##### Table of Contents





UNITED STATES SECURITIES AND
    EXCHANGE COMMISSIONWashington, DC
    20549
 Form 10-K
  þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the fiscal
    year ended December 31, 2010o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the transition
    period          to   Commission File Number
    001-33744
  TRANS1 INC.
 (Exact name of Registrant as
    specified in its charter)
  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
 (Registrants telephone
    number, including area code)
  Securities registered pursuant to Section 12(b) of the
    Act
  Title of Each Class:

Name of Each Exchange on which Registered:Common Stock, par value $0.0001 per share

The NASDAQ Global Stock Market   Securities registered pursuant to Section 12(g) of the
    Act:
 None
  o þ
  o þ
  þ o
  o o
  Regulation S-K Form 10-K Form 10-K. þ
  Rule 12b-2
  Large accelerated filer o

Accelerated filer o

Non-accelerated filer o

Smaller reporting company þ(Do not check if a smaller reporting company)   Rule 12b-2 o þ
      DOCUMENTS
    INCORPORATED BY REFERENCE




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##### 





TRANS1
    INC.FORM 10-K
    FOR THE FISCAL YEAR ENDED DECEMBER 31, 2010
    TABLE OF CONTENTS
   
 Cautionary Note Regarding Forward-Looking
    StatementsPART IItem 1.

Business


4Item 1A.

Risk Factors


17Item 1B.

Unresolved Staff Comments


28Item 2.

Properties


28Item 3.

Legal Proceedings


28Item 4.

(Removed and Reserved)


28PART IIItem 5.

Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities


29Item 6.

Selected Financial Data


31Item 7.

Managements Discussion and Analysis of
    Financial Condition and Results of Operations


32Item 7A.

Quantitative and Qualitative Disclosures About
    Market Risk


38Item 8.

Financial Statements and Supplementary Data


38Item 9.

Changes in and Disagreements With Accountants on
    Accounting and Financial Disclosure


38Item 9A.

Controls and Procedures


38Item 9B.

Other Information


38PART IIIItem 10.

Directors, Executive Officers and Corporate
    Governance


39Item 11.

Executive Compensation


39Item 12.

Security Ownership of Certain Beneficial Owners
    and Management and Related Stockholder Matters


39Item 13.

Certain Relationships and Related Transactions,
    and Director Independence


39Item 14.

Principal Accountant Fees and Services


39PART IVItem 15.

Exhibits, Financial Statement Schedules


40SIGNATURES


41Index to Consolidated Financial Statements


42EX-10.5EX-10.7.1EX-23.1EX-31.1EX-31.2EX-32.1EX-32.2   2




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Cautionary
    Note Regarding Forward-Looking Statements     3




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PART I  Item 1.
    Business  Overview
  ® tm tm tm
  start-up tm
  Spine
    Anatomy
      Medical
    Conditions Affecting the Lower Lumbar Spine and Traditional
    Treatment Alternatives
   4




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##### Table of Contents



Anterior Lumbar Interbody Fusion, or ALIF.
  Posterior Lumbar Interbody Fusion, or PLIF.
  Transforaminal Lumbar Interbody Fusion, or
    TLIF.
  Direct Lateral Interbody Fusion.
 5




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360° Lumbar Fusion Procedure.
  Limitations
    of Traditional Lower Lumbar Spine Procedures
    
    Disruption to Soft Tissue and Support
    Structures.  Current lumbar fusion procedures
    require creating a pathway from the skin to the degenerative
    disc that is large enough to allow direct visualization and work
    by the surgeon. It is common to cut through healthy muscle or
    move critical organs, arteries, nerves and soft tissue, which
    can lead to bleeding, scarring, nerve damage and bowel
    disruption.
    Significant Blood Loss.  As a result of
    undergoing current lumbar fusion procedures, patients typically
    experience significant blood loss of between 100 and 1,400 cc of
    blood. As a result, it is common for patients to use the
    hospitals blood supply or donate units of their own blood
    before a lumbar fusion procedure to replenish any significant
    blood loss.
    Lengthy Operative Procedure Times.  It is
    common for current lumbar fusion procedures to take between 90
    minutes and 4 hours to complete. With some procedures a
    second surgeon may be required. Long procedure times increase
    the risks of complications and blood loss. Also, hospital and
    physician resources are consumed for lengthy periods of time,
    which can reduce productivity and increase costs.
    Lengthy Patient Hospital Stays.  Patients
    remain in the hospital for an average of three days following a
    lumbar fusion procedure which consumes hospital and physician
    resources.
    Significant Patient Recovery Time.  Patients
    require three to six months to recover and rehabilitate after
    undergoing a lumbar fusion procedure before resuming normal
    activities.
    Unresolved Patient Pain.  Patients may continue
    to experience symptoms after undergoing lumbar fusion procedures
    even though x-rays show successful fusion has been achieved
    through the growth of new bone. We believe this may be caused by
    muscle dissection, implant irritation and scar tissue that
    develops around the site of the surgery.  Our
    Solution
     6




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
    Least Invasive Approach Minimizes
    Complications.  Our AxiaLIF products are delivered
    using our unique pre-sacral approach, which is the least
    invasive solution for delivering fusion products to the L4/L5/S1
    region. Procedures performed utilizing our pre-sacral approach
    have been documented to have favorable clinical safety profiles
    with complication rates of approximately 1%.
    Spinal Stability.  Our approach does not
    violate or cut through any muscles or ligaments that control the
    stability of the spine. The axial approach to the spine also
    creates inherent spinal stability that cannot be achieved with
    traditional approaches to interbody fusion.
    Short Learning Curve.  The ease of use of our
    pre-sacral approach enables reduced physician training as
    compared to alternative lower lumbar spine procedures.
    Low Blood Loss.  The least invasive nature of
    our pre-sacral approach results in the average patient losing
    approximately 25 to 125 cc of blood during an AxiaLIF 1L or
    AxiaLIF 2L+ procedure, which is much lower than current
    techniques and correlates to reduced pain and faster recoveries.
    In addition, patients generally do not need to donate blood
    prior to undergoing procedures that utilize our pre-sacral
    approach.
    Short Patient Hospital Stays.  Patients
    typically stay only one to two nights in the hospital after
    receiving a procedure performed using our pre-sacral approach.
    In a small percentage of cases, patients are able to return home
    the same day.
    Reduction in Patient Pain.  Our pre-sacral
    approach can be effective at reducing pain symptoms because
    surrounding soft tissue is not violated, which prevents the
    creation of scar tissue, a leading cause of pain.  Our
    Strategy
    
    Establish our Pre-Sacral Approach as a Standard of Care for
    Lower Lumbar Spine Surgery.  We believe patients
    commonly avoid back surgery due to its invasive nature and other
    drawbacks associated with current surgical treatment options. We
    expend significant resources promoting our pre-sacral approach
    as the least invasive approach to lower back surgery and we
    believe the advantages of our technique will enable our AxiaLIF
    products to become a standard of care for the lower lumbar
    region of the spine. We also make substantial research and
    development expenditures to enhance our AxiaLIF products and
    develop new products to expand our technological advantage in
    minimally invasive spine surgeries.
    Drive Reimbursement for Our Procedure.  We will
    continue to work with our surgeon customers to generate
    published, peer reviewed clinical literature that demonstrates
    our procedures clinical efficacy and safety. We will also
    work to leverage this data along with our AxiaLIF surgeon
    advocates, with payors to secure positive coverage decisions for
    the reimbursement of the AxiaLIF procedure.
    Focus our Sales and Marketing Infrastructure to Drive Surgeon
    Adoption.  We intend to continue expending
    significant resources targeting spine surgeons through our sales
    and marketing efforts in the United States and internationally
    in order to drive the adoption of our pre-sacral approach. We
    believe the ease of use, short hospital stays and reduction in
    patient pain are compelling reasons for surgeon adoption of our
    technologies. 7




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
    Opportunistically Pursue Acquisitions of Complementary
    Businesses and Technologies.  In addition to
    building our internal product development efforts, we intend to
    selectively license or acquire complementary products and
    technologies that we believe will enable us to leverage our
    growing distribution platform.  Our
    Products
    AxiaLIF Lumbar Fusion Implants.
  TranS1 Access and Disc Preparation
    Instruments.
  Vectre Facet Screw System.
  AVATAR Pedicle Screw System.
  Bi-Ostetic Bone Void Filler.
  Product
    Pipeline
     8




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Sales and
    Marketing
          Surgeon
    Training
    Third-Party
    Reimbursement
    453/454/455
   9




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side-by-side.
    Competition
    
    improved outcomes for medical conditions affecting the lower
    lumbar spine;
    acceptance by spine surgeons;
    ease of use and reliability;
    product price and qualification for reimbursement; 10




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
    technical leadership and superiority;
    effective marketing and distribution; and
    speed to market.        Research
    and Development
    Manufacturing
    and Supply
       11




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Patents
    and Proprietary Technology
    Patents
    
    our method for performing trans-sacral procedures in the spine,
    including diagnostic or therapeutic procedures, and trans-sacral
    introduction of instrumentation or implants;
    apparatus for conducting these procedures including access, disc
    preparation and implantation including the current TranS1
    instruments individually and in kit form; and
    implants for fusion and motion preservation in the spine.    Trademarks
    Government
    Regulation
   12




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
    product design and development;
    registration and listing;
    product testing (preclinical and clinical);
    product manufacturing;
    product labeling;
    product storage;
    premarket clearance or approval;
    advertising and promotion;
    product marketing, sales and distribution; and
    post-market surveillance, including reporting deaths or serious
    injuries related to products and certain product malfunctions.  FDAs
    Premarket Clearance and Approval Requirements
    510(k)
    Clearance Pathway
    and/or
 13




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Clinical
    Trials
    Pervasive
    and Continuing FDA Regulation
    
    quality system regulation, which requires manufacturers,
    including third-party contract manufacturers, to follow
    stringent design, testing, control, documentation, and other
    quality assurance controls, during all aspects of the
    manufacturing process;
    establishment registration and listing;
    labeling regulations, and FDA prohibitions against the promotion
    of products for uncleared or unapproved off-label
    uses;
    medical device reporting obligations, which require that
    manufacturers submit reports to the FDA if information
    reasonably suggests that their device (i) may have caused
    or contributed to a death or serious injury, or
    (ii) malfunctioned and the device or a similar company
    device would likely cause or contribute to a death or serious
    injury if the malfunction were to recur; and
    other post-market surveillance requirements, which apply when
    necessary to protect the public health or to provide additional
    safety and effectiveness data for the device.      Fraud
    and Abuse
   14




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International
     15




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Employees
    General
    Information
  (910) 332-1700. www.trans1.com
  Form 10-K, Form 10-Q, Form 8-K www.trans1.com
  1-800-SEC-0330.
 16




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Item 1A.
    Risk
    Factors  Investing in our common stock involves a high degree of risk.
    You should carefully consider the following risk factors, as
    well as the other information contained in this annual report,
    before deciding whether to invest in shares of our common stock.
    If any of the following risks actually occur, our business,
    financial condition, operating results and prospects would
    suffer. In that case, the trading price of our common stock
    would likely decline and you might lose all or part of your
    investment in our common stock. The risks described below are
    not the only ones we face. Additional risks that we currently do
    not know about or that we currently believe to be immaterial may
    also impair our operations and business results.
  Risks
    Related to Our Business
  To be
    commercially successful, spine surgeons must accept that our
    products are a safe and effective alternative to other surgical
    treatments of certain spine disorders.
    
    lack of long-term clinical data supporting additional patient
    benefits;
    lack of experience with our products;
    lack of evidence supporting cost savings of our procedure over
    existing surgical alternatives;
    perceived liability risks generally associated with the use of
    new products and procedures;
    training time required to use a new product; and
    availability of adequate coverage and reimbursement for
    hospitals and surgeons.    The
    efficacy of our products is not yet supported by long-term
    clinical data and may therefore prove to be less effective than
    initially thought.
    The
    demand for our products and the prices which customers and
    patients are willing to pay for our products depend upon the
    ability of our customers to obtain adequate third-party coverage
    and reimbursement for their purchases of our
    products.
   17




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Form 8-K
  country-by-country
     18




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We
    have incurred losses since inception and we expect to continue
    to incur losses for the foreseeable future. We may never achieve
    or sustain profitability.
    We are
    in a highly competitive market segment, which is subject to
    rapid technological change.
    
    greater financial and human resources for product development,
    sales and marketing and patent litigation;
    significantly greater name recognition;
    established relationships with spine surgeons, customers and
    third-party payors;
    additional lines of products, and the ability to offer rebates
    or bundle products to offer greater discounts or incentives to
    gain a competitive advantage;
    established sales and marketing, and distribution
    networks; and
    greater experience in developing new products, conducting
    clinical trials, preparing regulatory submissions and obtaining
    regulatory clearance or approval for products and marketing
    approved products.  Our
    failure to continue building effective sales and marketing
    capabilities for our products could significantly impair our
    ability to increase sales of our products.
    Our
    future success depends on our ability to develop, receive
    regulatory clearance or approval, and introduce new products or
    product enhancements that will be accepted by the market in a
    timely manner.
   19




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
    properly identify and anticipate spine surgeon and patient needs;
    develop and introduce new products or product enhancements in a
    timely manner;
    avoid infringing upon the intellectual property rights of third
    parties;
    demonstrate, if required, the safety and efficacy of new
    products with data from preclinical studies and clinical trials;
    obtain the necessary regulatory clearances or approvals for new
    products or product enhancements;
    be fully FDA-compliant with marketing of new devices or modified
    products;
    provide adequate training to potential users of our products;
    receive adequate coverage and reimbursement for procedures
    performed with our products; and
    develop an effective and FDA-compliant, dedicated marketing and
    distribution network.    If
    clinical trials of our current or future product candidates do
    not produce results necessary to support regulatory clearance or
    approval in the United States or elsewhere, we will be unable to
    commercialize these products.
  and/or
  Our
    international operations subject us to certain operating risks,
    which could adversely impact our net revenues, results of
    operations and financial condition.
      
    the imposition of additional U.S. and foreign governmental
    controls or regulations;
    the imposition of costly and lengthy new export licensing
    requirements;
    the imposition of U.S. or international sanctions against a
    country, company, person or entity with whom we do business that
    would restrict or prohibit continued business with the
    sanctioned country, company, person or entity;
    economic or political instability; 20




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
    changes in third-party reimbursement policies that may require
    some of the patients who receive our products to directly absorb
    medical costs or that may necessitate the reduction of the
    selling prices of our products;
    changes in duties and tariffs, license obligations and other
    non-tariff barriers to trade;
    the imposition of new trade restrictions;
    the imposition of restrictions on the activities of foreign
    agents, representatives and distributors;
    difficulties in maintaining consistency with our internal
    guidelines;
    difficulties in enforcing agreements and collecting receivables
    through certain foreign legal systems; and
    difficulties in enforcing or defending intellectual property
    rights.  The
    use, misuse or off-label use of our products may harm our image
    in the marketplace or result in injuries that lead to product
    liability suits, which could be costly to our business or result
    in FDA sanctions if we are deemed to have engaged in such
    promotion.
    We
    purchase some of the key components of our products from single
    suppliers. The loss of these suppliers could prevent or delay
    shipments of our products or delay our clinical trials or
    otherwise adversely affect our business.
    If our
    independent contract manufacturers fail to timely deliver to us
    sufficient quantities of some of our products and components in
    a timely manner, our operations may be harmed.
    
    inadequate capacity of the manufacturers facilities; 21




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
    financial difficulties experienced by manufacturers due to the
    recent economic recession and continuing economic uncertainty;
    interruptions in access to certain process technologies; and
    reduced control over product availability, quality, delivery
    schedules, manufacturing yields and costs.    We
    depend on the specialized knowledge and skills of our officers
    and other key employees, and if we are unable to retain and
    motivate them or recruit additional qualified personnel, our
    business will suffer.
    If we
    are unable to raise capital, it could force us to delay, reduce,
    eliminate or abandon our commercialization efforts or product
    development programs.
    
    market acceptance of our products and the revenues we are able
    to generate as a result;
    the availability of adequate coverage and reimbursement for
    hospitals and surgeons;
    the scope, rate of progress and cost of our clinical trials;
    the cost of our research and development activities;
    the cost of defending, in litigation or otherwise, any claims
    that we infringe third-party patent or other intellectual
    property rights;
    the cost and timing of additional regulatory clearances or
    approvals;
    the cost and timing of establishing additional sales, marketing
    and distribution capabilities;   22




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Pricing
    pressures in the healthcare industry could lead to further
    demands for price concessions and restricted access to spinal
    fusions, which could have an adverse effect on our business,
    financial condition or results of operations.
    We
    face the risk of product liability or other claims and may not
    be able to obtain sufficient insurance coverage, if at
    all.
       23




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We
    operate at a single location. Any disruption in this facility or
    any inability to ship a sufficient number of our products to
    meet demand could adversely affect our business and results of
    operations.
    Risks
    Related to the Regulatory Environment
  If we
    fail to maintain regulatory approvals and clearances, or are
    unable to obtain, or experience significant delays in obtaining,
    FDA clearances or approvals for our future products or product
    modifications, our ability to commercially distribute and market
    our products could suffer.
          follow-up
 24




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and/or follow-up
  Even
    if our products are approved by regulatory authorities, if we or
    our suppliers fail to comply with ongoing FDA or other foreign
    regulatory authority requirements, or if we experience
    unanticipated problems with our products, these products could
    be subject to restrictions or withdrawal from the
    market.
      We may
    be subject to or otherwise affected by federal and state
    healthcare laws, including fraud and abuse and health
    information privacy and security laws, and could face
    substantial penalties if we are unable to fully comply with such
    laws.
     25




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and/or
  Risks
    Related to Our Intellectual Property
  Our
    ability to protect our intellectual property and proprietary
    technology through patents and other means is
    uncertain.
        Any
    lawsuit, whether initiated by us to enforce our intellectual
    property rights or by a third party against us alleging
    infringement, may cause us to expend significant financial and
    other resources, and may divert our attention from our business
    and adversely affect our business, operating results and
    prospects.
     26




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Risks
    Related to our Common Stock
  Our
    directors, officers and principal stockholders have significant
    voting power and may take actions that may not be in the best
    interests of our other stockholders.
    The
    price of our common stock has been, and may continue to be,
    volatile and our stockholders may not be able to resell shares
    of our common stock at or above the price paid for such
    shares.
    Trading
    in our stock has historically been limited, so investors may not
    be able to sell as much stock as they want at prevailing
    prices.
    Our
    amended and restated certificate of incorporation, amended and
    restated bylaws and Delaware law contain provisions that could
    have the effect of deterring or delaying changes in incumbent
    management, proxy contests or changes in control.
   27




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
    a classified board so that only one of the three classes of
    directors on our board of directors is elected each year;
    procedures for advance notification of stockholder director
    nominations and proposals;
    the ability of our board of directors to amend our bylaws
    without stockholder approval;
    a supermajority stockholder vote requirement for amending
    certain provisions of our amended and restated certificate of
    incorporation and our amended and restated bylaws; and
    the ability of our board of directors to issue up to
    5,000,000 shares of preferred stock without stockholder
    approval upon the terms and conditions and with the rights,
    privileges and preferences as our board of directors may
    determine.    Item 1B.
    Unresolved
    Staff Comments.    Item 2.
    Properties.    Item 3.
    Legal
    Proceedings.    Item 4.
    (Removed
    and Reserved). 28




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PART II
  Item 5.
    Market
    for the Registrants Common Equity, Related Stockholder
    Matters and Issuer Purchases of Equity Securities  Price of
    Common Stock
    Price RangeHigh

LowFiscal 2010:Fourth quarter

$
2.63


$
1.76Third quarter


2.98



2.21Second quarter


3.93



2.55First quarter


4.11



3.01Fiscal 2009:Fourth quarter

$
5.00


$
3.26Third quarter


6.83



4.08Second quarter


8.74



5.65First quarter


7.66



4.55       Uses of
    Proceeds from Sale of Registered Securities
  Form S-1 No. 333-144802), Form S-1 No. 333-146753),
    Dividend
    Policy
    Securities
    Authorized For Issuance Under Equity Compensation
    Plans
  10-K
 29




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Stock
    Price Performance Graph
    
  The material in the above performance graph does not
    constitute soliciting material and should not be deemed filed or
    incorporated by reference into any other Company filing, whether
    under the Securities Act of 1933, as amended, or the Securities
    Exchange Act of 1934, as amended, whether made on, before or
    after the date of this report and irrespective of any general
    incorporation language in such filing, except to the extent we
    specifically incorporate this performance graph by reference
    therein.
 30




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Item 6.
    Selected
    Financial Data.    Years Ended December 31,2010


2009


2008


2007


2006(In thousands, except share data)Consolidated Statements of Operations Data:Revenue

$
26,154


$
29,807


$
25,304


$
16,473


$
5,812Cost of revenue


7,104



5,687



4,315



3,042



1,580Gross profit


19,050



24,120



20,989



13,431



4,232Operating expensesResearch and development


4,223



6,439



4,081



3,885



3,816Sales and marketing


26,275



34,098



29,375



15,706



9,288General and administrative


8,565



7,184



7,116



3,801



1,596Total operating expenses


39,063



47,721



40,572



23,392



14,700Operating loss


(20,013
)


(23,601
)


(19,583
)


(9,961
)


(10,468
)Other income, net


486



405



2,548



1,384



989Net loss

$
(19,527
)

$
(23,196
)

$
(17,035
)

$
(8,577
)

$
(9,479
)Net loss per common share - basic and diluted

$
(0.94
)

$
(1.13
)

$
(0.84
)

$
(1.46
)

$
(3.91
)Weighted average common shares outstanding  basic and
    diluted


20,738,433



20,603,600



20,288,711



5,872,008



2,423,223   December 31,2010


2009


2008


2007


2006(In thousands)Consolidated Balance Sheet Data:Cash, cash equivalents and short-term investments

$
42,536


$
55,251


$
77,266


$
93,921


$
14,962Working capital


46,166



63,467



84,174



98,351



17,448Total assets


52,019



68,991



90,491



102,856



20,004Preferred stock


















40,089Common stock


2



2



2



2



Additional paid in capital


138,401



136,402



133,507



130,325



820Total stockholders equity/(deficit)


47,728



65,280



85,586



99,439



(21,529
)  31




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Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations    Overview
  ® tm tm tm
  start-up tm
       32




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Results
    of Operations
  Years Ended December 31,2010


2009


% change


2008


% change(In thousands, except gross margin percentage)Revenue

$
26,154


$
29,807



(12.3
)%

$
25,304



17.8
%Cost of revenue


7,104



5,687



24.9
%


4,315



31.8
%Gross margin %


72.8
%


80.9
%


(10.0
)%


82.9
%


(2.4
)%Total operating expenses


39,063



47,721



(18.1
)%


40,572



17.6
%Net loss


(19,527
)


(23,196
)


15.8
%


(17,035
)


(36.2
)%   Revenue
  and/or
  Cost
    of Revenue
    Research
    and Development
    Sales
    and Marketing
    General
    and Administrative
   33




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Other
    Income, Net
  available-for-sale
  Comparison
    of the Years Ended December 31, 2010, 2009 and
    2008
  Revenue.
  Cost of Revenue.
  Research and Development.
  Sales and Marketing.
 34




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General and Administrative.
  Other Income, Net.
  Liquidity
    and Capital Resources
  Sources
    of Liquidity
      Cash
  Cash
  Cash
    Flows
  Net Cash Used in Operating Activities.
 35




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Net Cash Provided by (Used In) Investing
    Activities.
  Net Cash Provided by Financing Activities.
  Operating
    Capital and Capital Expenditure Requirements
    Contractual
    Obligations
    Payments Due by YearLess Than





AfterContractual Obligations

Total

1 Year

1-3 Years

3-5 Years

5 Years(In thousands)Operating leases(1)

$
1,413


$
354


$
726


$
333


$
     (1)
    
    We rent office space under an operating lease which expires in
    2014, with an option to extend the lease through 2019.  Off-Balance
    Sheet Arrangements
    Critical
    Accounting Policies and Estimates
   36




---



##### Table of Contents



Revenue Recognition. and/or and/or
  Accounts Receivable and Allowances.
  Inventory. first-in,
  Accounting for Income Taxes.
  Stock-Based Compensation.
 37




---



##### Table of Contents



Recent
    Accounting Pronouncements
    Item 7A.
    Quantitative
    and Qualitative Disclosures About Market Risk    Item 8.
    Financial
    Statements and Supplementary Data.    Item 9.
    Changes
    in and Disagreements With Accountants on Accounting and
    Financial Disclosure.    Item 9A.
    Controls
    and Procedures  Evaluation
    of Disclosure Controls and Procedures
  Rules 13a-15(e) 15d-15(e)
  Internal
    Control Over Financial Reporting
  Managements annual report on internal control over
    financial reporting.
  Changes in Internal Control over Financial
    Reporting. Rules 13a-15(f) 15d-15(f)
  Item 9B.
    Other
    Information.   38




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##### Table of Contents



PART III
  Item 10.
    Directors,
    Executive Officers and Corporate Governance.    Item 11.
    Executive
    Compensation.      Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters.  (c)Number of Securities(a)





Remaining AvailableNumber of


(b)


for Future IssuanceSecurities to be


Weighted-Average


Under EquityIssued Upon Exercise


Exercise Price of


Compensation Plansof Outstanding


Outstanding


(Excluding SecuritiesOptions, Warrants


Options, Warrants


Reflected in ColumnPlan category

and Rights


and Rights


(a))Equity compensation plans approved by security holders


2,491,799


$
5.43



610,051Equity compensation plans not approved by security holders










Total


2,491,799


$
5.43



610,051       Item 13.
    Certain
    Relationships and Related Transactions, and Director
    Independence.    Item 14.
    Principal
    Accountant Fees and Services.   39




---



##### Table of Contents



PART IV
  Item 15.
    Exhibits,
    Financial Statement Schedules.      PageManagement Report on Internal Control Over Financial Reporting


43Report of Independent Registered Public Accounting Firm


44Consolidated Balance Sheets


45Consolidated Statements of Operations


46Consolidated Statements of Stockholders Equity


47Statements of Cash Flows


48Notes to Consolidated Financial Statements


49(2) Financial Statement Schedule: Schedule II 
    Valuation Accounts


62     (3) Exhibits


63   Form 10-K
 40




---



##### Table of Contents



SIGNATURES    TranS1 Inc.
  By:
    /s/  Ken
    Reali       POWER OF
    ATTORNEY
  Form 10-K,
    Signature

Title

Date/s/  Ken
    RealiKen
    Reali

President, Chief Executive Officer and Director
    (Principal Executive Officer)

March 14, 2011/s/  Joseph
    SlatteryJoseph
    Slattery

Executive Vice President and
    Chief Financial Officer
    (Principal Financial and Accounting Officer)

March 14, 2011/s/  Michael
    CarusiMichael
    Carusi

Director

March 14, 2011/s/  Mitchell
    DannMitchell
    Dann

Director

March 14, 2011/s/  Paul
    LaViolettePaul
    LaViolette

Director

March 14, 2011/s/  Jonathan
    OsgoodJonathan
    Osgood

Director

March 14, 2011/s/  Richard
    RandallRichard
    Randall

Executive Chairman and Director

March 14, 2011/s/  James
    ShapiroJames
    Shapiro

Director

March 14, 2011/s/  David
    SimpsonDavid
    Simpson

Director

March 14, 2011  41




---



##### 



TranS1
    Inc.
  Index
    to Consolidated Financial Statements
   
 PageManagement Report on Internal Control Over
    Financial Reporting


43Report of Independent Registered Public
    Accounting Firm


44Consolidated Balance Sheets


45Consolidated Statements of Operations


46Consolidated Statements of Stockholders
    Equity


47Statements of Cash Flows


48Notes to Consolidated Financial Statements


49   42




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##### Table of Contents



Management
    Report on Internal Control Over Financial Reporting



The management of TranS1 is responsible for establishing and
    maintaining adequate internal control over financial reporting.
    TranS1s internal control system was designed to provide
    reasonable assurance to its management and board of directors
    regarding the preparation and fair presentation of published
    financial statements.



Because of its inherent limitations, internal control over
    financial reporting may not prevent or detect misstatements.
    Also, projections of any evaluation of effectiveness for future
    periods are subject to the risk that internal control may become
    inadequate because of changes in conditions, or that the degree
    of compliance with the policies or procedures may deteriorate.



TranS1s management assessed the effectiveness of the
    Companys internal control over financial reporting as of
    December 31, 2010. In making this assessment, it used the
    criteria set forth in Internal Control  Integrated
    Frameworkissued by the Committee of Sponsoring
    Organizations of the Treadway Commission. Based on
    managements assessment, we concluded that, as of
    December 31, 2010, our internal control over financial
    reporting was effective based on those criteria.


43




---



##### Table of Contents



Report of
    Independent Registered Public Accounting Firm      
    44




---



##### Table of Contents



TranS1
    Inc.Consolidated Balance Sheets
  December 31,2010


2009(In thousands, except share amounts)ASSETSCurrent assets:Cash and cash equivalents

$
24,461


$
29,298Short-term investments


18,075



25,953Accounts receivable, net


3,654



3,926Inventory


3,878



7,325Prepaid expenses and other assets


389



676Total current assets


50,457



67,178Property and equipment, net


1,562



1,813Total assets

$
52,019


$
68,991LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable

$
2,214


$
2,442Accrued expenses


2,077



1,269Total current liabilities


4,291



3,711Commitments (Note 5)Stockholders equity:Common stock, $0.0001 par value; 75,000,000 shares
    authorized, 20,877,171 and 20,648,447 shares issued and
    outstanding at December 31, 2010 and 2009, respectively


2



2Preferred stock, $0.0001 par value; 5,000,000 shares
    authorized, none issued and outstanding at December 31,
    2010 and 2009






Additional paid-in capital


138,401



136,402Accumulated other comprehensive loss


(29
)


(5
)Accumulated deficit


(90,646
)


(71,119
)Total stockholders equity


47,728



65,280Total liabilities and stockholders equity

$
52,019


$
68,991    45




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##### Table of Contents



TranS1
    Inc.
  Consolidated
    Statements of Operations
  Year Ended December 31,2010


2009


2008(In thousands, except per share amounts)Revenue

$
26,154


$
29,807


$
25,304Cost of revenue


7,104



5,687



4,315Gross profit


19,050



24,120



20,989Operating expenses:Research and development


4,223



6,439



4,081Sales and marketing


26,275



34,098



29,375General and administrative


8,565



7,184



7,116Total operating expenses


39,063



47,721



40,572Operating loss


(20,013
)


(23,601
)


(19,583
)Other income, net


486



405



2,548Net loss

$
(19,527
)

$
(23,196
)

$
(17,035
)Net loss per common share  basic and diluted

$
(0.94
)

$
(1.13
)

$
(0.84
)Weighted average common shares outstanding  basic and
    diluted


20,738



20,604



20,289    46




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##### Table of Contents



TranS1
    Inc.
  Consolidated
    Statements of Stockholders Equity
  AccumulatedAdditional


Other





TotalCommon Stock


Paid - In


Comprehensive


Accumulated


StockholdersNumber


Amount


Capital


Loss


Deficit


Equity(In thousands, except share data)Balance at December 31, 2007


19,843,941



2



130,325







(30,888
)


99,439Issuance of common stock from exercised options


694,392







203











203Stock based compensation










2,979











2,979Net loss


















(17,035
)


(17,035
)Balance at December 31, 2008


20,538,333



2



133,507







(47,923
)


85,586Issuance of common stock from exercised options


110,114







96











96Stock based compensation










2,799











2,799Other comprehensive loss














(5
)






(5
)Net loss


















(23,196
)


(23,196
)Balance at December 31, 2009


20,648,447



2



136,402



(5
)


(71,119
)


65,280Issuance of common stock from exercised options


228,724







148











148Stock based compensation










1,851











1,851Other comprehensive loss














(24
)






(24
)Net loss


















(19,527
)


(19,527
)Balance at December 31, 2010


20,877,171


$
2


$
138,401


$
(29
)

$
(90,646
)

$
47,728    47




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##### Table of Contents



TranS1
    Inc.
  Consolidated
    Statements of Cash Flows
  Year Ended December 31,2010


2009


2008(In thousands)Cash flows from operating activities:Net loss

$
(19,527
)

$
(23,196
)

$
(17,035
)Adjustments to reconcile net loss to net cash used in operating
    activities:Depreciation


746



909



804Stock-based compensation


1,851



2,799



2,979Allowance for excess and obsolete inventory


2,004



505



400Provision for bad debts


226



80



101Loss on sale of fixed assets


70







Changes in operating assets and liabilities:(Increase) decrease in accounts receivable


46



806



(1,688
)(Increase) decrease in inventory


1,443



(1,461
)


(2,744
)(Increase) decrease in prepaid expenses


287



(44
)


(35
)Increase (decrease) in accounts payable


(228
)


(454
)


1,265Increase (decrease) in accrued liabilities


808



(745
)


223Net cash used in operating activities


(12,274
)


(20,801
)


(15,730
)Cash flows from investing activities:Purchase of property and equipment


(565
)


(1,310
)


(1,128
)Purchases of investments


(18,050
)


(50,872
)


(55,761
)Sales and maturities of investments


25,928



60,134



49,791Net cash provided by (used in) investing activities


7,313



7,952



(7,098
)Cash flows from financing activities:Proceeds from issuance of common stock


148



96



203Net cash provided by financing activities


148



96



203Effect of exchange rate change on cash and cash equivalents


(24
)






Net decrease in cash and cash equivalents


(4,837
)


(12,753
)


(22,625
)Cash and cash equivalents, beginning of period


29,298



42,051



64,676Cash and cash equivalents, end of period

$
24,461


$
29,298


$
42,051    48




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##### Table of Contents



TranS1
    Inc.
  Notes
    to Consolidated Financial Statements
  1.
    Organization  ® tm tm tm tm tm
    2.
    Summary
    of Significant Accounting Policies  Basis
    of Presentation
    Principles
    of Consolidation:
    end-of-period
  Use of
    Estimates
   49




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##### Table of Contents



TranS1
    Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Cash
    and Cash Equivalents
    Investments
  available-for-sale
  Fair
    Value of Financial Instruments
    820-10
   50




---



##### Table of Contents



TranS1
    Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  Accounts
    Receivable
    December 31,2010


2009(In thousands)Gross accounts receivable

$
4,001


$
4,119Allowance for uncollectible accounts


(347
)


(193
)Total accounts receivable, net

$
3,654


$
3,926   Concentration
    of Credit Risk and Significant Customers
        Inventories
    December 31,2010


2009(In thousands)Raw materials

$
146


$
220Work-in-process


2,005



3,993Finished goods


1,727



3,112Total inventories, net

$
3,878


$
7,325   first-in,
  Property
    and Equipment
   51




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##### Table of Contents



TranS1
    Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
      Furniture and fixtures

5-10 yearsEquipment

3-10 yearsOther depreciable assets

2-10 yearsLeasehold improvements

Lesser of estimated useful life or lease term   Revenue
    Recognition
  and/or and/or
  Shipping
    and Handling Costs
    Sales
    and Marketing Expenses
    Research
    and Development Expenses
   52




---



##### Table of Contents



TranS1
    Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  General
    and Administrative Expenses
    Patent
    Costs
    Other
    Income, Net
  available-for-sale
  Income
    Taxes
    Stock-Based
    Compensation
    ASC 505-50.
  Net
    Loss Per Common Share
   53




---



##### Table of Contents



TranS1
    Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Year Ended December 31,2010

2009

2008Weighted average stock options outstanding


2,166,657



2,110,689



1,915,687   Segment
    and Geographic Reporting
      Year Ended December 31,2010


2009


2008(In thousands)United States

$
23,798


$
28,045


$
23,322Europe


2,138



1,602



1,854Other


218



160



128$
26,154


$
29,807


$
25,304     Recently
    Issued Accounting Standards
    3.
    Property
    and Equipment    December 31,2010


2009(In thousands)Furniture and fixtures

$
241


$
210Equipment


2,955



2,620Computer software


481



410Leasehold improvements


682



380Tools






73Construction in process






5884,359



4,281Less: accumulated depreciation and amortization


(2,797
)


(2,468
)$
1,562


$
1,813    54




---



##### Table of Contents



TranS1
    Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  4.
    Accrued
    Expenses    December 31,2010


2009(In thousands)Bonus

$
770


$
10Commissions


589



597Legal and professional fees


300



90Vacation


175



186Franchise taxes


116



122Travel and entertainment


53



50Consulting


5



120Other


69



94Total accrued expenses

$
2,077


$
1,269   5.
    Lease
    Obligations      Year ending December 31,2011

$
3542012


3632013


3632014


3332015 and after


$
1,413     6.
    Stockholders
    Equity     55




---



##### Table of Contents



TranS1
    Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  7.
    Stock
    Incentive Plans and Stock-Based Compensation  2007
    Employee Stock Purchase Plan
          2000
    and 2007 Stock Incentive Plans
   56




---



##### Table of Contents



TranS1
    Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Number


PriceOutstanding as of December 31, 2009


2,216,026


$
6.96Options granted


1,297,000



3.31Options exercised


(228,724
)


0.65Options forfeited


(792,503
)


7.63Outstanding as of December 31, 2010


2,491,799


$
5.43     Weighted


WeightedAverage


Average


Number ofNumber


Contractual


Exercise


OptionsRange of Exercise Prices

Outstanding


Life (Years)


Price


Exercisable$ 0.11 - $2.00


353,080



5.4


$
1.01



322,760$ 2.01 - $3.50


614,000



9.2



3.12



59,000$ 3.51 - $6.00


864,597



8.6



4.38



184,014$ 6.01 - $10.00


327,249



7.5



8.65



239,077$12.00 - $20.00


332,873



6.9



13.91



263,0752,491,799



7.9



5.43



1,067,926     Stock-Based
    Compensation for Non-employees
      Employee
    Stock-Based Compensation
   57




---



##### Table of Contents



TranS1
    Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
      Expected Life.
  Volatility.
  Risk-Free Interest Rate.
  Option Grant Year

Risk-Free Rate Range2010

1.26% to 2.61%2009

1.79% to 2.52%2008

2.68% to 3.21%   Dividend Yield.
  Forfeitures.
   58




---



##### Table of Contents



TranS1
    Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  8.
    Income
    Taxes      2010


2009(In thousands)Deferred tax assetsDomestic net operating loss carryforwards

$
25,417


$
20,707Inventory


839



272Fixed assets


592



532Other


1,437



638Research and development credit


1,207



1,031Total deferred tax assets


29,492



23,180Valuation allowance for deferred assets


(29,492
)


(23,180
)Deferred tax assets






Deferred tax liabilitiesFixed assets






Total deferred tax liabilities






Net deferred tax assets (liabilities)

$



$
      59




---



##### Table of Contents



TranS1
    Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    2010


2009


2008% of





% of





% ofAmount


Net Loss


Amount


Net Loss


Amount


Net Loss(In thousands)Tax at statutory rate

$
(6,834
)


35.0
%

$
(8,119
)


35.0
%

$
(5,962
)


35.0
%State taxes


(303
)


1.5
%


(59
)


0.3
%


(447
)


2.6
%Non deductible items


746



(3.8
)%


1,129



(4.9
)%


1,168



(6.9
)%Other


258



(1.3
)%


215



(0.9
)%


(470
)


2.8
%R&D credits


(251
)


1.3
%


(486
)


2.1
%


(148
)


0.9
%Change in valuation allowance


6,384



(32.7
)%


7,320



(31.6
)%


5,859



(34.4
)%Total

$




0.0
%

$




0.0
%

$




0.0
%     Balance at December 31, 2008

$
887Gross increases related to current period tax positions


13Balance at December 31, 2009


900Gross increases related to current period tax positions


75Balance at December 31, 2010

$
975     9.
    Comprehensive
    Loss    Year Ended December 31,2010


2009


2008(In thousands)Net loss

$
(19,527
)

$
(23,196
)

$
(17,035
)Other comprehensive loss:Translation adjustments


(24
)


(5
)


Total comprehensive loss

$
(19,551
)

$
(23,201
)

$
(17,035
)  60




---



##### Table of Contents



TranS1
    Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  10.
    Quarterly
    Data (Unaudited)    Year Ended December 31, 2010First


Second


Third


FourthQuarter


Quarter


Quarter


QuarterTotal revenues

$
6,713


$
7,244


$
6,339


$
5,858Gross profit


5,284



5,880



5,134



2,752Total operating expenses


11,591



9,541



8,945



8,986Net loss

$
(6,356
)

$
(3,646
)

$
(3,791
)

$
(5,734
)Basic and diluted net loss per common share

$
(0.31
)

$
(0.18
)

$
(0.18
)

$
(0.27
)   Year Ended December 31, 2009First


Second


Third


FourthQuarter


Quarter


Quarter


QuarterTotal revenues

$
8,678


$
7,938


$
6,912


$
6,279Gross profit


7,136



6,423



5,546



5,015Total operating expenses


12,517



13,293



11,171



10,740Net loss

$
(5,164
)

$
(6,759
)

$
(5,571
)

$
(5,702
)Basic and diluted net loss per common share

$
(0.25
)

$
(0.33
)

$
(0.27
)

$
(0.28
)  61




---



##### Table of Contents



TRANS1
    INC.
  SCHEDULE II
  VALUATION
    AND QUALIFYING ACCOUNTS
 FOR THE
    YEARS ENDED DECEMBER 31, 2010, 2009 AND 2008
  Balance at





Balance atBeginning of





End ofPeriod

Additions(1)

Deductions(2)

Period(In thousands)Accounts Receivable Reserve:Year ended December 31, 2010

$
193


$
226


$
72


$
347Year ended December 31, 2009


193



80



80



193Year ended December 31, 2008


110



101



18



193   Balance at





Balance atBeginning of





End ofPeriod

Additions(3)

Deductions(4)

PeriodInventory Reserve:Year ended December 31, 2010

$
581


$
2,004


$
430


$
2,155Year ended December 31, 2009


397



505



321



581Year ended December 31, 2008


295



400



298



397   Balance at





Balance atBeginning of





End ofPeriod

Additions

Deductions

PeriodValuation Allowance for Deferred Tax Assets:Year ended December 31, 2010

$
23,180


$
6,354


$
42


$
29,492Year ended December 31, 2009


15,993



7,559



372



23,180Year ended December 31, 2008


9,524



6,469







15,993     (1)
    
    Amount represents customer balances deemed uncollectible.(2)
    
    Uncollectible accounts written-off.(3)
    
    Amount represents excess and obsolete reserve recorded to cost
    of sales.(4)
    
    Excess and obsolete inventory written-off against reserve. 62




---



##### Table of Contents



EXHIBIT INDEX
  ExhibitNo.

Description3
.1

Amended and Restated Certificate of Incorporation of TranS1 Inc.
    (incorporated by reference to Exhibit 3.2 to the
    Registration Statement on
    Form S-1,
    as amended (File
    No. 333-144802),
    and as declared effective on October 16, 2007).3
.2

Amended and Restated Bylaws of TranS1 Inc. (incorporated by
    reference to Exhibit 3.4 to the Registration Statement on
    Form S-1,
    as amended (File
    No. 333-144802),
    and as declared effective on October 16, 2007).4
.1

Specimen common stock certificate (incorporated by reference to
    Exhibit 4.1 to the Registration Statement on
    Form S-1,
    as amended (File
    No. 333-144802),
    and as declared effective on October 16, 2007).10
.1

Amended and Restated 2000 Stock Incentive Plan (incorporated by
    reference to Exhibit 10.1 to the Registration Statement on
    Form S-1,
    as amended (File
    No. 333-144802),
    and as declared effective on October 16, 2007).*10
.2

Form of Stock Option Agreement under Amended and Restated 2000
    Stock Incentive Plan (incorporated by reference to
    Exhibit 10.2 to the Registration Statement on
    Form S-1,
    as amended (File
    No. 333-144802),
    and as declared effective on October 16, 2007).*10
.3

2007 Stock Incentive Plan, as amended (incorporated by reference
    to Appendix A to the Definitive Proxy Statement on
    Schedule 14A, as filed with the Commission on
    April 30, 2009.*10
.4

Form of Stock Option Agreement under 2007 Stock Incentive Plan
    (incorporated by reference to Exhibit 10.4 to the
    Registration Statement on
    Form S-1,
    as amended (File
    No. 333-144802),
    and as declared effective on October 16, 2007).*10
.5

2007 Employee Stock Purchase Plan, as amended on
    December 16, 2010 and as declared effective on
    October 16, 2007).**10
.6

Lease, dated July 30, 2009, between TranS1 Inc. and Market
    Place Group, LLC (incorporated by reference to Exhibit 99.1
    of TranS1s Current Report on
    Form 8-K
    filed with the Commission on March 11, 2010).10
.7

Form of Indemnification Agreement (incorporated by reference to
    Exhibit 10.7 to the Registration Statement on
    Form S-1,
    as amended (File
    No. 333-144802),
    and as declared effective on October 16, 2007).10
.7.1

Schedule of Parties to Indemnification Agreement.**10
.8

Offer Letter, dated December 11, 2009, between TranS1 Inc.
    and Kenneth Reali (incorporated by reference to
    Exhibit 10.1 of TranS1s Current Report on
    Form 8-K
    filed with the Commission on January 12, 2010).*10
.9

Separation Agreement, dated February 23, 2010, between
    TranS1 Inc. and Michael Luetkemeyer (incorporated by reference
    to Exhibit 10.1 of TranS1s Current Report on
    Form 8-K
    filed with the Commission on February 25, 2010).*10
.10

Offer Letter, dated February 22, 2010, between TranS1 Inc.
    and Dwayne Montgomery (incorporated by reference to
    Exhibit 10.1 of TranS1s Current Report on
    Form 8-K
    filed with the Commission on March 18, 2010).*10
.11

Offer Letter, dated April 13, 2010, between TranS1 Inc. and
    Joseph Slattery (incorporated by reference to Exhibit 10.1
    of TranS1s Current Report on
    Form 8-K
    filed with the Commission on April 21, 2010).*10
.12

Offer Letter, dated July 30, 2010, between TranS1 Inc. and
    Rick Feiler (incorporated by reference to Exhibit 10.1 of
    TranS1s Current Report on
    Form 8-K
    filed with the Commission on August 4, 2010).*10
.13

Offer Letter, dated September 28, 2010, between TranS1 Inc.
    and Steve Ainsworth (incorporated by reference to
    Exhibit 10.1 of TranS1s Current Report on
    Form 8-K
    filed with the Commission on October 4, 2010).*23
.1

Consent of Independent Registered Public Accounting Firm.**24
.1

Power of Attorney (included in the signature page). 63




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##### Table of Contents



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.**     *
    
    These exhibits are identified as management contracts or
    compensatory plans or arrangements of the Registrant pursuant to
    Item 15 of
    Form 10-K.  **
    
    Filed herewith. 64