ORGANIZATION AND BASIS OF PRESENTATION

12 Months Ended

Dec. 31, 2012

Notes to Financial Statements

Note 1. ORGANIZATION AND BASIS OF PRESENTATION

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

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

· enhanced needle-free drug delivery.

The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Sontra Medical, Inc., a Delaware corporation (and all significant intercompany balances have been eliminated by consolidation) and have been prepared on a basis assuming that the Company is a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Certain amounts in prior periods have been reclassified to conform to current presentation.

Liquidity and Management’s Plans

As of December 31, 2012, the Company had cash of approximately $3,747,000, a working capital deficit of approximately $4,380,000, and an accumulated deficit of approximately $93,902,000. The Company continues to incur recurring losses from operations. The Company will require additional capital to fund our product development, research, manufacturing and clinical programs in accordance with our current planned operations. The Company has funded its operations in the past primarily through debt and equity issuances. Management intends to utilize our current financing arrangements and pursue additional financing to fund its operations. Management believes that it will be successful in meeting the milestones required under their current financing arrangement or raising additional capital. No assurances can be given that additional capital will be available on terms acceptable to the Company. Subsequent to December 31, 2012, the Company received net proceeds from a Common Stock financing of approximately $10,666,000, of which $3,113,366 was used to fully repay the Notes we issued to Platinum-Montaur Life Sciences, LLC in connection with our $20 million non-revolving draw credit facility with Platinum-Montaur Life Sciences, LLC (see Note 9).