress of clinical trials we conduct; |
|--------|------------|---------------------------------------------|

 

|   | **•** | the degree of our research, marketing and administrative                            efforts; |
|--------|------------|----------------------------------------------------------------------------------------------|

 

|   | **•** | our ability to raise additional capital; |
|--------|------------|------------------------------------------|

             

18

|   | **•** | the signing of licenses and product development                            agreements; |
|--------|------------|----------------------------------------------------------------------------------------|

             

|   | **•** | the timing of revenues recognized pursuant to license                            agreements; and |
|--------|------------|--------------------------------------------------------------------------------------------------|

             

|   | **•** | the achievement of milestones by licensees. |
|--------|------------|---------------------------------------------|

             

The timing of our revenues may not match the timing of our associated            product development expenses. To date, our research and development expenses generally            have exceeded our revenues in any particular period or fiscal year.

             

We expect to continue to spend significant amounts on developing and            seeking regulatory approval of our lead product, EcoNail. Ultimately, if we receive            regulatory approval for EcoNail, significant expenses may be incurred in connection            with its commercialization. In addition, we also plan to identify and develop,            internally, through in-licensing, or through other collaborative arrangements,            additional product candidates and technologies that fit within our growth strategy. If            we identify and license potential product candidates, we will incur additional costs in            connection with acquisition, development, testing and seeking regulatory approval of            those product candidates.

             

We completed a private placement of our securities to institutional            investors, consisting of two closings, for approximately $8,255,000 in gross proceeds.            The first closing of the private placement, in which institutional investors acquired            250 shares of Series C Cumulative Convertible Preferred Stock (the “Series C            Preferred Stock”) and six-year warrants to purchase 2,380,951 shares of common            stock at an exercise of $1.26 per share, for an aggregate purchase price of $2,500,000,            took place on December 23, 2005 and is described in our Current Report on Form 8-K            filed on December 27, 2005. The second closing of the private placement, in which            institutional investors acquired 575.5 shares of our Series C Preferred Stock and            six-year warrants to purchase 5,480,961 shares of the Company’s common stock at            an exercise price of $1.26 per share, for an aggregate purchase price of $5,755,000,            occurred on February 13, 2006 and is described in our Report on Form 8-K filed on            February 16, 2006. The Series C Preferred Stock has a liquidation value of $10,000 per            share, is entitled to a dividend of 10% per annum, payable in cash or shares of our            common stock at our option, which dividend rate is subject to increase to 14% upon the            occurrence of certain events. The number of shares of common stock into which each            share of Series C Preferred Stock is convertible is determined by dividing the            liquidation value per share plus all accrued and unpaid dividends thereon by            $1.05.

 

We believe that our existing cash, cash equivalents and short term            investments of $2,869,826 as of June 30, 2007 will be sufficient to meet our current            operating expenses and capital expenditure requirements into the first quarter of 2008.            As described in Note 8 to the Financial Statements, the Company has entered into a 90            day exclusive option to license pexiganan, a novel topical treatment for diabetic foot            infections. If this option is exercised, the Company will require significant            additional capital to proceed with the development of this new product. The            Company’s continuation as a going concern depends on its ability to obtain            additional financing, to consummate a strategic transaction or to make alternative            arrangements to fund its operations There can be no assurance that the Company will be            able to obtain additional financing, to consummate a strategic transaction, or to make            alternative arrangements to fund its operations. The Company’s cash requirements            may vary materially from those now

 

19

planned            because of changes in the focus and direction of its research and development programs,            identification of additional product candidates and technologies, competitive and            technical advances, patent developments or other developments related to the status of            fund raising.

             

*Research and Development Expenses*. Research            and development expenses consist of:

             

|   | **•** | payments to consultants, investigators, contract                            research organizations and |
|--------|------------|--------------------------------------------------------------------------------------------------------|

manufacturers in connection with our pre-clinical and clinical            trials;

             

|   | **•** | costs associated with conducting our clinical                            trials; |
|--------|------------|----------------------------------------------------------------------------------|

             

|   | **•** | costs of developing and obtaining regulatory approvals;                            and |
|--------|------------|----------------------------------------------------------------------------------------|

             

|   | **•** | allocable costs, including occupancy and                            depreciation. |
|--------|------------|-----------------------------------------------------------------------------------|

 

Because a significant portion of our research and development expenses            (including contract research organization costs, manufacturing costs, consulting costs            and allocable costs such as occupancy and depreciation) benefit multiple projects or            our drug delivery technologies in general, we do not track these expenses by project.            For the three month period ended June 30, 2007, we spent $257,949 on research and            development, including $235,315 in costs associated with a clinical trial for EcoNail            and $22,634 in costs not specifically tracked to a project. For the three month period            ended June 30, 2006, we spent $90,243 on research and development, including $83,215 in            costs associated with a clinical trial for EcoNail and $7,028 in costs not specifically            tracked to a project. For the six-month period ended June 30, 2007, we spent $556,398            on research and development, including $464,829 in costs associated with a clinical            trial for EcoNail and $91,569 in costs not specifically tracked to a project. For the            six month period ended June 30, 2006, we spent $156,225 on research and development,            including $147,847 in costs associated with a clinical trial for EcoNail and $8,378 in            costs not specifically tracked to a project.

             

Each of our research and development programs is subject to risks and            uncertainties, including the requirement to seek regulatory approval, that are outside            of our control. Moreover, the product candidates identified in these research and            development programs, which currently are in developmental stages, must overcome            significant technological, manufacturing and marketing challenges before they can be            successfully commercialized. As a result of these risks and uncertainties, we are            unable to predict with any certainty the period in which material net cash inflows from            these projects could be expected to commence or the completion date of these programs.            For example, we are seeking a partner to advance development of our Opterone product            candidate. We cannot predict whether our efforts to find a partner will be successful            nor can we predict the manner and timing in which any eventual partner may elect to            pursue development of Opterone. Moreover, we may elect not to develop Opterone further            if we cannot find a partner. In addition, these risks and uncertainties also prevent us            from estimating with any certainty the specific timing and future costs of our clinical            development programs, although historical trends at similarly situated companies            indicate that research and development expenses tend to increase in later stages of            clinical development. Our failure to obtain requisite governmental approvals timely or            at all will delay or preclude us from licensing or marketing our products or limit the            commercial use of our products, which could adversely affect our business, financial            condition and results of operations.

 

20

             

*Marketing, General and Administrative            Expenses*. Marketing, general and administrative expenses            consist primarily of salaries and other related costs for personnel, marketing and            promotion, professional fees and facilities costs. Assuming we are able to raise            sufficient capital, we anticipate that marketing, general and administrative expenses            will increase over the next several years as we begin, when appropriate, to license,            partner, or market our product candidates if and when they receive regulatory            approval.

 

**Critical Accounting Policies and Estimates**

 

Our discussion and analysis of our financial condition and results of            operations are based on our financial statements, which have been prepared in            accordance with accounting principles generally accepted in the United States of            America. The preparation of these financial statements requires us to make estimates            and judgments that affect the reported amounts of assets, liabilities, revenues and            expenses. Note 1 to our financial statements included within our Annual Report on Form            10-K for the year ended December 31, 2006, includes a summary of the significant            accounting policies and methods we use in the preparation of our financial statements.            The following is a brief discussion of the more significant accounting policies and            methods that affect the judgments and estimates used in the preparation of our            financial statements.

             

*Patent Assets*. We defer costs and expenses            incurred in connection with pending patent applications. We amortize costs related to            successful patent applications over the estimated useful lives of the patents using the            straight-line method. We charge accumulated patent costs and deferred patent            application costs related to patents that are considered to have limited future value            to operations. Estimates we use to determine the future value of deferred patent costs            include analysis of potential market size, time and cost to complete clinical trials,            anticipated interest in our products and potential value for licensing or partnering            opportunities. We recognize revenues derived or expected to be derived from the sale,            assignment, transfer, or licensing of patents or other intellectual property based upon            the terms of the relevant agreement.

             

*Research and Development.*Research and            development costs are expensed in the period in which they are incurred.

 

*Warrants Liability.*Based on certain terms            in the warrants that we issued in connection with the sale of our Series C Cumulative            Convertible Preferred Stock, we determined that the warrants should be classified as a            liability and valued at fair market value each reporting period, with the changes in            fair value recorded in earnings, in accordance with EITF 00-19, “Accounting for            Derivative Financial Investments Indexed to, and Potentially Settled in, a            Company’s Own Stock.” We will continue to evaluate the warrants under EITF            00-19 to determine when, if ever, they meet certain criteria under EITF 00-19 for            permanent equity.

 

**Results of Operations**

 

We had no revenues for the three and six month periods ending June 30,            2007 and June 30, 2006. For the year ending December 31, 2007, we do not expect to have            any revenues.

             

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For the three month period ended June 30, 2007, research and development            costs increased by $167,706, or 185.8% to $257,949 from $90,243 in the three month            period ended June 30, 2006. The increase is primarily attributable to the increase in            spending on the clinical trial of $153,450 in the three month period ended June 30,            2007 compared with the same period in 2006. There was also an increase in general            research and development costs of approximately $20,000 for the three months ended June            30, 2007.

 

For the six month period ended June 30, 2007, research and development            costs increased by $400,173, or 256.2%, to $556,398 from $156,225 in the six month            period ended June 30, 2006. The increase is primarily attributable to the increase in            spending on the clinical trial of $316,982 in the six month period ended June 30, 2007            compared with the same period in 2006 as well as an increase in general research and            development consulting costs of approximately $85,000. For each of the next two            quarters, we expect research and development spending to increase from the level seen            in the first two quarters of 2007 as we continue the clinical trial for            EcoNail.

             

For the three month period ended June 30, 2007, marketing, general and            administrative costs decreased by $78,607, or 8.0% to $897,953 from $976,560 in the            three month period ended June 30, 2006. The decrease is attributable to a decrease in            salary and related expenses of $90,862, insurance expense of $12,293, conferences and            travel of $44,594 and a decrease in stock based compensation of $65,827 for the three            month period ended June 30, 2007. The decrease was partially offset by an increase in            legal, audit and patent related costs of $100,945 and consulting and investor relations            expense of $31,155.

 

For the six month period ended June 30, 2007, marketing, general and            administrative costs decreased by $215,423, or 10.2%, to $1,902,264, from $2,117,687 in            the six month period ended June 30, 2006. The decrease is primarily attributable to the            Company’s adoption of SFAS No. 123R on January 1, 2006, which requires the            expensing of stock options granted to employees based on the fair value on the date of            the grant. The amount expensed for the six month period ended June 30, 2007 was            $307,255 compared to $674,597 for the six month period ended June 30, 2006, resulting            in a decrease in the expense of $367,342. The decrease was partially offset by an            increase in salary and related expenses of $20,882 during the six month period ended            June 30, 2007. In addition, in the six month period ended June 30, 2007, legal, audit            and patent expenses increased by approximately $140,927, and consulting and investor            relations expenses increased by $60,103. For each of the next two quarters, we expect            marketing, general and administrative spending to approximate the same level as seen in            the first two quarters of 2007.

             

Other income and expense decreased by $6,921,626 to a loss of $1,444,391            in the three month period ended June 30, 2007 from a gain of $5,477,235 in the three            month period ended June 30, 2006. The decrease is primarily attributable to an increase            in the loss associated with the change in value of the warrant liability of $1,515,006            for the three month period ended June 30, 2007. Interest income also decreased by            $54,795, or 74.6% to $18,615 in the three month period ended June 30, 2007 from $73,410            in the three month period ended June 30, 2006. The decrease in interest expense is due            to less cash available for investing purposes during the three month period ended June            30, 2007.

             

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Other income and expense decreased by $6,362,708 to a loss of $1,669,724            in the six month period ended June 30, 2007 from a gain of $4,692,984 in the six month            period ended June 30, 2006. The decrease is primarily attributable to an increase in            the loss associated with the change in value of warrant liability of $1,790,869.            Interest income also decreased by $66,007, or 55.4%, to $53,145 in the six month period            ended June 30, 2007 from $119,152 in the six month period ended June 30, 2006. The            decrease in interest income is due to less cash available for investing purposes during            the six month period ended June 30, 2007.

             

For the reasons described above, the Company’s financial            statements reflect a net loss of $2,600,293 in the three month period ended June 30,            2007 compared with a net gain of $4,410,432 in the three month period ended June 30,            2006. For the six month period ended June 30, 2007, the Company’s financial            statements reflect a net loss of $4,128,386 compared to a net gain of $2,419,072 in the            six month period ended June 30, 2006.

 

**Liquidity and Capital Resources**

             

Since inception, our primary source of funding for our operations has            been the private and public sale of our securities, and, to a lesser extent, the            licensing of our proprietary technology and products, research collaborations,            feasibility studies, government grants and the limited sales of products and test            materials. During the first six months of 2007, we did not receive any proceeds from            the exercise of options or warrants or from the sale of our securities. During the            first six months of 2006, we received gross proceeds of $5,755,000 ($5,186,908 net of            proceeds) as a result of the sale of our Series C Cumulative Convertible Preferred            Stock in a private placement financing transaction, but no proceeds from the exercise            of options and warrants.

             

At June 30, 2007, working capital was approximately $2,783,000, compared            to $6,500,000 at June 30, 2006. The decrease in our working capital reflects use of            funds in operations. Until such time as we obtain agreements with third-party licensees            or partners to provide funding for our anticipated business activities, or otherwise            generate revenue from the commercialization of our products, we will use our working            capital to fund our operating activities.

             

Pursuant to a plan approved by our Board of Directors in 1998, we are            authorized to repurchase 23,809 shares of our common stock to be held as treasury            shares for future use. During the six month period ended June 30, 2007, we did not            repurchase any shares of common stock. At June 30, 2007, 529 repurchased shares remain            available for future use and 16,180 shares remain available for repurchase under the            plan.

             

The Company had no capital expenditures or patent development costs for            the three and six month periods ended June 30, 2007. Capital expenditures and patent            development costs were $21,256 and $36,169 for the three and six month periods ended            June 30, 2006, respectively. We anticipate additional capital and patent expenditures            will be approximately $50,000 for the remainder of the fiscal year ending December 31,            2007.

             

As of June 30, 2007, we had $2,869,826 in cash, cash equivalents and            short-term investments. We believe that our existing cash, cash equivalents and            short-term investments will

 

23

be            sufficient to meet our current operating expenses and capital expenditure requirements            into the first quarter of 2008. As described in Note 8 to the Financial Statements, the            Company has entered into a 90-day exclusive option to license pexiganan, a novel,            topical treatment for diabetic foot infections. If this option is exercised, the            Company will require significant additional capital to proceed with the development of            this new product. The Company’s continuation as a going concern depends on its            ability to obtain additional financing, to consummate a strategic transaction or to            make alternative arrangements to fund its operations There can be no assurance that the            Company will be able to obtain additional financing, to consummate a strategic            transaction, or to make alternative arrangements to fund its operations. Our cash            requirements may vary materially from those now planned because of changes in the focus            and direction of our research and development programs, identification of additional            product candidates and technologies, competitive and technical advances, patent            developments or other developments related to the status of fund raising. We will            require additional financing to continue operations after we exhaust our current            capital resources and to continue our long-term plans for clinical trials and new            product development. We expect to continue financing our operations through sales of            our securities, strategic alliances or other financing vehicles, if any, that might            become available to us on terms that we deem acceptable.

             

We do not enter into financial instrument transactions for trading or            speculative purposes. We do not intend to establish any special purpose entity and do            not have any material off balance sheet financing transactions. We do not believe that            inflation will have any significant effect on the results of our operations.

             

At June 30, 2007, the Company had no long-term contractual            obligations.

             

**Recent Accounting Pronouncements**

 

In June of 2006, the FASB issued Financial Interpretation            (“FIN”) 48, “Accounting for Uncertainty in Income Taxes - an            interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48            clarifies the accounting for uncertainty in income taxes recognized in the financial            statements in accordance with SFAS 109, “Accounting for Income Taxes”. The            interpretation was effective for fiscal years beginning after December 15, 2006. The            adoption of this new standard did not have a material impact on our financial position,            results of operations or cash flows.

             

On September 15, 2006, the FASB issued SFAS Statement No. 157,            “Fair Value Measurements” (“SFAS 157”). This statement provides            enhanced guidance for using fair value to measure assets and liabilities. This            statement also responds to investors’ requests for expanded information about the            extent to which companies measure assets and liabilities at fair value, the information            used to measure fair value and the effect of fair value measurements on earnings. SFAS            157 applies whenever other standards require (or permit) assets or liabilities to be            measured at fair value. SFAS 157 does not expand the use of fair value in any new            circumstances. This statement is effective for financial statements issued for fiscal            years beginning after November 15, 2007. We do not expect our adoption of this new            standard to have a material impact on our financial position, results of operations or            cash flows.

             

In February of 2007, the FASB issued SFAS Statement No. 159, “The            Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS            159”). SFAS 159 permits entities to

 

24

choose            to measure many financial assets and financial liabilities at fair value. Unrealized            gains and losses on items for which the fair value option has been elected are reported            in earnings. SFAS 159 is effective for fiscal years beginning after November 15, 2007.            We are currently assessing the impact of SFAS 159 on our financial results.

             

25

**Item            3. Quantitative and Qualitative Disclosures about Market Risk**

 

**Cash, Cash Equivalents and Short-Term Investments**

 

As of June 30, 2007, we were exposed to market risks, which relate            primarily to changes in U.S. interest rates. Our cash equivalents and short-term            investments are subject to interest rate risk and will decline in value if interest            rates increase. Due to the short duration of these financial instruments, generally one            year or less, changes in interest rates would not have a material effect on our            financial position. A hypothetical 10% change in interest rates would not have a            material effect on our Statement of Operations or Cash Flows for the six months ending            June 30, 2007.

 

**Item            4. Controls and Procedures**

 

As of the end of the period covered by this report, we carried out a            review, under the supervision and with the participation of our management, including            our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our            disclosure controls and procedures (as defined in the SEC rules promulgated under the            Securities Exchange Act of 1934, as amended), which are designed to ensure that            information required to be disclosed in our Securities and Exchange Commission reports            is properly and timely recorded, processed, summarized and reported. Based upon that            review, our Chief Executive Officer and Chief Financial Officer concluded that while            our disclosure controls and procedures are effective in timely alerting them to            material information required to be included in our periodic filings with the            Securities and Exchange Commission, there is a lack of segregation of duties at the            Company due to the small number of employees dealing with general administrative and            financial matters. This constitutes a significant deficiency in financial reporting.            However, at this time management has decided that, considering the employees involved            and the control procedures in place, the risks associated with such lack of segregation            are insignificant, and the potential benefits of adding additional employees to clearly            segregate duties do not justify the expenses associated with such increases. Management            will continue to evaluate this segregation of duties.

             

There were no changes in our internal control over financial reporting            that occurred during the quarter ended June 30, 2007 that have materially affected, or            are reasonably likely to materially affect, our internal control over financial            reporting.

             

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**PART            II – OTHER INFORMATION**

 

| **Item 1A.** | **Risk Factors.** |
|--------------|-------------------|

 

There have been no material changes to the risk factors included in Item            1A of Part I of our annual Report on Form 10-K for the year ended December 31,            2006.

             

**Item            4. Submission of Matters to a Vote of Security Holders**

 

The            Company’s Annual Meeting of Stockholders was held on May 10, 2007. At the meeting            (i) all seven director nominees were elected, (ii) the appointment of Vitale, Caturano            & Company, Ltd. as the Company’s independent registered public accounting            firm was ratified, and (iii) amendments to the Company’s 2001 Incentive Plan to            increase the number of shares of Common Stock authorized for issuance under the            Incentive Plan by 1,000,000, were approved.

(i) The following directors were elected for one year terms by the votes            indicated: Robert J. DeLuccia, 5,235,555 for, 20,908 against or withheld; John L.            Zabriskie, 5,234,887 for, 21,576 against or withheld; Peter G. Martin, 5,235,573 for,            20,890 against or withheld; Jeffrey B. Davis, 5,234,696 for, 21,767 against or            withheld; Michael A. Davis, 5,234,691 for, 21,772 against or withheld; Paul S.            Echenberg, 5,235,542 for, 20,921 against or withheld; and Mark J. Alvino, 5,235,469            for, 20,994 against or withheld.

(ii) The appointment of Vitale, Caturano & Company, Ltd. was            ratified by a vote of 5,239,101 for, 15,336 against and 2,026 abstaining.

   (iii) Amendments to the Company’s 2001 Incentive Plan            to increase the number of shares of Common Stock authorized for issuance under the            Incentive Plan by 1,000,000 were approved by vote of 3,563,622 for, 95,174 against, 706            abstaining and 1,596,961 broker non-votes.

 

27

| **Item 6.** | **Exhibits.** |
|-------------|---------------|

 

The following is a list of exhibits to this Quarterly Report on Form            10-Q:

 

|   |                                                                                                                                                                                                                                                           |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1    | Amended and Restated Certificate of Incorporation,                            incorporated by reference to

Exhibit 3.1 to the Company’s Annual Report on Form                            10-K for the year ended

December 31, 2005 (File No. 0-13634). |
|   |                                                                                                                                                                                                                                                           |
| 3.2    | Amended and Restated By-Laws of the Company,                            incorporated by reference to

Exhibit 5 to the Company’s Current Report on Form                            8-K dated August 13, 1999

(File No. 0-13634).                        |
|   |                                                                                                                                                                                                                                                           |
| 31.1   | Certification of Principal Executive Officer Pursuant to                            Section 302 of the

Sarbanes-Oxley Act of 2002.                                                                                                                            |
|   |                                                                                                                                                                                                                                                           |
| 31.2   | Certification of Principal Financial Officer Pursuant to                            Section 302 of the

Sarbanes-Oxley Act of 2002.                                                                                                                            |
|   |                                                                                                                                                                                                                                                           |
| 32.1   | Certification of Principal Executive Officer Pursuant to                            Section 1350, Chapter 63

of Title 18, United States Code, as Adopted Pursuant to                            Section 906 of the

Sarbanes-Oxley Act of 2002.               |
|   |                                                                                                                                                                                                                                                           |
| 32.2   | Certification of Principal Financial Officer Pursuant to                            Section 1350, Chapter 63

of Title 18, United States Code, as Adopted Pursuant to                            Section 906 of the

Sarbanes-Oxley Act of 2002.               |

             

             

28

SIGNATURES

 

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

 

|   | MacroChem Corporation |
|--------|-----------------------|
|   | (Registrant)          |

 

| August 14, 2007 | /s/  Robert J. DeLuccia                                                        |
|-----------------|------------------------------------------------------------------------------------------|
|            | Robert J. DeLuccia

President and Chief Executive Officer

(Principal Executive Officer) |

 

|   | /s/  Bernard R. Patriacca                                                                                                   |
|--------|---------------------------------------------------------------------------------------------------------------------------------------|
|   | Bernard R. Patriacca

Vice President, Chief Financial Officer and                            Treasurer

(Principal Financial Officer) |

 

 

29

**EXHIBIT INDEX**

 

The following is a list of exhibits to this Quarterly Report on Form            10-Q:

             

| 3.1  | Amended and Restated Certificate of Incorporation,                            incorporated by reference to

Exhibit 3.1 to the Company’s Annual Report on Form                            10-K for the year ended

December 31, 2005 (File No. 0-13634). |
|------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.2  | Amended and Restated By-Laws of the Company,                            incorporated by reference to

Exhibit 5 to the Company’s Current Report on Form                            8-K dated August 13, 1999

(File No. 0-13634).                        |
| 31.1 | Certification of Principal Executive Officer Pursuant to                            Section 302 of the

Sarbanes-Oxley Act of 2002.                                                                                                                            |
| 31.2 | Certification of Principal Financial Officer Pursuant to                            Section 302 of the

Sarbanes-Oxley Act of 2002.                                                                                                                            |
| 32.1 | Certification of Principal Executive Officer Pursuant to                            Section 1350, Chapter 63

of Title 18, United States Code, as Adopted Pursuant to                            Section 906 of the

Sarbanes-Oxley Act of 2002.               |
| 32.2 | Certification of Principal Financial Officer Pursuant to                            Section 1350, Chapter 63

of Title 18, United States Code, as Adopted Pursuant to                            Section 906 of the

Sarbanes-Oxley Act of 2002.               |

 

 

 

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