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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 March 31, 2011
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from 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
 (910) 332-1700
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ(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
    
    
    14Item 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 31,2011
    
    
    2010Revenue
    
    $
    5,130
    
    
    $
    6,713Cost of revenue
    
    
    1,296
    
    
    
    1,429Gross profit
    
    
    3,834
    
    
    
    5,284Operating expenses:Research and development
    
    
    1,582
    
    
    
    1,255Sales and marketing
    
    
    6,383
    
    
    
    7,697General and administrative
    
    
    1,613
    
    
    
    2,639Total operating expenses
    
    
    9,578
    
    
    
    11,591Operating loss
    
    
    (5,744
    )
    
    
    (6,307
    )Other income (expense), net
    
    
    18
    
    
    
    (49
    )Net loss
    
    $
    (5,726
    )
    
    $
    (6,356
    )Net loss per common share  basic
and diluted
    
    $
    (0.27
    )
    
    $
    (0.31
    )Weighted average common shares
outstanding  basic and diluted
    
    
    20,886
    
    
    
    20,655
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TranS1 Inc.
 
 Consolidated Balance Sheets
 (in thousands, except share amounts)
 (Unaudited)
 March 31,
    
    
    December 31,2011
    
    
    2010AssetsCurrent assets:Cash and cash equivalents
    
    $
    6,341
    
    
    $
    24,461Short-term investments
    
    
    30,168
    
    
    
    18,075Accounts receivable, net
    
    
    3,573
    
    
    
    3,654Inventory
    
    
    4,160
    
    
    
    3,878Prepaid expenses and other assets
    
    
    478
    
    
    
    389Total current assets
    
    
    44,720
    
    
    
    50,457Property and equipment, net
    
    
    1,483
    
    
    
    1,562Total assets
    
    $
    46,203
    
    
    $
    52,019Liabilities and Stockholders EquityCurrent liabilities:Accounts payable
    
    $
    2,204
    
    
    $
    2,214Accrued expenses
    
    
    1,598
    
    
    
    2,077Total current liabilities
    
    
    3,802
    
    
    
    4,291Stockholders equity:Common stock, $0.0001 par value; 75,000,000
shares authorized, 20,887,594 and 20,877,171
shares issued and outstanding at March 31, 2011 and December 31,
2010, respectively
    
    
    2
    
    
    
    2Additional paid-in capital
    
    
    138,792
    
    
    
    138,401Accumulated other comprehensive loss
    
    
    (21
    )
    
    
    (29
    )Accumulated deficit
    
    
    (96,372
    )
    
    
    (90,646
    )Total stockholders equity
    
    
    42,401
    
    
    
    47,728Total liabilities and stockholders equity
    
    $
    46,203
    
    
    $
    52,019
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TranS1 Inc.
 
 Consolidated Statements of Cash Flows
 (in thousands)
 (Unaudited)
 Three Months Ended March 31,2011
    
    
    2010Cash flows from operating activities:Net loss
    
    $
    (5,726
    )
    
    $
    (6,356
    )Adjustments to reconcile net loss to net cash used in
operating activities:Depreciation
    
    
    148
    
    
    
    231Stock-based compensation
    
    
    379
    
    
    
    530Allowance for excess and obsolete inventory
    
    
    240
    
    
    
    276Provision for bad debts
    
    
    25
    
    
    
    18Loss on sale of fixed assets
    
    
    
    
    
    
    71Changes in operating assets and liabilities:(Increase) decrease in accounts receivable
    
    
    56
    
    
    
    (669
    )(Increase) decrease in inventory
    
    
    (522
    )
    
    
    193(Increase) decrease in prepaid expenses
    
    
    (89
    )
    
    
    18Decrease in accounts payable
    
    
    (10
    )
    
    
    (301
    )Increase (decrease) in accrued expenses
    
    
    (479
    )
    
    
    711Net cash used in operating activities
    
    
    (5,978
    )
    
    
    (5,278
    )Cash flows from investing activities:Purchases of property and equipment
    
    
    (69
    )
    
    
    (265
    )Purchases of investments
    
    
    (16,102
    )
    
    
    (3,986
    )Sales and maturities of investments
    
    
    4,009
    
    
    
    8,979Net cash provided by (used in) investing activities
    
    
    (12,162
    )
    
    
    4,728Cash flows from financing activities:Proceeds from issuance of common stock
    
    
    12
    
    
    
    11Net cash provided by financing activities
    
    
    12
    
    
    
    11Effect of exchange rate changes on cash and cash
equivalents
    
    
    8
    
    
    
    (8
    )Net decrease in cash and cash equivalents
    
    
    (18,120
    )
    
    
    (547
    )Cash and cash equivalents, beginning of period
    
    
    24,461
    
    
    
    29,298Cash and cash equivalents, end of period
    
    $
    6,341
    
    
    $
    28,751
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TranS1 Inc.
 
 
 1. Description of Business
 ® TM
   2. Basis of presentation
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Impact of Recently Issued Accounting Standards
  3. Income Taxes
  4. Net Loss Per Common Share
   Three Months EndedMarch 31,2011
    
    
    2010Weighted average stock options
outstanding
    
    
    2,592,507
    
    
    
    2,308,038
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5. Cash, Cash Equivalents and Investments
    6. Accounts Receivable, Net
  March 31,
    
    
    December 31,2011
    
    
    2010(In thousands)Gross accounts receivable
    
    $
    3,935
    
    
    $
    4,001Allowance for uncollectible accounts
    
    
    (362
    )
    
    
    (347
    )Total accounts receivable, net
    
    $
    3,573
    
    
    $
    3,654
 7. Inventories
  March 31,
    
    
    December 31,2011
    
    
    2010(In thousands)Work-in-process
    
    $
    2,055
    
    
    $
    2,005Finished goods
    
    
    1,854
    
    
    
    1,727Raw materials
    
    
    251
    
    
    
    146Total inventories
    
    $
    4,160
    
    
    $
    3,878
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8. Accrued Expenses
  March 31,
    
    
    December 31,2011
    
    
    2010(In thousands)Commissions
    
    $
    614
    
    
    $
    589Legal and professional fees
    
    
    266
    
    
    
    300Vacation
    
    
    262
    
    
    
    175Salaries and fringe
    
    
    145
    
    
    
    52Travel and entertainment
    
    
    125
    
    
    
    53Franchise Tax
    
    
    80
    
    
    
    116Bonus
    
    
    69
    
    
    
    770Other
    
    
    37
    
    
    
    22Total accrued expenses
    
    $
    1,598
    
    
    $
    2,077
 9. Comprehensive Loss
  Three Months EndedMarch 31,2011
    
    
    2010(In thousands)Net loss
    
    $
    (5,726
    )
    
    $
    (6,356
    )Other comprehensive income (loss):Translation adjustments
    
    
    8
    
    
    
    (8
    )Total comprehensive loss
    
    $
    (5,718
    )
    
    $
    (6,364
    )
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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 within the meaning of Section 27A of the Securities Act
of 1933 and Section 21E of the Securities Exchange Act of 1934 that concern matters that involve
risks and uncertainties that could cause actual results to differ materially from those projected
in the forward-looking statements. These forward-looking statements are intended to qualify for the
safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. 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.
Actual results could differ materially from those projected in forward-looking statements as a
result of the following factors, among others: acceptance and continued use of our products by
surgeons, the lack of clinical data about the efficacy of our products, uncertainty of
reimbursement from third-party payors, our historical lack of profitability, cost pressures in the
healthcare industry, competitive pressures from substitute products and larger companies, our
dependence on key employees, regulatory approval and market acceptance for new products, our
reliance on a limited number of suppliers to provide our products, our ability to effectively
manage a sales force to meet our objectives and our ability to conduct successful clinical
studies. 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,
2010, and in other filings we make with the Securities and Exchange Commission, or the SEC.
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 except as
required by applicable law or the rules of the NASDAQ Stock Market. References in this report to
TranS1, we, our, us, or the Company refer to TranS1 Inc.
 Overview
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® TM
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Financial Operations
 Three Months Ended March 31,2011
    
    
    2010
    
    
    % change(in thousands except gross margin percentage)Revenue
    
    $
    5,130
    
    
    $
    6,713
    
    
    
    -23.6
    %Cost of revenue
    
    
    1,296
    
    
    
    1,429
    
    
    
    -9.3
    %Gross margin %
    
    
    74.7
    %
    
    
    78.7
    %
    
    
    -5.1
    %Total operating
expenses
    
    
    9,578
    
    
    
    11,591
    
    
    
    -17.4
    %Net loss
    
    
    (5,726
    )
    
    
    (6,356
    )
    
    
    9.9
    %
 Revenue
  Cost of Revenue
  Research and Development
  Sales and Marketing
  General and Administrative
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Other Income (Expense), Net
  Results of Operations
 Comparison of the Three Months Ended March 31, 2010 and 2011
 Revenue.
 Cost
of Revenue.
 Research
and Development.
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Sales
and Marketing.
 General
and Administrative.
 Other
Income (Expense), Net.
 Liquidity and Capital Resources
 Sources of Liquidity
    Cash Flows
 Net
Cash Used in Operating Activities.
 12




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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
   13




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New Accounting Standards
  
 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
   
 PART II. OTHER INFORMATION
 
 Item 6. Exhibits
  14




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SIGNATURES
  TranS1 Inc.Date:      May 16, 2011
    By:
    /s/ Ken RealiKen RealiPresident and Chief Executive OfficerDate:      May 16, 2011
    By:
    /s/ Joseph P. SlatteryJoseph P. 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