0001230355
2011-08-05
0001230355
2011-04-01
2011-06-30
0001230355
2010-04-01
2010-06-30
0001230355
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2011-06-30
0001230355
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0001230355
2011-06-30
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2010-12-31
0001230355
2009-12-31
0001230355
2010-06-30
iso4217:USD
xbrli:shares
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TRANS1 INC
0001230355
--12-31
No
No
Yes
Smaller Reporting Company
10-Q
false
2011-06-30
Q2
2011
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<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
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<!-- xbrl,ns -->
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<div style="font-family: 'Times New Roman',Times,serif">
<div align="center" style="font-size: 10pt; margin-top: 0pt"><b></b>
</div>
<div align="justify">
</div>
<div align="center" style="font-size: 10pt">
</div>
<div align="justify" style="font-size: 10pt; margin-top: 12pt"><b>1. Description of Business</b>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 6pt">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 minimally invasive surgical
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<sup style="font-size: 85%; vertical-align: text-top">®</sup> family of
products for single and multilevel lumbar fusion, the Vectre™ and Avatar™ lumbar posterior fixation
systems, and Bi-Ostetic<sup style="font-size: 85%; vertical-align: text-top">TM</sup> bone void filler, a biologics product. All of the Company’s
AxiaLIF products are delivered using its pre-sacral approach. The Company also markets products
that may be used with its surgical approach, including bowel retractors, a bone graft harvesting
system and additional discectomy tools. The AxiaLIF 1L 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 AxiaLIF 2L product was discontinued in
2010 after the Company launched its AxiaLIF 2L+™ product in July 2010. The Company commercially
launched its next generation Vectre facet screw system in April 2010. In the first quarter of 2010,
the Company entered into agreements to distribute Avatar, a pedicle screw system, and Bi-Ostetic
bone void filler, a biologics product. In March 2011, the Company received 510(k) clearance for
its next generation AxiaLIF 1L+ product and made it commercially available in a limited market
release. The Company sells its products directly to hospitals and surgical centers in the United
States and certain European countries, and to independent distributors elsewhere.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 6pt">The Company owns eight trademark registrations in the United States and eight trademark
registrations in the European Union. The Company also owns two pending trademark applications in
the United States and two pending trademark applications in Canada.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 6pt">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, acceptance and continued use of
the Company’s products by surgeons, the lack of clinical data about the efficacy of these products,
uncertainty of reimbursement from third-party payors, cost pressures in the healthcare industry,
competitive pressures from substitute products and larger companies, the historical lack of
profitability, the dependence on key employees, regulatory approval and market acceptance for new
products, the reliance on a limited number of suppliers to provide these products, changes in
economic conditions, the ability to effectively manage a sales force to meet the Company’s
objectives and the ability to conduct successful clinical studies.
</div>
</div>
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<div style="font-family: 'Times New Roman',Times,serif">
<div align="justify" style="font-size: 10pt; margin-top: 12pt"><b>2. Basis of presentation</b>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 6pt">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 consolidated financial statements are unaudited and should be read in conjunction
with the audited consolidated financial statements included in the Company’s Annual Report on Form
10-K for the year ended December 31, 2010. The accompanying unaudited interim consolidated
financial statements reflect all adjustments (consisting of normal recurring adjustments) which
are, in the opinion of the Company’s management, necessary for a fair statement of the Company’s
consolidated financial position, results of operations and cash flows for the periods presented.
These principles require management to make estimates and assumptions 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 to accounts receivable reserves, inventory
reserves, stock-based compensation, accrued expenses and income tax valuations. Actual results
could differ from those estimates. The year-end balance sheet data was derived from audited
financial statements, but does not include all disclosures required by U.S. GAAP. All intercompany
accounts and transactions have been eliminated in consolidation.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 12pt"><b>Impact of Recently Issued Accounting Standards</b>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 6pt">In May 2011, the Financial Accounting Standard Board (“FASB”) issued new authoritative guidance to
provide a consistent definition of fair value and ensure that fair value measurements and
disclosure requirements are similar between GAAP and International Financial Reporting Standards.
This guidance changes certain fair value measurement principles and enhances the disclosure
requirements for fair value measurements. This guidance is effective for interim and annual periods
beginning after December 15, 2011 and is applied prospectively. The Company does not expect that
the adoption of this guidance will have a material impact on its financial statements.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 6pt">In June 2011, FASB issued guidance on the presentation of other comprehensive income. This guidance
eliminates the option to present the components of other comprehensive income as part of the
statement of changes in stockholders’ equity and requires the presentation of other comprehensive
income in a single continuous statement, or in two separate, but consecutive, statements.
This guidance is effective for fiscal years and interim periods beginning after December 15,
2011, and is not expected to have a material effect on the Company’s financial statements.
</div>
</div>
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<!-- Begin Block Tagged Note 3 - us-gaap:IncomeTaxDisclosureTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="justify" style="font-size: 10pt; margin-top: 12pt"><b>3. Income Taxes</b>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 6pt">No provisions for federal or state income taxes have been recorded as the Company has incurred net
operating losses since inception.
</div>
</div>
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<div style="font-family: 'Times New Roman',Times,serif">
<div align="justify" style="font-size: 10pt; margin-top: 12pt"><b>4. Net Loss Per Common Share</b>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 6pt">Basic net loss per common share is computed by dividing net loss by the weighted average number of
common shares outstanding. Diluted net loss available to common stockholders per common share is
computed by dividing net loss by the weighted average number of common shares and dilutive
potential common share equivalents then outstanding. The Company’s 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.
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="justify" style="font-size: 10pt; margin-top: 6pt">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:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="52%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6">Three Months Ended</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6">Six Months Ended</td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000">June 30,</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000">June 30,</td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2011</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2011</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Weighted average stock options
outstanding
</div></td>
<td> </td>
<td> </td>
<td align="right">2,845,286</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">2,080,393</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">2,660,286</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">1,774,184</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
</div>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 5 - us-gaap:CashAndCashEquivalentsDisclosureTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="justify" style="font-size: 10pt; margin-top: 12pt"><b>5. Cash, Cash Equivalents and Investments</b>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 6pt">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.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 6pt">At June 30, 2011, the Company held 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. Accounting Standards Codification 820-10 requires the
valuation of investments using a three-tiered approach, which 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 Company’s own assumptions, consistent with reasonably available assumptions made by other
market participants.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 6pt">
Available for sale securities classified as Level 1 assets were:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="76%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">June 30,</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">December 31,</td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2011</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6">(In thousands)</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Cash and cash equivalents
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">5,442</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">24,070</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Short-term investments
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">26,123</td>
<td nowrap="nowrap"> </td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">18,075</td>
<td nowrap="nowrap"> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Total available for sale securities
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">31,565</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">42,145</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 12pt">The Company had no Level 2 or Level
3 assets or liabilities at June 30, 2011 or December 31, 2010.
</div>
</div>
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<div style="font-family: 'Times New Roman',Times,serif">
<div align="justify" style="font-size: 10pt; margin-top: 12pt"><b>6. Accounts Receivable, Net</b>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 6pt">The following table presents the components of accounts receivable:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="76%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">June 30,</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">December 31,</td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2011</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6">(In thousands)</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Gross accounts receivable
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">4,146</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">4,001</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Allowance for uncollectible accounts
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(375</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(347</td>
<td nowrap="nowrap">)</td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Total accounts receivable, net
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">3,771</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">3,654</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif">
</div>
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<!-- Begin Block Tagged Note 7 - us-gaap:InventoryDisclosureTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="justify" style="font-size: 10pt; margin-top: 12pt"><b>7. Inventories</b>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 6pt">The following table presents the components of inventories:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="76%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">June 30,</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">December 31,</td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2011</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6">(In thousands)</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Finished goods
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">2,153</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">1,727</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Work-in-process
</div></td>
<td> </td>
<td> </td>
<td align="right">2,138</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">2,005</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Raw materials
</div></td>
<td> </td>
<td> </td>
<td align="right">177</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">146</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Total inventories
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">4,468</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">3,878</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
</div>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 8 - tson:AccruedExpensesTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="justify" style="font-size: 10pt; margin-top: 12pt"><b>8. Accrued Expenses</b>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 6pt">The following table presents the components of accrued expenses:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="76%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">June 30,</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">December 31,</td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2011</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6">(In thousands)</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Commissions
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">416</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">589</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Vacation
</div></td>
<td> </td>
<td> </td>
<td align="right">301</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">175</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Legal and professional fees
</div></td>
<td> </td>
<td> </td>
<td align="right">168</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">300</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Bonus
</div></td>
<td> </td>
<td> </td>
<td align="right">140</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">770</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Travel and entertainment
</div></td>
<td> </td>
<td> </td>
<td align="right">110</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">53</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Salaries and benefits
</div></td>
<td> </td>
<td> </td>
<td align="right">89</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">52</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Franchise Tax
</div></td>
<td> </td>
<td> </td>
<td align="right">88</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">116</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Other
</div></td>
<td> </td>
<td> </td>
<td align="right">36</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">22</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Total accrued expenses
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">1,348</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">2,077</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
</div>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 9 - us-gaap:ComprehensiveIncomeNoteTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="justify" style="font-size: 10pt; margin-top: 12pt"><b>9. Comprehensive Loss</b>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 6pt">The following table presents the components of other comprehensive loss:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="52%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6">Three Months Ended</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6">Six Months Ended</td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000">June 30,</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000">June 30,</td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2011</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2011</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6">(In thousands)</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6">(In thousands)</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Net loss
</div></td>
<td> </td>
<td nowrap="nowrap" align="left">$</td>
<td align="right">(4,309</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left">$</td>
<td align="right">(3,646</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left">$</td>
<td align="right">(10,035</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left">$</td>
<td align="right">(10,002</td>
<td nowrap="nowrap">)</td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Other comprehensive
income (loss):
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Translation adjustments
</div></td>
<td> </td>
<td> </td>
<td align="right">6</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(3</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td> </td>
<td align="right">14</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(11</td>
<td nowrap="nowrap">)</td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Total comprehensive loss
</div></td>
<td> </td>
<td nowrap="nowrap" align="left">$</td>
<td align="right">(4,303</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left">$</td>
<td align="right">(3,649</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left">$</td>
<td align="right">(10,021</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left">$</td>
<td align="right">(10,013</td>
<td nowrap="nowrap">)</td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
</div>