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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2008
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period  to
 Commission File Number 001-33744
 TRANS1 INC.
  DELAWARE
(State or other jurisdiction of 
incorporation or organization)
    
    33-0909022
(I.R.S. employer
identification no.)
 411 LANDMARK DRIVE, WILMINGTON, NC 28412-6303
 (910) 332-1700
 þ o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



PART I. FINANCIAL INFORMATIONItem 1. Financial Statements(unaudited)Statements of Operations
    
    
    1Balance Sheets
    
    
    2Statements of Cash Flows
    
    
    3Notes to 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 4T. Controls and Procedures
    
    
    16PART II. OTHER INFORMATIONItem 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    16Item 6. Exhibits
    
    
    17SIGNATURES
    
    
    18EXHIBIT INDEX
    
    
    19Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2EX-31.1EX-31.2EX-32.1EX-32.2




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PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements.
 TranS1 Inc.
 
 Statements of Operations
 (in thousands, except per share amounts)
 (Unaudited)
 Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Revenue
    
    $
    6,021
    
    
    $
    4,327
    
    
    $
    17,950
    
    
    $
    11,514Cost of revenue
    
    
    1,011
    
    
    
    754
    
    
    
    3,186
    
    
    
    2,213Gross profit
    
    
    5,010
    
    
    
    3,573
    
    
    
    14,764
    
    
    
    9,301Operating expenses:Research and development
    
    
    1,163
    
    
    
    1,320
    
    
    
    3,940
    
    
    
    3,599Sales and marketing
    
    
    7,782
    
    
    
    3,780
    
    
    
    20,680
    
    
    
    10,616General and administrative
    
    
    1,418
    
    
    
    812
    
    
    
    4,864
    
    
    
    1,895Total operating expenses
    
    
    10,363
    
    
    
    5,912
    
    
    
    29,484
    
    
    
    16,110Operating loss
    
    
    (5,353
    )
    
    
    (2,339
    )
    
    
    (14,720
    )
    
    
    (6,809
    )Interest income
    
    
    589
    
    
    
    125
    
    
    
    2,218
    
    
    
    468Net loss
    
    $
    (4,764
    )
    
    $
    (2,214
    )
    
    $
    (12,502
    )
    
    $
    (6,341
    )Net loss per common share  basic
and diluted
    
    $
    (0.23
    )
    
    $
    (0.87
    )
    
    $
    (0.62
    )
    
    $
    (2.54
    )Weighted average common shares
outstanding  basic and diluted
    
    
    20,474
    
    
    
    2,549
    
    
    
    20,206
    
    
    
    2,495
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TranS1 Inc.
 
 Balance Sheets
(in thousands)
(Unaudited)
 September 30,
    
    
    December 31,2008
    
    
    2007AssetsCurrent assets:Cash and cash equivalents
    
    $
    42,930
    
    
    $
    64,676Short-term investments
    
    
    25,949
    
    
    
    29,245Accounts receivable, net
    
    
    3,752
    
    
    
    3,225Inventory
    
    
    5,453
    
    
    
    4,025Prepaid expenses and other assets
    
    
    401
    
    
    
    597Total current assets
    
    
    78,485
    
    
    
    101,768Property and equipment, net
    
    
    1,508
    
    
    
    1,088Long-term investments
    
    
    14,331
    
    
    
    Total assets
    
    $
    94,324
    
    
    $
    102,856Liabilities and Stockholders EquityCurrent liabilities:Accounts payable
    
    $
    2,403
    
    
    $
    1,631Accrued expenses
    
    
    2,198
    
    
    
    1,786Total current liabilities
    
    
    4,601
    
    
    
    3,417Stockholders equityCommon stock
    
    
    2
    
    
    
    2Additional paid-in capital
    
    
    133,111
    
    
    
    130,325Accumulated deficit
    
    
    (43,390
    )
    
    
    (30,888
    )Total stockholders equity
    
    
    89,723
    
    
    
    99,439Total liabilities and stockholders equity
    
    $
    94,324
    
    
    $
    102,856
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TranS1 Inc.
 
 Statements of Cash Flows
(in thousands)
(Unaudited)
 Nine Months Ended September 30,2008
    
    
    2007Cash flows from operating activities:Net loss
    
    $
    (12,502
    )
    
    $
    (6,341
    )Adjustments to reconcile net loss to net cash used in
operating activitiesDepreciation
    
    
    583
    
    
    
    410Stock-based compensation
    
    
    2,598
    
    
    
    1,774Allowance for excess and obsolete inventory
    
    
    376
    
    
    
    168Provision for bad debts
    
    
    84
    
    
    
    32Changes in operating assets and liabilities:(Increase) decrease in accounts receivable
    
    
    (611
    )
    
    
    (2,231
    )(Increase) decrease in inventory
    
    
    (1,804
    )
    
    
    (1,791
    )(Increase) decrease in prepaid expenses
    
    
    196
    
    
    
    (154
    )Increase (decrease) in accounts payable
    
    
    772
    
    
    
    1,001Increase (decrease) in accrued expenses
    
    
    412
    
    
    
    1,062Net cash used in operating activities
    
    
    (9,896
    )
    
    
    (6,070
    )Cash flows from investing activities:Purchase of property and equipment
    
    
    (1,003
    )
    
    
    (414
    )Purchases of short-term investments
    
    
    (36,495
    )
    
    
    (2,783
    )Sales of short-term investments
    
    
    39,791
    
    
    
    10,644Purchases of long-term investments
    
    
    (14,331
    )
    
    
    Net cash provided by (used in) investing activities
    
    
    (12,038
    )
    
    
    7,447Cash flows from financing activities:Proceeds from issuance of common stock
    
    
    188
    
    
    
    107Deferred financing costs
    
    
    
    
    
    
    (1,214
    )Net cash provided by (used in) financing activities
    
    
    188
    
    
    
    (1,107
    )Net increase (decrease) in cash and cash
equivalents
    
    
    (21,746
    )
    
    
    270Cash and cash equivalents, beginning of period
    
    
    64,676
    
    
    
    5,034Cash and cash equivalents, end of period
    
    $
    42,930
    
    
    $
    5,304
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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. Loss per share
  5




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Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2008
    
    2007
    
    2008
    
    2007Convertible preferred stock
    
    
    
    
    
    
    10,793,165
    
    
    
    
    
    
    
    10,793,165Weighted average stock options
outstanding
    
    
    2,300,906
    
    
    
    2,124,134
    
    
    
    1,982,502
    
    
    
    1,856,215
 5. Cash, Cash Equivalents and Investments
    6. Accounts receivable, net
  September 30,
    
    
    December 31,2008
    
    
    2007(In thousands)Gross accounts receivable
    
    $
    3,926
    
    
    $
    3,335
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September 30,
    
    
    December 31,2008
    
    
    2007(In thousands)Allowance for uncollectible accounts
    
    
    (174
    )
    
    
    (110
    )Total accounts receivable, net
    
    $
    3,752
    
    
    $
    3,225
 7. Inventories
  September 30,
    
    
    December 31,2008
    
    
    2007(In thousands)Finished goods
    
    $
    2,100
    
    
    $
    1,624Work-in-process
    
    
    2,886
    
    
    
    2,189Raw materials
    
    
    467
    
    
    
    212Total inventories
    
    $
    5,453
    
    
    $
    4,025
 8. Accrued Expenses
  September 30,
    
    
    December 31,2008
    
    
    2007(In thousands)Commissions
    
    $
    708
    
    
    $
    561Bonus
    
    
    548
    
    
    
    426Legal and professional fees
    
    
    238
    
    
    
    277Personnel related
    
    
    404
    
    
    
    170Travel & entertainment
    
    
    150
    
    
    
    127Consulting
    
    
    62
    
    
    
    59Clinical
    
    
    20
    
    
    
    94Other
    
    
    68
    
    
    
    72Total accrued expenses
    
    $
    2,198
    
    
    $
    1,786
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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 financial statements and the related notes to our 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, 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 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, Financial Statements and Notes to Financial Statements included in
our Annual Report on Form 10-K for the year ended December 31, 2007. 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.
 Overview
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Financial Operations
 Revenue
  9




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Cost of Revenue
  Research and Development
  Sales and Marketing
  General and Administrative
  Interest Income
  Results of Operations
 Comparison of the Three Months Ended September 30, 2007 and 2008
  10




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Comparison of the Nine Months Ended September 30, 2007 and 2008
    12




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Liquidity and Capital Resources
 Sources of Liquidity
    13




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Cash Flows
    Operating Capital and Capital Expenditure Requirements
  Critical Accounting Policies and Estimates
  14




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New Accounting Standards
     
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
  15




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Item 4T. Controls and Procedures.
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control over Financial Reporting
  
 PART II. OTHER INFORMATION
 
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 (b) Uses of Proceeds from Sale of Registered Securities
  16




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Item 6. Exhibits
  17




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SIGNATURES
  TranS1 Inc.Date:      October 31, 2008
    By:
    /s/ Richard RandallRichard RandallPresident and Chief Executive OfficerDate:      October 31, 2008
    By:
    /s/ Michael LuetkemeyerMichael LuetkemeyerChief Financial Officer 18




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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.
 19