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EX-31.2 - EX-31.2 - BAXANO SURGICAL, INC. | g23373exv31w2.htm |
EX-32.1 - EX-32.1 - BAXANO SURGICAL, INC. | g23373exv32w1.htm |
EX-32.2 - EX-32.2 - BAXANO SURGICAL, INC. | g23373exv32w2.htm |
EX-31.1 - EX-31.1 - BAXANO SURGICAL, INC. | g23373exv31w1.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2010
or
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period to
Commission File Number 001-33744
TRANS1 INC.
(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
(Registrants telephone number, including area code)
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yeso No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.:
Large accelerated filer o | Accelerated filer þ | Non-accelerated filer o | Smaller reporting company o | |||
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
The number of shares of the registrants common stock outstanding as of May 3, 2010 was 20,656,793
shares.
TRANS1 INC.
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2010
TABLE OF CONTENTS
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2010
TABLE OF CONTENTS
Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements.
TranS1 Inc.
Consolidated Statements of Operations
(in thousands, except per share amounts)
(Unaudited)
Consolidated Statements of Operations
(in thousands, except per share amounts)
(Unaudited)
Three Months Ended March 31, | ||||||||
2010 | 2009 | |||||||
Revenue |
$ | 6,713 | $ | 8,678 | ||||
Cost of revenue |
1,429 | 1,542 | ||||||
Gross profit |
5,284 | 7,136 | ||||||
Operating expenses: |
||||||||
Research and development |
1,255 | 1,326 | ||||||
Sales and marketing |
7,697 | 9,150 | ||||||
General and administrative |
2,639 | 2,041 | ||||||
Total operating expenses |
11,591 | 12,517 | ||||||
Operating loss |
(6,307 | ) | (5,381 | ) | ||||
Interest and other income (loss) |
(49 | ) | 217 | |||||
Net loss |
$ | (6,356 | ) | $ | (5,164 | ) | ||
Net loss per common share basic
and diluted |
$ | (0.31 | ) | $ | (0.25 | ) | ||
Weighted average common shares
outstanding basic and diluted |
20,655 | 20,552 | ||||||
The accompanying notes are an integral part of these financial statements.
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March 31, | December 31, | |||||||
2010 | 2009 | |||||||
Assets |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 28,751 | $ | 29,298 | ||||
Short-term investments |
20,960 | 25,953 | ||||||
Accounts receivable, net |
4,577 | 3,926 | ||||||
Inventory |
6,856 | 7,325 | ||||||
Prepaid expenses and other assets |
658 | 676 | ||||||
Total current assets |
61,802 | 67,178 | ||||||
Property and equipment, net |
1,776 | 1,813 | ||||||
Total assets |
$ | 63,578 | $ | 68,991 | ||||
Liabilities and Stockholders Equity |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 2,141 | $ | 2,442 | ||||
Accrued expenses |
1,980 | 1,269 | ||||||
Total current liabilities |
4,121 | 3,711 | ||||||
Stockholders equity |
||||||||
Common stock |
2 | 2 | ||||||
Additional paid-in capital |
136,943 | 136,402 | ||||||
Accumulated other comprehensive income (loss) |
(13 | ) | (5 | ) | ||||
Accumulated deficit |
(77,475 | ) | (71,119 | ) | ||||
Total stockholders equity |
59,457 | 65,280 | ||||||
Total liabilities and stockholders equity |
$ | 63,578 | $ | 68,991 | ||||
The accompanying notes are an integral part of these financial statements.
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Three Months Ended March 31, | ||||||||
2010 | 2009 | |||||||
Cash flows from operating activities: |
||||||||
Net loss |
$ | (6,356 | ) | $ | (5,164 | ) | ||
Adjustments to reconcile net loss to net cash used in
operating activities |
||||||||
Depreciation |
231 | 229 | ||||||
Stock-based compensation |
530 | 643 | ||||||
Allowance for excess and obsolete inventory |
276 | 35 | ||||||
Provision for bad debts |
18 | 24 | ||||||
Loss on sale of fixed assets |
71 | | ||||||
Changes in operating assets and liabilities: |
||||||||
Increase in accounts receivable |
(669 | ) | (659 | ) | ||||
(Increase) decrease in inventory |
193 | (191 | ) | |||||
Decrease in prepaid expenses |
18 | 30 | ||||||
Increase (decrease) in accounts payable |
(301 | ) | 48 | |||||
Increase in accrued expenses |
711 | 50 | ||||||
Net cash used in operating activities |
(5,278 | ) | (4,955 | ) | ||||
Cash flows from investing activities: |
||||||||
Purchases of property and equipment |
(265 | ) | (277 | ) | ||||
Purchases of investments |
(3,986 | ) | (2,973 | ) | ||||
Sales and maturities of investments |
8,979 | 18,919 | ||||||
Net cash provided by investing activities |
4,728 | 15,669 | ||||||
Cash flows from financing activities: |
||||||||
Proceeds from issuance of common stock |
3 | 21 | ||||||
Net cash provided by financing activities |
3 | 21 | ||||||
Net increase (decrease) in cash and cash
equivalents |
(547 | ) | 10,735 | |||||
Cash and cash equivalents, beginning of period |
29,298 | 42,051 | ||||||
Cash and cash equivalents, end of period |
$ | 28,751 | $ | 52,786 | ||||
The accompanying notes are an integral part of these financial statements.
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TranS1 Inc.
Notes to Consolidated Financial Statements
(Unaudited)
1. Description of Business
TranS1 Inc., a Delaware corporation (the Company), was incorporated in May 2000 and is
headquartered in Wilmington, North Carolina. The Company is a medical device company focused on
designing, developing and marketing products that implement its proprietary minimally invasive
surgical approach to treat degenerative disc disease and instability affecting the lower lumbar
region of the spine. The Company operates in one business segment. The Company has developed and
currently markets the AxiaLIF® family of products for single and multilevel lumbar fusion and the
Vectre and Avatar posterior fixation systems for lumbar fixation supplemental to AxiaLIF fusion.
All of the Companys products are delivered using its pre-sacral approach. The AxiaLIF product was
commercially released in January 2005 and the AxiaLIF 360° product was commercially released in
July 2006. The AxiaLIF 2L product was commercially released in Europe in the fourth quarter of
2006 and in the United States in the second quarter of 2008. In November 2009, the Company
commenced the limited market release of its next generation Vectre facet screw system. The Company
began marketing its AxiaLIF 2L+ product, in January 2010. In January 2010, the Company entered into
a partnership agreement with Life Spine, Inc. to distribute Avatar, a minimally invasive pedicle
screw system. The Company generates revenue from the sale of implants and procedure kits. The
Company sells its products directly to hospitals and surgical centers in the United States and
certain European countries, and to independent distributors elsewhere.
The Company owns seven trademark registrations in the United States and seven trademark
registrations in the European Union. The Company also owns five pending trademark applications in
the United States, two pending trademark applications in the European Union and eight pending
trademark applications in Canada.
The Company is subject to a number of risks similar to other companies in the medical device
industry. These risks include, without limitation, rapid technological change, uncertainty of
market acceptance of our products, uncertainty of regulatory clearance or approval, uncertainty of
reimbursement from third-party payors, competition from substitute products and larger companies,
the need to obtain additional financing, compliance with government regulation, protection of
proprietary technology, product liability, and the dependence on key individuals.
2. Basis of presentation
The Company has prepared the accompanying consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America (U.S. GAAP) for interim
financial information and pursuant to the rules and regulations of the Securities and Exchange
Commission (the SEC). The consolidated financial statements are unaudited and reflect all
adjustments (consisting of normal recurring adjustments) which are, in the opinion of the Companys
management, necessary for a fair statement of the Companys consolidated financial position,
results of operations and cash flows. These principles require management to make estimates and
assumptions
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that affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. The principal estimates relate specifically to
accounts receivable reserves, inventory reserves, stock-based compensation, accrued expenses and
income tax valuations. Actual results could differ from those estimates. Operating results for the
interim periods presented are not necessarily indicative of the results that may be expected for
the full year. The year-end balance sheet data was derived from audited financial statements, but
does not include all disclosures required by accounting principles generally accepted in the United
States. All intercompany accounts and transactions have been eliminated in consolidation.
In the second quarter of 2009, the Company revised the classification of patent-related legal costs
from research and development expense to general and administrative expense as such costs typically
would be excluded from research and development costs as defined by Accounting Standards
Codification 730 (formerly Statement of Financial Accounting Standards No. 2, Accounting for
Research and Development Costs). Amounts related to prior periods are not considered material to
the financial statements taken as a whole, but were revised for purposes of comparability. Such
amount for the three month period ended March 31, 2009 was $208,000. The revision did not affect
previously reported total operating expenses, net loss, loss per share, assets, liabilities,
stockholders equity or cash flows.
Impact of Recently Issued Accounting Standards
There have been no recently issued accounting standards that have an impact on the Companys
financial statements.
3. Income Taxes
No provisions for federal or state income taxes have been recorded as the Company has incurred net
operating losses since inception.
4. Net Loss Per Common Share
Basic net loss per common share (Basic EPS) is computed by dividing the net loss available to
common stockholders by the weighted average number of common shares outstanding. Diluted net loss
per common share (Diluted EPS) is computed by dividing the net loss available to common
shareholders by the weighted average number of common shares and potential dilutive common share
equivalents then outstanding. The Companys potential dilutive common shares, which consist of
shares issuable upon the exercise of stock options, have not been included in the computation of
diluted net loss per share for all periods as the result would be anti-dilutive.
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The following table sets forth the potential shares of common stock that are not included in the
calculation of diluted net loss per share as the result would be anti-dilutive as of the end of
each period presented:
Three Months Ended | ||||||||
March 31, | ||||||||
2010 | 2009 | |||||||
Weighted average stock options
outstanding |
2,308,038 | 2,264,005 | ||||||
5. Cash, Cash Equivalents and Investments
The Company considers all highly liquid investments with an original maturity of three months or
less at the date of purchase to be cash equivalents. Cash and cash equivalents include money market
treasury funds. Short-term investments consist of U.S. agency backed debt instruments.
At March 31, 2010, the Company holds certain assets that are required to be measured at fair value
on a recurring basis. These assets include available for sale securities classified as cash
equivalents and short-term investments. ASC 820 requires that fair value measurements be
classified and disclosed in one of three tiers. These tiers are: Level 1, defined as quoted prices
in active markets for identical assets or liabilities; Level 2, defined as valuations based on
observable inputs other than those included in Level 1, such as quoted prices for similar assets
and liabilities in active markets, or other inputs that are observable or can be corroborated by
observable input data; and Level 3, defined as valuations based on unobservable inputs reflecting
the Companys own assumptions, consistent with reasonably available assumptions made by other
market participants.
At March 31, 2010, all available for sale securities are classified as Level 1 assets with a fair
value of $49.7 million, which included money market funds of $28.7 million and short-term
investments of $21.0 million. At December 31, 2009, all available for sale securities were
classified as Level 1 assets with a fair value of $54.9 million, which included money market funds
of $28.9 million and short-term investments of $26.0 million. The Company had no Level 2 or Level
3 assets or liabilities at March 31, 2010 or December 31, 2009.
6. Accounts Receivable, Net
The following table presents the components of accounts receivable:
March 31, | December 31, | |||||||
2010 | 2009 | |||||||
(In thousands) | ||||||||
Gross accounts receivable |
$ | 4,757 | $ | 4,119 | ||||
Allowance for uncollectible accounts |
(180 | ) | (193 | ) | ||||
Total accounts receivable, net |
$ | 4,577 | $ | 3,926 | ||||
7. Inventories
The following table presents the components of inventories:
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March 31, | December 31, | |||||||
2010 | 2009 | |||||||
(In thousands) | ||||||||
Work-in-process |
$ | 3,828 | $ | 3,993 | ||||
Finished goods |
2,823 | 3,112 | ||||||
Raw materials |
205 | 220 | ||||||
Total inventories |
$ | 6,856 | $ | 7,325 | ||||
8. Accrued Expenses
The following table presents the components of accrued expenses:
March 31, | December 31, | |||||||
2010 | 2009 | |||||||
(In thousands) | ||||||||
Commissions |
$ | 665 | $ | 597 | ||||
Salaries and severance |
375 | 47 | ||||||
Vacation |
279 | 186 | ||||||
Bonus |
233 | 10 | ||||||
Legal and professional fees |
107 | 90 | ||||||
Franchise tax |
95 | 122 | ||||||
Consulting |
93 | 120 | ||||||
Other |
133 | 97 | ||||||
Total accrued expenses |
$ | 1,980 | $ | 1,269 | ||||
9. Comprehensive Loss
The following table presents the components of other comprehensive loss:
Three Months Ended | ||||||||
March 31, | ||||||||
2010 | 2009 | |||||||
(In thousands) | ||||||||
Net loss |
$ | (6,356 | ) | $ | (5,164 | ) | ||
Other comprehensive
income (loss): |
||||||||
Translation adjustments |
(8 | ) | | |||||
Total comprehensive loss |
$ | (6,364 | ) | $ | (5,164 | ) | ||
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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion of our financial condition and results of operations should be read in
conjunction with our consolidated financial statements and the related notes to our consolidated
financial statements included in this report. In addition to historical financial information, this
report contains forward-looking statements that have been made pursuant to the provisions of the
Private Securities Litigation Reform Act of 1995 and concern matters that involve risks and
uncertainties that could cause actual results to differ materially from those projected in the
forward-looking statements. All statements other than statements of historical fact contained in
this report, including statements regarding future events, our future financial performance,
business strategy and plans and objectives of management for future operations, are forward-looking
statements. We have attempted to identify forward-looking statements by terminology including
anticipates, believes, can, continue, could, estimates, expects, intends, may,
plans, potential, predicts, should or will or the negative of these terms or other
comparable terminology. Although we do not make forward-looking statements unless we believe we
have a reasonable basis for doing so, we cannot guarantee their accuracy. Such forward-looking
statements are subject to risks, uncertainties and other factors that could cause actual results
and the timing of certain events to differ materially from future results expressed or implied by
such forward-looking statements. Readers are urged to carefully review and consider the
various disclosures made by us, which attempt to advise interested parties of the risks,
uncertainties, and other factors that affect our business, operating results, financial condition
and stock price, including without limitation the disclosures made under the caption Managements
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 Managements 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
We are a medical device company focused on designing, developing and marketing products that
implement our proprietary minimally invasive surgical approach to treat degenerative disc disease
and instability affecting the lower lumbar region of the spine. Using our pre-sacral approach, a
surgeon can access discs in the lower lumbar region of the spine through a 1.5 cm incision adjacent
to the tailbone and can perform an entire fusion procedure through a small tube that provides
direct access to the intervertebral space. We developed our pre-sacral approach to allow spine
surgeons to access and treat intervertebral spaces without compromising important surrounding soft
tissue. We believe this approach enables fusion procedures to be performed with low complication
rates, low blood loss, short hospital stays, fast recovery times and reduced pain. We have
developed and currently market our single-level fusion products, the AxiaLIF® and the
AxiaLIF 360° and our two-level fusion products, the AxiaLIF 2L and the AxiaLIF 2L+, which include
the Vectre and Avatar posterior fixation systems for lumbar fixation supplemental to AxiaLIF
fusion.
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From our incorporation in 2000 through 2004, we devoted substantially all of our resources to
research and development and start-up activities, consisting primarily of product design and
development, clinical trials, manufacturing, recruiting qualified personnel and raising capital. We
received 510(k) clearance from the U.S. Food and Drug Administration, or FDA, for our AxiaLIF
product in the fourth quarter of 2004, and commercially introduced our AxiaLIF product in the
United States in the first quarter of 2005. We received FDA 510(k) clearance for our AxiaLIF 360°
product in the United States in the third quarter of 2005 and began commercialization in the United
States in the third quarter of 2006. We received a CE mark to market AxiaLIF in the European market
in the first quarter of 2005 and began commercialization in the first quarter of 2006. For AxiaLIF
360°, we received a CE mark in the first quarter of 2006. We received a CE mark for our AxiaLIF 2L
product in the third quarter of 2006 and began commercialization in the European market in the
fourth quarter of 2006. We received FDA 510(k) clearance for our AxiaLIF 2L product and began
marketing this product in the United States in the second quarter of 2008. In November 2009, we
commenced the limited market release of our next generation Vectre facet screw system. Our AxiaLIF
2L+ product received FDA 510(k) clearance, and we began marketing the product, in January 2010. In
January 2010, we entered into a partnership agreement with Life Spine, Inc. to distribute Avatar, a
minimally invasive pedicle screw system. We currently sell our products through a direct sales
force, independent sales agents and international distributors.
We rely on third parties to manufacture most of our products and their components. We believe these
manufacturing relationships allow us to work with suppliers who have the best specific competencies
while we minimize our capital investment, control costs and shorten cycle times, all of which
allows us to compete with larger volume manufacturers of spine surgery products.
Since inception, we have been unprofitable. As of March 31, 2010, we had an accumulated deficit of
$77.5 million.
We expect to continue to invest in creating a sales and marketing infrastructure for our AxiaLIF,
AxiaLIF 360°, AxiaLIF 2L and AxiaLIF 2L+ products in order to gain wider acceptance for these
products. We also expect to continue to invest in research and development and related clinical
trials, and increase general and administrative expenses as we grow. As a result, we will need to
generate significant revenue in order to achieve profitability.
Financial Operations
Revenue
We generate revenue from the sales of our procedure kits and implants used in our AxiaLIF fusion
procedure for the treatment of degenerative disc disease and instability. Our revenue is generated
by our direct sales force, independent sales agents and independent distributors. Our sales
representatives or independent sales agents hand deliver the procedure kit to the customer on the
day of the surgery or several days prior to the surgery. The sales representative or independent
agent is then responsible for reporting the delivery of the procedure kit, and the date of the
operation to the corporate office for proper revenue recognition. We recognize revenue upon the
confirmation that the procedure kit has been used in a surgical procedure. The other sales method
is for sales to distributors outside the United States. These distributors order multiple procedure
kits at one time to have on hand. These transactions require
the customer to send in a purchase order before shipment will be made to the customer. We determine
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revenue recognition on a case by case basis dependent upon the terms and conditions of each
individual distributor agreement. Under the distributor agreements currently in place, a
distributor only has the right of return for defective products and, accordingly, revenue is
recognized upon shipment of our products to our independent distributors. Although we intend to
continue to expand our international sales and marketing efforts, we expect that a substantial
amount of our revenues will be generated in the United States in future periods.
Cost of Revenue
Cost of revenue consists primarily of material and overhead costs related to our products. Cost of
revenue also includes facilities-related costs, such as rent, utilities and depreciation.
Research and Development
Research and development expenses consist primarily of personnel costs, including stock-based
compensation expense, within our product development, regulatory and clinical functions and the
costs of clinical studies and product development projects. In future periods, we expect research
and development expenses to grow as we continue to invest in basic research, clinical trials,
product development and intellectual property.
Sales and Marketing
Sales and marketing expenses consist of personnel costs, including stock-based compensation
expense, sales commissions paid to our direct sales representatives and independent sales agents,
and costs associated with physician training programs, promotional activities and participation in
medical conferences. In future periods, we expect sales and marketing expenses to increase as we
expand our sales and marketing efforts.
General and Administrative
General and administrative expenses consist of personnel costs, including stock-based compensation,
related to the executive, finance, business development, information technology and human resource
functions, as well as professional service fees, legal fees, accounting fees, insurance costs and
general corporate expenses. We expect general and administrative expenses to increase as we grow
our business.
Interest and Other Income (Loss)
Interest and other income (loss) is primarily composed of interest earned on our cash, cash
equivalents and available-for-sale securities and the gain or loss on disposal of fixed assets.
Results of Operations
Comparison of the Three Months Ended March 31, 2009 and 2010
Revenue. Revenue decreased from $8.7 million in the three months ended March 31, 2009 to $6.7
million in the three months ended March 31, 2010. The $2.0 million decrease in revenue from 2009 to
2010 was related to lower than expected case volume as a result of concerns and uncertainty in the
marketplace surrounding physician reimbursement for our AxiaLIF procedure. We are addressing these
issues with increased education and support resources for our current and prospective surgeon
users. Domestically, sales of our AxiaLIF 2L product decreased from $2.3 million in the three
months ended March 31, 2009 to $1.9 million in the three months ended March 31, 2010 and sales of
our AxiaLIF
360° product decreased from $2.6 million in the three months ended March 31, 2009 to $1.4 million in
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the three months ended March 31, 2010. New products accounted for revenue of $132,000 in
the first quarter of 2010. Average selling prices in the United States increased from
approximately $10,600 in the three months ended March 31, 2009 to approximately $10,700 in the
three months ended March 31, 2010. In the three months ended March 31, 2009 and 2010, we recorded
751 and 537 domestic AxiaLIF cases, respectively, including 261 AxiaLIF 360° cases and
168 AxiaLIF 2L cases in the first quarter of 2009, and 134 AxiaLIF 360° cases and 141
AxiaLIF 2L cases in the first quarter of 2010. Additionally, during the three months ended March
31, 2009 and 2010, we generated $297,000 and $125,000, respectively, in revenues from stand alone
sales of our percutaneous facet and Vectre screw systems.
Revenue generated outside the United States increased from $452,000 in the three months ended March
31, 2009 to $684,000 in the three months ended March 31, 2010. In February 2009, we began to sell
directly to hospitals in Germany through our own sales force, which previously had been done
through a distributor. In the three months ended March 31, 2009, there was $87,000 in initial
stocking shipments to new distributors outside the United States compared to no initial stocking
shipments in the three months ended March 31, 2010. In the three months ended March 31, 2009 and
2010, 95% and 90%, respectively, of our revenues were generated in the United States.
Cost of Revenue. Cost of revenue decreased from $1.5 million in the three months ended March 31,
2009 to $1.4 million in the three months ended March 31, 2010. The $113,000 decrease in cost of
revenue resulted primarily from lower material and overhead costs associated with decreased sales
volume for our products, partially offset by an inventory obsolescence reserve of $266,000 related
to excess inventory for our AxiaLIF 2L product, as we introduce our AxiaLIF 2L+ product. As a
percentage of revenue, cost of revenue increased from 17.8% in the three months ended March 31,
2009 to 21.3% in the three months ended March 31, 2010. The increase in cost of revenue as a
percent of revenue from 2009 to 2010 was primarily attributable to the inventory obsolescence
reserve recorded in 2010.
Research and Development. Research and development expenses remained consistent at $1.3 million in
the three months ended March 31, 2009 and 2010. Expenses in the three months ended March 31, 2009
included $0.2 million for the exclusive rights to negotiate for a potential product acquisition.
Expenses in the three months ended March 31, 2010 included management transition costs of $0.1
million.
Sales and Marketing. Sales and marketing expenses decreased from $9.2 million in the three months
ended March 31, 2009 to $7.7 million in the three months ended March 31, 2010. The decrease in
expenses from 2009 to 2010 of $1.5 million was primarily due to lower commissions of $0.8 million,
related to the lower revenue, and decreased personnel-related costs of $0.8 million, as we reduced
our U.S. sales force to focus our investment. These lower expenses were partially offset by
severance costs of $0.4 million for employees affected by the sales force reduction.
General and Administrative. General and administrative expenses increased from $2.0 million in the
three months ended March 31, 2009 to $2.6 million in the three months ended March 31, 2010. The
increase in expenses from 2009 to 2010 of $0.6 million was primarily due to an increase in
personnel- related costs related to management transition that occurred in the first quarter of
2010. These costs included compensation, recruiting and severance related expenses.
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Interest and Other Income (Loss). Interest and other income (loss) decreased from income of
$217,000 in the three months ended March 31, 2009 to a loss of $49,000 in the three months ended
March 31, 2010. The decrease of $266,000 from 2009 to 2010 was primarily related to lower interest
income of $195,000 due to lower interest rates and our lower average cash and investment balance
and a loss on disposal of fixed assets of $71,000.
Liquidity and Capital Resources
Sources of Liquidity
Since our inception in 2000, we have incurred significant losses and, as of March 31 2010, we had
an accumulated deficit of $77.5 million. We have not yet achieved profitability, and anticipate
that we will continue to incur losses in the near term. We expect that research and development,
sales and marketing and general and administrative expenses will grow and, as a result, we will
need to generate significant revenues to achieve profitability. To date, our operations have been
funded primarily with proceeds from the sale of preferred stock and the net proceeds from our
October 2007 initial public offering. Gross proceeds from our preferred stock sales totaled
$40.5 million to date, and the net proceeds from our initial public offering were approximately
$86.7 million.
As of March 31 2010, we did not have any outstanding debt financing arrangements, we had working
capital of $57.7 million and our primary source of liquidity was $49.7 million in cash, cash
equivalents and short-term investments. We currently invest our cash and cash equivalents
primarily in money market treasury funds and our short-term investments primarily in U.S. agency
backed debt instruments.
Cash, cash equivalents and short-term investments decreased from $55.3 million at December 31, 2009
to $49.7 million at March 31, 2010. The decrease of $5.6 million was primarily the result of net
cash used in operating activities of $5.3 million and purchases of property and equipment of
$265,000.
Cash Flows
Net Cash Used in Operating Activities. Net cash used in operating activities was $5.3 million in
the three months ended March 31, 2010. This amount was attributable primarily to the net loss after
adjustment for non-cash items, such as depreciation, stock-based compensation expense, inventory
and receivable reserves, and the loss on sale of fixed assets, combined with an increase in accrued
expenses, primarily personnel related, partially offset by an increase in accounts receivable
related to the increase in revenue in the first quarter of 2010 compared to the fourth quarter of
2009, and changes in accounts payable due to the timing of activity.
Net Cash Provided by Investing Activities. Net cash provided by investing activities was $4.7
million in the three months ended March 31, 2010. This amount reflected net purchases or sales and
maturities of short-term investments of $5.0 million, offset by purchases of property and equipment
of $265,000, primarily for capital improvements to our facility.
Net Cash Provided by Financing Activities. Net cash provided by financing activities in the three
months ended March 31, 2010 was $3,000 which primarily represented proceeds from the issuance of
shares of our common stock upon the exercise of stock options.
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Operating Capital and Capital Expenditure Requirements
We believe that our existing cash, cash equivalents and short-term investments, together with cash
received from sales of our products, will be sufficient to meet our cash needs for at least the
next two years. We intend to spend substantial sums on sales and marketing initiatives to support
the ongoing commercialization of our products and on research and development activities, including
product development, regulatory and compliance, clinical studies in support of our currently
marketed products and future product offerings, and the enhancement and protection of our
intellectual property. We may need to obtain additional financing to pursue our business strategy,
to respond to new competitive pressures or to take advantage of opportunities that may arise. The
sale of additional equity or convertible debt securities could result in dilution to our
stockholders. If additional funds are raised through the issuance of debt securities, these
securities could have rights senior to those associated with our common stock and could contain
covenants that would restrict our operations. Any additional financing may not be available in
amounts or on terms acceptable to us, if at all. If we are unable to obtain this additional
financing, we may be required to reduce the scope of our planned product development and marketing
efforts.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations is based upon our
consolidated financial statements, which have been prepared in accordance with accounting
principles generally accepted in the United States. The preparation of financial statements
requires management to make estimates and judgments that affect the reported amounts of assets and
liabilities, revenue and expenses, and disclosures of contingent assets and liabilities at the date
of the financial statements. On an on-going basis, we evaluate our estimates, including those
related to revenue recognition, accounts receivable, inventories, accrued expenses, income taxes
and stock-based compensation. We use authoritative pronouncements, historical experience and other
assumptions as the basis for making estimates. Actual results could differ from those estimates
under different assumptions or conditions.
For a description of our critical accounting policies and estimates, please refer to the Critical
Accounting Policies and Estimates section of the Managements Discussion and Analysis of
Financial Condition and Results of Operations section contained in our Annual Report on Form 10-K
for the year ended December 31, 2009. There have been no material changes in any of our accounting
policies since December 31, 2009.
New Accounting Standards
There have been no recently issued accounting standards that have an impact on our financial
statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Our exposure to interest rate risk at March 31, 2010 is related to our investment portfolio. We
invest our excess cash primarily in money market funds and debt instruments of the U.S. government
and its agencies. Due to the short-term nature of these investments, we have assessed that there is
no material exposure to interest rate risk arising from our investments. Thus, a hypothetical 100
basis point adverse move in interest rates along the entire interest rate yield curve would not
materially affect the fair market value of our interest-sensitive financial investments. Declines
in interest rates over time will, however, reduce our investment income, while increases in
interest rates over time will increase our interest expense. Historically, and as of March 31,
2010, we have not used derivative instruments or engaged in hedging activities.
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Although most of our sales and purchases are denominated in U.S. dollars, future fluctuations in
the value of the U.S. dollar may affect the competitiveness of our products outside the United
States. We do not believe, however, that we currently have significant direct foreign currency
exchange rate risk and have not hedged exposures denominated in foreign currencies.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer and principal financial
officer, evaluated the effectiveness of our disclosure controls and procedures (as such term is
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or
the Exchange Act) as of March 31, 2010. We maintain disclosure controls and procedures that are
designed to provide reasonable assurance that information required to be disclosed in our reports
filed or submitted under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in the SECs rules and forms and that such information is accumulated
and communicated to our management, including our principal executive officer and principal
financial officer, as appropriate, to allow for timely decisions regarding required disclosure. Our
management recognizes that any controls and procedures, no matter how well designed and operated,
can provide only reasonable assurance of achieving their objectives and management necessarily
applies its judgment in evaluating the cost-benefit relationship of possible controls and
procedures. Based on the evaluation of our disclosure controls and procedures as of March 31 2010,
our principal executive officer and principal financial officer concluded that, as of such date,
our disclosure controls and procedures were effective and operating at the reasonable assurance
level.
Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting (as such term is defined
in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during our most recent fiscal quarter that
has materially affected, or is reasonably likely to materially affect, our internal control over
financial reporting.
PART II. OTHER INFORMATION
Item 6. Exhibits
A list of the exhibits required to be filed as part of this report is set forth in the Exhibit
Index, which immediately precedes such exhibits, and is incorporated herein by reference.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
TranS1 Inc. |
||||
Date: May 10, 2010 | By: | /s/ Richard Randall | ||
Richard Randall | ||||
Chief Executive Officer | ||||
Date: May 10, 2010 | By: | /s/ Joseph Slattery | ||
Joseph Slattery | ||||
Executive Vice-President and Chief Financial Officer |
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TranS1 Inc.
Exhibit Index
Exhibit | ||
No. | Description | |
31.1
|
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. |
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