SAFESTITCH MEDICAL, INC.

Offering of up to

$10,000,000 Aggregate Amount

of

Common Stock, par value $0.001 per share,

of

SafeStitch Medical, Inc.

1

SUBSCRIPTION AGREEMENT

May __, 2008

SafeStitch Medical, Inc.
4400 Biscayne Blvd.
Suite 670
Miami, FL 33137
Attn: Jeffrey G. Spragens, CEO & President

      Re: Subscription Agreement (the “Agreement”) to Purchase Shares of Common
Stock, par value $0.001 per share (“Common Stock”), and Disclosure for
SafeStitch Medical, Inc., a Delaware corporation (the “Company” or “SFES”).  

      NOTE TO PURCHASER: Please check the appropriate box:  

I/We have selected 4.2(a) on Page 5; or

I/We have selected 4.2(b) on Page 5.

Ladies and Gentlemen:

The undersigned (the “Purchaser”) hereby tenders this Agreement, subject to the
terms and conditions set forth herein. If the Agreement is acceptable to you,
kindly indicate your acceptance by executing this instrument in the space
provided and returning a fully executed counterpart to the Company at the
address set forth above.

    NOTICES:

THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR THE SECURITIES LAWS OF ANY STATE
OR ANY OTHER JURISDICTION, NOR IS SUCH REGISTRATION CONTEMPLATED, AND ARE BEING
OFFERED AND SOLD IN RELIANCE UPON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS
OF THE SECURITIES ACT AND SUCH LAWS.

FURTHERMORE, THE SECURITIES OFFERED HEREBY HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES REGULATORY AUTHORITY
OF ANY STATE OR OF ANY OTHER JURISDICTION, NOR HAS ANY OF THE FOREGOING
AUTHORITIES PASSED UPON THE ACCURACY OR ADEQUACY OF THIS DOCUMENT OR ENDORSED
THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.

    FLORIDA RESIDENTS:

ANY SALE HEREUNDER IN FLORIDA IS VOIDABLE BY THE PURCHASER EITHER WITHIN THREE
DAYS AFTER THE FIRST TENDER OF CONSIDERATION BY SUCH PURCHASER TO THE ISSUER, OR
AN AGENT OF THE ISSUER, OR AN ESCROW AGENT, OR WITHIN THREE DAYS AFTER THE
AVAILABILITY OF THAT PRIVILEGE IS COMMUNICATED TO THE PURCHASER, WHICHEVER
OCCURS LATER.

    NEW YORK RESIDENTS:

THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE
MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.

1. Purchase.

The offering price per share of Common Stock shall be $2.15 (the “Offering
Price”). The Purchaser hereby agrees to purchase from the Company the number of
shares (the “Shares”) of Common Stock equal to $     (the “Investment Amount”)
divided by the Offering Price, rounded down to the nearest whole number. The
Investment Amount shall be paid in full in cash on the date this Agreement is
accepted and signed by an officer of the Company (such date, the “Closing
Date”). The Company, in its sole discretion, may accept additional investments
at the Offering Price at a second closing to be held no later than the thirtieth
(30th) day after the Closing Date.

Under the Company’s Amended and Restated Certificate of Incorporation (the
“Certificate of Incorporation”), the Company is authorized to issue up to
225,000,000 Shares of Common Stock and 25,000,000 shares of Preferred Stock, par
value $0.01 per share. A copy of the Certificate of Incorporation is contained
in its Definitive Information Statement on Schedule 14C, filed with the SEC on
December 7, 2007 (the “Information Statement”), which is attached hereto as
Exhibit A, and a copy of Company’s Bylaws is attached as an exhibit to the
Company’s Annual Report on Form 10-KSB for the year ended December 31, 2007, a
copy of which is attached hereto as Exhibit B. The Purchaser understands that
the Company will use reasonable efforts to sell up to an aggregate amount of
$10,000,000 of Common Stock during the offering period (the “Offering Period”),
which will end on or about May 15, 2008, but may be extended by the Company on
one or more occasions until as late as June 30, 2008.

As of March 31, 2008, the Company has outstanding 16,093,016 shares of Common
Stock.

The Purchaser understands that none of the funds tendered for the Shares will be
held in escrow and, such funds will, in the Company’s sole discretion, be
immediately deposited in the Company’s bank account for immediate use in the
Company’s business. There is no required minimum amount to be raised in this
offering for the Company in order to accept any subscriptions. The Company
reserves the right, in its sole discretion, to reject or accept any subscription
in whole or in part.

The expenses of this offering are estimated to be approximately $12,500.

2. Use of Proceeds; Financing.

The Purchaser understands that the proceeds of this offering are to be used by
the Company for working capital and to pay the expenses of this offering.

3. The Company.

The Purchaser acknowledges that he, she or it has been provided with an
opportunity to ask any questions and to conduct any other investigations he, she
or it desires about the Company and its business and its, his or her rights and
obligations as a Company stockholder. The Purchaser acknowledges that he, she or
it has received and reviewed the exhibits attached hereto and any other
information Purchaser has requested and has been further advised of the
following summary:

3.1. Incorporation by Reference. The information contained (i) in Sections 1 and
2 hereinabove and (ii) in the Company’s filings with the U.S. Securities and
Exchange Commission (the “SEC”) is incorporated herein by reference. The
Company’s SEC filings may be obtained at
http://www.sec.gov/edgar/searchedgar/companysearch.html.

3.2. Name Change. Effective January 8, 2008, the Company changed its name to
SafeStitch Medical, Inc. from Cellular Technical Services Company, Inc.

3.3. Corporate Information. The Company’s business address is 4400 Biscayne
Blvd., Suite 670 Miami, Florida 33137. The Company has one wholly-owned
subsidiary, SafeStitch LLC, a Virginia limited liability company.

3.4. Execution of Existing Agreements. The Purchaser hereunder is required to
fund 100% of his, her or its capital contribution to the Company in cash upon
the later of the execution of this Agreement by the Purchaser or the Company.
The Company will not be liable for the return of any part of the capital
contributions of the Purchaser.

3.5. Background. 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.

3.6. Market for Company Products. The Company has not yet fully assessed the
market for the Company’s products. Please see the documents incorporated by
reference in Section 3.1.

3.7. Financial Information. The Company is a pre-clinical-stage medical device
company with a limited operating history, and its SafeStitch LLC subsidiary is
not profitable and has incurred losses since its inception. The Company does not
anticipate that it will generate revenue from the sale of products for the
foreseeable future, nor has it submitted any products for clearance or approval
by regulatory authorities, and the Company does not currently have rights to any
product candidates that have been cleared or approved for marketing in our
territory. The Company continues to incur research and development and general
and administrative expenses related to its operations. The Company’s net losses
for the years ended December 31, 2007 and 2006 and for the partial year from
September 15, 2005 until December 31, 2005 were ($3,041,000), $(1,060,000) and
$(76,000), respectively. As of December 31, 2007, we had an accumulated deficit
of ($4,177,000). The Company’s (i) Annual Report on Form 10-KSB for the year
ended December 31, 2007; (ii) Amendment No. 1 to its Annual Report on Form
10-KSB/A; (iii) Current Report on Form 8-K, filed with the SEC on April 4, 2008;
and (iv) Current Report on Form 8-K, filed with the SEC on April 24, 2008 are
attached hereto as Exhibit B, Exhibit C, Exhibit D and Exhibit E, respectively.

3.8. Management. The executive officers and directors of the Company are as
follows:

              Name   Age   Title
Jane H. Hsiao, Ph.D., MBA
    61     Director and Chairman of the Board of Directors
Jeffrey G. Spragens
    66     Chief Executive Officer, President and Director
Dr. Stewart B. Davis
    28     Chief Operating Officer and Secretary
Dr. Charles Filipi
    66     Medical Director and Director
Adam S. Jackson
    45     Vice President, Finance and Chief Financial
Officer
Dr. Kenneth Heithoff
    64     Director
Richard Pfenniger, Jr.
    52     Director
Steven D. Rubin
    47     Director
Kevin Wayne
    44     Director

3.9. Employees3.10. As of March 31, 2008, the Company has twelve (12) full-time
employees.

3.10. Certificate of Incorporation and Bylaws. The Certificate of Incorporation
and the Bylaws of the Company are the governing instruments which contain the
rules under which the Company operates. The Purchaser acknowledges that he, she
or it has reviewed the Certificate of Incorporation and Bylaws in full before
executing this Agreement.

3.11. Option Plan. The Company has in place the SafeStitch Medical, Inc. 2007
Incentive Compensation Plan (the “2007 Plan”). Under the 2007 Plan, the Company
is authorized to grant options to purchase an aggregate of up to 2,000,000
shares of Common Stock. Options may be either incentive stock options or
non-qualified options. The price of options under the 2007 Plan and the number
of options granted, as well as any other terms not required by the 2007 Plan,
shall be determined by the Company’s Compensation Committee. The Purchaser
acknowledges reviewing the 2007 Plan, a copy of which is contained in the
Information Statement attached hereto as Exhibit A.

3.12. Property. The Company’s principal corporate office is located at 4400
Biscayne Blvd., Suite 670, Miami, Florida 33137. The Company rents this space,
approximately 2,900 square feet, from Frost Real Estate Holdings, LLC which is a
company controlled by Dr. Phillip Frost, the Company’s largest beneficial
stockholder. Additionally, the Company leases approximately 462 square feet of
office space in Omaha, Nebraska, which includes one administrative office. Dr.
Filipi is based in Omaha, Nebraska. We also have a prototype lab, which is
located in a leased warehouse in Miami, Florida.

4. Representations of the Purchaser.

      The Purchaser hereby warrants, covenants and represents as follows:

4.1.
4.2.
  The Purchaser is a U.S. citizen or resident alien.
The Purchaser hereby represents either (a) or (b), below (please select):
 
   

(a) or (b)

(a) He, she or it is a sophisticated investor by virtue of his, her or its
education, training and/or numerous prior investments made on the Purchaser’s
own behalf or through entities which the Purchaser, alone or with others,
controls. The Purchaser is knowledgeable and experienced in financial and
business matters which have risks similar to those which may be encountered by
the Company. The Purchaser is capable of evaluating the merits and risks of an
investment in the Company. The Purchaser is an accredited investor because he,
she or it is (please indicate by checking the appropriate box at left):

(1) Either (a) a bank as defined in section 3(a)(2) of the Securities Act of
1933, as amended (the “Securities Act”), or a savings and loan association or
other institution as defined in Section 3(a)(5)(A) of the Securities Act whether
acting in its individual or fiduciary capacity, (b) any broker or dealer
registered pursuant to Section 15 of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”); (c) an insurance company as defined in
Section 2(13) of the Securities Act, (d) an investment company registered under
the Investment Company Act of 1940 or a business development company as defined
in Section 2(a)(48) of that act, (e) a Small Business Investment Company
licensed by the U.S. Small Business Administration under Section 301(c) or
301(d) of the Small Business Investment Act of 1958, (f) an employee benefit
plan within the meaning of Title I of the Employee Retirement Income Security
Act of 1974, if the investment decision is made by a plan fiduciary, as defined
in Section 3(21) of such act, which plan fiduciary is either a bank, savings and
loan association, insurance company or registered investment advisor, or if the
employee benefit plan has total assets in excess of $5,000,000 or if a
self-directed plan, with investment decisions made solely by persons that are
accredited investors, or (g) an employee benefit plan established and maintained
by a state government and their political subdivisions and agencies if the
employee benefit plan has assets in excess of $5,000,000;

(2) A private business development company as defined in Section 202(a)(22) of
the Investment Advisors Act of 1940;

(3) Any organization described in section 501(c)(3) of the Internal Revenue
Code, corporation, Massachusetts or similar business trust, or partnership, not
formed for the specific purpose of acquiring the securities offered, with total
assets in excess of $5,000,000;

(4) Any director, executive officer, or general partner of the issuer of the
securities being offered or sold, or any director, executive officer, or general
partner of a general partner of that issuer;

(5) Any natural person whose individual net worth, or joint net worth with that
person’s spouse, at the time of his purchase exceeds $1,000,000;

(6) Any natural person who had an individual income in excess of $200,000 in
each of the two most recent years or joint income with that person’s spouse in
excess of $300,000 in each of those years and has a reasonable expectation of
reaching the same income level in current year;

(7) Any trust, with total assets in excess of $5,000,000, not formed for the
specific purpose of acquiring the securities offered, whose purchase is directed
by a sophisticated person as described in Rule 506(b)(2)(ii) under the
Securities Act;

(8) Any entity in which all of the equity owners are accredited investors.

(b) He, she or it, either alone or together with the purchaser representative
named below, (x) is a sophisticated investor by virtue of his, her or its
education, training and/or numerous prior investments made on the Purchaser’s
own behalf or through entities which the Purchaser, alone or with others,
controls, (y) is knowledgeable and experienced in financial and business matters
which have risks similar to those which may be encountered by the Company and
(z) is capable of evaluating the merits and risks of an investment in the
Company, and has appointed the following person as his, her or its purchaser
representative in connection with the Purchaser’s acquisition of the Shares
under this Agreement:     (If making this representation instead of the
representation set forth in (a), above, then fill in name of purchaser
representative)

4.3. The Purchaser has been furnished or otherwise obtained all information
necessary to enable him to evaluate the merits and risks of his prospective
investment in the Company and has received and reviewed this Agreement and the
exhibits hereto. The Purchaser is aware of the risk factors identified in
Section 5 hereof and various other risks inherent in this investment, including
those set forth in the Company’s Form 10-KSB, filed with the SEC on March 26,
2008, as amended by the Company’s Amendment No. 1 to its Annual Report on Form
10-KSB/A, filed with the SEC on April 24, 2008.

4.4. The Purchaser has been furnished or has had access to any and all material
documents and information regarding the Company and its intended business that
the Purchaser has sought to review. The Purchaser has had an opportunity to
question individuals involved in the management of the Company. The Purchaser
hereby acknowledges that the Company has made available to the Purchaser prior
to any investment in the Company all information (i) requested by the Purchaser
and (ii) reasonably necessary to enable the Purchaser to evaluate the risks and
merits of an investment in the Company. The Purchaser, after a review of this
information and other information he has obtained, is aware of the speculative
nature of any investment in the Company.

4.5. The Purchaser has reviewed the Company’s filings with the SEC, which are
incorporated by reference in this Agreement under Section 3.1, above.

4.6. The Purchaser is aware that the Purchaser will have to make the cash
payment the number of Shares set forth above. The Purchaser can bear the
economic risk of the investment in the Company (including the possible loss of
his entire investment) without impairing the Purchaser’s ability to provide for
himself and/or his family in the same manner that the Purchaser would have been
able to provide prior to making an investment in the Company. The Purchaser
understands that he must continue to bear the economic risk of the investment in
the Company for an indefinite period of time.

4.7. The Purchaser understands that the Shares have not been registered under
the Securities Act or related laws or regulations or under any other applicable
securities laws of any State or other jurisdiction (collectively, the
“Securities Laws”), inasmuch as the Offering is being made to a limited group of
potential investors. The Purchaser understands that he, she or it has no rights
whatsoever to request, and that the Company is under no obligation whatsoever to
furnish, a registration under the Securities Laws of the Shares purchased
hereunder.

4.8. The Shares that the Purchaser is acquiring are solely for his, her or its
account and are not being purchased with a view to, or for resale in connection
with, any distribution within the meaning of the Securities Act or any other
applicable Securities Laws. The Purchaser will not resell or offer to resell any
Shares except in accordance with the terms of this Agreement and in compliance
with all applicable Securities Laws.

4.9. The Purchaser understands that the Shares being purchased hereunder will be
“restricted securities” as that term is defined in Rule 144 under the Securities
Act, and the certificate(s), if any, representing the Shares will bear
restrictive legends thereon as follows:

“THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED DIRECTLY OR
INDIRECTLY FROM THE ISSUER WITHOUT BEING REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE “ACT”), OR ANY OTHER APPLICABLE SECURITIES LAWS, AND ARE
RESTRICTED SECURITIES AS THAT TERM IS DEFINED UNDER RULE 144 PROMULGATED UNDER
THE ACT. THESE SHARES MAY NOT BE SOLD, PLEDGED, TRANSFERRED, DISTRIBUTED OR
OTHERWISE DISPOSED OF IN ANY MANNER (“TRANSFER”) UNLESS THEY ARE REGISTERED
UNDER THE ACT AND ANY APPLICABLE SECURITIES LAWS, OR UNLESS THE REQUEST FOR
TRANSFER IS ACCOMPANIED BY A FAVORABLE OPINION OF COUNSEL, REASONABLY
SATISFACTORY TO THE ISSUER, STATING THAT THE TRANSFER WILL NOT RESULT IN A
VIOLATION OF THE ACT OR ANY APPLICABLE SECURITIES LAWS.”

5. Information Regarding Forward-Looking Statements.

This Agreement and other information, if any, provided to Purchaser by the
Company, contain “forward-looking statements,” as that term is defined under
Private Securities Litigation Reform Act of 1995 (the “PSLRA”). Forward-looking
statements include statements about our expectations, beliefs or intentions
regarding our product development 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 activities or results to differ materially from
the activities and results anticipated in forward-looking statements. These
factors include those described under the caption “Risk Factors” in Section 7,
below. We do not undertake any obligation to update forward-looking statements.
We intend that all forward-looking statements be subject to the safe-harbor
provisions of PSLRA. 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.

Risks and uncertainties, the occurrence of which could adversely affect our
business, include the following:

  •   We have a history of operating losses and we do not expect to become
profitable in the near future.

  •   Our technologies are in an early stage of development and are unproven.

  •   Our research and development activities may not result in commercially
viable products.

  •   We are highly dependent on the success of our product candidates, and we
cannot give any assurance that they will receive regulatory clearance, or
approval, if necessary, or be successfully commercialized.

  •   The results of previous clinical experience with devices similar to the
devices that we have licensed may not be predictive of results with our licensed
products, and any clinical trials that the U.S. Food and Drug Administration
(the “FDA”) may require us to undertake may not satisfy FDA requirements or the
requirements of other non-U.S. regulatory authorities.

  •   We will require substantial additional funding, which may not be available
to us on acceptable terms, or at all.

  •   If our competitors develop and market products that are more effective,
safer or less expensive than our future product candidates, our commercial
opportunities will be negatively impacted.

  •   Our product development activities could be delayed or stopped.

  •   The regulatory clearance or approval process is expensive, time-consuming
and uncertain and may prevent us or our collaboration partners from obtaining
clearance, or approval, if necessary, for the commercialization of some or all
of our product candidates.

  •   Even if we obtain regulatory clearances or approvals for our product
candidates, the terms thereof and ongoing regulation of our products may limit
how we manufacture and market our product candidates, which could materially
impair our ability to generate anticipated revenues.

  •   Even if we receive regulatory clearances or approvals to market our
product candidates, the market may not be receptive to our products.

  •   If we fail to attract and retain key management and scientific personnel,
we may be unable to successfully develop or commercialize our product
candidates.

  •   As we evolve from a company primarily involved in development to a company
also involved in commercialization, we may encounter difficulties in managing
our growth and expanding our operations successfully.

  •   If we fail to acquire and develop other products or product candidates at
all or on commercially reasonable terms, we may be unable to diversify or grow
our business.

  •   We will rely on third parties to manufacture and supply our product
candidates.

  •   We currently do not have a marketing staff or sales or distribution
organization. If we are unable to develop our sales and marketing and
distribution capability on our own or through collaborations with marketing
partners, we will not be successful in commercializing our product candidates.

  •   Independent clinical investigators and contract research organizations
that we engage to conduct our clinical trials may not be diligent, careful or
timely.

  •   The success of our business may be dependent on the actions of our
collaborative partners.

  •   All of our current product plans are licensed to us by Creighton
University. Any loss of our rights under the agreement with Creighton University
or any failure by Creighton University to properly maintain or enforce the
patents under such licenses would materially adversely affect our business
prospects.

  •   An inability to find additional or other sources for our products could
materially and adversely affect us.

  •   If we or Creighton University are unable to obtain and enforce patent
protection for our product candidates, our business could be materially harmed.

  •   If we or Creighton University are unable to protect the confidentiality of
our proprietary information and know-how, the value of our technology and
products could be adversely affected.

  •   Our commercial success depends significantly on our ability to operate
without infringing the patents and other proprietary rights of third parties.

  •   Future legislative or regulatory reform of the health care system may
affect our ability to sell our products profitably.

  •   Failure to obtain regulatory clearance or approval outside the United
States will prevent us from marketing our product candidates abroad.

  •   Non-U.S. governments often impose strict price controls, which may
adversely affect our future profitability.

  •   Our business may become subject to economic, political, regulatory and
other risks associated with international operations.

  •   The market price of our common stock may fluctuate significantly.

  •   Trading of our common stock is limited and trading restrictions imposed on
us by applicable regulations and by lockup agreements we have entered into with
our principal stockholders may further reduce our trading, making it difficult
for our stockholders to sell their shares.

  •   Because our common stock may be a “penny stock,” it may be more difficult
for investors to sell shares of our common stock, and the market price of our
common stock may be adversely affected.

  •   Directors, executive officers, principal stockholders and affiliated
entities own a significant percentage of our capital stock, and they may make
decisions that you do not consider to be in your best interests or in the best
interests of our stockholders.

  •   Compliance with changing regulations concerning corporate governance and
public disclosure may result in additional expenses.

6. Certain Federal Income Tax Considerations.

The following discussion summarizes certain U.S. federal income tax consequences
to a purchaser of a share of Common Stock that is a U.S. Holder, as defined
below. This discussion is based on the Internal Revenue Code of 1986, as amended
(the “Code”), the applicable Treasury regulations promulgated or proposed
thereunder, administrative pronouncements of the Internal Revenue Service
(“IRS”) and judicial decisions, in each case as of the date hereof, all of which
are subject to change at any time, possibly retroactively. There can be no
assurance that the IRS will not take a view contrary to that set forth herein
which may be upheld by a court. No ruling from the IRS or opinion of counsel has
been or will be sought as to any of the matters discussed below.

This summary is for general information purposes only and applies only to an
initial purchaser who acquires shares of Common Stock as a capital asset within
the meaning of section 1221 of the Code. It does not purport to address all tax
consequences that may be relevant to any particular investor or to an investor
subject to special tax rules (including, for example, a financial institution,
broker-dealer, insurance company, regulated investment company, personal holding
company, S corporation, tax-exempt organization, a person who holds Common
Shares in a hedging transaction or as part of a “straddle”, “conversion
transaction” or other risk reduction transaction or a person subject to the
alternative minimum tax). In addition, the discussion does not address any
aspect of state, local or foreign taxation.

EACH PROSPECTIVE PURCHASER OF COMMON STOCK IS URGED TO CONSULT THE PURCHASER’S
TAX ADVISER CONCERNING THE U.S. FEDERAL INCOME TAX CONSEQUENCES TO THE PURCHASER
OF ACQUIRING, OWNING AND DISPOSING OF SHARES OF COMMON STOCK, AS WELL AS THE
APPLICATION OF STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX LAWS.

As used herein, the term “U.S. Holder” means a beneficial owner of a share of
Common Stock that for U.S. federal income tax purposes is:

  •   a citizen or individual resident of the United States;

  •   a corporation, or other entity taxable as a corporation for U.S. federal
income tax purposes, created or organized in or under the law of the United
States or of any political subdivision thereof;

  •   an estate the income of which is subject to U.S. federal income taxation
regardless of its source; or

  •   a trust if (i) a court within the United States is able to exercise
primary supervision over the administration of the trust, and one or more United
States persons have the authority to control all substantial decisions of the
trust, or (ii) the trust was in existence on August 20, 1996 and properly
elected to continue to be treated as a United States person.

Distributions

A distribution on a share of Common Stock will be includible in the gross income
of the holder as ordinary income to the extent the distribution is out of the
Company’s current or accumulated earnings and profits (as computed for U.S.
federal income tax purposes). To the extent distributions with respect to a
share of Common Stock in any taxable year are not paid out of current or
accumulated earnings and profits, they will be treated as a non-taxable return
(and reduction) of basis in that share of Common Stock to the extent thereof,
and if and to the extent they exceed earnings and profits and basis, they will
be treated as gain from the sale of the share of Common Stock.

The rate of federal income tax that a non-corporate taxpayer generally pays on
dividends is 15 percent for taxable years beginning before January 1, 2011,
after which dividends are taxable as ordinary income. To qualify for the reduced
rate, the non-corporate shareholder must satisfy certain holding period and
other requirements. Dividends received by a corporation are generally eligible
for the dividends received deduction, subject to the limitations under section
1059 of the Code relating to extraordinary dividends.

Disposition of Shares of Common Stock

Upon a sale or other taxable disposition of a share of Common Stock, the holder
generally will recognize capital gain or loss equal to the difference between
the amount realized and the holder’s tax basis in the share of Common Stock.
That gain or loss will be long-term capital gain or loss if the holding period
for that share of Common Stock was more than one year on the date of sale or
other disposition. The maximum rate of federal income tax applicable to a
long-term capital gain of a non-corporate taxpayer in a taxable year beginning
before January 1, 2011 is generally 15%. In later taxable years, that 15%
reverts to 20%.

Backup Withholding

A U.S. Holder may be subject to backup withholding in respect of dividends on
Common Stock and the proceeds from a sale, exchange or redemption of Common
Stock unless the holder (a) is a corporation or other exempt recipient or
(b) provides, when required, the U.S. Holder’s taxpayer identification number to
the payer, certifies that the U.S. Holder is not subject to backup withholding
and otherwise complies with the backup withholding rules. Backup withholding is
not an additional tax; any amount so withheld is creditable against the U.S.
Holder’s U.S. federal income tax liability or is refundable, provided the
required information is furnished to the IRS.

7. Risk Factors.

The Purchaser understands that in addition to the various risks ordinarily
attendant upon equity investments in companies, certain unique factors make an
investment in the Company subject to a high degree of risk. The Purchaser has
been cautioned that an investment in the Company is speculative and involves
significant risks, and that it is probably not possible to foresee and describe
all of the business, economic and financial risk factors which may affect the
Company. The Purchaser acknowledges that he has been advised to seek independent
professional advice in order to carefully analyze the risks and merits of an
investment in the Company.

The specific risks set forth below have been described in detail to the
Purchaser. They are not, however, to be considered exhaustive or definitive of
all of the risks involved in an investment in the Shares.

We have a history of operating losses and we do not expect to become profitable
in the near future.

We are a pre-clinical stage medical device company with a limited operating
history. We are not profitable and have incurred losses since our inception. We
do not anticipate that we will generate revenue from the sale of products for
the foreseeable future. We have not yet submitted any products for clearance or
approval by regulatory authorities and we do not currently have rights to any
product candidates that have been cleared or approved for marketing in our
territory. We continue to incur research and development and general and
administrative expenses related to our operations. Our net losses for the years
ended December 31, 2007 and 2006 and for the partial year from September 15,
2005 until December 31, 2005 were ($3,041,000), $(1,060,000) and $(76,000),
respectively. As of December 31, 2007, we had an accumulated deficit of
($4,177,000). We expect to continue to incur losses for the foreseeable future,
and we expect these losses to increase as we continue our research activities
and conduct development of, and seek regulatory clearances and approvals for,
our product candidates, and prepare for and begin to commercialize any cleared
or approved products. If our product candidates fail in clinical trials or do
not gain regulatory clearance or approval, or if our product candidates do not
achieve market acceptance, we may never become profitable. Even if we achieve
profitability in the future, we may not be able to sustain profitability in
subsequent periods.

Our technologies are in an early stage of development and are unproven.

We are engaged in the research and development of intraluminal medical devices
that manipulate tissues for the treatment of intraperitoneal abnormalities,
including obesity, GERD, Barrett’s Esophagus, esophageal obstructions, upper
gastrointestinal bleeding and hernia formation. The effectiveness of our
technologies is not well-known in, or accepted generally by, the clinical
medical community. There can be no assurance that we will be able to
successfully employ our technologies as surgical, therapeutic or diagnostic
solutions for any intraperitoneal abnormalities. Our failure to establish the
efficacy and safety of our technologies would have a material adverse effect on
our business.

Our product research and development activities may not result in commercially
viable products.

Our product candidates are all in very early stages of development and are prone
to the risks of failure inherent in medical device product development; but none
of our products has been studied in clinical trials. We will likely be required
to undertake significant clinical trials to demonstrate to the FDA that our
licensed devices are either safe and effective for their intended uses or are
substantially equivalent in terms of safety and effectiveness to an existing,
lawfully marketed non-PMA device. We may also be required to undertake clinical
trials by non-U.S. regulatory agencies. Clinical trials are expensive and
uncertain processes that may take years to complete. Failure can occur at any
point in the process, and early positive results do not ensure that the entire
clinical trial will be successful. Product candidates in clinical trials may
fail to show desired efficacy and safety traits despite early promising results.
A number of companies in the medical device industry have suffered significant
setbacks in advanced clinical trials, even after obtaining promising results at
earlier points.

The results of previous animal trials and pre-clinical trials may not be
indicative of future results, and our current and planned clinical trials may
not satisfy the requirements of the FDA or other non-U.S. regulatory
authorities.

The results of previous animal trials and pre-clinical and clinical trials of
similar devices may not be predictive of future results, and our current and
planned clinical trials may not satisfy the requirements of the FDA or other
non-U.S. regulatory authorities.

Positive results from limited in vivo and ex vivo animal trials we have
conducted or from pre-clinical studies and early clinical experience with
similar devices should not be relied upon as evidence that later-stage or
large-scale clinical trials will succeed. We will be required to demonstrate
with substantial evidence through well-controlled clinical trials that our
product candidates either (i) are safe and effective for their intended uses or
(ii) are substantially equivalent in terms of safety and effectiveness to
devices that are already marketed under Section 510(k).

Further, our product candidates may not be cleared or approved, as the case may
be, even if the clinical data are satisfactory and support, in our view,
clearance or approval. The FDA or other non-U.S. regulatory authorities may
disagree with our trial design and our interpretation of the clinical data. In
addition, any of these regulatory authorities may change requirements for the
clearance or approval of a product candidate even after reviewing and providing
comment on a protocol for a pivotal clinical trial that has the potential to
result in FDA approval. In addition, any of these regulatory authorities may
also clear or approve a product candidate for fewer or more limited uses than we
request or may grant clearance or approval contingent on the performance of
costly post-marketing clinical trials. In addition, the FDA or other non-U.S.
regulatory authorities may not approve the labeling claims necessary or
desirable for the successful commercialization of our product candidates.

We are highly dependent on the success of our initial product candidates,
especially the Obesity Device, the GERD Device and the Barrett’s Device, and we
cannot give any assurance that any of them will receive regulatory clearance or
be successfully commercialized.

We are highly dependent on the success of our initial product candidates,
especially the Obesity Device, the GERD Device and the Barrett’s Device. We
cannot give any assurance that the FDA will permit us to clinically test the
devices, nor can we give any assurance that these products will receive
regulatory clearance or approval or be successfully commercialized, for a number
of reasons, including, without limitation, the potential introduction by our
competitors of more clinically-effective or cost-effective alternatives or
failure in our sales and marketing efforts, or our failure to obtain positive
coverage determinations or reimbursement. Any failure to obtain clearance or
approval of our products or to successfully commercialize them would have a
material and adverse effect on our business.

We will require substantial additional funding, which may not be available to us
on acceptable terms, or at all.

We intend to advance multiple product candidates through clinical and
pre-clinical development. We will need to raise substantial additional capital
to engage in our clinical and pre-clinical development and commercialization
activities.

Our future funding requirements will depend on many factors, including but not
limited to:

  •   our need to expand our research and development activities;

  •   the rate of progress and cost of our clinical trials;

  •   the costs associated with establishing a sales force and commercialization
capabilities;

  •   the costs of acquiring, licensing or investing in businesses, products,
product candidates and technologies;

  •   the costs and timing of seeking and obtaining FDA and other non-U.S.
regulatory clearances and approvals;

  •   the economic and other terms and timing of our existing licensing
arrangement and any collaboration, licensing or other arrangements into which we
may enter in the future;

  •   our need and ability to hire additional management and scientific and
medical personnel;

  •   the effect of competing technological and market developments;

  •   our need to implement additional internal systems and infrastructure,
including financial and reporting systems; and

  •   our ability to maintain, expand and defend the scope of our intellectual
property portfolio.

Until we can generate a sufficient amount of product revenue to finance our cash
requirements, which we may never do, we expect to finance future cash needs
primarily through public or private equity offerings, debt financings or
strategic collaborations. We do not know whether additional funding will be
available on acceptable terms, or at all. If we are not able to secure
additional funding when needed, we may have to delay, reduce the scope of or
eliminate one or more of our clinical trials or research and development
programs. To the extent that we raise additional funds by issuing equity
securities, our stockholders may experience significant dilution, and debt
financing, if available, may involve restrictive covenants. To the extent that
we raise additional funds through collaboration and licensing arrangements, it
may be necessary to relinquish some rights to our product candidates or grant
licenses on terms that may not be favorable to us.

If our competitors develop and market products that are more effective, safer or
less expensive than our future product candidates, our commercial opportunities
will be negatively impacted.

The life sciences industry is highly competitive, and we face significant
competition from many medical device companies that are researching and
marketing products designed to address the intraperitoneal abnormalities we are
endeavoring to address. We are currently developing medical devices that will
compete with other medical devices that currently exist or are being developed.
Products we may develop in the future are also likely to face competition from
other medical devices and therapies. Many of our competitors have significantly
greater financial, manufacturing, marketing and product development resources
than we do. Large medical devices companies, in particular, have extensive
experience in clinical testing and in obtaining regulatory clearances or
approvals for medical devices. These companies also have significantly greater
research and marketing capabilities than we do. As indicated, there are also
other methods to treat obesity, such as diet, exercise and medicine. Other
competitors have developed products such as medical implants that occupy volume
in the stomach to promote the feeling of satiety (Helioscopie) or gastric
sleeves to reduce food intake. Some of the medical device companies we expect to
compete with include USGI Medical, TOGa Devices from Satiety, StomaphyX and
EsophyX from EndoGastric Solution, Inc., NDO Surgical, Inc., Medigus, Ltd.,
Bard, LLC, Olympus Medical Equipment Services America, Inc., BARRX Medical,
Inc., Boston Scientific Corporation, ConMed Corporation, Cook Medical Supply,
Inc., Miller Medical Specialties, U.S. Endoscopy, The Rush Incorporated and a
number of bite block manufacturers. In addition, many other universities and
private and public research institutions are or may become active in research
involving surgical devices for gastrointestinal abnormalities and minimally
invasive surgery.

We believe that our ability to successfully compete will depend on, among other
things:

  •   the results of our clinical trials;

  •   our ability to recruit and enroll patients for our clinical trials;

  •   the efficacy, safety and reliability of our product candidates;

  •   the speed at which we develop our product candidates;

  •   our ability to commercialize and market any of our product candidates that
may receive regulatory clearance or approval;

  •   our ability to design and successfully execute appropriate clinical
trials;

  •   the timing and scope of regulatory clearances or approvals;

  •   appropriate coverage and adequate levels of reimbursement under private
and governmental health insurance plans, including Medicare;

  •   our ability to protect intellectual property rights related to our
products;

  •   our ability to have our partners manufacture and sell commercial
quantities of any approved products to the market; and

  •   acceptance of future product candidates by physicians and other health
care providers.

If our competitors market products that are more effective, safer, easier to use
or less expensive than our future product candidates, if any, or that reach the
market sooner than our future product candidates, if any, we may not achieve
commercial success. In addition, the medical device industry is characterized by
rapid technological change. It may be difficult for us to stay abreast of the
rapid changes in each technology. If we fail to stay at the forefront of
technological change, we may be unable to compete effectively. Technological
advances or products developed by our competitors may render our technologies or
product candidates obsolete or less competitive.

Our product development activities could be delayed or stopped.

We do not know whether our other planned clinical trials will be completed on
schedule, or at all, and we cannot guarantee that our planned clinical trials
will begin on time or at all. The commencement of our planned clinical trials
could be substantially delayed or prevented by several factors, including:

  •   limited number of, and competition for, suitable patients that meet the
protocol’s inclusion criteria and do not meet any of the exclusion criteria;

  •   limited number of, and competition for, suitable sites to conduct our
clinical trials, and delay or failure to obtain FDA approval, if necessary, to
commence a clinical trial;

  •   delay or failure to obtain sufficient supplies of the product candidate
for our clinical trials;

  •   requirements to provide the medical device required in our clinical trial
at cost, which may require significant expenditures that we are unable or
unwilling to make;

  •   delay or failure to reach agreement on acceptable clinical trial agreement
terms or clinical trial protocols with prospective sites or investigators; and

  •   delay or failure to obtain institutional review board, or IRB, approval or
renewal to conduct a clinical trial at a prospective or accruing site,
respectively.

The completion of our clinical trials could also be substantially delayed or
prevented by several factors, including:

  •   slower than expected rates of patient recruitment and enrollment;

  •   failure of patients to complete the clinical trial;

  •   unforeseen safety issues;

  •   lack of efficacy evidenced during clinical trials;

  •   termination of our clinical trials by one or more clinical trial sites;

  •   inability or unwillingness of patients or medical investigators to follow
our clinical trial protocols; and

  •   inability to monitor patients adequately during or after treatment.

Our clinical trials may be suspended or terminated at any time by the FDA, other
regulatory authorities, the IRB for any given site, or us. Any failure or
significant delay in completing clinical trials for our product candidates could
materially harm our financial results and the commercial prospects for our
product candidates.

The regulatory approval process is expensive, time consuming and uncertain and
may prevent us or our collaboration partners from obtaining approvals for the
commercialization of some or all of our product candidates.

The research, testing, manufacturing, labeling, approval, selling, marketing and
distribution of medical devices are subject to extensive regulation by the FDA
and other non-U.S. regulatory authorities, which regulations differ from country
to country. We are not permitted to market our product candidates in the United
States until we receive a clearance letter under the 510(k) process or approval
of a PMA from the FDA, depending on the nature of the device. We have not
submitted an application or premarket notification for or received marketing
clearance or approval for any of our product candidates. Obtaining approval of
any PMA can be a lengthy, expensive and uncertain process. While the FDA
normally reviews and clears a premarket notification in three months, there is
no guarantee that our products will qualify for this more expeditious regulatory
process, which is reserved for Class I and II devices, nor is there any
assurance, that even if a device is reviewed under the premarket notification
process (510(k) process), that the FDA will review it expeditiously or determine
that the device is substantially equivalent to a lawfully marketed non-PMA
device. If the FDA fails to make this finding, then we cannot market the device.
In lieu of acting on a premarket notification, the FDA may seek additional
information or additional data which would further delay our ability to market
the product. In addition, failure to comply with FDA, non-U.S. regulatory
authorities or other applicable U.S. and non-U.S. regulatory requirements may,
either before or after product clearance or approval, if any, subject our
company to administrative or judicially imposed sanctions, including:

  •   restrictions on the products, manufacturers or manufacturing process;

  •   adverse inspectional observations (Form 483), warning letters or
non-warning letters incorporating inspectional observations;

  •   civil and criminal penalties;

  •   injunctions;

  •   suspension or withdrawal of regulatory clearances or approvals;

  •   product seizures, detentions or import bans;

  •   voluntary or mandatory product recalls and publicity requirements;

  •   total or partial suspension of production;

  •   imposition of restrictions on operations, including costly new
manufacturing requirements; and

  •   refusal to clear or approve pending applications or premarket
notifications.

Regulatory approval of a PMA, PMA supplement or clearance pursuant to a
premarket notification is not guaranteed, and the approval or clearance process,
as the case may be, is expensive and, may, especially in the case of the PMA
application, take several years. The FDA also has substantial discretion in the
medical device clearance process or approval process. Despite the time and
expense exerted, failure can occur at any stage, and we could encounter problems
that cause us to abandon clinical trials or to repeat or perform additional
pre-clinical studies and clinical trials. The number of pre-clinical studies and
clinical trials that will be required for FDA clearance or approval varies
depending on the medical device candidate, the disease or condition that the
medical device candidate is designed to address, and the regulations applicable
to any particular medical device candidate. The FDA can delay, limit or deny
clearance or approval of a medical device candidate for many reasons, including:

  •   a medical device candidate may not be deemed safe or effective, in the
case of a PMA application;

  •   a medical device candidate may not be deemed to be substantially
equivalent to a lawfully marketed non-PMA device in the case of a premarket
notification;

  •   FDA officials may not find the data from pre-clinical studies and clinical
trials sufficient;

  •   the FDA might not approve our third-party manufacturer’s processes or
facilities; or

  •   the FDA may change its clearance or approval policies or adopt new
regulations.

Failure to recruit and enroll patients for clinical trials may cause the
development of our product candidates to be delayed.

We may encounter delays if we are unable to recruit and enroll and retain enough
patients to complete clinical trials. Patient enrollment depends on many
factors, including the size of the patient population, the nature of the
protocol, the proximity of patients to clinical sites and the eligibility
criteria for the trial. Delays in patient enrollment are not unusual. Any such
delays in planned patient enrollment may result in increased costs, which could
harm our ability to develop products.

Even if we obtain regulatory clearances or approvals for our product candidates,
the terms of clearances or approvals and ongoing regulation of our products may
limit how we manufacture and market our product candidates, which could
materially impair our ability to generate anticipated revenues.

Once regulatory clearance or approval has been granted, the cleared or approved
product and its manufacturer are subject to continual review. Any cleared or
approved product may only be promoted for its indicated uses. In addition, if
the FDA or other non-U.S. regulatory authorities clear or approve any of our
product candidates, the labeling, packaging, adverse event reporting, storage,
advertising and promotion for the product will be subject to extensive
regulatory requirements. We and the manufacturers of our products are also
required to comply with the FDA’s Quality System Regulation, which include
requirements relating to quality control and quality assurance, as well as the
corresponding maintenance of records and documentation. Moreover, device
manufacturers are required to report adverse events by filing with the FDA
Medical Device Reports, which are publicly available. Further, regulatory
agencies must approve our manufacturing facilities before they can be used to
manufacture our products, and these facilities are subject to ongoing regulatory
inspection. If we fail to comply with the regulatory requirements of the FDA and
other non-U.S. regulatory authorities, or if previously unknown problems with
our products, manufacturers or manufacturing processes are discovered, we could
be subject to administrative or judicially imposed sanctions, including:

  •   restrictions on the products, manufacturers or manufacturing process;

  •   adverse inspectional observations (Form 483), warning letters, non-warning
letters incorporating inspectional observations;

  •   civil or criminal penalties or fines;

  •   injunctions;

  •   product seizures, detentions or import bans;

  •   voluntary or mandatory product recalls and publicity requirements;

  •   suspension or withdrawal of regulatory clearances or approvals;

  •   total or partial suspension of production;

  •   imposition of restrictions on operations, including costly new
manufacturing requirements; and

  •   refusal to clear or approve pending applications or premarket
notifications.

In addition, the FDA and other non-U.S. regulatory authorities may change their
policies and additional regulations may be enacted that could prevent or delay
regulatory clearance or approval of our product candidates. We cannot predict
the likelihood, nature or extent of government regulation that may arise from
future legislation or administrative action, either in the United States or
abroad. If we are not able to maintain regulatory compliance, we would likely
not be permitted to market our future product candidates and we may not achieve
or sustain profitability.

Even if we receive regulatory clearance or approval to market our product
candidates, the market may not be receptive to our products.

Even if our product candidates obtain regulatory clearance or approval,
resulting products may not gain market acceptance among physicians, patients,
health care payors and/or the medical community. We believe that the degree of
market acceptance will depend on a number of factors, including:

  •   timing of market introduction of competitive products;

  •   safety and efficacy of our product;

  •   prevalence and severity of any side effects;

  •   potential advantages or disadvantages over alternative treatments;

  •   strength of marketing and distribution support;

  •   price of our future product candidates, both in absolute terms and
relative to alternative treatments; and

  •   availability of coverage and reimbursement from government and other
third-party payors.

If our future product candidates fail to achieve market acceptance, we may not
be able to generate significant revenue or achieve or sustain profitability.

The coverage and reimbursement status of newly cleared or approved medical
devices is uncertain, and failure to obtain adequate coverage and adequate
reimbursement could limit our ability to market any future product candidates we
may develop and decrease our ability to generate revenue from any of our
existing and future product candidates that may be cleared or approved.

There is significant uncertainty related to the third-party coverage and
reimbursement of newly cleared or approved medical devices. Normally, surgical
devices are not directly covered; instead, the procedure using the device is
subject to a coverage determination by the insurer. The commercial success of
our existing and future product candidates in both domestic and international
markets will depend in part on the availability of coverage and adequate
reimbursement from third-party payors, including government payors, such as the
Medicare and Medicaid programs, managed care organizations and other third-party
payors. Government and other third-party payors are increasingly attempting to
contain health care costs by limiting both coverage and the level of
reimbursement for new products and, as a result, they may not cover or provide
adequate payment for our existing and future product candidates. These payors
may conclude that our product candidates are not as safe or effective as
existing devices or that procedures using our devices are not as safe or
effective as the existing procedures using other devices. These payors may also
conclude that the overall cost of the procedure using one of our devices exceeds
the overall cost of the competing procedure using another type of device, and
third-party payors may not approve our product candidates for coverage and
adequate reimbursement. The failure to obtain coverage and adequate
reimbursement for our existing and future product candidates or health care cost
containment initiatives that limit or restrict reimbursement for our existing
and future product candidates may reduce any future product revenue.

If we fail to attract and retain key management and scientific personnel, we may
be unable to successfully develop or commercialize our product candidates.

We will need to expand and effectively manage our managerial, operational,
financial, development and other resources in order to successfully pursue our
research, development and commercialization efforts for our existing and future
product candidates. Our success depends on our continued ability to attract,
retain and motivate highly qualified management and pre-clinical and clinical
personnel. The loss of the services of any of our senior management,
particularly Jeffrey G. Spragens, Dr. Stewart B. Davis and Dr. Charles Filipi,
could delay or prevent the development or commercialization of our product
candidates. We do not maintain “key man” insurance policies on the lives of
these individuals or the lives of any of our other employees. We employ these
individuals on an at- will basis and their employment can be terminated by us or
them at any time, for any reason and with or without notice. We will need to
hire additional personnel as we continue to expand our research and development
activities and build a sales and marketing function.

We have scientific and clinical advisors who assist us in formulating our
research, development and clinical strategies. These advisors are not our
employees and may have commitments to, or consulting or advisory contracts with,
other entities that may limit their availability to us. In addition, our
advisors may have arrangements with other companies to assist those companies in
developing products or technologies that may compete with ours.

We may not be able to attract or retain qualified management and scientific
personnel in the future due to the intense competition for qualified personnel
among medical device and other businesses. If we are not able to attract and
retain the necessary personnel to accomplish our business objectives, we may
experience constraints that will impede significantly the achievement of our
research and development objectives, our ability to raise additional capital and
our ability to implement our business strategy. In particular, if we lose any
members of our senior management team, we may not be able to find suitable
replacements in a timely fashion or at all and our business may be harmed as a
result.

As we evolve from a company primarily involved in development to a company also
involved in commercialization, we may encounter difficulties in managing our
growth and expanding our operations successfully.

As we advance our product candidates through research and development, we will
need to expand our development, regulatory, manufacturing, marketing and sales
capabilities or contract with third parties to provide these capabilities for
us. As our operations expand, we expect that we will need to manage additional
relationships with such third parties, as well as additional collaborators and
suppliers. Maintaining these relationships and managing our future growth will
impose significant added responsibilities on members of our management. We must
be able to: manage our development efforts effectively; manage our clinical
trials effectively; hire, train and integrate additional management,
development, administrative and sales and marketing personnel; improve our
managerial, development, operational and finance systems; and expand our
facilities, all of which may impose a strain on our administrative and
operational infrastructure.

Furthermore, we may acquire additional businesses, products or product
candidates that complement or augment our existing business. Integrating any
newly acquired business or product could be expensive and time-consuming. We may
not be able to integrate any acquired business or product successfully or
operate any acquired business profitably. Our future financial performance will
depend, in part, on our ability to manage any future growth effectively and our
ability to integrate any acquired businesses. We may not be able to accomplish
these tasks, and our failure to accomplish any of them could prevent us from
successfully growing our company.

If we fail to acquire and develop other products or product candidates at all or
on commercially reasonable terms, we may be unable to diversify or grow our
business.

We intend to continue to rely on in-licensing as the source of our products and
product candidates for development and commercialization. The success of this
strategy depends upon our ability to identify, select and acquire medical device
product candidates. Proposing, negotiating and implementing an economically
viable product acquisition or license is a lengthy and complex process. We
compete for partnering arrangements and license agreements with other medical
device companies and academic research institutions. Our competitors may have
stronger relationships with third parties with whom we are interested in
collaborating and/or may have more established histories of developing and
commercializing products. As a result, our competitors may have a competitive
advantage in entering into partnering arrangements with such third parties. In
addition, even if we find promising product candidates, and generate interest in
a partnering or strategic arrangement to acquire such product candidates, we may
not be able to acquire rights to additional product candidates or approved
products on commercially reasonable terms that we find acceptable, or at all.

We expect that any product candidate to which we acquire rights will require
additional development efforts prior to commercial sale, including extensive
clinical testing and clearance or approval by the FDA and other non-U.S.
regulatory authorities. All product candidates are subject to the risks of
failure inherent in medical device product development, including the
possibility that the product candidate will not be shown to be sufficiently safe
and effective for approval by regulatory authorities. Even if the product
candidates are cleared or approved, we cannot be sure that they would be capable
of economically feasible production or commercial success.

We rely on third parties to manufacture and supply our product candidates.

We do not own or operate manufacturing facilities for clinical or commercial
production of our product candidates, other than a prototype lab. We have no
experience in medical device manufacturing, and we lack the resources and the
capability to manufacture any of our product candidates on a commercial scale.
If our future manufacturing partners are unable to produce our products in the
amounts that we require, we may not be able to establish a contract and obtain a
sufficient alternative supply from another supplier on a timely basis and in the
quantities we require. We expect to depend on third-party contract manufacturers
for the foreseeable future.

Our product candidates require precise, high quality manufacturing. Any of our
contract manufacturers will be subject to ongoing periodic unannounced
inspection by the FDA and other non-U.S. regulatory authorities to ensure strict
compliance with quality system regulation (referred to as QSR), including
current Good Manufacturing Practice, or cGMP, and other applicable government
regulations and corresponding standards. If our contract manufacturers fail to
achieve and maintain high manufacturing standards in compliance with QSR, we may
experience manufacturing errors resulting in patient injury or death, product
recalls or withdrawals, delays or interruptions of production or failures in
product testing or delivery, delay or prevention of filing or approval of
marketing applications for our products, cost overruns or other problems that
could seriously harm our business.

Any performance failure on the part of our contract manufacturers could delay
clinical development or regulatory clearance or approval of our product
candidates or commercialization of our future product candidates, depriving us
of potential product revenue and resulting in additional losses. In addition,
our dependence on a third party for manufacturing may adversely affect our
future profit margins. Our ability to replace an existing manufacturer may be
difficult because the number of potential manufacturers is limited and the FDA
must approve any replacement manufacturer before it can begin manufacturing our
product candidates. Such approval would require additional non-clinical testing
and compliance inspections. It may be difficult or impossible for us to identify
and engage a replacement manufacturer on acceptable terms in a timely manner, or
at all.

We currently have no marketing staff and no sales or distribution organization.
If we are unable to develop our sales, marketing and distribution capability on
our own or through collaborations with marketing partners, we will not be
successful in commercializing our product candidates.

We currently have no marketing, sales or distribution capabilities. If our
product candidates are approved, we intend to establish our sales and marketing
organization with technical expertise and supporting distribution capabilities
to commercialize our product candidates, which will be expensive and
time-consuming. Any failure or delay in the development of our internal sales,
marketing and distribution capabilities would adversely impact the
commercialization of these products. With respect to our existing and future
product candidates, we may choose to collaborate with third parties that have
direct sales forces and established distribution systems, either to augment our
own sales force and distribution systems or in lieu of our own sales force and
distribution systems. To the extent that we enter into co-promotion or other
licensing arrangements, our product revenue is likely to be lower than if we
directly marketed or sold our products. In addition, any revenue we receive will
depend in whole or in part upon the efforts of such third parties, which may not
be successful and are generally not within our control. If we are unable to
enter into such arrangements on acceptable terms or at all, we may not be able
to successfully commercialize our existing and future product candidates. If we
are not successful in commercializing our existing and future product
candidates, either on our own or through collaborations with one or more third
parties, our future product revenue will suffer and we may incur significant
additional losses.

Independent clinical investigators and contract research organizations that we
engage to conduct our clinical trials may not be diligent, careful or timely.

We will depend on independent clinical investigators to conduct our clinical
trials. Contract research organizations may also assist us in the collection and
analysis of data. These investigators and contract research organizations will
not be our employees and we will not be able to control, other than by contract,
the amount of resources, including time that they devote to products that we
develop. If independent investigators fail to devote sufficient resources to the
clinical trials, or if their performance is substandard, it will delay the
approval or clearance and commercialization of any products that we develop.
Further, the FDA requires that we comply with standards, commonly referred to as
good clinical practice, for conducting, recording and reporting clinical trials
to assure that data and reported results are credible and accurate and that the
rights, integrity and confidentiality of trial subjects are protected. If our
independent clinical investigators and contract research organizations fail to
comply with good clinical practice, the results of our clinical trials could be
called into question and the clinical development of our product candidates
could be delayed. Failure of clinical investigators or contract research
organizations to meet their obligations to us or comply with federal regulations
could adversely affect the clinical development of our product candidates and
harm our business.

The success of our business may be dependent on the actions of our collaborative
partners.

An element of our strategy may be to enter into collaborative arrangements with
established multinational medical device companies which will finance or
otherwise assist in the development, manufacture and marketing of products
incorporating our technology. We anticipate deriving some revenues from research
and development fees, license fees, milestone payments and royalties from
collaborative partners. Our prospects, therefore, may depend to some extent upon
our ability to attract and retain collaborative partners and to develop
technologies and products that meet the requirements of prospective
collaborative partners. In addition, our collaborative partners may have the
right to abandon research projects and terminate applicable agreements,
including funding obligations, prior to or upon the expiration of the
agreed-upon research terms. There can be no assurance that we will be successful
in establishing collaborative arrangements on acceptable terms or at all, that
collaborative partners will not terminate funding before completion of projects,
that our collaborative arrangements will result in successful product
commercialization or that we will derive any revenues from such arrangements. To
the extent that we are not able to develop and maintain collaborative
arrangements, we would need substantial additional capital to undertake
research, development and commercialization activities on our own.

If we are unable to obtain and enforce patent protection for our products, our
business could be materially harmed.

Our success depends, in part, on our ability to protect proprietary methods and
technologies that we develop or license under the patent and other intellectual
property laws of the United States and other countries, so that we can prevent
others from unlawfully using our inventions and proprietary information.
However, we may not hold proprietary rights to some patents required for us to
commercialize our proposed products. At present, we do not hold any patents and
none of the technology we license has been patented. Because certain U.S. patent
applications are confidential until patents issue, such as applications filed
prior to November 29, 2000, or applications filed after such date which will not
be filed in foreign countries, third parties may have filed patent applications
for technology covered by our pending patent applications without our being
aware of those applications, and our patent applications may not have priority
over those applications. For this and other reasons, we or our third-party
collaborators may be unable to secure desired patent rights, thereby losing
desired exclusivity. If licenses are not available to us on acceptable terms, we
will not be able to market the affected products or conduct the desired
activities, unless we challenge the validity, enforceability or infringement of
the third party patent or otherwise circumvent the third party patent.

Our strategy depends on our ability to rapidly identify and seek patent
protection for our discoveries. In addition, we will rely on third-party
collaborators to file patent applications relating to proprietary technology
that we develop jointly during certain collaborations. The process of obtaining
patent protection is expensive and time-consuming. If our present or future
collaborators fail to file and prosecute all necessary and desirable patent
applications at a reasonable cost and in a timely manner, our business will be
adversely affected. Despite our efforts and the efforts of our collaborators to
protect our proprietary rights, unauthorized parties may be able to obtain and
use information that we regard as proprietary.

The issuance of a patent does not guarantee that it is valid or enforceable. Any
patents we have obtained, or obtain in the future, may be challenged,
invalidated, unenforceable or circumvented. Moreover, the United States Patent
and Trademark Office ( the “USPTO”) may commence interference proceedings
involving our patents or patent applications. Any challenge to, finding of
unenforceability or invalidation or circumvention of, our patents or patent
applications would be costly, would require significant time and attention of
our management and could have a material adverse effect on our business. In
addition, court decisions may introduce uncertainty in the enforceability or
scope of patents owned by medical device companies.

Our pending patent applications may not result in issued patents. The patent
position of medical device companies, including ours, is generally uncertain and
involves complex legal and factual considerations. The standards that the USPTO
and its foreign counterparts use to grant patents are not always applied
predictably or uniformly and can change. There is also no uniform, worldwide
policy regarding the subject matter and scope of claims granted or allowable in
medical device patents. Accordingly, we do not know the degree of future
protection for our proprietary rights or the breadth of claims that will be
allowed in any patents issued to us or to others. The legal systems of certain
countries do not favor the aggressive enforcement of patents, and the laws of
foreign countries may not protect our rights to the same extent as the laws of
the United States. Therefore, the enforceability or scope of our owned or
licensed patents in the United States or in foreign countries cannot be
predicted with certainty, and, as a result, any patents that we own or license
may not provide sufficient protection against competitors. We may not be able to
obtain or maintain patent protection for our pending patent applications, those
we may file in the future, or those we may license from third parties, including
Creighton University.

We cannot assure you that any patents that will issue, that may issue or that
may be licensed to us will be enforceable or valid or will not expire prior to
the commercialization of our product candidates, thus allowing others to more
effectively compete with us. Therefore, any patents that we own or license may
not adequately protect our product candidates or our future products.

If we are unable to protect the confidentiality of our proprietary information
and know-how, the value of our technology and products could be adversely
affected.

In addition to patent protection, we also rely on other proprietary rights,
including protection of trade secrets, know-how and confidential and proprietary
information. To maintain the confidentiality of trade secrets and proprietary
information, we will seek to enter into confidentiality agreements with our
employees, consultants and collaborators upon the commencement of their
relationships with us. These agreements generally require that all confidential
information developed by the individual or made known to the individual by us
during the course of the individual’s relationship with us be kept confidential
and not disclosed to third parties. Our agreements with employees also generally
provide and will generally provide that any inventions conceived by the
individual in the course of rendering services to us shall be our exclusive
property. However, we may not obtain these agreements in all circumstances, and
individuals with whom we have these agreements may not comply with their terms.
In the event of unauthorized use or disclosure of our trade secrets or
proprietary information, these agreements, even if obtained, may not provide
meaningful protection, particularly for our trade secrets or other confidential
information. To the extent that our employees, consultants or contractors use
technology or know-how owned by third parties in their work for us, disputes may
arise between us and those third parties as to the rights in related inventions.

Adequate remedies may not exist in the event of unauthorized use or disclosure
of our confidential information. The disclosure of our trade secrets would
impair our competitive position and may materially harm our business, financial
condition and results of operations.

We will rely heavily on licenses from third parties.

All of the patent applications in our patent portfolio are not owned by us, but
are licensed from one third party. Presently, we rely solely on technology
licensed from Creighton University for all of our products and may license
additional technology from other third parties in the future. Such license
agreements give us rights for the commercial exploitation of the patents
resulting from the patent applications, subject to certain provisions of the
license agreements. Failure to comply with these provisions could result in the
loss of our rights under these license agreements. Our inability to rely on
these patent applications which are the basis of our technology would have a
material adverse effect on our business.

We presently license patent rights to all of our technology from one third party
owner. If we or this third party owner does not properly maintain or enforce the
patent applications underlying any such licenses, our competitive position and
business prospects will be harmed.

We have obtained licenses from Creighton University for all of our current
products in development. In addition, we hope to enter into additional licenses
of third party intellectual property in the future.

Our success will depend in part on the ability of us or our licensors to obtain,
maintain and enforce patent protection for our licensed intellectual property
and, in particular, those patents to which we have secured exclusive rights in
our field. We or our licensors may not successfully prosecute the patent
applications which are licensed to us. Even if patents issue in respect of these
patent applications, we or our licensors may fail to maintain these patents, may
determine not to pursue litigation against other companies that are infringing
these patents, or may pursue such litigation less aggressively than we would.
Without protection for the intellectual property we have licensed, other
companies might be able to offer substantially identical products for sale,
which could adversely affect our competitive business position and harm our
business prospects.

Some jurisdictions may require us or Creighton University to grant licenses to
third parties. Such compulsory licenses could be extended to include some of our
product candidates, which may limit our potential revenue opportunities.

Many countries, including certain countries in Europe, have compulsory licensing
laws under which a patent owner may be compelled to grant licenses to third
parties. In addition, most countries limit the enforceability of patents against
government agencies or government contractors. In these countries, the patent
owner may be limited to monetary relief and may be unable to enjoin
infringement, which could materially diminish the value of the patent.
Compulsory licensing of life-saving products is also becoming increasingly
popular in developing countries, either through direct legislation or
international initiatives. Such compulsory licenses could be extended to include
some of our product candidates, which may limit our potential revenue
opportunities.

Our commercial success depends significantly on our ability to operate without
infringing the patents and other proprietary rights of third parties.

Other entities may have or obtain patents or proprietary rights that could limit
our ability to manufacture, use, sell, offer for sale or import products or
impair our competitive position. In addition, to the extent that a third party
develops new technology that covers our products, we may be required to obtain
licenses to that technology, which licenses may not be available or may not be
available on commercially reasonable terms, if at all. If licenses are not
available to us on acceptable terms, we will not be able to market the affected
products or conduct the desired activities, unless we challenge the validity,
enforceability or infringement of the third party patent or circumvent the third
party patent, which would be costly and would require significant time and
attention of our management. Third parties may have or obtain valid and
enforceable patents or proprietary rights that could block us from developing
products using our technology. Our failure to obtain a license to any technology
that we require may materially harm our business, financial condition and
results of operations.

If we become involved in patent litigation or other proceedings related to a
determination of rights, we could incur substantial costs and expenses,
substantial liability for damages or be required to stop our product development
and commercialization efforts.

Third parties may sue us for infringing their patent rights. Likewise, we may
need to resort to litigation to enforce a patent issued or licensed to us or to
determine the scope and validity of proprietary rights of others. In addition, a
third party may claim that we have improperly obtained or used its confidential
or proprietary information. Furthermore, in connection with our third-party
license agreements, we generally have agreed to indemnify the licensor for costs
incurred in connection with litigation relating to intellectual property rights.
The cost to us of any litigation or other proceeding relating to intellectual
property rights, even if resolved in our favor, could be substantial, and the
litigation would divert our management’s efforts. Some of our competitors may be
able to sustain the costs of complex patent litigation more effectively than we
can because they have substantially greater resources. Uncertainties resulting
from the initiation and continuation of any litigation could limit our ability
to continue our operations.

If any parties successfully claim that our creation or use of proprietary
technologies infringes upon their intellectual property rights, we might be
forced to pay damages, potentially including treble damages, if we are found to
have willfully infringed on such parties’ patent rights. In addition to any
damages we might have to pay, a court could require us to stop the infringing
activity or obtain a license. Any license required under any patent may not be
made available on commercially acceptable terms, if at all. In addition, such
licenses are likely to be non-exclusive and, therefore, our competitors may have
access to the same technology licensed to us. If we fail to obtain a required
license and are unable to design around a patent, we may be unable to
effectively market some of our technology and products, which could limit our
ability to generate revenues or achieve profitability and possibly prevent us
from generating revenue sufficient to sustain our operations.

Medicare legislation and future legislative or regulatory reform of the health
care system may affect our ability to sell our products profitably.

In the United States, there have been a number of legislative and regulatory
proposals, at both the federal and state government levels, to change the
healthcare system in ways that could affect our ability to sell our products
profitably, if approved. To the extent that our products are deemed to be
“durable medical equipment” or DME they may be subject to distribution under the
new Competitive Acquisition regulations, this could adversely affect the amount
that we can seek from payors. Non-DME devices used in surgical procedures are
normally paid directly by the hospital or health care provider and not
reimbursed separately by third-party payors. As a result, these types of devices
are subject to intense price competition that can place a small manufacturer at
a competitive disadvantage.

We are unable to predict what additional legislation or regulation, if any,
relating to the health care industry or third-party coverage and reimbursement
may be enacted in the future or what effect such legislation or regulation would
have on our business. Any cost containment measures or other health care system
reforms that are adopted could have a material adverse effect on our ability to
commercialize our existing and future product candidates successfully.

Failure to obtain regulatory approval outside the United States will prevent us
from marketing our product candidates abroad.

We intend to market certain of our existing and future product candidates in
non-U.S. markets. In order to market our existing and future product candidates
in the European Union and many other non-U.S. jurisdictions, we must obtain
separate regulatory approvals. We have had limited interactions with non-U.S.
regulatory authorities, the approval procedures vary among countries and can
involve additional testing, and the time required to obtain approval may differ
from that required to obtain FDA approval. Approval or clearance by the FDA does
not ensure approval by regulatory authorities in other countries, and approval
by one or more non-U.S. regulatory authorities does not ensure approval by
regulatory authorities in other countries or by the FDA. The non-U.S. regulatory
approval process may include all of the risks associated with obtaining FDA
approval or clearance. We may not obtain non-U.S. regulatory approvals on a
timely basis, if at all. We may not be able to file for non-U.S. regulatory
approvals and may not receive necessary approvals to commercialize our existing
and future product candidates in any market.

Non-U.S. governments often impose strict price controls, which may adversely
affect our future profitability.

We intend to seek approval to market certain of our existing and future product
candidates in both the U.S. and in non-U.S. jurisdictions. If we obtain approval
in one or more non-U.S. jurisdictions, we will be subject to rules and
regulations in those jurisdictions relating to our product. In some countries,
particularly countries of the European Union, each of which has developed its
own rules and regulations, pricing is subject to governmental control. In these
countries, pricing negotiations with governmental authorities can take
considerable time after the receipt of marketing approval for a medical device
candidate. To obtain reimbursement or pricing approval in some countries, we may
be required to conduct a clinical trial that compares the cost-effectiveness of
our existing and future product candidates to other available products. If
reimbursement of our future product candidates is unavailable or limited in
scope or amount, or if pricing is set at unsatisfactory levels, we may be unable
to achieve or sustain profitability.

Our business may become subject to economic, political, regulatory and other
risks associated with international operations.

Our business is subject to risks associated with conducting business
internationally, in part due to a number of our suppliers being located outside
the U.S. Accordingly, our future results could be harmed by a variety of
factors, including:

  •   difficulties in compliance with non-U.S. laws and regulations;

  •   changes in non-U.S. regulations and customs;

  •   changes in non-U.S. currency exchange rates and currency controls;

  •   changes in a specific country’s or region’s political or economic
environment;

  •   trade protection measures, import or export licensing requirements or
other restrictive actions by U.S. or non-U.S. governments;

  •   negative consequences from changes in tax laws; and

  •   difficulties associated with staffing and managing foreign operations,
including differing labor relations.

The market price of our common stock may fluctuate significantly.

The market price of our common stock may fluctuate significantly in response to
numerous factors, some of which are beyond our control, such as:

  •   the announcement of new products or product enhancements by us or our
competitors;

  •   developments concerning intellectual property rights and regulatory
approvals;

  •   variations in our and our competitors’ results of operations;

  •   changes in earnings estimates or recommendations by securities analysts,
if our common stock is covered by analysts;

  •   developments in the medical device industry;

  •   the results of product liability or intellectual property lawsuits;

  •   future issuances of common stock or other securities;

  •   the addition or departure of key personnel;

  •   announcements by us or our competitors of acquisitions, investments or
strategic alliances; and

  •   general market conditions and other factors, including factors unrelated
to our operating performance.

Further, the stock market in general, and the market for medical device
companies in particular, has recently experienced extreme price and volume
fluctuations. Continued market fluctuations could result in extreme volatility
in the price of our common stock, which could cause a decline in the value of
our common stock. Price volatility of our common stock might be worse if the
trading volume of our common stock is low.

Some or all of the “restricted” shares of our common stock issued to former
stockholders of SafeStitch in connection with the Share Exchange or held by
other of our stockholders may be offered from time to time in the open market
pursuant to an effective registration statement or Rule 144, and these sales may
have a depressive effect on the market for our common stock.

We have identified material weaknesses in our internal control over financial
reporting that may prevent us from being able to accurately report our financial
results or prevent fraud, which could harm our business and operating results,
the trading price of our stock and our access to capital.

Our management, with the participation of our Chief Executive Officer and our
then current, but now former, Chief Financial Officer evaluated the
effectiveness of the design and operation of the Company’s disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) or 15d-15(e)) as of
December 31, 2007. Based upon that evaluation, the Chief Executive Officer and
our former Chief Financial Officer concluded that, as of that date, the
Company’s disclosure controls and procedures were not effective at a reasonable
assurance level because of the identification of the material weakness in our
internal control over financial reporting described above and in more detail in
“Item 8A(T) — Controls and Procedures” contained in our Annual Report on Form
10-KSB, which is attached hereto as Exhibit B, as amended by our Amendment No. 1
to our Annual Report on Form 10-KSB/A, which is attached hereto as Exhibit C.

Upon identification of the material weakness, management advised our Audit
Committee of the issues encountered and management’s key decisions relating to
remediation efforts. Under the direction of our Chief Executive Officer and
former Chief Financial Officer, we developed a plan to remediate the material
weakness. Our Audit Committee reviewed, advised and concurred with management’s
plan of remediation, which includes the addition of employees who are trained in
the preparation of financial statements in accordance with GAAP and who have the
experience necessary to ensure that we have in place appropriate internal
control over financial reporting.

Section 404 of the Sarbanes-Oxley Act of 2002 requires that we establish and
maintain an adequate internal control structure and procedures for financial
reporting and assess on an on-going basis the design and operating effectiveness
of our internal control structure and procedures for financial reporting. We are
committed to continuously improving our internal control over financial
reporting, in order that we fully satisfy the requirements of Section 404 of the
Sarbanes-Oxley Act.

In connection with the audits of, and the issuance of a report on, our
consolidated financial statements for the years ended December 31, 2007 and
2006, our independent registered public accounting firm, Eisner LLP, also
communicated to our management and Audit Committee that certain matters
involving our internal controls amounted to a “material weakness”, as defined by
Rule 12b-2 under the Securities Exchange Act of 1934, as amended (referred to as
the Exchange Act). Eisner LLP was not engaged to perform an audit of our
internal control over financial reporting. Eisner LLP’s audits include
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of our internal
control over financial reporting. Accordingly, Eisner LLP did not express such
an opinion. This material weakness derived from our failure to maintain a
sufficient complement of personnel with the appropriate level of knowledge,
experience and training in the application of accounting principles generally
accepted in the U.S. (referred to as GAAP) and in internal control over
financial reporting commensurate with our financial reporting obligations under
the Exchange Act. We did not maintain effective controls over the presentation
of our consolidated financial statements and related disclosures in preparing
our consolidated financial statements

If we are unable to conclude that our internal control over financial reporting
is effective at any such time that we are required to attest to them, our
ability to obtain additional financing on favorable terms could be materially
and adversely affected, which, in turn, could materially and adversely affect
our business, our financial condition and the market value of our securities.

Trading of our common stock is limited and trading restrictions imposed on us by
applicable regulations and by lockup agreements we have entered into with our
principal stockholders may further reduce our trading, making it difficult for
our stockholders to sell their shares.

Trading of our common stock is currently conducted on the National Association
of Securities Dealers, Inc.’s, OTC Bulletin Board, or “OTC BB.” The liquidity of
our common stock is limited, not only in terms of the number of shares that can
be bought and sold at a given price, but also as it may be adversely affected by
delays in the timing of transactions and reduction in security analysts’ and the
media’s coverage of us, if at all.

Approximately 70% of the outstanding shares of our common stock are subject to
lockup agreements which limit sales for a two-year period ending September 4,
2009. These factors may result in lower prices for our common stock than might
otherwise be obtained and could also result in a larger spread between the bid
and ask prices for our common stock. In addition, without a large float, our
common stock is less liquid than the stock of companies with broader public
ownership and, as a result, the trading prices of our common stock may be more
volatile. In the absence of an active public trading market, an investor may be
unable to liquidate his investment in our common stock. Trading of a relatively
small volume of our common stock may have a greater impact on the trading price
of our stock than would be the case if our public float were larger. We cannot
predict the prices at which our common stock will trade in the future.

Future sales of common stock could reduce our stock price.

Sales by stockholders of substantial amounts of our shares of common stock, the
issuance of new shares of common stock by us or the perception that these sales
may occur in the future, could materially and adversely affect the market price
of our common stock. As described herein, substantially all of the former
members of SafeStitch LLC, who received an aggregate of 11,256,369 shares of our
common stock in connection with our acquisition of SafeStitch LLC, entered into
lock-up agreements with respect to such shares. Under the lock-up agreements,
these former members of SafeStitch LLC may not directly or indirectly sell or
otherwise transfer the shares of our common stock issued to them in connection
with our acquisition of SafeStitch LLC during the two-year period ending
September 4, 2009.

On September 4, 2009, the lock-up agreements entered into in connection with our
acquisition of SafeStitch LLC will expire, which will allow an aggregate of
11,256,369 shares of our common stock, or approximately 70% of our currently
outstanding shares of common stock, to be available for sale on the public
market, subject in most cases to the limitations of Rule 144 under the
Securities Act of 1933, as amended.

Because our common stock may be a “penny stock,” it may be more difficult for
investors to sell shares of our common stock, and the market price of our common
stock may be adversely affected.

Our common stock may be a “penny stock” if, among other things, the stock price
is below $5.00 per share, it is not listed on a national securities exchange or
approved for quotation on the Nasdaq Stock Market or any other national stock
exchange or it has not met certain net tangible asset or average revenue
requirements. Broker-dealers who sell penny stocks must provide purchasers of
these stocks with a standardized risk-disclosure document prepared by the
Securities and Exchange Commission (“SEC”). This document provides information
about penny stocks and the nature and level of risks involved in investing in
the penny-stock market. A broker must also give a purchaser, orally or in
writing, bid and offer quotations and information regarding broker and
salesperson compensation, make a written determination that the penny stock is a
suitable investment for the purchaser and obtain the purchaser’s written
agreement to the purchase. Broker-dealers must also provide customers that hold
penny stock in their accounts with such broker-dealer a monthly statement
containing price and market information relating to the penny stock. If a penny
stock is sold to an investor in violation of the penny stock rules, the investor
may be able to cancel its purchase and get its money back.

If applicable, the penny stock rules may make it difficult for investors to sell
their shares of our common stock. Because of the rules and restrictions
applicable to a penny stock, there is less trading in penny stocks and the
market price of our common stock may be adversely affected. Also, many brokers
choose not to participate in penny stock transactions. Accordingly, investors
may not always be able to resell their shares of our common stock publicly at
times and prices that they feel are appropriate.

Directors, executive officers, principal stockholders and affiliated entities
own a significant percentage of our capital stock, and they may make decisions
that you do not consider to be in the best interests of our stockholders.

As of the closing of the Share Exchange, our directors, executive officers,
principal stockholders and affiliated entities beneficially owned, in the
aggregate, over 80% of our outstanding voting securities. As a result, if some
or all of them acted together, they would have the ability to exert substantial
influence over the election of our board of directors and the outcome of issues
requiring approval by our stockholders. This concentration of ownership may also
have the effect of delaying or preventing a change in control of our company
that may be favored by other stockholders. This could prevent transactions in
which stockholders might otherwise recover a premium for their shares over
current market prices.

Compliance with changing regulations concerning corporate governance and public
disclosure may result in additional expenses.

There have been changing laws, regulations and standards relating to corporate
governance and public disclosure, including the Sarbanes-Oxley Act, new
regulations promulgated by the SEC and rules promulgated by the American Stock
Exchange (“AMEX”), the other national securities exchanges and the NASDAQ. These
new or changed laws, regulations and standards are subject to varying
interpretations in many cases due to their lack of specificity, and, as a
result, their application in practice may evolve over time as new guidance is
provided by regulatory and governing bodies, which could result in continuing
uncertainty regarding compliance matters and higher costs necessitated by
ongoing revisions to disclosure and governance practices. As a result, our
efforts to comply with evolving laws, regulations and standards are likely to
continue to result in increased general and administrative expenses and a
diversion of management time and attention from revenue-generating activities to
compliance activities. Our directors, Chief Executive Officer and Chief
Financial Officer could face an increased risk of personal liability in
connection with the performance of their duties. As a result, we may have
difficulty attracting and retaining qualified board of directors members and
executive officers, which could harm our business. If our efforts to comply with
new or changed laws, regulations and standards differ from the activities
intended by regulatory or governing bodies, we could be subject to liability
under applicable laws or our reputation may be harmed.

The Shares being purchased hereunder are not freely transferable.

The Shares being purchased hereunder are “restricted securities”, as defined in
Rule 144 promulgated under the Securities Act, and have no registration rights.
As such, they are not freely transferable and will not be transferable for a
significant period of time. Purchasers of the Shares must have the financial
capacity to hold such shares for a significant period of time and should not
expect to be able to transfer such shares for the next year and, perhaps longer.

8. Indemnification.

The Purchaser agrees to indemnify, defend and hold harmless the Company and its
stockholders, directors, executive officers and affiliates from and against all
liability, damage, losses, costs and expenses (including reasonable attorneys’
fees) which they may incur by reason of the failure of the Purchaser to fulfill
any of the terms and conditions of this Agreement, or by reason of any breach of
the representations and warranties made by the Purchaser herein or in any
document provided by the Purchaser to any executive officers, directors, the
Company or any of their Affiliates.

9. Miscellaneous.

9.1. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida.

9.2. Construction. In construing this Agreement, the singular shall be held to
include the plural, the plural shall include the singular, the use of any gender
shall include every other and all genders, and captions and paragraph headings
shall be disregarded. All of the parties to this Agreement have participated
fully in the negotiation and preparation hereof; and, accordingly, this
Agreement shall not be more strictly construed against any one of the parties
hereto.

9.3. Severability. The invalidity of any one or more of the words, phrases,
sentences, clauses, sections or subsections contained in this Agreement shall
not affect the enforceability of the remaining portions of this Agreement or any
part hereof, all of which are inserted conditionally on their being valid in
law, and, in the event that any one or more of the words, phrases, sentences,
clauses, sections or subsections contained in this Agreement shall be declared
invalid, this Agreement shall be construed as if such invalid word or words,
phrase or phrases, sentence or sentences, clause or clauses, section or
sections, or subsection or subsections had not been inserted.

9.4. Benefit of Representations, Warranties and Statements. The representations,
warranties and statements of the Purchaser set forth in this Agreement are also
being made for the benefit of successors of the Company, the Company’s
stockholders, the Board and the executive officers of the Company and present
and future controlling parties of the Company, and may be relied upon by them.

9.5. Section Headings. The section and other headings contained in this
Agreement are for reference purposes only and shall not affect the meaning or
interpretation of any provisions of this Agreement.

9.6. Counterparts; Facsimile Signatures. This Agreement may be executed in any
number of counterparts and by the several parties hereto in separate
counterparts, each of which shall be deemed to be an original and all of which
together shall be deemed to be one and the same instrument. Facsimile signatures
shall be deemed original signatures for all purposes of this Agreement.

9.7. Entire Agreement; Amendments. This Agreement constitutes the entire
agreement among the parties hereto with respect to the transaction contemplated
hereby and supersedes all prior agreements, understandings, negotiations and
discussions, both written and oral, among the parties hereto with respect to the
subject matter hereof. This Agreement may not be amended or modified in any way
except by a written instrument executed by all of the parties hereto.

2

[Signatures follow on next page]

IN WITNESS WHEREOF, The Purchaser hereby subscribes for the purchase of the
Shares of the Company described in this Agreement and is tendering herewith the
full amount of the capital contribution described herein.

Date:      , 2008

Purchaser

Signature

(name)(print)

(street)

(city, state, zip)

(country)

Purchaser Signature Page to Subscription Agreement

3

The foregoing Agreement has been accepted this      day of      , 2008.

 
SAFESTITCH MEDICAL, INC.

 
By:     
Jeffrey G. Spragens
Chief Executive Officer and President

Company Signature Page to Subscription Agreement

4

EXHIBIT A

INFORMATION STATEMENT

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EXHIBIT B

ANNUAL REPORT ON FORM 10-KSB

FOR THE YEAR ENDED DECEMBER 31, 2007

6

EXHIBIT C

AMENDMENT NO. 1
TO
ANNUAL REPORT ON FORM 10-KSB/A

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EXHIBIT D

CURRENT REPORT ON FORM 8-K

AS FILED WITH THE SEC ON APRIL 4, 2008

8

EXHIBIT E

CURRENT REPORT ON FORM 8-K

AS FILED WITH THE SEC ON APRIL 24, 2008

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