Attached files

file filename
EX-32.2 - EX-32.2 - GLAUKOS Corpgkos-20160930ex3224a1eed.htm
EX-32.1 - EX-32.1 - GLAUKOS Corpgkos-20160930ex3212302a1.htm
EX-31.2 - EX-31.2 - GLAUKOS Corpgkos-20160930ex312ac2376.htm
EX-31.1 - EX-31.1 - GLAUKOS Corpgkos-20160930ex3119ea7c0.htm

 

            

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2016

Or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934

 

Commission file number: 001-37463 


GLAUKOS CORPORATION

(Exact name of registrant as specified in its charter)


 

 

 

 

 

Delaware

33-0945406

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer Identification No.)

 

 

229 Avenida Fabricante

San Clemente, California

92672

(Address of registrant’s principal executive offices)

(Zip Code)

 

(949) 367-9600

(Registrant’s telephone number, including area code)

 

26051 Merit Circle, Suite 103, Laguna Hills, California

(Former address of registrant’s principal executive offices)


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 ☒  No ☐

 

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 ☒  No ☐

 

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. (Check one):

 

 

 

 

 

☐ Large accelerated filer

☐ Accelerated filer

☒ Non-accelerated filer
(Do not check if a smaller reporting
company)

☐ Smaller reporting company

 

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

 

As of November 10, 2016 there were 33,549,174 shares of the registrant’s Common Stock outstanding.

 

 


 

GLAUKOS CORPORATION

Form 10-Q

For the Quarterly Period Ended September 30, 2016

Table of Contents

 

 

 

 

 

 

 

 

Page

 

 

Item 1. 

Financial Statements

 

 

Condensed Consolidated Balance Sheets

 

 

Condensed Consolidated Statements of Operations

 

 

Condensed Consolidated Statements of Comprehensive Income (Loss)

 

 

Condensed Consolidated Statements of Cash Flows

 

 

Notes to Condensed Consolidated Financial Statements

 

Item 2. 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

21 

Item 3. 

Quantitative and Qualitative Disclosures about Market Risk

 

29 

Item 4. 

Controls and Procedures

 

29 

 

 

 

 

 

 

31 

Item 1.  

Legal Proceedings

 

31 

Item 1A. 

Risk Factors

 

31 

Item 2 

Unregistered Sales of Equity Securities and Use of Proceeds

 

64 

Item 3. 

Defaults upon Senior Securities

 

64 

Item 4. 

Mine Safety Disclosures

 

64 

Item 5. 

Other Information

 

64 

Item 6. 

Exhibits

 

65 

 

 

 

 

Signatures 

 

66 

 

 

We use Glaukos, our logo, iStent,  iStent Inject,  iStent Supra,  iDose,  MIGS and other marks as trademarks. This report contains references to our trademarks and service marks and to those belonging to other entities. Solely for convenience, trademarks and trade names referred to in this report, including logos, artwork and other visual displays, may appear without the ® or ™ symbols, but such references are not intended to indicate in any way that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensor to these trademarks and trade names. We do not intend our use or display of other entities’ trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of us by, any other entity. 

References throughout this document to “we,” “us,” “our,” or “Glaukos” refer to Glaukos Corporation and its consolidated subsidiaries.

2


 

PART I - FINANCIAL INFORMATION

Item 1.   Financial Statements

 

GLAUKOS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except par values)

 

 

 

 

 

 

 

 

 

 

 

September 30, 

 

December 31, 

 

 

 

2016

 

2015

 

 

    

(unaudited)

    

 

 

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

4,988

 

$

21,572

 

Short-term investments

 

 

88,615

 

 

69,552

 

Accounts receivable, net

 

 

11,747

 

 

7,549

 

Inventory

 

 

6,453

 

 

4,097

 

Prepaid expenses and other current assets

 

 

2,708

 

 

1,290

 

Restricted cash

 

 

80

 

 

80

 

Total current assets

 

 

114,591

 

 

104,140

 

Property and equipment, net

 

 

6,994

 

 

2,154

 

Intangible assets, net

 

 

7,479

 

 

10,218

 

Deposits and other assets

 

 

188

 

 

149

 

Total assets

 

$

129,252

 

$

116,661

 

 

 

 

 

 

 

 

 

Liabilities and stockholders' equity

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

 

$

4,714

 

$

3,626

 

Accrued liabilities

 

 

11,048

 

 

7,793

 

Long-term debt, current portion

 

 

3,039

 

 

8,931

 

Deferred rent

 

 

40

 

 

12

 

Total current liabilities

 

 

18,841

 

 

20,362

 

Long-term debt, less current portion

 

 

 -

 

 

765

 

Stock warrant liability

 

 

 -

 

 

105

 

Other liabilities

 

 

208

 

 

238

 

Total liabilities

 

 

19,049

 

 

21,470

 

 

 

 

 

 

 

 

 

Commitments and contingencies (see Note 7)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

Preferred stock, $0.001 par value; 5,000 shares authorized at September 30, 2016 and December 31, 2015; no shares issued and outstanding at September 30, 2016 and December 31, 2015

 

 

 -

 

 

 -

 

Common stock, $0.001 par value; 150,000 shares authorized at September 30, 2016 and December 31, 2015; 33,337 and 32,209 shares issued and 33,309 and 32,181 shares outstanding at September 30, 2016 and December 31, 2015, respectively

 

 

33

 

 

32

 

Additional paid-in capital

 

 

302,678

 

 

291,853

 

Accumulated other comprehensive (loss) income

 

 

(151)

 

 

51

 

Accumulated deficit

 

 

(192,225)

 

 

(196,613)

 

 

 

 

110,335

 

 

95,323

 

Less treasury stock (28 shares as of September 30, 2016 and December 31, 2015)

 

 

(132)

 

 

(132)

 

Total stockholders' equity

 

 

110,203

 

 

95,191

 

Total liabilities and stockholders' equity

 

$

129,252

 

$

116,661

 

3


 

GLAUKOS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

(in thousands, except per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30, 

 

September 30, 

 

 

    

2016

    

2015

    

2016

    

2015

 

Net sales

 

$

29,577

 

$

19,004

 

$

81,225

 

$

51,424

 

Cost of sales

 

 

3,886

 

 

3,319

 

 

11,366

 

 

9,394

 

Gross profit

 

 

25,691

 

 

15,685

 

 

69,859

 

 

42,030

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative

 

 

16,854

 

 

11,237

 

 

44,262

 

 

31,569

 

Research and development

 

 

7,807

 

 

6,173

 

 

21,824

 

 

18,752

 

Total operating expenses

 

 

24,661

 

 

17,410

 

 

66,086

 

 

50,321

 

Income (loss) from operations

 

 

1,030

 

 

(1,725)

 

 

3,773

 

 

(8,291)

 

Other income (expense), net

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest and other income

 

 

314

 

 

10

 

 

935

 

 

10

 

Loss on deconsolidation of DOSE

 

 

 -

 

 

 -

 

 

 -

 

 

(25,685)

 

Loss on extinguishment of debt

 

 

 -

 

 

(195)

 

 

 -

 

 

(195)

 

Interest and other expense, net

 

 

(45)

 

 

(178)

 

 

(223)

 

 

(740)

 

Change in fair value of stock warrant liability

 

 

 -

 

 

31

 

 

43

 

 

(1,130)

 

Total other income (expense), net

 

 

269

 

 

(332)

 

 

755

 

 

(27,740)

 

Income (loss) before taxes

 

 

1,299

 

 

(2,057)

 

 

4,528

 

 

(36,031)

 

Provision for income taxes

 

 

140

 

 

 -

 

 

140

 

 

 -

 

Net income (loss)

 

 

1,159

 

 

(2,057)

 

 

4,388

 

 

(36,031)

 

Net loss attributable to noncontrolling interest

 

 

 -

 

 

 -

 

 

 -

 

 

(1,080)

 

Net income (loss) attributable to Glaukos Corporation

 

$

1,159

 

$

(2,057)

 

$

4,388

 

$

(34,951)

 

Basic net income (loss) per share attributable to Glaukos Corporation stockholders

 

$

0.03

 

$

(0.06)

 

$

0.13

 

$

(2.78)

 

Diluted net income (loss) per share attributable to Glaukos Corporation stockholders

 

$

0.03

 

$

(0.07)

 

$

0.12

 

$

(2.78)

 

Weighted average shares used to compute basic net income (loss) per share attributable to Glaukos Corporation stockholders

 

 

33,116

 

 

32,006

 

 

32,691

 

 

12,551

 

Weighted average shares used to compute diluted net income (loss) per share attributable to Glaukos Corporation stockholders

 

 

37,023

 

 

32,013

 

 

36,259

 

 

12,551

 

 

 

 

4


 

GLAUKOS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(unaudited)

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30, 

 

September 30, 

 

 

    

2016

    

2015

    

2016

    

2015

 

Net income (loss)

 

$

1,159

 

$

(2,057)

 

$

4,388

 

$

(36,031)

 

Other comprehensive (loss) gain:

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized (loss) gain on short-term investments, net of income tax expense of $0.1 million for the three months and the nine months ended September 30, 2016

 

 

(175)

 

 

 -

 

 

151

 

 

 -

 

Foreign currency translation adjustments

 

 

81

 

 

12

 

 

(353)

 

 

51

 

Other comprehensive (loss) gain

 

 

(94)

 

 

12

 

 

(202)

 

 

51

 

Total comprehensive income (loss)

 

 

1,065

 

 

(2,045)

 

 

4,186

 

 

(35,980)

 

Comprehensive loss attributable to noncontrolling interest

 

 

 -

 

 

 -

 

 

 -

 

 

(1,080)

 

Comprehensive income (loss) attributable to Glaukos Corporation

 

$

1,065

 

$

(2,045)

 

$

4,186

 

$

(34,900)

 

 

 

 

 

 

5


 

GLAUKOS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 

 

 

    

2016

    

2015

 

Operating Activities

 

 

 

 

 

 

 

Net income (loss)

 

$

4,388

 

$

(36,031)

 

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

 

3,410

 

 

3,199

 

Stock-based compensation

 

 

6,117

 

 

6,331

 

Unrealized foreign currency gains

 

 

(311)

 

 

 -

 

Loss on deconsolidation of DOSE

 

 

 -

 

 

25,685

 

Loss on extinguishment of debt

 

 

 -

 

 

186

 

Change in fair value of stock warrant liability

 

 

(43)

 

 

1,130

 

Amortization of debt discount and deferred financing costs

 

 

 -

 

 

15

 

Amortization of premium on short-term investments

 

 

206

 

 

 -

 

Deferred rent

 

 

(1)

 

 

61

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable, net

 

 

(4,170)

 

 

(1,588)

 

Inventory

 

 

(2,191)

 

 

(900)

 

Prepaid expenses and other current assets

 

 

(1,396)

 

 

(748)

 

Accounts payable and accrued liabilities

 

 

2,996

 

 

1,162

 

Other assets

 

 

26

 

 

(120)

 

Net cash provided by (used in) operating activities

 

 

9,031

 

 

(1,618)

 

Investing activities

 

 

 

 

 

 

 

Proceeds from sales and maturities of short-term investments

 

 

41,702

 

 

 -

 

Purchases of short-term investments

 

 

(60,724)

 

 

 -

 

Purchase of iDOSE product line and related assets from DOSE Medical

 

 

 -

 

 

(15,000)

 

Purchases of property and equipment

 

 

(4,236)

 

 

(502)

 

Net cash used in investing activities

 

 

(23,258)

 

 

(15,502)

 

Financing activities

 

 

 

 

 

 

 

Proceeds from public offering, net of issuance costs

 

 

 -

 

 

113,589

 

Proceeds from senior secured term and draw-to term loans

 

 

 -

 

 

6,852

 

Payments of senior secured term and draw-to term loans

 

 

 -

 

 

(7,000)

 

Payments of line of credit

 

 

 -

 

 

(1,850)

 

Payments of secured notes

 

 

(6,656)

 

 

(5,640)

 

Proceeds from exercise of stock options

 

 

3,749

 

 

1,719

 

Share purchases under Employee Stock Purchase Plan

 

 

793

 

 

 -

 

Proceeds from exercise of stock warrants

 

 

50

 

 

428

 

Net cash (used in) provided by financing activities

 

 

(2,064)

 

 

108,098

 

Effect of exchange rate changes on cash and cash equivalents

 

 

(293)

 

 

57

 

Net (decrease) increase in cash and cash equivalents

 

 

(16,584)

 

 

91,035

 

Cash and cash equivalents at beginning of period

 

 

21,572

 

 

2,304

 

Cash and cash equivalents at end of period

 

$

4,988

 

$

93,339

 

Supplemental disclosures of cash flow information

 

 

 

 

 

 

 

Interest paid

 

$

253

 

$

694

 

Taxes paid

 

$

64

 

$

14

 

Supplemental schedule of noncash investing and financing activities

 

 

 

 

 

 

 

Reduction of liability upon vesting of stock options previously exercised for unvested stock

 

$

54

 

$

65

 

 

 

6


 

GLAUKOS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

Note 1.  Organization and Basis of Presentation

Organization and business

Glaukos Corporation (Glaukos or the Company), incorporated in Delaware on July 14, 1998, is a developer, manufacturer and marketer of medical devices for the treatment of glaucoma. The accompanying condensed consolidated financial statements include the accounts of Glaukos and its wholly-owned subsidiaries and, through June 30, 2015, affiliated entity DOSE Medical Corporation (DOSE) (see Note 8). All significant intercompany balances and transactions among the consolidated entities have been eliminated in consolidation.

Initial public offering

On June 30, 2015, the Company completed its initial public offering (IPO), selling 6.9 million newly issued shares of common stock at a price of $18.00 per share.  The IPO generated net cash proceeds of approximately $113.6 million, after deducting underwriting discounts and commissions of approximately $8.7 million and other related expenses of approximately $1.9 million.  The underwriting discounts and commissions and offering costs were recorded as a reduction to the IPO proceeds included in additional paid-in capital.

Immediately prior to the closing of the IPO, all unexercised warrants to purchase shares of Series D convertible preferred stock were net exercised at the IPO price per share, and then all outstanding shares of convertible preferred stock automatically converted into approximately 21.7 million shares of common stock.  Following the completion of the IPO, there were no shares of preferred stock and no warrants to purchase shares of Series D convertible preferred stock outstanding.  An additional 4.5 million shares of common stock were reserved for issuance under the Company’s 2015 Omnibus Incentive Compensation Plan and 450,000 shares of common stock were reserved for the Company’s 2015 Employee Stock Purchase Plan (ESPP).

Acquisition of certain DOSE Medical Corporation assets

On June 30, 2015, the Company acquired certain assets from DOSE, including the iDose product line, in exchange for a cash payment of $15.0 million and the elimination of all amounts owed by DOSE to the Company. In addition to an asset purchase, the parties agreed to an amended and restated patent license agreement and an amended and restated transition services agreement that provides for limited support from the Company to DOSE for a period of up to three years (see Note 8).

Basis of presentation

The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and pursuant to the instructions to Form 10-Q and Article 10 of Regulation S-X.

The unaudited interim financial statements have been prepared on a basis consistent with the audited financial statements.  As permitted under those rules, certain footnotes and other financial information that are normally required by GAAP have been condensed or omitted.  In the opinion of management, the unaudited interim financial statements reflect all adjustments, which include normal recurring adjustments, necessary for the fair presentation of the Company’s financial information, contained herein.  The condensed consolidated balance sheet at December 31, 2015 has been derived from audited financial statements at that date, but excludes disclosures required by GAAP for complete financial statements.  These interim financial statements do not include all disclosures required by GAAP and should be read in conjunction with the Company’s financial statements and accompanying notes for the fiscal year ended December 31, 2015, which are contained in the Company’s Annual Report on Form 10-K filed with the United States Securities and Exchange Commission (SEC) on March 15, 2016. The results for the period ended September 30, 2016 are not necessarily indicative of the results to be expected for the year ended December 31, 2016 or for any other interim period.

7


 

Note 2.  Summary of Significant Accounting Policies

There have been no significant changes in the Company’s significant accounting policies during the nine months ended September 30, 2016, as compared with those disclosed in its Annual Report on Form 10-K for the year ended December 31, 2015 filed with the SEC on March 15, 2016.

Use of estimates

The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. Actual results could differ materially from those estimates and assumptions. Management considers many factors in selecting appropriate financial accounting policies and controls and in developing the estimates and assumptions that are used in the preparation of these financial statements. Management must apply significant judgment in this process. In addition, other factors may affect estimates, including expected business and operational changes, sensitivity and volatility associated with the assumptions used in developing estimates, and whether historical trends are expected to be representative of future trends. The estimation process often may yield a range of potentially reasonable estimates of the ultimate future outcomes, and management must select an amount that falls within that range of reasonable estimates. The most significant estimates in the accompanying condensed consolidated financial statements relate to revenue recognition, inventory reserves and stock‑based compensation expense. Although these estimates are based on the Company’s knowledge of current events and actions it may undertake in the future, this process may result in actual results differing materially from those estimated amounts used in the preparation of the financial statements.

Foreign currency translation

The accompanying condensed consolidated financial statements are presented in U.S. dollars. The Company considers the local currency to be the functional currency for its international subsidiaries. Accordingly, their assets and liabilities are translated into U.S. dollars using the exchange rate in effect on the balance sheet date. Revenues and expenses are translated at average exchange rates prevailing throughout the periods presented. Currency translation adjustments arising from period to period are charged or credited to accumulated other comprehensive (loss) income in stockholders’ equity. For the three months ended September 30, 2016 and 2015 and the nine months ended September 30, 2016 and 2015, the Company reported (losses) gains from foreign currency translation adjustments of approximately $(16,000),  $12,000,  $(450,000) and $51,000, respectively.  Realized gains and losses resulting from foreign currency transactions are included in selling, general and administrative expense in the condensed consolidated statements of operations. For the three months ended September 30, 2016 and 2015 and the nine months ended September 30, 2016 and 2015, the Company reported foreign currency transaction gains (losses) of $51,000,  $(13,000),  $73,000 and $(98,000).  

Cash, cash equivalents and short-term investments

The Company invests its excess cash in marketable securities, including money market funds, asset-backed securities, bank certificates of deposit, corporate bonds, and corporate commercial paper, U.S. government bonds and U.S. government agency bonds. For financial reporting purposes, liquid investment instruments purchased with an original maturity of three months or less are considered to be cash equivalents. Cash and cash equivalents are recorded at face value or cost, which approximates fair market value. From time to time, the Company maintains cash balances in excess of amounts insured by the Federal Deposit Insurance Commission. Investments are stated at fair value as determined by quoted market prices. Investments are considered available-for-sale and, accordingly, unrealized gains and losses are included in accumulated other comprehensive (loss) income within stockholders’ equity.

The Company’s entire investment portfolio, except for restricted cash, is considered to be available for use in current operations and, accordingly, all such investments are stated at fair value using quoted market prices and classified as current assets, although the stated maturity of individual investments may be one year or more beyond the balance sheet date. The Company did not have any trading securities or restricted investments at September 30, 2016 and December 31, 2015.

Realized gains and losses and declines in value, if any, judged to be other-than-temporary on available-for-sale securities, are reported in interest income or expense, net. When securities are sold, any associated unrealized gain or loss previously reported as a separate component of stockholders’ equity is reclassified out of stockholders’ equity and recorded in the statements of operations in the period sold. Accrued interest and dividends are included in interest income. The Company periodically reviews its available-for-sale securities for other-than-temporary declines in fair value below the cost basis, and whenever events or changes in circumstances indicate that the carrying amount of an

8


 

asset may not be recoverable. The Company has a credit card facility with its primary operating bank which is collateralized by certificates of deposit maintained at the bank.

Fair value measurements

Assets and liabilities are measured using quoted prices in active markets and total fair value is the published market price per unit multiplied by the number of units held without consideration of transaction costs. Assets and liabilities that are measured using significant other observable inputs are valued by reference to similar assets or liabilities, adjusted for contract restrictions and other terms specific to that asset or liability. For these items, a significant portion of fair value is derived by reference to quoted prices of similar assets or liabilities in active markets. For all remaining assets and liabilities, fair value is derived using a fair value model, such as a discounted cash flow model or Black-Scholes model.

Fair value of financial instruments

The carrying amounts of cash equivalents, accounts receivable, accounts payable, and accrued liabilities are considered to be representative of their respective fair values because of the short-term nature of those instruments. Based on the borrowing rates for loans currently available to the Company for loans with similar terms, the Company believes that the fair value of long-term debt approximates its carrying value. The carrying amount of the warrant liability and non-controlling interest represent their fair values.

The valuation of assets and liabilities are subject to fair value measurements using a three-tiered approach and fair value measurements are classified and disclosed by the Company in one of the following three categories:

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2: Quoted prices for similar assets and liabilities in active markets, quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; and

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

Revenue recognition

The Company recognizes revenue from product sales when the following criteria are met: goods are shipped, title and risk of loss has transferred to its customers, persuasive evidence of an arrangement exists and collectability is reasonably assured. Persuasive evidence of an arrangement exists when there is a contractual arrangement in place with the customer. Delivery has occurred when a product is shipped. If persuasive evidence of an arrangement exists and delivery has occurred, the Company determines whether the invoiced amount is fixed or determinable and collectability of the invoiced amount is reasonably assured. The Company assesses whether the invoiced amount is fixed or determinable based on the existing arrangement with the customer, including whether the Company has sufficient history with a customer to reliably estimate the customer’s payment patterns. The Company assesses collectability by evaluating historical cash receipts and individual customer outstanding balances. To the extent all criteria set forth above are not satisfied at the time of shipment, revenue is recognized when cash is received from the customer.

Customers are not granted specific rights of return; however, the Company may permit returns of product from customers if such product is returned in a timely manner and in good condition. The Company provides a warranty on its products for one year from the date of shipment, and any product found to be defective or out of specification will be replaced at no charge during the warranty period. Estimated allowances for sales returns and warranty replacements are recorded at the time of sale of the product and are estimated based upon the historical patterns of product returns matched against sales, and an evaluation of specific factors that may increase the risk of product returns. Product returns and warranty replacements to date have been consistent with amounts reserved or accrued and have not been significant. 

Research and development expenses

Major components of research and development expense include personnel costs, preclinical studies, clinical trials and related clinical product manufacturing, materials and supplies, and fees paid to consultants. Research and development costs are expensed as goods are received or services are rendered. Costs to acquire technologies to be used in research and development that have not reached technological feasibility and have no alternative future use are also expensed as incurred.

At each financial reporting date, the Company accrues the estimated costs of clinical study activities performed by third party clinical sites with whom the Company has agreements providing for fees based upon the quantities of subjects enrolled and clinical evaluation visits that occur over the life of the study. The cost estimates are determined

9


 

based upon a review of the agreements and data collected by internal and external clinical personnel as to the status of enrollment and subject visits, and are based upon the facts and circumstances known to the Company at each financial reporting date. If the actual performance of activities varies from the assumptions used in the cost estimates, the accruals are adjusted accordingly. There have been no material adjustments to the Company’s prior period accrued estimates for clinical trial activities through September 30, 2016.

Stock-based compensation

The Company recognizes compensation expense for all stock-based awards granted to employees and nonemployees, including members of its Board of Directors. The fair value of stock-based awards made to employees is estimated at the grant date using the Black-Scholes option pricing model, and the portion that is ultimately expected to vest is recognized as compensation cost over the requisite service period using the straight-line method. The determination of the fair value-based measurement of stock options on the date of grant using an option pricing model is affected by the determination of the fair value of the underlying stock as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, the Company’s stock price volatility over the expected term of the grants, and actual and projected employee stock option exercise behaviors. In the future, as additional empirical evidence regarding these estimates becomes available, the Company may change or refine its approach of deriving them, and these changes could impact the fair value-based measurement of stock options granted in the future. Changes in the fair value-based measurement of stock awards could materially impact the Company’s operating results. The fair values of stock-based awards made to nonemployees are remeasured at each reporting period using the Black-Scholes option pricing model. Compensation expense for these stock-based awards is determined by applying the remeasured fair values to the shares that have vested during a period.

Net income (loss) per share

Basic net income (loss) per share is calculated by dividing the net income (loss) by the weighted average number of common shares that were outstanding for the period, without consideration for common stock equivalents. Diluted net income (loss) per share is calculated by dividing the net income by the sum of the weighted average number of dilutive common share equivalents outstanding for the period determined using the treasury stock method. Common stock equivalents are comprised of stock options and warrants outstanding. Diluted net loss per share is calculated by dividing the net loss by the weighted average number of common shares that were outstanding for the period, without consideration for common stock equivalents, as their inclusion would be anti-dilutive.  

The Company’s computation of net income (loss) per share is as follows (in thousands, except per share amounts):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30, 

 

September 30, 

 

 

    

2016

    

2015

    

2016

    

2015

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) attributable to Glaukos Corporation - basic

 

$

1,159

 

$

(2,057)

 

$

4,388

 

$

(34,951)

 

Adjustment for revaluation of warrants

 

 

 -

 

 

(31)

 

 

 -

 

 

 -

 

Net income (loss) attributable to Glaukos Corporation - diluted

 

$

1,159

 

$

(2,088)

 

$

4,388

 

$

(34,951)

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding - basic

 

 

33,116

 

 

32,006

 

 

32,691

 

 

12,551

 

Common stock equivalents from outstanding common stock options

 

 

3,886

 

 

 -

 

 

3,555

 

 

 -

 

Common stock equivalents from outstanding common stock warrants

 

 

 -

 

 

7

 

 

1

 

 

 -

 

Common stock equivalents for ESPP

 

 

21

 

 

 -

 

 

12

 

 

 -

 

Weighted average number of common shares outstanding - diluted

 

 

37,023

 

 

32,013

 

 

36,259

 

 

12,551

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic net income (loss) per share attributable to Glaukos Corporation common stockholders

 

$

0.03

 

$

(0.06)

 

$

0.13

 

$

(2.78)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted net income (loss) per share attributable to Glaukos Corporation common stockholders

 

$

0.03

 

$

(0.07)

 

$

0.12

 

$

(2.78)

 

 

10


 

Potentially dilutive securities not included in the calculation of diluted net loss per share attributable to common stockholders because to do so would be anti-dilutive were as follows (in common stock equivalent shares, in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30, 

 

September 30, 

  

 

    

2016

    

2015

    

2016

    

2015

 

Stock options outstanding

 

631

 

5,592

 

2,131

 

5,592

 

ESPP

 

 -

 

 -

 

70

 

 -

 

Common stock warrants outstanding

 

 -

 

6

 

 -

 

6

 

 

 

631

 

5,598

 

2,201

 

5,598

 

Recent accounting pronouncements

In May 2014, the Financial Accounting Standards Board (FASB) issued guidance in Accounting Standards Update (ASU) 2014-09 which was codified in Accounting Standard Codification ASC 606, Revenue Recognition — Revenue from Contracts with Customers, which amends the guidance in former ASC 605, Revenue Recognition,  which provides a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and will supersede most current revenue recognition guidance. This ASU is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract.    In August 2015, the FASB issued ASU 2015-14, which deferred the effective date to annual reporting periods beginning after December 15, 2017 (including interim periods within those periods). Early adoption is permitted to the original effective date of December 15, 2016 (including interim periods within those periods). The Company is currently evaluating the impact of the provisions of ASC 606 on its consolidated financial statements.

In July 2015, the FASB issued ASU 2015-11, Inventory (Topic 330), Simplifying the Measurement of Inventory, which changes the measurement principle for inventory from the lower of cost or market to the lower of cost and net realizable value. ASU 2015-11 defines net realizable value as estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The new guidance became effective for the Company on January 1, 2016 and the adoption had no impact on its consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The ASU requires management to recognize on the balance sheet lease assets and lease liabilities by lessees for all operating leases. The ASU is effective for periods ending on December 15, 2018 and interim periods therein on a modified retrospective basis. The Company is currently evaluating the impact adoption of this guidance will have on its consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation (Topic 718), Improvements to Employee Share-Based Payment Accounting. The standard is intended to simplify several areas of accounting for share-based compensation arrangements, including the income tax impact, classification on the statement of cash flows and forfeitures. ASU 2016-09 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, and early adoption is permitted. The Company is currently evaluating the impact this guidance will have on its consolidated financial statements.

In April 2016, the FASB issued ASU No. 2016-10 Revenue from Contracts with Customers (Topic 606), Identifying Performance Obligations and Licensing. ASU 2016-10 clarifies the following two aspects of Topic 606: identifying performance obligations and the licensing implementation guidance, while retaining the related principles for those areas. ASU 2016-10 is effective for public business entities for annual periods, including interim periods within those annual periods, beginning after December 15, 2017, with early application permitted. The Company is currently evaluating the impact this guidance will have on its consolidated financial statements.

 

11


 

Note 3.  Balance Sheet Details

Short-term investments

Short-term investments consisted of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At September 30, 2016

 

 

 

Maturity

 

Amortized cost

 

Unrealized

 

Unrealized

 

Estimated

 

 

    

(in years)

    

or cost

    

gains

    

losses

    

fair value

  

U.S. government bonds

 

1-3

 

$

1,497

 

$

2

 

$

(1)

 

$

1,498

 

U.S. government agency bonds

 

less than 3

 

 

7,259

 

 

14

 

 

 -

 

 

7,273

 

Bank certificates of deposit

 

less than 2

 

 

12,250

 

 

8

 

 

(3)

 

 

12,255

 

Commercial paper

 

less than 1

 

 

14,593

 

 

4

 

 

(3)

 

 

14,594

 

Corporate notes

 

less than 3

 

 

46,286

 

 

65

 

 

(10)

 

 

46,341

 

Asset-backed securities

 

less than 2

 

 

6,631

 

 

23

 

 

 -

 

 

6,654

 

Total

 

 

 

$

88,516

 

$

116

 

$

(17)

 

$

88,615

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At December 31, 2015

 

 

 

Maturity

 

Amortized cost

 

Unrealized

 

Unrealized

 

Estimated

 

 

    

(in years)

    

or cost

    

gains

    

losses

    

fair value

 

U.S. government agency bonds

 

1-3

 

$

5,513

 

$

 -

 

$

(10)

 

$

5,503

 

Commercial paper

 

less than 1

 

 

12,342

 

 

 -

 

 

(2)

 

 

12,340

 

Corporate notes

 

1-3

 

 

45,051

 

 

 -

 

 

(110)

 

 

44,941

 

Asset-backed securities

 

1-3

 

 

6,794

 

 

 -

 

 

(26)

 

 

6,768

 

Total

 

 

 

$

69,700

 

$

 -

 

$

(148)

 

$

69,552

 

Accounts receivable, net

Accounts receivable consisted of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

 

September 30, 

 

December 31, 

 

 

    

2016

    

2015

  

Accounts receivable

 

$

12,009

 

$

7,632

 

Less allowance for doubtful accounts

 

 

(262)

 

 

(83)

 

 

 

$

11,747

 

$

7,549

 

Inventory

Inventory consisted of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

 

September 30, 

 

December 31, 

 

 

    

2016

    

2015

  

Finished goods

 

$

2,742

 

$

953

 

Work in process

 

 

358

 

 

503

 

Raw material

 

 

3,353

 

 

2,641

 

 

 

$

6,453

 

$

4,097

 

Accrued liabilities

Accrued liabilities consisted of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

 

September 30, 

 

December 31, 

 

 

    

2016

    

2015

  

Accrued bonuses and sales commissions

 

$

4,786

 

$

4,057

 

Accrued vacation benefits

 

 

1,288

 

 

1,007

 

Accrued clinical study payments

 

 

1,078

 

 

654

 

Other accrued liabilities

 

 

3,896

 

 

2,075

 

 

 

$

11,048

 

$

7,793

 

 

 

 

12


 

 

Note 4.  Fair Value Measurements

Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability.

The following tables present information about the Company's financial assets and financial liabilities measured at fair value on a recurring basis as of September 30, 2016 and December 31, 2015, and indicate the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At September 30, 2016

 

 

 

September 30, 

 

Quoted prices
in
 active
markets for
identical assets

 

Significant
other
observable inputs

 

Significant
unobservable
inputs

 

 

    

2016

    

(Level 1)

    

(Level 2)

    

(Level 3)

  

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds (i)

 

$

149

 

$

149

 

$

 -

 

$

 -

 

U.S. government bonds

 

 

1,498

 

 

 -

 

 

1,498

 

 

 -

 

U.S. government agency bonds

 

 

7,273

 

 

 -

 

 

7,273

 

 

 -

 

Bank certificates of deposit

 

 

12,255

 

 

 -

 

 

12,255

 

 

 -

 

Commercial paper (ii)

 

 

15,094

 

 

 -

 

 

15,094

 

 

 -

 

Corporate notes

 

 

46,341

 

 

 -

 

 

46,341

 

 

 -

 

Asset-backed securities

 

 

6,654

 

 

 -

 

 

6,654

 

 

 -

 

Total assets

 

$

89,264

 

$

149

 

$

89,115

 

$

 -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock warrant liability

 

$

 -

 

$

 -

 

$

 -

 

$

 -

 

Total liabilities

 

$

 -

 

$

 -

 

$

 -

 

$

 -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At December 31, 2015

 

 

 

December 31, 

 

Quoted prices
in
 active
markets for
identical assets

 

Significant
other
observable inputs

 

Significant
unobservable
inputs

 

 

    

2015

    

(Level 1)

    

(Level 2)

    

(Level 3)

  

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds (i)

 

$

13,922

 

$

13,922

 

$

 -

 

$

 -

 

U.S. government agency bonds

 

 

5,523

 

 

 -

 

 

5,523

 

 

 -

 

Commercial paper (ii)

 

 

15,340

 

 

 -

 

 

15,340

 

 

 -

 

Corporate notes (ii)

 

 

45,159

 

 

 -

 

 

45,159

 

 

 -

 

Asset-backed securities (ii)

 

 

6,775

 

 

 -

 

 

6,775

 

 

 -

 

Total assets

 

$

86,719

 

$

13,922

 

$

72,797

 

$

 -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock warrant liability

 

$

105

 

$

 -

 

$

 -

 

$

105

 

Total liabilities

 

$

105

 

$

 -

 

$

 -

 

$

105

 

(i)

Included in cash and cash equivalents with a maturity of three months or less from date of purchase on the condensed consolidated balance sheets.