TRANSENTERIX : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-K)

The following discussion of our financial condition and results of operations
should be read in conjunction with our "Risk Factors" and our consolidated
financial statements and the related notes to our consolidated financial
statements included in this Annual Report. The following discussion contains
forward-looking statements. See cautionary note regarding "Forward-Looking
Statements" at the beginning of this Annual Report.
Overview
TransEnterix is a medical device company that is digitizing the interface
between the surgeon and the patient in laparoscopy to increase control and
reduce surgical variability in today's value-based healthcare environment. The
Company is focused on the market development for and commercialization of the
Senhance® Surgical System, which digitizes laparoscopic minimally invasive
surgery, or MIS. The Senhance System is the first and only digital, multi-port
laparoscopic platform designed to maintain laparoscopic MIS standards while
providing digital benefits such as haptic feedback, robotic precision,
comfortable ergonomics, advanced instrumentation including 3 millimeter
microlaparoscopic instruments, eye-sensing camera control and reusable standard
instruments to help maintain per-procedure costs similar to traditional
laparoscopy.
The Senhance System is available for sale in Europe, the United States, Japan,
Taiwan and select other countries.
•      The Senhance System has a CE Mark in Europe for adult and pediatric

laparoscopic abdominal and pelvic surgery, as well as limited thoracic

surgeries excluding cardiac and vascular surgery.

• In the United States, the Company has received 510(k) clearance from the

       FDA for use of the Senhance System in laparoscopic colorectal and
       gynecologic surgery in a total of 28 indicated procedures, including
       benign and oncologic procedures, laparoscopic inguinal hernia and
       laparoscopic cholecystectomy (gallbladder removal) surgery.

• In Japan, the Company has received regulatory approval and reimbursement

for 98 laparoscopic procedures.

During 2018 and 2019, we successfully obtained FDA clearance and CE Mark for our
3 millimeter diameter instruments, our Senhance ultrasonic system, our 3
millimeter and 5 millimeter hooks, and the Senhance articulating system. The 3
millimeter instruments enable the Senhance System to be used for
microlaparoscopic surgeries, allowing for tiny incisions. The ultrasonic system
is an advanced energy device used to deliver controlled energy to ligate and
divide tissue, while minimizing thermal injury to surrounding structures. The
Senhance articulating system was launched in Europe in November 2019 and we are
evaluating our pathway forward to launch such a system in the United States with
a planned submission for US clearance at the end of 2020.

In January 2020, we submitted an application to the FDA seeking clearance of the
first machine vision system for robotic surgery (Intelligent Surgical Unit). The
Company believes it is the first such FDA submission seeking clearance for
machine vision technology in abdominal robotic surgery. On March 13, 2020, the
Company announced that it has received FDA clearance for the Intelligent
Surgical Unit.

In February 2020, we received CE Mark for the Senhance System and related instruments for pediatric use indications in CE Mark territories.

On October 17, 2019, the Company announced that it has engaged J.P. Morgan
Securities LLC to assist the Board of Directors in considering strategic
alternatives for the Company to enhance stockholder value, including, but not
limited to a sale of the Company, a financing of the Company, a strategic
partnership or collaboration or some other form of commercial relationship. In
addition, the Company announced the implementation of a restructuring plan to
reduce operating expenses as it continues the global market development of the
Senhance platform.
On October 31, 2018, the Company acquired the assets, intellectual property and
highly experienced multidisciplinary personnel of MST Medical Surgical
Technologies, Inc., or MST, an Israeli-based medical device company. Through
this acquisition, the Company acquired MST's AutoLap™ technology, one of the
only image-guided robotic scope positioning systems with FDA clearance and CE
Mark. The Company believes MST's image analytics technology will accelerate and
drive meaningful Senhance System developments, and allow it to expand the
Senhance System to add augmented, intelligent vision capability. On October 15,
2019, the Company announced the sale of certain AutoLap assets, as discussed in
the "Sale of AutoLap Assets" section below.
The Company has also developed the SurgiBot System, a single-port, robotically
enhanced laparoscopic surgical platform. In December 2017, the Company entered
into an agreement with Great Belief International Limited, or GBIL, to advance
the SurgiBot System towards global commercialization. The agreement transferred
ownership of the SurgiBot System assets, while the Company retained the option
to distribute or co-distribute the SurgiBot System outside of China. GBIL
intends to have the SurgiBot System

                                       30

--------------------------------------------------------------------------------

Table of Contents

manufactured in China and obtain Chinese regulatory clearance from the China
Food and Drug Administration while entering into a nationwide distribution
agreement with China National Scientific and Instruments and Materials Company
for the Chinese market. The agreement provides the Company with proceeds of at
least $29 million, of which $15 million has been received to date. The remaining
$14.0 million, representing minimum royalties, will be paid beginning at the
earlier of receipt of Chinese regulatory approval or March 2023.
The Company believes that future outcomes of minimally invasive laparoscopic
surgery will be enhanced through its combination of more advanced tools and
robotic functionality, which are designed to: (i) empower surgeons with improved
precision, dexterity and visualization; (ii) improve patient satisfaction and
enable a desirable post-operative recovery; and (iii) provide a cost-effective
robotic system, compared to existing alternatives today, for a wide range of
clinical indications.
From our inception, we devoted a substantial percentage of our resources to
research and development and start-up activities, consisting primarily of
product design and development, clinical studies, manufacturing, recruiting
qualified personnel and raising capital. We expect to continue to invest in
research and development and market development as we implement our strategy.
Since inception, we have been unprofitable. As of December 31, 2019, we had an
accumulated deficit of $663.6 million.
Due to a decline in market conditions and changes in our forecast, the Company
tested its goodwill and in-process research & development, or IPR&D, for
potential impairment as of September 30, 2019. During the third quarter of 2019,
the Company determined that the carrying value of both its goodwill and IPR&D
were impaired, and recorded impairment charges of $79.0 million and $7.9
million, respectively.
We operate in one business segment.
On December 11, 2019, following receipt of approval from stockholders at a
special meeting of stockholders held on the same day, the Company filed an
amendment to our Amended and Restated Certificate of Incorporation to effect a
reverse stock split of the Company's common stock at a ratio of
one-for-thirteen, or the Reverse Stock Split. The Company's common stock began
trading on a split-adjusted basis on NYSE American on the morning of December
12, 2019. No fractional shares were issued in connection with the Reverse Stock
Split. Instead, the Company rounded up each fractional share resulting from the
reverse stock split to the nearest whole share. As a result of the Reverse Stock
Split, the Company's outstanding common stock decreased from approximately 261.9
million shares to approximately 20.2 million shares (without giving effect to
the rounding up for each fractional share).
Unless otherwise noted, all share and per share data referenced in this Annual
Report have been retroactively adjusted to reflect the Reverse Stock Split.
Certain amounts in the financial statements, the notes thereto, and elsewhere in
this Annual Report, may be slightly different than previously reported due to
rounding of fractional shares as a result of the Reverse Stock Split.
Restructuring
Despite the number of advances and regulatory clearances received in 2018 and
2019, the Company's Senhance System sales in 2019 were disappointing. Adoption
of new technologies, particularly for capital intensive devices such as the
Senhance System can be slow and uneven as market development and commercial
development is time-consuming and expensive. The Company has determined to
refocus its resources and efforts in 2020 on market development activities to
increase awareness of:
• the benefits of the use of the Senhance System in laparoscopic surgery;

• the digitization of high volume procedures using the Senhance System;

•            the indications for use, including pediatric indications of use in
             CE Mark territories;

• the overall cost efficiency of the Senhance System

We intend to focus on markets with high utilization of laparoscopic technique,
including Japan, Western Europe and the United States. Our focus will be on (1)
increasing the number of placements of the Senhance System, not necessarily
through sales, but through leasing arrangements, (2) increasing the number of
procedures conducted using the Senhance System quarter over quarter, and (3)
solidifying key opinion leader support and publications related to the use of
the Senhance System in laparoscopic procedures. During this period we will not
focus on revenue targets, especially in the United States.
During the fourth quarter of 2019, we announced the implementation of a
restructuring plan to reduce operating expenses as we continue the global market
development of the Senhance platform. Under the restructuring plan, we reduced
headcount primarily in the sales and marketing functions and determined that the
carrying value of our inventory exceeded the net realizable value due

                                       31

--------------------------------------------------------------------------------

Table of Contents

to a decrease in expected sales. The restructuring charges amounted to $8.8
million, of which $7.4 million was an inventory write down and was included in
cost of product revenue and $1.4 million related to employee severance costs and
was included as restructuring and other charges in the consolidated statements
of operations and comprehensive loss, during the fourth quarter of 2019. Future
payments under the restructuring plan are expected to conclude in 2020.
During March 2020, we continued our restructuring with additional headcount
reductions which resulted in $0.8 million related to severance costs which are
expected to be paid in 2020 and 2021.
Debt Transactions
On May 23, 2018, the Company and its domestic subsidiaries, as co-borrowers,
entered into a Loan and Security Agreement, or the Hercules Loan Agreement, with
several banks and other financial institutions or entities from time to time
party to the Loan Agreement, or collectively, the Lender, and Hercules Capital,
Inc., as administrative agent and collateral agent, or the Agent. Under the
Hercules Loan Agreement, the Lender agreed to make certain term loans to the
Company in the aggregate principal amount of up to $40.0 million. Funding of the
first $20.0 million tranche occurred on May 23, 2018, or the Initial Funding
Date. On October 23, 2018, the Lender funded the second tranche of $10.0 million
under the Hercules Loan Agreement. The Company was entitled to make
interest-only payments until December 1, 2020, and at the end of the
interest-only period, the Company would have been required to repay the term
loans over an eighteen-month period based on an eighteen-month amortization
schedule, with a final maturity date of June 1, 2022. The term loans were
required to be repaid if the term loans are accelerated following an event of
default.

On May 7, 2019, the parties executed an amendment to the Hercules Loan
Agreement, or the Hercules Amendment, effective April 30, 2019, under which the
Hercules Loan Agreement was amended to eliminate the availability of the Tranche
III loan facility, add a new Tranche IV loan facility of up to $20.0 million,
revise certain financial covenants and make other changes.  The availability of
advances under the Tranche IV Loan was not milestone-based, rather the Company
could request advances in minimum $5.0 million increments at any time during the
period from July 1, 2019 through December 31, 2020, subject to the funding
discretion of the Lender. The monthly trailing six month net revenue financial
covenant was amended to be tested quarterly and to change the projected net
revenue percentage to be met for the six months ending on the last day of each
fiscal quarter.  If such quarterly financial covenant was not achieved as of the
last day of any fiscal quarter, as tested on the thirtieth day after quarter
end, the Company must have complied with the waiver conditions in the Hercules
Amendment from such test date until the next quarterly test date. The Amendment
was treated as a debt modification for accounting purposes.

In connection with the entry into an agreement to sell certain AutoLap assets,
the Company commenced discussions with the Agent in order to obtain the required
consent of the Agent and the Lender with respect to such AutoLap assets sale. In
connection with obtaining such consent, the Company entered into the Consent and
Second Amendment to the Loan and Security Agreement on July 10, 2019, or the
Hercules Second Amendment. Under the Hercules Second Amendment, in consideration
for the consent to the sale of, and the release of the Lender's security
interest on, the AutoLap assets, the Company reduced its indebtedness under the
Hercules Loan Agreement by repaying $15.0 million of the $30.0 million of
outstanding indebtedness thereunder, without any prepayment penalties, amendment
fee or acceleration of the end of term charges, and received adjustments to the
quarterly financial covenants and related waiver conditions to reflect the
decreased outstanding indebtedness. The Amendment was treated as a debt
modification for accounting purposes.
Under the Hercules Second Amendment, the applicable waiver condition for fiscal
year 2019 was changed to maintenance of unrestricted cash equal to $7.0 million.
The term loans bore interest at a rate equal to the greater of (i) 9.55% per
annum, or the Fixed Rate, and (ii) the Fixed Rate plus the prime rate (as
reported in The Wall Street Journal) minus 5.00%. On the Initial Funding Date,
the Company was obligated to pay a facility fee of $0.4 million, recorded as a
debt discount. The Company also incurred other debt issuance costs totaling $1.1
million in conjunction with its entry into the Hercules Loan Agreement. In
addition, the Company was permitted to prepay the term loans in full at any
time, with a prepayment fee of 3.0% of the outstanding principal amount of the
loan in the first year after the Initial Funding Date, 2.0% if the prepayment
occurred in the second year after the Initial Funding Date and 1.0% thereafter.
Upon prepayment of the term loans in full or repayment of the term loans at the
maturity date or upon acceleration, the Company was required to pay a final fee
of 6.95% of the aggregate principal amount of term loans funded. The final
payment fee was accreted to interest expense over the life of the term loan and
included within notes payable on the consolidated balance sheet.
The Company's obligations under the Hercules Loan Agreement were guaranteed by
all current and future material foreign subsidiaries of the Company and were
secured by a security interest in all of the assets of the Company and their
current and future domestic subsidiaries and all of the assets of their current
and future material foreign subsidiaries, including a security interest in the
intellectual property. The Hercules Loan Agreement contained customary
representations and covenants that, subject to

                                       32

--------------------------------------------------------------------------------

Table of Contents

exceptions, restricted the Company's and its subsidiaries' ability to do the
following, among other things: declare dividends or redeem or repurchase equity
interests; incur additional indebtedness and liens; make loans and investments;
engage in mergers, acquisitions, and asset sales; transact with affiliates;
undergo a change in control; add or change business locations; and engage in
businesses that were not related to its existing business. Under the terms of
the Hercules Loan Agreement, the Company was required to maintain cash and/or
investment property in accounts which perfected the Agent's first priority
security interest in such accounts in an amount equal to the lesser of (i)
(x) 120% of the then-outstanding principal balance of the term loans, including
accrued interest and any other fees payable under the agreement to the extent
accrued and payable plus (y) an amount equal to the then-outstanding accounts
payable of the Company on a consolidated basis that were more than 90 days past
due and (ii) 80% of the aggregate cash of the Company and its consolidated
subsidiaries. The Agent was granted the option to invest up to $2.0 million in
any future equity offering broadly marketed by the Company to investors on the
same terms as the offering to other investors.
On November 4, 2019, the Company entered into a payoff letter with the Agent
pursuant to which the Company terminated the Hercules Loan Agreement, as
amended. The Company determined it was in the best interests of the Company to
pay down the debt and terminate the Hercules Agreement to simplify the Company's
balance sheet and provide additional flexibility as the Board of Directors
continued to evaluate strategic and financial alternatives for the Company.
Under the payoff letter, the Company repaid all amounts owed under the Hercules
Loan Agreement totaling approximately $16.4 million, which included end of term
fees of $1.4 million, and Hercules released all security interests held on the
assets of the Company and its subsidiaries, including, without limitation, on
the intellectual property assets of the Company. The Company recognized a loss
of $1.0 million on the extinguishment of notes payable, which is included in
interest expense on the consolidated statement of operations and comprehensive
loss for the year ended December 31, 2019.
In connection with its entrance into the Hercules Loan Agreement in 2018, the
Company repaid its existing loan and security agreement, or the Innovatus Loan
Agreement, with Innovatus Life Sciences Lending Fund I, LP, or Innovatus. The
Company recognized a loss of $1.4 million on the extinguishment of notes payable
which was included in interest expense on the consolidated statements of
operations and comprehensive loss for the year ended December 31, 2018. The
Company paid $0.7 million in final payment obligations and $0.3 million in
prepayment fees under the Innovatus Loan Agreement upon repayment. For a
description of the Innovatus Loan Agreement, see "Notes to Consolidated
Financial Statements - Note 13. Notes Payable."
Financing Transactions
May 2017 Public Offering
On April 28, 2017, we entered into an underwriting agreement with Stifel,
Nicolaus & Company, Incorporated, or Stifel, relating to an underwritten public
offering of an aggregate of 24.9 million Units, each consisting of approximately
0.077 shares of the Company's Common Stock, a Series A Warrant to purchase
approximately 0.077 shares of Common Stock and a Series B Warrant to purchase
approximately 0.058 shares of Common Stock at an offering price to the public of
$1.00 per Unit. Certain of the Company's officers, directors and existing
stockholders purchased approximately $2.5 million of Units in the public
offering. The closing of the public offering occurred on May 3, 2017. The net
proceeds to the Company from the offering were approximately $23.2 million,
prior to any exercise of the Series A Warrants or Series B Warrants, after
deducting underwriting discounts and commissions and estimated offering expenses
paid by the Company. The net proceeds to the Company from the exercise of all of
the Series A Warrants and the Series B Warrants exercised prior to December 31,
2019 were approximately $37.6 million.
Each Series A Warrant had an initial exercise price of $13.00 per share and was
able to be exercised at any time beginning on the date of issuance, and from
time to time thereafter, through and including the first anniversary of the
issuance date, unless terminated earlier as provided in the Series A Warrant.
Receipt of 510(k) clearance for the Senhance System on October 13, 2017,
triggered the acceleration of the expiration date of the Series A Warrants to
October 31, 2017. As of December 31, 2017, all of the Series A Warrants had been
exercised.
Each Series B Warrant had an initial exercise price of $13.00 per share and may
be exercised at any time beginning on the date of issuance and from time to time
thereafter through and including the fifth anniversary of the issuance date, or
by May 3, 2022. As of December 31, 2019, Series B Warrants representing
approximately 1.2 million shares had been exercised.
The exercise prices and the number of shares issuable upon exercise of the
outstanding Series B Warrants are subject to adjustment upon the occurrence of
certain events, including, but not limited to, stock splits or dividends,
business combinations, sale of assets, similar recapitalization transactions, or
other similar transactions. The Series B Warrants are subject to adjustment in
the event that the Company issues or is deemed to issue shares of common stock
for less than the then applicable exercise price of the Series B Warrants. Such
adjustments occurred in August, September, November, and December 2019 due to
sales under the 2019 Sales Agreement and the Underwriting Agreement at prices
less than the then applicable exercise price of the Series B Warrants. See
"Notes to Consolidated Financial Statements - Note 16 Warrants." The
exercisability of the Series B Warrants may be limited if,

                                       33

--------------------------------------------------------------------------------

Table of Contents

upon exercise, the holder or any of its affiliates would beneficially own more
than 4.99% of our common stock. If, at any time Series B Warrants are
outstanding, any fundamental transaction occurs, as described in the Series B
Warrants and generally including any consolidation or merger into another
corporation, the consummation of a transaction whereby another entity acquires
more than 50% of the Company's outstanding voting stock, or the sale of all or
substantially all of its assets, the successor entity must assume in writing all
of the obligations to the Series B Warrant holders. Additionally, in the event
of a fundamental transaction, each Series B Warrant holder will have the right
to require the Company, or its successor, to repurchase the Series B Warrants
for an amount of cash equal to the Black-Scholes value of the remaining
unexercised portion of such Series B Warrants.
On December 15, 2017, we filed a registration statement on Form S-3 (File No.
333-222103) to register shares of common stock underlying outstanding Series B
Warrants previously issued as part of the Company's May 3, 2017 public
offering. The new registration statement replaced the registration statement on
Form S-3 that expired on December 19, 2017 with respect to these securities. On
January 26, 2018, we filed an Amendment No. 1 to such registration statement on
Form S-3 to update the information in the registration statement. The
registration statement covers up to 736,914 shares of common stock underlying
the then-outstanding Series B Warrants. This registration statement on Form S-3
was declared effective on January 29, 2018. On February 7, 2020, we filed a new
registration statement (File No. 333-236337) to register 2,500,000 additional
shares of common stock to cover the "down-round protection" adjustments made to
the Series B Warrant Shares pursuant to sale prices below the then-current
exercise price. This registration statement on Form S-3 was declared effective
on February 13, 2020.
On February 24, 2020, the Company entered into a Series B Warrants Exchange
Agreement, or the Exchange Agreement, with holders of Series B Warrants. Under
the terms of the Exchange Agreement, each Series B Warrant was canceled in
exchange for 0.61 of a share of common stock. The Warrant holders participating
in the exchange held 3,373,900 of the 3,638,780 Series B Warrants then
outstanding, and received an aggregate of 2,040,757 shares of common stock,
leaving 264,880 Series B Warrants outstanding to acquire 160,226 shares of
common stock.
Lincoln Park Purchase Agreement
On February 10, 2020, we entered into a purchase agreement, or the LPC 2020
Purchase Agreement, with Lincoln Park, pursuant to which we have the right to
sell to Lincoln Park up to an aggregate of $25,000,000 in shares of our common
stock, subject to certain limitations and conditions set forth in the LPC 2020
Purchase Agreement, including a limitation on the
number of shares of common stock we can put to LPC and the pricing parameters
for the sales.  In consideration for entering into the LPC 2020 Purchase
Agreement, we issued to Lincoln Park 343,171 shares of Common Stock as
commitment shares. We also committed to issue up to an additional 171,585 shares
of Common Stock to Lincoln Park on a pro rata basis based on the number of
shares Common Stock purchased by Lincoln Park pursuant to the LPC 2020 Purchase
Agreement.
At-the-Market Offerings
On December 28, 2018, we entered into an At-the-Market Equity Offering Sales
Agreement, or the 2018 Sales Agreement, with Stifel, Nicolaus & Company,
Incorporated, or Stifel, under which we could offer and sell, through Stifel, up
to approximately $75.0 million in shares of common stock in an at-the-market
offering, or the 2018 ATM Offering. All sales of shares were to be made pursuant
to an effective shelf registration statement on Form S-3 filed with the SEC.
Stifel would have received a commission of approximately 3% of the aggregate
gross proceeds received from all sales of common stock under the 2018 Sales
Agreement. Effective August 12, 2019, the Company terminated the 2018 Sales
Agreement. The Company sold no shares of its common stock under the 2018 Sales
Agreement.

On August 12, 2019, the Company entered into a Controlled Equity Offering Sales
Agreement, or the 2019 Sales Agreement, with Cantor Fitzgerald & Co., or Cantor,
pursuant to which the Company may sell from time to time, at its option, up to
an aggregate of $25.0 million shares of the Company's common stock, through
Cantor, as sales agent, or the 2019 ATM Offering. Pursuant to the 2019 Sales
Agreement, sales of the common stock were made under the Company's previously
filed and currently effective Registration Statement on Form S-3. The aggregate
compensation payable to Cantor was 3.0% of the aggregate gross proceeds from
each sale of the Company's common stock. The Company raised gross proceeds of
$7.2 million under the 2019 ATM Offering and net proceeds of $7.0 million during
the year ended December 31, 2019, and an additional $11.6 million of gross
proceeds and $11.2 million of net proceeds to date in 2020.
On September 4, 2019, the Company entered into an Underwriting Agreement, or the
Underwriting Agreement, with Cantor. Subject to the terms and conditions of the
2019 Underwriting Agreement, the Company sold to Cantor, in a firm commitment
underwritten offering, 2,153,846 shares of the Company's common stock, or the
Firm Commitment Offering. In addition, the Company granted Cantor
a 30-day option to purchase 323,077 of additional shares of common stock. The
Company raised $18.8 million in gross proceeds under this offering. The option
to purchase additional shares of common stock was not exercised.

                                       34

--------------------------------------------------------------------------------

Table of Contents

The following table summarizes the total sales under the 2019 ATM Offering and
Firm Commitment Offering for the period indicated (in thousands except for share
and per share amounts):
                                             2019               Firm Commitment
                                         ATM Offering               Offering
                                      For the year ended       For the year ended             Total
                                       December 31, 2019       December 31, 2019        December 31, 2019
Total shares of common stock sold                1,374,686                2,153,846               3,528,532
Average price per share              $              5.23     $               8.73     $              7.37
Gross proceeds                       $             7,193     $             18,796     $            25,989
Commissions earned by Cantor         $               212     $                  -     $               212
Net Proceeds                         $             6,981     $             18,796     $            25,777



Since January 1, 2020, the Company has raised, under the 2019 ATM Offering, net
proceeds of $11.2 million through the sale of 6,687,846 shares of common stock.
2020 Public Offering
On March 10, 2020, the Company closed an underwritten public offering (the "2020
Public Offering") with Ladenburg Thalmann & Co. Inc. as underwriter and sold an
aggregate of 14,121,766 Class A Units at a public offering price of $0.68 per
Class A Unit and 7,937,057 Class B Units at a public offering price of $0.68 per
Class B Unit. Each Class A Unit consists of one share of the Company's common
stock, one warrant to purchase one share of common stock that expires on the
first anniversary of the date of issuance (the "Series C Warrants"), and one
warrant to purchase one share of common stock that expires on the fifth
anniversary of the date of issuance (the "Series D Warrants"). Each Class B Unit
consists of one share of Series A Convertible Preferred Stock, par value $0.01
per share (the "Series A Preferred Stock"), convertible into one share of common
stock, a Series C Warrant to purchase one share of common stock and a Series D
Warrant to purchase one share of common stock. The Class A Units and Class B
Units have no stand-alone rights and were not certificated or issued as
stand-alone securities. The shares of common stock, Series A Preferred Stock,
Series C Warrants and Series D Warrants are immediately separable. In addition,
the underwriter for the public offering exercised an overallotment option
allowing it to purchase 3,308,823 additional Series C Warrants and 3,308,823
additional Series D Warrants at the closing.
Each Series C Warrant included in the Units has an exercise price of $0.68 per
share, and each Series D Warrant included in the Units has an exercise price of
$0.68 per share. The Series C Warrants and the Series D Warrants are exercisable
at any time on or after the date of issuance until their respective expiration
dates.
The exercise prices and the number of shares issuable upon exercise of each of
the Series C Warrants and Series D Warrants are subject to adjustment upon the
occurrence of stock splits or dividends, business combinations, similar
recapitalization transactions, or other similar transactions. The exercisability
of the Series C Warrants and Series D Warrants may be limited if, upon exercise,
the holder or any of its affiliates would beneficially own more than 4.99% of
the Common Stock. If, at any time Series C Warrants or Series D Warrants are
outstanding, any fundamental transaction occurs, as described in the Warrants
and generally including any consolidation or merger into another corporation,
the consummation of a transaction whereby another entity acquires more than 50%
of the Company's outstanding voting stock, or the sale of all or substantially
all of its assets, the successor entity must assume in writing all of the
obligations to the holders of the Series C Warrants and Series D Warrants.
Additionally, in the event of a fundamental transaction, each holder of the
Series C Warrants and Series D Warrants will have the right to require the
Company, or its successor, to repurchase the Series C Warrants and Series D
Warrants it holds for an amount of cash equal to the Black-Scholes value of the
remaining unexercised portion of such Series C Warrants or Series D Warrants, as
applicable.
The shares of Series A Preferred Stock rank on par with the shares of the common
stock with regard to dividend rights and distributions of assets upon
liquidation, dissolution or winding up of the Company. With certain exceptions,
as described in the Series A Certificate of Designation, the shares of Series A
Preferred Stock have no voting rights. However, as long as any shares of Series
A Preferred Stock remain outstanding, the Series A Certificate of Designation
provides that the Company shall not, without the affirmative vote of holders of
a majority of the then outstanding shares of Series A Preferred Stock, (a) alter
or change adversely the powers, preferences or rights given to the Series A
Preferred Stock or alter or amend the Series A Certificate of Designation, (b)
amend the Company's certificate of incorporation or other charter documents in
any manner that adversely affects

                                       35

--------------------------------------------------------------------------------

Table of Contents

any rights of the holders of Series A Preferred Stock, (c) increase the number
of authorized shares of Series A Preferred Stock, or (d) enter into any
agreement with respect to any of the foregoing.
Each share of Series A Preferred Stock is convertible at any time at the
holder's option into one share of common stock, which conversion ratio will be
subject to adjustment for stock splits, stock dividends, distributions,
subdivisions and combinations and other similar transactions as specified in the
Series A Certificate of Designation. Notwithstanding the foregoing, the Series A
Certificate of Designation further provides that the Company shall not effect
any conversion of the shares of Series A Preferred Stock, with certain
exceptions, to the extent that, after giving effect to an attempted conversion,
the holder of shares of Series A Preferred Stock (together with such holder's
affiliates and any persons acting as a group together with such holder or any of
such holder's affiliates) would beneficially own a number of shares of Common
Stock in excess of 4.99% (or 9.99% at the election of the holder prior to the
date of issuance) of the shares of Common Stock then outstanding. At the
holder's option, upon notice to the Company, the holder may increase or decrease
this beneficial ownership limitation not to exceed 9.99% of the shares of Common
Stock then outstanding, with any such increase becoming effective upon 61 days'
prior notice to the Company.
The net proceeds to the Company from the 2020 Public Offering were approximately
$13.4 million, after deducting underwriting discounts and commissions and
estimated offering expenses payable by the Company.

MST Acquisition and Related Transactions
Purchase Agreement
On September 23, 2018, the Company entered into an Asset Purchase Agreement, or
the MST Purchase Agreement, with MST Medical Surgery Technologies Ltd., an
Israeli private company, or MST, and two of the Company's wholly owned
subsidiaries, as purchasers of the assets of the Seller, including the
intellectual property assets, or collectively, the Buyers. The closing of the
transactions contemplated by the MST Purchase Agreement occurred on October 31,
2018, pursuant to which the Company acquired MST's assets consisting of
intellectual property and tangible assets related to surgical analytics with its
core image analytics technology designed to empower and automate the surgical
environment, with a focus on medical robotics and computer-assisted surgery. The
core technology acquired under the MST Purchase Agreement is a software-based
image analytics information platform powered by advanced visualization, scene
recognition, artificial intelligence, machine learning and data analytics.
Under the terms of the MST Purchase Agreement, at the closing the Buyers
purchased substantially all of the assets of MST. The acquisition price
consisted of two tranches. At or prior to the closing of the transaction the
Buyers paid $5.8 million in cash and approximately 242,310 shares of the
Company's common stock, or the Initial Shares. A second tranche of $6.6 million
in additional consideration was payable in cash, stock or cash and stock, at the
discretion of the Company, within one year after the closing date.
On August 7, 2019, the Company notified MST that the Company would satisfy the
payment of additional consideration of $6.6 million due to MST under the MST
Purchase Agreement by issuing shares of the Company's common stock, as permitted
by the MST Purchase Agreement. The number of shares issued to MST as the
additional consideration was 370,423 shares of common stock, or the Additional
Consideration Shares. In accordance with the provisions of the MST Purchase
Agreement, the number of Additional Consideration Shares was calculated based on
the volume-weighted average of the closing prices of the Company's common stock
as quoted on the NYSE American for the ninety (90) day period ended August 6,
2019.
Sale of AutoLap Assets
On July 3, 2019, the Company entered into a System Sale Agreement with GBIL to
sell certain assets related to the AutoLap technology. On October 15, 2019, the
Company amended the prior AutoLap Sale Agreement with GBIL. Pursuant to the
amended agreement the Company sold the AutoLap laparoscopic vision system, or
AutoLap, and related assets to GBIL. The assets include inventory, spare parts,
production equipment, testing equipment and certain intellectual property
specifically related to the AutoLap. The purchase price was $17.0 million, all
of which was received in 2019 in the form of $16 million in cash and a payment
by GBIL of $1.0 million to settle certain Company obligations in China. Under
the amended AutoLap Agreement, the Company entered into a cross­license
agreement with GBIL to retain rights to use any AutoLap-related intellectual
property sold to GBIL, and to non-exclusively license additional intellectual
property to GBIL. The Company recorded a $16 million gain on the sale of the
AutoLap assets during the year ended December 31, 2019, which represented the
proceeds received in excess of the carrying value of the assets, less contract
costs.
Registration Rights and Lock-Up Agreements

                                       36

--------------------------------------------------------------------------------

Table of Contents

In connection with the closing under the MST Purchase Agreement, or the MST
Acquisition, the Company and MST entered into a lock-up agreement dated October
31, 2018, or the Lock-Up Agreement, pursuant to which MST agreed, subject to
certain exceptions, not to sell, transfer or otherwise convey any of the Initial
Shares for six months following the closing date of the MST Purchase
Agreement. As of the date of this Annual Report, 75% of the Initial Shares are
free from the lock-up restrictions. For the remaining 25% of the Initial Shares,
the Lock-Up Agreement provides that all of the Initial Shares will be released
from the lock-up restrictions on May 1, 2020, or earlier upon certain other
conditions.  The Additional Consideration Shares were released from the lock-up
restrictions on February 7, 2020.
In connection with the MST Acquisition, the Company also entered into a
Registration Rights Agreement, dated as of October 31, 2018, with MST, pursuant
to which the Company agreed to register the Initial Shares and Additional
Consideration Shares, or collectively, the Securities Consideration, such that
such Securities Consideration is eligible for resale following the end of the
lock-up periods described above. All of the Securities Consideration is eligible
to be sold by the holders without restriction
under Rule 144, therefore the Registration Rights Agreement has expired.
Senhance Acquisition and Related Transactions
Membership Interest Purchase Agreement and Amendment
On September 21, 2015, the Company announced that it had entered into a
Membership Interest Purchase Agreement, dated September 18, 2015, or the
Purchase Agreement, with Sofar S.p.A., or Sofar, as the seller, Vulcanos S.r.l.,
as the acquired company, and TransEnterix International, Inc., a wholly owned
subsidiary of the Company as the Buyer. The closing of the transactions
contemplated by the Purchase Agreement occurred on September 21, 2015. The Buyer
acquired all of the membership interests of the acquired company from Sofar, and
changed the name of the acquired company to TransEnterix Italia S.r.l. On the
closing date, pursuant to the Purchase Agreement, the Company completed the
strategic acquisition from Sofar of all of the assets, employees and contracts
related to the advanced robotic system for minimally invasive laparoscopic
surgery now known as the Senhance System, or the Senhance Acquisition.
Under the terms of the Purchase Agreement, the consideration consisted of the
issuance of 1,195,647 shares of the Company's common stock, or the Sofar
Consideration, and approximately $25.0 million U.S. Dollars and €27.5 million
Euro in cash consideration, or the Cash Consideration. The Sofar Consideration
was issued in full at closing of the acquisition; the Cash Consideration was or
will be paid in four tranches, with U.S. $25.0 million paid at closing and the
remaining Cash Consideration of €27.5 million to be paid in three additional
tranches based on achievement of negotiated milestones. On December 30, 2016,
the Company and Sofar entered into an Amendment to the Purchase Agreement to
restructure the terms of the second tranche of the Cash Consideration. Under the
Amendment, the second tranche was restructured to reduce the contingent cash
consideration by €5.0 million in exchange for the issuance of 286,360 shares of
the Company's common stock with an aggregate fair market value of €5.0 million,
which were issued on January 4, 2017. The price per share was $18.252 and was
calculated based on the average of the closing prices of the Company's common
stock on ten consecutive trading days ending one day before the execution of the
Amendment.
As of December 31, 2019, the Company has paid all Cash Consideration due under
the second tranche and approximately €2.4 million of the €2.5 million due under
the fourth tranche. The third tranche, consisting of €15.0 million, has not yet
been paid
and is subject to certain sales revenue milestones. The fourth tranche of the
Cash Consideration is payable in installments by December 31 of each year as
reimbursement for certain debt payments made by Sofar under an existing Sofar
loan agreement in such year.
The Purchase Agreement contains customary representations and warranties of the
parties and the parties have customary indemnification obligations, which are
subject to certain limitations described further in the Purchase Agreement.
Registration Rights
In connection with the Senhance Acquisition, we also entered into a Registration
Rights Agreement, dated as of September 21, 2015, with Sofar, pursuant to which
we agreed to register the Securities Consideration shares for resale following
the end of the lock-up periods. The resale Registration Statement has been filed
and is effective.
Results of Operations
Revenue
In 2019, our revenue consisted of product and service revenue primarily
resulting from the sale of a total of four Senhance Systems in Europe (one) and
Asia (three), and related instruments, accessories and services for current and
prior year system sales. The

                                       37

--------------------------------------------------------------------------------

Table of Contents

Company also recognized $1.3 million during the year ended December 31,
2019 related to a 2017 system sale for which revenue was deferred until the
first clinical use of the system, which occurred in the second quarter of 2019.
In 2018, our revenue consisted of product and service revenue primarily
resulting from the sale of a total of fifteen Senhance Systems in Europe
(eleven), Asia (one) and the United States (three), and related instruments,
accessories and services.
Product, instrument and accessory revenue for the year ended December 31, 2019
decreased to $7.1 million compared to $23.3 million for the year ended December
31, 2018. The $16.2 million decrease was the result of the revenue recognized on
the sale of four Senhance Systems versus fifteen in the prior year, as well as
instruments and accessories. Services revenue for the year ended December 31,
2019 increased to $1.4 million from $0.8 million for the year ended December 31,
2018 due to the increase in the number of Senhance Systems under service
contracts.
We expect to experience some variability in the number and trend, and average
selling price, of units sold given the early stage of commercialization of our
products.
Cost of Revenue
Cost of revenue consists primarily of costs related to contract manufacturing,
materials, and manufacturing overhead. We expense all inventory obsolescence
provisions related to normal manufacturing changes as cost of revenue. The
manufacturing overhead costs include the cost of quality assurance, material
procurement, inventory control, facilities, equipment depreciation and
operations supervision and management. We expect overhead costs as a percentage
of revenues to become less significant as our production volume increases. We
expect cost of revenue to increase in absolute dollars to the extent our
revenues grow and as we continue to invest in our operational infrastructure to
support anticipated growth.
Product cost for the year ended December 31, 2019 increased to $16.4 million as
compared to $14.2 million for the year ended December 31, 2018. This $2.2
million increase over the prior year period was the result of the $7.4 million
inventory write-down under our restructuring plan, increased personnel costs
totaling $1.7 million, $0.6 million in increased standard cost variances, $0.3
million in increased travel, freight, and supplies costs, and a $1.5 million
reserve for obsolete inventory offset by $9.1 million in lower product costs
caused by decreased sales.
Service cost for the year ended December 31, 2019 increased to $4.3 million as
compared to $2.0 million for the year ended December 31, 2018. This $2.3 million
increase over the prior year period was the result of increased field service
costs of $1.7 million for repairs and maintenance on a greater cumulative number
of installed Senhance Systems, and a $0.6 million increase in personnel costs
due to increased headcount.
Research and Development
Research and development, or R&D, expenses primarily consist of engineering,
product development and regulatory expenses incurred in the design, development,
testing and enhancement of our products and legal services associated with our
efforts to obtain and maintain broad protection for the intellectual property
related to our products. In future periods, we expect R&D expenses to increase
moderately, but at a reduced rate due to the restructuring, as we
continue to invest in additional regulatory approvals as well as new products,
instruments and accessories to be offered with the Senhance System. R&D expenses
are expensed as incurred.
R&D expenses for the year ended December 31, 2019 increased 3% to $22.5 million
as compared to $21.8 million for the year ended December 31, 2018. The $0.7
million increase primarily relates to higher personnel costs totaling $1.6
million driven by higher headcount as a result of the MST acquisition offset by
$0.5 million in lower technology fees, $0.2 million in lower consulting costs,
and $0.2 million in lower testing and validation costs. R&D expenses for the
year ended December 31, 2019 also include an impairment of IPR&D in the amount
of $7.9 million that is presented separately in the consolidated statement of
operations and comprehensive loss for the year ended December 31, 2019.
Sales and Marketing
Sales and marketing expenses include costs for sales and marketing personnel,
travel, demonstration product, market development, physician training,
tradeshows, marketing clinical studies and consulting expenses. We expect sales
and marketing expenses to decrease significantly as we refocus our resources and
efforts on market development activities pursuant to our restructuring plan.
Sales and marketing expenses for the year ended December 31, 2019 increased 9%
to $28.0 million compared to $25.7 million for the year ended December 31, 2018.
The $2.3 million increase was primarily related to increased personnel related
costs of $0.8 million, increased travel of $0.8 million and increased product
demonstration and trade show costs of $0.7 million as we increased our U.S,
sales and marketing efforts as we focused on the commercialization of the
Senhance System.

                                       38

--------------------------------------------------------------------------------

Table of Contents

General and Administrative
General and administrative expenses consist of personnel costs related to the
executive, finance and human resource functions, as well as professional service
fees, legal fees, accounting fees, insurance costs, and general corporate
expenses. In future periods, we expect general and administrative expenses to
decrease due to the restructuring.
General and administrative expenses for the year ended December 31, 2019
increased 35% to $18.8 million compared to $13.9 million for the year ended
December 31, 2018. The $4.9 million increase was primarily due to increased
personnel costs of $1.5 million, increased consulting and outside services costs
of $1.3 million, increased taxes, licenses, and fees of $0.4 million, increased
facilities costs of $0.2 million, decreased travel costs of $0.1 million and a
bad debt charge of $1.6 million. The Company recorded the bad debt charge due to
uncertainty regarding collectability on a 2018 system sale in North Africa.
Restructuring Charge
During the fourth quarter of 2019, we announced the implementation of a
restructuring plan to reduce operating expenses as we continue the global market
development of the Senhance platform. Under the restructuring plan, we reduced
headcount primarily in the sales and marketing functions and determined that the
carrying value of our inventory exceeded the net realizable value due to a
decrease in expected sales. The restructuring charges amounted to $8.8 million,
of which $7.4 million was an inventory write down and was included in cost of
product revenue and $1.4 million related to employee severance costs and was
included as restructuring and other charges in the consolidated statements of
operations and comprehensive loss, during the fourth quarter of 2019.
During March 2020, we continued our restructuring with additional headcount
reductions which resulted in $0.8 million related to severance costs which are
expected to be paid in 2020 and 2021.
Gain from Sale of AutoLap Assets, Net
The gain from the sale of AutoLap assets, net to GBIL was $16.0 million for the
year ended December 31, 2019, as further explained in the "Overview" section.
The gain represented the difference between the purchase price of $17 million
and a $1 million liability incurred as a result of entering into the sale.
Gain from Sale of SurgiBot Assets, Net
The gain from the sale of SurgiBot assets, net to GBIL was $11.8 million for the
year ended December 31, 2018, as further explained in the "Overview" section.
Amortization of Intangible Assets
Amortization of intangible assets for the year ended December 31, 2019 decreased
to $10.3 million compared to $10.9 million for the year ended December 31,
2018. The $0.6 million decrease was primarily the result of a lower Euro to
Dollar exchange rate.
Impairment of Goodwill and IPR&D Assets
The Company typically tests goodwill for impairment annually as of year-end,
however, due to market conditions as well as reduced forecasts, we tested our
goodwill and IPR&D carrying values as of September 30, 2019.

Pursuant to ASU 2017-04, a company must record a goodwill impairment charge if a
reporting unit's carrying value exceeds its fair value. The Company generally
determines the fair value of its reporting unit using two valuation methods: the
"Income Approach - Discounted Cash Flow Analysis" method, and the "Market
Approach - Guideline Public Company Method."

Under the "Income Approach - Discounted Cash Flow Analysis" method, the key
assumptions consider projected sales, cost of sales, and operating expenses.
These assumptions were determined by management utilizing the Company's internal
operating plan, growth rates for revenues and operating expenses, and margin
assumptions. An additional key assumption under this approach is the discount
rate, which is determined by looking at current risk-free rates of capital,
current market interest rates, and the evaluation of risk premium relevant to
the business segment. If our assumptions relative to growth rates were to change
or were incorrect, our fair value calculation may change.

Under the "Market Approach - Guideline Public Company Method," the Company
identified several publicly traded companies, which it believed had sufficiently
relevant similarities. Similar to the income approach discussed above, sales,
cost of sales,

                                       39

--------------------------------------------------------------------------------

Table of Contents

operating expenses, and their respective growth rates are key assumptions
utilized. The market prices of the Company's common stock and other guideline
companies are additional key assumptions. If these market prices increase, the
estimated market value would increase. If the market prices decrease, the
estimated market value would decrease.

The results of these two methods were weighted based upon management's
evaluation of the relevance of the two approaches. In the 2019 evaluation,
management determined that the income and market value approach should be
weighted 50%-50%. In addition, management considered the decline in both our
stock price and market capitalization after the September 30, 2019 measurement
date as relevant factors in the analysis.
As of September 30, 2019, the Company determined that the goodwill associated
with the business was impaired, and recorded impairment charges of $79.0
million. The impairment charge resulted from decreased sales and estimated cash
flows and a significant decline in the Company's stock price. The Company also
recognized a $7.9 million impairment charge to its IPR&D as it concluded that
under the market value approach, the fair value of the IPR&D was lower than the
carrying value.
No charge for goodwill and intangible asset impairment was required for the year
ended December 31, 2018.
Change in Fair Value of Contingent Consideration
The change in fair value of contingent consideration in connection with the
Senhance Acquisition was a $9.6 million decrease for the year ended December 31,
2019 compared to a decrease of $1.0 million for the year ended December 31,
2018. The net $8.6 million decrease was primarily due to a significant reduction
in the Company's five-year revenue forecast.
Change in Fair Value of Warrant Liabilities
The change in fair value of Series B Warrants issued in April 2017 was a
decrease of $2.2 million for the year ended December 31, 2019 compared to an
increase of $14.3 million for the year ended December 31, 2018. The net $16.5
million decrease in change in fair value of warrant liabilities for the year
ended December 31, 2019 over the year ended December 31, 2018 includes
re-measurement associated with the warrants exercised during the year ended
December 31, 2019 and 2018, and the outstanding warrants at December 31, 2019.
The decrease in value at December 31, 2019 was primarily the result of the
decrease in the stock price at December 31, 2019 versus December 31, 2018.
Acquisition Related Costs
Acquisition related costs of $0.6 million for the year ended December 31, 2018
were incurred in connection with the MST Acquisition.
Reversal of Transfer Fee Accrual
In connection with the Senhance Acquisition, the Company recorded an accrual of
$3.0 million in the third quarter of 2015 for the potential assessment of
additional transfer fees that could be assessed during a three year period. In
September 2018, the Company determined that the accrual was no longer required
and reversed the accrual.
Interest Income
Interest income for the year ended December 31, 2019 was $0.6 million compared
to $1.4 million for the year ended December 31, 2018. The decrease of $0.8
million was due to less cash and short-term investments on hand during the year
ended December 31, 2019 earning less interest.
Interest Expense
Interest expense for the year ended December 31, 2019 was $4.6 million compared
to $4.2 million for the year ended December 31, 2018. The Company incurred a
$1.4 million loss on extinguishment of debt, classified as interest expense,
during the second quarter of 2018 as compared to a $1.0 million loss on
extinguishment of debt for the year ended December 31, 2019. This decrease in
loss on extinguishment of debt was offset by greater interest incurred on the
higher average principal balance of notes payable during 2019 as compared to
2018.
Income Tax Benefit
Income tax benefit consists primarily of taxes related to the amortization of
purchase accounting intangibles in connection with the Italian taxing
jurisdiction for TransEnterix Italia as a result of the acquisition of the
Senhance System. We recognized $3.1 million and $3.4 million of income tax
benefit for the years ended December 31, 2019 and 2018, respectively.

                                       40

--------------------------------------------------------------------------------

Table of Contents

Liquidity and Capital Resources
Going Concern
The Company's consolidated financial statements are prepared using U.S.
generally accepted accounting principles ("GAAP") applicable to a going concern,
which contemplate the realization of assets and liquidation of liabilities in
the normal course of business. The Company had an accumulated deficit of $663.6
million as of December 31, 2019 and has working capital of $14.9 million as of
December 31, 2019. The Company has not established sufficient sales revenues to
cover its operating costs and requires additional capital to proceed with its
operating plan. In October 2019, the Company announced the implementation of a
restructuring plan to reduce operating expenses. During March 2020, the Company
continued the restructuring efforts with additional headcount reductions. The
ability of the Company to continue as a going concern is dependent on the
Company obtaining adequate capital to fund operating losses until it becomes
profitable. In order to continue as a going concern, the Company will need,
among other things, additional capital resources. The Company believes that its
existing cash and cash equivalents from recent financings, together with cash
received from product and instrument sales and leases will be sufficient to meet
its anticipated cash needs into the fourth quarter of 2020.
Traditionally, the Company has raised additional capital through equity
offerings. Management's plan to obtain such resources for the Company may
include additional sales of equity, traditional financing, such as loans, entry
into a strategic collaboration, entry into an out-licensing arrangement or
provision of additional distribution rights in some or all of our markets. In
addition, as discussed below, the Company has engaged J.P. Morgan Securities LLC
to assist it in considering strategic alternatives, including a fundamental
business combination transaction. If the Company is unable to obtain adequate
capital through one of these methods, it would need to reduce its sales and
marketing and administrative expenses, delay research and development projects,
including the purchase of equipment and supplies, and take other steps to reduce
its expenses until it is able to obtain sufficient funds. If such sufficient
funds are not received on a timely basis, the Company would then need to pursue
a plan to license or sell its assets, seek to be acquired by another entity,
cease operations and/or seek bankruptcy protection. Management cannot provide
any assurance that the Company will be successful in accomplishing any or all of
its plans. The ability to successfully resolve these factors raise substantial
doubt about the Company's ability to continue as a going concern within one year
from the date that these financial statements are issued. The consolidated
financial statements of the Company do not include any adjustments that may
result from the outcome of these aforementioned uncertainties.
Sources of Liquidity
Our principal sources of cash to date have been proceeds from public offerings
of common stock, private placements of common and preferred stock, incurrence of
debt, the sale of equity securities held as investments and asset sales.
We currently have two effective shelf registration statements on file with the
SEC.  The first shelf registration statement was declared effective by the SEC
on May 19, 2017 and registered up to $150.0 million of debt securities, common
stock, preferred stock, or warrants, or any combination thereof for future
financing transactions. The second shelf registration statement was declared
effective by the SEC on February 10, 2020, and also registers up to $150.0
million of debt securities, common stock, preferred stock, or warrants, or any
combination thereof for future financing transactions. We have raised or have
reserved for issuance under such registration statements approximately $170.5
million since 2017. As of March 10, 2020, the Company had approximately $5.5
million available under the first effective shelf registration statement, which
is due to expire in May 2020. As of the date of this Annual Report, the Company
has approximately $124 million available for future financings under the second
shelf registration statement.
For a discussion of our recent equity financings, see "Financing Transactions"
above in this Management's Discussion and Analysis and Results of Operations,
and for a discussion of the 2019 sale of the AutoLap Assets, see "MST
Acquisition and Related Transactions - Sale of AutoLap Assets" above in this
Management's Discussion and Analysis of Financial Condition and Results of
Operations.

At December 31, 2019, we had cash and cash equivalents, excluding restricted cash, of approximately $9.6 million.

On October 17, 2019, the Company announced that it has engaged J.P. Morgan
Securities LLC to assist the Board of Directors in considering strategic
alternatives for the Company to enhance stockholder value, including, but not
limited to a sale of the Company, a financing of the Company, a strategic
partnership or collaboration or some other form of commercial relationship. In
addition, the Company announced the implementation of a restructuring plan to
reduce operating expenses as it continues the global market development of the
Senhance platform. The Company is continuing to evaluate all potential
alternatives, including pursuit of financing opportunities.
Consolidated Cash Flow Data

                                       41

--------------------------------------------------------------------------------

  Table of Contents

                                                                Years Ended December 31,
                                                                  2019             2018
(in millions)
Net cash (used in) provided by
Operating activities                                         $     (73.5 )     $     (48.5 )
Investing activities                                                67.6             (53.5 )
Financing activities                                                (5.6 )            26.5

Effect of exchange rate changes on cash and cash equivalents 0.4

           (0.5 )
Net decrease in cash, cash equivalents and restricted cash   $     (11.1 )

$ (76.0 )

Operating Activities
For the year ended December 31, 2019, cash used in operating activities of $73.5
million consisted of a net loss of $154.2 million and cash used for working
capital of $12.8 million, offset by non-cash items of $93.5 million. The
non-cash items primarily consisted of $86.9 million in goodwill and IPR&D
impairment, $11.5 million of stock-based compensation expense, $11.5 million of
net amortization of intangible assets, debt discount and debt issuance costs and
short-term investments discount, $2.2 million of depreciation, $1.6 million of
bad debt expense, $1.0 million loss on debt extinguishment, $8.9 million related
to the write-down of obsolete inventory, and $0.8 million in interest expense on
deferred consideration related to the MST Acquisition, offset by $16.0 million
gain from sale of AutoLap assets, $9.6 million change in fair value of
contingent consideration, $3.2 million deferred income tax benefit, and $2.2
million change in fair value of warrant liabilities. The decrease in cash from
changes in working capital included $16.4 million increase in inventories, $1.2
million decrease in accrued expenses, $1.0 million decrease in deferred revenue,
$0.7 million decrease in accounts payable, and $0.7 million increase in other
current and long term assets, offset by $6.1 million decrease in accounts
receivable and $1.0 million increase in other long term liabilities. The
decrease in cash from changes in working capital was primarily driven by an
increase in manufacturing activities combined with decreased Senhance System
sales in the current year.
For the year ended December 31, 2018, cash used in operating activities of $48.5
million consisted of a net loss of $61.8 million and cash used for working
capital of $5.9 million, offset by non-cash items of $19.2 million. The non-cash
items primarily consisted of $14.3 million change in fair value of warrant
liabilities, $11.2 million of net amortization of intangible assets, debt
discount and debt issuance costs and short-term investment discount, $9.0
million of stock-based compensation expense, $2.4 million of depreciation, and
$1.4 million loss on debt extinguishment, offset by $11.8 million gain from sale
of SurgiBot assets, $3.0 million reversal of transfer fee, $3.4 million deferred
income tax benefit, and $1.0 million change in fair value of contingent
consideration. The decrease in cash from changes in working capital included
$2.1 million increase in inventories, $7.2 million increase in accounts
receivable, and $0.3 million increase in other current and long term assets,
offset by $0.8 million increase in accounts payable, $2.1 million increase in
accrued expenses and $0.8 million increase in deferred revenue.
Investing Activities
For the year ended December 31, 2019, net cash provided by investing activities
was $67.6 million. This amount primarily consists of $65.0 million proceeds from
maturities of short-term investments and $16.0 million in proceeds related to
the sale of the AutoLap assets, offset by $12.9 million purchase of short-term
investments and $0.4 million purchases of property and equipment.
For the year ended December 31, 2018, net cash used in investing activities was
$53.5 million. This amount primarily consists of $55.4 million purchase of
short-term investments, $5.8 million payment for acquisition of MST and $0.8
million purchases of property and equipment, offset by $4.5 million proceeds
related to the sale of the SurgiBot assets and proceeds from maturities of
short-term investments of $4.0 million.
Financing Activities
For the year ended December 31, 2019, net cash used in financing activities was
$5.6 million. This amount was primarily related to $31.4 million payment of
notes payable and $0.5 million related to the taxes withheld on restricted stock
unit, or RSU, awards, offset by $25.8 million in proceeds from the issuance of
common stock and warrants and $0.5 million in proceeds from the exercise of
stock options and warrants.
For the year ended December 31, 2018, net cash provided by financing activities
was $26.5 million. This amount was primarily related to $28.5 million in
proceeds from the issuance of debt, which was partially offset by $15.3 million
in payment of debt, $12.4 million in proceeds from the exercise of stock options
and warrants and $3.0 million received for shares issued related to the sale of
the SurgiBot assets, offset by $1.7 million related to the taxes withheld on RSU
awards and $0.8 million payment of contingent consideration.

                                       42

--------------------------------------------------------------------------------

Table of Contents

Operating Capital and Capital Expenditure Requirements
We intend to spend substantial amounts on commercial activities, on research and
development activities, including product development, regulatory and
compliance, clinical studies in support of our future product offerings, and the
enhancement and protection of our intellectual property. We will need to obtain
additional financing to pursue our business strategy, to respond to new
competitive pressures or to take advantage of opportunities that may arise. To
meet our capital needs, we are considering multiple alternatives, including, but
not limited to, additional equity financings, debt financings, strategic
collaborations, other funding transactions or a fundamental business combination
transaction. There can be no assurance that we will be able to complete any such
transaction on acceptable terms or otherwise. If we are unable to obtain the
necessary capital, we will need to pursue a plan to license or sell our assets,
seek to be acquired by another entity, cease operations and/or seek bankruptcy
protection.
Cash and cash equivalents held by our foreign subsidiaries totaled $1.5 million
at December 31, 2019, including restricted cash. We do not intend or currently
foresee a need to repatriate cash and cash equivalents held by our foreign
subsidiaries. If these funds are needed in the United States, we believe that
the potential U.S. tax impact to repatriate these funds would be immaterial.
Hercules Loan Agreement
On May 23, 2018, the Company and its domestic subsidiaries, as co-borrowers,
entered into the Hercules Loan Agreement with several banks and other financial
institutions or entities from time to time party to the Hercules Loan Agreement
and Hercules Capital, Inc., or Hercules, as administrative agent and collateral
agent. Effective April 30, 2019, the Hercules Loan Agreement was amended to
eliminate the availability of the Tranche III loan facility, add a new Tranche
IV loan facility of up to $20 million, revise certain financial covenants and
make other changes. On July 10, 2019, the Company entered into the Consent and
Second Amendment to the Loan and Security Agreement on July 10, 2019, or the
Hercules Second Amendment. Under the Hercules Second Amendment, in consideration
for the consent to the sale of, and the release of the Lender's security
interest on, the AutoLap assets, the Company reduced its indebtedness under the
Hercules Loan Agreement by repaying $15.0 million of the $30.0 million of
outstanding indebtedness thereunder, without any prepayment penalties, amendment
fee or acceleration of the end of term charges, and received adjustments to the
quarterly financial covenants and related waiver conditions to reflect the
decreased outstanding indebtedness. On November 4, 2019, the Company entered
into a payoff letter with the Agent pursuant to which the Company terminated the
Hercules Loan Agreement, as amended. The Company determined it was in the best
interests of the Company to pay down the debt and terminate the Hercules
Agreement to simplify the Company's balance sheet and provide additional
flexibility as the Board of Directors continues to explore strategic and
financial alternatives for the Company. Under the payoff letter, the Company
repaid all amounts owed under the Hercules Loan Agreement totaling approximately
$16.4 million, which included end of term fees of $1.4 million, and Hercules
released all security interests held on the assets of the Company and its
subsidiaries, including, without limitation, on the intellectual property assets
of the Company. Please see the description of the Hercules Loan Agreement above
in the "Notes to the Consolidated Financial Statements - Note 13. Notes
Payable."
Innovatus Loan Agreement
On May 10, 2017, the Company and its domestic subsidiaries, as co-borrowers,
entered into the Innovatus Loan Agreement with Innovatus Life Sciences Lending
Fund I, LP, as lender and collateral agent. Please see the description of the
Innovatus Loan Agreement above in this "Management's Discussion and Analysis of
Financial Condition and Results of Operations ­ Debt Refinancing."
In connection with the entry into the Hercules Loan Agreement, the proceeds of
which were used to repay the Innovatus Loan, we were obligated to pay final
payment and prepayment fees under the Innovatus Loan Agreement. The final
payment fee obligation was $1.0 million and was paid during the year ended
December 31, 2018.
Contractual Obligations and Commercial Commitments
The following table summarizes our contractual obligations as of December 31,
2019 (in millions):
                                                  Payments due by period
                                              Less than
                                Total           1 year        1 to 3 years      3 to 5 years       Thereafter
Operating leases            $       2.8     $        1.4     $         1.2     $         0.2     $          -
License, supply and vendor
agreements                  $       9.1     $        5.6     $         1.3     $         1.1     $        1.1
Total contractual
obligations                 $      11.9     $        7.0     $         2.5     $         1.3     $        1.1

During 2019, the Company fully repaid its outstanding indebtedness to Hercules Capital, and all related liens and encumbrances

                                       43

--------------------------------------------------------------------------------

Table of Contents

have been terminated. As of December 31, 2019, the third tranche contingent
consideration that may be paid under the Purchase Agreement with Sofar upon the
achievement of milestones is €15.0 million. Due to uncertainty regarding the
timing and amount of future payments related to this liability, the amount is
excluded from the contractual obligations table above.
Operating lease amounts include future minimum lease payments under all our
non-cancelable operating leases with an initial term in excess of one year. We
rent office space in North Carolina under an operating lease which expires in
2020. In Italy, we rent space for research and development and demonstration
facilities under an operating lease which expires in 2022. In Israel, we rent
space for research and development under an operating lease which expires in
2024. In Japan, we rent office space under an operating lease which expires in
2023. In Switzerland, we rent office space under an operating lease which
expires in 2023. This table does not include obligations for any lease
extensions.
License, supply and third party vendor agreements include agreements assumed as
part of the Senhance Acquisition and other third party vendor agreements.
Off-Balance Sheet Arrangements
As of December 31, 2019, we did not have any off-balance sheet arrangements.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations
set forth above under the headings "Results of Operations" and "Liquidity and
Capital Resources" have been prepared in accordance with U.S. GAAP and should be
read in conjunction with our financial statements and notes thereto appearing in
Item 8 of this Annual Report. The preparation of these financial statements
requires us to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses, and related disclosure of contingent
assets and liabilities. On an on-going basis, we evaluate our critical
accounting policies and estimates, including identifiable intangible assets and
goodwill, business acquisitions, in-process research and development, contingent
consideration, warrant liabilities, stock-based compensation, inventory, revenue
recognition and income taxes. We base our estimates on historical experience and
on various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. A more detailed discussion on the application of these and other
accounting policies can be found in Note 2 in the Notes to the Consolidated
Financial Statements which are included in Item 8 of this Annual Report. Actual
results may differ from these estimates under different assumptions and
conditions.
While all accounting policies impact the financial statements, certain policies
may be viewed as critical. Critical accounting policies are those that are both
most important to the portrayal of financial condition and results of operations
and that require management's most subjective or complex judgments and
estimates. Our management believes the policies that fall within this category
are the policies on accounting for identifiable intangible assets and goodwill,
business acquisitions, in-process research and development, contingent
consideration, warrant liabilities, stock-based compensation, inventory, revenue
recognition and income taxes.
Identifiable Intangible Assets and Goodwill
Identifiable intangible assets consist of purchased patent rights recorded at
cost and developed technology acquired as part of a business acquisition
recorded at estimated fair value. Intangible assets are amortized over 5 to 10
years. We periodically evaluate identifiable intangible assets for impairment
whenever events or changes in circumstances indicate that the carrying amount
may not be recoverable.
Indefinite-lived intangible assets, such as goodwill, are not amortized. We test
the carrying amounts of goodwill for recoverability on an annual basis or when
events or changes in circumstances indicate evidence of potential impairment
exists by performing either a qualitative evaluation or a quantitative
assessment. The qualitative evaluation is an assessment of factors, including
industry, market and general economic conditions, market value, and future
projections to determine whether it is more likely than not that the fair value
of a reporting unit is less than its carrying amount, including goodwill.
As of December 31, 2018, we elected to bypass the qualitative assessment and
calculated the fair value of our sole reporting unit based on our market
capitalization, which exceeded the carrying amount. Accordingly, no charge for
goodwill impairment was required as of December 31, 2018. During the third
quarter of 2019, the Company's stock price declined significantly as a result of
decreased sales and estimated cash flows. As of September 30, 2019, goodwill was
deemed to be fully impaired, and the Company recorded an impairment charge of
$79.0 million.
A significant amount of judgment is involved in determining if an indicator of
goodwill impairment has occurred. Such indicators may include, among others: a
significant decline in expected future cash flows; a sustained, significant
decline in the Company's

                                       44

--------------------------------------------------------------------------------

Table of Contents

stock price and market capitalization; a significant adverse change in legal
factors or in the business climate; adverse assessment or action by a regulator;
and unanticipated competition. Key assumptions used in the annual goodwill
impairment test are highly judgmental and include selection of comparable
companies and amount of control premium. Any change in these indicators or key
assumptions could have a significant negative impact on the Company's financial
condition, impact the goodwill impairment analysis or cause the Company to
perform a goodwill impairment analysis more frequently than once per year.
Business Acquisitions
Business acquisitions are accounted for using the acquisition method of
accounting in accordance with Accounting Standards Codification ("ASC") 805,
"Business Combinations." ASC 805 requires, among other things, that assets
acquired and liabilities assumed be recognized at their fair values, as
determined in accordance with ASC 820, "Fair Value Measurements," as of the
acquisition date. For certain assets and liabilities, book value approximates
fair value. In addition, ASC 805 establishes that consideration transferred be
measured at the closing date of the acquisition at the then-current market
price. Under ASC 805, acquisition-related costs (i.e., advisory, legal,
valuation and other professional fees) and certain acquisition-related
restructuring charges impacting the target company are expensed in the period in
which the costs are incurred. The application of the acquisition method of
accounting requires the Company to make estimates and assumptions related to the
estimated fair values of net assets acquired.
Significant judgments are used during this process, particularly with respect to
intangible assets. Generally, intangible assets are amortized over their
estimated useful lives. Goodwill and other indefinite-lived intangibles are not
amortized, but are annually assessed for impairment. Therefore, the purchase
price allocation to intangible assets and goodwill has a significant impact on
future operating results.
In-Process Research and Development
In-process research and development ("IPR&D") assets represent the fair value
assigned to technologies that were acquired, which at the time of acquisition
have not reached technological feasibility and have no alternative future use.
IPR&D assets are considered to be indefinite-lived until the completion or
abandonment of the associated research and development projects. During the
period that the IPR&D assets are considered indefinite-lived, they are tested
for impairment on an annual basis, or more frequently if the Company becomes
aware of any events occurring or changes in circumstances that indicate that the
fair value of the IPR&D assets are less than their carrying amounts. If and when
development is complete, which generally occurs upon regulatory approval, and
the Company is able to commercialize products associated with the IPR&D assets,
these assets are then deemed definite-lived and are amortized based on their
estimated useful lives at that point in time. If development is terminated or
abandoned, the Company may have a full or partial impairment charge related to
the IPR&D assets, calculated as the excess of carrying value of the IPR&D assets
over fair value. During the year ended December 31, 2019, the Company also did
an impairment analysis related to its IPR&D, and concluded that under the market
value approach, the fair value of its IPR&D was lower than the carrying value
and recorded an impairment charge of $7.9 million.
The IPR&D from MST was acquired on October 31, 2018.
Contingent Consideration
Contingent consideration is recorded as a liability and measured at fair value
using a discounted cash flow model utilizing significant unobservable inputs
including the probability of achieving each of the potential milestones and an
estimated discount rate associated with the risks of the expected cash flows
attributable to the various milestones. Significant increases or decreases in
any of the probabilities of success or changes in expected timelines for
achievement of any of these milestones would result in a significantly higher or
lower fair value of these milestones, respectively, and commensurate changes to
the associated liability. The fair value of the contingent consideration at each
reporting date will be updated by reflecting the changes in fair value in our
statements of operations and comprehensive loss.
Warrant Liabilities
For the Series B Warrants, the warrants are recorded as liabilities and are
revalued at each reporting period. The change in fair value is recognized in the
consolidated statements of operations and comprehensive loss. The selection of
the appropriate valuation model and the inputs and assumptions that are required
to determine the valuation requires significant judgment and requires management
to make estimates and assumptions that affect the reported amount of the related
liability and reported amounts of the change in fair value. Actual results could
differ from those estimates, and changes in these estimates are recorded when
known. As the warrant liability is required to be measured at fair value at each
reporting date, it is reasonably possible that these estimates and assumptions
could change in the near term.

                                       45

--------------------------------------------------------------------------------

Table of Contents

Stock-Based Compensation
We recognize as expense, the grant-date fair value of stock options and other
stock based compensation issued to employees and non-employee directors over the
requisite service periods, which are typically the vesting periods. We use the
Black-Scholes-Merton model to estimate the fair value of our stock-based
payments. The volatility assumption used in the Black-Scholes-Merton model is
based on the calculated historical volatility based on an analysis of reported
data for a peer group of companies as well as the Company's historical
volatility. The expected term of options granted by us has been determined based
upon the simplified method, because we do not have sufficient historical
information regarding our options to derive the expected term. Under this
approach, the expected term is the mid-point between the weighted average of
vesting period and the contractual term. The risk-free interest rate is based on
U.S. Treasury rates whose term is consistent with the expected life of the stock
options. We have not paid and do not anticipate paying cash dividends on our
shares of common stock; therefore, the expected dividend yield is assumed to be
zero. We estimate forfeitures based on our historical experience and adjust the
estimated forfeiture rate based upon actual experience.
Inventory
Inventory, which includes material, labor and overhead costs, is stated at the
lower of cost, determined on a first-in, first-out basis, or net realizable
value. We record reserves, when necessary, to reduce the carrying value of
inventory to its net realizable value. At the point of loss recognition, a new,
lower-cost basis for that inventory is established, and any subsequent
improvements in facts and circumstances do not result in the restoration or
increase in that newly established cost basis.
Any inventory on hand at the measurement date in excess of the Company's current
requirements based on anticipated levels of sales is classified as long-term on
the Company's consolidated balance sheets. The Company's classification of
long-term inventory requires us to estimate the portion of on hand inventory
that can be realized over the upcoming twelve months.
Revenue Recognition
Our revenue consists of product revenue resulting from the sale of systems,
system components, instruments and accessories, and service revenue. We account
for a contract with a customer when there is a legally enforceable contract
between the Company and the customer, the rights of the parties are identified,
the contract has commercial substance, and collectability of the contract
consideration is probable. Our revenues are measured based on consideration
specified in the contract with each customer, net of any sales incentives and
taxes collected from customers that are remitted to government authorities.
Our system sale arrangements generally contain multiple products and services.
For these bundled sale arrangements, we account for individual products and
services as separate performance obligations if they are distinct, which is if a
product or service is separately identifiable from other items in the bundled
package, and if a customer can benefit from it on its own or with other
resources that are readily available to the customer. Our system sale
arrangements include a combination of the following performance obligations:
system(s), system components, instruments, accessories, and system service. Our
system sale arrangements generally include a five-year period of service. The
first year of service is generally free and included in the system sale
arrangement and the remaining four years are generally included at a stated
service price. We consider the service terms in the arrangements that are
legally enforceable to be performance obligations. Other than service, we
generally satisfy all of the performance obligations up-front. System
components, system accessories, instruments, accessories, and service are also
sold on a standalone basis.
We recognize revenues as the performance obligations are satisfied by
transferring control of the product or service to a customer. We generally
recognize revenue for the performance obligations at the following points in
time:
•            System sales. For systems and system components sold 

directly to end

             customers, revenue is recognized when we transfer control to the
             customer, which is generally at the point when acceptance occurs
             that indicates customer acknowledgment of delivery or

installation,

             depending on the terms of the arrangement. For systems sold 

through

             distributors, with the distributors responsible for 

installation,

             revenue is recognized generally at the time of shipment. Our system
             arrangements generally do not provide a right of return. The systems
             are generally covered by a one-year warranty. Warranty costs were
             not material for the periods presented.


•            Instruments and accessories. Revenue from sales of

instruments and

             accessories is recognized when control is transferred to the
             customers, which generally occur at the time of shipment, but 

also

             occur at the time of delivery depending on the customer

arrangement.

             Accessory products include sterile drapes used to help ensure a
             sterile field during surgery, vision products such as

replacement

             endoscopes, camera heads, light guides, and other items that
             facilitate use of the Senhance Surgical System.



                                       46

--------------------------------------------------------------------------------

Table of Contents

•            Service. Service revenue is recognized ratably over the term of the
             service period as the customers benefit from the service throughout
             the service period. Revenue related to services performed on a
             time-and-materials basis is recognized when performed.


For multiple-element arrangements, revenue is allocated to each performance
obligation based on its relative standalone selling price. Standalone selling
prices are based on observable prices at which we separately sell the products
or services. Due to limited sales to date, standalone selling prices are not yet
directly observable. We estimate the standalone selling price using the market
assessment approach considering market conditions and entity-specific factors
including, but not limited to, features and functionality of the products and
services, geographies, type of customer, and market conditions. We regularly
review standalone selling prices and update these estimates if necessary.
Transaction price allocated to remaining performance obligations relates to
amounts allocated to products and services for which the revenue has not yet
been recognized. A significant portion of this amount relates to service
obligations performed under our system sales contracts that will be invoiced and
recognized as revenue in future periods.
We invoice our customers based on the billing schedules in our sales
arrangements. Contract assets for the periods presented primarily represent the
difference between the revenue that was recognized based on the relative selling
price of the related performance obligations and the contractual billing terms
in the arrangements. Deferred revenue for the periods presented was primarily
related to service obligations, for which the service fees are billed up-front,
generally annually. The associated deferred revenue is generally recognized
ratably over the service period.
In connection with assets recognized from the costs to obtain a contract with a
customer, we have determined that sales incentive programs for our sales team do
not meet the requirements to be capitalized as we do not expect to generate
future economic benefits from the related revenue from the initial sales
transaction.
Income Taxes
We account for income taxes using the asset and liability method, which requires
the recognition of deferred tax assets or liabilities for the temporary
differences between financial reporting and tax basis of our assets and
liabilities, and for tax carryforwards at enacted statutory rates in effect for
the years in which the asset or liability is expected to be realized. The effect
on deferred taxes of a change in tax rates is recognized in income during the
period that includes the enactment date. In addition, valuation allowances are
established when necessary to reduce deferred tax assets and liabilities to the
amounts expected to be realized.
On December 22, 2017, the Tax Cuts and Jobs Act ("Tax Legislation") was enacted
into law, which reduced the U.S. federal corporate income tax rate to 21% for
tax years beginning after December 31, 2017. As a result of the newly enacted
tax rate, we adjusted our U.S. deferred tax assets as of December 31, 2017, by
applying the new 21% rate, which resulted in a decrease to the deferred tax
assets and a corresponding decrease to the valuation allowance of approximately
$36.1 million.
The Tax Legislation also implements a territorial tax system. Under the
territorial tax system, in general, our foreign earnings will no longer be
subject to tax in the U.S. As part of transition to the territorial tax system
the Tax Legislation includes a mandatory deemed repatriation of all
undistributed foreign earnings that are subject to a U.S. income tax. We
estimate that the deemed repatriation will not result in any additional U.S.
income tax liability as we estimate we currently have no undistributed foreign
earnings.
U.S. shareholders are subject to tax on global intangible low-taxed income
(GILTI) earned by certain foreign subsidiaries. The FASB Staff Q&A, Topic 740,
No. 5, Accounting for Global Intangible Low-Taxed Income, states that an entity
can make an accounting policy election to either recognize deferred taxes for
temporary basis differences expected to reverse as GILTI in future years or to
provide for the tax expense related to GILTI in the year the tax is incurred as
a period expense only. The Company has elected to account for GILTI in the year
the tax is incurred. As of December 31, 2019, no GILTI tax has been recorded.
In a referendum held on May 19, 2019, Swiss voters adopted the Federal Act on
Tax Reform and AVS Financing (TRAF). TRAF introduces major changes in the Swiss
tax system by abolishing certain current preferential tax regimes and replacing
them with new measures that are in line with international standards. The
referendum did not have a material impact on the Company's 2019 tax provision.
The Company will continue to evaluate the impact of these provisions in future
periods as the enactment process in completed.
Recent Accounting Pronouncements
See "Note 2. Summary of Significant Accounting Policies" of the Notes to
Consolidated Financial Statements in "Item 8. Financial Statements and
Supplementary Data" of this Annual Report for a full description of recent
accounting pronouncements including

                                       47

--------------------------------------------------------------------------------

Table of Contents

the respective expected dates of adoption and effects on our Consolidated Balance Sheets and Consolidated Statements of Operations and Comprehensive Loss.

© Edgar Online, source Glimpses