##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, DC. 20549
 FORM 10-Q
 
  þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 for the Quarterly Period ended September 30, 2010
 or
 o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 for the Transition Period from  to
 Commission File Number 0-19437
 SAFESTITCH MEDICAL, INC.
   Delaware
    
    11-2962080(State or other jurisdiction of
    
    (I.R.S. employer identification no.)incorporation or organization)
 4400 Biscayne Blvd., Suite 670, Miami, Florida
    
    33137(Address of principal executive offices)
    
    (Zip code)
 (305) 575-4600
  þ o
  o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ
  o þ




---



##### 



SAFESTITCH MEDICAL, INC.
(A Developmental Stage Company)
 TABLE OF CONTENTS FOR FORM 10-Q
 PART I. FINANCIAL INFORMATIONITEM 1. FINANCIAL STATEMENTS
    
    
    3Condensed Consolidated Balance Sheets as of September 30, 2010 (unaudited) and December 31, 2009
    
    
    3Unaudited Condensed Consolidated Statements of Operations for the Three and Nine Months ended September 30, 2010 and 2009, and for the period from September 15, 2005 (inception) to
September 30, 2010
    
    
    4Condensed Consolidated Statements of Stockholders Equity (Deficit) for the period from September 15, 2005 (inception) through September 30, 2010 (unaudited)
    
    
    5Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months ended September 30, 2010 and 2009, and for the period from September 15, 2005 (inception) to September 30, 2010
    
    
    6Notes to unaudited condensed consolidated financial statements
    
    
    7ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    
    17ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    20ITEM 4. CONTROLS AND PROCEDURES
    
    
    20PART II. OTHER INFORMATIONITEM 1. LEGAL PROCEEDINGS
    
    
    21ITEM 1A. RISK FACTORS
    
    
    21ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
    
    
    21ITEM 3. DEFAULTS UPON SENIOR SECURITIES
    
    
    21ITEM 4. (REMOVED AND RESERVED)
    
    
    21ITEM 5. OTHER INFORMATION
    
    
    21ITEM 6. EXHIBITS
    
    
    21SIGNATURES
    
    
    22Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   2




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##### Table of Contents



SAFESTITCH MEDICAL, INC.
 (A Developmental Stage Company)
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
  September 30,
    
    
    December 31,2010
    
    
    2009(Unaudited)ASSETSCURRENT ASSETSCash and cash equivalents
    
    $
    4,152
    
    
    $
    871Accounts receivable  trade
    
    
    
    
    
    
    Other receivable  related-party
    
    
    49
    
    
    
    21Prepaid expenses
    
    
    49
    
    
    
    131Inventories
    
    
    123
    
    
    
    Total Current Assets
    
    
    4,373
    
    
    
    1,023FIXED ASSETSProperty and equipment, net
    
    
    365
    
    
    
    147OTHER ASSETSSecurity deposits
    
    
    2
    
    
    
    2Deferred financing costs, net
    
    
    77
    
    
    
    255Total Other Assets
    
    
    79
    
    
    
    257TOTAL ASSETS
    
    $
    4,817
    
    
    $
    1,427LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIESAccounts payable and accrued liabilities
    
    $
    243
    
    
    $
    93Notes payable (Note 5)
    
    
    
    
    
    
    50Total Current Liabilities
    
    
    243
    
    
    
    143Commitments and contingencies (Note 8)
    
    
    
    
    
    
    STOCKHOLDERS EQUITYPreferred stock, $0.01 par value per share, 25,000,000 shares authorized
10% Series A Cumulative Convertible Preferred Stock, 4,000,000 shares
authorized, 0 and 2,000,000 shares issued and outstanding,
respectively; liquidation preference $0 and $2,088, respectively
    
    
    
    
    
    
    20Common stock, $0.001 par value per share, 225,000,000 shares authorized,
28,003,755 and 17,962,718 shares issued and outstanding, respectively
    
    
    28
    
    
    
    18Additional paid-in capital
    
    
    20,316
    
    
    
    12,974Deficit accumulated during the development stage
    
    
    (15,770
    )
    
    
    (11,728
    )Total Stockholders Equity
    
    
    4,574
    
    
    
    1,284TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    4,817
    
    
    $
    1,427
   3




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##### Table of Contents



SAFESTITCH MEDICAL, INC.
 (A Developmental Stage Company)
 
 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
  September 15,2005Three Months Ended
    
    
    Nine Months Ended
    
    
    (Inception) toSeptember 30,
    
    
    September 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009
    
    
    2010Revenues
    
    $
    (2
    )
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Cost of sales
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Gross margin
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating costs and expensesResearch and development
    
    
    1,026
    
    
    
    258
    
    
    
    2,106
    
    
    
    1,056
    
    
    
    8,949Selling, general and administrative
    
    
    712
    
    
    
    324
    
    
    
    1,758
    
    
    
    1,072
    
    
    
    5,830Total operating costs and expenses
    
    
    1,738
    
    
    
    582
    
    
    
    3,864
    
    
    
    2,128
    
    
    
    14,779Operating loss
    
    
    (1,739
    )
    
    
    (582
    )
    
    
    (3,864
    )
    
    
    (2,128
    )
    
    
    (14,779
    )Other income and expenseOther income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    903Interest income (expense), net
    
    
    1
    
    
    
    (6
    )
    
    
    1
    
    
    
    (19
    )
    
    
    14Amortization of debt issuance expense
    
    
    (26
    )
    
    
    (127
    )
    
    
    (179
    )
    
    
    (467
    )
    
    
    (1,908
    )Total other income and expense
    
    
    (25
    )
    
    
    (133
    )
    
    
    (178
    )
    
    
    (486
    )
    
    
    (991
    )Loss before income tax
    
    
    (1,764
    )
    
    
    (715
    )
    
    
    (4,042
    )
    
    
    (2,614
    )
    
    
    (15,770
    )Provision for income tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net loss
    
    $
    (1,764
    )
    
    $
    (715
    )
    
    $
    (4,042
    )
    
    $
    (2,614
    )
    
    $
    (15,770
    )Loss attributable to common stockholders and loss per common share:Net loss
    
    
    (1,764
    )
    
    
    (715
    )
    
    
    (4,042
    )
    
    
    (2,614
    )
    
    
    (15,770
    )Deemed dividends  Series A Preferred Stock
    
    
    (4,301
    )
    
    
    (200
    )
    
    
    (4,801
    )
    
    
    (200
    )
    
    
    (5,001
    )Dividends  Series A Preferred Stock
    
    
    (80
    )
    
    
    
    
    
    
    (278
    )
    
    
    
    
    
    
    (366
    )Net loss attributable to common stockholders
    
    $
    (6,145
    )
    
    $
    (915
    )
    
    $
    (9,121
    )
    
    $
    (2,814
    )
    
    $
    (21,137
    )Weighted average shares outstanding, basic and diluted
    
    
    24,041
    
    
    
    17,963
    
    
    
    20,285
    
    
    
    17,963Net loss per basic and diluted share
    
    $
    (0.26
    )
    
    $
    (0.05
    )
    
    $
    (0.45
    )
    
    $
    (0.16
    )
   4




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##### Table of Contents



SAFESTITCH MEDICAL, INC.
 (A Developmental Stage Company)
 
 CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
 FOR THE PERIOD SEPTEMBER 15, 2005 (INCEPTION) THROUGH SEPTEMBER 30, 2010
  DeficitAccumulatedAdditional
    
    
    During thePreferred Stock
    
    
    Common Stock
    
    
    Paid-in
    
    
    DevelopmentShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    Stage
    
    
    TotalInception  September 15, 2005
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Capital contributed
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    1Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (76
    )
    
    
    (76
    )Balance at December 31, 2005
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    $
    1
    
    
    $
    (76
    )
    
    $
    (75
    )Capital contributed
    
    
    
    
    
    
    
    
    
    
    11,256
    
    
    
    11
    
    
    
    1,493
    
    
    
    
    
    
    
    1,504Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,060
    )
    
    
    (1,060
    )Balance at December 31, 2006
    
    
    
    
    
    $
    
    
    
    
    11,256
    
    
    $
    11
    
    
    $
    1,494
    
    
    $
    (1,136
    )
    
    $
    369Exercise of options (CTS)-September 23, 2007 at $0.79 per share
    
    
    
    
    
    
    
    
    
    
    42
    
    
    
    
    
    
    
    35
    
    
    
    
    
    
    
    35Stock-based compensation-September 4, 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    77
    
    
    
    
    
    
    
    77Issuance of shares in recapitalization  September 4, 2007 at $0.64 per share
    
    
    
    
    
    
    
    
    
    
    4,795
    
    
    
    5
    
    
    
    3,078
    
    
    
    
    
    
    
    3,083SafeStitch expenses associated with recapitalization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (156
    )
    
    
    
    
    
    
    (156
    )Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    65
    
    
    
    
    
    
    
    65Warrants issued in connection with credit facility-September 4, 2007 at $2.46 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,985
    
    
    
    
    
    
    
    1,985Rule 16 payment received
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    4Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,041
    )
    
    
    (3,041
    )Balance at December 31, 2007
    
    
    
    
    
    $
    
    
    
    
    16,093
    
    
    $
    16
    
    
    $
    6,582
    
    
    $
    (4,177
    )
    
    $
    2,421Issuance of common shares in private offering  May 2008 at $2.15 per share, net of offering costs
    
    
    
    
    
    
    
    
    
    
    1,862
    
    
    
    2
    
    
    
    3,986
    
    
    
    
    
    
    
    3,988Issuance of common shares as repayment of stockholder note-December 30, 2008 at $1.22 per share
    
    
    
    
    
    
    
    
    
    
    8
    
    
    
    
    
    
    
    10
    
    
    
    
    
    
    
    10Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    239
    
    
    
    
    
    
    
    239Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,185
    )
    
    
    (5,185
    )Balance at December 31, 2008
    
    
    
    
    
    $
    
    
    
    
    17,963
    
    
    $
    18
    
    
    $
    10,817
    
    
    $
    (9,362
    )
    
    $
    1,473Issuance of Series A Preferred Stock in July 2009 at $1.00 per share, net of offering costs
    
    
    2,000
    
    
    
    20
    
    
    
    
    
    
    
    
    
    
    
    1,962
    
    
    
    
    
    
    
    1,982Fair value of beneficial conversion feature of Series A Preferred Stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    200
    
    
    
    
    
    
    
    200Deemed dividend to Series A Preferred Stockholders, charged to additional paid-in capital in the
absence of retained earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (200
    )
    
    
    
    
    
    
    (200
    )Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    195
    
    
    
    
    
    
    
    195Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,366
    )
    
    
    (2,366
    )Balance at December 31, 2009
    
    
    2,000
    
    
    $
    20
    
    
    
    17,963
    
    
    $
    18
    
    
    $
    12,974
    
    
    $
    (11,728
    )
    
    $
    1,284Issuance of Series A Preferred Stock in January 2010 at $1.00 per share, net of offering costs
    
    
    2,000
    
    
    
    20
    
    
    
    
    
    
    
    
    
    
    
    1,978
    
    
    
    
    
    
    
    1,998Fair value of beneficial conversion feature of Series A Preferred Stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    500
    
    
    
    
    
    
    
    500Deemed dividend to Series A Preferred Stockholders, charged to additional paid-in capital in the
absence of retained earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (500
    )
    
    
    
    
    
    
    (500
    )Issuance of common shares in private offering  June 2010 at $1.00 per share, net of offering costs
    
    
    
    
    
    
    
    
    
    
    4,978
    
    
    
    5
    
    
    
    4,969
    
    
    
    
    
    
    
    4,974Conversion of 4,000 shares of Series A Preferred Stock and accumulated dividends into 4,366 shares
of Common Stock in September 2010
    
    
    (4,000
    )
    
    
    (40
    )
    
    
    4,366
    
    
    
    4
    
    
    
    36
    
    
    
    
    
    
    
    Issuance of 697 shares of Common Stock as Consideration Shares in September 2010
    
    
    
    
    
    
    
    
    
    
    697
    
    
    
    1
    
    
    
    (1
    )
    
    
    
    
    
    
    Intrinsic value of 5,063 aggregate shares of Common Stock issued on conversion of Series A
Preferred Stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,301
    
    
    
    
    
    
    
    4,301Dividend paid to Series A Preferred Stockholders on conversion, charged to additional paid-in
capital in the absence of retained earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,301
    )
    
    
    
    
    
    
    (4,301
    )Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    360
    
    
    
    
    
    
    
    360Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,042
    )
    
    
    (4,042
    )Balance at September 30, 2010 (unaudited)
    
    
    
    
    
    $
    
    
    
    
    28,004
    
    
    $
    28
    
    
    $
    20,316
    
    
    $
    (15,770
    )
    
    $
    4,574
   5




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##### Table of Contents



SAFESTITCH MEDICAL, INC.
 (A Developmental Stage Company)
 
 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
  September 15,Nine months Ended
    
    
    2005 (Inception) toSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010OPERATING ACTIVITIESNet loss
    
    $
    (4,042
    )
    
    $
    (2,614
    )
    
    $
    (15,770
    )Adjustments to reconcile net loss to net cash used in operating activities:Amortization of deferred finance costs
    
    
    179
    
    
    
    467
    
    
    
    1,909Stock-based compensation expense
    
    
    360
    
    
    
    142
    
    
    
    859Stock-based compensation expense related to Share Exchange
    
    
    
    
    
    
    
    
    
    
    77Depreciation and amortization
    
    
    59
    
    
    
    42
    
    
    
    174Gain on sale of TruePosition investment
    
    
    
    
    
    
    
    
    
    
    (903
    )Inventory adjustments (Note 8)
    
    
    23
    
    
    
    
    
    
    
    23Changes in operating assets and liabilitiesInventories
    
    
    (146
    )
    
    
    
    
    
    
    (146
    )Other current assets
    
    
    53
    
    
    
    108
    
    
    
    (79
    )Other assets
    
    
    
    
    
    
    
    
    
    
    (2
    )Accounts payable and accrued liabilities
    
    
    150
    
    
    
    (73
    )
    
    
    (42
    )NET CASH USED IN OPERATING ACTIVITIES
    
    
    (3,364
    )
    
    
    (1,928
    )
    
    
    (13,900
    )INVESTING ACTIVITIESPurchase of equipment
    
    
    (277
    )
    
    
    (36
    )
    
    
    (539
    )Proceeds from sale of True Position investment
    
    
    
    
    
    
    
    
    
    
    903Payment received under Rule 16b
    
    
    
    
    
    
    
    
    
    
    4NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES
    
    
    (277
    )
    
    
    (36
    )
    
    
    368FINANCING ACTIVITIESNet cash provided in connection with the acquisition of SafeStitch LLC
    
    
    
    
    
    
    
    
    
    
    3,192Issuance of Common Stock, net of offering costs
    
    
    4,974
    
    
    
    
    
    
    
    8,962Issuance of Preferred Stock, net of offering costs
    
    
    1,998
    
    
    
    1,982
    
    
    
    3,980Capital contributions
    
    
    
    
    
    
    
    
    
    
    1,431Proceeds from notes payable
    
    
    
    
    
    
    
    
    
    
    71Repayment of notes payable
    
    
    (50
    )
    
    
    
    
    
    
    (71
    )Proceeds from stockholder loans
    
    
    
    
    
    
    900
    
    
    
    2,860Repayment of stockholder loans
    
    
    
    
    
    
    (900
    )
    
    
    (2,776
    )Exercise of options
    
    
    
    
    
    
    
    
    
    
    35NET CASH PROVIDED BY FINANCING ACTIVITIES
    
    
    6,922
    
    
    
    1,982
    
    
    
    17,684NET INCREASE IN CASH AND CASH EQUIVALENTS
    
    
    3,281
    
    
    
    18
    
    
    
    4,152CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
    
    
    871
    
    
    
    561
    
    
    
    CASH AND CASH EQUIVALENTS AT END OF PERIOD
    
    $
    4,152
    
    
    $
    579
    
    
    $
    4,152Supplemental disclosures:Cash paid for interest
    
    $
    
    
    
    $
    19
    
    
    $
    64Non cash activities:Non-cash dividend upon issuance and conversion of Preferred Stock
    
    $
    4,801
    
    
    $
    200
    
    
    $
    5,001Stockholder loans contributed to capital
    
    $
    
    
    
    $
    
    
    
    $
    84Warrants issued in connection with credit facility
    
    $
    
    
    
    $
    
    
    
    $
    1,985
   6




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SAFESTITCH MEDICAL, INC.  (A Developmental Stage Company)
 
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1  BASIS OF PRESENTATION AND LIQUIDITY
 10-K
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SAFESTITCH MEDICAL, INC.  (A Developmental Stage Company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Consolidation.
 Use of estimates.
 Cash and cash equivalents.
 Allowances for Doubtful Accounts.
 Inventories. ®
 Property and equipment.
 Revenue Recognition.
 Advertising Costs.
 Research and development.
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SAFESTITCH MEDICAL, INC.  (A Developmental Stage Company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 Patent costs.
 Stock-based compensation.
 Fair value of financial instruments.
 Long-lived assets.
 Income taxes.
 Comprehensive income (loss).
 NOTE 3  PROPERTY AND EQUIPMENT
  September 30,
    
    
    December 31,Estimated Useful Lives
    
    2010
    
    
    2009Machinery and equipment
    
    5 years
    
    $
    452,000
    
    
    $
    190,000Furniture, fixtures and leasehold improvements
    
    3-5 years
    
    
    50,000
    
    
    
    35,000Software
    
    3-5 years
    
    
    37,000
    
    
    
    37,000539,000
    
    
    
    262,000Accumulated depreciation and amortization
    
    
    
    
    (174,000
    )
    
    
    (115,000
    )Property and equipment, net
    
    
    
    $
    365,000
    
    
    $
    147,000
  NOTE 4  STOCK-BASED COMPENSATION
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SAFESTITCH MEDICAL, INC.  (A Developmental Stage Company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
   Nine months ended
    
    Nine months endedSeptember 30, 2010
    
    September 30, 2009Expected volatility
    
    87.09% - 108.28%
    
    74.59% - 86.43%Expected dividend yield
    
    0.00%
    
    0.00%Risk-free interest rate
    
    1.21% - 3.11%
    
    1.39% - 1.79%Expected life
    
    4.0 - 7.0 years
    
    4.0 - 5.5 yearsForfeiture rate
    
    0% - 5.00%
    
    2.50%
  WeightedWeighted
    
    
    AverageAverage
    
    
    Remaining
    
    
    AggregateExercise
    
    
    Contractual
    
    
    IntrinsicShares
    
    
    Price
    
    
    Term (Years)
    
    
    ValueOutstanding at December 31, 2009
    
    
    615,167
    
    
    $
    1.63
    
    
    
    5.98Granted
    
    
    700,000
    
    
    $
    1.20
    
    
    
    6.42Exercised
    
    
    
    
    
    
    Canceled or expired
    
    
    (30,500
    )
    
    $
    2.24Outstanding at September 30, 2010
    
    
    1,284,667
    
    
    $
    1.39
    
    
    
    5.95
    
    
    $
    987,920Exercisable at September 30, 2010
    
    
    427,667
    
    
    $
    1.78
    
    
    
    5.63
    
    
    $
    253,870Vested and expected to vest at
September 30, 2010
    
    
    1,236,248
    
    
    $
    1.39
    
    
    
    5.95
    
    
    $
    945,997
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SAFESTITCH MEDICAL, INC.  (A Developmental Stage Company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    NOTE 5  DEBT
  Credit Facility
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SAFESTITCH MEDICAL, INC.  (A Developmental Stage Company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 6  CAPITAL TRANSACTIONS
 2010 Private Placement of Common Stock.
 10.0% Series A Cumulative Convertible Preferred Stock. pari passu pari passu
  2009 Issuance of Series A Preferred Stock.
 2010 Issuance of Series A Preferred Stock.
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SAFESTITCH MEDICAL, INC.  (A Developmental Stage Company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  2010 Conversion of Series A Preferred Stock.
   NOTE 7  BASIC AND DILUTED NET LOSS PER SHARE
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SAFESTITCH MEDICAL, INC.  (A Developmental Stage Company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 September 30, 2010
    
    
    September 30, 2009Stock options
    
    
    1,284,667
    
    
    
    615,167Stock warrants
    
    
    805,521
    
    
    
    805,521Series A Preferred Stock
    
    
    
    
    
    
    2,038,333Total
    
    
    2,090,188
    
    
    
    3,459,021
  NOTE 8  COMMITMENTS AND CONTINGENCIES
     NOTE 9  AGREEMENT WITH CREIGHTON UNIVERSITY
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SAFESTITCH MEDICAL, INC.  (A Developmental Stage Company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  NOTE 10  INCOME TAXES
    NOTE 11  CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
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SAFESTITCH MEDICAL, INC.  (A Developmental Stage Company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
   NOTE 12  EMPLOYEE BENEFIT PLANS
  NOTE 13  RECENT ACCOUNTING PRONOUNCEMENTS
 Subsequent Events 
 NOTE 14  SUBSEQUENT EVENTS
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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
 This Quarterly Report on Form 10-Q contains certain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995 (PSLRA), Section 27A of the
Securities Act of 1933, as amended (the Securities Act), and Section 21E of the Securities
Exchange Act of 1934, as amended, (the Exchange Act), about our expectations, beliefs or
intentions regarding our product development and commercialization efforts, business, financial
condition, results of operations, strategies or prospects. You can identify forward-looking
statements by the fact that these statements do not relate strictly to historical or current
matters. Rather, forward-looking statements relate to anticipated or expected events, activities,
trends or results as of the date they are made. Because forward-looking statements relate to
matters that have not yet occurred, these statements are inherently subject to risks and
uncertainties that could cause our actual results to differ materially from any future results
expressed or implied by the forward-looking statements. Many factors could cause our actual
operations or results to differ materially from the operations and results anticipated in
forward-looking statements. These factors include, but are not limited to: our ability to obtain
additional funding to continue our operations; our ability to successfully commercialize our
existing products, including improving the quality of and recommencing manufacturing and sales of
the AMID Stapler ® ; our ability to successfully develop, clinically test and
commercialize our product candidates; the timing and outcome of the regulatory review process for
our product candidates; changes in the health care and regulatory environments of the United States
and other countries in which we intend to operate; our ability to attract and retain key
management, marketing and scientific personnel; competition; our ability to successfully prepare
file, prosecute, maintain, defend and enforce patent claims and other intellectual property rights;
our ability to successfully transition from a research and development company to a marketing,
sales and distribution concern, and our ability to identify and pursue development of additional
product candidates, as well as the factors contained in Item 1A  Risk Factors of our Annual
Report on Form 10-K . We do not undertake any obligation to update forward-looking statements,
except as required by applicable law. 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.
 Overview
  in
vivo ex vivo ex vivo in vivo ® TM
 Products and Product Candidates
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Critical Accounting Policies and Estimates
  Results of Operations
   Three and Nine months ended September 30, 2010 Compared to Three and Nine months Ended
September 30, 2009
 Revenue and Cost of Sales.
 Research and Development Costs and Expenses.
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Selling, General and Administrative Costs and Expenses.
 Liquidity and Capital Resources
    19




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Item 3. Quantitative and Qualitative Disclosures About Market Risk.
  
 Item 4. Controls and Procedures.
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PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings.
  
 Item 1A. Risk Factors.
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
  
 Item 3. Defaults Upon Senior Securities.
  
 Item 4. (Removed and Reserved).
 
 Item 5. Other Information.
  
 Item 6. Exhibits.
 Exhibits:
 31.1
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a)31.2
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a)32.1
    
    Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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SIGNATURES
  SAFESTITCH MEDICAL, INC.Date:  November 12, 2010
    By:
    /s/ Jeffrey G. SpragensJeffrey G. SpragensPresident and Chief Executive OfficerDate: November 12, 2010
    By:
    /s/ Adam S. JacksonAdam S. JacksonChief Financial Officer  22