| Stockholders' Equity | 8. STOCKHOLDERS EQUITY (a) Authorized share capital The total number
of authorized shares of common stock of the Company is 65,000,000. Each share of common stock has a par value of $0.001 per share.
The total number of authorized shares of preferred stock of the Company is 10,000,000. Each share of preferred stock has a par
value of $0.001 per share. (b) Common stock The
Company has funded operations over the years through the issuance of equity in public and private offerings including on July 30,
2013, the Company closed an underwritten public offering of 2.99 million shares of its common stock at a price to the public of
$13.50 per share. The Company received gross proceeds of $40,365,000, with associated costs of $3,055,000. (c) Stock Option Plan The Company has
a stock incentive plan, the 2002 Stock Incentive Plan (the Stock Incentive Plan). Under the Stock Incentive Plan,
up to 7,200,000 options are available for grant to employees, directors and consultants. Options granted under the Stock Incentive
Plan may be either incentive stock options or non-statutory stock options. Under the terms of the Stock Incentive Plan, the exercise
price per share for an incentive stock option shall not be less than the fair market value of a share of stock on the effective
date of grant and the exercise price per share for non-statutory stock options shall not be less than 85% of the fair market value
of a share of stock on the date of grant. No option granted to a holder of more than 10% of the Companys common stock shall
have an exercise price per share less than 110% of the fair market value of a share of stock on the effective date of grant. Options granted
are typically service-based options. Generally, options expire 10 years after the date of grant. No incentive stock options granted
to a 10% owner optionee shall be exercisable after the expiration of five years after the effective date of grant of such option,
no option has been granted to a prospective employee, prospective consultant or prospective director prior to the date on which
such person commences service, and with the exception of an option granted to an officer, director or consultant, no option shall
become exercisable at a rate less than 20% per annum over a period of five years from the effective date of grant of such option
unless otherwise approved by the Board. The Company accounts
for stock-based compensation under the authoritative guidance which requires that share-based payment transactions with employees
be recognized in the financial statements based on their fair value and recognized as compensation expense over the requisite service
period. The amount of expense recognized during the period is affected by subjective assumptions, including: estimates of the Companys
future volatility, the expected term for its stock options, option exercise behavior, the number of options expected to ultimately
vest, and the timing of vesting for the Companys share-based awards. The following table
sets forth the total stock-based compensation expense resulting from stock options included in the Companys condensed consolidated
statements of operations and comprehensive loss (in thousands):
Three months ended Six months ended
(in thousands) June 30, June 30,
2015 2014 2015 2014
General and administrative $ 600 $ 819 $ 1,107 $ 1,346
Clinical, regulatory and research and development 120 37 223 78
Sales and marketing 450 231 901 476
Stock-based compensation expense before income taxes $ 1,170 $ 1,087 $ 2,231 $ 1,900 (d) Employee Stock Purchase Plan In July 2014, the
Companys Board of Directors adopted the 2014 Employee Stock Purchase Plan, or the ESPP, which was approved by the Companys
stockholders in June 2014 at the Companys Annual Meeting of Stockholders. A total of 671,500 shares of the Companys
common stock are reserved for issuance under the plan, which permits eligible employees to purchase common stock at a discount
through payroll deductions. The price at which
stock is purchased under the ESPP is equal to 90% of the fair market value of the common stock on the first or the last day of
the offering period, whichever is lower. Generally, each offering under the ESPP will be for a period of six months as determined
by the Companys Board of Directors. Employees may invest up to 20% of their gross compensation through payroll deductions.
In no event may an employee invest more than $25,000 worth of stock in the plan during each calendar year or more than 5,000 shares
per offering period. During the six months ended June 30, 2015, the Company received employee contributions totaling $105,000 and
issued 54,211 shares of common stock. As the ESPP is a
compensatory plan as defined by the authoritative guidance for stock compensation, stock-based compensation expense of $20,000
and $39,000 is applicable to the three months and six months ended June 30, 2015, respectively. The fair value of each purchase
option under the ESPP is estimated at the beginning of each six-month offering period using the Black-Scholes model with the following
weighted-average assumptions.
Volatility 73.8 %
Expected life 0.5 years
Risk-free interest rate 0.13 %
Dividend yield 0 % (e) Warrants On June 13, 2011,
the Company issued shares of its common stock as well as warrants (Financing Warrants) to purchase 109,375 shares
of its common stock in consideration of conversion and retirement of the Companys outstanding July and August 2009 debt
obligations. The exercise price of the Financing Warrants is $1.60 per common share representing the price per share equal to the
closing bid price per share of the Companys common stock on the NASDAQ stock market on July 15, 2009. There were 74,063
of these warrants outstanding at June 30, 2015 and December 31, 2014. On June 30, 2011,
the Company closed a private placement financing in which 3,846,154 shares of common stock and warrants (2011 Warrants)
to purchase 3,846,154 shares of common stock for gross proceeds of approximately $7,000,000 were issued. The investors purchased
the shares and warrants for $1.82 per unit (each unit consisting of one share and one warrant to purchase shares of common stock).
The exercise price of the warrants is $1.86 per share. The warrants are exercisable at any time from the date of issuance until
June 30, 2016. The Companys estimated the fair value of the warrants at the date of issuance using the Black Scholes option
model with a 101% volatility, 5.0 years expected life and a risk-free interest rate of 1.76%. The fair value of $5,518,000 was
classified as a current liability as the Company determined that these warrants do not meet the criteria for classification as
equity. The Company accounts
for the 2011 Warrants in accordance with applicable guidance to derivatives. The Company determined that the 2011 Warrants do not
meet the criteria for classification as equity. Accordingly, the Company classified the 2011 Warrants as current liabilities at
June 30, 2015. The
Company initially allocated the total proceeds received, pursuant to the Securities Purchase Agreement, to the shares of common
stock and warrants issued based on their relative fair values. This resulted in an allocation of $3,012,000 of proceeds to warrant
liability. The Company remeasures the fair value of the warrants at the end of each reporting period, resulting in an adjustment
to the warrant obligations, with any gain or loss recorded in earnings of the applicable reporting period. The estimated fair
value of the 2011 Warrants at June 30, 2015 was determined using the Black-Scholes option-pricing model with the following assumptions:
Volatility 72.5 %
Expected life of Warrants 1.0 years
Risk-free interest rate 0.28 %
Dividend yield 0 % The
fair value of the 2011 warrants is highly sensitive to the changes in the Companys stock price and stock price volatility. During
the three and six months ended June 30, 2014 certain holders of 2011 Warrants exercised 0 and 304,945 warrants, respectively. The
Company received $0 in proceeds from the cashless exercises during the six month period ended June 30, 2014. The Company is required
to record the outstanding warrants at fair value at the time of exercise, before moving the fair value into additional paid-in
capital, resulting in an adjustment to the warrant obligations, with any gain or loss recorded in earnings of the applicable reporting
period. The Company, therefore, estimated the fair value of the exercised 2011 Warrants in the first quarter of 2014 at their respective
exercise dates to be $2,616,000, an increase in value of $263,000 from the previous value at December 31, 2013. This increase was
recorded as an expense in other income (expense) in the condensed consolidated statement of operations and comprehensive loss for
the three and six months ended June 30, 2014. The
Company recorded the outstanding warrants at fair value at the end of each reporting period, resulting in an adjustment to the
warrant obligations, with any gain or loss recorded in earnings of the applicable reporting period. The Company estimated the fair
value of the remaining warrants as of June 30, 2015 to be $139,000, a decrease of $4,000 and $116,000 from the previous values
at March 31, 2015 and December 31, 2014, respectively. These amounts were recorded as income to other income (expense) in the condensed
consolidated statement of operations and comprehensive loss for the three and six months ended June 30, 2015. No warrants have
been exercised to date in 2015. The following table
provides activity for the warrants outstanding through June 30, 2015 (in thousands, except weighted average exercise prices):
Number of
warrants Weighted average
outstanding exercise price
Outstanding, December 2013 599 $ 1.83
Exercised (305 ) 1.86
Expired - -
Outstanding, June 30, 2014 294 1.79
Exercised - -
Expired - -
Outstanding, June 30, 2015 294 $ 1.79 (f) Exchange Right In August 2014,
the Company sold membership units in OcuHub LLC, a Delaware limited liability company and a wholly owned subsidiary of TearLab
Corporation. The membership units sold generated cash proceeds of $250,000 in exchange for 2% ownership of OcuHub LLC. In connection
with the sale of the membership units, the new members received an exchange right allowing the units to be exchanged upon written
notice and during a specified exchange window for shares in our common stock. The first available exchange window follows the
one year anniversary date of the purchase of membership units. The variable number of shares of common stock provided upon exchange
is equal to the initial capital contribution amount received for the membership units sold divided by the closing sales price
of TearLab Corporation common stock during the respective exchange window. Due to the exchange right option available to the membership
unit holders, the entire loss from continuing operations related to OcuHub LLC of $984,000 and $1,771,000 for the three months
and six months ended June 30, 2015, respectively, has been attributed to TearLab Corporation within the consolidated financial
statements. |
