##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC 20549
 FORM 10-Q
 x     o
  TRANS1 INC.
  DELAWARE
    
    33-0909022(State or other jurisdiction of
    
    (I.R.S. employerincorporation or organization)
    
    identification no.)
 301 GOVERNMENT CENTER DRIVE, WILMINGTON, NC 28403
 (910) 332-1700
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer þNon-accelerated filer o
    
    Smaller reporting company o
 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
    
    
    14Item 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 June 30,
    
    
    Six Months Ended June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Revenue
    
    $
    7,244
    
    
    $
    7,938
    
    
    $
    13,957
    
    
    $
    16,616Cost of revenue
    
    
    1,364
    
    
    
    1,515
    
    
    
    2,793
    
    
    
    3,057Gross profit
    
    
    5,880
    
    
    
    6,423
    
    
    
    11,164
    
    
    
    13,559Operating expenses:Research and development
    
    
    1,027
    
    
    
    2,359
    
    
    
    2,282
    
    
    
    3,685Sales and marketing
    
    
    6,447
    
    
    
    8,943
    
    
    
    14,144
    
    
    
    18,093General and administrative
    
    
    2,067
    
    
    
    1,991
    
    
    
    4,706
    
    
    
    4,031Total operating expenses
    
    
    9,541
    
    
    
    13,293
    
    
    
    21,132
    
    
    
    25,809Operating loss
    
    
    (3,661
    )
    
    
    (6,870
    )
    
    
    (9,968
    )
    
    
    (12,250
    )Other income (expense)
    
    
    15
    
    
    
    111
    
    
    
    (34
    )
    
    
    328Net loss
    
    $
    (3,646
    )
    
    $
    (6,759
    )
    
    $
    (10,002
    )
    
    $
    (11,922
    )Net loss per common share  basic
and diluted
    
    $
    (0.18
    )
    
    $
    (0.33
    )
    
    $
    (0.48
    )
    
    $
    (0.58
    )Weighted average common shares
outstanding  basic and diluted
    
    
    20,685
    
    
    
    20,590
    
    
    
    20,670
    
    
    
    20,571
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TranS1 Inc.
Consolidated Balance Sheets
(in thousands, except share amounts)
(Unaudited)
 June 30,
    
    
    December 31,2010
    
    
    2009AssetsCurrent assets:Cash and cash equivalents
    
    $
    27,761
    
    
    $
    29,298Short-term investments
    
    
    18,962
    
    
    
    25,953Accounts receivable, net
    
    
    4,581
    
    
    
    3,926Inventory
    
    
    6,427
    
    
    
    7,325Prepaid expenses and other assets
    
    
    619
    
    
    
    676Total current assets
    
    
    58,350
    
    
    
    67,178Property and equipment, net
    
    
    1,673
    
    
    
    1,813Total assets
    
    $
    60,023
    
    
    $
    68,991Liabilities and Stockholders EquityCurrent liabilities:Accounts payable
    
    $
    1,707
    
    
    $
    2,442Accrued expenses
    
    
    1,946
    
    
    
    1,269Total current liabilities
    
    
    3,653
    
    
    
    3,711Stockholders equity:Common stock, $0.0001 par value; 75,000,000
shares authorized, 20,704,343 and 20,648,447
shares issued and outstanding at June 30, 2010
and December 31, 2009, respectively
    
    
    2
    
    
    
    2Additional paid-in capital
    
    
    137,505
    
    
    
    136,402Accumulated other comprehensive income (loss)
    
    
    (16
    )
    
    
    (5
    )Accumulated deficit
    
    
    (81,121
    )
    
    
    (71,119
    )Total stockholders equity
    
    
    56,370
    
    
    
    65,280Total liabilities and stockholders equity
    
    $
    60,023
    
    
    $
    68,991
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TranS1 Inc.
Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
 Six Months Ended June 30,2010
    
    
    2009Cash flows from operating activities:Net loss
    
    $
    (10,002
    )
    
    $
    (11,922
    )Adjustments to reconcile net loss to net cash used in
operating activities:Depreciation
    
    
    426
    
    
    
    448Stock-based compensation
    
    
    1,062
    
    
    
    1,587Allowance for excess and obsolete inventory
    
    
    285
    
    
    
    383Provision for bad debts
    
    
    38
    
    
    
    45Loss on sale of fixed assets
    
    
    70
    
    
    
    Changes in operating assets and liabilities:(Increase) decrease in accounts receivable
    
    
    (693
    )
    
    
    60(Increase) decrease in inventory
    
    
    613
    
    
    
    (1,360
    )Decrease in prepaid expenses
    
    
    57
    
    
    
    85Increase (decrease) in accounts payable
    
    
    (735
    )
    
    
    203Increase in accrued expenses
    
    
    677
    
    
    
    12Net cash used in operating activities
    
    
    (8,202
    )
    
    
    (10,459
    )Cash flows from investing activities:Purchases of property and equipment
    
    
    (356
    )
    
    
    (410
    )Purchases of investments
    
    
    (7,969
    )
    
    
    (33,922
    )Sales and maturities of investments
    
    
    14,960
    
    
    
    31,862Net cash provided by (used in) investing activities
    
    
    6,635
    
    
    
    (2,470
    )Cash flows from financing activities:Proceeds from issuance of common stock
    
    
    41
    
    
    
    81Net cash provided by financing activities
    
    
    41
    
    
    
    81Effect of exchange rate changes on cash and cash
equivalents
    
    
    (11
    )
    
    
    4Net decrease in cash and cash equivalents
    
    
    (1,537
    )
    
    
    (12,844
    )Cash and cash equivalents, beginning of period
    
    
    29,298
    
    
    
    42,051Cash and cash equivalents, end of period
    
    $
    27,761
    
    
    $
    29,207
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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 Ended June 30,
    
    
    Six Months Ended June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Weighted average stock options
outstanding
    
    
    2,080,393
    
    
    
    2,350,270
    
    
    
    1,774,184
    
    
    
    2,247,111
 5. Cash, Cash Equivalents and Investments
    6. Accounts Receivable, Net
  June 30,
    
    
    December 31,2010
    
    
    2009(In thousands)Gross accounts receivable
    
    $
    4,808
    
    
    $
    4,119Allowance for uncollectible accounts
    
    
    (227
    )
    
    
    (193
    )Total accounts receivable, net
    
    $
    4,581
    
    
    $
    3,926
 6




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7. Inventories
  June 30,
    
    
    December 31,2010
    
    
    2009(In thousands)Work-in-process
    
    $
    3,411
    
    
    $
    3,993Finished goods
    
    
    2,809
    
    
    
    3,112Raw materials
    
    
    207
    
    
    
    220Total inventories
    
    $
    6,427
    
    
    $
    7,325
 8. Accrued Expenses
  June 30,
    
    
    December 31,2010
    
    
    2009(In thousands)Commissions
    
    $
    582
    
    
    $
    597Bonus
    
    
    433
    
    
    
    10Vacation
    
    
    260
    
    
    
    186Salaries and severance
    
    
    199
    
    
    
    47Legal and professional fees
    
    
    174
    
    
    
    90Franchise tax
    
    
    113
    
    
    
    122Travel and entertainment
    
    
    111
    
    
    
    50Consulting
    
    
    50
    
    
    
    120Other
    
    
    24
    
    
    
    47Total accrued expenses
    
    $
    1,946
    
    
    $
    1,269
 9. Comprehensive Loss
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(In thousands)
    
    
    (In thousands)Net loss
    
    $
    (3,646
    )
    
    $
    (6,759
    )
    
    $
    (10,002
    )
    
    $
    (11,922
    )Other comprehensive
income (loss):Translation adjustments
    
    
    (3
    )
    
    
    4
    
    
    
    (11
    )
    
    
    4Total comprehensive loss
    
    $
    (3,649
    )
    
    $
    (6,755
    )
    
    $
    (10,013
    )
    
    $
    (11,918
    )
 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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FDA 510(k)
    Financial Operations
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,%
    
    
    
    
    
    
    
    
    
    
    %2010
    
    
    2009
    
    
    change
    
    
    2010
    
    
    2009
    
    
    change(in thousands, except gross margin)Revenue
    
    $
    7,244
    
    
    $
    7,938
    
    
    
    -8.7
    %
    
    $
    13,957
    
    
    $
    16,616
    
    
    
    -16.0
    %Cost of revenue
    
    
    1,364
    
    
    
    1,515
    
    
    
    -10.0
    %
    
    
    2,793
    
    
    
    3,057
    
    
    
    -8.6
    %Gross margin
    
    
    81.2
    %
    
    
    80.9
    %
    
    
    0.3
    %
    
    
    80.0
    %
    
    
    81.6
    %
    
    
    -2.0
    %
 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 June 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 Six Months Ended June 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
 Net Cash Provided by Investing Activities
 13




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Net Cash Provided by Financing Activities
 Operating Capital and Capital Expenditure Requirements
 Critical Accounting Policies and Estimates
  New Accounting Standards
 
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
  14




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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: August 5, 2010
    
    By:
    
    /s/ Richard RandallRichard Randall
Chief Executive OfficerDate: August 5, 2010
    
    By:
    
    /s/ Joseph P. SlatteryJoseph P. Slattery
Executive 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