10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC. 20549

FORM 10-Q

(Mark One)

x Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 for the Quarterly Period ended June 30, 2013

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 0-19437

SAFESTITCH MEDICAL, INC.

(Exact name of registrant as specified in its charter) 

Delaware	11-2962080
(State or other jurisdiction of incorporation or organization)	(I.R.S. employer identification no.)

4400 Biscayne Blvd., Suite A-100, Miami, Florida	33137
(Address of principal executive offices)	(Zip code)

Registrant’s telephone number, including area code: (305) 575-4600

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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

    Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company 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

61,699,276 shares of the Company’s common stock, par value $0.001 per share, were outstanding as of August 9, 2013. 

SAFESTITCH MEDICAL, INC.

(A Developmental Stage Company)

TABLE OF CONTENTS FOR FORM 10-Q

PART I. FINANCIAL INFORMATION
ITEM 1.	FINANCIAL STATEMENTS	3
	Condensed Consolidated Balance Sheets as of June 30, 2013 (unaudited) and December 31, 2012	3
	Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income for the Three and Six Months ended June 30, 2013 and 2012, and for the period from September 15, 2005 (inception) to June 30, 2013	4
	Condensed Consolidated Statements of Stockholders’ Equity (Deficit) for the period from September 15, 2005 (inception) through June 30, 2013 (unaudited)	5
	Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months ended June 30, 2013 and 2012, and for the period from September 15, 2005 (inception) to June 30, 2013	6
	Notes to unaudited condensed consolidated financial statements	7
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	16
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	19
ITEM 4.	CONTROLS AND PROCEDURES	19
PART II.  OTHER INFORMATION
ITEM 1.	LEGAL PROCEEDINGS	20
ITEM 1A .	RISK FACTORS	20
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	20
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	20
ITEM 4.	MINE SAFETY DISCLOSURE	20
ITEM 5.	OTHER INFORMATION	20
ITEM 6.	EXHIBITS	20
	SIGNATURES	21

2

SafeStitch Medical, Inc.

(A Developmental Stage Company)

CONDENSED CONSOLIDATED BALANCE SHEETS

($ in 000s, except per share data)  

	June 30,		December 31,
	2013		2012
	(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	1,026	$	275
Accounts Receivable – trade		5		12
Other receivable – related-party		63		59
Prepaid expenses		72		140
Inventories		1,482		1,600
Total Current Assets		2,648		2,086
FIXED ASSETS
Property and equipment, net		264		332
OTHER ASSETS
Security deposits		2		2
Total Other Assets		2		2
TOTAL ASSETS	$	2,914	$	2,420
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities	$	615	$	1,224
Accounts payable and accrued liabilities – related party		52		39
Stockholder loans, including accrued interest ( Note 5)		–		912
Total Current Liabilities		667		2,175
Commitments and contingencies (Note 8)		–		–
STOCKHOLDERS’ EQUITY
Common stock, $0.001 par value per share, 225,000,000 shares authorized, 61,699,276 and 49,603,276 shares issued and outstanding		62		50
Additional paid-in capital		33,223		29,708
Deficit accumulated during the development stage		(31,038)		(29,513)
Total Stockholders’ Equity		2,247		245
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	2,914	$	2,420

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

3

SafeStitch Medical, Inc.

(A Developmental Stage Company)

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND

COMPREHENSIVE INCOME

($ in 000s, except per share data)

	Three Months Ended June 30,				Six Months Ended June 30,					September  15, 2005 (Inception) to June 30,
	2013		2012		2013		2012		2013
Revenues	$	6	$	9	$	17	$	9	$	52
Cost of sales		3		171		7		171		389
Gross margin		3		(162)		10		(162)		(337)
Operating costs and expenses
Research and development		372		769		520		1,947		16,374
Selling, general and administrative		591		1,068		992		1,981		13,379
Total operating costs and expenses		963		1,837		1,512		3,928		29,753
Operating loss		(960)		(1,999)		(1,502)		(4,090)		(30,090)
Other income and expense
Other income		–		–		–		–		1,147
Interest income, net		–		–		–		–		79
Amortization of deferred financing cost		–		(3)		–		(5)		(1,984)
Interest exp		–		–		(23)		(43)		(190)
Total other income and expense		–		(3)		(23)		(48)		(948)
Loss before provision for income tax		(960)		(2,002)		(1,525)		(4,138)		(31,038)
Provision for income tax		–		–		–		–		–
Net loss	$	(960)	$	(2,002)	$	(1,525)	$	(4,138)	$	(31,038)
Comprehensive income (loss)	$	0	$	0	$	0	$	0	$	0
Comprehensive loss	$	(960)	$	(2,002)	$	(1,525)	$	(4,138)	$	(31,038)
Loss attributable to common stockholders and loss per common share:
Net loss		(960)		(2,002)		(1,525)		(4,138)		(31,038)
Deemed dividend - Series A Preferred Stock		–		–		–		–		(700)
Deemed dividend – Series A Preferred
Conversion		–		–		–		–		(4,301)
Dividends - Series A Preferred Stock		–		–		–		–		(366)
Net loss attributable to common stockholders	$	(960)	$	(2,002)	$	(1,525)	$	(4,138)	$	(36,405)
Weighted average shares outstanding, basic and diluted		61,699		48,798		56,286		43,314
Net loss per basic and diluted share	$	(0.02)	$	(0.04)	$	(0.03)	$	(0.10)

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

4

(A Developmental Stage Company)  

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT) 

FOR THE PERIOD SEPTEMBER 15, 2005 (INCEPTION) THROUGH JUNE 30, 2013

($ in 000s, except per share data)

									Additional		Deficit Accumulated During the
	Preferred Stock				Common Stock				Paid-in		Development
	Shares		Amount		Shares		Amount		Capital		Stage		Total
Inception – September 15, 2005		–	$	–		–	$	–	$	–	$	–	$	–
Capital contributed		–		–		–		–		1		–		1
Net loss		–		–		–		–		–		(76)		(76)
Balance at December 31, 2005		–	$	–		–	$	–	$	1	$	(76)	$	(75)
Capital contributed		–		–		11,256		11		1,493		–		1,504
Net loss		–		–		–		–		–		(1,060)		(1,060)
Balance at December 31, 2006		–	$	–		11,256	$	11	$	1,494	$	(1,136)	$	369
Capital contributed		–		–		4,837		5		5,088		–		5,093
Net loss		–		–		–		–		–		(3,041)		(3,041)
Balance at December 31, 2007		–	$	–		16,093	$	16	$	6,582	$	(4,177)	$	2,421
Issuance of common shares in private offering – May     2008 at $2.15 per share, net of offering costs		–		–		1,862		2		3,986		–		3,988
Issuance of common shares as repayment of     stockholder note-December 30, 2008 at $1.22 per     share						8		–		10		–		10
Stock-based compensation		–		–		–		–		239		–		239
Net loss		–		–		–		–		–		(5,185)		(5,185)
Balance at December 31, 2008		–	$	–		17,963	$	18	$	10,817	$	(9,362)	$	1,473
Issuance of Series A Preferred Stock in July 2009 at     $1.00 per share		2,000		20				–		1,962		–		1,982
Fair value of beneficial conversion feature of Series A     Preferred Stock		–		–		–		–		200		–		200
Deemed dividend to Series A Preferred Stockholders,     charged to additional paid-in capital in the absence     of retained earnings		–		–		–		–		(200)		–		(200)
Stock-based compensation		–		–		–		–		195		–		195
Net loss		–		–		–		–		–		(2,366)		(2,366)
Balance at December 31, 2009		2,000	$	20		17,963	$	18	$	12,974	$	(11,728)	$	1,284
Issuance of Series A Preferred Stock in January 2010     at $1.00 per share		2,000		20				–		1,978		–		1,998
Fair value of beneficial conversion feature of Series A     Preferred Stock		–		–		–		–		500		–		500
Deemed dividend to Series A Preferred Stockholders,     charged to additional paid-in capital in the absence     of retained earnings		–		–		–		–		(500)		–		(500)
Issuance of common shares in private offering - June     2010 at $1.00 per share, net of offering costs		–		–		4,978		5		4,969		–		4,974
Conversion of 4,000 shares of Series A Preferred     Stock and accumulated dividends into 4,366 shares     of Common Stock in September 2010		(4,000)		(40)		4,366		4		36		–		–
Issuance of 697 shares of Common Stock as     Consideration Shares in September 2010		–		–		697		1		(1)		–		–
Intrinsic value of 5,063 aggregate shares of Common     Stock issued on conversion of Series A Preferred     Stock		–		–		–		–		4,301		–		4,301
Dividend paid to Series A Preferred Stockholders on     conversion, charged to additional paid-in capital in     the absence of retained earnings		–		–		–		–		(4,301)		–		(4,301)
Stock-based compensation		–		–		–		–		471		–		471
Net loss		–		–		–		–		–		(5,303)		(5,303)
Balance at December 31, 2010		–	$	–		28,004	$	28	$	20,427	$	(17,031)	$	3,424
Stock-based compensation		–		–		–		–		335		–		335
Net loss		–		–		–		–		–		(5,758)		(5,758)
Balance at December 31, 2011		–	$	–		28,004	$	28	$	20,762	$	(22,789)	$	(1,999)
Issuance of 20,794,000 shares of Common Stock     at $0.40 per share for cash in February 2012		–		–		20,794		21		8,297		–		8,318
Issuance of 805,521 shares of Common Stock for     Warrants as $0.25 per share for cash in October     2012		–		–		805		1		200		–		201
Stock-based compensation		–		–		–		–		448		–		448
Net loss		–		–		–		–		–		(6,274)		(6,724)
Balance at December 31, 2012		–	$	–		49,603	$	50	$	29,708	$	(29,513)	$	245
Issuance of 12,096,000 shares of Common Stock     at $0.25 per share for cash in March 2013		–		–		12,096		12		3,012		–		3,024
Stock-based compensation		–		–		–		–		503		–		503
Net loss		–		–		–		–		–		(1,525)		(1,525)
Balance at June 30, 2013 (unaudited)		–	$	–		61,699	$	62	$	33,223	$	(31,038)	$	2,247

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

5

SafeStitch Medical, Inc.

(A Developmental Stage Company)

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

($ in 000s)

	Six Months Ended June 30,				September 15, 2005 (Inception) to June 30,
	2013		2012		2013
OPERATING ACTIVITIES
Net loss	$	(1,525)	$	(4,138)	$	(31,038)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of deferred finance costs		–		5		1,984
Stock-based compensation expense		503		224		2,256
Stock-based compensation expense related to Share Exchange		–		–		77
Depreciation and amortization		68		84		577
Loss from disposal of assets		–		–		20
Inventory Adjustments		–		–		337
Gain on sale of TruePosition investment		–		–		(903)
Changes in operating assets and liabilities
Inventories		14		(1,646)		(1,923)
Accounts receivable		3		–		3
Other current assets		68		8		(120)
Other assets		–		–		(2)
Accounts payable and accrued liabilities		(492)		677		487
Accrued Interest		(12)		(48)		–
NET CASH USED IN OPERATING ACTIVITIES		(1,373)		(4,834)		(28,248)
INVESTING ACTIVITIES
Purchase of equipment		–		(6)		(861)
Proceeds from sale of True Position investment		–		–		903
Payment received under Rule 16b		–		–		4
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES		–		(6)		46
FINANCING ACTIVITIES
Net cash provided in connection with the acquisition of SafeStitch LLC		–		–		3,192
Issuance of Common Stock, net of offering costs		3,024		8,318		20,305
Issuance of Preferred Stock, net of offering costs		–		–		3,980
Capital contributions		–		–		1,431
Proceeds from notes payable		–		–		141
Repayment of notes payable		–		–		(141)
Proceeds from stockholder loans		200		500		6,935
Repayment of stockholder loans		(1,100)		(2,975)		(6,851)
Exercise of warrants		–		–		201
Exercise of options		–		–		35
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES		2,124		5,843		29,228
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		751		1,003		1,026
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		275		298		–
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	1,026	$	1,301	$	1,026
Supplemental disclosures:
Cash paid for interest	$	35	$	91	$	191
Non cash activities:
Non-cash inventory and accounts payable adjustment	$	104	$	–	$	104
Non-cash dividend upon issuance & conversion of Preferred	$	–	$	–	$	5,001
Stock dividends	$	–	$	–	$	366
Stockholder loans contributed to capital	$	–	$	–	$	84
Warrants issued in connection with credit facility	$	–	$	–	$	1,985

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

6

SAFESTITCH Medical, INC.

(A Developmental Stage Company)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – BASIS OF PRESENTATION AND LIQUIDITY

The following (a) condensed consolidated balance sheet as of December 31, 2012, which has been derived from audited financial statements, and (b) the unaudited condensed consolidated interim financial statements of SafeStitch Medical, Inc. (“SafeStitch” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results and cash flows for the six months ended June 30, 2013 are not necessarily indicative of results that may be expected for the year ending December 31, 2013 or for future periods. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2012 included in the Company’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”) on April 1, 2013.

SafeStitch Medical, Inc. (together with its consolidated subsidiaries, “SafeStitch” or the “Company”) is a developmental stage medical device company focused on the development of medical devices that manipulate tissues for endoscopic and minimally invasive surgery for the treatment of obesity, gastroesophageal reflux disease (“GERD”), Barrett’s Esophagus, esophageal obstructions, upper gastrointestinal bleeding, hernia formation and other intraperitoneal abnormalities.

Cellular Technical Services Company, Inc. (“Cellular”), a non-operating public company, was incorporated in 1988 as NCS Ventures Corp. under the laws of the State of Delaware. On July 25, 2007 Cellular entered into a Share Transfer, Exchange and Contribution Agreement (the “Share Exchange”) with SafeStitch LLC, a Virginia limited liability company. On September 4, 2007, Cellular acquired all of the members’ equity interests in SafeStitch LLC in exchange for 11,256,369 shares of Cellular’s common stock, which represented a majority of Cellular’s outstanding shares immediately following the Share Exchange. Effective January 8, 2008, Cellular changed its name to SafeStitch Medical, Inc. and increased the aggregate number of shares of capital stock that may be issued from 35,000,000 to 250,000,000, comprising 225,000,000 shares of common stock, par value $0.001 per share (the “Common Stock”), and 25,000,000 shares of preferred stock, par value $0.01 per share. For accounting purposes, the acquisition has been treated as a recapitalization of SafeStitch LLC, with SafeStitch LLC as the acquirer (reverse acquisition). The historical financial statements prior to September 4, 2007 are those of SafeStitch LLC, which began operations on September 15, 2005. The accompanying financial statements give retroactive effect to the recapitalization as if it had occurred on September 15, 2005 (inception).

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. For the period from September 15, 2005 (inception) through June 30, 2013, the Company has accumulated a deficit of $31.0 million and has not generated positive cash flows from operations.

On March 22, 2013, the Company sold approximately 12,100,000 shares of our common stock (the "2013 PIPE Shares") in a private placement at a price of $0.25 per share, with net proceeds to the Company of approximately $3.0 million (Note 6). Included in this private placement was the issuance of warrants (the “PIPE Warrants”) to purchase approximately 6,050,000 common shares, representing one warrant for every two common shares purchased, with an exercise price of $0.33 per share and five year expiration. Approximately 50% of the shares and warrants offered were purchased by our officers, directors and significant shareholders. The capital raised will be primarily used for the expansion of our Gastroplasty Device study in Hungary, continued development of the Gastroplasty Device and sales and marketing efforts for the AMID® Hernia Fixation Device (the “AMID HFD”). Approximately $1.1 million of the proceeds was used to pay off amounts outstanding under the Credit Facility and promissory notes. Based upon the Company’s current cash position and by monitoring our discretionary expenditures, the Company will likely be able to fund operations through the end of this year. We based this belief on assumptions that may prove to be wrong or are subject to change, and we may be required to use our available cash resources sooner than we currently expect. Beyond this year, the Company will need to raise additional funds in order to continue its operations.

In connection with the acquisition of SafeStitch LLC, the Company entered into a Note and Security Agreement (the “Credit Facility”) with both The Frost Group and Jeffrey G. Spragens, the Company’s Chief Executive Officer and President and a director. The Frost Group is a Florida limited liability company whose members include Frost Gamma Investments Trust (“Frost Gamma”), a trust controlled by Dr. Phillip Frost, one of the largest beneficial holders of the issued and outstanding shares of Common Stock, Dr. Jane H. Hsiao, the Company’s Chairman of the Board, and Steven D. Rubin, a director. The Credit Facility provided $4.0 million in total available borrowings, consisting of $3.9 million from The Frost Group and $100,000 from Mr. Spragens (see Note 5). The Credit Facility was not extended beyond its June 30, 2013 maturity date and additional funding will be required to continue operations. We intend to seek external financing for our future cash needs through public or private equity offerings, debt financings, strategic alliance or corporate collaboration and licensing arrangements. The Company currently does not have any commitments for future external funding. Almost all of the Company’s equity and financing to date has been provided from the Company’s principal existing stockholders and there is no assurance that the Company’s stockholders will continue to provide the necessary financing for us to continue our operations or that any additional equity or debt financing will be available to the Company on acceptable terms, or at all. If adequate funds are not available when needed, the Company may be required to delay, further reduce the scope of or eliminate our research and development programs, including the development of the Gastroplasty Device, all of which may not significantly extend the period of time that the Company will be able to continue operations without raising additional funding.

It is uncertain as to the length of time the Company can sustain continued operations without the availability of additional. This uncertainty raises substantial doubt about the Company’s ability to continue as a going concern. The Company’s financial statements do not include any adjustments that might result from the outcome of this uncertainty.

7

SAFESTITCH Medical, INC.

(A Developmental Stage Company)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Consolidation. The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Isis Tele-Communications, Inc., which has no current operations, and SafeStitch LLC. All inter-company accounts and transactions have been eliminated in consolidation.

Use of estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions, such as useful lives of property and equipment, that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.

Cash and cash equivalents. We consider all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. The Company holds cash and cash equivalent balances in banks and other financial institutions, and includes overnight repurchase agreements collateralizing its depository bank accounts (sweep accounts) in its cash balances. Balances in excess of Federal Deposit Insurance Corporation (“FDIC”) limitations may not be insured.

Allowances for Doubtful Accounts. The Company provides an allowance for receivables it believes it may not collect in full. Receivables are written off when they are deemed to be uncollectible and all collection attempts have ceased. The amount of bad debt recorded each period and the resulting adequacy of the allowance for doubtful accounts at the end of each period are determined using a combination of customer-by-customer analysis of the Company’s accounts receivable each period and subjective assessments of the Company’s future bad debt exposure.

Inventories. Inventories are stated at lower of cost or market using the weighted average cost method. Provisions for potentially obsolete or slow-moving inventory are made based on management’s analysis of inventory levels, obsolescence and future sales forecasts. The Company had approximately 5,707 AMID HFD units in inventory at June 30, 2013 and 5,800 units at December 31, 2012.

Property and equipment. Property and equipment are carried at cost less accumulated depreciation. Major additions and improvements are capitalized, while maintenance and repairs that do not extend the lives of assets are expensed. Gain or loss, if any, on the disposition of fixed assets is recognized currently in operations. Depreciation is calculated primarily on a straight-line basis over estimated useful lives of the assets.

Revenue Recognition. Revenue from product sales is recognized when persuasive evidence of an arrangement exists, the goods are shipped and title has transferred, the price is fixed or determinable, and the collection of the sales proceeds is reasonably assured. The Company’s revenue was a result of AMID HFD product sales. There were 26 and 62 AMID HFD units sold during the three and six months ended June 30, 2013 and there were 24 AMID HFD units sold for the three and six months ended June 30, 2012. In addition, there were 42 and 60 AMID HFD units used for demonstration purposes during the three and six months ended June 30, 2013 and 516 AMID HFD units were used for demonstration purposes during the three and six months ended June 30, 2012.

Advertising Costs. The Company expenses all costs of advertising as incurred. Advertising and promotional costs are included in selling, general and administrative costs and expenses for all periods presented, and totaled $0 and $520, respectively, for the three and six months ended June 30, 2013. Advertising and promotional costs and expenses totaled $45,000 and $83,000, respectively, for the three and six months ended June 30, 2012.

Research and development. Research and development costs principally represent salaries of the Company’s medical and biomechanical engineering professionals, material and shop costs associated with manufacturing product prototypes and payments to third parties for clinical trials and additional product development and testing. All research and development costs are charged to expense as incurred.

8

SAFESTITCH Medical, INC.

(A Developmental Stage Company)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Patent costs. Costs incurred in connection with acquiring patent rights and the protection of proprietary technologies are charged to expense as incurred.

Stock-based compensation. The Company follows ASC 718 (Stock Compensation) and 505-50 (Equity-Based Payments to Non-employees), which provide guidance in accounting for share-based awards exchanged for services rendered and requires companies to expense the estimated fair value of these awards over the requisite service period. The Company determines the fair value of the stock-based compensation awards granted as either the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. If the fair value of the equity instruments issued is used, it is measured using the stock price and other measurement assumptions as of the earlier of either of (1) the date at which a commitment for performance by the counterparty to earn the equity instruments is reached, or (2) the date at which the counterparty’s performance is complete.

Fair value of financial instruments. Authoritative guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy consists of three broad levels, as described below:

⋅	Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
⋅	Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
⋅	Level 3 - Inputs that are both significant to the fair value measurement and unobservable.

Long-lived assets. Long-lived assets, such as property and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, then an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the fair value, or carrying amount for cost basis assets, of the asset.

Income taxes. The Company follows the liability method of accounting for income taxes, which requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of the assets and liabilities. The Company’s policy is to record a valuation allowance against deferred tax assets, when the deferred tax asset is not recoverable. The Company considers estimated future taxable income or loss and other available evidence when assessing the need for its deferred tax valuation allowance.

Comprehensive income (loss). Comprehensive income (loss) is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. The Company’s comprehensive net loss is equal to its net loss for all periods presented.

9

SAFESTITCH Medical, INC.   

(A Developmental Stage Company)  

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 

NOTE 3 – PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

	Estimated Useful Lives	June 30, 2013		December 31, 2012
Machinery and equipment	5 years	$	682,000	$	682,000
Furniture, fixtures and leasehold improvements	3-5 years		88,000		88,000
Software	3-5 years		57,000		57,000
			827,000		827,000
Accumulated depreciation and amortization			(563,000)		(495,000)
Property and equipment, net		$	264,000	$	332,000

Depreciation of fixed assets utilized in research and development activities is included in research and development costs and expenses. All other depreciation is included in selling, general and administrative costs and expenses. Depreciation and amortization expense was $33,000 and $68,000, respectively for the three and six months ended June 30, 2013, and was $42,000 and $84,000, respectively for the three and six months ended June 30, 2012.

NOTE 4 – STOCK-BASED COMPENSATION

On November 13, 2007, the Board of Directors and a majority of the Company’s stockholders approved the SafeStitch Medical, Inc. 2007 Incentive Compensation Plan (the “2007 Plan”), which was amended on June 19, 2012 to increase the number of shares of Common Stock available for issuance to 5,000,000. Under the 2007 Plan, which is administered by the Compensation Committee, the Company may grant stock options, stock appreciation rights, restricted stock and/or deferred stock to employees, officers, directors, consultants and vendors up to an aggregate of 5,000,000 shares of Common Stock, which are fully reserved for future issuance. The exercise price of stock options or stock appreciation rights may not be less than the fair market value of the Company’s shares at the date of grant and, within any 12 month period, no person may receive stock options or stock appreciation rights for more than one million shares. Additionally, no stock options or stock appreciation rights granted under the 2007 Plan may have a term exceeding ten years.

The Company granted 1,693,500 and 813,500 stock options under the 2007 Plan during the six months ended June 30, 2013 and 2012, respectively. The Company issued 123,500 stock options to consultants during the six months ended June 30, 2013 and 218,000 stock options that were issued to consultants during the six months ended June 30, 2012. The options granted during 2013 were issued at an exercise price of $0.45 per share and had an estimated aggregate grant date fair value of $668,000. The options granted during 2012 were issued at an exercise price ranging from $0.65 to $0.85 per share and had an estimated aggregate grant date fair value of $441,000. The weighted average grant date fair value of the options granted during the six months ended June 30, 2013 and 2012 was $0.40 per share and $0.54 per share, respectively.

Total stock-based compensation recorded for the three and six months ended June 30, 2013 was $437,000 and $503,000, respectively. Total stock-based compensation recorded for the three and six months ended June 30, 2012 was $113,000 and $224,000, respectively. All stock-based compensation is included in selling, general and administrative costs and expenses. The fair values of options granted are estimated on the date of their grant using the Black-Scholes option pricing model based on the assumptions included in the table below. The fair value of the Company’s stock option awards is expensed over the vesting life of the underlying stock options using the graded vesting method, with each tranche of vesting options valued separately. Expected volatility is based on the historical volatility of the Common Stock. The risk-free interest rate for periods within the contractual life of the stock option award is based on the yield of U.S. Treasury bonds on the grant date with a maturity equal to the expected term of the stock option. The expected life of stock option awards granted to employees and non-employee directors is based upon the “simplified” method for “plain vanilla” options described in SEC Staff Accounting Bulletin No. 107, as amended by SEC Staff Accounting Bulletin No. 110. The expected life of all other stock option awards is the contractual term of the option. Forfeiture rates are based on management’s estimates. The fair value of each option granted during the six months ended June 30, 2013 and 2012 was estimated using the following assumptions.

10

SAFESTITCH Medical, INC.

(A Developmental Stage Company)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

	Six months ended June 30, 2013	Six months ended June 30, 2012
Expected volatility	98% - 136%	85.41% - 111.36%
Expected dividend yield	0.00%	0.00%
Risk-free interest rate	0.92% – 1.71%	1.02% – 1.98%
Expected life	5.5 – 10.0 years	5.5 – 10.0 years
Forfeiture rate	0% - 2%	0% - 2%

The following summarizes the Company’s stock option activity for the six months ended June 30, 2013:

	Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value
Outstanding at December 31, 2012	2,079,000	$	1.03	6.77
Granted	1,693,500	$	0.45	9.82
Exercised	–		–
Canceled or expired	(225,500)	$	1.14
Outstanding at June 30, 2013	3,547,000	$	0.75	7.94	$	0
Exercisable at June 30, 2013	2,429,875	$	0.82	7.37	$	0
Vested and expected to vest at June 30, 2013	3,520,218	$	0.75	7.90	$	0

910,000 of the 1,693,500 options granted during the first six months of the Company’s 2013 fiscal year were vested as of June 30, 2013. At June 30, 2013, there was approximately $387,500 of total unrecognized compensation cost related to non-vested employee and director share-based compensation arrangements. That cost is expected to be recognized over a weighted-average period of 1.57 years.

No options were exercised during the three and six months ended June 30, 2013 and 2012.

No tax benefits were attributed to the stock-based compensation expense because a valuation allowance was maintained for substantially all net deferred tax assets.

NOTE 5 – DEBT

Credit Facility. In connection with the acquisition of SafeStitch LLC, the Company entered into a Note and Security Agreement (the “Credit Facility”) with both The Frost Group and Jeffrey G. Spragens, the Company’s Chief Executive Officer and President and a director. The Frost Group is a Florida limited liability company whose members include Frost Gamma Investments Trust (“Frost Gamma”), a trust controlled by Dr. Phillip Frost, one of the largest beneficial holder of the issued and outstanding shares of Common Stock, Dr. Jane H. Hsiao, the Company’s Chairman of the Board, and Steven D. Rubin, a director. The Credit Facility provided $4.0 million in total available borrowings, consisting of $3.9 million from The Frost Group and $100,000 from Mr. Spragens. The Company granted a security interest in all collateral in order to secure prompt, full and complete payment of the amounts outstanding under the Credit Facility. The collateral included all assets of the Company, inclusive of intellectual property (patents, patent rights, trademarks, service marks, etc.). Outstanding borrowings under the Credit Facility accrue interest at a 10% annual rate. The Credit Facility had an initial term of 28 months, expiring in December 2009, and was amended on four occasions to extend the Maturity Date, which was to June 30, 2013. The Maturity Date was not extended beyond June 30, 2013 and the Credit Facility has expired. There were no amounts due or outstanding under the Credit Facility as of June 30, 2013. The Company had a principal balance outstanding of $300,000 under the Credit Facility in March 2013 during which period the Credit Facility was paid off in its entirety, plus approximately $15,000 in accrued interest, using the proceeds of the 2013 Private Placement of Common Stock described below in Note 6.

11

SAFESTITCH Medical, INC.

(A Developmental Stage Company)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In connection with the Credit Facility, the Company granted warrants to purchase an aggregate of 805,521 shares of Common Stock to The Frost Group and Mr. Spragens. The fair value of the warrants was determined to be $1,985,000 on the grant date based on the Black-Scholes valuation model using the following assumptions: expected volatility of 82%, dividend yield of 0%, risk-free interest rate of 4.88% and expected life of 10 years. The fair value of the warrants was recorded as deferred financing costs and is being amortized over the life of the Credit Facility. The Company recorded amortization expense related to these deferred financing costs of $0 for the three and six months ended June 30, 2013 and $3,000 and $5,000 for the three and six months ended June 30, 2012. In October 2012, The Frost Group and Mr. Spragens exercised the warrants for the purchase of 805,521 shares of Common Stock at an exercise price of $0.25 per share with net proceeds to the Company of $201,000.

On November 20, 2012, the Company entered into a Promissory Note in the principal amount of $300,000 with Hsu Gamma Investments, L.P. ("Hsu Gamma"), an entity controlled by the Company’s Chairman of the Board, Jane H. Hsiao, (the "Hsu Gamma Note"). The interest rate payable by the Company on the Hsu Gamma Note is 10% per annum, payable on the maturity date of June 30, 2013. The Hsu Gamma Note may be prepaid in advance of the Maturity Date without penalty. In March 2013, the Hsu Gamma Note was paid off in its entirety, plus approximately $10,000 in accrued interest, using the proceeds of the 2013 Private Placement of Common Stock described below in Note 6.

On December 26, 2012, the Company entered into a Promissory Note in the principal amount of $300,000 with Frost Gamma, an entity controlled by one of the Company’s largest beneficial holders of common stock, Dr. Phillip Frost (the "Frost Gamma Note"). The interest rate payable by the Company on the Frost Gamma Note is 10% per annum, payable on the maturity date of June 30, 2013. The Frost Gamma Note may be prepaid in advance of the Maturity Date without penalty. In March 2013, the Frost Gamma Note was paid off in its entirety, plus approximately $8,000 in accrued interest, using the proceeds of the 2013 Private Placement of Common Stock described below in Note 6.

On February 22, 2013 the Company entered into a promissory note in the principal amount of $200,000 with Jane Hsiao, the Company’s Chairman of the Board (the “Hsiao Note”). The interest payable by the Company on the Hsiao Note is 10% per annum, payable on the maturity date of June 30, 2013 (the “Maturity Date”). The Hsiao Note may be prepaid in advance of the Maturity Date without penalty. In March 2013, the Hsiao Note was paid off in its entirety, plus approximately $2,000 in accrued interest, using the proceeds of the 2013 Private Placement of Common Stock described below in Note 6.

NOTE 6 – CAPITAL TRANSACTIONS

2013 Private Placement of Common Stock. On March 22, 2013, the Company entered into a stock purchase agreement (the “2013 Stock Purchase Agreement”) with approximately 17 investors (the "2013 PIPE Investors") pursuant to which the 2013 PIPE Investors agreed to purchase an aggregate of approximately 12,100,000 shares of common stock at a price of $0.25 per share for aggregate consideration of approximately $3.0 million. Included in this private placement was the issuance of PIPE Warrants to purchase approximately 6,050,000 common shares, representing one warrant for every two common shares purchased, with an exercise price of $0.33 per share and five year expiration. Among the Investors purchasing Shares were Frost Gamma, Dr. Jane Hsiao, the Company's Chairman of the Board and Jeffrey Spragens, the Company’s President and Chief Executive Officer. Frost Gamma purchased 2.0 million shares and received 1.0 million warrants, Dr. Hsiao purchased 4.0 million shares and received 2.0 million warrants and Mr. Spragens purchased 400,000 shares and received 200,000 warrants. The Company issued the 2013 PIPE Shares in reliance upon the exemption from registration under Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”), and Rule 506 of Regulation D promulgated thereunder.

2012 Private Placement of Common Stock. On February 17, 2012, the Company entered into a stock purchase agreement (the “2012 Stock Purchase Agreement”) with 35 investors (the "2012 PIPE Investors") pursuant to which the 2012 PIPE Investors agreed to purchase an aggregate of 20,794,000 shares of Common Stock (the "2012 PIPE Shares") at a price of $0.40 per share for aggregate consideration of $8.3 million. Among the Investors purchasing Shares were Frost Gamma, Dr. Jane Hsiao, the Company's Chairman of the Board, Jeffrey Spragens, the Company’s President and Chief Executive Officer and Richard Pfenniger, a member of the Company’s Board of Directors. Frost Gamma and Dr. Hsiao each purchased 4,500,000 shares, Mr. Spragens purchased 250,000 shares, and Mr. Pfenniger purchased 125,000 shares. The Company issued the 2012 PIPE Shares in reliance upon the exemption from registration under Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”), and Rule 506 of Regulation D promulgated thereunder.

12

SAFESTITCH Medical, INC.

(A Developmental Stage Company)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7 – BASIC AND DILUTED NET LOSS PER SHARE

Basic net loss per common share is computed by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding for the period reported. Diluted net loss per common share is computed giving effect to all dilutive potential common shares that were outstanding for the period reported. Diluted potential common shares consist of incremental shares issuable upon exercise of stock options and warrants and conversion of preferred stock. In computing diluted net loss per share for the three and six months ended June 30, 2013 and 2012, no adjustment has been made to the weighted average outstanding common shares as the assumed exercise of outstanding options and warrants and conversion of preferred stock is anti-dilutive.

Potential common shares not included in calculating diluted net loss per share are as follows:

	June 30, 2013		June 30, 2012
Stock options		3,547,000		2,344,500
Stock warrants		6,050,000		805,521
Total		9,597,000		3,150,021

NOTE 8 – COMMITMENTS AND CONTINGENCIES

The Company is obligated under various operating lease agreements for office space. Generally, the lease agreements require the payment of base rent plus escalations for increases in building operating costs and real estate taxes. Rental expense under operating leases amounted to $53,000 and $104,000 for the three and six months ended June 30, 2013, respectively, and $73,000 and $133,000 for the three and six months ended June 30, 2012, respectively. At June 30, 2013, the Company was no longer obligated under any non-cancellable operating leases.

The Company is obligated to pay royalties to Creighton University (“Creighton”) on the sales of products licensed from Creighton pursuant to an exclusive license and development agreement (see Note 9). The Company is also obligated under an agreement with Dr. Parviz Amid to pay a 4% royalty to Dr. Amid on the sales of any product developed with Dr. Amid’s assistance, including the AMID HFD, for a period of ten years from the first commercial sale of such product. Royalties to Dr. Parviz Amid in the amount of $260 and $660 have been incurred during the three and six months ended June 30, 2013 and $400 had been incurred during the three and six months ended June 30, 2012.

The Company has placed orders with various suppliers for the purchase of certain tooling, contract engineering and research services. Each of these orders has a duration or expected completion within the next twelve months. The Company currently has no material commitments with terms beyond twelve months.

NOTE 9 – AGREEMENT WITH CREIGHTON UNIVERSITY

On May 26, 2006, SafeStitch LLC entered into an exclusive license and development agreement (the “Creighton Agreement”) with Creighton, granting the Company a worldwide exclusive (even as to the university) license, with rights to sublicense, to all the Company’s product candidates and associated know-how based on Creighton technology, including the exclusive right to manufacture, use and sell the product candidates.

Pursuant to the Creighton Agreement, the Company is obligated to pay Creighton, on a quarterly basis, a royalty of 1.5% of the revenue collected worldwide from the sale of any product licensed under the Creighton Agreement, less certain amounts including, without limitation, chargebacks, credits, taxes, duties and discounts or rebates. The Creighton Agreement does not provide for minimum royalties. Also pursuant to the Creighton Agreement, the Company agreed to invest, in the aggregate, at least $2.5 million over 36 months, beginning May 26, 2006, towards development of any licensed product. This $2.5 million investment obligation excluded the first $150,000 of costs related to the prosecution of patents, which the Company invested outside of the Creighton Agreement. The Company is further obligated to pay to Creighton an amount equal to 20% of certain of the Company’s research and development expenditures as reimbursement for the use of Creighton’s facilities. Failure to comply with the payment obligations above will result in all rights in the licensed patents and know-how reverting back to Creighton. As of December 31, 2007, the Company had satisfied the $2.5 million investment obligation described above. For the three and six months ended June 30, 2013, the Company paid Creighton $0 and $3,000, respectively and for the three and six months ended June 30, 2012 the Company paid $12,000 and $24,000, respectively, in satisfaction of the 20% facility reimbursement obligation.

Pursuant to the Creighton Agreement, the Company is entitled to exercise its own business judgment and sole and absolute discretion over the marketing, sale, distribution, promotion and other commercial exploitation of any licensed products, provided that, if the Company has not commercially exploited or commenced development of a licensed patent and its associated know-how by the seventh anniversary of the later of the date of the Creighton Agreement or the date such technology is disclosed to and accepted by the Company, then the licensed patent and associated know-how shall revert back to the university, with no rights retained by the Company, and the university will have the right to seek a third party with whom to commercialize such patent and associated know-how, unless the Company purchases one or more one-year extensions. The Company is in accordance with these provisions.

13

SAFESTITCH Medical, INC.

(A Developmental Stage Company)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 – INCOME TAXES

The Company accounts for income taxes using the asset and liability method, the objective of which is to establish deferred tax assets and liabilities for the temporary differences between the financial reporting and the tax bases of the Company’s assets and liabilities at enacted tax rates expected to be in effect when such amounts are realized or settled. A valuation allowance related to deferred tax assets is recorded when it is more likely than not that some portion or all of the deferred tax assets will not be realized. All of the Company’s deferred tax assets have been fully reserved by a valuation allowance due to management's uncertainty regarding the future profitability of the Company.

The Company has recognized no adjustment for uncertain tax provisions. SafeStitch recognizes interest and penalties related to uncertain tax positions in selling, general and administrative costs and expenses; however no such provisions for accrued interest and penalties related to uncertain tax positions have been recorded as of June 30, 2013 or December 31, 2012.

The tax years 2009-2012 remain open to examination by the major tax jurisdictions in which the Company operates.

NOTE 11 – CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

As more fully described in Note 5, the Company entered into a $4.0 million Credit Facility with Jeffrey G. Spragens, the Company’s President, Chief Executive Officer and director, and The Frost Group.

The Company entered into a five-year lease for office space in Miami, Florida with a company controlled by Dr. Frost. The non-cancelable lease, which commenced January 1, 2008, provides for a 4.5% annual rent increase over the life of the lease. The Miami office lease was amended in August 2011 to include additional office space in the same building, and current rental payments under the lease are approximately $16,000 per month. The Company recorded rent expense related to the Miami lease totaling approximately $48,000 and $99,000, respectively, for the three and six months ended June 30, 2013, and $69,000 and $126,000, respectively, for the three and six months ended June 30, 2012.

Dr. Hsiao, Dr. Frost and director Steven Rubin are each significant stockholders and/or directors of Non-Invasive Monitoring Systems, Inc. (“NIMS”), a publicly-traded medical device company, Aero Pharmaceuticals, Inc. (“Aero”), a privately-held pharmaceutical distribution company that dissolved in December 2011, Tiger X Medical, Inc. (“Tiger X”) (formerly known as Cardo Medical, Inc.), a publicly-traded medical device company, and TigerMedia, Inc. (“TigerMedia) (formerly known as SearchMedia Holdings Limited), a publicly-traded media company operating primarily in China. Director Richard Pfenniger is also a shareholder of NIMS. The Company’s Chief Financial Officer also serves as the Chief Financial Officer and supervises the accounting staffs of NIMS and, until its dissolution, Aero, under a Board-approved cost sharing arrangement whereby the total salaries of the accounting staffs of the three companies are shared. Aero has not participated in the cost sharing arrangement since June 30, 2011 and was dissolved in December 2011. Since December 2009, the Company’s Chief Legal Officer has served under a similar Board-approved cost sharing arrangement as Corporate Counsel of TigerMedia and as the Chief Legal Officer of each of NIMS and Tiger X. The Company has recorded reductions to selling, general and administrative costs and expenses to account for the sharing of costs under these arrangements of $50,000 and $100,000, respectively, for the three and six months ended June 30, 2013, and $52,000 and $103,000, respectively, for the three and six months ended June 30, 2012. Aggregate accounts receivable from NIMS, Tiger X and TigerMedia were approximately $63,000 and $59,000 as of June 30, 2013 and December 31, 2012, respectively and are included in other receivable—related party.

14

SAFESTITCH Medical, INC.

(A Developmental Stage Company)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 12 – EMPLOYEE BENEFIT PLANS

  Effective May 1, 2008, the SafeStitch 401(k) Plan (the “401k Plan”) permits employees to contribute up to 100% of qualified annual compensation up to annual statutory limitations. Employee contributions may be made on a pre-tax basis to a regular 401(k) account or on an after-tax basis to a “Roth” 401(k) account. The Company contributes to the 401k Plan a “safe harbor” match of 100% of each participant’s contributions to the 401k Plan up to a maximum of 4% of the participant’s qualified annual earnings. The Company recorded 401(k) Plan matching expense of approximately $8,000 and $13,000, respectively, for the three and six months ended June 30, 2013 and $4,000 and $15,000, respectively, for the three and six months ended June 30, 2012.

NOTE 13 – SUBSEQUENT EVENT

On August 13, 2013, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Tweety Acquisition Corp., a Delaware corporation and wholly owned subsidiary of the Company (“Merger Sub”), and TransEnterix, Inc., a Delaware corporation (“TransEnterix”). Pursuant to the Merger Agreement, Merger Sub will merge with and into TransEnterix with TransEnterix surviving the merger as the Company’s wholly owned subsidiary (the “Merger”).

Pursuant to the Merger Agreement, upon consummation of the Merger, each share of TransEnterix’s capital stock issued and outstanding immediately preceding the Merger will be converted into the right to receive 1.1723 shares of Common Stock, other than those shares of TransEnterix’s common stock held by non-accredited investors, which shares will instead be converted into the right to receive an amount of cash per share equal to volume-weighted average price of a share of Common Stock on the OTCBB for the 60-trading day period ending one trading day prior to the date on which the Merger closes. Additionally, pursuant to the Merger Agreement, upon consummation of the Merger, the Company will assume all of TransEnterix’s options and warrants issued and outstanding immediately prior to the Merger at the same exchange ratio and issue to the holders of such securities in exchange therefor options and warrants to acquire approximately 15,939,000 and 1,421,000 shares of Common Stock, respectively. Following the Merger, TransEnterix’s current stockholders would hold approximately 65% of the Common Stock on a fully-diluted basis resulting in a reverse merger with TransEnterix being the accounting acquirer.

The Merger is conditioned upon approval by TransEnterix’s stockholders, consummation of the Private Placement (as defined below) and certain other customary closing conditions. The Merger is expected to close during the third quarter of 2013.

In connection with the Merger Agreement, the Company entered into a stock purchase agreement (the “Purchase Agreement”) with certain private investors (the “Investors”), pursuant to which the Investors have agreed to purchase an aggregate of 7,500,000 shares of a new series of the Company’s convertible preferred stock, par value $0.01 per share, to be designated Series B Convertible Preferred Stock (the “Series B Preferred Stock”), each share of which would initially be convertible, subject to certain conditions, into ten shares of Common Stock (the “Conversion Shares” and, together with the Series B Preferred Stock, the “Private Placement Securities”), for a purchase price of $4.00 per share of Series B Preferred Stock payable in cash, cancellation of certain indebtedness of TransEnterix or a combination thereof (the “Private Placement”). Pursuant to the Purchase Agreement, the Company may agree to issue and sell up to an additional 1,250,000 shares of Series B Preferred Stock within two weeks subsequent to the closing of the issuance and sale of the initial 7,500,000 shares. Among the Investors are Frost Gamma Investments Trust, an entity controlled by Dr. Phillip Frost, one of the largest beneficial owners of the Company’s common stock, and Dr. Jane Hsiao, the Company’s current Chairman of the Board (collectively, the “Related-Party Investors”), each of whom would acquire shares of Series B Preferred Stock in the Private Placement pursuant to the same terms, and subject to the same conditions, as those applicable to all other Investors.

None of the shares of Common Stock issuable pursuant to the Merger, the warrants or options issuable pursuant to the Merger or the shares of Common Stock issuable upon exercise of such warrants and options (collectively, the “Merger Securities”) or the Private Placement Securities have been registered under the Securities Act of 1933, as amended (the “Securities Act”). The Company offered the Merger Securities and the Private Placement Securities in reliance upon the exemptions from registration contained in Section 4(a)(2) of the Securities Act and Rule 506 of Regulation D promulgated thereunder. In connection with the Merger Agreement and the Private Placement, the Investors and certain of the Company’s and TransEnterix’s current stockholders have agreed to enter into lock-up and voting agreements (each a “Lock-up and Voting Agreement”), pursuant to which such persons will agree, subject to certain exceptions, not to sell, transfer or otherwise convey any of the Company’s securities held by them (collectively, “Covered Securities”) for a certain period following the date on which the Merger and the Private Placement are consummated (the “Closing Date”). The Lock-up and Voting Agreement provides that such persons may sell, transfer or convey (i) up to 50% of their respective Covered Securities during the period commencing on the one-year anniversary of the Closing Date and ending on the eighteen-month anniversary of the Closing Date and (ii) up to an aggregate of 75% of their respective Covered Securities during the period commencing on the eighteen-month anniversary of the Closing Date and ending on the two-year anniversary of the Closing Date. The restrictions on transfer contained in the Lock-up and Voting Agreement cease to apply to the Covered Securities following the second anniversary of the Closing Date.

Additionally, pursuant to the Lock-up and Voting Agreement, each person party thereto will agree, for the period commencing on the Closing Date and ending on the one-year anniversary of the Closing Date, to vote all of such person’s Covered Securities in favor of (i) amending the Company’s Amended and Restated Certificate of Incorporation to change the legal name of the Company to “TransEnterix, Inc.”, (ii) effecting a reverse stock split of the Common Stock on terms approved by the Board and (iii) amending the Company’s 2007 Incentive Compensation Plan in order to increase the number of shares of Common Stock available for issuance thereunder.

Effectiveness of the Lock-up and Voting Agreements is conditioned upon consummation of the Merger and the Private Placement.

15

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

This Quarterly Report on Form 10-Q contains certain forward-looking statements about our expectations, beliefs or intentions regarding our product development and commercialization efforts, business, financial condition, results of operations, strategies or prospects. You can identify forward-looking statements by the fact that these statements do not relate strictly to historical or current matters. Rather, forward-looking statements relate to anticipated or expected events, activities, trends or results as of the date they are made. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties that could cause our actual results to differ materially from any future results expressed or implied by the forward-looking statements. Many factors could cause our actual operations or results to differ materially from the operations and results anticipated in forward-looking statements. These factors include, but are not limited to: our ability to obtain additional funding to continue our operations; whether the Credit Facility is extended or replaced with similar terms; our ability to successfully commercialize our existing products; our ability to successfully develop, clinically test and commercialize our products and product candidates; the timing and outcome of the regulatory review process for our product candidates; changes in the health care and regulatory environments of the United States and other countries in which we intend to operate; our ability to attract and retain key management, marketing and scientific personnel; competition; our ability to successfully prepare file, prosecute, maintain, defend and enforce patent claims and other intellectual property rights; our ability to successfully transition from a research and development company to a marketing, sales and distribution concern, and our ability to identify and pursue development of additional product candidates, as well as the factors contained in “Item 1A - Risk Factors” of our Annual Report on Form 10-K. We do not undertake any obligation to update forward-looking statements, except as required by applicable law. These forward-looking statements are only predictions and reflect our views as of the date they are made with respect to future events and financial performance.

Overview

We are a developmental stage FDA-registered medical device company focused on the development of medical devices that manipulate tissues for the treatment of obesity, gastroesophageal reflux disease (“GERD”), hernia formation, esophageal obstructions, Barrett’s Esophagus, upper gastrointestinal bleeding, and other intraperitoneal abnormalities through endoscopic and minimally invasive surgery.

We have utilized our expertise in intraperitoneal surgery to test certain of our devices in in vivo and ex vivo animal trials and ex vivo human trials, and with certain products, in limited in vivo human trials. Certain of our products did not or may not require clinical trials, including our AMID HFD, SMART Dilator^TM, and standard and airway bite blocks. Where required, we intend to, efficiently and safely move into clinical trials for certain other devices, including those utilized in surgery for the treatment of obesity, GERD and for the treatment and diagnosis of Barrett’s Esophagus.

Products and Product Candidates

In November 2009, we received FDA clearance to market the AMID HFD in the U.S. as a Class II device, and, in February 2010, we received CE Mark clearance to market the stapler in the European Union and other countries requiring CE clearance. After we commenced production of the AMID HFD in 2010, we voluntarily suspended sales in order to implement several design improvements and a more robust and reliable commercial manufacturing process. As a result of these design improvements, we submitted a “Special 510(k)” to FDA that was cleared in February 2012, and allows us to manufacture the AMID HFD in the United States. Additionally, we will supplement our Technical File prior to marketing the AMID HFD in the European Union.

We have successfully tested our first investigational Gastroplasty Device in five patients in Hungary. At the 24 month follow-up in September 2012, we observed, through endoscopic visualization, that the operative site showed significant scar tissue as intended, with the scar forming a restrictive ring for weight loss or, in the case of GERD, a barrier to prevent acid from refluxing into the esophagus. We have expanded our in vivo human testing of this device in Hungary during 2013 and expect to continue to gather additional data. We are preparing obesity trial protocols for this device in preparation for submitting the final investigational device exemption (“IDE”) trial plans to the FDA for review.

We received the necessary FDA 510(k) clearances to market the SMART Dilator^TM as Class II devices in February 2009. Our standard and airway bite blocks are Class I 510(k)-exempt devices that require no preclearance from the FDA prior to marketing. We continue to evaluate commercialization options for the SMART Dilator^TM and our standard and airway bite blocks.

16

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations set forth below under “Results of Operations” and “Liquidity and Capital Resources” should be read in conjunction with our financial statements and notes thereto appearing elsewhere in this Form 10-Q. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including stock based compensation, revenue recognition, inventory, property and equipment, contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. A more detailed discussion on the application of these and other accounting policies can be found in Note 2 in the Notes to the Consolidated Financial Statements set forth in Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2012. Actual results may differ from these estimates.

Results of Operations

We incurred losses of $1.5 million and $4.1 million for the six months ended June 30, 2013 and 2012, respectively, and we had an accumulated deficit of $31.0 million at June 30, 2013. Since we do not currently generate significant revenue from any of our products, including those already cleared for commercial marketing by the FDA, we expect to continue to generate losses in connection with the commercial launch of such FDA-cleared products and the continual development of our other products and technologies. Our research and development activities are budgeted to expand over time and will require further resources if we are to be successful. As a result, we believe our operating losses are likely to be substantial over the next several years.

Three and Six Months ended June 30, 2013 Compared to Three and Six Months Ended June 30, 2012

Sales were $6,000 and $17,000 for the three and six months ended June 30, 2013, as compared to $9,000 for the three and six months ended June 30, 2012. The $3,000 decrease over the three month period resulted from a decrease of advertising efforts and sales associates in the three months ended June 30, 2013. The $8,000 increase over the six month period is attributed to the fact that sales of the AMID HFD did not commence until the beginning of the six months ended June 30, 2013.

Costs of goods sold (“COGS”) were $3,000 and $7,000 for the three and six months ended June 30, 2013, as compared to $171,000 COGS for the three and six months ended June 30, 2012. The COGS for the three and six months ended June 30, 2012 included $166,000 for scrap materials and quality testing costs.

Research and development (“R&D”) expenses primarily consist of engineering, product development and clinical and regulatory expenses, incurred in the development of our products and product candidates. R&D expenses were $372,000 and $520,000, respectively, for the three and six months ended June 30, 2013 as compared to $769,000 and $1.9 million, respectively, for the three and six months ended June 30, 2012. These $397,000 and $1.4 million respective decreases resulted primarily from the reduction of R&D staff and decreased expenditures for hardware, consulting and contract engineering services as a result of product commercialization of the AMID HFD.

Selling, general and administrative (“SG&A”) expenses consist primarily of salaries, market development and other related costs, including stock based compensation. Other SG&A costs and expenses include facility-related costs not otherwise included in R&D costs and expenses, costs associated with attending medical conferences, professional fees for legal, including legal services associated with our efforts to obtain and maintain broad protection for the intellectual property related to our products, accounting services, consulting fees and travel expenses. SG&A expenses were $591,000 and $992,000, respectively, for the three and six months ended June 30, 2013, as compared $1.1 million and $2.0 million, respectively for the three and six months ended June 30, 2013. These $509,000 and $1.0 million respective decreases resulted primarily from decreased payroll costs from the reduction of quality and regulatory personnel, sales and marketing personnel, marketing materials, trade shows, consulting arrangements, facilities expansion expense and other costs associated with our production and commercialization of the AMID HFD.

17

Liquidity and Capital Resources

As a result of our significant R&D costs and the lack of any significant product sales revenue, we have generated operating losses since inception and we expect to continue to incur losses from operations for the foreseeable future. Sales of the AMID HFD have been slower than anticipated since our commercial launch during the second quarter of 2012. We have taken several steps to preserve cash, including eliminating staff and focusing efforts on development of our Gastroplasty Device.

On March 22, 2013, we sold approximately 12,100,000 shares of our common stock (the "2013 PIPE Shares") in a private placement at a price of $0.25 per share, with net proceeds to the Company of approximately $3.0 million (Note 6). Included in this private placement was the issuance of warrants (the “PIPE Warrants”) to purchase approximately 6,050,000 common shares, representing one warrant for every two common shares purchased, with an exercise price of $0.33 per share and five year expiration. Approximately 50% of the shares and warrants offered were purchased by our officers, directors and significant shareholders. The capital raised will be primarily used for the expansion of our Gastroplasty Device study in Hungary scheduled for 2013, continued development of the Gastroplasty Device and sales and marketing efforts for the AMID HFD. Approximately $1.1 million of the proceeds was used to pay the $300,000 outstanding under the Credit Facility and the $800,000 outstanding under certain promissory notes, which each had a maturity date of June 30, 2013.

As of June 30, 2013, we had remaining cash of $1.0 million and no indebtedness upon the Credit Facility or any promissory notes. Based upon our current cash position and by monitoring our discretionary expenditures, we will likely be able to fund operations through the end of this year. We based this belief on assumptions that may prove to be wrong or are subject to change, and we may be required to use our available cash resources sooner than we currently expect. Beyond this year, the Company will need to raise additional funds in order to continue its operations.

Until we can generate a sufficient amount of product revenue to finance our cash requirements, which we may never do, we will require external financing for our future cash needs through public or private equity offerings, debt financings or strategic collaborations and licensing arrangements. We currently do not have any commitments for future external funding. Almost all of our equity and financing to date has been provided from our principal existing stockholders and there is no assurance that our stockholders will continue to provide the necessary financing for us to continue our operations or that any additional equity or debt financing will be available to the Company on acceptable terms, or at all. If we are not able to secure additional funding when needed, we may be required to delay, further reduce the scope of or eliminate our research and development programs, including the development of our Gastroplasty Device, all of which may not significantly extend the period of time that we will be able to continue operations without additional funding.

To the extent we raise additional capital by issuing equity securities,  or in which equities are issued or obtaining borrowings convertible into equity, ownership dilution to existing stockholders will result and future investors may be granted rights superior to those of existing stockholders. Additionally, if we were to enter into a strategic alliance or collaborative agreement in which equities are issued ownership dilution to existing stockholders will occur and future stockholders may be granted rights superior to those of existing stockholders. The incurrence of indebtedness or debt financing would result in increased fixed obligations and could also result in covenants that would restrict our operations. Our ability to obtain additional capital may depend on prevailing economic conditions and financial, business and other factors beyond our control. Disruptions in the United States and global financial markets may adversely impact the availability and cost of credit, as well as our ability to raise money in the capital markets. Economic conditions have been, and continue to be, volatile. Continued instability in these market conditions may limit our ability to access the capital necessary to fund and grow our business.

It is uncertain as to the length of time the Company can sustain continued operations without the availability of additional funds. This uncertainty raises substantial doubt about the Company’s ability to continue as a going concern. The Company’s financial statements do not include any adjustments that might result from the outcome of this uncertainty.

18

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Not required for smaller reporting companies as defined in Rule 12b-2 of the Exchange Act.

Item 4. Controls and Procedures.

We maintain a system of disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) that is designed to provide reasonable assurance that information we are required to disclose in the reports we file or submit under the Exchange Act is accumulated and communicated to management in a timely manner. Our Chief Executive Officer and Chief Financial Officer evaluated this system of disclosure controls and procedures as of the end of the period covered by this quarterly report and have concluded that the system is operating effectively to ensure appropriate disclosure.

There were no significant changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 of the Exchange Act that occurred during period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

19

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

None.

Item 1A. Risk Factors.

There have been no material changes in our risk factors since the filing of our Annual Report on Form 10-K for the year ended December 31, 2012.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

None.

Item 5. Other Information.

None.

Item 6. Exhibits.

	Exhibits:
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a)
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a)
32.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
32.2	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
101.INS	XBRL Instance Document**
101.SCH	XBRL Taxonomy Extension Schema Document**
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document**
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document**
101.LAB	XBRL Taxonomy Extension Label Linkbase Document**
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document**

*	Pursuant to Item 601(b)(32) of Regulation S-K, this exhibit is furnished, rather than filed, with this Quarterly Report on Form 10-Q.
**	Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Act of 1934 and otherwise not subject to liability.

20

SIGNATURES

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

 

	SAFESTITCH MEDICAL, INC.
Date:  August 14, 2013	By:	/s/ Jeffrey G. Spragens
		Jeffrey G. Spragens
		President and Chief Executive Officer
Date: August 14, 2013	By:	/s/ James J. Martin
		James J. Martin
		Chief Financial Officer

21

EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, Jeffrey G. Spragens, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of SafeStitch Medical, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

By:	/s/ Jeffrey G. Spragens
Jeffrey G. Spragens
Chief Executive Officer (Principal Executive Officer)
August 14, 2013

EX-31.2

Exhibit 31.2

CERTIFICATIONS

I, James J. Martin, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of SafeStitch Medical, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

By:	/s/ James J. Martin
James J. Martin
Chief Financial Officer
August 14, 2013

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT

TO 18 U.S.C. Section 1350, as Adopted Pursuant to

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the accompanying Quarterly Report on Form 10-Q of SafeStitch Medical, Inc. (the “Company”) for the quarter ended June 30, 2013, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jeffrey G. Spragens, Chief Executive Officer and President of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that:

(1)	the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

By:	/s/ Jeffrey G. Spragens
Jeffrey G. Spragens
Chief Executive Officer and President
August 14, 2013

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT

TO 18 U.S.C. Section 1350, as Adopted Pursuant to

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the accompanying Quarterly Report on Form 10-Q of SafeStitch Medical, Inc. (the “Company”) for the quarter ended June 30, 2013, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, James J. Martin, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002that:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

By:	/s/ James J. Martin
James J. Martin
Chief Financial Officer
August 14, 2013

XML

INCOME TAXES

6 Months Ended

Jun. 30, 2013

Income Taxes [Abstract]

INCOME TAXES

NOTE 10 – INCOME TAXES

The Company accounts for income taxes using the asset and liability method, the objective of which is to establish deferred tax assets and liabilities for the temporary differences between the financial reporting and the tax bases of the Company’s assets and liabilities at enacted tax rates expected to be in effect when such amounts are realized or settled. A valuation allowance related to deferred tax assets is recorded when it is more likely than not that some portion or all of the deferred tax assets will not be realized. All of the Company’s deferred tax assets have been fully reserved by a valuation allowance due to management's uncertainty regarding the future profitability of the Company.

The Company has recognized no adjustment for uncertain tax provisions. SafeStitch recognizes interest and penalties related to uncertain tax positions in selling, general and administrative costs and expenses; however no such provisions for accrued interest and penalties related to uncertain tax positions have been recorded as of June 30, 2013 or December 31, 2012.

The tax years 2009-2012 remain open to examination by the major tax jurisdictions in which the Company operates.

XML

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		6 Months Ended		93 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013
Revenues	$ 6	$ 9	$ 17	$ 9	$ 52
Cost of sales	3	171	7	171	389
Gross margin	3	(162)	10	(162)	(337)
Operating costs and expenses
Research and development	372	769	520	1,947	16,374
Selling, general and administrative	591	1,068	992	1,981	13,379
Total operating costs and expenses	963	1,837	1,512	3,928	29,753
Operating loss	(960)	(1,999)	(1,502)	(4,090)	(30,090)
Other income and expense
Other income	0	0	0	0	1,147
Interest income, net	0	0	0	0	79
Amortization of deferred financing cost	0	(3)	0	(5)	(1,984)
Interest exp	0	0	(23)	(43)	(190)
Total other income and expense	0	(3)	(23)	(48)	(948)
Loss before provision for income tax	(960)	(2,002)	(1,525)	(4,138)	(31,038)
Provision for income tax	0	0	0	0	0
Net loss	(960)	(2,002)	(1,525)	(4,138)	(31,038)
Comprehensive income (loss)	0	0	0	0	0
Comprehensive loss	(960)	(2,002)	(1,525)	(4,138)	(31,038)
Loss attributable to common stockholders and loss per common share:
Net loss	(960)	(2,002)	(1,525)	(4,138)	(31,038)
Net loss attributable to common stockholders	(960)	(2,002)	(1,525)	(4,138)	(36,405)
Weighted average shares outstanding, basic and diluted (in shares)	61,699	48,798	56,286	43,314
Net loss per basic and diluted share (in dollars per share)	$ (0.02)	$ (0.04)	$ (0.03)	$ (0.10)
Series A Preferred Conversion
Loss attributable to common stockholders and loss per common share:
Deemed dividend	0	0	0	0	(4,301)
Series A Preferred Stock
Loss attributable to common stockholders and loss per common share:
Deemed dividend	0	0	0	0	(700)
Dividends - Series A Preferred Stock	$ 0	$ 0	$ 0	$ 0	$ (366)

XML

PROPERTY AND EQUIPMENT

6 Months Ended

Jun. 30, 2013

Property and Equipment [Abstract]

PROPERTY AND EQUIPMENT

NOTE 3 – PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

	Estimated Useful Lives	June 30, 2013		December 31, 2012
Machinery and equipment	5 years	$	682,000	$	682,000
Furniture, fixtures and leasehold improvements	3-5 years		88,000		88,000
Software	3-5 years		57,000		57,000
			827,000		827,000
Accumulated depreciation and amortization			(563,000)		(495,000)
Property and equipment, net		$	264,000	$	332,000

Depreciation of fixed assets utilized in research and development activities is included in research and development costs and expenses. All other depreciation is included in selling, general and administrative costs and expenses. Depreciation and amortization expense was $33,000 and $68,000, respectively for the three and six months ended June 30, 2013, and was $42,000 and $84,000, respectively for the three and six months ended June 30, 2012.

XML

BASIC AND DILUTED NET LOSS PER SHARE (TABLES)

6 Months Ended

Jun. 30, 2013

Basic and Diluted Net Loss Per Share [Abstract]

Summary of Potential Common Shares

Potential common shares not included in calculating diluted net loss per share are as follows:

	June 30, 2013		June 30, 2012
Stock options		3,547,000		2,344,500
Stock warrants		6,050,000		805,521
Total		9,597,000		3,150,021

XML

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

6 Months Ended

Jun. 30, 2013

Certain Relationships and Related Party Transactions [Abstract]

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

NOTE 11 – CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

As more fully described in Note 5, the Company entered into a $4.0 million Credit Facility with Jeffrey G. Spragens, the Company’s President, Chief Executive Officer and director, and The Frost Group.

The Company entered into a five-year lease for office space in Miami, Florida with a company controlled by Dr. Frost. The non-cancelable lease, which commenced January 1, 2008, provides for a 4.5% annual rent increase over the life of the lease. The Miami office lease was amended in August 2011 to include additional office space in the same building, and current rental payments under the lease are approximately $16,000 per month. The Company recorded rent expense related to the Miami lease totaling approximately $48,000 and $99,000, respectively, for the three and six months ended June 30, 2013, and $69,000 and $126,000, respectively, for the three and six months ended June 30, 2012.

Dr. Hsiao, Dr. Frost and director Steven Rubin are each significant stockholders and/or directors of Non-Invasive Monitoring Systems, Inc. (“NIMS”), a publicly-traded medical device company, Aero Pharmaceuticals, Inc. (“Aero”), a privately-held pharmaceutical distribution company that dissolved in December 2011, Tiger X Medical, Inc. (“Tiger X”) (formerly known as Cardo Medical, Inc.), a publicly-traded medical device company, and TigerMedia, Inc. (“TigerMedia) (formerly known as SearchMedia Holdings Limited), a publicly-traded media company operating primarily in China. Director Richard Pfenniger is also a shareholder of NIMS. The Company’s Chief Financial Officer also serves as the Chief Financial Officer and supervises the accounting staffs of NIMS and, until its dissolution, Aero, under a Board-approved cost sharing arrangement whereby the total salaries of the accounting staffs of the three companies are shared. Aero has not participated in the cost sharing arrangement since June 30, 2011 and was dissolved in December 2011. Since December 2009, the Company’s Chief Legal Officer has served under a similar Board-approved cost sharing arrangement as Corporate Counsel of TigerMedia and as the Chief Legal Officer of each of NIMS and Tiger X. The Company has recorded reductions to selling, general and administrative costs and expenses to account for the sharing of costs under these arrangements of $50,000 and $100,000, respectively, for the three and six months ended June 30, 2013, and $52,000 and $103,000, respectively, for the three and six months ended June 30, 2012. Aggregate accounts receivable from NIMS, Tiger X and TigerMedia were approximately $63,000 and $59,000 as of June 30, 2013 and December 31, 2012, respectively and are included in other receivable—related party.

XML

INCOME TAXES (Details Textual)	6 Months Ended
	Jun. 30, 2013
Maximum [Member]
Income Taxes (Textual) [Abstract]
Tax years open to examination by major tax jurisdictions	2012
Minimum [Member]
Income Taxes (Textual) [Abstract]
Tax years open to examination by major tax jurisdictions	2009

XML

PROPERTY AND EQUIPMENT (Details) (USD $)	6 Months Ended
	Jun. 30, 2013	Dec. 31, 2012
Summary of Property and equipment
Property and equipment, Gross	$ 827,000	$ 827,000
Accumulated depreciation and amortization	(563,000)	(495,000)
Property and equipment, net	264,000	332,000
Machinery and Equipment [Member]
Summary of Property and equipment
Estimated Useful Lives	5 years
Property and equipment, Gross	682,000	682,000
Furniture, Fixtures and Leasehold Improvements [Member]
Summary of Property and equipment
Property and equipment, Gross	88,000	88,000
Furniture, Fixtures and Leasehold Improvements [Member] | Maximum [Member]
Summary of Property and equipment
Estimated Useful Lives	5 years
Furniture, Fixtures and Leasehold Improvements [Member] | Minimum [Member]
Summary of Property and equipment
Estimated Useful Lives	3 years
Software [Member]
Summary of Property and equipment
Property and equipment, Gross	$ 57,000	$ 57,000
Software [Member] | Maximum [Member]
Summary of Property and equipment
Estimated Useful Lives	5 years
Software [Member] | Minimum [Member]
Summary of Property and equipment
Estimated Useful Lives	3 years

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Textual) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012	Dec. 31, 2012
Summary of Significant Accounting Policies (Textual) [Abstract]
Number Of AMID HFD units in inventory					5,800
Marketing and Advertising Expense	$ 0	$ 45,000	$ 520	$ 83,000
AMID HFD [Member]
Summary of Significant Accounting Policies (Textual) [Abstract]
Number Of AMID HFD units in inventory	5,707		5,707
Number Of Units In Revenue	26	24	62	24
Number Of Units In Revenue For Demonstration	42	516	60	516

XML

BASIC AND DILUTED NET LOSS PER SHARE (Details)	6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012
Summary of Potential Common Shares
Antidilutive Securities Excluded from Computation of Earnings Per Share	9,597,000	3,150,021
Employee Stock Option [Member]
Summary of Potential Common Shares
Antidilutive Securities Excluded from Computation of Earnings Per Share	3,547,000	2,344,500
Stock Warrants [Member]
Summary of Potential Common Shares
Antidilutive Securities Excluded from Computation of Earnings Per Share	6,050,000	805,521

XML

EMPLOYEE BENEFIT PLANS (Details Textual) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Employee Benefit Plans (Textual) [Abstract]
Employee contribution to annual compensation			100.00%	100.00%
Employer contribution matching plan			100.00%	100.00%
Percentage of participant's qualified annual earnings			4.00%	4.00%
Expenses recorded related to plan	$ 8,000	$ 4,000	$ 13,000	$ 15,000

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STOCK-BASED COMPENSATION (Details Textual) (USD $)	1 Months Ended	3 Months Ended		6 Months Ended
	Feb. 29, 2012	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012	Jun. 19, 2012
Stock-Based Compensation (Textual) [Abstract]
Stock option exercise price				$ 0.45
Stock options or stock appreciation rights granted having Exceeding Terms ten years				1,693,500
Common stock shares available for issuance						5,000,000
Estimated aggregate fair value of stock option				$ 668,000	$ 441,000
Weight average fair value of the options granted				$ 0.40	$ 0.54
Stock based compensation forfeiture experience recorded		437,000	113,000	503,000	224,000
Unrecognized compensation cost related to non vested employee and director share based compensation arrangement		$ 387,500		$ 387,500
Weighted average period for which cost is expected to be recognized				1 year 6 months 25 days
Stock Issued During Period, Shares, New Issues	20,794,000
Incentive Compensation Plan 2007 [Member]
Stock-Based Compensation (Textual) [Abstract]
Stock options or stock appreciation rights granted having Exceeding Terms ten years				1,693,500	813,500
Stock Appreciation Rights Maximum Term				10 years
Employee Stock Option [Member]
Stock-Based Compensation (Textual) [Abstract]
Stock Issued During Period, Shares, New Issues				123,500	218,000
Minimum [Member]
Stock-Based Compensation (Textual) [Abstract]
Stock option exercise price					$ 0.65
Maximum [Member]
Stock-Based Compensation (Textual) [Abstract]
Stock option exercise price					$ 0.85

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BASIS OF PRESENTATION AND LIQUIDITY (Details Textual) (USD $)	1 Months Ended	12 Months Ended					1 Months Ended	6 Months Ended						1 Months Ended	12 Months Ended
	Feb. 29, 2012	Dec. 31, 2010	Dec. 31, 2008	Jun. 30, 2013	Dec. 31, 2012	Sep. 16, 2005	Mar. 22, 2013 2013 PIPE investors [Member]	Jun. 30, 2013 2013 PIPE investors [Member]	Jun. 30, 2013 The Frost Group [Member]	Jun. 30, 2013 Mr.Spragens [Member]	Jan. 08, 2008 Maximum [Member]	Jan. 08, 2008 Minimum [Member]	Jan. 08, 2008 Common Stock [Member]	Sep. 30, 2007 Common Stock [Member] Cellular [Member]	Dec. 31, 2010 Preferred Stock [Member]	Dec. 31, 2008 Preferred Stock [Member]	Jan. 08, 2008 Preferred Stock [Member]
Basis of Presentation and Liquidity (Textual) [Abstract]
Common stock, shares issued														11,256,369
Capital stock, share authorized											250,000,000	35,000,000
Agreed to purchase an aggregate shares of common stock				225,000,000	225,000,000								225,000,000
Common Stock at Par value				$ 0.001	$ 0.001								$ 0.001
Preferred Stock, Par value																	$ 0.01
Series A Preferred stock aggregate issuance																	25,000,000
Accumulated deficit						$ 31,000,000
Basis of Warrant to Purchase Common Stock, Description								one warrant for every two common shares
Expiration Period								5 years
Issuance of common shares in private offering,Shares	20,794,000						12,100,000
Stock Issued During Period, Value, New Issues		4,974,000	3,988,000				3,000,000								0	0
Equity Issuance, Per Share Amount							$ 0.25
Class Of Warrant Or Right, Number Of Securities Called By Warrants Or Rights							6,050,000
Warrant Exercise Price								$ 0.33
Shares offered To Purchased								50.00%
Debt Instrument, Annual Principal Payment				1,100,000
Line Of Credit Facility, Maximum Borrowing Capacity				$ 4,000,000					$ 3,900,000	$ 100,000

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CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) [Parenthetical] (USD $)	1 Months Ended							12 Months Ended
	Feb. 29, 2012	Sep. 30, 2010	Jun. 30, 2010	Jan. 31, 2010	Jul. 31, 2009	Dec. 30, 2008	May 31, 2008	Dec. 31, 2012	Dec. 31, 2010	Mar. 31, 2013
Warrants issued with credit facility										0.25
Conversion of shares of series A Preferred Stock		4,000
Conversion of accumulated dividends		4,366
Repayment of stockholder related to Issuance of common shares						$ 1.22
Issuance of Series A Preferred Stock				$ 1.00	$ 1.00
Intrinsic value of aggregate shares of Common Stock issued on conversion of Series A Preferred Stock									5,063
Common stock shares issued for warrants								805,521		12,096,000
Issuance of shares of Common Stock for warrants per share								$ 0.25		$ 0.25
Issuance Of Common Shares In Private Offering			$ 1.00				$ 2.15
Issuance Of Common Shares For Private Offering	20,794,000
Common Stock Issued During Period Price Per Shares	$ 0.40
Issuance of Common Stock as Consideration Shares
Common Stock
Issuance of Common Stock as Consideration Shares								20,794	697

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BASIS OF PRESENTATION AND LIQUIDITY

6 Months Ended

Jun. 30, 2013

Basis Of Presentation and Liquidity [Abstract]

BASIS OF PRESENTATION AND LIQUIDITY

NOTE 1 – BASIS OF PRESENTATION AND LIQUIDITY

The following (a) condensed consolidated balance sheet as of December 31, 2012, which has been derived from audited financial statements, and (b) the unaudited condensed consolidated interim financial statements of SafeStitch Medical, Inc. (“SafeStitch” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results and cash flows for the six months ended June 30, 2013 are not necessarily indicative of results that may be expected for the year ending December 31, 2013 or for future periods. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2012 included in the Company’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”) on April 1, 2013.

SafeStitch Medical, Inc. (together with its consolidated subsidiaries, “SafeStitch” or the “Company”) is a developmental stage medical device company focused on the development of medical devices that manipulate tissues for endoscopic and minimally invasive surgery for the treatment of obesity, gastroesophageal reflux disease (“GERD”), Barrett’s Esophagus, esophageal obstructions, upper gastrointestinal bleeding, hernia formation and other intraperitoneal abnormalities.

Cellular Technical Services Company, Inc. (“Cellular”), a non-operating public company, was incorporated in 1988 as NCS Ventures Corp. under the laws of the State of Delaware. On July 25, 2007 Cellular entered into a Share Transfer, Exchange and Contribution Agreement (the “Share Exchange”) with SafeStitch LLC, a Virginia limited liability company. On September 4, 2007, Cellular acquired all of the members’ equity interests in SafeStitch LLC in exchange for 11,256,369 shares of Cellular’s common stock, which represented a majority of Cellular’s outstanding shares immediately following the Share Exchange. Effective January 8, 2008, Cellular changed its name to SafeStitch Medical, Inc. and increased the aggregate number of shares of capital stock that may be issued from 35,000,000 to 250,000,000, comprising 225,000,000 shares of common stock, par value $0.001 per share (the “Common Stock”), and 25,000,000 shares of preferred stock, par value $0.01 per share. For accounting purposes, the acquisition has been treated as a recapitalization of SafeStitch LLC, with SafeStitch LLC as the acquirer (reverse acquisition). The historical financial statements prior to September 4, 2007 are those of SafeStitch LLC, which began operations on September 15, 2005. The accompanying financial statements give retroactive effect to the recapitalization as if it had occurred on September 15, 2005 (inception).

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. For the period from September 15, 2005 (inception) through June 30, 2013, the Company has accumulated a deficit of $31.0 million and has not generated positive cash flows from operations.

On March 22, 2013, the Company sold approximately 12,100,000 shares of our common stock (the "2013 PIPE Shares") in a private placement at a price of $0.25 per share, with net proceeds to the Company of approximately $3.0 million (Note 6). Included in this private placement was the issuance of warrants (the “PIPE Warrants”) to purchase approximately 6,050,000 common shares, representing one warrant for every two common shares purchased, with an exercise price of $0.33 per share and five year expiration. Approximately 50% of the shares and warrants offered were purchased by our officers, directors and significant shareholders. The capital raised will be primarily used for the expansion of our Gastroplasty Device study in Hungary, continued development of the Gastroplasty Device and sales and marketing efforts for the AMID® Hernia Fixation Device (the “AMID HFD”). Approximately $1.1 million of the proceeds was used to pay off amounts outstanding under the Credit Facility and promissory notes. Based upon the Company’s current cash position and by monitoring our discretionary expenditures, the Company will likely be able to fund operations through the end of this year. We based this belief on assumptions that may prove to be wrong or are subject to change, and we may be required to use our available cash resources sooner than we currently expect. Beyond this year, the Company will need to raise additional funds in order to continue its operations.

In connection with the acquisition of SafeStitch LLC, the Company entered into a Note and Security Agreement (the “Credit Facility”) with both The Frost Group and Jeffrey G. Spragens, the Company’s Chief Executive Officer and President and a director. The Frost Group is a Florida limited liability company whose members include Frost Gamma Investments Trust (“Frost Gamma”), a trust controlled by Dr. Phillip Frost, one of the largest beneficial holders of the issued and outstanding shares of Common Stock, Dr. Jane H. Hsiao, the Company’s Chairman of the Board, and Steven D. Rubin, a director. The Credit Facility provided $4.0 million in total available borrowings, consisting of $3.9 million from The Frost Group and $100,000 from Mr. Spragens (see Note 5). The Credit Facility was not extended beyond its June 30, 2013 maturity date and additional funding will be required to continue operations. We intend to seek external financing for our future cash needs through public or private equity offerings, debt financings, strategic alliance or corporate collaboration and licensing arrangements. The Company currently does not have any commitments for future external funding. Almost all of the Company’s equity and financing to date has been provided from the Company’s principal existing stockholders and there is no assurance that the Company’s stockholders will continue to provide the necessary financing for us to continue our operations or that any additional equity or debt financing will be available to the Company on acceptable terms, or at all. If adequate funds are not available when needed, the Company may be required to delay, further reduce the scope of or eliminate our research and development programs, including the development of the Gastroplasty Device, all of which may not significantly extend the period of time that the Company will be able to continue operations without raising additional funding.

It is uncertain as to the length of time the Company can sustain continued operations without the availability of additional. This uncertainty raises substantial doubt about the Company’s ability to continue as a going concern. The Company’s financial statements do not include any adjustments that might result from the outcome of this uncertainty.

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STOCK-BASED COMPENSATION

6 Months Ended

Jun. 30, 2013

Stock-Based Compensation [Abstract]

STOCK-BASED COMPENSATION

NOTE 4 – STOCK-BASED COMPENSATION

On November 13, 2007, the Board of Directors and a majority of the Company’s stockholders approved the SafeStitch Medical, Inc. 2007 Incentive Compensation Plan (the “2007 Plan”), which was amended on June 19, 2012 to increase the number of shares of Common Stock available for issuance to 5,000,000. Under the 2007 Plan, which is administered by the Compensation Committee, the Company may grant stock options, stock appreciation rights, restricted stock and/or deferred stock to employees, officers, directors, consultants and vendors up to an aggregate of 5,000,000 shares of Common Stock, which are fully reserved for future issuance. The exercise price of stock options or stock appreciation rights may not be less than the fair market value of the Company’s shares at the date of grant and, within any 12 month period, no person may receive stock options or stock appreciation rights for more than one million shares. Additionally, no stock options or stock appreciation rights granted under the 2007 Plan may have a term exceeding ten years.

The Company granted 1,693,500 and 813,500 stock options under the 2007 Plan during the six months ended June 30, 2013 and 2012, respectively. The Company issued 123,500 stock options to consultants during the six months ended June 30, 2013 and 218,000 stock options that were issued to consultants during the six months ended June 30, 2012. The options granted during 2013 were issued at an exercise price of $0.45 per share and had an estimated aggregate grant date fair value of $668,000. The options granted during 2012 were issued at an exercise price ranging from $0.65 to $0.85 per share and had an estimated aggregate grant date fair value of $441,000. The weighted average grant date fair value of the options granted during the six months ended June 30, 2013 and 2012 was $0.40 per share and $0.54 per share, respectively.

Total stock-based compensation recorded for the three and six months ended June 30, 2013 was $437,000 and $503,000, respectively. Total stock-based compensation recorded for the three and six months ended June 30, 2012 was $113,000 and $224,000, respectively. All stock-based compensation is included in selling, general and administrative costs and expenses. The fair values of options granted are estimated on the date of their grant using the Black-Scholes option pricing model based on the assumptions included in the table below. The fair value of the Company’s stock option awards is expensed over the vesting life of the underlying stock options using the graded vesting method, with each tranche of vesting options valued separately. Expected volatility is based on the historical volatility of the Common Stock. The risk-free interest rate for periods within the contractual life of the stock option award is based on the yield of U.S. Treasury bonds on the grant date with a maturity equal to the expected term of the stock option. The expected life of stock option awards granted to employees and non-employee directors is based upon the “simplified” method for “plain vanilla” options described in SEC Staff Accounting Bulletin No. 107, as amended by SEC Staff Accounting Bulletin No. 110. The expected life of all other stock option awards is the contractual term of the option. Forfeiture rates are based on management’s estimates. The fair value of each option granted during the six months ended June 30, 2013 and 2012 was estimated using the following assumptions.

	Six months ended June 30, 2013	Six months ended June 30, 2012
Expected volatility	98% - 136%	85.41% - 111.36%
Expected dividend yield	0.00%	0.00%
Risk-free interest rate	0.92% – 1.71%	1.02% – 1.98%
Expected life	5.5 – 10.0 years	5.5 – 10.0 years
Forfeiture rate	0% - 2%	0% - 2%

The following summarizes the Company’s stock option activity for the six months ended June 30, 2013:

	Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value
Outstanding at December 31, 2012	2,079,000	$	1.03	6.77
Granted	1,693,500	$	0.45	9.82
Exercised	–		–
Canceled or expired	(225,500)	$	1.14
Outstanding at June 30, 2013	3,547,000	$	0.75	7.94	$	0
Exercisable at June 30, 2013	2,429,875	$	0.82	7.37	$	0
Vested and expected to vest at June 30, 2013	3,520,218	$	0.75	7.90	$	0

910,000 of the 1,693,500 options granted during the first six months of the Company’s 2013 fiscal year were vested as of June 30, 2013. At June 30, 2013, there was approximately $387,500 of total unrecognized compensation cost related to non-vested employee and director share-based compensation arrangements. That cost is expected to be recognized over a weighted-average period of 1.57 years.

No options were exercised during the three and six months ended June 30, 2013 and 2012.

No tax benefits were attributed to the stock-based compensation expense because a valuation allowance was maintained for substantially all net deferred tax assets.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

6 Months Ended

Jun. 30, 2013

Summary Of Significant Accounting Policies [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Consolidation. The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Isis Tele-Communications, Inc., which has no current operations, and SafeStitch LLC. All inter-company accounts and transactions have been eliminated in consolidation.

Use of estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions, such as useful lives of property and equipment, that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.

Cash and cash equivalents. We consider all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. The Company holds cash and cash equivalent balances in banks and other financial institutions, and includes overnight repurchase agreements collateralizing its depository bank accounts (sweep accounts) in its cash balances. Balances in excess of Federal Deposit Insurance Corporation (“FDIC”) limitations may not be insured.

Allowances for Doubtful Accounts. The Company provides an allowance for receivables it believes it may not collect in full. Receivables are written off when they are deemed to be uncollectible and all collection attempts have ceased. The amount of bad debt recorded each period and the resulting adequacy of the allowance for doubtful accounts at the end of each period are determined using a combination of customer-by-customer analysis of the Company’s accounts receivable each period and subjective assessments of the Company’s future bad debt exposure.

Inventories. Inventories are stated at lower of cost or market using the weighted average cost method. Provisions for potentially obsolete or slow-moving inventory are made based on management’s analysis of inventory levels, obsolescence and future sales forecasts. The Company had approximately 5,707 AMID HFD units in inventory at June 30, 2013 and 5,800 units at December 31, 2012.

Property and equipment. Property and equipment are carried at cost less accumulated depreciation. Major additions and improvements are capitalized, while maintenance and repairs that do not extend the lives of assets are expensed. Gain or loss, if any, on the disposition of fixed assets is recognized currently in operations. Depreciation is calculated primarily on a straight-line basis over estimated useful lives of the assets.

Revenue Recognition. Revenue from product sales is recognized when persuasive evidence of an arrangement exists, the goods are shipped and title has transferred, the price is fixed or determinable, and the collection of the sales proceeds is reasonably assured. The Company’s revenue was a result of AMID HFD product sales. There were 26 and 62 AMID HFD units sold during the three and six months ended June 30, 2013 and there were 24 AMID HFD units sold for the three and six months ended June 30, 2012. In addition, there were 42 and 60 AMID HFD units used for demonstration purposes during the three and six months ended June 30, 2013 and 516 AMID HFD units were used for demonstration purposes during the three and six months ended June 30, 2012.

Advertising Costs. The Company expenses all costs of advertising as incurred. Advertising and promotional costs are included in selling, general and administrative costs and expenses for all periods presented, and totaled $0 and $520, respectively, for the three and six months ended June 30, 2013. Advertising and promotional costs and expenses totaled $45,000 and $83,000, respectively, for the three and six months ended June 30, 2012.

Research and development. Research and development costs principally represent salaries of the Company’s medical and biomechanical engineering professionals, material and shop costs associated with manufacturing product prototypes and payments to third parties for clinical trials and additional product development and testing. All research and development costs are charged to expense as incurred.

Patent costs. Costs incurred in connection with acquiring patent rights and the protection of proprietary technologies are charged to expense as incurred.

Stock-based compensation. The Company follows ASC 718 (Stock Compensation) and 505-50 (Equity-Based Payments to Non-employees), which provide guidance in accounting for share-based awards exchanged for services rendered and requires companies to expense the estimated fair value of these awards over the requisite service period.  The Company determines the fair value of the stock-based compensation awards granted as either the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. If the fair value of the equity instruments issued is used, it is measured using the stock price and other measurement assumptions as of the earlier of either of (1) the date at which a commitment for performance by the counterparty to earn the equity instruments is reached, or (2) the date at which the counterparty’s performance is complete.

Fair value of financial instruments. Authoritative guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy consists of three broad levels, as described below:

· Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

· Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

· Level 3 - Inputs that are both significant to the fair value measurement and unobservable.

Long-lived assets. Long-lived assets, such as property and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, then an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the fair value, or carrying amount for cost basis assets, of the asset.

Income taxes. The Company follows the liability method of accounting for income taxes, which requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of the assets and liabilities. The Company’s policy is to record a valuation allowance against deferred tax assets, when the deferred tax asset is not recoverable. The Company considers estimated future taxable income or loss and other available evidence when assessing the need for its deferred tax valuation allowance.

Comprehensive income (loss). Comprehensive income (loss) is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. The Company’s comprehensive net loss is equal to its net loss for all periods presented.

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SUBSEQUENT EVENT (Details Textual) (USD $)	1 Months Ended	0 Months Ended
	Feb. 29, 2012	Aug. 13, 2013 Subsequent Event [Member]	Aug. 13, 2013 Subsequent Event [Member] Maximum [Member]	Aug. 13, 2013 Subsequent Event [Member] Minimum [Member]	Aug. 13, 2013 Subsequent Event [Member] Private Placement [Member] Series B Preferred Stock [Member]
Subsequent Event [Line Items]
Stockholders Equity Note, Stock Split		1.1723
Number of Stock To Be Issued Upon Exercise of Stock Options		15,939,000
Number of Stock To Be Issued Upon Exercise of Warrant		1,421,000
Percentage of Ownership Interest		65.00%
Stock Issued During Period, Shares, New Issues	20,794,000				7,500,000
Preferred Stock Par Or Stated Value Per Share					$ 0.01
Preferred Stock, Conversion Basis					4.00
Additional Stock To Be Issued					1,250,000
Percentage of Covered Securities Transferred Under The Lock-up and Voting Agreement			75.00%	50.00%

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PROPERTY AND EQUIPMENT (Details Textual) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Property, Plant and Equipment [Line Items]
Depreciation and amortization expense	$ 33,000	$ 42,000	$ 68,000	$ 84,000

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DEBT (Details Textual) (USD $)	3 Months Ended		6 Months Ended		93 Months Ended						1 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Mar. 31, 2013	Feb. 22, 2013	Dec. 26, 2012	Nov. 20, 2012	Jun. 30, 2013 The Frost Group [Member]	Oct. 31, 2012 Mr. Spragens [Member]	Jun. 30, 2013 Mr. Spragens [Member]
Line of Credit Facility (Textual) [Abstract]
Credit facility available Borrowing	$ 4,000,000		$ 4,000,000		$ 4,000,000					$ 3,900,000		$ 100,000
Credit facility accrue interest rate			10.00%
Credit facility initial term			28 months
Warrants granted to purchase aggregate common stock			805,521								805,521
Warrants issued with credit facility	0.25		0.25		0.25	0.25
Fair value of warrants			1,985,000
Expected volatility			82.00%
Dividend yield			0.00%
Risk free interest rate			4.88%
Expected Life			10 years
Net proceeds from Exercise of warrants			0	0	201,000
Amortization expenses related to deferred financing cost	0	3,000	0	5,000
Proceeds from Lines of Credit			300,000
Accrued Interest	15,000		15,000		15,000		2,000	8,000	10,000
Promissory note principal amount							$ 200,000	$ 300,000	$ 300,000
Percentage of interest rate payable							10.00%	10.00%	10.00%

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AGREEMENT WITH CREIGHTON UNIVERSITY (Details Textual) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012	Dec. 31, 2007
Agreement with Creighton University (Textual) [Abstract]
Percentage of royalty of product revenue			1.50%
Minimum investment under royalty agreement	$ 2,500,000		$ 2,500,000		$ 2,500,000
Period for minimum investment under royalty agreement			36 months
Patent related under royalty agreement			150,000
Reimbursement percentage of research and development expenses			20.00%
Research and development expense under royalty agreement	$ 0	$ 12,000	$ 3,000	$ 24,000
Percentage of Reimbursement Obligation For Investment Obligation			20.00%

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CONDENSED CONSOLIDATED BALANCE SHEETS [Parenthetical] (USD $)	Jun. 30, 2013	Dec. 31, 2012
Stockholders Equity
Common stock, par value (dollars per share)	$ 0.001	$ 0.001
Common stock, shares authorized	225,000,000	225,000,000
Common stock, shares issued	61,699,276	49,603,276
Common stock, shares outstanding	61,699,276	49,603,276

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BASIC AND DILUTED NET LOSS PER SHARE

6 Months Ended

Jun. 30, 2013

Basic and Diluted Net Loss Per Share [Abstract]

BASIC AND DILUTED NET LOSS PER SHARE

NOTE 7 – BASIC AND DILUTED NET LOSS PER SHARE

Basic net loss per common share is computed by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding for the period reported. Diluted net loss per common share is computed giving effect to all dilutive potential common shares that were outstanding for the period reported. Diluted potential common shares consist of incremental shares issuable upon exercise of stock options and warrants and conversion of preferred stock. In computing diluted net loss per share for the three and six months ended June 30, 2013 and 2012, no adjustment has been made to the weighted average outstanding common shares as the assumed exercise of outstanding options and warrants and conversion of preferred stock is anti-dilutive.

Potential common shares not included in calculating diluted net loss per share are as follows:

	June 30, 2013		June 30, 2012
Stock options		3,547,000		2,344,500
Stock warrants		6,050,000		805,521
Total		9,597,000		3,150,021

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CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (USD $) In Thousands, except Share data	Total	Preferred Stock	Preferred Stock Series A Preferred Stock	Preferred Stock Series A Preferred Conversion	Common Stock	Additional Paid-in Capital	Deficit Accumulated During Development Stage
Beginning Balance at Sep. 14, 2005	$ 0	$ 0			$ 0	$ 0	$ 0
Capital contributed	1	0			0	1	0
Net loss	(76)	0			0	0	(76)
Ending Balance at Dec. 31, 2005	(75)	0			0	1	(76)
Ending Balance, Share at Dec. 31, 2005	0
Capital contributed	1,504	0			11	1,493	0
Capital contributed, Shares					11,256
Net loss	(1,060)	0			0	0	(1,060)
Ending Balance at Dec. 31, 2006	369	0			11	1,494	(1,136)
Ending Balance, Share at Dec. 31, 2006					11,256
Capital contributed	5,093	0			5	5,088	0
Capital contributed, Shares					4,837
Net loss	(3,041)	0			0	0	(3,041)
Ending Balance at Dec. 31, 2007	2,421	0			16	6,582	(4,177)
Ending Balance, Share at Dec. 31, 2007					16,093
Issuance of common shares in private offering	3,988	0			2	3,986	0
Issuance of common shares in private offering,Shares					1,862
Issuance of common shares as repayment of stockholder note	10				0	10	0
Issuance of common shares as repayment of stockholder note, Shares					8
Stock-based compensation	239	0			0	239	0
Net loss	(5,185)	0			0	0	(5,185)
Ending Balance at Dec. 31, 2008	1,473	0			18	10,817	(9,362)
Ending Balance, Share at Dec. 31, 2008					17,963
Issuance of Series A Preferred Stock	1,982		20		0	1,962	0
Issuance of Series A Preferred Stock,Shares			2,000
Fair value of beneficial conversion feature of Series A Preferred Stock	200	0			0	200	0
Deemed dividend to Series A Preferred Stockholders, charged to additional paid-in capital in the absence of retained earnings	(200)	0			0	(200)	0
Stock-based compensation	195	0			0	195	0
Net loss	(2,366)	0			0	0	(2,366)
Ending Balance at Dec. 31, 2009	1,284	20			18	12,974	(11,728)
Ending Balance, Share at Dec. 31, 2009		2,000			17,963
Issuance of Series A Preferred Stock	1,998		20		0	1,978	0
Issuance of Series A Preferred Stock,Shares			2,000
Fair value of beneficial conversion feature of Series A Preferred Stock	500	0			0	500	0
Deemed dividend to Series A Preferred Stockholders, charged to additional paid-in capital in the absence of retained earnings	(500)	0			0	(500)	0
Issuance of common shares in private offering	4,974	0			5	4,969	0
Issuance of common shares in private offering,Shares					4,978
Conversion of shares of Series A Preferred Stock and accumulated dividends into shares of Common Stock	0			(40)	4	36	0
Conversion of shares of Series A Preferred Stock and accumulated dividends into shares of Common Stock, shares				(4,000)	4,366
Issuance of shares of Common Stock as Consideration Shares	0	0			1	(1)	0
Issuance of shares of Common Stock as Consideration Shares, Shares					697
Intrinsic value of aggregate shares of Common Stock issued on conversion of Series A Preferred Stock	4,301	0			0	4,301	0
Dividend paid to Series A Preferred Stockholders on conversion, charged to additional paid-in capital in the absence of retained earnings	(4,301)	0			0	(4,301)	0
Stock-based compensation	471	0			0	471	0
Net loss	(5,303)	0			0	0	(5,303)
Ending Balance at Dec. 31, 2010	3,424	0			28	20,427	(17,031)
Ending Balance, Share at Dec. 31, 2010					28,004
Stock-based compensation	335	0			0	335	0
Net loss	(5,758)	0			0	0	(5,758)
Ending Balance at Dec. 31, 2011	(1,999)	0			28	20,762	(22,789)
Ending Balance, Share at Dec. 31, 2011					28,004
Issuance of shares of Common Stock as Consideration Shares, Shares					20,794
Stock-based compensation	448	0			0	448	0
Issuance of 20,794,000 shares of Common Stock at $0.40 per share for cash in February 2012	8,318	0			21	8,297	0
Issuance of 805,521 shares of Common Stock for Warrants as $0.25 per share for cash in October 2012	201	0			1	200	0
Issuance of 805,521 shares of Common Stock for Warrants at $0.25 per share for cash in October 2012, Shares					805
Net loss	(6,724)	0			0	0	(6,274)
Ending Balance at Dec. 31, 2012	245	0			50	29,708	(29,513)
Ending Balance, Share at Dec. 31, 2012					49,603
Stock-based compensation	503	0			0	503	0
Issuance of 20,794,000 shares of Common Stock at $0.40 per share for cash in February 2012	3,024	0			12	3,012	0
Issuance of 20,794,000 shares of Common Stock at $0.40 per share for cash in February 2012,Shares					12,096
Net loss	(1,525)	0			0	0	(1,525)
Ending Balance at Jun. 30, 2013	$ 2,247	$ 0			$ 62	$ 33,223	$ (31,038)
Ending Balance, Share at Jun. 30, 2013					61,699

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CONDENSED CONSOLIDATED BALANCE SHEETS (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
CURRENT ASSETS
Cash and cash equivalents	$ 1,026	$ 275
Accounts Receivable - trade	5	12
Other receivable - related-party	63	59
Prepaid expenses	72	140
Inventories	1,482	1,600
Total Current Assets	2,648	2,086
FIXED ASSETS
Property and equipment, net	264	332
OTHER ASSETS
Security deposits	2	2
Total Other Assets	2	2
TOTAL ASSETS	2,914	2,420
CURRENT LIABILITIES
Accounts payable and accrued liabilities	615	1,224
Accounts payable and accrued liabilities - related party	52	39
Stockholder loans, including accrued interest ( Note 5)	0	912
Total Current Liabilities	667	2,175
Commitments and contingencies (Note 8)
STOCKHOLDERS’ EQUITY
Common stock, $0.001 par value per share, 225,000,000 shares authorized, 61,699,276 and 49,603,276 shares issued and outstanding	62	50
Additional paid-in capital	33,223	29,708
Deficit accumulated during the development stage	(31,038)	(29,513)
Total Stockholders’ Equity	2,247	245
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$ 2,914	$ 2,420

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STOCK-BASED COMPENSATION (Details)	6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012
Summary of Share-Based Compensation of Fair Value Assumptions
Expected volatility, Minimum	98.00%	85.41%
Expected volatility, Maximum	136.00%	111.36%
Expected dividend yield	0.00%	0.00%
Risk-free interest rate, Minimum	0.92%	1.02%
Risk-free interest rate, Maximum	1.71%	1.98%
Expected life, Minimum	5 years 6 months	5 years 6 months
Expected life, Maximum	10 years	10 years
Forfeiture rate, Minimum	0.00%	0.00%
Forfeiture rate, Maximum	2.00%	2.00%

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STOCK-BASED COMPENSATION (TABLES)

6 Months Ended

Jun. 30, 2013

Stock-Based Compensation [Abstract]

Summary of Share Based Compensation of Fair Value Assumptions

The fair value of each option granted during the six months ended June 30, 2013 and 2012 was estimated using the following assumptions.

	Six months ended June 30, 2013	Six months ended June 30, 2012
Expected volatility	98% - 136%	85.41% - 111.36%
Expected dividend yield	0.00%	0.00%
Risk-free interest rate	0.92% – 1.71%	1.02% – 1.98%
Expected life	5.5 – 10.0 years	5.5 – 10.0 years
Forfeiture rate	0% - 2%	0% - 2%

Summary of Company's Stock Option activity

The following summarizes the Company’s stock option activity for the six months ended June 30, 2013:

	Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value
Outstanding at December 31, 2012	2,079,000	$	1.03	6.77
Granted	1,693,500	$	0.45	9.82
Exercised	–		–
Canceled or expired	(225,500)	$	1.14
Outstanding at June 30, 2013	3,547,000	$	0.75	7.94	$	0
Exercisable at June 30, 2013	2,429,875	$	0.82	7.37	$	0
Vested and expected to vest at June 30, 2013	3,520,218	$	0.75	7.90	$	0

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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS (Details Textual) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012	Dec. 31, 2012
Certain Relationships and Related Party Transactions (Textual) [Abstract]
Credit facility	$ 4,000,000		$ 4,000,000
Current rental payments under the lease			16,000
Lease period for office space			5 years
Percentage of annual rent increase of lease			4.50%
Issuance of Series A Preferred Stock, Shares	50,000	52,000	100,000	103,000
Other receivable - related-party	63,000		63,000		59,000
Non Invasive Monitoring Systems [Member]
Certain Relationships and Related Party Transactions (Textual) [Abstract]
Other receivable - related-party	63,000		63,000		59,000
Miami [Member]
Certain Relationships and Related Party Transactions (Textual) [Abstract]
Current rental payments under the lease	$ 48,000	$ 69,000	$ 99,000	$ 126,000

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BASIC AND DILUTED NET LOSS PER SHARE (Details Textual)	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Basic and Diluted Net Loss Per Share (Textual) [Abstract]
Weighted average outstanding common shares	0	0	0	0

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COMMITMENTS AND CONTINGENCIES (Details Textual) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Commitments and Contingencies (Textual) [Abstract]
Operating Leases			$ 16,000
Creighton Royalty Agreement [Member]
Commitments and Contingencies (Textual) [Abstract]
Operating Leases	53,000	73,000	104,000	133,000
4% royalty period			4.00%
Period of Royalty			10 years
Royalty Incurred	260	400	660	400
Period of supply agreement			12 months
Purchase obligation beyond next twelve months			$ 0

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CAPITAL TRANSACTIONS

6 Months Ended

Jun. 30, 2013

Capital Transactions [Abstract]

CAPITAL TRANSACTIONS

NOTE 6 – CAPITAL TRANSACTIONS

2013 Private Placement of Common Stock. On March 22, 2013, the Company entered into a stock purchase agreement (the “2013 Stock Purchase Agreement”) with approximately 17 investors (the "2013 PIPE Investors") pursuant to which the 2013 PIPE Investors agreed to purchase an aggregate of approximately 12,100,000 shares of common stock at a price of $0.25 per share for aggregate consideration of approximately $3.0 million. Included in this private placement was the issuance of PIPE Warrants to purchase approximately 6,050,000 common shares, representing one warrant for every two common shares purchased, with an exercise price of $0.33 per share and five year expiration. Among the Investors purchasing Shares were Frost Gamma, Dr. Jane Hsiao, the Company's Chairman of the Board and Jeffrey Spragens, the Company’s President and Chief Executive Officer. Frost Gamma purchased 2.0 million shares and received 1.0 million warrants, Dr. Hsiao purchased 4.0 million shares and received 2.0 million warrants and Mr. Spragens purchased 400,000 shares and received 200,000 warrants. The Company issued the 2013 PIPE Shares in reliance upon the exemption from registration under Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”), and Rule 506 of Regulation D promulgated thereunder.

2012 Private Placement of Common Stock. On February 17, 2012, the Company entered into a stock purchase agreement (the “2012 Stock Purchase Agreement”) with 35 investors (the "2012 PIPE Investors") pursuant to which the 2012 PIPE Investors agreed to purchase an aggregate of 20,794,000 shares of Common Stock (the "2012 PIPE Shares") at a price of $0.40 per share for aggregate consideration of $8.3 million. Among the Investors purchasing Shares were Frost Gamma, Dr. Jane Hsiao, the Company's Chairman of the Board, Jeffrey Spragens, the Company’s President and Chief Executive Officer and Richard Pfenniger, a member of the Company’s Board of Directors. Frost Gamma and Dr. Hsiao each purchased 4,500,000 shares, Mr. Spragens purchased 250,000 shares, and Mr. Pfenniger purchased 125,000 shares. The Company issued the 2012 PIPE Shares in reliance upon the exemption from registration under Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”), and Rule 506 of Regulation D promulgated thereunder.

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STOCK-BASED COMPENSATION (Details 1) (USD $)	6 Months Ended
	Jun. 30, 2013
Summary of Company's Stock Option activity
Outstanding, Shares, Beginning Balance	2,079,000
Outstanding, Weighted Average Exercise Price, Beginning Balance	$ 1.03
Outstanding, Weighted Average Remaining Contractual Term, Beginning Balance	6 years 9 months 7 days
Granted, Shares	1,693,500
Granted, Weighted Average Exercise Price	$ 0.45
Granted, Weighted Average Remaining Contractual Term	9 years 9 months 25 days
Exercised, Shares	0
Exercised, Weighted Average Exercise Price	$ 0
Canceled or expired, Shares	(225,500)
Canceled or expired, Weighted Average Exercise Price	$ 1.14
Outstanding, Shares, Ending Balance	3,547,000
Outstanding, Weighted Average Exercise Price, Ending Balance	$ 0.75
Outstanding, Weighted Average Remaining Contractual Term, Ending Balance	7 years 11 months 8 days
Outstanding, Aggregate Intrinsic Value, Ending Balance	$ 0
Exercisable, Shares	2,429,875
Exercisable, Weighted Average Exercise Price	$ 0.82
Exercisable, Weighted Average Remaining Contractual Term	7 years 4 months 13 days
Exercisable, Aggregate Intrinsic Value	0
Vested and expected to vest, Shares	3,520,218
Vested and expected to vest, Weighted Average Exercise Price	$ 0.75
Vested and expected to vest, Weighted Average Remaining Contractual Term	7 years 10 months 24 days
Vested and expected to vest, Aggregate Intrinsic Value	$ 0

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AGREEMENT WITH CREIGHTON UNIVERSITY

6 Months Ended

Jun. 30, 2013

Agreement With University [Abstract]

AGREEMENT WITH CREIGHTON UNIVERSITY

NOTE 9 – AGREEMENT WITH CREIGHTON UNIVERSITY

On May 26, 2006, SafeStitch LLC entered into an exclusive license and development agreement (the “Creighton Agreement”) with Creighton, granting the Company a worldwide exclusive (even as to the university) license, with rights to sublicense, to all the Company’s product candidates and associated know-how based on Creighton technology, including the exclusive right to manufacture, use and sell the product candidates.

Pursuant to the Creighton Agreement, the Company is obligated to pay Creighton, on a quarterly basis, a royalty of 1.5% of the revenue collected worldwide from the sale of any product licensed under the Creighton Agreement, less certain amounts including, without limitation, chargebacks, credits, taxes, duties and discounts or rebates. The Creighton Agreement does not provide for minimum royalties. Also pursuant to the Creighton Agreement, the Company agreed to invest, in the aggregate, at least $2.5 million over 36 months, beginning May 26, 2006, towards development of any licensed product. This $2.5 million investment obligation excluded the first $150,000 of costs related to the prosecution of patents, which the Company invested outside of the Creighton Agreement. The Company is further obligated to pay to Creighton an amount equal to 20% of certain of the Company’s research and development expenditures as reimbursement for the use of Creighton’s facilities. Failure to comply with the payment obligations above will result in all rights in the licensed patents and know-how reverting back to Creighton. As of December 31, 2007, the Company had satisfied the $2.5 million investment obligation described above. For the three and six months ended June 30, 2013, the Company paid Creighton $0 and $3,000, respectively and for the three and six months ended June 30, 2012 the Company paid $12,000 and $24,000, respectively, in satisfaction of the 20% facility reimbursement obligation.

Pursuant to the Creighton Agreement, the Company is entitled to exercise its own business judgment and sole and absolute discretion over the marketing, sale, distribution, promotion and other commercial exploitation of any licensed products, provided that, if the Company has not commercially exploited or commenced development of a licensed patent and its associated know-how by the seventh anniversary of the later of the date of the Creighton Agreement or the date such technology is disclosed to and accepted by the Company, then the licensed patent and associated know-how shall revert back to the university, with no rights retained by the Company, and the university will have the right to seek a third party with whom to commercialize such patent and associated know-how, unless the Company purchases one or more one-year extensions. The Company is in accordance with these provisions.

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DEBT

6 Months Ended

Jun. 30, 2013

Debt [Abstract]

DEBT

NOTE 5 – DEBT

Credit Facility. In connection with the acquisition of SafeStitch LLC, the Company entered into a Note and Security Agreement (the “Credit Facility”) with both The Frost Group and Jeffrey G. Spragens, the Company’s Chief Executive Officer and President and a director. The Frost Group is a Florida limited liability company whose members include Frost Gamma Investments Trust (“Frost Gamma”), a trust controlled by Dr. Phillip Frost, one of the largest beneficial holder of the issued and outstanding shares of Common Stock, Dr. Jane H. Hsiao, the Company’s Chairman of the Board, and Steven D. Rubin, a director. The Credit Facility provided $4.0 million in total available borrowings, consisting of $3.9 million from The Frost Group and $100,000 from Mr. Spragens. The Company granted a security interest in all collateral in order to secure prompt, full and complete payment of the amounts outstanding under the Credit Facility. The collateral included all assets of the Company, inclusive of intellectual property (patents, patent rights, trademarks, service marks, etc.). Outstanding borrowings under the Credit Facility accrue interest at a 10% annual rate. The Credit Facility had an initial term of 28 months, expiring in December 2009, and was amended on four occasions to extend the Maturity Date, which was to June 30, 2013. The Maturity Date was not extended beyond June 30, 2013 and the Credit Facility has expired. There were no amounts due or outstanding under the Credit Facility as of June 30, 2013. The Company had a principal balance outstanding of $300,000 under the Credit Facility in March 2013 during which period the Credit Facility was paid off in its entirety, plus approximately $15,000 in accrued interest, using the proceeds of the 2013 Private Placement of Common Stock described below in Note 6.

In connection with the Credit Facility, the Company granted warrants to purchase an aggregate of 805,521 shares of Common Stock to The Frost Group and Mr. Spragens. The fair value of the warrants was determined to be $1,985,000 on the grant date based on the Black-Scholes valuation model using the following assumptions: expected volatility of 82%, dividend yield of 0%, risk-free interest rate of 4.88% and expected life of 10 years. The fair value of the warrants was recorded as deferred financing costs and is being amortized over the life of the Credit Facility. The Company recorded amortization expense related to these deferred financing costs of $0 for the three and six months ended June 30, 2013 and $3,000 and $5,000 for the three and six months ended June 30, 2012. In October 2012, The Frost Group and Mr. Spragens exercised the warrants for the purchase of 805,521 shares of Common Stock at an exercise price of $0.25 per share with net proceeds to the Company of $201,000.

On November 20, 2012, the Company entered into a Promissory Note in the principal amount of $300,000 with Hsu Gamma Investments, L.P. ("Hsu Gamma"), an entity controlled by the Company’s Chairman of the Board, Jane H. Hsiao, (the "Hsu Gamma Note"). The interest rate payable by the Company on the Hsu Gamma Note is 10% per annum, payable on the maturity date of June 30, 2013. The Hsu Gamma Note may be prepaid in advance of the Maturity Date without penalty. In March 2013, the Hsu Gamma Note was paid off in its entirety, plus approximately $10,000 in accrued interest, using the proceeds of the 2013 Private Placement of Common Stock described below in Note 6.

On December 26, 2012, the Company entered into a Promissory Note in the principal amount of $300,000 with Frost Gamma, an entity controlled by one of the Company’s largest beneficial holders of common stock, Dr. Phillip Frost (the "Frost Gamma Note"). The interest rate payable by the Company on the Frost Gamma Note is 10% per annum, payable on the maturity date of June 30, 2013. The Frost Gamma Note may be prepaid in advance of the Maturity Date without penalty. In March 2013, the Frost Gamma Note was paid off in its entirety, plus approximately $8,000 in accrued interest, using the proceeds of the 2013 Private Placement of Common Stock described below in Note 6.

On February 22, 2013 the Company entered into a promissory note in the principal amount of $200,000 with Jane Hsiao, the Company’s Chairman of the Board (the “Hsiao Note”). The interest payable by the Company on the Hsiao Note is 10% per annum, payable on the maturity date of June 30, 2013 (the “Maturity Date”). The Hsiao Note may be prepaid in advance of the Maturity Date without penalty. In March 2013, the Hsiao Note was paid off in its entirety, plus approximately $2,000 in accrued interest, using the proceeds of the 2013 Private Placement of Common Stock described below in Note 6.

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UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) In Thousands, unless otherwise specified	6 Months Ended		93 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013
OPERATING ACTIVITIES
Net loss	$ (1,525)	$ (4,138)	$ (31,038)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of deferred finance costs	0	5	1,984
Stock-based compensation expense	503	224	2,256
Stock-based compensation expense related to Share Exchange	0	0	77
Depreciation and amortization	68	84	577
Loss from disposal of assets	0	0	20
Inventory Adjustments	0	0	337
Gain on sale of TruePosition investment	0	0	(903)
Changes in operating assets and liabilities
Inventories	14	(1,646)	(1,923)
Accounts receivable	3	0	3
Other current assets	68	8	(120)
Other assets	0	0	(2)
Accounts payable and accrued liabilities	(492)	677	487
Accrued Interest	(12)	(48)	0
NET CASH USED IN OPERATING ACTIVITIES	(1,373)	(4,834)	(28,248)
INVESTING ACTIVITIES
Purchase of equipment	0	(6)	(861)
Proceeds from sale of True Position investment	0	0	903
Payment received under Rule 16b	0	0	4
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES	0	(6)	46
FINANCING ACTIVITIES
Net cash provided in connection with the acquisition of SafeStitch LLC	0	0	3,192
Issuance of Common Stock, net of offering costs	3,024	8,318	20,305
Issuance of Preferred Stock, net of offering costs	0	0	3,980
Capital contributions	0	0	1,431
Proceeds from notes payable	0	0	141
Repayment of notes payable	0	0	(141)
Proceeds from stockholder loans	200	500	6,935
Repayment of stockholder loans	(1,100)	(2,975)	(6,851)
Exercise of warrants	0	0	201
Exercise of options	0	0	35
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES	2,124	5,843	29,228
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	751	1,003	1,026
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD	275	298	0
CASH AND CASH EQUIVALENTS AT END OF PERIOD	1,026	1,301	1,026
Supplemental disclosures:
Cash paid for interest	35	91	191
Non cash activities:
Non-cash inventory and accounts payable adjustment	104	0	104
Non-cash dividend upon issuance & conversion of Preferred	0	0	5,001
Stock dividends	0	0	366
Stockholder loans contributed to capital	0	0	84
Warrants issued in connection with credit facility	$ 0	$ 0	$ 1,985

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CAPITAL TRANSACTIONS (Details Textual) (USD $) In Thousands, except Share data, unless otherwise specified	1 Months Ended		12 Months Ended				12 Months Ended		1 Months Ended		1 Months Ended				6 Months Ended	1 Months Ended
	Feb. 29, 2012	Sep. 30, 2010	Dec. 31, 2010	Dec. 31, 2008	Jun. 30, 2013	Dec. 31, 2012	Dec. 31, 2010 Common Stock [Member]	Dec. 31, 2008 Common Stock [Member]	Feb. 29, 2012 2012 PIPE investors [Member]	Feb. 17, 2012 2012 PIPE investors [Member]	Feb. 29, 2012 2012 PIPE investors [Member] Chairman of Board [Member]	Feb. 29, 2012 2012 PIPE investors [Member] Board of Directors [Member]	Feb. 29, 2012 2012 PIPE investors [Member] President and Chief Executive Officer [Member]	Mar. 22, 2013 2013 PIPE investors [Member]	Jun. 30, 2013 2013 PIPE investors [Member]	Mar. 22, 2013 Stock Purchase Agreement [Member] Chairman of Board [Member]	Mar. 22, 2013 Stock Purchase Agreement [Member] Chairman of Board 1 [Member]	Mar. 22, 2013 Stock Purchase Agreement [Member] President and Chief Executive Officer [Member]
Class of Stock [Line Items]
Number of Investors										35				17
Purchase of Common stock	20,794,000						4,978	1,862			4,500,000	125,000	250,000	12,100,000
Price per Share														$ 0.25
Conversion of shares of series A Preferred Stock		4,000
Common stock, shares issued					61,699,276	49,603,276
Dividend paid to Series A Preferred Stockholders on conversion, charged to additional paid-in capital in the absence of retained earnings			$ 4,301				$ 0
Stock issued during period price per shares									0.40
Issuance of common shares in private offering			$ 4,974	$ 3,988			$ 5	$ 2	$ 8,300					$ 3,000
Warrants to purchase common shares														6,050,000
Exercise price of Warrants															$ 0.33
Expiry period for warrants															5 years
Stock Issued In Private Placement Shares																2,000,000	4,000,000	200,000
Warrants Issued In Private Placement																1,000,000	2,000,000	400,000

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EMPLOYEE BENEFIT PLANS

6 Months Ended

Jun. 30, 2013

Employee Benefit Plans [Abstract]

EMPLOYEE BENEFIT PLANS

NOTE 12 – EMPLOYEE BENEFIT PLANS

  Effective May 1, 2008, the SafeStitch 401(k) Plan (the “401k Plan”) permits employees to contribute up to 100% of qualified annual compensation up to annual statutory limitations. Employee contributions may be made on a pre-tax basis to a regular 401(k) account or on an after-tax basis to a “Roth” 401(k) account. The Company contributes to the 401k Plan a “safe harbor” match of 100% of each participant’s contributions to the 401k Plan up to a maximum of 4% of the participant’s qualified annual earnings. The Company recorded 401(k) Plan matching expense of approximately $8,000 and $13,000, respectively, for the three and six months ended June 30, 2013 and $4,000 and $15,000, respectively, for the three and six months ended June 30, 2012.

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COMMITMENTS AND CONTINGENCIES

6 Months Ended

Jun. 30, 2013

Commitments and Contingencies [Abstract]

COMMITMENTS AND CONTINGENCIES

NOTE 8 – COMMITMENTS AND CONTINGENCIES

The Company is obligated under various operating lease agreements for office space. Generally, the lease agreements require the payment of base rent plus escalations for increases in building operating costs and real estate taxes. Rental expense under operating leases amounted to $53,000 and $104,000 for the three and six months ended June 30, 2013, respectively, and $73,000 and $133,000 for the three and six months ended June 30, 2012, respectively. At June 30, 2013, the Company was no longer obligated under any non-cancellable operating leases.

The Company is obligated to pay royalties to Creighton University (“Creighton”) on the sales of products licensed from Creighton pursuant to an exclusive license and development agreement (see Note 9). The Company is also obligated under an agreement with Dr. Parviz Amid to pay a 4% royalty to Dr. Amid on the sales of any product developed with Dr. Amid’s assistance, including the AMID HFD, for a period of ten years from the first commercial sale of such product. Royalties to Dr. Parviz Amid in the amount of $260 and $660 have been incurred during the three and six months ended June 30, 2013 and $400 had been incurred during the three and six months ended June 30, 2012.

The Company has placed orders with various suppliers for the purchase of certain tooling, contract engineering and research services. Each of these orders has a duration or expected completion within the next twelve months. The Company currently has no material commitments with terms beyond twelve months.

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PROPERTY AND EQUIPMENT (TABLES)

6 Months Ended

Jun. 30, 2013

Property and Equipment [Abstract]

Summary of Property and equipment

Property and equipment consist of the following:

	Estimated Useful Lives	June 30, 2013		December 31, 2012
Machinery and equipment	5 years	$	682,000	$	682,000
Furniture, fixtures and leasehold improvements	3-5 years		88,000		88,000
Software	3-5 years		57,000		57,000
			827,000		827,000
Accumulated depreciation and amortization			(563,000)		(495,000)
Property and equipment, net		$	264,000	$	332,000

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SUBSEQUENT EVENT

6 Months Ended

Jun. 30, 2013

Subsequent Events [Abstract]

SUBSEQUENT EVENT

NOTE 13 – SUBSEQUENT EVENT

On August 13, 2013, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Tweety Acquisition Corp., a Delaware corporation and wholly owned subsidiary of the Company (“Merger Sub”), and TransEnterix, Inc., a Delaware corporation (“TransEnterix”). Pursuant to the Merger Agreement, Merger Sub will merge with and into TransEnterix with TransEnterix surviving the merger as the Company’s wholly owned subsidiary (the “Merger”).

Pursuant to the Merger Agreement, upon consummation of the Merger, each share of TransEnterix’s capital stock issued and outstanding immediately preceding the Merger will be converted into the right to receive 1.1723 shares of Common Stock, other than those shares of TransEnterix’s common stock held by non-accredited investors, which shares will instead be converted into the right to receive an amount of cash per share equal to volume-weighted average price of a share of Common Stock on the OTCBB for the 60-trading day period ending one trading day prior to the date on which the Merger closes. Additionally, pursuant to the Merger Agreement, upon consummation of the Merger, the Company will assume all of TransEnterix’s options and warrants issued and outstanding immediately prior to the Merger at the same exchange ratio and issue to the holders of such securities in exchange therefor options and warrants to acquire approximately 15,939,000 and 1,421,000 shares of Common Stock, respectively. Following the Merger, TransEnterix’s current stockholders would hold approximately 65% of the Common Stock on a fully-diluted basis resulting in a reverse merger with TransEnterix being the accounting acquirer.

The Merger is conditioned upon approval by TransEnterix’s stockholders, consummation of the Private Placement (as defined below) and certain other customary closing conditions. The Merger is expected to close during the third quarter of 2013.

In connection with the Merger Agreement, the Company entered into a stock purchase agreement (the “Purchase Agreement”) with certain private investors (the “Investors”), pursuant to which the Investors have agreed to purchase an aggregate of 7,500,000 shares of a new series of the Company’s convertible preferred stock, par value $0.01 per share, to be designated Series B Convertible Preferred Stock (the “Series B Preferred Stock”), each share of which would initially be convertible, subject to certain conditions, into ten shares of Common Stock (the “Conversion Shares” and, together with the Series B Preferred Stock, the “Private Placement Securities”), for a purchase price of $4.00 per share of Series B Preferred Stock payable in cash, cancellation of certain indebtedness of TransEnterix or a combination thereof (the “Private Placement”). Pursuant to the Purchase Agreement, the Company may agree to issue and sell up to an additional 1,250,000 shares of Series B Preferred Stock within two weeks subsequent to the closing of the issuance and sale of the initial 7,500,000 shares. Among the Investors are Frost Gamma Investments Trust, an entity controlled by Dr. Phillip Frost, one of the largest beneficial owners of the Company’s common stock, and Dr. Jane Hsiao, the Company’s current Chairman of the Board (collectively, the “Related-Party Investors”), each of whom would acquire shares of Series B Preferred Stock in the Private Placement pursuant to the same terms, and subject to the same conditions, as those applicable to all other Investors.

None of the shares of Common Stock issuable pursuant to the Merger, the warrants or options issuable pursuant to the Merger or the shares of Common Stock issuable upon exercise of such warrants and options (collectively, the “Merger Securities”) or the Private Placement Securities have been registered under the Securities Act of 1933, as amended (the “Securities Act”). The Company offered the Merger Securities and the Private Placement Securities in reliance upon the exemptions from registration contained in Section 4(a)(2) of the Securities Act and Rule 506 of Regulation D promulgated thereunder. In connection with the Merger Agreement and the Private Placement, the Investors and certain of the Company’s and TransEnterix’s current stockholders have agreed to enter into lock-up and voting agreements (each a “Lock-up and Voting Agreement”), pursuant to which such persons will agree, subject to certain exceptions, not to sell, transfer or otherwise convey any of the Company’s securities held by them (collectively, “Covered Securities”) for a certain period following the date on which the Merger and the Private Placement are consummated (the “Closing Date”). The Lock-up and Voting Agreement provides that such persons may sell, transfer or convey (i) up to 50% of their respective Covered Securities during the period commencing on the one-year anniversary of the Closing Date and ending on the eighteen-month anniversary of the Closing Date and (ii) up to an aggregate of 75% of their respective Covered Securities during the period commencing on the eighteen-month anniversary of the Closing Date and ending on the two-year anniversary of the Closing Date. The restrictions on transfer contained in the Lock-up and Voting Agreement cease to apply to the Covered Securities following the second anniversary of the Closing Date.

Additionally, pursuant to the Lock-up and Voting Agreement, each person party thereto will agree, for the period commencing on the Closing Date and ending on the one-year anniversary of the Closing Date, to vote all of such person’s Covered Securities in favor of (i) amending the Company’s Amended and Restated Certificate of Incorporation to change the legal name of the Company to “TransEnterix, Inc.”, (ii) effecting a reverse stock split of the Common Stock on terms approved by the Board and (iii) amending the Company’s 2007 Incentive Compensation Plan in order to increase the number of shares of Common Stock available for issuance thereunder.

Effectiveness of the Lock-up and Voting Agreements is conditioned upon consummation of the Merger and the Private Placement.

XML

Document And Entity Information	6 Months Ended
	Jun. 30, 2013	Aug. 09, 2013
Document Information [Line Items]
Entity Registrant Name	SafeStitch Medical, Inc.
Entity Central Index Key	0000876378
Document Type	10-Q
Document Period End Date	Jun. 30, 2013
Amendment Flag	false
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	Q2
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		61,699,276

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

6 Months Ended

Jun. 30, 2013

Summary Of Significant Accounting Policies [Abstract]

Consolidation

Consolidation. The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Isis Tele-Communications, Inc., which has no current operations, and SafeStitch LLC. All inter-company accounts and transactions have been eliminated in consolidation.

Use of estimates

Use of estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions, such as useful lives of property and equipment, that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.

Cash and cash equivalents

Cash and cash equivalents. We consider all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. The Company holds cash and cash equivalent balances in banks and other financial institutions, and includes overnight repurchase agreements collateralizing its depository bank accounts (sweep accounts) in its cash balances. Balances in excess of Federal Deposit Insurance Corporation (“FDIC”) limitations may not be insured.

Allowances for Doubtful Accounts

Allowances for Doubtful Accounts. The Company provides an allowance for receivables it believes it may not collect in full. Receivables are written off when they are deemed to be uncollectible and all collection attempts have ceased. The amount of bad debt recorded each period and the resulting adequacy of the allowance for doubtful accounts at the end of each period are determined using a combination of customer-by-customer analysis of the Company’s accounts receivable each period and subjective assessments of the Company’s future bad debt exposure.

Inventories

Inventories. Inventories are stated at lower of cost or market using the weighted average cost method. Provisions for potentially obsolete or slow-moving inventory are made based on management’s analysis of inventory levels, obsolescence and future sales forecasts. The Company had approximately 5,707 AMID HFD units in inventory at June 30, 2013 and 5,800 units at December 31, 2012.

Property and equipment

Property and equipment. Property and equipment are carried at cost less accumulated depreciation. Major additions and improvements are capitalized, while maintenance and repairs that do not extend the lives of assets are expensed. Gain or loss, if any, on the disposition of fixed assets is recognized currently in operations. Depreciation is calculated primarily on a straight-line basis over estimated useful lives of the assets.

Revenue Recognition

Revenue Recognition. Revenue from product sales is recognized when persuasive evidence of an arrangement exists, the goods are shipped and title has transferred, the price is fixed or determinable, and the collection of the sales proceeds is reasonably assured. The Company’s revenue was a result of AMID HFD product sales. There were 26 and 62 AMID HFD units sold during the three and six months ended June 30, 2013 and there were 24 AMID HFD units sold for the three and six months ended June 30, 2012. In addition, there were 42 and 60 AMID HFD units used for demonstration purposes during the three and six months ended June 30, 2013 and 516 AMID HFD units were used for demonstration purposes during the three and six months ended June 30, 2012.

Advertising Costs

Advertising Costs. The Company expenses all costs of advertising as incurred. Advertising and promotional costs are included in selling, general and administrative costs and expenses for all periods presented, and totaled $0 and $520, respectively, for the three and six months ended June 30, 2013. Advertising and promotional costs and expenses totaled $45,000 and $83,000, respectively, for the three and six months ended June 30, 2012.

Research and development

Research and development. Research and development costs principally represent salaries of the Company’s medical and biomechanical engineering professionals, material and shop costs associated with manufacturing product prototypes and payments to third parties for clinical trials and additional product development and testing. All research and development costs are charged to expense as incurred.

Patent costs

Patent costs. Costs incurred in connection with acquiring patent rights and the protection of proprietary technologies are charged to expense as incurred.

Stock-based compensation

Stock-based compensation. The Company follows ASC 718 (Stock Compensation) and 505-50 (Equity-Based Payments to Non-employees), which provide guidance in accounting for share-based awards exchanged for services rendered and requires companies to expense the estimated fair value of these awards over the requisite service period.  The Company determines the fair value of the stock-based compensation awards granted as either the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. If the fair value of the equity instruments issued is used, it is measured using the stock price and other measurement assumptions as of the earlier of either of (1) the date at which a commitment for performance by the counterparty to earn the equity instruments is reached, or (2) the date at which the counterparty’s performance is complete.

Fair value of financial instruments

Fair value of financial instruments. Authoritative guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy consists of three broad levels, as described below:

· Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

· Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

· Level 3 - Inputs that are both significant to the fair value measurement and unobservable.

Long-lived assets

Long-lived assets. Long-lived assets, such as property and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, then an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the fair value, or carrying amount for cost basis assets, of the asset.

Income taxes

Income taxes. The Company follows the liability method of accounting for income taxes, which requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of the assets and liabilities. The Company’s policy is to record a valuation allowance against deferred tax assets, when the deferred tax asset is not recoverable. The Company considers estimated future taxable income or loss and other available evidence when assessing the need for its deferred tax valuation allowance.

Comprehensive income (loss).

Comprehensive income (loss). Comprehensive income (loss) is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. The Company’s comprehensive net loss is equal to its net loss for all periods presented.