##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC 20549
 FORM 10-Q
 þ     o
  TRANS1 INC.
  DELAWARE
(State or other jurisdiction of 
incorporation or organization)
    
    33-0909022
(I.R.S. employer
identification no.)
 301 GOVERNMENT CENTER DRIVE, WILMINGTON, NC 28403
 (910) 332-1700
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer oNon-accelerated filer o
    
    Smaller reporting company þ
 o þ




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##### 



PART I.
    
    FINANCIAL INFORMATIONItem 1.
    
    Consolidated Financial Statements(unaudited)Consolidated Statements of Operations
    
    
    1Consolidated Balance Sheets
    
    
    2Consolidated Statements of Cash Flows
    
    
    3Notes to Consolidated Financial Statements
    
    
    4Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    8Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    15Item 4.
    
    Controls and Procedures
    
    
    15PART II.
    
    OTHER INFORMATIONItem 6.
    
    Exhibits
    
    
    16SIGNATURES
    
    
    
    
    17EXHIBIT INDEX
    
    
    
    
    18EX-31.1EX-31.2EX-32.1EX-32.2




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PART I. FINANCIAL INFORMATION
 
 Item 1. Consolidated Financial Statements.
 TranS1 Inc.
 
 Consolidated Statements of Operations  (in thousands, except per share amounts)  (Unaudited)
 Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Revenue
    
    $
    6,339
    
    
    $
    6,912
    
    
    $
    20,296
    
    
    $
    23,528Cost of revenue
    
    
    1,205
    
    
    
    1,366
    
    
    
    3,998
    
    
    
    4,423Gross profit
    
    
    5,134
    
    
    
    5,546
    
    
    
    16,298
    
    
    
    19,105Operating expenses:Research and development
    
    
    1,026
    
    
    
    1,362
    
    
    
    3,307
    
    
    
    5,047Sales and marketing
    
    
    5,908
    
    
    
    8,126
    
    
    
    20,053
    
    
    
    26,219General and administrative
    
    
    2,011
    
    
    
    1,683
    
    
    
    6,716
    
    
    
    5,714Total operating expenses
    
    
    8,945
    
    
    
    11,171
    
    
    
    30,076
    
    
    
    36,980Operating loss
    
    
    (3,811
    )
    
    
    (5,625
    )
    
    
    (13,778
    )
    
    
    (17,875
    )Other income (expense)
    
    
    20
    
    
    
    54
    
    
    
    (15
    )
    
    
    382Net loss
    
    $
    (3,791
    )
    
    $
    (5,571
    )
    
    $
    (13,793
    )
    
    $
    (17,493
    )Net loss per common share  basic
and diluted
    
    $
    (0.18
    )
    
    $
    (0.27
    )
    
    $
    (0.67
    )
    
    $
    (0.85
    )Weighted average common shares
outstanding  basic and diluted
    
    
    20,741
    
    
    
    20,630
    
    
    
    20,694
    
    
    
    20,591
  1




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TranS1 Inc.
 
 Consolidated Balance Sheets  (in thousands, except share amounts)  (Unaudited)
 September 30,
    
    
    December 31,2010
    
    
    2009AssetsCurrent assets:Cash and cash equivalents
    
    $
    25,089
    
    
    $
    29,298Short-term investments
    
    
    18,980
    
    
    
    25,953Accounts receivable, net
    
    
    4,428
    
    
    
    3,926Inventory
    
    
    6,164
    
    
    
    7,325Prepaid expenses and other assets
    
    
    338
    
    
    
    676Total current assets
    
    
    54,999
    
    
    
    67,178Property and equipment, net
    
    
    1,569
    
    
    
    1,813Total assets
    
    $
    56,568
    
    
    $
    68,991Liabilities and Stockholders EquityCurrent liabilities:Accounts payable
    
    $
    1,294
    
    
    $
    2,442Accrued expenses
    
    
    2,249
    
    
    
    1,269Total current liabilities
    
    
    3,543
    
    
    
    3,711Stockholders equity:Common stock, $0.0001 par value; 75,000,000
shares authorized, 20,857,717 and 20,648,447
shares issued and outstanding at September 30, 2010 and December 31,
2009, respectively
    
    
    2
    
    
    
    2Additional paid-in capital
    
    
    137,951
    
    
    
    136,402Accumulated other comprehensive income (loss)
    
    
    (16
    )
    
    
    (5
    )Accumulated deficit
    
    
    (84,912
    )
    
    
    (71,119
    )Total stockholders equity
    
    
    53,025
    
    
    
    65,280Total liabilities and stockholders equity
    
    $
    56,568
    
    
    $
    68,991
  2




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TranS1 Inc.
 
 Consolidated Statements of Cash Flows  (in thousands)  (Unaudited)
 Nine Months Ended September 30,2010
    
    
    2009Cash flows from operating activities:Net loss
    
    $
    (13,793
    )
    
    $
    (17,493
    )Adjustments to reconcile net loss to net cash used in
operating activities:Depreciation
    
    
    592
    
    
    
    684Stock-based compensation
    
    
    1,421
    
    
    
    2,200Allowance for excess and obsolete inventory
    
    
    341
    
    
    
    541Provision for bad debts
    
    
    54
    
    
    
    63Loss on sale of fixed assets
    
    
    70
    
    
    
    Changes in operating assets and liabilities:(Increase) decrease in accounts receivable
    
    
    (556
    )
    
    
    581(Increase) decrease in inventory
    
    
    820
    
    
    
    (1,843
    )Decrease in prepaid expenses
    
    
    338
    
    
    
    199Decrease in accounts payable
    
    
    (1,148
    )
    
    
    (241
    )Increase (decrease) in accrued expenses
    
    
    980
    
    
    
    (229
    )Net cash used in operating activities
    
    
    (10,881
    )
    
    
    (15,538
    )Cash flows from investing activities:Purchases of property and equipment
    
    
    (418
    )
    
    
    (553
    )Purchases of investments
    
    
    (7,969
    )
    
    
    (39,911
    )Sales and maturities of investments
    
    
    14,942
    
    
    
    44,157Net cash provided by (used in) investing activities
    
    
    6,555
    
    
    
    3,693Cash flows from financing activities:Proceeds from issuance of common stock
    
    
    128
    
    
    
    89Net cash provided by financing activities
    
    
    128
    
    
    
    89Effect of exchange rate changes on cash and cash
equivalents
    
    
    (11
    )
    
    
    3Net decrease in cash and cash equivalents
    
    
    (4,209
    )
    
    
    (11,753
    )Cash and cash equivalents, beginning of period
    
    
    29,298
    
    
    
    42,051Cash and cash equivalents, end of period
    
    $
    25,089
    
    
    $
    30,298
  3




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TranS1 Inc.
 
 
 1. Description of Business
    2. Basis of presentation
  4




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Impact of Recently Issued Accounting Standards
  3. Income Taxes
  4. Net Loss Per Common Share
   Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Weighted average stock options
outstanding
    
    
    2,137,880
    
    
    
    2,441,139
    
    
    
    1,791,803
    
    
    
    2,274,259
 5. Cash, Cash Equivalents and Investments
  5




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6. Accounts Receivable, Net
  September 30,
    
    
    December 31,2010
    
    
    2009(In thousands)Gross accounts receivable
    
    $
    4,629
    
    
    $
    4,119Allowance for uncollectible accounts
    
    
    (201
    )
    
    
    (193
    )Total accounts receivable, net
    
    $
    4,428
    
    
    $
    3,926
 7. Inventories
  September 30,
    
    
    December 31,2010
    
    
    2009(In thousands)Work-in-process
    
    $
    3,332
    
    
    $
    3,993Finished goods
    
    
    2,618
    
    
    
    3,112Raw materials
    
    
    214
    
    
    
    220Total inventories
    
    $
    6,164
    
    
    $
    7,325
 6




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8. Accrued Expenses
  September 30,
    
    
    December 31,2010
    
    
    2009(In thousands)Bonus
    
    $
    702
    
    
    $
    10Commissions
    
    
    577
    
    
    
    597Vacation
    
    
    320
    
    
    
    186Legal and professional fees
    
    
    206
    
    
    
    90Salaries and severance
    
    
    139
    
    
    
    47Travel and entertainment
    
    
    101
    
    
    
    50Franchise Tax
    
    
    96
    
    
    
    122Consulting
    
    
    83
    
    
    
    120Other
    
    
    25
    
    
    
    47Total accrued expenses
    
    $
    2,249
    
    
    $
    1,269
 9. Comprehensive Loss
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(In thousands)
    
    
    (In thousands)Net loss
    
    $
    (3,791
    )
    
    $
    (5,571
    )
    
    $
    (13,793
    )
    
    $
    (17,493
    )Other comprehensive
income (loss):Translation adjustments
    
    
    
    
    
    
    (1
    )
    
    
    (11
    )
    
    
    3Total comprehensive loss
    
    $
    (3,791
    )
    
    $
    (5,572
    )
    
    $
    (13,804
    )
    
    $
    (17,490
    )
 7




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
 The following discussion of our financial condition and results of operations should be read in
conjunction with our consolidated financial statements and the related notes to our consolidated
financial statements included in this report. In addition to historical financial information, this
report contains forward-looking statements that have been made pursuant to the provisions of the
Private Securities Litigation Reform Act of 1995 and concern matters that involve risks and
uncertainties that could cause actual results to differ materially from those projected in the
forward-looking statements. All statements other than statements of historical fact contained in
this report, including statements regarding future events, our future financial performance, our
business strategy and plans and objectives of management for future operations, are forward-looking
statements. We have attempted to identify forward-looking statements by terminology including
anticipates, believes, can, continue, could, estimates, expects, intends, may,
plans, potential, predicts, should or will or the negative of these terms or other
comparable terminology. Although we do not make forward-looking statements unless we believe we
have a reasonable basis for doing so, we cannot guarantee their accuracy. Such forward-looking
statements are subject to risks, uncertainties and other factors that could cause actual results
and the timing of certain events to differ materially from future results expressed or implied by
such forward-looking statements. Readers are urged to carefully review and consider the
various disclosures made by us, which attempt to advise interested parties of the risks,
uncertainties, and other factors that affect our business, operating results, financial condition
and stock price, including without limitation the disclosures made under the caption Managements
Discussion and Analysis of Financial Condition and Results of Operations in this report and in the
consolidated financial statements and notes thereto included elsewhere in this report, as well as
the disclosures made under the captions Managements Discussion and Analysis of Financial
Condition and Results of Operations, Risk Factors, Consolidated Financial Statements and
Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the
year ended December 31, 2009. Furthermore, such forward-looking statements speak only as of the
date of this report. We expressly disclaim any intent or obligation to update any forward-looking
statements after the date hereof to conform such statements to actual results or to changes in our
opinions or expectations. References in this report to TranS1, we, our, us, or the
Company refer to TranS1 Inc.
 Overview
   8




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Financial Operations
 Three Months Ended September 30,
    
    
    Nine Months Ended September 30,%
    
    
    
    
    
    
    
    
    %2010
    
    
    2009
    
    
    change
    
    
    2010
    
    
    2009
    
    
    change(in thousands, except gross margin)Revenue
    
    $
    6,339
    
    
    $
    6,912
    
    
    
    -8.3
    %
    
    $
    20,296
    
    
    $
    23,528
    
    
    
    -13.7
    %Cost of revenue
    
    
    1,205
    
    
    
    1,366
    
    
    
    -11.8
    %
    
    
    3,998
    
    
    
    4,423
    
    
    
    -9.6
    %Gross margin
    
    
    81.0
    %
    
    
    80.2
    %
    
    
    1.0
    %
    
    
    80.3
    %
    
    
    81.2
    %
    
    
    -1.1
    %
 Revenue
  9




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Cost of Revenue
  Research and Development
  Sales and Marketing
  General and Administrative
  Other Income (Expense)
  Results of Operations
 Comparison of the Three Months Ended September 30, 2009 and 2010
 Revenue
 10




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Cost of Revenue
 Research and Development
 Sales and Marketing
 General and Administrative
 Other Income (Expense)
 11




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Comparison of the Nine Months Ended September 30, 2009 and 2010
 Revenue .
 Cost of Revenue
 Research and Development
 Sales and Marketing
 12




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General and Administrative
 Other Income (Expense)
 Liquidity and Capital Resources
 Sources of Liquidity
    Cash Flows
 Net Cash Used in Operating Activities
 13




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Net Cash Provided by Investing Activities
 Net Cash Provided by Financing Activities
 Operating Capital and Capital Expenditure Requirements
  Critical Accounting Policies and Estimates
   New Accounting Standards
  14




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Item 3. Quantitative and Qualitative Disclosures About Market Risk
   
 Item 4. Controls and Procedures.
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control over Financial Reporting
   15




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PART II. OTHER INFORMATION
 
 Item 6. Exhibits
  16




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SIGNATURES
  TranS1 Inc.Date:      November 10, 2010
    By:

/s/
Richard RandallRichard RandallChief Executive OfficerDate:      November 10, 2010
    By:

/s/
Joseph P. SlatteryJoseph P. SlatteryExecutive Vice-President and Chief Financial Officer 17




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TranS1 Inc.
 
 Exhibit Index
 ExhibitNo.
    
    Description31.1
    
    Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) / 15d-14(a) of the
Securities Exchange Act of 1934.

31.2
    
    Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) / 15d-14(a) of the
Securities Exchange Act of 1934.32.1
    
    Certification of Chief Executive Officer Pursuant to Rule 13a-14(b) / 15d-14(b) of the
Securities Exchange Act of 1934 and 18 U.S.C. Section 1350.32.2
    
    Certification of Chief Financial Officer Pursuant to Rule 13a-14(b) / 15d-14(b) of the
Securities Exchange Act of 1934 and 18 U.S.C. Section 1350.
 18