SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                   FORM 10-Q/A
                                (AMENDMENT NO. 1)

(Mark One)
[X]            QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934
                For the quarterly period ended September 30, 2006
                                       or

            [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934
                   For the Transition Period from ____ to ____

                         Commission file number 0-13634

                              MACROCHEM CORPORATION
             (Exact name of registrant as specified in its charter)

           DELAWARE                                         04-2744744
-------------------------------                   ------------------------------
 (State or Other Jurisdiction                            (I.R.S. Employer
of Incorporation or Organization)                       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 APRIL 11, 2007:
-----------------------------                      -----------------------------
Common Stock, $.01 par value                                3,187,792


                                       1
<PAGE>
                                EXPLANATORY NOTE

We are filing this Amendment No.1 to our Quarterly Report on Form 10-Q
("Amendment No.1") for the quarter ended September 30, 2006. The Quarterly
Report on Form 10-Q was originally filed on November 14, 2006 (the "Original
Filing"). Amendment No. 1 is being filed in order to correct the classification
of the warrants issued to the placement agent for services rendered in
connection with the Series C Convertible Preferred Stock Offering in December
2005 and January 2006 (see Note 5 to the financial statements included in this
Amendment No. 1). The fair value of the placement agent warrants was originally
accounted for as an offset to the proceeds from the Series C Convertible
Preferred Stock offering and a credit to additional paid in capital. Upon
further review of the terms of the warrants, which include a put feature
enabling the holder, at its option, to require the Company to repurchase the
warrant for cash in the event of a change in control, the Company determined
that the warrants meet the definition of a derivative instrument as defined in
SFAS 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. As such,
the fair value of the warrants should have been recorded in warrant liability
pursuant to the guidance in paragraphs 12 and 27 of EITF 00-19, ACCOUNTING FOR
DERIVATIVE FINANCIAL INSTRUMENTS INDEXED TO, AND POTENTIALLY SETTLED IN, A
COMPANY'S OWN STOCK, and adjusted to their current fair value at each reporting
period. The Balance Sheet, Income Statement, Statement of Cash flows and related
footnotes have been adjusted accordingly for the correction of the error. The
effect has been an increase in the warrant liability of $66,483 and a decrease
in additional paid in capital of $505,337 as of September 30, 2006, and a
corresponding non-cash increase in net income of $178,090 for the three months
ended September 30, 2006 and a non-cash increase in net income of $438,854 for
the nine months ended September 30, 2006. In addition, the Management's
Discussion and Analysis of Financial Condition and Results of Operations has
been amended to reflect the adjustment.

The year end December 31, 2005 balance sheet has been restated to reflect the
change in accounting for the Series C Cumulative Preferred Stock Offering
described above. As such, the Balance Sheet has been adjusted to reflect a
reclass of $174,922 from additional paid in capital to warrant liability. There
was no impact on the Statement of Operations or the Statement of Cash Flows for
the year ended December 31, 2005.

Except as described above, no other information in the Original Filing is
amended hereby. Amendment No. 1 does not reflect events occurring after the
filing of the Original Filing or modify or update those disclosures affected by
subsequent events. Accordingly, Amendment No. 1 should be read in conjunction
with our other filings made with the SEC subsequent to the filing of the
Original Filing.


                                       2
<PAGE>
                              MACROCHEM CORPORATION

                              INDEX TO FORM 10-Q/A

                                                                     PAGE NUMBER
                                                                     -----------
PART I         FINANCIAL INFORMATION

Item 1         Financial Statements

                  Condensed Balance Sheets
                  September 30, 2006 (Unaudited) and December 31, 2005    4

                  Condensed Statements of Operations for the
                  Three and Nine Months Ended September 30, 2006
                  and 2005 (Unaudited)                                    5

                  Condensed Statements of Cash Flows for the
                  Nine Months Ended September 30, 2006
                  and 2005 (Unaudited)                                   6-7

                  Notes to Unaudited Condensed Financial
                  Statements                                             8-19

Item 2          Management's Discussion and Analysis of
                Financial Condition and Results of Operations           20-27

PART II         OTHER INFORMATION

Item 6          Exhibits                                                  28

SIGNATURES                                                                29

EXHIBIT INDEX                                                             30


                                       3
<PAGE>
ITEM 1.  FINANCIAL STATEMENTS
<TABLE>
<CAPTION>

                              MACROCHEM CORPORATION
                            CONDENSED BALANCE SHEETS

                                                                    (UNAUDITED) SEPTEMBER 30, 2006             DECEMBER 31, 2005
                                                            ----------------------------------------------       ------------
                                                             AS REPORTED      ADJUSTMENT       RESTATED            RESTATED
                                                            -------------    -------------   -------------       ------------
ASSETS                                                                                                           (See Note 1)
<S>                                                         <C>              <C>             <C>                 <C>
Current assets:
      Cash and cash equivalents                             $     589,574                    $     589,574       $  3,023,436
      Short-term investments                                    5,150,263                        5,150,263                ---
      Prepaid expenses and other current assets                   256,041                          256,041            106,761
                                                            -------------    -------------   -------------       ------------
          Total current assets                                  5,995,878                        5,995,878          3,130,197

Property and equipment, net                                        42,074                           42,074             72,203

Patents, net                                                      579,920                          579,920            579,053
                                                            -------------    -------------   -------------       ------------
Total assets                                                $   6,617,872    $         ---   $   6,617,872       $  3,781,453
                                                            =============    =============   =============       ============

LIABILITIES
Current liabilities:
      Accounts payable                                      $     302,610                    $     302,610       $    125,478
      Accrued expenses and other liabilities                      163,040                          163,040            249,552
                                                            -------------    -------------   -------------       ------------
          Total current liabilities                               465,650                          465,650            375,030

Warrants liability (Note 5)                                       554,397    $      66,483         620,880          1,795,700
                                                            -------------    -------------   -------------       ------------
Total liabilities                                               1,020,047           66,483       1,086,530          2,170,730

Commitments and contingencies (Note 3)

Preferred stock, $.01 par value; liquidation value of
     $8,090,000 and $2,500,000;  6,000,000 shares
     authorized, 809 and 250 shares Series C Convertible
     issued and outstanding at September 30, 2006 and
     December 31, 2005, respectively (Note 5)                     335,441                          335,441            330,243
                                                            -------------    -------------   -------------       ------------
                                                                  335,441                          335,441            330,243

STOCKHOLDERS' EQUITY
Common stock, $.01 par value, 100,000,000 shares
      authorized;  2,116,456 and 997,438 shares issued at
      September 30, 2006 and December 31, 2005, respectively       21,165                           21,165              9,974
Additional paid-in capital                                     85,769,015        (505,337)      85,263,678         83,914,608
Accumulated deficit                                          (80,468,686)          438,854    (80,029,832)       (82,584,992)
Less treasury stock, at cost, 529 shares at September 30,
      2006 and December 31, 2005                                 (59,110)                         (59,110)           (59,110)
                                                            -------------    -------------   -------------       ------------
Total stockholders' equity                                      5,262,384         (66,483)       5,195,901          1,280,480
                                                            -------------    -------------   -------------       ------------

Total liabilities and stockholders' equity                  $   6,617,872    $         ---   $   6,617,872       $  3,781,453
                                                            =============    =============   =============       ============
</TABLE>


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

                                       4
<PAGE>



                              MACROCHEM CORPORATION
                       CONDENSED STATEMENTS OF OPERATIONS
         For the three and nine months ended September 30, 2006 and 2005
                                   (Unaudited)
<TABLE>
<CAPTION>

                                       FOR THE THREE MONTHS ENDED SEPTEMBER 30,        FOR  THE NINE MONTHS ENDED SEPTEMBER 30,
                                    ----------------------------------------------- -----------------------------------------------
                                                   2006                     2005                   2006                    2005
                                    ----------------------------------- ----------- ----------------------------------- -----------
                                    AS REPORTED ADJUSTMENT   RESTATED               AS REPORTED ADJUSTMENT   RESTATED
<S>                                <C>         <C>         <C>         <C>          <C>         <C>         <C>         <C>

OPERATING EXPENSES:
 Research and development          $   332,295             $   332,295 $380,881     $   488,520             $   488,520 $  2,149,949
 Marketing, general and
 administrative                        828,472                 828,472  908,163       2,946,159               2,946,159    2,552,441
 Costs associated with staff
 reduction and transition
 agreements (Note 7)                       ---                              546,212         ---                     ---      546,212
                                   ----------- ----------- ----------- ------------ ----------- ----------- ----------- ------------
   TOTAL OPERATING EXPENSES          1,160,767               1,160,767    1,835,256   3,434,679               3,434,679    5,248,602
                                   ----------- ----------- ----------- ------------ ----------- ----------- ----------- ------------

LOSS FROM OPERATIONS               (1,160,767)             (1,160,767)  (1,835,256) (3,434,679)             (3,434,679)  (5,248,602)
                                   ----------- ----------- ----------- ------------ ----------- ----------- ----------- ------------

OTHER INCOME:
 Interest income                        69,929                  69,929       14,264     189,081                 189,081       59,724
 Gain on change in value of
 warrant liability                   1,597,911 $   178,090   1,776,001          ---   5,910,979 $   438,854   6,349,833          ---
                                   ----------- ----------- ----------- ------------ ----------- ----------- ----------- ------------
   TOTAL OTHER INCOME
        (NOTE 5)                     1,667,840     178,090   1,845,930       14,264   6,100,060     438,854   6,538,914       59,724

NET INCOME (LOSS)                  $   507,073 $   178,090 $   685,163 $(1,820,992) $ 2,665,381 $   438,854 $ 3,104,235 $(5,188,878)

BENEFICIAL CONVERSION FEATURE
(NOTE 5)                                   ---                                 ---     (11,895)                (11,895)          ---

DIVIDEND ON SERIES C CUMULATIVE
  PREFERRED STOCK                    (203,999)               (203,999)         ---    (549,075)               (549,075)          ---
                                   ----------- ----------- ----------- ------------ ----------- ----------- ----------- ------------

NET INCOME (LOSS) ATTRIBUTABLE TO
  COMMON STOCKHOLDERS              $   303,074 $   178,090 $   481,164 $(1,820,992) $ 2,104,411 $   438,854 $ 2,543,265 $(5,188,878)
                                   =========== =========== =========== ============ =========== =========== =========== ============

BASIC NET INCOME (LOSS) PER COMMON $      0.21 $      0.12 $      0.33 $     (1.83) $      1.78 $      0.37 $      2.15 $     (5.37)
                                   =========== =========== =========== ============ =========== =========== =========== ============
   SHARE

DILUTED NET INCOME (LOSS)
   PER COMMON SHARE                $      0.06 $      0.02 $      0.08 $     (1.83) $      0.33 $      0.05 $      0.38 $     (5.37)
                                   =========== =========== =========== ============ =========== =========== =========== ============

WEIGHTED AVERAGE SHARES USED TO
   COMPUTE BASIC NET
   INCOME (LOSS) PER COMMON SHARE    1,461,192   1,461,192   1,461,192      996,749   1,184,572   1,184,572   1,184,572      966,610
                                   =========== =========== =========== ============ =========== =========== =========== ============

WEIGHTED AVERAGE SHARES USED
   TO COMPUTE DILUTED NET
   INCOME (LOSS) PER COMMON
   SHARE                             9,169,190   9,169,190   9,169,190      996,749   8,053,511   8,053,511   8,053,511      966,610
                                   =========== =========== =========== ============ =========== =========== =========== ============
</TABLE>

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


                                       5
<PAGE>
                              MACROCHEM CORPORATION
                       CONDENSED STATEMENTS OF CASH FLOWS
              For the nine months ended September 30, 2006 and 2005
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                             FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2006           2005
                                                            ----------------------------------------------       ------------
                                                             AS REPORTED       ADJUSTMENT      RESTATED
                                                            -------------    -------------   -------------

<S>                                                         <C>              <C>             <C>                 <C>
CASH FLOWS FROM OPERATING ACTIVITIES
    Net income (loss)                                       $   2,665,381    $     438,854   $   3,104,235       $(5,188,878)
    Adjustments to reconcile net income or loss to net cash
       used by operating activities:
         Depreciation and amortization                             70,032                           70,032            149,582
         Stock-based compensation                                 804,489                          804,489                ---
         401(k) contributions in Company common stock                 ---                              ---             15,610
         Deferred rent                                                ---                              ---            (5,509)
         (Gain) on change in value of warrant liability       (5,910,979)        (438,854)     (6,349,833)                ---
    Change in assets and liabilities:
         Prepaid expenses and other current assets              (149,281)                        (149,281)            104,661
         Accounts payable and accrued expenses                     90,621                           90,621          (448,453)
                                                            -------------    -------------   -------------       ------------
Net cash used in operating activities                         (2,429,737)              ---     (2,429,737)        (5,372,987)
                                                            -------------    -------------   -------------       ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
    Sale of short-term investments                                    ---                              ---          1,185,406
    Purchases of short-term investments                       (5,150,263)                      (5,150,263)                ---
    Expenditures for property and equipment                         (436)                            (436)           (14,519)
    Additions to patents                                         (40,334)                         (40,334)          (105,439)
                                                            -------------    -------------   -------------       ------------
Net cash (used in) provided by investing activities           (5,191,033)                      (5,191,033)          1,065,448
                                                            -------------    -------------   -------------       ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Net proceeds from issuance of Series C Cumulative
       Convertible Preferred Stock and Warrants                 5,186,908                        5,186,908                ---
    Proceeds from sale of common stock (net of legal and
        financial costs)                                              ---                              ---            601,341
    Proceeds from exercise of warrants                                ---                              ---             87,500
                                                            -------------    -------------   -------------       ------------
Net cash provided by financing activities                       5,186,908                        5,186,908            688,841
                                                            -------------    -------------   -------------       ------------

Net change in cash and cash equivalents                       (2,433,862)                      (2,433,862)        (3,618,698)
Cash and cash equivalents at beginning of period                3,023,436                        3,023,436          4,888,868
                                                            -------------    -------------   -------------       ------------

Cash and cash equivalents at end of period                  $    589,574     $         ---   $     589,574       $  1,270,170
                                                            =============    =============   =============       ============
</TABLE>


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


                                                                    (Continued)

                                       6
<PAGE>




                              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
nine-month periods ended September 30, 2006 and 2005.

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




                                       7
<PAGE>
                              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

     We are filing this Amendment No. 1 in order to correct the classification
     of the warrants issued to the placement agent for services rendered in
     connection with the Series C Convertible Preferred Stock Offering in
     December 2005 and January 2006 (see Note 5 to the financial statements
     included in this Amendment No. 1). The fair value of the placement agent
     warrants was originally accounted for as an offset to the proceeds from the
     Series C Convertible Preferred Stock offering and a credit to additional
     paid in capital. Upon further review of the terms of the warrants, which
     include a put feature enabling the holder, at its option, to require the
     Company to repurchase the warrant for cash in the event of a change in
     control, the Company determined that the warrants meet the definition of a
     derivative instrument as defined in SFAS 133, ACCOUNTING FOR DERIVATIVE
     INSTRUMENTS AND HEDGING ACTIVITIES. As such, the fair value of the warrants
     should have been recorded in warrant liability pursuant to the guidance in
     paragraphs 12 and 27 of EITF 00-19, ACCOUNTING FOR DERIVATIVE FINANCIAL
     INSTRUMENTS INDEXED TO, AND POTENTIALLY SETTLED IN, A COMPANY'S OWN STOCK,
     and adjusted to their current fair value at each reporting period. The
     Balance Sheet, Income Statement, Statement of Cash flows and related
     footnotes have been adjusted accordingly for the correction of the error.
     The effect has been an increase in the warrant liability of $66,483 and a
     decrease in additional paid in capital of $505,337 as of September 30,
     2006, and a corresponding non-cash increase in net income of $178,090 for
     the three months ended September 30, 2006 and a non-cash increase in net
     income of $438,854 for the nine months ended September 30, 2006. In
     addition, the Management's Discussion and Analysis of Financial Condition
     and Results of Operations has been amended to reflect the adjustment.

     The year end December 31, 2005 balance sheet has been restated to reflect
     the change in accounting for the Series C Cumulative Preferred Stock
     Offering described above. As such, the Balance Sheet has been adjusted to
     reflect a reclass of $174,922 from additional paid in capital to warrant
     liability. There was no impact on the Statement of Operations or the
     Statement of Cash Flows for the year ended December 31, 2005.

     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

                                       8
<PAGE>
     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, 2005.

     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 net losses
     from operations every year since its inception and the Company anticipates
     that losses from operations will continue for the foreseeable future. At
     September 30, 2006, the Company's accumulated deficit was $80,029,832. At
     September 30, 2006, the Company believes that its existing cash and cash
     equivalents are sufficient to fund operations under the Company's current
     operating plan for at least the next twelve months. The Company's ability
     to continue operations after its current capital resources are exhausted
     depends on its ability to obtain additional financing and achieve
     profitable operations, as to which no assurances can be given. 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, competitive and technical advances, patent
     developments or other developments.

     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.

     The results disclosed in the Statement of Operations for the nine months
     ended September 30, 2006 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.

     ADOPTION OF SFAS 123(R)

     Prior to January 1, 2006, the Company accounted for stock-based
     compensation issued to employees using the intrinsic value method, which


                                       9
<PAGE>
     follows the recognition and measurement principles of Accounting Principles
     Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees,"
     and Financial Accounting Standards Board ("FASB") Interpretation ("FIN")
     No. 44, "Accounting for Certain Transactions Involving Stock Compensation."
     Generally, no stock-based employee compensation cost related to stock
     options was reflected in net income, as all options granted under
     stock-based compensation plans had an exercise price equal to the market
     value of the underlying common stock on the grant date. Compensation cost
     related to restricted stock units granted to non-employee directors and
     certain key employees was reflected as an expense as services were
     rendered.

     On January 1, 2006, the Company adopted Statement of Financial Accounting
     Standards ("SFAS") No. 123(R), "Share-Based Payment," using the modified
     prospective method, which requires measurement of compensation cost for all
     stock awards at fair value on the date of grant and recognition of
     compensation over the requisite service period for awards expected to vest.
     The fair value of stock options is estimated using the Black-Scholes
     valuation model, and the fair value of restricted stock units is determined
     based on the number of shares granted and the quoted price of the Company's
     common stock on the date of grant. Such value is recognized as expense over
     the requisite service period, net of estimated forfeitures, using the
     straight-line attribution method. The estimate of awards that will
     ultimately vest requires significant judgment, and to the extent actual
     results or updated estimates differ from the Company's current estimates,
     such amounts will be recorded as a cumulative adjustment in the period
     estimates are revised. The Company considers many factors when estimating
     expected forfeitures, including types of awards, employee class and
     historical employee attrition rates. Actual results, and future changes in
     estimates, may differ substantially from the Company's current estimates.

     On March 29, 2005, the Securities and Exchange Commission ("SEC") published
     Staff Accounting Bulletin ("SAB") No. 107, which provides the Staff's views
     on a variety of matters relating to stock-based payments. SAB No. 107
     requires that stock-based compensation be classified in the same expense
     line items as cash compensation. The Company has classified stock-based
     compensation during the nine months ended September 30, 2006 within the
     same operating expense line items as cash compensation paid to employees.

     Stock-based compensation expense under SFAS No. 123(R) was $129,894 and
     $804,489 during the three and nine months ended September 30, 2006,
     respectively. The incremental impact of SFAS No. 123(R) during the three
     and nine months ended September 30, 2006 represents stock-based
     compensation expense related to stock options.

     VALUATION ASSUMPTIONS FOR STOCK OPTIONS

     The fair value of stock options granted during the three and nine months
     ended September 30, 2006 and 2005 was estimated using the Black-Scholes
     option-pricing model with the following assumptions:



                                       10
<PAGE>
                                                     THREE AND NINE MONTHS ENDED
                                                     ---------------------------
                                                           SEPTEMBER 30,
                                                           -------------
                                                       2006              2005
                                                       ----              ----

                 Risk-free interest rate               4.72%             4.25%
                 Expected life of option grants       6 years           6 years
                 Expected volatility of underlying
                   stock                                102%              93%
                 Expected dividend payment rate, as
                   a percentage of the stock price
                   on the date of grant                 ---               ---

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

     PRO FORMA INFORMATION FOR PERIOD PRIOR TO SFAS 123(R) ADOPTION

     In accordance with FAS 123(R), the Company adopted the provisions of FAS
     123(R) at January 1, 2006 using the modified prospective approach. Under
     this method, prior periods are not restated. Had the Company previously
     recognized compensation costs as prescribed by FAS 123, previously reported
     net loss, basic earnings per share and diluted earnings per share would
     have changed to the pro forma amounts shown as follows:

<TABLE>
<CAPTION>

                                                                    THREE MONTHS            NINE MONTHS
                                                                    ------------            -----------
                                                                        ENDED                  ENDED
                                                                        -----                  -----
                                                                  SEPTEMBER 30, 2005      SEPTEMBER 30, 2005
                                                                  ------------------      ------------------
         <S>                                                     <C>                     <C>
         Net loss as reported                                    $      (1,820,992)      $      (5,188,878)
         Deduct: Total stock-based employee compensation
               measured using the fair value method                        (67,226)               (680,413)
                                                                 ------------------      ------------------
         Pro forma net loss                                      $      (1,888,218)      $      (5,869,291)
                                                                 ==================      ==================
         Basic and diluted net loss per share - as reported      $           (1.83)      $           (5.37)
                                                                 ==================      ==================
         Basic and diluted net loss per share - pro forma        $           (1.89)      $           (6.07)
                                                                 ==================      ==================
</TABLE>

     Stock option activity for the nine months ended September 30, 2006 was as
     follows:
<TABLE>
<CAPTION>

                                                                  WEIGHTED           WEIGHTED         AGGREGATE
                                                                  --------           --------         ---------
                                                 NUMBER OF        AVERAGE            AVERAGE          INTRINSIC
                                                 ---------        -------            -------          ---------
                                                  OPTIONS      EXERCISE PRICE     REMAINING LIFE        VALUE
                                                  -------      --------------     --------------        -----
         <S>                                    <C>              <C>                <C>                <C>
         Outstanding, December 31, 2005           108,600        $132.24
             Granted                              945,000        $  1.62
             Exercised                                ---            ---
             Canceled or Expired                 (38,884)
                                                ---------         ------             -------            ----
         Outstanding, September 30, 2006        1,014,716        $ 10.63                9.63           $   0
                                                =========         ======             =======            ====
         Exercisable, September 30, 2006          382,363        $ 24.81                6.01           $   0
                                                =========         ======             =======            ====

</TABLE>

                                       11
<PAGE>

     The weighted average grant date fair value of options granted during the
     nine months ended September 30, 2006 was $1,250,910. The remaining
     unrecognized compensation cost related to unvested awards at September 30,
     2006 was approximately $451,720 and the weighted average period of time
     over which this cost will be recognized is 1.25 years.

(3)  COMMITMENTS AND CONTINGENCIES

     LEASE COMMITMENTS- In accordance with certain lease contracts related to
     office space and equipment, in the event that they are terminated early, we
     would owe approximately $132,400 as early termination payments.

(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:

<TABLE>
<CAPTION>
                                                     THREE MONTHS ENDED           NINE MONTHS ENDED
                                                     ------------------           -----------------
                                                        SEPTEMBER 30,               SEPTEMBER 30,
                                                        -------------               -------------
                                                     2006         2005          2006           2005
                                                     ----         ----          ----           ----
<S>                                               <C>         <C>            <C>          <C>
Basic income (loss) per common share
   computation:
   Numerator:
Net income (loss) available to common
stockholders used for basic income                $  481,164  $(1,820,992)  $2,543,265    $(5,188,878)
                                                   =========   ===========   =========     ===========
  Denominator:
Weighted average shares used for basic
  income (loss) per common share                   1,461,192       996,749   1,184,572         966,610
                                                   =========   ===========   =========     ===========

   Basic income (loss) per common share           $     0.33  $     (1.83)  $     2.15    $     (5.37)
                                                   =========   ===========   =========     ===========


Diluted income (loss) per common share
   Computation:
   Numerator:
Net income (loss) used for basic income
   (loss) per common share                        $  481,164  $(1,820,992)  $2,543,265    $(5,188,878)
Dividend on convertible preferred                   203,999           ---     549,075              ---
                                                   ---------   -----------   ---------     -----------
Net income (loss) used for diluted income
   (loss) per common share                        $  685,163  $(1,820,992)   $3,092,340   $(5,188,878)
                                                   =========   ===========   =========     ===========
   Denominator:
Weighted average shares used for basic
   income (loss) per common share                  1,461,192       996,749   1,184,572         966,610
Effect of dilutive securities:
Conversion of convertible preferred stock          7,707,998           ---   6,868,939             ---
                                                   ---------   -----------   ---------     -----------
Weighted average shares used for diluted
   income (loss) per common share                  9,169,190       996,749   8,053,511         966,610
                                                   =========   ===========   =========     ===========

Diluted income (loss) per common share           $     0.08  $     (1.83)  $     0.38     $     (5.37)
                                                   =========   ===========   =========     ===========
</TABLE>
     Potential common shares are not included in the per share calculations for
     diluted loss per share where the effect of their inclusion would be
     anti-dilutive. Anti-dilutive potential shares not included in per share
     calculations for the three and nine months ended September 30, 2005 were
     233,011 and 198,603, respectively. Dilutive shares not included in the


                                       12
<PAGE>

     income per share calculation for both the three and nine month periods
     ended September 30, 2006 were 9,716,289. These shares were not included as
     the closing average price of the Company's common shares for the three and
     nine months ended September 30, 2006 was below the exercise price of the
     warrants and stock options.

(5)  STOCKHOLDERS' EQUITY

     AUTHORIZED CAPITAL STOCK - Authorized capital stock consists of 100,000,000
     shares of $.01 par value common stock of which 2,116,456 shares are issued
     (2,115,927 are outstanding) and 17,499,289 are reserved for issuance upon
     exercise of common stock options and warrants and conversion of Series C
     Cumulative Convertible Preferred Stock at September 30, 2006. Authorized
     preferred stock totals 6,000,000 shares, of 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 (809 shares of Series C Cumulative
     Convertible Preferred Stock were outstanding at September 30, 2006). The
     Series C Cumulative Convertible 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 Cumulative Convertible Preferred Stock is redeemable at the
     holder's election in the event the Company fails or refuses to convert any
     shares of Series C Cumulative Convertible Preferred Stock in accordance
     with the terms of the Certificate of Designation, Rights and Preferences of
     the Series C Cumulative Convertible Preferred Stock. The number of shares
     of common stock into which each share of Series C Cumulative Convertible
     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 September 30, 2006, 529
     repurchased shares remain available for future use and 16,180 shares are
     available to be repurchased.

     SERIES C CONVERTIBLE PREFERRED STOCK - On December 23, 2005, pursuant to
     the terms of a Preferred Stock and Warrant Purchase Agreement (the
     "Purchase Agreement"), the Company completed the first closing of a private
     placement (the "Series C Financing") in which institutional investors (the
     "Purchasers") 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 price of $1.26 per
     share, for an aggregate purchase price of $2.5 million (the "First
     Closing"). The net proceeds from the First Closing were $2,125,943. In the
     second closing of the Series C Financing, on February 13, 2006, the Company
     issued to institutional investors (the "Purchasers") 575.5 shares of Series
     C Preferred Stock and six-year warrants (the "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 approximately $5.75
     million (the "Second Closing"). The net proceeds from the Second Closing
     were $5,186,908. The terms of the Series C Preferred Stock and Warrants
     issued in the First Closing and the Second Closing were identical.



                                       13
<PAGE>
     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, no later than
     March 27, 2006, and to use its best efforts to cause the registration
     statement to become effective within a specified time period. The Investor
     Rights Agreement further provides that if a registration statement is not
     filed or declared effective within specified time period, the Company would
     be required to pay each holder an amount in cash, as liquidated damages,
     equal to 2.0% per month of the aggregate purchase price paid by such holder
     in the private placement for the common stock and warrants then held.

     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. The first dividend payment date was March 31, 2006.

     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.

     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
     4,057,885 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 80.28% of the voting power of our


                                       14
<PAGE>
     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 89.06% 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 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 conversion price for the Series C Preferred Stock and the
     Warrant exercise price were each subject to reset adjustment such that if
     the average price of the common stock over the twenty trading days


                                       15
<PAGE>
     immediately preceding May 8, 2006 (the "Average Price") was lower than the
     conversion and/or exercise price, then such conversion and/or exercise
     price would have been adjusted to equal the Average Price.

     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 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 September 2003, the Company sold 108,420 shares of common
     stock and warrants to purchase 21,684 shares of common stock to primarily
     institutional investors. Gross proceeds were $3,246,000 ($2,971,505 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 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


                                       16
<PAGE>

     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 5,480,961 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. As of September 30, 2006, none of these $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. As of September 30,
     2006, 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. As of September 30, 2006, none of these $1.26 investor warrants had
     been exercised. The designees of the placement agent in this transaction
     received warrants to purchase approximately 238,095 shares of common stock
     at a purchase price of $1.05 for a period of six years. As of September 30,
     2006, 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 each reporting period, with the
     changes in fair value recorded in earnings, until the Company meets the
     criteria under EITF 00-19 for permanent equity. The Company valued the
     investor warrants and the placement agent warrants at $620,880 on September
     30, 2006 using the Black-Scholes method with the following assumptions: a
     risk-free interest rate of 4.82%, 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 September 30, 2006,
     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 September 30, 2006, 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 September 30, 2006, none of the $87.78 warrants had been
     exercised.

                                       17
<PAGE>
     During 2003, the Company conducted a private placement in which primarily
     institutional investors received warrants to purchase an aggregate of
     21,684 shares of common stock at a purchase price of $49.266 per share for
     a period of three years. As of September 30, 2006, 9,011 of the $49.266
     warrants issued to the institutional investors had been exercised. The
     placement agent in this transaction received a warrant to purchase 3,571
     shares of common stock at a purchase price of $49.266 for a period of three
     years. As of September 30, 2006, none of the $49.266 warrants issued to the
     placement agent 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
     three and nine-month periods ended September 30, 2006, no options were
     granted or exercised under the 1994 Plan. During the three and nine-month
     periods ended September 30, 2006, 6,214 and 23,756 options, respectively,
     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 1,373,809 shares of common stock to certain employees,
     directors and consultants. During the three and nine month periods ended
     September 30, 2006, no options were granted, no options were exercised and
     15,128 options were cancelled under the 2001 Plan.

     STOCK AND STOCK OPTION ISSUANCES OUTSIDE THE STOCK OPTION PLANS - During
     the three months ended September 30, 2006, no options were granted outside
     the Stock Option Plans. During the nine months ended September 30, 2006,
     options to purchase an aggregate of 945,000 shares of common stock were
     granted to executive officers and directors of the Company. 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.

     During the nine months ended September 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.

(6)  COMPREHENSIVE LOSS

     Comprehensive loss is equal to the Company's net loss for the nine months
     ended September 30, 2006 and 2005.


                                       18
<PAGE>
(7)  COSTS ASSOCIATED WITH STAFF REDUCTION AND TRANSITION AGREEMENTS

     As reported on September 7, 2005, the Company terminated substantially all
     its non-management personnel on August 31, 2005. The costs associated with
     this staff reduction and related expenses were approximately $166,839.

     As reported on September 16, 2005, the Company entered into transition
     agreements with its executive officers in September 2005. The transition
     agreements terminated the existing employment and severance agreements
     between the Company and each executive. Pursuant to the terms of the
     transition agreements, the executives agreed that they would remain
     employed by the Company until November 30, 2005. The costs associated with
     these transition agreements were approximately $584,438. These agreements
     also provide for aggregate payments of approximately $75,000 on November
     30, 2005. There are no further payments due as a result of the staff
     reduction or under the transition agreements. As disclosed in our Annual
     Report on Form 10-K for the period ended December 31, 2005, we entered into
     employment agreements of indefinite length with our three remaining
     executive officers on February 13, 2006.

(8)  RECENT ACCOUNTING PRONOUNCEMENTS

     In June 2006, the Financial Accounting Standards Board ("FASB") issued
     Interpretation No. 48 ("FIN 48"), "Accounting for Uncertain Tax Positions,
     an Interpretation of Statement of Financial Accounting Standards ("SFAS")
     No. 109". FIN 48 clarifies the accounting for uncertain tax positions that
     are more likely than not to be sustained upon examination by a relevant
     taxing authority. This interpretation is effective for fiscal years
     beginning after December 15, 2006. The adoption of the requirements of FIN
     48 is not expected to have a material impact on the Company's financial
     condition, results of operations, or cash flows.

     In September 2006, the FASB issued SFAS 157, "Fair Value Measurements."
     This standard defines fair value, establishes a framework for measuring
     fair value in accounting principles generally accepted in the United States
     ("GAAP"), and expands disclosures about fair value measurements. This
     standard is effective for financial statements issued for fiscal years
     beginning after November 15, 2007. Management is currently evaluating the
     requirements of SFAS 157 and has not yet determined the impact on the
     Company's financial condition, results of operations or cash flows.




                                       19
<PAGE>


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, 2005 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 the
forward-looking statements to reflect events or circumstances occurring after
the date of this report.

                                       20
<PAGE>
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 product
candidates is based on our proprietary drug delivery technologies: SEPA(R),
MacroDerm(TM) and DermaPass(TM). Our patented 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 operating 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 September 30, 2006, we had an
accumulated deficit of $80,029,832. 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:

     o the progress of clinical trials we conduct;

     o the degree of our research, marketing and administrative efforts;

     o our ability to raise additional capital; and

     o the signing of licenses and product development agreements.

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<PAGE>
     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 potential product candidates, we will incur
additional costs in connection with testing and seeking regulatory approval of
those product candidates.

     We believe that our existing cash and cash equivalents and short term
investments of $5,739,837 as of September 30, 2006 will be sufficient to meet
our operating expenses and capital expenditure requirements under our current
operating plan for at least the next twelve months.

     RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
consist of:

     o payments to consultants, investigators, contract research organizations
and manufacturers in connection with our pre-clinical and clinical trials;

     o costs associated with conducting our clinical trials;

     o costs of developing and obtaining regulatory approvals;

     o salaries and expenses for our research and development personnel; and

     o allocable costs, including occupancy and depreciation.

     Because a portion of our research and development expenses (including
employee payroll and related benefits, laboratory supplies, travel, dues and
subscriptions, temporary help 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. On August
31, 2005, we discontinued all research and development activities and terminated
substantially all of our non-management personnel. We resumed development
activities in the first quarter of 2006. For the three-month period ended
September 30, 2006, we spent $332,295 on research and development, including
$271,504 in costs associated with a clinical trial for EcoNail and $60,791 in
costs not specifically tracked to a project. For the three months ended
September 30, 2005, we spent $380,881 on research and development, all of which
was not specifically tracked to a particular project. For the nine-month period
ended September 30, 2006, we spent $488,520 on research and development,
including $419,351 in costs associated with a clinical trial for EcoNail and
$69,169 in costs not specifically tracked to a project. For the nine months
ended September 30, 2005, we spent $2,149,949 on research and development,
including $195,434 and $327,434 in costs associated with our clinical trials for
EcoNail and Opterone, respectively, and $1,627,081 in costs not specifically
tracked to a particular project.

                                       22
<PAGE>
     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.

     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, 2005, 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.



                                       23
<PAGE>
     RESEARCH AND DEVELOPMENT. Research and development costs are expensed as
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-month and nine-month periods ending
September 30, 2006 and September 30, 2005. For the year ending December 31,
2006, we do not expect to have any revenues.

     For the three-month period ended September 30, 2006, research and
development costs decreased by $48,586, or 12.8%, to $332,295 from $380,881 in
the three-month period ended September 30, 2005. The decrease is primarily
attributable to the temporary cessation of research and development activities
in August 2005, resulting in a reduction in payroll and related expenses of
$207,468 and a reduction in laboratory operating expenses of $170,818 in the
three-month period ended September 30, 2006. The decrease was offset by an
increase in spending of $332,295 on clinical trials for the three month period
ending September 30, 2006. For the nine-month period ended September 30, 2006,
research and development costs decreased by $1,661,429, or 77.3%, to $488,520
from $2,149,949 in the nine-month period ended September 30, 2005. The decrease
is primarily attributable to the temporary cessation of research and development
activities in August 2005, resulting in a reduction in payroll and related
expenses of $684,628 and a reduction in laboratory operating expenses of
$580,076 in the nine-month period ended September 30, 2006 compared to the same
period in 2005. In addition, there was a reduction in spending on clinical
trials of $410,567 in the nine month period ended September 30, 2006 compared
with the same period in 2005. For the next quarter, we expect research and
development spending to increase significantly from the level seen in the first
three quarters of 2006 as we continue the ongoing clinical trial for EcoNail in
the fourth quarter of 2006.

     For the three-month period ended September 30, 2006, marketing, general and
administrative costs decreased by $79,691, or 8.8%, to $828,472, from $908,163
in the three-month period ended September 30, 2005. The decrease is primarily
attributable to a reduction in salary and related expenses of $176,877. In
addition, there was a reduction in expenses relating to legal and audit fees of
approximately $75,775 and patent and research fees of approximately $40,439. The
effect of these amounts on marketing, general and administrative expenses was
offset by an increase of $145,255 in expenses related to conferences and
investor relations meetings. Also, the Company's adoption of SFAS No. 123(R),
which requires expensing of stock options granted to employees based on the face
value on the date of the grant, resulted in an increase in expenses of $129,894.
For the nine-month period ended September 30, 2006, marketing, general and
administrative costs increased by $393,718, or 15.4%, to $2,946,159, from
$2,552,441 in the nine-month period ended September 30, 2005. The increase is
primarily attributable to the Company's adoption of SFAS No. 123(R), which

                                       24
<PAGE>

requires the expensing of stock options granted to employees based on the fair
value on the date of the grant, resulting in an expense of $804,489. In
addition, expenses related to conferences and investor relations meetings
increased by approximately $170,061. The Company also incurred additional costs
of $14,837 relating to certain SEC filings and reverse stock splits. The effect
of these amounts on marketing, general and administrative expenses for the
nine-month period ended September 30, 2006 was partially offset by savings
attributable to a staff reduction in August 2005 which resulted in a reduction
of salary and related expenses of $486,006 during the nine-month period ended
September 30, 2006. In addition, in the nine-month period ended September 30,
2006, legal and audit expenses decreased by approximately $57,495, insurance
expenses decreased by approximately $20,156 and patent and search fees decreased
by approximately $66,277. For the next quarter, we expect marketing, general and
administrative spending to approximate the same level as seen in the third
quarter of 2006.

     For the three-month period ended September 30, 2006, other income increased
by $1,831,666 to $1,845,930 compared to $14,264 in the three-month period ended
September 30, 2005. This is primarily a non-cash increase as a result of a
change in the valuation of warrants in accordance with EITF 00-19, "Accounting
for Derivative Financial Instruments Indexed to, and Potentially Settled in, a
Company's Own Stock" to reflect a decline in price of our common stock for which
the warrants are exercisable. As a result, the fair value of the warrant
liability decreased by $1,776,001. Interest income for the three-month period
ended September 30, 2006 increased by $55,665 to $69,929 compared to interest
income of $14,264 in the three-month period ended September 30, 2005. The
increase in interest income is due to higher amounts of cash available for
investing purposes and higher interest rate returns available for cash that is
invested. For the nine-month period ended September 30, 2006, other income
increased by $6,479,190 to $6,538,914 compared to $59,724 in the nine-month
period ended September 30, 2005. The increase is primarily the result of the
valuation of warrants in accordance with EITF 00-19, "Accounting for Derivative
Financial Instruments Indexed to, and Potentially Settled in, a Company's Own
Stock." As a result, the fair value of the warrant liability decreased by
$6,349,833. Interest income for the nine-month period ended September 30, 2006
increased by $129,357 to $189,081 compared to interest income of $59,724 in the
nine-month period ended September 30, 2005. The increase in interest income is
due to higher amounts of cash available for investing purposes and higher
interest rate returns available for cash that is invested.

     For the reasons described above, the Company's financial statements reflect
a net income of $685,163 in the three-month period ended September 30, 2006
compared with a net loss of $1,820,992 in the three-month period ended September
30, 2005. For the nine-month period ended September 30, 2006, the Company's
financial statements reflect a net income of $3,104,235 compared with a net loss
of $5,188,878 in the nine-month period ended September 30, 2005.

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 nine months of 2006, we received no proceeds
from the exercise of options and warrants, and gross proceeds of $5,755,000
($5,186,908 net of cash issuance costs) as a result of the sale of our Series C
Cumulative Convertible Preferred Stock in a private placement financing



                                       25
<PAGE>
transaction. During the first nine months of 2005, we received net proceeds of
$87,500 from the exercise of warrants and gross proceeds of $815,000 (before
issuance costs) as a result of the sale of our common stock in a private
placement transaction.

     At September 30, 2006, working capital was approximately $5.5 million,
compared to $1.2 million at September 30, 2005. The increase in our working
capital reflects the receipt of private placement proceeds, partially offset by
the use of funds in operations during the year. On February 13, 2006, we sold
575.5 shares of our Series C Cumulative Convertible Preferred Stock for
$5,755,000 in gross proceeds ($5,186,908 net of cash issuance costs) in a
private placement to institutional investors. The investors also received
warrants to purchase 5,480,961 shares of the Company's common stock at an
exercise price of $1.26 per share. 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 nine-month period ended September 30,
2006, we did not repurchase any shares of common stock. At September 30, 2006,
529 repurchased shares remain available for future use and 16,180 shares remain
available for repurchase under the plan.

     Capital and patent development expenditures were $40,770 for the first nine
months of 2006. Capital and patent development expenditures were $119,958 for
the nine-month period ended September 30, 2005. We anticipate additional capital
and patent expenditures will be approximately $40,000 for the remainder of the
fiscal year ending December 31, 2006.

     On August 31, 2005, at the direction of our Board of Directors, we
discontinued all research and development activities and terminated
substantially all of our non-management personnel. We made payments of
approximately $166,839 in connection with this staff reduction and related
expenses. In September 2005, the Company entered into transition agreements with
its executive officers. The transition agreements terminated the existing
employment and severance agreements between the Company and each executive.
Pursuant to the terms of the transition agreements, the executives agreed that
they would remain employed by the Company until November 30, 2005. Three
executives executed amendments to their transition agreements extending their
employment through December 31, 2005 and beyond. We made payments of
approximately $709,646 in connection with all executive transition agreements.
We also made aggregate payments of approximately $35,000 on November 30, 2005
and $35,000 on December 15, 2005 under a separate provision of the transition
agreements. There are no further payments due as a result of the staff reduction
or under the transition agreements. As disclosed in our Annual Report on Form
10-K for the period ended December 31, 2005, we entered into employment
agreements of indefinite length with our three remaining executive officers on
February 13, 2006.

     As of September 30, 2006, we had $5,739,837 in cash, cash equivalents and
short-term investments. We believe that our existing cash and cash equivalents
will be sufficient to meet our anticipated operating expenses and capital
expenditure requirements under our current operating plan for at least the next
twelve months. Our cash requirements may vary materially from those now planned



                                       26
<PAGE>
because of changes in the focus and direction of our research and development
programs, competitive and technical advances, patent developments or other
developments. 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.

     As described in our current report on Form 8-K filed on July 25, 2006, we
entered into a 20-month sublease of approximately 4,000 square feet of office
space at, and relocated our principal executive offices to, 40 Washington St.,
Suites 220 and 240, Wellesley Hills, Massachusetts, 02481, effective as of June
1, 2006. Our telephone number is (781) 489-7310. At September 30, 2006, with the
exception of this sublease, the Company had no long-term contractual
obligations.

RECENT ACCOUNTING PRONOUNCEMENTS

     In June 2006, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 48 ("FIN 48"), "Accounting for Uncertain Tax Positions, an
Interpretation of Statement of Financial Accounting Standards ("SFAS") No. 109".
FIN 48 clarifies the accounting for uncertain tax positions that are more likely
than not to be sustained upon examination by a relevant taxing authority. This
interpretation is effective for fiscal years beginning after December 15, 2006.
The adoption of the requirements of FIN 48 is not expected to have a material
impact on the Company's financial condition, results of operations, or cash
flows.

     In September 2006, the FASB issued SFAS 157, "Fair Value Measurements."
This standard defines fair value, establishes a framework for measuring fair
value in accounting principles generally accepted in the United States ("GAAP"),
and expands disclosures about fair value measurements. This standard is
effective for financial statements issued for fiscal years beginning after
November 15, 2007. Management is currently evaluating the requirements of SFAS
157 and has not yet determined the impact on the Company's financial condition,
results of operations or cash flows.




                                       27
<PAGE>
PART II - OTHER INFORMATION

ITEM 6. EXHIBITS.

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

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
<PAGE>
                                   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)



April 11, 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
<PAGE>
                                  EXHIBIT INDEX


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

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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