##### 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 June 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
    
    33-0909022(State or other jurisdiction of
    
    (I.R.S. employerincorporation or organization)
    
    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
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o þ




---



##### 



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 4. Submission of Matters to a Vote of Security Holders
    
    
    17Item 6. Exhibits
    
    
    18SIGNATURES
    
    
    19EXHIBIT INDEX
    
    
    20Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2




---



##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements.
 TranS1 Inc.
 
 Statements of Operations
(in thousands, except per share amounts)
(Unaudited)
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Revenue
    
    $
    5,951
    
    
    $
    4,072
    
    
    $
    11,929
    
    
    $
    7,187Cost of revenue
    
    
    1,137
    
    
    
    869
    
    
    
    2,175
    
    
    
    1,459Gross profit
    
    
    4,814
    
    
    
    3,203
    
    
    
    9,754
    
    
    
    5,728Operating expenses:Research and development
    
    
    1,562
    
    
    
    1,390
    
    
    
    2,777
    
    
    
    2,278Sales and marketing
    
    
    7,200
    
    
    
    3,765
    
    
    
    12,898
    
    
    
    6,837General and administrative
    
    
    2,039
    
    
    
    639
    
    
    
    3,445
    
    
    
    1,083Total operating expenses
    
    
    10,801
    
    
    
    5,794
    
    
    
    19,120
    
    
    
    10,198Operating loss
    
    
    (5,987
    )
    
    
    (2,591
    )
    
    
    (9,366
    )
    
    
    (4,470
    )Interest income
    
    
    688
    
    
    
    161
    
    
    
    1,628
    
    
    
    343Net loss
    
    $
    (5,299
    )
    
    $
    (2,430
    )
    
    $
    (7,738
    )
    
    $
    (4,127
    )Net loss per common share  basic
and diluted
    
    $
    (0.26
    )
    
    $
    (0.98
    )
    
    $
    (0.39
    )
    
    $
    (1.67
    )Weighted average common shares
outstanding  basic and diluted
    
    
    20,212
    
    
    
    2,483
    
    
    
    20,071
    
    
    
    2,468
  1




---



##### Table of Contents



TranS1 Inc.
 
 Balance Sheets
(in thousands)
(Unaudited)
 June 30,
    
    
    December 31,2008
    
    
    2007AssetsCurrent assets:Cash and cash equivalents
    
    $
    52,049
    
    
    $
    64,676Short-term investments
    
    
    21,466
    
    
    
    29,245Accounts receivable, net
    
    
    3,774
    
    
    
    3,225Inventory
    
    
    3,964
    
    
    
    4,025Prepaid expenses and other assets
    
    
    362
    
    
    
    597Total current assets
    
    
    81,615
    
    
    
    101,768Property and equipment, net
    
    
    1,337
    
    
    
    1,088Long-term investments
    
    
    14,276
    
    
    
    Total assets
    
    $
    97,228
    
    
    $
    102,856Liabilities and Stockholders EquityCurrent liabilities:Accounts payable
    
    $
    2,017
    
    
    $
    1,631Accrued expenses
    
    
    1,535
    
    
    
    1,786Total current liabilities
    
    
    3,552
    
    
    
    3,417Stockholders equityCommon stock
    
    
    2
    
    
    
    2Additional paid-in capital
    
    
    132,300
    
    
    
    130,325Accumulated deficit
    
    
    (38,626
    )
    
    
    (30,888
    )Total stockholders equity
    
    
    93,676
    
    
    
    99,439Total liabilities and stockholders
equity
    
    $
    97,228
    
    
    $
    102,856
  2




---



##### Table of Contents



TranS1 Inc.
 
 Statements of Cash Flows
(in thousands)
(Unaudited)
 Six Months Ended June 30,2008
    
    
    2007Cash flows from operating activities:Net loss
    
    $
    (7,738
    )
    
    $
    (4,127
    )Adjustments to reconcile net loss to net cash used in
operating activitiesDepreciation
    
    
    369
    
    
    
    268Stock-based compensation
    
    
    1,854
    
    
    
    1,059Allowance for excess and obsolete inventory
    
    
    34
    
    
    
    85Provision for bad debts
    
    
    66
    
    
    
    22Changes in operating assets and liabilities:Increase in accounts receivable
    
    
    (615
    )
    
    
    (1,735
    )Decrease (increase) in inventory
    
    
    27
    
    
    
    (975
    )Decrease (increase) in prepaid
expenses
    
    
    235
    
    
    
    (254
    )Increase in accounts payable
    
    
    386
    
    
    
    180(Decrease) increase in accrued
expenses
    
    
    (251
    )
    
    
    1,029Net cash used in operating activities
    
    
    (5,633
    )
    
    
    (4,448
    )Cash flows from investing activities:Purchase of property and equipment
    
    
    (618
    )
    
    
    (390
    )Purchases of short-term investments
    
    
    (27,012
    )
    
    
    (10,716
    )Sales of short-term investments
    
    
    34,791
    
    
    
    16,009Purchases of long-term investments
    
    
    (14,276
    )
    
    
    Net cash provided by (used in) investing activities
    
    
    (7,115
    )
    
    
    4,903Cash flows from financing activities:Proceeds from issuance of common stock
    
    
    121
    
    
    
    48Net cash provided by financing activities
    
    
    121
    
    
    
    48Net increase (decrease) in cash and cash
equivalents
    
    
    (12,627
    )
    
    
    503Cash and cash equivalents, beginning of period
    
    
    64,676
    
    
    
    5,034Cash and cash equivalents, end of period
    
    $
    52,049
    
    
    $
    5,537
  3




---



##### Table of Contents



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




---



##### Table of Contents



Impact of Recently Issued Accounting Standards
     3. Income taxes
  4. Loss per share
 5




---



##### Table of Contents



Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2008
    
    2007
    
    2008
    
    2007Convertible preferred stock
    
    
    
    
    
    
    10,793,165
    
    
    
    
    
    
    
    10,793,165Weighted average stock options
Outstanding
    
    
    2,316,641
    
    
    
    2,078,131
    
    
    
    2,094,691
    
    
    
    1,963,008
 5. Cash, Cash Equivalents and Investments
    6. Accounts receivable, net
  6




---



##### Table of Contents



June 30,
    
    
    December 31,2008
    
    
    2007(In thousands)Gross accounts receivable
    
    $
    3,932
    
    
    $
    3,335Allowance for uncollectible accounts
    
    
    (158
    )
    
    
    (110
    )Total accounts receivable, net
    
    $
    3,774
    
    
    $
    3,225
 7. Inventories
  June 30,
    
    
    December 31,2008
    
    
    2007(In thousands)Finished goods
    
    $
    1,510
    
    
    $
    1,624Work-in-process
    
    
    2,069
    
    
    
    2,189Raw materials
    
    
    385
    
    
    
    212Total inventories
    
    $
    3,964
    
    
    $
    4,025
 8. Accrued Expenses
  June 30,
    
    
    December 31,2008
    
    
    2007(In thousands)Commissions
    
    $
    551
    
    
    $
    561Bonus
    
    
    353
    
    
    
    426Legal and professional fees
    
    
    205
    
    
    
    277Travel & entertainment
    
    
    50
    
    
    
    127Personnel related
    
    
    243
    
    
    
    170Clinical
    
    
    20
    
    
    
    94Consulting
    
    
    88
    
    
    
    59Other
    
    
    25
    
    
    
    72Total accrued expenses
    
    $
    1,535
    
    
    $
    1,786
 7




---



##### Table of Contents



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 captions Managements Discussion and
Analysis of Financial Condition and Results of Operations and Risk Factors 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
   8




---



##### Table of Contents



Financial Operations
 Revenue
  9




---



##### Table of Contents



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




---



##### Table of Contents



11




---



##### Table of Contents



Comparison of the Six Months Ended June 30, 2007 and 2008
    12




---



##### Table of Contents



Liquidity and Capital Resources
 Sources of Liquidity
    13




---



##### Table of Contents



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




---



##### Table of Contents



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




---



##### Table of Contents



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




---



##### Table of Contents



Item 4. Submission of Matters to a Vote of Security Holders
  Name
    
    Votes For
    
    Votes WithheldJames Shapiro
    
    
    16,210,557
    
    
    
    22,326Joseph Slattery
    
    
    16,215,763
    
    
    
    17,120
   17




---



##### Table of Contents



Item 6. Exhibits
  18




---



##### Table of Contents



SIGNATURES
  TranS1 Inc.Date: August 7, 2008
    By:
    /s/ Richard RandallRichard RandallPresident and Chief Executive OfficerDate: August 7, 2008
    By:
    /s/ Michael LuetkemeyerMichael LuetkemeyerChief Financial Officer 19




---



##### Table of Contents



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.
 20