ORGANIZATION AND BASIS OF PRESENTATION

12 Months Ended

Dec. 31, 2013

Notes to Financial Statements

Note 1. ORGANIZATION AND BASIS OF PRESENTATION

Echo Therapeutics, Inc. (the “Company”) is a medical device company with expertise in advanced skin permeation technology. The Company is developing its Symphony® CGM System (“Symphony”) as a non-invasive, wireless continuous glucose monitoring (“CGM”) system for use in hospital critical care units. The Symphony® SkinPrep System (“SkinPrep”), a component of the Symphony CGM System, allows for enhanced skin permeation that enables extraction of analytes such as glucose.

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.

On June 7, 2013, the Company effected a 1-for-10 reverse stock split of its common stock.  All share and per share information has been retroactively restated to reflect this reverse stock split.

Liquidity and Management’s Plans

The accompanying financial statements have been prepared on a basis that assumes that the Company will continue as a going concern and that contemplates the continuity of operations, realization of assets and the satisfaction of liabilities and commitments in the normal course of business.  As of December 31, 2013, the Company had cash of approximately $8,055,000, working capital of approximately $5,731,000, and an accumulated deficit of approximately $112,969,000.  The Company continues to incur recurring losses from operations.  The Company will need to collect proceeds under its current financing arrangement and secure additional capital to fund its product development, research, manufacturing and clinical programs in accordance with its current planned operations.  The Company has funded its operations in the past primarily through debt and equity issuances.  Management intends to utilize its current financing arrangements and will continue to pursue additional financing to fund its operations.  Management believes that it will be successful in collecting on their current financing arrangement and raising additional capital.  No assurances can be given that additional capital will be available on terms acceptable to the Company (see MTIA Securities Purchase Agreement in Note 9). The accompanying financial statements do not include any adjustments that might result from the outcome of the uncertainty.

Subsequent to December 31, 2013, the Company received net cash proceeds from a Common Stock financing with MTIA of $1,904,793 as part of their total $5,000,000 investment (see Note 9).

Management believes that the cash received from this Common Stock financing coupled with the cash on hand at December 31, 2013 will be sufficient to fund the cash requirements under the 2014 budget and fund operations through December 31, 2014.  If all cash proceeds from MTIA are not received, management believes certain expenditures can be deferred until additional financing is obtained.