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EX-32.1 - EX-32.1 - BAXANO SURGICAL, INC. | g21114exv32w1.htm |
EX-32.2 - EX-32.2 - BAXANO SURGICAL, INC. | g21114exv32w2.htm |
EX-31.2 - EX-31.2 - BAXANO SURGICAL, INC. | g21114exv31w2.htm |
EX-31.1 - EX-31.1 - BAXANO SURGICAL, INC. | g21114exv31w1.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, 2009
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.) |
411 LANDMARK DRIVE, WILMINGTON, NC 28412-6303
(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 þ | Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company o |
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 2, 2009 was
20,635,084 shares.
TRANS1 INC.
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2009
TABLE OF CONTENTS
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2009
TABLE OF CONTENTS
Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. | Financial Statements. |
TranS1 Inc.
Statements of Operations
(in thousands, except per share amounts)
(Unaudited)
Statements of Operations
(in thousands, except per share amounts)
(Unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Revenue |
$ | 6,912 | $ | 6,021 | $ | 23,528 | $ | 17,950 | ||||||||
Cost of revenue |
1,366 | 1,011 | 4,423 | 3,186 | ||||||||||||
Gross profit |
5,546 | 5,010 | 19,105 | 14,764 | ||||||||||||
Operating expenses: |
||||||||||||||||
Research and development |
1,362 | 910 | 5,047 | 3,241 | ||||||||||||
Sales and marketing |
8,126 | 7,782 | 26,219 | 20,680 | ||||||||||||
General and administrative |
1,683 | 1,671 | 5,714 | 5,563 | ||||||||||||
Total operating expenses |
11,171 | 10,363 | 36,980 | 29,484 | ||||||||||||
Operating loss |
(5,625 | ) | (5,353 | ) | (17,875 | ) | (14,720 | ) | ||||||||
Interest income |
54 | 589 | 382 | 2,218 | ||||||||||||
Net loss |
$ | (5,571 | ) | $ | (4,764 | ) | $ | (17,493 | ) | $ | (12,502 | ) | ||||
Net loss per common share
basic and diluted |
$ | (0.27 | ) | $ | (0.23 | ) | $ | (0.85 | ) | $ | (0.62 | ) | ||||
Weighted average common shares
outstanding basic and diluted |
20,630 | 20,474 | 20,591 | 20,206 | ||||||||||||
The accompanying notes are an integral part of these financial statements.
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TranS1 Inc.
Balance Sheets
(in thousands)
(Unaudited)
Balance Sheets
(in thousands)
(Unaudited)
September 30, | December 31, | |||||||
2009 | 2008 | |||||||
Assets |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 30,298 | $ | 42,051 | ||||
Short-term investments |
30,969 | 35,215 | ||||||
Accounts receivable, net |
4,168 | 4,812 | ||||||
Inventory |
7,671 | 6,369 | ||||||
Prepaid expenses and other assets |
433 | 632 | ||||||
Total current assets |
73,539 | 89,079 | ||||||
Property and equipment, net |
1,281 | 1,412 | ||||||
Total assets |
$ | 74,820 | $ | 90,491 | ||||
Liabilities and Stockholders Equity |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 2,655 | $ | 2,896 | ||||
Accrued expenses |
1,780 | 2,009 | ||||||
Total current liabilities |
4,435 | 4,905 | ||||||
Stockholders equity: |
||||||||
Common stock |
2 | 2 | ||||||
Additional paid-in capital |
135,796 | 133,507 | ||||||
Accumulated other comprehensive income |
3 | | ||||||
Accumulated deficit |
(65,416 | ) | (47,923 | ) | ||||
Total stockholders equity |
70,385 | 85,586 | ||||||
Total liabilities and stockholders equity |
$ | 74,820 | $ | 90,491 | ||||
The accompanying notes are an integral part of these financial statements.
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Table of Contents
TranS1 Inc.
Statements of Cash Flows
(in thousands)
(Unaudited)
Statements of Cash Flows
(in thousands)
(Unaudited)
Nine Months Ended September 30, | ||||||||
2009 | 2008 | |||||||
Cash flows from operating activities: |
||||||||
Net loss |
$ | (17,493 | ) | $ | (12,502 | ) | ||
Adjustments to reconcile net loss to net cash used in
operating activities |
||||||||
Depreciation |
684 | 583 | ||||||
Stock-based compensation |
2,200 | 2,598 | ||||||
Allowance for excess and obsolete inventory |
541 | 376 | ||||||
Provision for bad debts |
63 | 84 | ||||||
Changes in operating assets and liabilities: |
||||||||
(Increase) decrease in accounts receivable |
581 | (611 | ) | |||||
(Increase) decrease in inventory |
(1,843 | ) | (1,804 | ) | ||||
(Increase) decrease in prepaid expenses |
199 | 196 | ||||||
Increase (decrease) in accounts payable |
(241 | ) | 772 | |||||
Increase (decrease) in accrued expenses |
(229 | ) | 412 | |||||
Net cash used in operating activities |
(15,538 | ) | (9,896 | ) | ||||
Cash flows from investing activities: |
||||||||
Purchases of property and equipment |
(553 | ) | (1,003 | ) | ||||
Purchases of investments |
(39,911 | ) | (50,826 | ) | ||||
Sales and maturities of investments |
44,157 | 39,791 | ||||||
Net cash provided by (used in) investing activities |
3,693 | (12,038 | ) | |||||
Cash flows from financing activities: |
||||||||
Proceeds from issuance of common stock |
92 | 188 | ||||||
Net cash provided by financing activities |
92 | 188 | ||||||
Net decrease in cash and cash equivalents |
(11,753 | ) | (21,746 | ) | ||||
Cash and cash equivalents, beginning of period |
42,051 | 64,676 | ||||||
Cash and cash equivalents, end of period |
$ | 30,298 | $ | 42,930 | ||||
The accompanying notes are an integral part of these financial statements.
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Table of Contents
TranS1 Inc.
Notes to Financial Statements
(Unaudited)
Notes to 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 two single-level fusion products, AxiaLIF® and AxiaLIF 360°, and a
two-level fusion product, the AxiaLIF 2L. 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. 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 four trademark registrations in the United States and seven trademark
registrations in the European Union. The Company also owns ten pending trademark applications in
the United States and six 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 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 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 financial position, results of operations and cash flows. 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
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
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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.
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
amounts for the three and nine month periods ended September 30, 2008 were $253,000 and $699,000,
respectively. 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
In June 2009, the Financial Accounting Standards Board (FASB) issued Accounting Standards
Codification (ASC) 105 (formerly SFAS 168, The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principles). ASC 105 became the source of authoritative
U.S. GAAP recognized by the FASB to be applied by nongovernment entities. It also modifies the GAAP
hierarchy to include only two levels of GAAP; authoritative and non-authoritative. ASC 105 is
effective for financial statements issued for interim and annual periods ending after September 15,
2009. The Company adopted ASC 105 during the third quarter of 2009. The adoption of this standard
did not have a material impact on the Companys financial statements.
In February 2008, the FASB issued ASC 820 (formerly Staff Position No. FAS 157-2, Fair Value
Measurements), which delayed the effective date of ASC 820 for non-financial assets and
liabilities to fiscal years beginning after November 15, 2008. The Company adopted ASC 820 for its
non-financial assets and non-financial liabilities on January 1, 2009, and it did not have a
material impact on the Companys financial statements.
In May 2009, the FASB issued ASC 855 (formerly SFAS No. 165, Subsequent Events), which
establishes general standards of accounting for and disclosures of events that occur after the
balance sheet date but before the financial statements are issued or are available to be issued.
ASC 855 provides guidance on the period after the balance sheet date during which management of a
reporting entity should evaluate events or transactions that may occur for potential recognition or
disclosure in the financial statements, the circumstances under which an entity should recognize
events or transactions occurring after the balance sheet date in its financial statements and the
disclosures that an entity should make about events or transactions that occurred after the balance
sheet date. The Company adopted ASC 855 during the second quarter of 2009, and its application did
not have a material impact on the Companys financial statements. The Company has performed this
evaluation through November 6, 2009, the date the financial statements were issued.
No other recently issued, but not yet effective, accounting standards are believed to have a
material impact on the Company.
3. Income taxes
No provision for federal or state income taxes has been recorded as the Company has incurred net
operating losses since inception.
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4. Loss per share
Basic net loss per common share (Basic EPS) is computed by dividing the net loss by the weighted
average number of common shares outstanding. Diluted net loss per common share (Diluted EPS) is
computed by dividing the net loss 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 | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Weighted average stock options
outstanding |
2,441,139 | 2,300,906 | 2,274,259 | 1,982,502 | ||||||||||||
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
funds. Short-term investments consist of U.S. government securities.
At September 30, 2009, 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, 2009, all available for sale securities are classified as Level 1 assets with a
fair value of $61.6 million, which included money market funds of $30.6 million and short-term
investments of $31.0 million. At December 31, 2008, all available for sale securities were
classified as Level 1 assets with a fair value of $76.8 million, which included money market funds
of $41.6 million and short-term investments of $35.2 million. The Company had no Level 2 or Level
3 assets or liabilities at September 30, 2009 or December 31, 2008.
6. Accounts receivable, net
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The following table presents the components of accounts receivable:
September 30, | December 31, | |||||||
2009 | 2008 | |||||||
(In thousands) | ||||||||
Gross accounts receivable |
$ | 4,350 | $ | 5,005 | ||||
Allowance for uncollectible accounts |
(182 | ) | (193 | ) | ||||
Total accounts receivable, net |
$ | 4,168 | $ | 4,812 | ||||
7. Inventories
The following table presents the components of inventories:
September 30, | December 31, | |||||||
2009 | 2008 | |||||||
(In thousands) | ||||||||
Finished goods |
$ | 3,503 | $ | 2,598 | ||||
Work-in-process |
3,852 | 3,334 | ||||||
Raw materials |
316 | 437 | ||||||
Total inventories |
$ | 7,671 | $ | 6,369 | ||||
8. Accrued Expenses
The following table presents the components of accrued expenses:
September 30, | December 31, | |||||||
2009 | 2008 | |||||||
(In thousands) | ||||||||
Commissions |
$ | 731 | $ | 1,178 | ||||
Vacation |
349 | 163 | ||||||
Bonus |
307 | 270 | ||||||
Legal and professional fees |
101 | 69 | ||||||
Other |
292 | 329 | ||||||
Total accrued expenses |
$ | 1,780 | $ | 2,009 | ||||
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9. Comprehensive Loss
The following table presents the components of other comprehensive loss:
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Net loss |
$ | (5,571 | ) | $ | (4,764 | ) | $ | (17,493 | ) | $ | (12,502 | ) | ||||
Other comprehensive
income ( loss): |
||||||||||||||||
Translation adjustments |
(1 | ) | | 3 | | |||||||||||
Total comprehensive loss |
$ | (5,572 | ) | $ | (4,674 | ) | $ | (17,490 | ) | $ | (12,502 | ) | ||||
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 financial statements and the related notes to our 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
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, Financial Statements and Notes to Financial
Statements included in our Annual Report on Form 10-K for the year ended December 31, 2008.
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.
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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 this 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 degenerative disc. We developed our pre-sacral approach to allow spine
surgeons to access and treat degenerative lumbar discs without compromising important surrounding
soft tissue. We believe this approach enables fusion procedures to be performed with low
complication rates, short procedure times, low blood loss, short hospital stays, fast recovery
times and reduced pain. We have developed and currently market in the United States and Europe two
single-level fusion products, AxiaLIF and AxiaLIF 360°, and a two-level fusion product, the AxiaLIF
2L. All of our products are delivered using our pre-sacral approach.
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. 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 September 30, 2009, we had an accumulated deficit
of $65.4 million.
We expect to continue to invest in creating a sales and marketing infrastructure for our AxiaLIF,
AxiaLIF 360° 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
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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. We also generate revenue
through 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. 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 AxiaLIF, AxiaLIF
360° and AxiaLIF 2L instruments and implants. 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. Research and development expenses also
include facilities-related costs. In future periods, we expect research and development expenses to
grow as we continue to invest in basic research, clinical trials, product development and in our
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 and as we incur additional professional fees, increased insurance costs and other
general corporate expenses related to operating as a public company.
Interest Income
Interest income is primarily composed of interest earned on our cash, cash equivalents and
available-for-sale securities.
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Results of Operations
Comparison of the Three Months Ended September 30, 2008 and 2009
Revenue. Revenue increased from $6.0 million in the three months ended September 30, 2008 to $6.9
million in the three months ended September 30, 2009. The $0.9 million increase in revenue from
2008 to 2009 was primarily attributable to an increase in the number of AxiaLIF products sold,
which we believe resulted from continued market acceptance of our AxiaLIF and AxiaLIF
360° products, and the commercialization of our AxiaLIF 2L product in the United States,
which had its full market release in the fourth quarter of 2008. Our revenues this quarter were
impacted by continuing uncertainty in the marketplace surrounding reimbursement for our AxiaLIF
procedure, which we are addressing with increased education and support resources for our current
and prospective surgeon users. None of this increase was attributable to price increases.
Domestically, sales of our AxiaLIF 2L product increased from $0.9 million in the three months ended
September 30, 2008 to $1.8 million in the three months ended September 30, 2009 and sales of our
AxiaLIF 360° product decreased from $2.0 million in the three months ended September 30,
2008 to $1.7 million in the three months ended September 30, 2009. As a result of the launch of the
AxiaLIF 2L, which has a higher selling price than our other products, average selling prices in the
United States increased from approximately $9,800 in the three months ended September 30, 2008 to
approximately $10,400 in the three months ended September 30, 2009. In the three months ended
September 30, 2008 and 2009, we recorded 555 and 606 domestic AxiaLIF cases, respectively,
including 201 AxiaLIF 360° cases and 64 AxiaLIF 2L cases in the third quarter of 2008,
and 169 AxiaLIF 360° cases and 138 AxiaLIF 2L cases in the third quarter of 2009.
Additionally, during the three months ended September 30, 2008 and 2009, we generated $203,000 and
$191,000, respectively, in revenues from stand alone sales of our percutaneous facet screw system.
Revenue generated outside the United States increased from $354,000 in the three months ended
September 30, 2008 to $402,000 in the three months ended September 30, 2009. There were no initial
stocking shipments to new distributors outside the United States in the third quarter of 2008,
compared to $35,000 in the third quarter of 2009. In the three months ended September 30, 2008 and
2009, 94% of our revenues were generated within the United States.
Cost of Revenue. Cost of revenue increased from $1.0 million in the three months ended September
30, 2008 to $1.4 million in the three months ended September 30, 2009. The $354,000 increase in
cost of revenue resulted primarily from higher material and overhead costs associated with
increased sales volume for our products. As a percentage of revenue, cost of revenue increased from
16.8% in the three months ended September 30, 2008 to 19.8% in the three months ended September 30,
2009. The increase in cost of revenue as a percent of revenue from 2008 to 2009 was primarily
attributable to an inventory obsolescence reserve of $125,000 for discontinued product, which was
recorded in the third quarter of 2009.
Research and Development. Research and development expenses increased from $910,000 in the three
months ended September 30, 2008 to $1.4 million in the three months ended September 30, 2009. The
$0.5 million increase in expense in 2009 compared to 2008 was primarily the result of an increase
in project-related spending.
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Sales and Marketing. Sales and marketing expenses increased from $7.8 million in the three months
ended September 30, 2008 to $8.1 million in the three months ended September 30, 2009. The
increase in expenses from 2008 to 2009 of $0.3 million was primarily the result of increased
personnel related costs, including commissions, as we continued to build out our sales and
marketing organization in order to continue to drive global market acceptance of our AxiaLIF
products.
General and Administrative. General and administrative expenses remained consistent at $1.7
million for the three months ended September 30, 2008 and 2009.
Interest Income. Interest income decreased from $589,000 in the three months ended September 30,
2008 to $54,000 in the three months ended September 30, 2009. The decrease of $535,000 in interest
income from 2008 to 2009 was primarily due to significantly lower interest rates and our lower
average cash and investment balances.
Comparison of the Nine Months Ended September 30, 2008 and 2009
Revenue. Revenue increased from $18.0 million in the nine months ended September 30, 2008 to $23.5
million in the nine months ended September 30, 2009. The $5.5 million increase in revenue from 2008
to 2009 was primarily attributable to an increase in the number of AxiaLIF products sold. None of
this increase was attributable to price increases. Sales of our AxiaLIF 360° product remained
consistent at $6.4 million in the nine months ended September 30, 2008 and 2009. Sales of our
AxiaLIF 2L product, which had its full market release in the fourth quarter of 2008, increased from
$1.3 million in the nine months ended September 30, 2008 to $6.5 million in the nine months ended
September 30, 2009. As a result of the launch of the AxiaLIF 2L, which has a higher selling price
than our other products, average selling prices in the United States increased from approximately
$9,500 in the nine months ended September 30, 2008 to approximately $10,600 in the nine months
ended September 30, 2009. In the nine months ended September 30, 2008 and 2009, we recorded 1,629
and 2,028 domestic AxiaLIF cases, respectively, including 627 AxiaLIF 360° cases and 88 AxiaLIF 2L
cases in 2008, and 629 AxiaLIF 360° cases and 481 AxiaLIF 2L cases in 2009. Additionally, during
the nine months ended September 30, 2008 and 2009 we generated $644,000 and $699,000, respectively,
in revenues from stand alone sales of our percutaneous facet screw system. Revenue generated
outside the United States decreased from $1.8 million in the nine months ended September 30, 2008
to $1.4 million in the nine months ended September 30, 2009. $260,000 of this decrease was
attributable to initial stocking shipments to new distributors in 2008. In the nine months ended
September 30, 2008 and 2009, 90% and 94%, respectively, of our revenues were generated in the
United States.
Cost of Revenue. Cost of revenue increased from $3.2 million in the nine months ended September
30, 2008 to $4.4 million in the nine months ended September 30, 2009. The $1.2 million increase in
cost of revenue resulted primarily from higher material and overhead costs associated with
increased sales volume for our AxiaLIF products. As a percentage of revenue, cost of revenue
increased from 17.7% in the nine months ended September 30, 2008 to 18.8% in the nine months ended
September 30, 2009. The increase in cost of revenue as a percent of revenue from 2008 to 2009 was
primarily attributable to reserves for obsolete and excess inventory recorded in 2009.
Research and Development. Research and development expenses increased from $3.2 million in the
nine months ended September 30, 2008 to $5.0 million in the nine months ended September 30, 2009.
The $1.8 million increase in expense in 2009 compared to 2008 was primarily the result of an
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expenditure of $1.0 million to acquire the rights to develop a technology for future use, along
with increases in project related research and development and clinical trial costs of $0.8
million.
Sales and Marketing. Sales and marketing expenses increased from $20.7 million in the nine months
ended September 30, 2008 to $26.2 million in the nine months ended September 30, 2009. The
increase in expenses from 2008 to 2009 of $5.5 million was primarily the result of increased
personnel related costs, including commissions, of $3.7 million, increased travel and entertainment
expenses of $0.3 million related to the larger sales force, increased surgeon consulting expenses
of $0.7 million and increased tradeshow and promotional expenses of $0.6 million.
General and Administrative. General and administrative expenses increased from $5.6 million in the
nine months ended September 30, 2008 to $5.7 million in the nine months ended September 30, 2009.
The increase in expenses from 2008 to 2009 of $0.1 million was primarily due to increased personnel
related costs, including stock-based compensation expense, of $0.3 million, partially offset by a
decrease in consulting fees of $0.1 million.
Interest Income. Interest income decreased from $2.2 million in the nine months ended September
30, 2008 to $0.4 million in the nine months ended September 30, 2009. The decrease of $1.8 million
in interest income from 2008 to 2009 was primarily due to significantly lower interest rates and
our lower average cash and investment balances.
Liquidity and Capital Resources
Sources of Liquidity
Since our inception in 2000, we have incurred significant losses and, as of September 30, 2009, we
had an accumulated deficit of $65.4 million. We have not yet achieved profitability, and anticipate
that we will continue to incur losses in the near term. As we continue to develop new products,
drive global market acceptance of our current AxiaLIF products and expand our sales and marketing
efforts, we expect that research and development, sales and marketing and general and
administrative expenses will continue to increase. 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, 2009, we did not have any outstanding debt financing arrangements, we had
working capital of $69.1 million and our primary source of liquidity was $61.3 million in cash,
cash equivalents and short-term investments. We currently invest our cash and cash equivalents in
money market treasury funds and our short-term investments in U.S. agency backed debt instruments.
Cash, cash equivalents and short-term investments decreased from $77.3 million at December 31, 2008
to $61.3 million at September 30, 2009. The decrease of $16.0 million was primarily the result of
net cash used in operating activities of $15.5 million and purchases of property and equipment of
$553,000.
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Cash Flows
Net Cash Used in Operating Activities. Net cash used in operating activities was $15.5 million in
the nine months ended September 30, 2009. This amount was attributable primarily to the net loss
after adjustment for non-cash items, such as depreciation, stock-based compensation expense and
inventory and receivable reserves, and an increase in inventory as we prepare for continued growth,
partially offset by small changes in accounts receivable, prepaid assets, accounts payable and
accrued expense due to the timing of activity in those accounts.
Net Cash Used in Investing Activities. Net cash provided by investing activities was $3.7 million
in the nine months ended September 30, 2009. This amount reflected net purchases or sales and
maturities of short-term investments of $4.2 million, offset by purchases of property and equipment
of $553,000, primarily for research and development, surgical instrument kits and information
technology needs.
Net Cash Provided by Financing Activities. Net cash provided by financing activities in the nine
months ended September 30, 2009 was $92,000 which primarily 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 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
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, 2008. There have been no material changes in any of our accounting policies
since December 31, 2008.
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New Accounting Standards
In June 2009, the Financial Accounting Standards Board (FASB) issued Accounting Standards
Codification (ASC) 105 (formerly SFAS 168, The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principles). ASC 105 became the source of authoritative
U.S. GAAP recognized by the FASB to be applied by nongovernment entities. It also modifies the GAAP
hierarchy to include only two levels of GAAP; authoritative and non-authoritative. ASC 105 is
effective for financial statements issued for interim and annual periods ending after September 15,
2009. We adopted ASC 105 during the third quarter of 2009. The adoption of this standard did not
have a material impact on our financial statements.
In February 2008, the FASB issued ASC 820 (formerly Staff Position No. FAS 157-2, Fair Value
Measurements), which delayed the effective date of ASC 820 for non-financial assets and
liabilities to fiscal years beginning after November 15, 2008. We adopted ASC 820 for our
non-financial assets and non-financial liabilities on January 1, 2009, and it did not have a
material impact on our financial statements.
In May 2009, the FASB issued ASC 855 (formerly SFAS No. 165, Subsequent Events), which
establishes general standards of accounting for and disclosures of events that occur after the
balance sheet date but before the financial statements are issued or are available to be issued.
ASC 855 provides guidance on the period after the balance sheet date during which management of a
reporting entity should evaluate events or transactions that may occur for potential recognition or
disclosure in the financial statements, the circumstances under which an entity should recognize
events or transactions occurring after the balance sheet date in its financial statements and the
disclosures that an entity should make about events or transactions that occurred after the balance
sheet date. We adopted ASC 855 during the second quarter of 2009, and its application did not have
a material impact on our financial statements. We performed this evaluation through November 6,
2009, the date the financial statements were issued.
No other recently issued, but not yet effective, accounting standards are believed to have a
material impact on us.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Our exposure to interest rate risk at September 30, 2009 is related to our investment portfolio. We
invest our excess cash primarily in money market funds and in 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, 2009, we have not used derivative instruments or engaged in
hedging activities.
Although substantially all 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.
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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, 2009. 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,
2009, 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 2. Unregistered Sales of Equity Securities and Use of Proceeds
(b) Uses of Proceeds from Sale of Registered Securities
On October 22, 2007, we completed our initial public offering of 6,325,000 shares of common stock
at the offering price of $15.00 per share. We effected the offering through a Registration
Statement on Form S-1 (Registration No. 333-144802), which was declared effective by the SEC on
October 16, 2007, and through a Registration Statement on Form S-1 filed pursuant to Rule 462(b)
under the Securities Act (Registration No. 333-146753), which became effective upon filing on
October 17, 2007 pursuant to Rule 462(b). The offering resulted in aggregate proceeds to us of
approximately $86.7 million, net of underwriting discounts and commissions.
As of September 30, 2009, we had used approximately $73.8 million of the net proceeds for sales,
marketing and general administrative activities and $10.0 million for research and development
activities.
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We intend to use the remaining net proceeds of our initial public offering to support the
commercialization of our existing and future products and to support our research and development
activities, clinical trials, regulatory clearances or approvals and for capital expenditures,
working capital and other general corporate purposes. We have invested the net proceeds from our
initial public offering in money-market funds and short-term investment-grade interest-bearing
securities. There has been no material change in the planned use of proceeds from our initial
public offering as described in the final prospectus filed with the SEC on October 17, 2007
pursuant to Rule 424(b) under the Securities Act. As of the date of this report, we cannot specify
with certainty all of the particular uses for the net proceeds received in connection with our
initial public offering. The amounts and timing of our actual expenditures will depend on numerous
factors, including the status of our product development efforts, sales and marketing activities,
technological advances, amount of cash generated or used by our operations and competition.
Accordingly, our management will have broad discretion in the application of the net proceeds and
investors will be relying on the judgment of our management regarding the application of the
proceeds of the offering.
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 6, 2009 | By: | /s/ Richard Randall | ||
Richard Randall | ||||
President and Chief Executive Officer | ||||
Date: November 6, 2009 | By: | /s/ Michael Luetkemeyer | ||
Michael Luetkemeyer | ||||
Chief Financial Officer |
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TranS1 Inc.
Exhibit Index
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. |
19