##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2010
 or
 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.)
 301 GOVERNMENT CENTER DRIVE, WILMINGTON, NC 28403
(Address of principal executive office) (Zip code)
 (910) 332-1700
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 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
    
    13Item 4.
    
    Controls and Procedures
    
    14PART II.
    
    OTHER INFORMATIONItem 6.
    
    Exhibits
    
    14SIGNATURES
    
    15EXHIBIT INDEX
    
    16Exhibit 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. Consolidated Financial Statements.
 TranS1 Inc.  
 Consolidated Statements of Operations
(in thousands, except per share amounts)
(Unaudited)
 Three Months Ended March 31,2010
    
    
    2009Revenue
    
    $
    6,713
    
    
    $
    8,678Cost of revenue
    
    
    1,429
    
    
    
    1,542Gross profit
    
    
    5,284
    
    
    
    7,136Operating expenses:Research and development
    
    
    1,255
    
    
    
    1,326Sales and marketing
    
    
    7,697
    
    
    
    9,150General and administrative
    
    
    2,639
    
    
    
    2,041Total operating expenses
    
    
    11,591
    
    
    
    12,517Operating loss
    
    
    (6,307
    )
    
    
    (5,381
    )Interest and other income (loss)
    
    
    (49
    )
    
    
    217Net loss
    
    $
    (6,356
    )
    
    $
    (5,164
    )Net loss per common share  basic
and diluted
    
    $
    (0.31
    )
    
    $
    (0.25
    )Weighted average common shares
outstanding  basic and diluted
    
    
    20,655
    
    
    
    20,552
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TranS1 Inc.  
 Consolidated Balance Sheets
(in thousands)
(Unaudited)
 March 31,
    
    
    December 31,2010
    
    
    2009AssetsCurrent assets:Cash and cash equivalents
    
    $
    28,751
    
    
    $
    29,298Short-term investments
    
    
    20,960
    
    
    
    25,953Accounts receivable, net
    
    
    4,577
    
    
    
    3,926Inventory
    
    
    6,856
    
    
    
    7,325Prepaid expenses and other assets
    
    
    658
    
    
    
    676Total current assets
    
    
    61,802
    
    
    
    67,178Property and equipment, net
    
    
    1,776
    
    
    
    1,813Total assets
    
    $
    63,578
    
    
    $
    68,991Liabilities and Stockholders EquityCurrent liabilities:Accounts payable
    
    $
    2,141
    
    
    $
    2,442Accrued expenses
    
    
    1,980
    
    
    
    1,269Total current liabilities
    
    
    4,121
    
    
    
    3,711Stockholders equityCommon stock
    
    
    2
    
    
    
    2Additional paid-in capital
    
    
    136,943
    
    
    
    136,402Accumulated other comprehensive income (loss)
    
    
    (13
    )
    
    
    (5
    )Accumulated deficit
    
    
    (77,475
    )
    
    
    (71,119
    )Total stockholders equity
    
    
    59,457
    
    
    
    65,280Total liabilities and stockholders equity
    
    $
    63,578
    
    
    $
    68,991
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TranS1 Inc.  
 Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
 Three Months Ended March 31,2010
    
    
    2009Cash flows from operating activities:Net loss
    
    $
    (6,356
    )
    
    $
    (5,164
    )Adjustments to reconcile net loss to net cash used in
operating activitiesDepreciation
    
    
    231
    
    
    
    229Stock-based compensation
    
    
    530
    
    
    
    643Allowance for excess and obsolete inventory
    
    
    276
    
    
    
    35Provision for bad debts
    
    
    18
    
    
    
    24Loss on sale of fixed assets
    
    
    71
    
    
    
    Changes in operating assets and liabilities:Increase in accounts receivable
    
    
    (669
    )
    
    
    (659
    )(Increase) decrease in inventory
    
    
    193
    
    
    
    (191
    )Decrease in prepaid expenses
    
    
    18
    
    
    
    30Increase (decrease) in accounts payable
    
    
    (301
    )
    
    
    48Increase in accrued expenses
    
    
    711
    
    
    
    50Net cash used in operating activities
    
    
    (5,278
    )
    
    
    (4,955
    )Cash flows from investing activities:Purchases of property and equipment
    
    
    (265
    )
    
    
    (277
    )Purchases of investments
    
    
    (3,986
    )
    
    
    (2,973
    )Sales and maturities of investments
    
    
    8,979
    
    
    
    18,919Net cash provided by investing activities
    
    
    4,728
    
    
    
    15,669Cash flows from financing activities:Proceeds from issuance of common stock
    
    
    3
    
    
    
    21Net cash provided by financing activities
    
    
    3
    
    
    
    21Net increase (decrease) in cash and cash
equivalents
    
    
    (547
    )
    
    
    10,735Cash and cash equivalents, beginning of period
    
    
    29,298
    
    
    
    42,051Cash and cash equivalents, end of period
    
    $
    28,751
    
    
    $
    52,786
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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
  5




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Three Months EndedMarch 31,2010
    
    
    2009Weighted average stock options
outstanding
    
    
    2,308,038
    
    
    
    2,264,005
 5. Cash, Cash Equivalents and Investments
    6. Accounts Receivable, Net
  March 31,
    
    
    December 31,2010
    
    
    2009(In thousands)Gross accounts receivable
    
    $
    4,757
    
    
    $
    4,119Allowance for uncollectible accounts
    
    
    (180
    )
    
    
    (193
    )Total accounts receivable, net
    
    $
    4,577
    
    
    $
    3,926
 7. Inventories
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March 31,
    
    
    December 31,2010
    
    
    2009(In thousands)Work-in-process
    
    $
    3,828
    
    
    $
    3,993Finished goods
    
    
    2,823
    
    
    
    3,112Raw materials
    
    
    205
    
    
    
    220Total inventories
    
    $
    6,856
    
    
    $
    7,325
 8. Accrued Expenses
  March 31,
    
    
    December 31,2010
    
    
    2009(In thousands)Commissions
    
    $
    665
    
    
    $
    597Salaries and severance
    
    
    375
    
    
    
    47Vacation
    
    
    279
    
    
    
    186Bonus
    
    
    233
    
    
    
    10Legal and professional fees
    
    
    107
    
    
    
    90Franchise tax
    
    
    95
    
    
    
    122Consulting
    
    
    93
    
    
    
    120Other
    
    
    133
    
    
    
    97Total accrued expenses
    
    $
    1,980
    
    
    $
    1,269
 9. Comprehensive Loss
  Three Months EndedMarch 31,2010
    
    
    2009(In thousands)Net loss
    
    $
    (6,356
    )
    
    $
    (5,164
    )Other comprehensive
income (loss):Translation adjustments
    
    
    (8
    )
    
    
    Total comprehensive loss
    
    $
    (6,364
    )
    
    $
    (5,164
    )
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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,
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
 ®
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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 and Other Income (Loss)
  Results of Operations
 Comparison of the Three Months Ended March 31, 2009 and 2010
  10




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Liquidity and Capital Resources
 Sources of Liquidity
    Cash Flows
    12




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Operating Capital and Capital Expenditure Requirements
  Critical Accounting Policies and Estimates
   New Accounting Standards
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
  13




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Item 4. Controls and Procedures.
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control over Financial Reporting
  
 PART II. OTHER INFORMATION
 
 Item 6. Exhibits
  14




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SIGNATURES
  TranS1 Inc.Date:      May 10, 2010
    By:
    /s/ Richard RandallRichard RandallChief Executive OfficerDate:      May 10, 2010
    By:
    /s/ Joseph SlatteryJoseph SlatteryExecutive Vice-President and
Chief Financial Officer 15




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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.
 16