Attached files
file | filename |
---|---|
EXCEL - IDEA: XBRL DOCUMENT - BAXANO SURGICAL, INC. | Financial_Report.xls |
EX-31.2 - EX-31.2 - BAXANO SURGICAL, INC. | g27714exv31w2.htm |
EX-31.1 - EX-31.1 - BAXANO SURGICAL, INC. | g27714exv31w1.htm |
EX-32.2 - EX-32.2 - BAXANO SURGICAL, INC. | g27714exv32w2.htm |
EX-32.1 - EX-32.1 - BAXANO SURGICAL, INC. | g27714exv32w1.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 June 30, 2011 |
or |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to |
Commission File Number 001-33744
TRANS1 INC.
(Exact name of Registrant as specified in its charter)
DELAWARE | 33-0909022 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | 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 | |||
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
The number of shares of the registrants common stock outstanding as of August 5, 2011 was
20,946,885 shares.
TRANS1 INC.
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2011
TABLE OF CONTENTS
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2011
TABLE OF CONTENTS
1 | ||||||||
2 | ||||||||
3 | ||||||||
4 | ||||||||
8 | ||||||||
15 | ||||||||
15 | ||||||||
16 | ||||||||
17 | ||||||||
18 | ||||||||
Exhibit 31.1 |
||||||||
Exhibit 31.2 |
||||||||
Exhibit 32.1 |
||||||||
Exhibit 32.2 |
||||||||
EX-31.1 | ||||||||
EX-31.2 | ||||||||
EX-32.1 | ||||||||
EX-32.2 | ||||||||
EX-101 INSTANCE DOCUMENT | ||||||||
EX-101 SCHEMA DOCUMENT | ||||||||
EX-101 CALCULATION LINKBASE DOCUMENT | ||||||||
EX-101 LABELS LINKBASE DOCUMENT | ||||||||
EX-101 PRESENTATION LINKBASE DOCUMENT |
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 June 30, | Six Months Ended June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Revenue |
$ | 5,337 | $ | 7,244 | $ | 10,467 | $ | 13,957 | ||||||||
Cost of revenue |
1,173 | 1,364 | 2,469 | 2,793 | ||||||||||||
Gross profit |
4,164 | 5,880 | 7,998 | 11,164 | ||||||||||||
Operating expenses: |
||||||||||||||||
Research and development |
1,212 | 1,027 | 2,794 | 2,282 | ||||||||||||
Sales and marketing |
5,671 | 6,447 | 12,054 | 14,144 | ||||||||||||
General and administrative |
1,610 | 2,067 | 3,223 | 4,706 | ||||||||||||
Total operating expenses |
8,493 | 9,541 | 18,071 | 21,132 | ||||||||||||
Operating loss |
(4,329 | ) | (3,661 | ) | (10,073 | ) | (9,968 | ) | ||||||||
Other income (expense), net |
20 | 15 | 38 | (34 | ) | |||||||||||
Net loss |
$ | (4,309 | ) | $ | (3,646 | ) | $ | (10,035 | ) | $ | (10,002 | ) | ||||
Net loss per common share basic
and diluted |
$ | (0.21 | ) | $ | (0.18 | ) | $ | (0.48 | ) | $ | (0.48 | ) | ||||
Weighted average common shares
outstanding basic and diluted |
20,915 | 20,685 | 20,901 | 20,670 | ||||||||||||
The accompanying notes are an integral part of these financial statements.
1
Table of Contents
TranS1 Inc.
Consolidated Balance Sheets
(in thousands, except share amounts)
(Unaudited)
June 30, | December 31, | |||||||
2011 | 2010 | |||||||
Assets |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 5,963 | $ | 24,461 | ||||
Short-term investments |
26,123 | 18,075 | ||||||
Accounts receivable, net |
3,771 | 3,654 | ||||||
Inventory |
4,468 | 3,878 | ||||||
Prepaid expenses and other assets |
359 | 389 | ||||||
Total current assets |
40,684 | 50,457 | ||||||
Property and equipment, net |
1,589 | 1,562 | ||||||
Total assets |
$ | 42,273 | $ | 52,019 | ||||
Liabilities and Stockholders Equity |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 2,110 | $ | 2,214 | ||||
Accrued expenses |
1,348 | 2,077 | ||||||
Total current liabilities |
3,458 | 4,291 | ||||||
Noncurrent liabilities |
32 | | ||||||
Stockholders equity: |
||||||||
Common stock, $0.0001 par value; 75,000,000
shares authorized 20,940,210 and 20,877,171
shares issued and outstanding at June 30, 2011 and December 31, 2010,
respectively |
2 | 2 | ||||||
Additional paid-in capital |
139,477 | 138,401 | ||||||
Accumulated other comprehensive loss |
(15 | ) | (29 | ) | ||||
Accumulated deficit |
(100,681 | ) | (90,646 | ) | ||||
Total stockholders equity |
38,783 | 47,728 | ||||||
Total liabilities and stockholders equity |
$ | 42,273 | $ | 52,019 | ||||
The accompanying notes are an integral part of these financial statements.
2
Table of Contents
TranS1 Inc.
Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
Six Months Ended June 30, | ||||||||
2011 | 2010 | |||||||
Cash flows from operating activities: |
||||||||
Net loss |
$ | (10,035 | ) | $ | (10,002 | ) | ||
Adjustments to reconcile net loss to net cash used in
operating activities: |
||||||||
Depreciation |
309 | 426 | ||||||
Stock-based compensation |
937 | 1,062 | ||||||
Allowance for excess and obsolete inventory |
348 | 285 | ||||||
Provision for bad debts |
40 | 38 | ||||||
Loss on sale of fixed assets |
1 | 70 | ||||||
Changes in operating assets and liabilities: |
||||||||
Increase in accounts receivable |
(157 | ) | (693 | ) | ||||
(Increase) decrease in inventory |
(938 | ) | 613 | |||||
Decrease in prepaid expenses |
30 | 57 | ||||||
Decrease in accounts payable |
(104 | ) | (735 | ) | ||||
Increase (decrease) in accrued expenses |
(697 | ) | 677 | |||||
Net cash used in operating activities |
(10,266 | ) | (8,202 | ) | ||||
Cash flows from investing activities: |
||||||||
Purchases of property and equipment |
(337 | ) | (356 | ) | ||||
Purchases of investments |
(16,102 | ) | (7,969 | ) | ||||
Sales and maturities of investments |
8,054 | 14,960 | ||||||
Net cash provided by (used in) investing activities |
(8,385 | ) | 6,635 | |||||
Cash flows from financing activities: |
||||||||
Proceeds from issuance of common stock |
139 | 41 | ||||||
Net cash provided by financing activities |
139 | 41 | ||||||
Effect of exchange rate changes on cash and cash
equivalents |
14 | (11 | ) | |||||
Net decrease in cash and cash equivalents |
(18,498 | ) | (1,537 | ) | ||||
Cash and cash equivalents, beginning of period |
24,461 | 29,298 | ||||||
Cash and cash equivalents, end of period |
$ | 5,963 | $ | 27,761 | ||||
The accompanying notes are an integral part of these financial statements.
3
Table of Contents
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 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® family of
products for single and multilevel lumbar fusion, the Vectre and Avatar lumbar posterior fixation
systems, and Bi-OsteticTM bone void filler, a biologics product. All of the Companys
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.
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.
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 Companys 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 Companys
objectives and the ability to conduct 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
4
Table of Contents
Commission. The consolidated financial statements are unaudited and should be read in conjunction
with the audited consolidated financial statements included in the Companys 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 Companys management, necessary for a fair statement of the Companys
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.
Impact of Recently Issued Accounting Standards
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.
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 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 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 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.
5
Table of Contents
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 | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Weighted average stock options
outstanding |
2,845,286 | 2,080,393 | 2,660,286 | 1,774,184 | ||||||||||||
5. Cash, Cash Equivalents and Investments
The Company considers all highly liquid investments with an original maturity of three months or
less at the date of purchase to be cash equivalents. Cash and cash equivalents include money market
treasury funds. Short-term investments consist of U.S. agency backed debt instruments.
At 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 Companys own assumptions, consistent with reasonably available assumptions made by other
market participants.
Available for sale securities classified as Level 1 assets were:
June 30, | December 31, | |||||||
2011 | 2010 | |||||||
(In thousands) | ||||||||
Cash and cash equivalents |
$ | 5,442 | $ | 24,070 | ||||
Short-term investments |
26,123 | 18,075 | ||||||
Total available for sale securities |
$ | 31,565 | $ | 42,145 | ||||
The Company had no Level 2 or Level
3 assets or liabilities at June 30, 2011 or December 31, 2010.
6. Accounts Receivable, Net
The following table presents the components of accounts receivable:
June 30, | December 31, | |||||||
2011 | 2010 | |||||||
(In thousands) | ||||||||
Gross accounts receivable |
$ | 4,146 | $ | 4,001 | ||||
Allowance for uncollectible accounts |
(375 | ) | (347 | ) | ||||
Total accounts receivable, net |
$ | 3,771 | $ | 3,654 | ||||
6
Table of Contents
7. Inventories
The following table presents the components of inventories:
June 30, | December 31, | |||||||
2011 | 2010 | |||||||
(In thousands) | ||||||||
Finished goods |
$ | 2,153 | $ | 1,727 | ||||
Work-in-process |
2,138 | 2,005 | ||||||
Raw materials |
177 | 146 | ||||||
Total inventories |
$ | 4,468 | $ | 3,878 | ||||
8. Accrued Expenses
The following table presents the components of accrued expenses:
June 30, | December 31, | |||||||
2011 | 2010 | |||||||
(In thousands) | ||||||||
Commissions |
$ | 416 | $ | 589 | ||||
Vacation |
301 | 175 | ||||||
Legal and professional fees |
168 | 300 | ||||||
Bonus |
140 | 770 | ||||||
Travel and entertainment |
110 | 53 | ||||||
Salaries and benefits |
89 | 52 | ||||||
Franchise Tax |
88 | 116 | ||||||
Other |
36 | 22 | ||||||
Total accrued expenses |
$ | 1,348 | $ | 2,077 | ||||
9. Comprehensive Loss
The following table presents the components of other comprehensive loss:
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(In thousands) | (In thousands) | |||||||||||||||
Net loss |
$ | (4,309 | ) | $ | (3,646 | ) | $ | (10,035 | ) | $ | (10,002 | ) | ||||
Other comprehensive
income (loss): |
||||||||||||||||
Translation adjustments |
6 | (3 | ) | 14 | (11 | ) | ||||||||||
Total comprehensive loss |
$ | (4,303 | ) | $ | (3,649 | ) | $ | (10,021 | ) | $ | (10,013 | ) | ||||
7
Table of Contents
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 within the meaning of Section 27A of the Securities Act
of 1933 and Section 21E of the Securities Exchange Act of 1934 that concern matters that involve
risks and uncertainties that could cause actual results to differ materially from those projected
in the forward-looking statements. These forward-looking statements are intended to qualify for the
safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. 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.
Actual results could differ materially from those projected in forward-looking statements as a
result of the following factors, among others: acceptance and continued use of our products by
surgeons, the lack of clinical data about the efficacy of our products, uncertainty of
reimbursement from third-party payors, our historical lack of profitability, cost pressures in the
healthcare industry, competitive pressures from substitute products and larger companies, our
dependence on key employees, regulatory approval and market acceptance for new products, our
reliance on a limited number of suppliers to provide our products, our ability to effectively
manage a sales force to meet our objectives and our ability to conduct successful clinical
studies. 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,
2010, and in other filings we make with the Securities and Exchange Commission, or the SEC.
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 except as
required by
applicable
law or the rules of the NASDAQ Stock Market. 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
8
Table of Contents
lumbar region. Using our pre-sacral approach, a surgeon can access discs in the lower lumbar
region of the spine through a small incision adjacent to the tailbone and can perform an entire
interbody 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, the Vectre and
Avatar lumbar posterior fixation systems and Bi-OsteticTM bone void filler, a biologics
product. We also market products that may be used with our surgical approach, including bowel
retractors, a bone graft harvesting system and additional discectomy tools.
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 1L
product in the fourth quarter of 2004, and commercially introduced our AxiaLIF 1L product in the
United States in the first quarter of 2005. We received a CE mark to market our AxiaLIF 1L product
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. The AxiaLIF 2L product was discontinued in 2010 after we launched
our AxiaLIF 2L+ product in July 2010, for which we had received FDA 510(k) clearance in January
2010. We commercially launched our next generation Vectre facet screw system in April 2010. In
the first quarter of 2010, we entered into agreements to distribute Avatar, a pedicle screw system,
and Bi-Ostetic bone void filler, a biologics product. In March 2011, we received FDA 510(k)
clearance for our next generation AxiaLIF 1L+ product and made it commercially available in a
limited market release. We currently sell our products through a direct sales force, independent
sales agents and international distributors.
We rely on third parties to manufacture all of our products and their components, except for our
nitinol nucleus cutter blades, which we manufacture at our facility in Wilmington, North Carolina.
Our outsourcing partners are manufacturers that meet FDA, International Organization for
Standardization, or ISO, or other internal quality standards, where applicable. 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 we
believe allows us to compete with larger-volume manufacturers of spine surgery products.
Since inception, we have been unprofitable. As of June 30, 2011, we had an accumulated deficit of
$100.7 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.
9
Table of Contents
Financial Operations
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||
2011 | 2010 | % change | 2011 | 2010 | % change | |||||||||||||||||||
(in thousands, except gross margin percentage) | ||||||||||||||||||||||||
Revenue |
$ | 5,337 | $ | 7,244 | -26.3 | % | $ | 10,467 | $ | 13,957 | -25.0 | % | ||||||||||||
Cost of revenue |
1,173 | 1,364 | -14.0 | % | 2,469 | 2,793 | -11.6 | % | ||||||||||||||||
Gross margin % |
78.0 | % | 81.2 | % | -3.9 | % | 76.4 | % | 80.0 | % | -4.5 | % | ||||||||||||
Total operating
expenses |
8,493 | 9,541 | -11.0 | % | 18,071 | 21,132 | -14.5 | % | ||||||||||||||||
Net loss |
(4,309 | ) | (3,646 | ) | -18.2 | % | (10,035 | ) | (10,002 | ) | -0.3 | % |
Revenue
We generate revenue from the sales of our implants and disposable surgical instruments. We have two
distinct sales methods. The first method is when implants and/or disposable surgical instruments
are sold directly to hospitals or surgical centers for the purpose of conducting a scheduled
surgery. Our sales representatives or independent sales agents hand deliver the products to the
customer on or before the day of the surgery. The sales representative or independent agent is then
responsible for reporting the delivery of the products and the date of the operation to the
corporate office for proper revenue recognition. We recognize revenue upon the confirmation that
the products have been used in a surgical procedure. The other sales method is for sales to
hospitals for consumption during future surgeries or to distributors outside the United States.
These transactions require the customer to send in a purchase order before shipment will be made
and the customer only has the right of return for defective products. 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, and human resource functions, as well as professional service fees, legal
fees,
10
Table of Contents
accounting fees, insurance costs and general corporate expenses. We expect general and
administrative expenses to increase as we grow our business.
Other Income (Expense), Net
Other income (expense), net is primarily composed of interest earned on our cash, cash equivalents
and available-for-sale securities and the loss on disposal of fixed assets.
Results of Operations
Comparison of the Three Months Ended June 30, 2010 and 2011
Revenue Revenue decreased from $7.2 million in the three months ended June 30, 2010 to $5.3
million in the three months ended June 30, 2011. The $1.9 million decrease in revenue from 2010 to
2011 was primarily a result of a lower number of AxiaLIF cases performed in 2011, which was due
primarily to physician reimbursement limitations and insurance denials for lumbar fusion surgery
due to medical necessity. Domestically, sales of our AxiaLIF 1L products decreased from $3.5
million in the three months ended June 30, 2010 to $2.8 million in the three months ended June 30,
2011, and sales of our AxiaLIF 2L products decreased from $2.1 million in the three months ended
June 30, 2010 to $1.4 million in the three months ended June 30, 2011. Sales of our pedicle screw
system decreased from $0.2 million in the three months ended June 30, 2010 to $0.1 million in the
three months ended June 30, 2011 and sales of our Bi-Ostetic bone void filler increased from $0.2
million in the three months ended June 30, 2010 to $0.3 million in the three months ended June 30,
2011. In the three months ended June 30, 2011, average revenue per AxiaLIF case continued to
increase, helped by a price increase effective April 1, 2011, the release of new AxiaLIF products
and penetration into existing cases by our other products. In the three months ended June 30, 2010
and 2011, we recorded 541 and 367 domestic AxiaLIF cases, respectively, including 148 AxiaLIF 2L
cases in the three months ended June 30, 2010, and 90 AxiaLIF 2L+ cases in the three months ended
June 30, 2011. Additionally, during the three months ended June 30, 2010 and 2011, we generated
$0.6 million and $0.3 million, respectively, in revenues from sales of our facet and Vectre screw
systems. Revenue generated outside the United States decreased from $0.6 million in the three
months ended June 30, 2010 to $0.4 million in the three months ended June 30, 2011. There was
$51,000 in initial stocking shipments to new distributors outside the United States in the three
months ended June 30, 2010 compared to $47,000 in initial stocking shipments to new distributors in
the three months ended June 30, 2011. In the three months ended June 30, 2010 and 2011, 92% 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 June 30,
2010 to $1.2 million in the three months ended June 30, 2011. Gross margin decreased from 81.2% in
the three months ended June 30, 2010 to 78.0% in the three months ended June 30, 2011. The
decrease in gross margin was primarily due to a higher percentage of sales being derived from
distributed products in 2011 as compared to 2010, which have a lower gross margin than our AxiaLIF
products and additional inventory reserves as we introduced changes to our current AxiaLIF
products.
Research and Development Research and development expenses increased from $1.0 million in the
three months ended June 30, 2010 to $1.2 million in the three months ended June 30, 2011. The $0.2
million increase in expenses from 2010 to 2011 was primarily related to an increase in clinical
trials expense.
11
Table of Contents
Sales and Marketing Sales and marketing expenses decreased from $6.4 million in the three months
ended June 30, 2010 to $5.7 million in the three months ended June 30, 2011. The decrease in
expenses from 2010 to 2011 of $0.7 million was primarily due to lower personnel-related costs of
$0.8 million, including lower commissions of $0.5 million, as we reduced our direct sales headcount
to align with our geographically focused approach and decreased promotional expenses of $0.2
million offset by an increase to surgeon training expenses of $0.2 million.
General and Administrative General and administrative expenses decreased from $2.1 million in the
three months ended June 30, 2010 to $1.6 million in the three months ended June 30, 2011. The
decrease in expenses from 2010 to 2011 of $0.5 million was primarily due to a decrease in
personnel-related expenses, including management transition costs that occurred in the second
quarter of 2010.
Other Income (Expense), Net Other income (expense), net, increased from $15,000 in the three
months ended June 30, 2010 to $20,000 in the three months ended June 30, 2011.
Comparison of the Six Months Ended June 30, 2010 and 2011
Revenue Revenue decreased from $14.0 million in the six months ended June 30, 2010 to $10.5
million in the six months ended June 30, 2011. Consistent with the second quarter comparison, the
$3.5 million decrease in revenue from 2010 to 2011 was primarily a result of a lower number of
AxiaLIF cases performed in 2011, which was due primarily to physician reimbursement limitations and
insurance denials for lumbar fusion surgery due to medical necessity. Domestically, sales of our
AxiaLIF 2L products decreased from $4.0 million in the six months ended June 30, 2010 to $2.9
million in the six months ended June 30, 2011 and sales of our AxiaLIF single level products
decreased from $7.0 million in the six months ended June 30, 2010 to $5.2 million in the six months
ended June 30, 2011. Sales of our pedicle screw system decreased from $0.3 million for the six
months ended June 30, 2010 to $0.2 million in the six months ended June 30, 2011 and sales of our
Bi-Ostetic bone void filler increased from $0.3 million in the six months ended June 30, 2010 to
$0.5 million in the six months ended June 30, 2011. In the six months ended June 30, 2011, average
revenue per AxiaLIF case continued to climb, helped by a price increase effective April 1, 2011,
the release of new AxiaLIF, and penetration into existing cases by our other products. In the six
months ended June 30, 2010 and 2011, we recorded 1,078 and 736 domestic AxiaLIF cases,
respectively, including 289 AxiaLIF 2L cases in 2010 and 192 AxiaLIF 2L cases in 2011.
Additionally, during the six months ended June 30, 2010 and 2011, we generated $1.1 million and
$0.6 million, respectively, in revenues from sales of our facet and Vectre screw systems. Revenue
generated outside the United States decreased from $1.3 million in the six months ended June 30,
2010 to $1.0 million in the six months ended June 30, 2011. In the six months ended June 30, 2010
and 2011, there were $51,000 and $47,000, respectively, in initial stocking shipments to new
distributors outside the United States. In the six months ended June 30, 2010 and 2011, 91% of our
revenues were generated in the United States.
Cost of Revenue Cost of revenue decreased from $2.8 million in the six months ended June 30, 2010
to $2.5 million in the six months ended June 30, 2011. Gross margin decreased from 80.0% in the six
months ended June 30, 2010 to 76.4% in the six months ended June 30, 2011. The decrease in gross
margin was primarily due to a higher percentage of sales being derived from distributed products in
2011 as compared to 2010, which have a lower gross margin than our AxiaLIF products and additional
inventory reserves as we introduced changes to our current AxiaLIF products.
12
Table of Contents
Research and Development Research and development expenses increased from $2.3 million in the
six months ended June 30, 2010 to $2.8 million in the six months ended June 30, 2011. The $0.5
million increase in expenses from 2010 to 2011 was primarily related to an increase in clinical
trial expense of $0.5 million and an expense of $0.3 million to acquire the exclusive license to a
new technology under development offset by a decrease in project spending of $0.2 million and a
decrease in personnel related expenses of $0.1 million.
Sales and Marketing Sales and marketing expenses decreased from $14.1 million in the six months
ended June 30, 2010 to $12.1 million in the six months ended June 30, 2011. The decrease in
expenses from 2010 to 2011 of $2.0 million was primarily due to lower personnel-related costs of
$1.5 million, including lower commissions of $0.8 million, as we reduced our direct sales headcount
to align with our geographically focused approach and decreased promotional expenses of $0.4
million.
General and Administrative General and administrative expenses decreased from $4.7 million in the
six months ended June 30, 2010 to $3.2 million in the six months ended June 30, 2011. The decrease
in expenses from 2010 to 2011 of $1.5 million was primarily related to a decrease in
personnel-related costs, including those related to the management transition that occurred in the
first half of 2010. These transition costs included compensation, recruiting and severance related
expenses.
Other Income (Expense) Other income (expense) decreased from a loss of $34,000 in the six months
ended June 30, 2010 to income of $38,000 in the six months ended June 30, 2011. The change of
$72,000 from 2010 to 2011 was primarily related to a loss on disposal of fixed assets in the six
months ended June 30, 2010 of $70,000.
Liquidity and Capital Resources
Sources of Liquidity
Since our inception in 2000, we have incurred significant losses and, as of June 30, 2011, we had
an accumulated deficit of $100.7 million. We have not yet achieved profitability, and anticipate
that we will continue to incur losses in the near term. We expect to continue to fund research and
development, sales and marketing and general and administrative expenses at similar to current
levels or higher and, as a result, we will need to generate significant revenues to achieve
profitability. Prior to our October 2007 initial public offering, our operations were funded
primarily with the gross proceeds from the sale of preferred stock of $40.5 million. The net
proceeds from our October 2007 initial public offering of $86.7 million have funded our operations
since then. In June 2011, we filed a universal shelf registration statement on Form S-3
(the Registration Statement) which became effective on August 1, 2011. Depending on our
non-affiliated public equity float during the time period prior to consummating a financing
transaction, the Registration Statement will allow us to raise up to $50 million through the sale
of debt securities, common stock, preferred stock, or warrants, or any combination thereof. The
timing and terms of any such financing have not yet been determined.
As of June 30, 2011, we did not have any outstanding debt financing arrangements, we had working
capital of $37.2 million and our primary source of liquidity was $32.1 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.
13
Table of Contents
Cash, cash equivalents and short-term investments decreased from $42.5 million at December 31, 2010
to $32.1 million at June 30, 2011. The decrease of $10.4 million was primarily the result of net
cash used in operating activities of $10.3 million and purchases of property and equipment of $0.3
million offset by net cash provided from issuance of our common stock upon the exercise of stock
options of $139,000.
Cash Flows
Net Cash Used in Operating Activities Net cash used in operating activities was $10.3 million in
the six months ended June 30, 2011. This amount was attributable primarily to the net loss after
adjustment for non-cash items, such as depreciation, stock-based compensation expense, inventory
and bad debt reserves, combined with changes in working capital requirements to support the market
acceptance of our products
Net Cash Used by Investing Activities Net cash used by investing activities was $8.4 million in
the six months ended June 30, 2011. This amount reflected net purchases or sales and maturities of
short-term investments of approximately $8.0 million, and purchases of property and equipment of
$0.3 million, primarily for reusable instrument kits used in the field and information technology
needs.
Net Cash Provided by Financing Activities Net cash provided by financing activities in the six
months ended June 30, 2011 was $139,000, which represented proceeds from the issuance of shares of
common stock under our employee stock purchase program and upon the exercise of stock options.
Operating Capital and Capital Expenditure Requirements
We believe that our existing cash and cash equivalents, 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. The
Registration Statement will allow us to raise up to $50 million through the sale of debt
securities, common stock, preferred stock or warrants, or any combination thereof. The
timing of such financing, if ever, has not yet been determined.
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
14
Table of Contents
an on-going basis, we evaluate our estimates, including those related to revenue recognition,
accounts receivable reserves, inventory reserves, accrued expenses, income tax valuations and
stock-based compensation. We base our estimates on historical experience and various other
assumptions that we believe to be reasonable, the results of which form the basis for making
judgments about the carrying value of assets and liabilities that are not apparent from other
sources. 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, 2010. There have been no material changes in any of our accounting
policies since December 31, 2010.
New Accounting Standards
In May 2011, the 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. We do not expect that the adoption of this guidance will have a material
impact on our financial statements.
In June 2011, FASB issued guidance on the presentation of 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. We do not expect that the adoption of this guidance will have a material effect on our
financial statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not required.
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 June 30, 2011. We maintain disclosure controls and procedures that are
designed to provide a reasonable assurance level 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
15
Table of Contents
the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our
disclosure controls and procedures as of June 30, 2011, our principal executive officer and
principal financial officer concluded that, as of such date, our disclosure controls and procedures
were effective 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 aggregate
market value of our voting stock held by non-affiliates as of June 30 of any given year.
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.
16
Table of Contents
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: August 10, 2011 | By: | /s/ Ken Reali | ||
Ken Reali | ||||
President and Chief Executive Officer | ||||
Date: August 10, 2011 | By: | /s/ Joseph P. Slattery | ||
Joseph P. Slattery | ||||
Executive Vice President and Chief Financial Officer |
17
Table of Contents
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