Attached files
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EX-31.1 - EX-31.1 - BAXANO SURGICAL, INC. | g25201exv31w1.htm |
EX-32.1 - EX-32.1 - BAXANO SURGICAL, INC. | g25201exv32w1.htm |
EX-31.2 - EX-31.2 - BAXANO SURGICAL, INC. | g25201exv31w2.htm |
EX-32.2 - EX-32.2 - BAXANO SURGICAL, INC. | g25201exv32w2.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 September 30, 2010
or
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period _______ to _______
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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)
(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). Yes
o 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 o | |
Non-accelerated filer o
|
Smaller reporting company þ |
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 November 5, 2010 was
20,870,594 shares.
TRANS1 INC.
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2010
TABLE OF CONTENTS
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 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)
(in thousands, except per share amounts)
(Unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Revenue |
$ | 6,339 | $ | 6,912 | $ | 20,296 | $ | 23,528 | ||||||||
Cost of revenue |
1,205 | 1,366 | 3,998 | 4,423 | ||||||||||||
Gross profit |
5,134 | 5,546 | 16,298 | 19,105 | ||||||||||||
Operating expenses: |
||||||||||||||||
Research and development |
1,026 | 1,362 | 3,307 | 5,047 | ||||||||||||
Sales and marketing |
5,908 | 8,126 | 20,053 | 26,219 | ||||||||||||
General and administrative |
2,011 | 1,683 | 6,716 | 5,714 | ||||||||||||
Total operating expenses |
8,945 | 11,171 | 30,076 | 36,980 | ||||||||||||
Operating loss |
(3,811 | ) | (5,625 | ) | (13,778 | ) | (17,875 | ) | ||||||||
Other income (expense) |
20 | 54 | (15 | ) | 382 | |||||||||||
Net loss |
$ | (3,791 | ) | $ | (5,571 | ) | $ | (13,793 | ) | $ | (17,493 | ) | ||||
Net loss per common share basic
and diluted |
$ | (0.18 | ) | $ | (0.27 | ) | $ | (0.67 | ) | $ | (0.85 | ) | ||||
Weighted average common shares
outstanding basic and diluted |
20,741 | 20,630 | 20,694 | 20,591 | ||||||||||||
The accompanying notes are an integral part of these financial statements.
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TranS1 Inc.
Consolidated Balance Sheets
(in thousands, except share amounts)
(Unaudited)
(in thousands, except share amounts)
(Unaudited)
September 30, | December 31, | |||||||
2010 | 2009 | |||||||
Assets |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 25,089 | $ | 29,298 | ||||
Short-term investments |
18,980 | 25,953 | ||||||
Accounts receivable, net |
4,428 | 3,926 | ||||||
Inventory |
6,164 | 7,325 | ||||||
Prepaid expenses and other assets |
338 | 676 | ||||||
Total current assets |
54,999 | 67,178 | ||||||
Property and equipment, net |
1,569 | 1,813 | ||||||
Total assets |
$ | 56,568 | $ | 68,991 | ||||
Liabilities and Stockholders Equity |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 1,294 | $ | 2,442 | ||||
Accrued expenses |
2,249 | 1,269 | ||||||
Total current liabilities |
3,543 | 3,711 | ||||||
Stockholders equity: |
||||||||
Common stock, $0.0001 par value; 75,000,000
shares authorized, 20,857,717 and 20,648,447
shares issued and outstanding at September 30, 2010 and December 31,
2009, respectively |
2 | 2 | ||||||
Additional paid-in capital |
137,951 | 136,402 | ||||||
Accumulated other comprehensive income (loss) |
(16 | ) | (5 | ) | ||||
Accumulated deficit |
(84,912 | ) | (71,119 | ) | ||||
Total stockholders equity |
53,025 | 65,280 | ||||||
Total liabilities and stockholders equity |
$ | 56,568 | $ | 68,991 | ||||
The accompanying notes are an integral part of these financial statements.
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TranS1 Inc.
Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
(in thousands)
(Unaudited)
Nine Months Ended September 30, | ||||||||
2010 | 2009 | |||||||
Cash flows from operating activities: |
||||||||
Net loss |
$ | (13,793 | ) | $ | (17,493 | ) | ||
Adjustments to reconcile net loss to net cash used in
operating activities: |
||||||||
Depreciation |
592 | 684 | ||||||
Stock-based compensation |
1,421 | 2,200 | ||||||
Allowance for excess and obsolete inventory |
341 | 541 | ||||||
Provision for bad debts |
54 | 63 | ||||||
Loss on sale of fixed assets |
70 | | ||||||
Changes in operating assets and liabilities: |
||||||||
(Increase) decrease in accounts receivable |
(556 | ) | 581 | |||||
(Increase) decrease in inventory |
820 | (1,843 | ) | |||||
Decrease in prepaid expenses |
338 | 199 | ||||||
Decrease in accounts payable |
(1,148 | ) | (241 | ) | ||||
Increase (decrease) in accrued expenses |
980 | (229 | ) | |||||
Net cash used in operating activities |
(10,881 | ) | (15,538 | ) | ||||
Cash flows from investing activities: |
||||||||
Purchases of property and equipment |
(418 | ) | (553 | ) | ||||
Purchases of investments |
(7,969 | ) | (39,911 | ) | ||||
Sales and maturities of investments |
14,942 | 44,157 | ||||||
Net cash provided by (used in) investing activities |
6,555 | 3,693 | ||||||
Cash flows from financing activities: |
||||||||
Proceeds from issuance of common stock |
128 | 89 | ||||||
Net cash provided by financing activities |
128 | 89 | ||||||
Effect of exchange rate changes on cash and cash
equivalents |
(11 | ) | 3 | |||||
Net decrease in cash and cash equivalents |
(4,209 | ) | (11,753 | ) | ||||
Cash and cash equivalents, beginning of period |
29,298 | 42,051 | ||||||
Cash and cash equivalents, end of period |
$ | 25,089 | $ | 30,298 | ||||
The accompanying notes are an integral part of these financial statements.
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TranS1 Inc.
Notes to Consolidated Financial Statements
(Unaudited)
(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 approach to treat
degenerative conditions of the spine affecting the lower lumbar region. The Company operates in one
business segment. The Company 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 AxiaLIF products are delivered using its
pre-sacral approach. The AxiaLIF product was commercially released in January 2005. 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. The Company commercially launched its next generation Vectre
facet screw system in April 2010 and its AxiaLIF 2L+ product in July 2010. In January 2010, the
Company entered into an agreement to distribute Avatar, a pedicle screw system, and in February
2010, the Company entered into an agreement to distribute a biologics product. 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 eight trademark
registrations in the European Union. The Company also owns four pending trademark applications in
the United States, two pending trademark applications in the European Union and nine pending
trademark applications in Canada.
The Company is subject to a number of risks similar to other similarly-sized companies in the
medical device industry. These risks include, without limitation, our dependence on key employees,
cost pressures in the healthcare industry, uncertainty of reimbursement from third-party payors,
competitive pressures from substitute products and larger companies, our ability to recruit and
retain qualified personnel, the possibility that key surgeons using our products may cease
practicing or using our products in their practice, regulatory approval and market acceptance for
new products, changes in economic conditions, our ability to effectively manage employees to meet
our objectives and conducting successful clinical studies.
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 of America.
All intercompany accounts and transactions have been eliminated in consolidation.
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.
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 September 30, | Nine Months Ended September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Weighted average stock options
outstanding |
2,137,880 | 2,441,139 | 1,791,803 | 2,274,259 | ||||||||||||
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.
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At September 30, 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 September 30, 2010, all available for sale securities are classified as Level 1 assets with a
fair value of $43.9 million, which included money market funds of $24.9 million and short-term
investments of $19.0 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 September 30, 2010 or December 31, 2009.
6. Accounts Receivable, Net
The following table presents the components of accounts receivable:
September 30, | December 31, | |||||||
2010 | 2009 | |||||||
(In thousands) | ||||||||
Gross accounts receivable |
$ | 4,629 | $ | 4,119 | ||||
Allowance for uncollectible accounts |
(201 | ) | (193 | ) | ||||
Total accounts receivable, net |
$ | 4,428 | $ | 3,926 | ||||
7. Inventories
The following table presents the components of inventories:
September 30, | December 31, | |||||||
2010 | 2009 | |||||||
(In thousands) | ||||||||
Work-in-process |
$ | 3,332 | $ | 3,993 | ||||
Finished goods |
2,618 | 3,112 | ||||||
Raw materials |
214 | 220 | ||||||
Total inventories |
$ | 6,164 | $ | 7,325 | ||||
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8. Accrued Expenses
The following table presents the components of accrued expenses:
September 30, | December 31, | |||||||
2010 | 2009 | |||||||
(In thousands) | ||||||||
Bonus |
$ | 702 | $ | 10 | ||||
Commissions |
577 | 597 | ||||||
Vacation |
320 | 186 | ||||||
Legal and professional fees |
206 | 90 | ||||||
Salaries and severance |
139 | 47 | ||||||
Travel and entertainment |
101 | 50 | ||||||
Franchise Tax |
96 | 122 | ||||||
Consulting |
83 | 120 | ||||||
Other |
25 | 47 | ||||||
Total accrued expenses |
$ | 2,249 | $ | 1,269 | ||||
9. Comprehensive Loss
The following table presents the components of other comprehensive loss:
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
(In thousands) | (In thousands) | |||||||||||||||
Net loss |
$ | (3,791 | ) | $ | (5,571 | ) | $ | (13,793 | ) | $ | (17,493 | ) | ||||
Other comprehensive
income (loss): |
||||||||||||||||
Translation adjustments |
| (1 | ) | (11 | ) | 3 | ||||||||||
Total comprehensive loss |
$ | (3,791 | ) | $ | (5,572 | ) | $ | (13,804 | ) | $ | (17,490 | ) | ||||
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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, our
business strategy and plans and objectives of management for future operations, are forward-looking
statements. We have attempted to identify forward-looking statements by terminology including
anticipates, believes, can, continue, could, estimates, expects, intends, may,
plans, potential, predicts, should or will or the negative of these terms or other
comparable terminology. Although we do not make forward-looking statements unless we believe we
have a reasonable basis for doing so, we cannot guarantee their accuracy. Such forward-looking
statements are subject to risks, uncertainties and other factors that could cause actual results
and the timing of certain events to differ materially from future results expressed or implied by
such forward-looking statements. Readers are urged to carefully review and consider the
various disclosures made by us, which attempt to advise interested parties of the risks,
uncertainties, and other factors that affect our business, operating results, financial condition
and stock price, including without limitation the disclosures made under the caption 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 approach to treat degenerative conditions of the spine affecting the
lower lumbar region. 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 currently market our 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.
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,
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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 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. 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. We commercially launched our next generation Vectre facet screw system in
April 2010. Our AxiaLIF 2L+ product received FDA 510(k) clearance in January 2010, and we
commercially launched this product in July 2010. In January 2010, we entered into an agreement to
distribute Avatar, a pedicle screw system, and in February 2010, we entered into an agreement to
distribute a biologics product. 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 allow
us to compete with larger volume manufacturers of spine surgery products.
Since inception, we have been unprofitable. As of September 30, 2010, we had an accumulated deficit
of $84.9 million.
We expect to continue to invest in creating a sales and marketing infrastructure for our AxiaLIF
family of products in order to gain wider acceptance for them. 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
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||
% | % | |||||||||||||||||||||||
2010 | 2009 | change | 2010 | 2009 | change | |||||||||||||||||||
(in thousands, except gross margin) | ||||||||||||||||||||||||
Revenue |
$ | 6,339 | $ | 6,912 | -8.3 | % | $ | 20,296 | $ | 23,528 | -13.7 | % | ||||||||||||
Cost of revenue |
1,205 | 1,366 | -11.8 | % | 3,998 | 4,423 | -9.6 | % | ||||||||||||||||
Gross margin |
81.0 | % | 80.2 | % | 1.0 | % | 80.3 | % | 81.2 | % | -1.1 | % |
Revenue
We generate revenue from the sales of our procedure kits and implants used in our AxiaLIF fusion
procedure for the treatment of degenerative conditions of the spine affecting the lower lumbar
region. 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
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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 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.We expect that a substantial amount of our revenues will continue to 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 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, 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 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.
Other Income (Expense)
Other income (expense) 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 September 30, 2009 and 2010
Revenue Revenue decreased from $6.9 million in the three months ended September 30, 2009 to $6.3
million in the three months ended September 30, 2010. The $0.6 million decrease in revenue from
2009 to 2010 was related to lower case volume as a result of concerns and uncertainty in the
marketplace surrounding physician reimbursement for our AxiaLIF procedure. Domestically, sales of
our AxiaLIF single level products decreased from $4.1 million in the three months ended September
30, 2009 to $3.2 million in the three months ended September 30, 2010, and sales of our AxiaLIF 2L
products increased from $1.8 million in the three months ended September 30, 2009 to $1.9 million
in the three months
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ended September 30, 2010. New products accounted for revenue of $0.3 million
in the three months ended September 30, 2010. In the three months ended September 30, 2010,
average revenue per AxiaLIF case continued to increase, helped by a price increase effective April
1, 2010, the release of our AxiaLIF 2L+ product, and penetration into existing cases by our new
products. In the three months ended September 30, 2009 and 2010, we recorded 606 and 490 domestic
AxiaLIF cases, respectively, including 138 AxiaLIF 2L cases in the three months ended September 30,
2009, and 136 AxiaLIF 2L and 2L+ cases in the three months ended September 30, 2010. Additionally,
during the three months ended September 30, 2009 and 2010, we generated $0.6 million and $0.5
million, respectively, in revenues from sales of our facet and Vectre screw systems. Revenue
generated outside the United States was $0.4 million in both the three months ended September 30,
2009 and 2010. There was $35,000 in initial stocking shipments to new distributors outside the
United States in the three months ended September 30, 2009, compared to no initial stocking
shipments to new distributors in the three months ended September 30, 2010. In the three months
ended September 30, 2009 and 2010, 94% and 93%, respectively, of our revenues were generated in the
United States.
Cost of Revenue Cost of revenue decreased from $1.4 million in the three months ended September
30, 2009 to $1.2 million in the three months ended September 30, 2010. Gross margin increased from
80.2% in the three months ended September 30, 2009 to 81.0% in the three months ended September 30,
2010. The increase in gross margin was primarily due to better product mix and lower inventory
reserves, partially offset by the introduction of new products in 2010 which have a lower gross
margin than our existing AxiaLIF products. Excluding these new products, gross margin for the three
months ended September 30, 2010 was 82.1%.
Research and Development Research and development expenses decreased from $1.4 million in the
three months ended September 30, 2009 to $1.0 million in the three months ended September 30, 2010.
The $0.4 million decrease in expenses from 2009 to 2010 was primarily related to a decrease in
project spending.
Sales and Marketing Sales and marketing expenses decreased from $8.1 million in the three months
ended September 30, 2009 to $5.9 million in the three months ended September 30, 2010. The
decrease in expenses from 2009 to 2010 of $2.2 million was primarily due to lower personnel-related
costs of $1.2 million, including lower commissions of $0.3 million, as we reduced our U.S. sales
force to focus our resources, decreased travel and entertainment expenses of $0.6 million, and
decreased surgeon training expenses of $0.5 million.
General and Administrative General and administrative expenses increased from $1.7 million in the
three months ended September 30, 2009 to $2.0 million in the three months ended September 30, 2010.
The increase in expenses from 2009 to 2010 of $0.3 million was primarily due to an increase in
personnel expenses.
Other Income (Expense) Other income (expense) decreased from $54,000 in the three months ended
September 30, 2009 to $20,000 in the three months ended September 30, 2010. The decrease of
$34,000 from 2009 to 2010 was primarily related to lower interest income due to lower interest
rates and our lower average cash and investment balances.
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Comparison of the Nine Months Ended September 30, 2009 and 2010
Revenue Revenue decreased from $23.5 million in the nine months ended September 30, 2009 to $20.3
million in the nine months ended September 30, 2010. The $3.2 million decrease in revenue from 2009
to 2010 was related to lower case volume as a result of concerns and uncertainty in the marketplace
surrounding physician reimbursement for our AxiaLIF procedure. Domestically, sales of our AxiaLIF
single level products decreased from $13.1 million in the nine months ended September 30, 2009 to
$10.2 million in the nine months ended September 30, 2010 and sales of our AxiaLIF 2L products
decreased from $6.2 million in the nine months ended September 30, 2009 to $6.0 million in the nine
months ended September 30, 2010. New products accounted for revenue of $0.8 million in the nine
months ended September 30, 2010. In the nine months ended September 30, 2010, average revenue per
AxiaLIF case continued to increase, helped by a price increase effective April 1, 2010, the full
market release of our AxiaLIF 2L+ product, and penetration into existing cases by our new products.
In the nine months ended September 30, 2009 and 2010, we recorded 2,028 and 1,568 domestic AxiaLIF
cases, respectively, including 481 AxiaLIF 2L cases in 2009 and 425 AxiaLIF 2L and 2L+ cases in
2010. Additionally, during the nine months ended September 30, 2009 and 2010, we generated $2.4
million and $1.6 million, respectively, in revenues from sales of our facet and Vectre screw
systems. Revenue generated outside the United States increased from $1.4 million in the nine
months ended September 30, 2009 to $1.7 million in the nine months ended September 30, 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 nine months ended September 30, 2009 and
2010, there were $122,000 and $51,000, respectively, in initial stocking shipments to new
distributors outside the United States. In the nine months ended September 30, 2009 and 2010, 94%
and 92%, respectively, of our revenues were generated in the United States.
Cost of Revenue Cost of revenue decreased from $4.4 million in the nine months ended September 30,
2009 to $4.0 million in the nine months ended September 30, 2010. The $0.4 million decrease in cost
of revenue resulted primarily from lower material and overhead costs associated with decreased
sales volume for our products. Gross margin decreased from 81.2% in the nine months ended
September 30, 2009 to 80.3% in the nine months ended September 30, 2010. The decrease in gross
margin was the result of decreased production demand resulting in increased manufacturing overhead
costs as a percentage of revenue and the introduction of new products in 2010, which have a lower
gross margin than our existing AxiaLIF products. Excluding these new products, gross margin for
the nine months ended September 30, 2010 was 81.3%.
Research and Development Research and development expenses decreased from $5.0 million in the nine
months ended September 30, 2009 to $3.3 million in the nine months ended September 30, 2010. The
$1.7 million decrease in expenses from 2009 to 2010 was primarily related to a $1.0 million expense
in 2009 to acquire the rights to develop a technology for future use, a $0.2 million expense in
2009 for the exclusivity rights to negotiate for a potential product acquisition, and a decrease in
project spending of $0.8 million in 2010.
Sales and Marketing Sales and marketing expenses decreased from $26.2 million in the nine months
ended September 30, 2009 to $20.1 million in the nine months ended September 30, 2010. The
decrease in expenses from 2009 to 2010 of $6.1 million was primarily due to lower commissions of
$1.5 million, related to the lower revenue, decreased personnel-related costs of $1.5 million as we
reduced our U.S. sales force to focus our resources, decreased travel and entertainment expenses of
$1.6 million,
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decreased surgeon training costs of $1.3 million and a decrease in promotional costs
of $0.2 million. These lower expenses were partially offset by severance costs of $0.5 million for
employees affected by the sales force reduction.
General and Administrative General and administrative expenses increased from $5.7 million in the
nine months ended September 30, 2009 to $6.7 million in the nine months ended September 30, 2010.
The increase in expenses from 2009 to 2010 of $1.0 million was primarily due to an increase in
personnel-related costs related to the management transition that occurred in the first quarter of
2010. These costs included compensation, recruiting and severance related expenses of $0.7
million.
Other Income (Expense) Other income (expense) decreased from income of $382,000 in the nine months
ended September 30, 2009 to a loss of $15,000 in the nine months ended September 30, 2010. The
decrease of $397,000 from 2009 to 2010 was primarily related to lower interest income of $327,000
due to lower interest rates and our lower average cash and investment balances and a loss on
disposal of fixed assets of $70,000.
Liquidity and Capital Resources
Sources of Liquidity
Since our inception in 2000, we have incurred significant losses and, as of September 30 2010, we
had an accumulated deficit of $84.9 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 September 30 2010, we did not have any outstanding debt financing arrangements, we had
working capital of $51.5 million and our primary source of liquidity was $44.1 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 $44.1 million at September 30, 2010. The decrease of $11.2 million was primarily the result of
net cash used in operating activities of $10.9 million and purchases of property and equipment of
$0.4 million.
Cash Flows
Net Cash Used in Operating Activities Net cash used in operating activities was $10.9 million in
the nine months ended September 30, 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 changes in
net working capital due to the timing of activity.
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Net Cash Provided by Investing Activities Net cash provided by investing activities was $6.6
million in the nine months ended September 30, 2010. This amount reflected net purchases or sales
and maturities of short-term investments of $7.0 million, offset by purchases of property and
equipment of $0.4 million, primarily for capital improvements to our facility.
Net Cash Provided by Financing Activities Net cash provided by financing activities in the nine
months ended September 30, 2010 was $128,000, which represented proceeds from the issuance of
shares of our common stock upon the exercise of stock options.
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 further 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.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
Our exposure to interest rate risk at September 30, 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. Historically, and as of
September 30, 2010, we have not used derivative instruments or engaged in hedging activities.
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 September 30, 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 September 30,
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.
Effective July 1, 2010, we became a Smaller Reporting Company under Rule 12b-2 of the Exchange
Act. Previously we were an Accelerated Filer. This classification is based on the public float
of the Company held by non-affiliates as of June 30, 2010.
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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: November 10, 2010 | By: | /s/ Richard Randall | ||
Richard Randall | ||||
Chief Executive Officer | ||||
Date: November 10, 2010 | By: | /s/ Joseph P. Slattery | ||
Joseph P. 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. |
18