10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2012

or

¨ 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)

(910) 332-1700

(Registrant’s 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 þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.:

Large accelerated filer o	Accelerated filer o
Non-accelerated filer o	Smaller reporting company þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ

The number of shares of the registrant’s common stock outstanding as of August 7, 2012 was 27,274,823 shares.

TRANS1 INC.

FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2012

TABLE OF CONTENTS

PART I.	FINANCIAL INFORMATION	1
Item 1.	Consolidated Financial Statements (unaudited)	1
	Consolidated Statements of Operations and Comprehensive Loss	2
	Consolidated Balance Sheets	3
	Consolidated Statements of Cash Flows	4
	Notes to Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	10
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	19
Item 4.	Controls and Procedures	19
PART II.	OTHER INFORMATION	19
Item 1.	Legal Proceedings	19
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	20
Item 6.	Exhibits	20
SIGNATURES		21
EXHIBIT INDEX		22

1

PART I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements.

TranS1 Inc.

Consolidated Statements of Operations and Comprehensive Loss

(in thousands, except per share amounts)

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
Revenue	$	3,460		$	5,337		$	7,243		$	10,467
Cost of revenue		912			1,173			1,909			2,469
Gross profit		2,548			4,164			5,334			7,998
Operating expenses:
Research and development		1,244			1,212			2,577			2,794
Sales and marketing		5,371			5,671			10,670			12,054
General and administrative		2,224			1,610			4,106			3,223
Total operating expenses		8,839			8,493			17,353			18,071
Operating loss		(6,291	)		(4,329	)		(12,019	)		(10,073	)
Other income (expense), net		(2	)		20			(32	)		38
Net loss	$	(6,293	)	$	(4,309	)	$	(12,051	)	$	(10,035	)
Other comprehensive income (loss)::
Foreign currency translation adjustments		0			6			0			14
Comprehensive loss	$	(6,293	)	$	(4,303	)	$	(12,051	)	$	(10,021	)
Net loss per common share – basic and diluted	$	(0.23	)	$	(0.21	)	$	(0.44	)	$	(0.48	)
Weighted average common shares outstanding - basic and diluted		27,255			20,915			27,250			20,901

The accompanying notes are an integral part of these financial statements.

2

TranS1 Inc.

Consolidated Balance Sheets

(in thousands, except share amounts)

(Unaudited)

	June 30,			December 31,
	2012			2011
Assets
Current assets:
Cash and cash equivalents	$	33,407		$	38,724
Short-term investments		0			6,027
Accounts receivable, net		2,053			2,522
Inventory		5,143			4,525
Prepaid expenses and other assets		531			680
Total current assets		41,134			52,478
Property and equipment, net		2,407			1,554
Total assets	$	43,541		$	54,032
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	3,557		$	3,303
Accrued expenses		1,626			1,203
Total current liabilities		5,183			4,506
Noncurrent liabilities		81			26
Commitments and contingencies (Note 9)
Stockholders' equity:
Common stock, $0.0001 par value; 75,000,000 shares authorized, 27,274,823 and 27,244,059 shares issued and outstanding at June 30, 2012 and December 31, 2011, respectively		3			3
Additional paid-in capital		159,231			158,403
Accumulated other comprehensive income		13			13
Accumulated deficit		(120,970	)		(108,919	)
Total stockholders' equity		38,277			49,500
Total liabilities and stockholders' equity	$	43,541		$	54,032

The accompanying notes are an integral part of these financial statements.

3

TranS1 Inc.

Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)

	Six Months Ended June 30,
	2012			2011
Cash flows from operating activities:
Net loss	$	(12,051	)	$	(10,035	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		474			309
Stock-based compensation		760			937
Allowance for excess and obsolete inventory		59			348
Provision for bad debts		(37	)		40
Loss on disposal of fixed assets		30			1
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable		506			(157	)
Increase in inventory		(677	)		(938	)
Decrease in prepaid expenses		149			30
Increase (decrease) in accounts payable		254			(104	)
Increase (decrease) in accrued expenses		478			(697	)
Net cash used in operating activities		(10,055	)		(10,266	)
Cash flows from investing activities:
Purchases of property and equipment		(1,357	)		(337	)
Purchases of  investments		-			(16,102	)
Sales and maturities of investments		6,027			8,054
Net cash provided by (used in) investing activities		4,670			(8,385	)
Cash flows from financing activities:
Proceeds from issuance of common stock		68			139
Net cash provided by financing activities		68			139
Effect of exchange rate changes on cash and cash equivalents		0			14
Net decrease in cash and cash equivalents		(5,317	)		(18,498	)
Cash and cash equivalents, beginning of period		38,724			24,461
Cash and cash equivalents, end of period	$	33,407		$	5,963

The accompanying notes are an integral part of these financial statements.

4

TranS1 Inc.

Notes to Consolidated Financial Statements

(Unaudited)

1. Description of Business

TranS1 Inc., a Delaware corporation (the “Company”), was incorporated in May 2000 and is headquartered in Wilmington, North Carolina. The Company is a medical device company focused on designing, developing and marketing products 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 two level lumbar fusion, the VEO^TM lateral access and interbody fusion system, the Vectre™ and Avatar™ lumbar posterior fixation systems and Bi-Ostetic^TM bone void filler, a biologics product. All of the Company’s AxiaLIF products are delivered using its pre-sacral approach. The Company also markets products that may be used with its surgical approach, including bowel retractors, a bone graft harvesting system and additional discectomy tools. The AxiaLIF 1L product was commercially released in January 2005. The AxiaLIF 2L™ product was commercially released in Europe in the fourth quarter of 2006 and in the United States in the second quarter of 2008. The AxiaLIF 2L product was discontinued in 2010 after the Company launched its AxiaLIF 2L+™ product in July 2010. The Company commercially launched its next generation Vectre facet screw system in April 2010. In the first quarter of 2010, the Company entered into agreements to distribute Avatar, a pedicle screw system, and Bi-Ostetic bone void filler, a biologics product. The Company commercially launched its AxiaLIF 1L+ product in September 2011. The Company commercially launched its VEO lateral access and interbody fusion system in November 2011 in the United States and in July 2012 in the European Union. The Company sells its products through a direct sales force, independent sales agents and independent distributors.

The Company has forty-five issued United States patents, twelve pending patent applications or provisional patent applications in the United States, five issued European patents, seven issued Japanese patents, and ten foreign patent application families as counterparts of U.S. cases. The issued and pending patents cover, among other things, (i) the Company’s method for performing trans-sacral procedures in the spine, including diagnostic or therapeutic procedures, and trans-sacral introduction of instrumentation or implants, (ii) apparatus for conducting these procedures including access, disc preparation and implantation including the current TranS1 instruments individually and in kit form, (iii) implants for fusion and motion preservation in the spine, and (iv) a lateral access and interbody fusion system.

The Company owns eight trademark registrations in the United States, nine trademark registrations in the European Union and two registered trademarks in Canada. The Company also owns one pending trademark application in the United States, four pending trademark applications in China and one pending trademark application in the European Union.

On September 26, 2011, the Company completed a public offering of 6,200,000 shares of its common stock at an offering price of $3.25 per share. The offering resulted in aggregate proceeds to the Company of approximately $18.2 million, net of underwriting discounts, commissions and offering expenses, and has been included in stockholders' equity as common stock and additional paid-in capital. At June 30, 2012 and December 31, 2011, there were 27,274,823 and 27,244,059 shares of common stock issued and outstanding, respectively, and there were no shares of preferred stock issued and outstanding.

5

The Company is subject to a number of risks similar to other similarly-sized companies in the medical device industry. These risks include, without limitation, acceptance and continued use of the Company’s products by surgeons, the lack of clinical data about the efficacy of these products, uncertainty of reimbursement from third-party payors, cost pressures in the healthcare industry, competitive pressures from substitute products and larger companies, the historical lack of profitability, the dependence on key employees, regulatory approval and market acceptance for new products, compliance with complex and evolving healthcare laws and regulations, uncertainty surrounding the outcome of the matters relating to the subpoena issued to the Company by the Department of Health and Human Services, Office of Inspector General, the reliance on a limited number of suppliers to provide these products, changes in economic conditions, the ability to effectively manage a sales force to meet the Company’s objectives and the ability to conduct successful clinical studies.

2. Basis of presentation

The Company has prepared the accompanying consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission, or the SEC. The consolidated financial statements are unaudited and should be read in conjunction with the audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2011. The accompanying unaudited interim consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) which are, in the opinion of the Company’s management, necessary for a fair statement of the Company’s consolidated financial position, results of operations and cash flows for the periods presented. These principles require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The principal estimates relate to accounts receivable reserves, inventory reserves, stock-based compensation, accrued expenses and income tax valuations. Actual results could differ from those estimates. The year-end balance sheet data was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. All intercompany accounts and transactions have been eliminated in consolidation.

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 U.S. 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 was effective for interim and annual periods beginning after December 15, 2011 and is applied prospectively. The Company implemented this guidance in the first quarter of 2012 and it did not have a material impact on its financial statements.

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In June 2011, the 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 was effective for fiscal years and interim periods beginning after December 15, 2011. The Company implemented this guidance in the first quarter of 2012 and it did not have a material effect on its 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 Company’s potential dilutive common shares, which consist of shares issuable upon the exercise of stock options, have not been included in the computation of diluted net loss per share for all periods as the result would be anti-dilutive.

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 June 30,				Six Months Ended June 30,
	2012		2011		2012		2011
Weighted average stock options outstanding		3,371,301		2,845,286		3,185,326		2,660,286

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, 2012, 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. Accounting Standards Codification 820-10 requires the valuation of investments using a three-tiered approach, which requires that fair value measurements be classified and disclosed in one of three tiers. These tiers are: Level 1, defined as quoted prices in active markets for identical assets or liabilities; Level 2, defined as valuations based on observable inputs other than those included in Level 1, such as quoted prices for similar assets and liabilities in active markets, or other inputs that are observable or can be corroborated by observable input data; and Level 3, defined as valuations based on unobservable inputs reflecting the Company’s own assumptions, consistent with reasonably available assumptions made by other market participants.

7

Available for sale securities classified as Level 1 assets were:

	June 30,		December 31,
	2012		2011
	(In thousands)
Cash and cash equivalents	$	33,067	$	38,340
Short-term investments		0		6,027
Total available for sale securities	$	33,067	$	44,367

The Company had no Level 2 or Level 3 assets or liabilities at June 30, 2012 or December 31, 2011.

6. Accounts Receivable, Net

The following table presents the components of accounts receivable:

	June 30,			December 31,
	2012			2011
	(In thousands)
Gross accounts receivable	$	2,365		$	2,871
Allowance for uncollectible accounts		(312	)		(349	)
Total accounts receivable, net	$	2,053		$	2,522

7. Inventories

The following table presents the components of inventories:

	June 30,		December 31,
	2012		2011
	(In thousands)
Work-in-process	$	2,606	$	2,515
Finished goods		2,226		1,771
Raw materials		311		239
Total inventories	$	5,143	$	4,525

8

8. Accrued Expenses

The following table presents the components of accrued expenses:

	June 30,		December 31,
	2012		2011
	(In thousands)
Bonus	$	649	$	351
Commission		280		365
Vacation		270		136
Legal and professional fees		180		175
Travel and entertainment		48		23
Franchise taxes		46		91
Other		153		62
Total accrued expenses	$	1,626	$	1,203

9. Contingencies

In October 2011, the Company received a subpoena issued by the Department of Health and Human Services, Office of Inspector General, under the authority of the federal healthcare fraud and false claims statutes. The subpoena seeks documents for the period January 1, 2008 through October 6, 2011. The Company is cooperating with the government’s request and is in the process of responding to the subpoena. The Company and its counsel have met with representatives from the government two times during the past three months and continue to work toward a conclusion to this matter. The Company is unable to predict what action, if any, might be taken in the future by the Department of Health and Human Services, Office of Inspector General or other governmental authorities as a result of the matters related to this subpoena or what impact, if any, the outcome of these matters might have on the Company’s consolidated financial position, results of operations, or cash flows. No claims have been made against the Company at this time.

In January 2012, the Company received notice that a class action lawsuit had been filed in the U.S. District Court Eastern District, North Carolina, on behalf of a class consisting of all persons other than the defendants who purchased the Company’s common stock between February 21, 2008 and October 17, 2011. The Company is in the process of responding to this lawsuit. The Company is unable to predict what impact, if any, the outcome of this matter might have on the Company’s consolidated financial position, results of operations, or cash flows.

9

Item 2. Management’s 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, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, 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 future 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 captions “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, “Consolidated Financial Statements” and “Notes to Consolidated Financial Statements” in this report, as well as the disclosures made under the captions “Management’s 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, 2011, and in other filings we make with 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.

10

Overview

We are a medical device company focused on designing, developing and marketing products to treat degenerative conditions of the spine affecting the lower lumbar region. We are committed to delivering minimally invasive surgical technologies that enhance patient clinical care while providing sustained value for our customers. Using our pre-sacral approach, a surgeon can access discs in the lower lumbar region of the spine through an incision adjacent to the tailbone and can perform an entire interbody fusion procedure through instrumentation 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, nerves and bone structures. We currently market the AxiaLIF family of products for single and two level lumbar fusion, the VEO lateral access and interbody fusion system, the Vectre and Avatar lumbar posterior fixation systems and Bi-Ostetic bone void filler, a biologics product. We also market products that may be used with our AxiaLIF surgical approach, including bowel retractors, a bone graft harvesting system and additional discectomy tools. Our philosophy of continuous improvement is driven by ongoing research and development investment in our core technologies. We support this investment by diligently expanding, maintaining, and protecting our significant patent portfolio.

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 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. We commercially launched our AxiaLIF 1L+ product in September 2011, for which we had received FDA 510(k) clearance in March 2011. In 2010, we received 510(k) clearance for our VEO lateral access and interbody fusion system, which was commercially launched in November 2011 and in July 2012 we received a CE mark for our VEO lateral access and interbody fusion system and began commercialization in the European market. We currently sell our products through a direct sales force, independent sales agents and international distributors.

In March 2012, we announced that the Current Procedural Terminology (“CPT”) Editorial Panel, or the Panel, voted to approve an application for a new Category I CPT code, 225XX1, for L5/S1 spinal fusion utilizing our AxiaLIF implant when performing a pre-sacral interbody fusion. In addition, the Panel voted to establish a new Category III CPT code, 019XXT, as an add-on code to the new Category I code for use when performing L4/5 spinal fusion. The new CPT codes were announced on the American Medical Association’s website on March 2, 2012, and will become effective on January 1, 2013. This vote will result in the issuance of a Category I code effective January 1, 2013. The Medicare final rule released in early November will provide commentary on the value of the new Category I code.

11

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 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.

Since inception, we have been unprofitable. As of June 30, 2012, we had an accumulated deficit of $121.0 million.

We expect to continue to invest in sales and marketing infrastructure for our 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.

On September 26, 2011, we completed a public offering of 6,200,000 shares of our common stock at an offering price of $3.25 per share. The offering resulted in aggregate proceeds to us of approximately $18.2 million, net of underwriting discounts, commissions and offering expenses.

Financial Operations

	Three Months Ended June 30,									Six Months Ended June 30,
	2012			2011			% change			2012			2011			% change
	($’s in thousands)
Revenue	$	3,460		$	5,337			-35.2	%	$	7,243		$	10,467			-30.8	%
Cost of revenue		912			1,173			-22.3	%		1,909			2,469			-22.7	%
Gross margin %		73.6	%		78.0	%		-5.6	%		73.6	%		76.4	%		-3.7	%
Total operating expenses		8,839			8,493			4.1	%		17,353			18,071			-4.0	%
Net loss		(6,293	)		(4,309	)		-46.0	%		(12,051	)		(10,035	)		-20.1	%

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 for proper revenue recognition. We recognize revenue upon the confirmation that the products have been used in a surgical procedure. The second sales method is for sales to distributors outside the United States. These transactions require the customer to send in a purchase order before shipment and the customer only has the right of return for defective products. We recognize revenue upon the shipment of the product to distributors outside the United States. We expect that a substantial portion of our revenues will continue to be generated in the United States in future periods.

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Cost of Revenue

Cost of revenue consists primarily of material and overhead costs related to our products, including reusable kit depreciation and product royalties. Overhead costs include facilities-related costs, such as rent and utilities.

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, product development projects and technology licensing 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 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.

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, accounting fees, insurance costs and general corporate expenses.

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 gain or loss on disposal of fixed assets.

Results of Operations

Comparison of the Three Months Ended June 30, 2011 and 2012

Revenue Revenue decreased from $5.3 million in the three months ended June 30, 2011 to $3.5 million in the three months ended June 30, 2012. The $1.8 million decrease in revenue from 2011 to 2012 was primarily a result of a lower number of AxiaLIF cases performed in 2012, 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 and AxiaLIF 1L+ products decreased from $2.8 million in the three months ended June 30, 2011 to $1.5 million in the three months ended June 30, 2012, and sales of our AxiaLIF 2L+ products decreased from $1.4 million in the three months ended June 30, 2011 to $0.8 million in the three months ended June 30, 2012. In the three months ended June 30, 2012, average revenue per AxiaLIF case increased, primarily as a result of a price increase effective April 1, 2012, the release of new AxiaLIF products and penetration into existing cases by our other products. In the three months ended June 30, 2011 and 2012, we recorded 369 and 193 domestic AxiaLIF cases, respectively, including 90 AxiaLIF 2L+ cases in the three months ended June 30, 2011, and 53 AxiaLIF 2L+ cases in the three months ended June 30, 2012. During the three months ended June 30, 2011 we generated $30,000 in revenue from our VEO lateral access and interbody fusion system, which was commercially launched in November 2011, compared to $0.4 million in the three months ended June 30, 2012. For the three months ended June 30, 2011 and 2012 we generated $0.4 million and $0.2 million, respectively, in revenues from sales of our posterior fixation systems. Sales of our Bi-Ostetic bone void filler decreased from $0.3 million in the three months ended June 30, 2011 to $0.2 million in the three months ended June 30, 2012. Revenue generated outside the United States decreased from $0.4 million in the three months ended June 30, 2011 to $0.2 million in the three months ended June 30, 2012. Effective January 1, 2012, we replaced our direct sales representatives in Europe with an independent sales agent, comprised of former employees of our direct sales organization. There was $47,000 in initial stocking shipments to new distributors outside the United States in the three months ended June 30, 2011 compared to $25,000 in initial stocking shipments to new distributors in the three months ended June 30, 2012. In the three months ended June 30, 2011 and 2012, 92% and 93%, respectively, of our revenues were generated in the United States.

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Cost of Revenue Cost of revenue decreased from $1.2 million in the three months ended June 30, 2011 to $0.9 million in the three months ended June 30, 2012. Gross margin decreased from 78.0% in the three months ended June 30, 2011 to 73.6% in the three months ended June 30, 2012. The decrease in gross margin was due to a higher percentage of sales being derived from ancillary and distributed products in 2012 as compared to 2011, which have a lower gross margin than our AxiaLIF products, increased depreciation expense on reusable kits, primarily due to building reusable kits as we launched the VEO product, and royalty expense.

Research and Development Research and development expenses were consistent at $1.2 million for both the three months ended June 30, 2011 and 2012.

Sales and Marketing Sales and marketing expenses decreased from $5.7 million in the three months ended June 30, 2011 to $5.4 million in the three months ended June 30, 2012. The decrease in expenses from 2011 to 2012 of $0.3 million was primarily due to lower personnel-related costs of $0.4 million as we reduced our direct sales headcount, lower commissions of $0.3 million as our revenues declined and decreased travel and entertainment expenses of $0.1 million related to the lower headcount, partially offset by an increase in consulting and training expenses of $0.5 million.

General and Administrative General and administrative expenses increased from $1.6 million in the three months ended June 30, 2011 to $2.2 million in the three months ended June 30, 2012. The increase in expenses from 2011 to 2012 of $0.6 million was primarily due to an increase in legal fee expense of $0.8 million, primarily related to the investigation being conducted by the Department of Health and Human Services, Office of Inspector General, partially offset by a decrease in personnel-related expenses of $0.1 million.

Other Income (Expense), Net Other income (expense), net, decreased from $20,000 in income in the three months ended June 30, 2011 to expense of $2,000 in the three months ended June 30, 2012. The change of $22,000 from 2011 to 2012 was primarily related to a decrease in interest income earned on cash and cash equivalents.

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Comparison of the Six Months Ended June 30, 2011 and 2012

Revenue Revenue decreased from $10.5 million in the six months ended June 30, 2011 to $7.2 million in the six months ended June 30, 2012. Consistent with the second quarter comparison, the $3.3 million decrease in revenue from 2011 to 2012 was primarily a result of a lower number of AxiaLIF cases performed in 2012, 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 and AxiaLIF 1L+ products decreased from $5.2 million in the six months ended June 30, 2011 to $3.0 million in the six months ended June 30, 2012, and sales of our AxiaLIF 2L+ products decreased from $2.9 million in the six months ended June 30, 2011 to $1.9 million in the six months ended June 30, 2012. In the six months ended June 30, 2012, average revenue per AxiaLIF case increased, primarily as a result of a price increase effective April 1, 2012, the release of new AxiaLIF products and penetration into existing cases by our other products. In the six months ended June 30, 2011 and 2012, we recorded 738 and 415 domestic AxiaLIF cases, respectively, including 191 AxiaLIF 2L+ cases in the six months ended June 30, 2011, and 129 AxiaLIF 2L+ cases in the six months ended June 30, 2012. During the six months ended June 30, 2011 and 2012, we generated $30,000 and $0.7 million in revenue from our VEO lateral access and interbody fusion system, which was commercially launched in November 2011. For the six months ended June 30, 2011 and 2012 we generated $0.8 million and $0.5 million, respectively, in revenues from sales of our posterior fixation systems and sales of our Bi-Ostetic bone void filler decreased from $0.5 million in the six months ended June 30, 2011 to $0.4 million in the six months ended June 30, 2012. Revenue generated outside the United States decreased from $1.0 million in the six months ended June 30, 2011 to $0.5 million in the six months ended June 30, 2012. Effective January 1, 2012, we replaced our direct sales representatives in Europe with an independent sales agent, comprised of former employees of our direct sales organization. In the six months ended June 30, 2011 and 2012, there were $47,000 and $25,000, respectively, in initial stocking shipments to new distributors outside the United States. In the six months ended June 30, 2011 and 2012, 91% and 93%, respectively, of our revenues were generated in the United States.

Cost of Revenue Cost of revenue decreased from $2.5 million in the six months ended June 30, 2011 to $1.9 million in the six months ended June 30, 2012. Gross margin decreased from 76.4% in the six months ended June 30, 2011 to 73.6% in the six months ended June 30, 2012. The decrease in gross margin was due to a higher percentage of sales being derived from ancillary and distributed products in 2012 as compared to 2011, which have a lower gross margin than our AxiaLIF products, increased depreciation expense on reusable kits, primarily due to building reusable kits as we launched the VEO product, and royalty expense. These decreases in gross margin were partially offset by lower inventory obsolescence reserves taken in the current year.

Research and Development Research and development expenses decreased from $2.8 million in the six months ended June 30, 2011 to $2.6 million in the six months ended June 30, 2012. The $0.2 million decrease in expenses from 2011 to 2012 was primarily related to a decrease in clinical study and project expense of $0.3 million, offset by an increase in personnel-related expense of $0.1 million.

Sales and Marketing Sales and marketing expenses decreased from $12.1 million in the six months ended June 30, 2011 to $10.7 million in the six months ended June 30, 2012. The decrease in expenses from 2011 to 2012 of $1.4 million was primarily due to lower personnel-related costs of $1.3 million as we reduced our direct sales headcount, lower commissions of $0.5 million as our revenues declined and decreased travel and entertainment expenses of $0.3 million related to the lower headcount, partially offset by an increase in consulting and training expenses of $0.7 million.

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General and Administrative General and administrative expenses increased from $3.2 million in the six months ended June 30, 2011 to $4.1 million in the six months ended June 30, 2012. The increase in expenses from 2011 to 2012 of $0.9 million was primarily related to an increase in legal fee expense of $1.4 million, primarily related to the investigation being conducted by the Department of Health and Human Services, Office of Inspector General, partially offset by a decrease in personnel-related expenses of $0.2 million, a decrease in other legal fee expense of $0.1 million and a decrease in insurance of $0.1 million.

Other Income (Expense), Net Other income (expense), net, decreased from $38,000 in income in the six months ended June 30, 2011 to expense of $32,000 in the six months ended June 30, 2012. The change of $70,000 from 2011 to 2012 was primarily related to a reduction in interest income earned on cash and cash equivalents of $38,000 and a loss on the sale of fixed assets of $30,000 in the six months ended June 30, 2012.

Liquidity and Capital Resources

Sources of Liquidity

Since our inception in 2000, we have incurred significant losses and, as of June 30, 2012, we had an accumulated deficit of $121.0 million. We have not yet achieved profitability, and we cannot assure investors that we will achieve profitability with our existing capital resources. 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 and the net proceeds of our September 2011 stock offering of $18.2 million have funded our operations since then.

In May 2011, we filed a “universal shelf” Registration Statement on Form S-3 (Filing No. 333-174255)(the “Shelf Registration Statement”) with the Securities and Exchange Commission (“SEC”), which became effective on August 1, 2011. The Shelf Registration Statement allowed us to raise up to $50 million through the sale of debt securities, common stock, preferred stock, or warrants, or any combination thereof. On September 21, 2011, we entered into a purchase agreement with Piper Jaffray & Co. as the lead underwriter, to sell 6,200,000 shares of our common stock in a public offering. The shares were offered and sold pursuant to a prospectus supplement dated September 21, 2011 and an accompanying base prospectus dated August 1, 2011, in connection with a "takedown" offering pursuant to the Shelf Registration Statement. On September 26, 2011, the shares were sold to the public at a price of $3.25 per share. The net proceeds, after deducting underwriting discounts, commissions and offering expenses, were $18.2 million. As a result of the public offering of the shares, we are currently authorized to issue up to $29.85 million of our securities pursuant to the Shelf Registration Statement (which amount may be subject to increase in accordance with SEC rules). The timing and terms of any additional financing transactions pursuant to the Shelf Registration Statement, or otherwise, have not yet been determined. Any additional financing may not be available in amounts or on terms acceptable to us, if at all.

As of June 30, 2012, we did not have any outstanding debt financing arrangements, we had working capital of $36.0 million and our primary source of liquidity was $33.4 million in cash and cash equivalents. We currently invest our cash and cash equivalents primarily in money market treasury funds.

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Cash, cash equivalents and short-term investments decreased from $44.8 million at December 31, 2011 to $33.4 million at June 30, 2012. The decrease of $11.4 million was primarily the result of net cash used in operating activities of $10.1 million and purchases of property and equipment of $1.4 million.

Cash Flows

Net Cash Used in Operating Activities. Net cash used in operating activities was $10.1 million in the six months ended June 30, 2012. 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, and the loss on disposal of fixed assets, combined with changes in working capital requirements to support the market acceptance of our products.

Net Cash Provided by Investing Activities. Net cash provided by investing activities was $4.7 million in the six months ended June 30, 2012. This amount reflected sales and maturities of short-term investments of $6.0 million, offset by the purchases of property and equipment of $1.4 million, primarily for reusable instrument kits used in the field and up-fitting our new training facility.

Net Cash Provided by Financing Activities. Net cash provided by financing activities in the six months ended June 30, 2012 was $68,000, 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 anticipated cash needs for at least the next twelve months. We intend to spend substantial amounts 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.

Under the Shelf Registration Statement, we have the ability to issue debt securities, common stock, preferred stock, or warrants, or any combination thereof. The sale of additional equity or convertible debt securities could result in dilution to our stockholders. In addition, any debt securities we issue could have rights senior to those associated with our common stock and could contain covenants that would restrict our operations. Furthermore, any preferred equity securities we issue could have rights senior to those associated with our common stock. We are currently authorized to issue up to $29.85 million of our securities pursuant to the Shelf Registration Statement (which amount may be subject to increase in accordance with SEC rules). The timing and terms of any additional financing transactions, whether pursuant to the Shelf Registration Statement or otherwise, have not yet been determined. 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, sales and marketing efforts.

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In October 2011, we received a subpoena issued by the Department of Health and Human Services, Office of Inspector General, under the authority of the federal healthcare fraud and false claims statutes. We are cooperating with the government’s request and are in the process of responding to the subpoena. Although we cannot predict whether or when proceedings might be initiated by the federal government or when these matters may be resolved, it is not unusual for investigations such as these to continue for a considerable period of time. Responding to the subpoena will continue to require management’s attention and significant legal expense. Any negative findings could result in substantial financial penalties against us. To our knowledge, no proceedings have been initiated against the Company at this time. We are currently unable to predict what impact, if any, the outcome of this matter might have on our consolidated financial position, results of operations, or cash flows.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, revenue and expenses, and disclosures of contingent assets and liabilities at the date of the financial statements. On an on-going basis, we evaluate our estimates, including those related to revenue recognition, accounts receivable 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 “Management’s 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, 2011. There have been no material changes in any of our accounting policies since December 31, 2011.

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 U.S. 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 was effective for interim and annual periods beginning after December 15, 2011 and is applied prospectively. We implemented this guidance in the first quarter of 2012 and it did not have a material impact on our financial statements.

In June 2011, the 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 was effective for fiscal years and interim periods beginning after December 15, 2011. We implemented this guidance in the first quarter of 2012 and it did not have a material effect on our financial statements.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are filing this report as a “Smaller Reporting Company” and, as a result, are not required to provide disclosure pursuant to this Item 3 of Part I of Form 10-Q.

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 Exchange Act) as of June 30, 2012. 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 SEC’s 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 June 30, 2012, 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.

Reporting Status

Effective July 1, 2010, we became a “Smaller Reporting Company” under Rule 12b-2 of the Exchange Act and we continue to qualify as a “Smaller Reporting Company” for purposes of filing this report. Prior to that date, we were an “Accelerated Filer” under Rule 12b-2. This classification is based on the aggregate market value of our voting and non-voting stock held by non-affiliates as of the last trading day of our second fiscal quarter of any particular fiscal year.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

We are subject to legal proceedings and claims in the ordinary course of our business. These claims potentially cover a variety of allegations spanning our entire business. The following is a brief discussion of the most significant claims that have been brought against us in the operation of our business.

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In October 2011, we received a subpoena issued by the Department of Health and Human Services, Office of Inspector General, under the authority of the federal healthcare fraud and false claims statutes. The subpoena seeks documents for the period January 1, 2008 through October 6, 2011. We are cooperating with the government’s request and are in the process of responding to the subpoena. We, along with our counsel, have met with representatives from the government two times during the past three months and continue to work toward a conclusion to this matter. We are unable to predict what action, if any, might be taken in the future by the Department of Health and Human Services, Office of Inspector General or other governmental authorities as a result of the matters related to this subpoena or what impact, if any, the outcome of these matters might have on our consolidated financial position, results of operations, or cash flows. No claims have been made against us at this time.

In January 2012, we received notice that a class action lawsuit had been filed in the U.S. District Court Eastern District, North Carolina, on behalf of a class consisting of all persons other than the defendants who purchased our common stock between February 21, 2008 and October 17, 2011. We are in the process of responding to this lawsuit. We are unable to predict what impact, if any, the outcome of this matter might have on our consolidated financial position, results of operations, or cash flows.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(b) Uses of Proceeds from Sale of Registered Securities

In May 2011, we filed the Shelf Registration Statement with the SEC, which became effective on August 1, 2011. The Shelf Registration Statement allowed us to raise up to $50 million through the sale of debt securities, common stock, preferred stock, or warrants, or any combination thereof.

On September 21, 2011, we entered into a purchase agreement with Piper Jaffray & Co., as the lead underwriter, to sell 6,200,000 shares of our common stock in a public offering. The shares were offered and sold pursuant to a prospectus supplement dated September 21, 2011 and an accompanying base prospectus dated August 1, 2011, in connection with a "takedown" offering pursuant to the Shelf Registration Statement. On September 26, 2011, the shares were sold to the public at a price of $3.25 per share. The net proceeds, after deducting underwriting discounts, commissions and offering expenses, were $18.2 million. As a result of the public offering of the shares, we are currently authorized to issue up to $29.85 million of our securities pursuant to the Shelf Registration Statement (which amount may be subject to increase in accordance with SEC rules). The timing and terms of any additional financing transactions pursuant to the Shelf Registration Statement or otherwise, have not yet been determined.

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: August 14, 2012		By: /s/ Ken Reali
	Ken Reali
	President and Chief Executive Officer
Date: August 14, 2012		By: /s/ Joseph P. Slattery
	Joseph P. Slattery
	Executive Vice President and Chief Financial Officer

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TranS1 Inc.

Exhibit Index

Exhibit
No.	Description
31.1	Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) / 15d-14(a) of the Securities Exchange Act of 1934.
31.2	Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) / 15d-14(a) of the Securities Exchange Act of 1934.
32.1	Certification of Chief Executive Officer Pursuant to Rule 13a-14(b) / 15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350.
32.2	Certification of Chief Financial Officer Pursuant to Rule 13a-14(b) / 15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350.
101.INS	XBRL Instance Document*
101.SCH	XBRL Schema Document*
101.CAL	XBRL Calculation Linkbase Document*
101.DEF	XBRL Definition Linkbase Document*
101.LAB	XBRL Label Linkbase Document*
101.PRE	XBRL Presentation Linkbase Document*

* Pursuant to Rule 406T of Regulation S-T, this XBRL information will not be deemed “filed” for the purposes of Section 18 of the Securities and Exchange Act of 1934 or otherwise subject to the liability of that section, nor will it be deemed filed or incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.

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EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, Ken Reali, certify that:

1. I have reviewed this quarterly report on Form 10-Q of TranS1 Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and 

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  August 14, 2012

/s/ Ken Reali

Ken Reali

President and Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, Joseph P. Slattery, certify that:

1. I have reviewed this quarterly report on Form 10-Q of TranS1 Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting

Date:  August 14, 2012

/s/ Joseph P. Slattery

Joseph P. Slattery

Executive Vice President and Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION

I, Ken Reali, hereby certify pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, that the Quarterly Report on Form 10-Q of TranS1 Inc. for the quarterly period ended June 30, 2012 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of TranS1 Inc.

Date: August 14, 2012	/s/  Ken Reali
	Ken Reali
	President and Chief Executive Officer

This certification accompanies the Report pursuant to Rule 13a-14(b) or Rule 15d-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350 and shall not be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liability of that section. This certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that the Company specifically incorporates it by reference.

EX-32.2

EXHIBIT 32.2

CERTIFICATION

I, Joseph P. Slattery, hereby certify pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, that the Quarterly Report on Form 10-Q of TranS1 Inc. for the quarterly period ended June 30, 2012 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of TranS1 Inc.

Date: August 14, 2012	/s/ Joseph P. Slattery
	Joseph P. Slattery
	Executive Vice President and Chief Financial Officer

This certification accompanies the Report pursuant to Rule 13a-14(b) or Rule 15d-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350 and shall not be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liability of that section. This certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that the Company specifically incorporates it by reference.

XML

Accrued Expenses (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Bonus	$ 649	$ 351
Commission	280	365
Vacation	270	136
Legal and professional fees	180	175
Travel and entertainment	48	23
Franchise taxes	46	91
Other	153	62
Total accrued expenses	$ 1,626	$ 1,203

XML

Net Loss Per Common Share

6 Months Ended

Jun. 30, 2012

Earnings Per Share [Abstract]

Earnings Per Share [Text Block]

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 Company’s potential dilutive common shares, which consist of shares issuable upon the exercise of stock options, have not been included in the computation of diluted net loss per share for all periods as the result would be anti-dilutive.

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 June 30,				Six Months Ended June 30,
	2012		2011		2012		2011
Weighted average stock options outstanding		3,371,301		2,845,286		3,185,326		2,660,286

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Income Taxes

6 Months Ended

Jun. 30, 2012

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

3. Income Taxes

No provisions for federal or state income taxes have been recorded as the Company has incurred net operating losses since inception.

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Consolidated Statements of Operations and Comprehensive Loss (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Revenue	$ 3,460	$ 5,337	$ 7,243	$ 10,467
Cost of revenue	912	1,173	1,909	2,469
Gross profit	2,548	4,164	5,334	7,998
Operating expenses:
Research and development	1,244	1,212	2,577	2,794
Sales and marketing	5,371	5,671	10,670	12,054
General and administrative	2,224	1,610	4,106	3,223
Total operating expenses	8,839	8,493	17,353	18,071
Operating loss	(6,291)	(4,329)	(12,019)	(10,073)
Other income (expense), net	(2)	20	(32)	38
Net loss	(6,293)	(4,309)	(12,051)	(10,035)
Other comprehensive income (loss):
Foreign currency translation adjustments	0	6	0	14
Comprehensive loss	$ (6,293)	$ (4,303)	$ (12,051)	$ (10,021)
Net loss per common share - basic and diluted (in dollars per share)	$ (0.23)	$ (0.21)	$ (0.44)	$ (0.48)
Weighted average common shares outstanding - basic and diluted (in shares)	27,255	20,915	27,250	20,901

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Description of Business

6 Months Ended

Jun. 30, 2012

Organization, Consolidation and Presentation Of Financial Statements [Abstract]

Nature of Operations [Text Block]

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 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 two level lumbar fusion, the VEO^TM lateral access and interbody fusion system, the Vectre™ and Avatar™ lumbar posterior fixation systems and Bi-Ostetic^TM bone void filler, a biologics product. All of the Company’s AxiaLIF products are delivered using its pre-sacral approach. The Company also markets products that may be used with its surgical approach, including bowel retractors, a bone graft harvesting system and additional discectomy tools. The AxiaLIF 1L product was commercially released in January 2005. The AxiaLIF 2L™ product was commercially released in Europe in the fourth quarter of 2006 and in the United States in the second quarter of 2008. The AxiaLIF 2L product was discontinued in 2010 after the Company launched its AxiaLIF 2L+™ product in July 2010. The Company commercially launched its next generation Vectre facet screw system in April 2010. In the first quarter of 2010, the Company entered into agreements to distribute Avatar, a pedicle screw system, and Bi-Ostetic bone void filler, a biologics product. The Company commercially launched its AxiaLIF 1L+ product in September 2011. The Company commercially launched its VEO lateral access and interbody fusion system in November 2011 in the United States and in July 2012 in the European Union. The Company sells its products through a direct sales force, independent sales agents and independent distributors.

The Company has forty-five issued United States patents, twelve pending patent applications or provisional patent applications in the United States, five issued European patents, seven issued Japanese patents, and ten foreign patent application families as counterparts of U.S. cases. The issued and pending patents cover, among other things, (i) the Company’s method for performing trans-sacral procedures in the spine, including diagnostic or therapeutic procedures, and trans-sacral introduction of instrumentation or implants, (ii) apparatus for conducting these procedures including access, disc preparation and implantation including the current TranS1 instruments individually and in kit form, (iii) implants for fusion and motion preservation in the spine, and (iv) a lateral access and interbody fusion system.

The Company owns eight trademark registrations in the United States, nine trademark registrations in the European Union and two registered trademarks in Canada. The Company also owns one pending trademark application in the United States, four pending trademark applications in China and one pending trademark application in the European Union.

On September 26, 2011, the Company completed a public offering of 6,200,000 shares of its common stock at an offering price of $3.25 per share. The offering resulted in aggregate proceeds to the Company of approximately $18.2 million, net of underwriting discounts, commissions and offering expenses, and has been included in stockholders' equity as common stock and additional paid-in capital. At June 30, 2012 and December 31, 2011, there were 27,274,823 and 27,244,059 shares of common stock issued and outstanding, respectively, and there were no shares of preferred stock issued and outstanding.

The Company is subject to a number of risks similar to other similarly-sized companies in the medical device industry. These risks include, without limitation, acceptance and continued use of the Company’s products by surgeons, the lack of clinical data about the efficacy of these products, uncertainty of reimbursement from third-party payors, cost pressures in the healthcare industry, competitive pressures from substitute products and larger companies, the historical lack of profitability, the dependence on key employees, regulatory approval and market acceptance for new products, compliance with complex and evolving healthcare laws and regulations, uncertainty surrounding the outcome of the matters relating to the subpoena issued to the Company by the Department of Health and Human Services, Office of Inspector General, the reliance on a limited number of suppliers to provide these products, changes in economic conditions, the ability to effectively manage a sales force to meet the Company’s objectives and the ability to conduct successful clinical studies.

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Cash, Cash Equivalents and Investments (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Total available for sale securities	$ 33,067	$ 44,367
Cash and Cash Equivalents [Member]
Total available for sale securities	33,067	38,340
Short-Term Investments [Member]
Total available for sale securities	$ 0	$ 6,027

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Inventories (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Work-in-process	$ 2,606	$ 2,515
Finished goods	2,226	1,771
Raw materials	311	239
Total inventories	$ 5,143	$ 4,525

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Basis of presentation

6 Months Ended

Jun. 30, 2012

Accounting Policies [Abstract]

Basis of Presentation and Significant Accounting Policies [Text Block]

2. Basis of presentation

The Company has prepared the accompanying consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission, or the SEC. The consolidated financial statements are unaudited and should be read in conjunction with the audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2011. The accompanying unaudited interim consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) which are, in the opinion of the Company’s management, necessary for a fair statement of the Company’s consolidated financial position, results of operations and cash flows for the periods presented. These principles require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The principal estimates relate to accounts receivable reserves, inventory reserves, stock-based compensation, accrued expenses and income tax valuations. Actual results could differ from those estimates. The year-end balance sheet data was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. All intercompany accounts and transactions have been eliminated in consolidation.

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 U.S. 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 was effective for interim and annual periods beginning after December 15, 2011 and is applied prospectively. The Company implemented this guidance in the first quarter of 2012 and it did not have a material impact on its financial statements.

In June 2011, the 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 was effective for fiscal years and interim periods beginning after December 15, 2011. The Company implemented this guidance in the first quarter of 2012 and it did not have a material effect on its financial statements.

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Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Assets
Cash and cash equivalents	$ 33,407	$ 38,724
Short-term investments	0	6,027
Accounts receivable, net	2,053	2,522
Inventory	5,143	4,525
Prepaid expenses and other assets	531	680
Total current assets	41,134	52,478
Property and equipment, net	2,407	1,554
Total assets	43,541	54,032
Liabilities and Stockholders' Equity
Accounts payable	3,557	3,303
Accrued expenses	1,626	1,203
Total current liabilities	5,183	4,506
Noncurrent liabilities	81	26
Commitments and contingencies (Note 9)
Stockholders' equity:
Common stock, $0.0001 par value; 75,000,000 shares authorized, 27,274,823 and 27,244,059 shares issued and outstanding at June 30, 2012 and December 31, 2011, respectively	3	3
Additional paid-in capital	159,231	158,403
Accumulated other comprehensive income	13	13
Accumulated deficit	(120,970)	(108,919)
Total stockholders' equity	38,277	49,500
Total liabilities and stockholders' equity	$ 43,541	$ 54,032

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Accounts Receivable, Net (Tables)

6 Months Ended

Jun. 30, 2012

Receivables [Abstract]

Schedule of Accounts, Notes, Loans and Financing Receivable [Table Text Block]

The following table presents the components of accounts receivable:

	June 30,			December 31,
	2012			2011
	(In thousands)
Gross accounts receivable	$	2,365		$	2,871
Allowance for uncollectible accounts		(312	)		(349	)
Total accounts receivable, net	$	2,053		$	2,522

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Document And Entity Information	6 Months Ended
	Jun. 30, 2012	Aug. 07, 2012
Entity Registrant Name	TRANS1 INC
Entity Central Index Key	0001230355
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Trading Symbol	tson
Entity Common Stock, Shares Outstanding		27,274,823
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2012
Document Fiscal Period Focus	Q2
Document Fiscal Year Focus	2012

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Inventories (Tables)

6 Months Ended

Jun. 30, 2012

Inventory Disclosure [Abstract]

Schedule of Inventory, Current [Table Text Block]

The following table presents the components of inventories:

	June 30,		December 31,
	2012		2011
	(In thousands)
Work-in-process	$	2,606	$	2,515
Finished goods		2,226		1,771
Raw materials		311		239
Total inventories	$	5,143	$	4,525

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Consolidated Balance Sheets [Parenthetical] (USD $)	Jun. 30, 2012	Dec. 31, 2011
Common stock, par value (in dollars per share)	$ 0.0001	$ 0.0001
Common stock, shares authorized	75,000,000	75,000,000
Common stock, shares issue	27,274,823	27,244,059
Common stock, shares outstanding	27,274,823	27,244,059

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Inventories

6 Months Ended

Jun. 30, 2012

Inventory Disclosure [Abstract]

Inventory Disclosure [Text Block]

7. Inventories

The following table presents the components of inventories:

	June 30,		December 31,
	2012		2011
	(In thousands)
Work-in-process	$	2,606	$	2,515
Finished goods		2,226		1,771
Raw materials		311		239
Total inventories	$	5,143	$	4,525

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Accounts Receivable, Net

6 Months Ended

Jun. 30, 2012

Receivables [Abstract]

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

6. Accounts Receivable, Net

The following table presents the components of accounts receivable:

	June 30,			December 31,
	2012			2011
	(In thousands)
Gross accounts receivable	$	2,365		$	2,871
Allowance for uncollectible accounts		(312	)		(349	)
Total accounts receivable, net	$	2,053		$	2,522

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Accounts Receivable, Net (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Gross accounts receivable	$ 2,365	$ 2,871
Allowance for uncollectible accounts	(312)	(349)
Total accounts receivable, net	$ 2,053	$ 2,522

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Accrued Expenses (Tables)

6 Months Ended

Jun. 30, 2012

Payables and Accruals [Abstract]

Schedule of Accrued Liabilities [Table Text Block]

The following table presents the components of accrued expenses:

	June 30,		December 31,
	2012		2011
	(In thousands)
Bonus	$	649	$	351
Commission		280		365
Vacation		270		136
Legal and professional fees		180		175
Travel and entertainment		48		23
Franchise taxes		46		91
Other		153		62
Total accrued expenses	$	1,626	$	1,203

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Net Loss Per Common Share (Tables)

6 Months Ended

Jun. 30, 2012

Earnings Per Share [Abstract]

Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share [Table Text Block]

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 June 30,				Six Months Ended June 30,
	2012		2011		2012		2011
Weighted average stock options outstanding		3,371,301		2,845,286		3,185,326		2,660,286

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Accrued Expenses

6 Months Ended

Jun. 30, 2012

Payables and Accruals [Abstract]

Accounts Payable and Accrued Liabilities Disclosure [Text Block]

8. Accrued Expenses

The following table presents the components of accrued expenses:

	June 30,		December 31,
	2012		2011
	(In thousands)
Bonus	$	649	$	351
Commission		280		365
Vacation		270		136
Legal and professional fees		180		175
Travel and entertainment		48		23
Franchise taxes		46		91
Other		153		62
Total accrued expenses	$	1,626	$	1,203

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Contingencies

6 Months Ended

Jun. 30, 2012

Commitments and Contingencies Disclosure [Abstract]

Contingencies Disclosure [Text Block]

9. Contingencies

In October 2011, the Company received a subpoena issued by the Department of Health and Human Services, Office of Inspector General, under the authority of the federal healthcare fraud and false claims statutes. The subpoena seeks documents for the period January 1, 2008 through October 6, 2011. The Company is cooperating with the government’s request and is in the process of responding to the subpoena. The Company and its counsel have met with representatives from the government two times during the past three months and continue to work toward a conclusion to this matter. The Company is unable to predict what action, if any, might be taken in the future by the Department of Health and Human Services, Office of Inspector General or other governmental authorities as a result of the matters related to this subpoena or what impact, if any, the outcome of these matters might have on the Company’s consolidated financial position, results of operations, or cash flows. No claims have been made against the Company at this time.

In January 2012, the Company received notice that a class action lawsuit had been filed in the U.S. District Court Eastern District, North Carolina, on behalf of a class consisting of all persons other than the defendants who purchased the Company’s common stock between February 21, 2008 and October 17, 2011. The Company is in the process of responding to this lawsuit. The Company is unable to predict what impact, if any, the outcome of this matter might have on the Company’s consolidated financial position, results of operations, or cash flows.

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Cash, Cash Equivalents and Investments (Tables)

6 Months Ended

Jun. 30, 2012

Cash and Cash Equivalents [Abstract]

Available-for-sale Securities [Table Text Block]

Available for sale securities classified as Level 1 assets were:

	June 30,		December 31,
	2012		2011
	(In thousands)
Cash and cash equivalents	$	33,067	$	38,340
Short-term investments		0		6,027
Total available for sale securities	$	33,067	$	44,367

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Net Loss Per Common Share (Details)	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Weighted average stock options outstanding (in shares)	3,371,301	2,845,286	3,185,326	2,660,286

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Consolidated Statements of Cash Flows (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011
Cash flows from operating activities:
Net loss	$ (12,051)	$ (10,035)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation	474	309
Stock-based compensation	760	937
Allowance for excess and obsolete inventory	59	348
Provision for bad debts	(37)	40
Loss on disposal of fixed assets	30	1
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable	506	(157)
Increase in inventory	(677)	(938)
Decrease in prepaid expenses	149	30
Increase (decrease) in accounts payable	254	(104)
Increase (decrease) in accrued expenses	478	(697)
Net cash used in operating activities	(10,055)	(10,266)
Cash flows from investing activities:
Purchases of property and equipment	(1,357)	(337)
Purchases of investments	0	(16,102)
Sales and maturities of investments	6,027	8,054
Net cash provided by (used in) investing activities	4,670	(8,385)
Cash flows from financing activities:
Proceeds from issuance of common stock	68	139
Net cash provided by financing activities	68	139
Effect of exchange rate changes on cash and cash equivalents	0	14
Net decrease in cash and cash equivalents	(5,317)	(18,498)
Cash and cash equivalents, beginning of period	38,724	24,461
Cash and cash equivalents, end of period	$ 33,407	$ 5,963

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Cash, Cash Equivalents and Investments

6 Months Ended

Jun. 30, 2012

Cash and Cash Equivalents [Abstract]

Cash and Cash Equivalents Disclosure [Text Block]

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, 2012, 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. Accounting Standards Codification 820-10 requires the valuation of investments using a three-tiered approach, which requires that fair value measurements be classified and disclosed in one of three tiers. These tiers are: Level 1, defined as quoted prices in active markets for identical assets or liabilities; Level 2, defined as valuations based on observable inputs other than those included in Level 1, such as quoted prices for similar assets and liabilities in active markets, or other inputs that are observable or can be corroborated by observable input data; and Level 3, defined as valuations based on unobservable inputs reflecting the Company’s own assumptions, consistent with reasonably available assumptions made by other market participants.

Available for sale securities classified as Level 1 assets were:

	June 30,		December 31,
	2012		2011
	(In thousands)
Cash and cash equivalents	$	33,067	$	38,340
Short-term investments		0		6,027
Total available for sale securities	$	33,067	$	44,367

The Company had no Level 2 or Level 3 assets or liabilities at June 30, 2012 or December 31, 2011.

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Description of Business (Details Textual) (USD $) In Thousands, except Share data, unless otherwise specified	6 Months Ended
	Jun. 30, 2012	Dec. 31, 2011	Jun. 30, 2011	Sep. 26, 2011
Common Stock, Shares, Issued	27,274,823	27,244,059		6,200,000
Common Stock Offer Price				$ 3.25
Proceeds From Issuance Of Common Stock	$ 68	$ 18,200	$ 139
Common Stock, Shares, Outstanding	27,274,823	27,244,059
Preferred Stock, Shares Issued	0	0
Preferred Stock, Shares Outstanding	0	0