14.

Closing of Merger and Financing Transaction

On September 3, 2013, the Company consummated the Merger in which a wholly owned subsidiary of the Company merged with TransEnterix, pursuant to the Merger Agreement. Under the terms of the Merger Agreement, TransEnterix remained as the surviving corporation and as a wholly-owned subsidiary of the Company.

Upon the closing of the Merger, and in accordance with the terms of the Merger Agreement, the Company issued an aggregate of 105,549,746 shares of the Company’s common stock as Merger consideration and paid $293,000 to unaccredited investors in lieu of common stock.

During July 2013, TransEnterix issued promissory notes (the “Bridge Notes”) in the aggregate principal amount of $2.0 million, as contemplated by the Merger Agreement. The Bridge Notes bore interest at a rate of 8% per annum. The Bridge Notes were not secured by any collateral and were subordinated in right of payment to the loan evidenced by the Loan and Security Agreement dated as of January 17, 2012, among Oxford , SVB and TransEnterix. The Bridge Notes were converted into Series B preferred stock at the effective time of the Merger.

Concurrent with the closing of the Merger, and in accordance with the terms of a Securities Purchase Agreement, the Company issued 7,544,704.4 shares of Preferred Stock, each share of which is convertible, subject to certain conditions, into ten (10) shares of Common Stock, for a purchase price of $4.00 per share of Preferred Stock, which was paid in cash, cancellation of certain Bridge Notes of TransEnterix or a combination thereof. Pursuant to the Securities Purchase Agreement, the Company issued and sold an additional 25,000 shares of Preferred Stock within the period provided in the Securities Purchase Agreement resulting in gross proceeds to the Company of approximately $100,000.

At the closing of the Merger, each outstanding share of capital stock of TransEnterix was cancelled and extinguished and converted into the right to receive a portion of the Merger consideration in accordance with the Merger Agreement. The Bridge Notes were terminated at closing of the Merger, and the holders of such Bridge Notes received Merger consideration in accordance with the Merger Agreement. All stock option plans of TransEnterix, each outstanding option to purchase common stock of TransEnterix, whether vested or unvested, and each warrant to acquire capital stock of TransEnterix were assumed by the Company concurrent with the closing of the Merger.

The Merger effectuated on September 3, 2013 qualified as a tax-free reorganization under Section 368 of the Internal Revenue Code. As a result of the Merger, the utilization of certain tax attributes of the Company may be limited in future periods under the rules prescribed under Section 382 of the Internal Revenue Code.

The Company’s assets and liabilities are presented at their preliminary estimated fair values, with the excess of the purchase price over the sum of these fair values presented as goodwill. The Company has not completed the detailed valuation studies necessary to arrive at the required estimates of fair market value of its assets and liabilities and the related allocations of purchase price. The valuations of assets and liabilities are in process and are not expected to be finalized until later in 2013, as information may become available within the measurement period which indicates a potential change to these valuations. Accordingly, the final allocations of and the effects on the results of operations may differ materially from the preliminary allocations amounts included herein.

The following table summarizes the purchase price:

Common shares outstanding at the date of merger (in thousands)		61,749
Closing price per share	$	1.52
	$	93,858
Cash consideration		293
Total purchase price	$	94,151

The purchase price was allocated to the net assets acquired utilizing the methodology prescribed in ASC 805. The Company recorded goodwill of $93.7 million after recording net assets acquired at fair value as presented in the following table.

The following table summarizes the allocation of the purchase price to the net assets acquired (in thousands):

Cash and cash equivalents	$	597
Accounts receivable		9
Accounts receivable, related party		45
Inventory		50
Other current assets		53
Property and equipment		357
Other long-term asset		2
Intangible assets		10
Goodwill		93,670
Total assets acquired	$	94,793
Accounts payable and other liabilities		642
Total purchase price	$	94,151

Following the announcement of the Merger, the SafeStitch stock price increased prior to the Merger closing date of September 3, 2013, generating additional goodwill. As a result, there may be impairment in the future and the impairment of goodwill will be assessed annually.

The Company allocated $10,000 of the purchase price to identifiable intangible assets of tradenames that met the separability and contractual legal criterion of ASC 805. The tradename will be amortized using the straight-line method over 10 years.

The results of operations of SafeStitch have been included in our consolidated financial statements from the date of the acquisition. The following pro forma results of operations assume the acquisition of SafeStitch as of the beginning of 2012. The pro forma results for the nine months ended September 30, 2013 presented below reflect our historical data and the historical data of the SafeStitch business. The pro forma results of operations presented below may not be indicative of the results the Company would have achieved had the Company completed the acquisition on January 1, 2013, or that the Company may achieve in the future.

					Historical
	SafeStitch Medical, Inc.				Results of		Pro Forma		Pro Forma
	(the Company)		SafeStitch		SafeStitch Medical, Inc		Adjustments		Results
	(in thousands)

Revenue	$	1,212	$	25	$	1,237	$	-	$	1,237
Net loss	$	(20,327)	$	(2,062)	$	(22,389)	$	-	$	(22,389)

Historical TransEnterix loss per common share - basic and diluted					$	(0.13)
Pro forma loss per common share - basic and diluted:					$	(0.13)
Pro forma loss					$	(22,389)
Pro forma weighted average common shares						167,502
Pro forma loss per common share					$	(0.13)