| Stockholders' Equity | 7. 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) Stock Incentive Plan The Company has
a stock incentive plan, the 2002 Stock Incentive Plan (the Stock Incentive Plan), under which up to 6,200,000 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 incentive
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 vesting 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 and the employee stock purchase plan included
in the Companys condensed consolidated statements of operations and comprehensive loss (in thousands):
Three months ended
March 31,
2016 2015
Sales and marketing $ 136 $ 504
Clinical, regulatory and research and development 83 99
General and administrative 495 458
Stock-based compensation expense before income taxes $ 714 $ 1,061 (c) Employee Stock Purchase Plan In July 2014, the
Companys Board of Directors adopted the 2014 Employee Stock Purchase Plan (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 worth of stock in the plan during each calendar year or more than 5,000 shares
per offering period. During the three months ended March 31, 2016 and 2015, the Company recorded $3 and $19 of expense, respectively,
under the ESPP. During the three months ended March 31, 2016, the Company issued 67,743 shares of common stock under the ESPP. (d) Warrants On June 13, 2011,
the Company issued 1,629,539 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.
No Financing Warrants were exercised during the three months ended March 31, 2016 or 2015. 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. The exercise price of the warrants is
$1.86 per share. The warrants are exercisable until June 30, 2016. The Company estimated the fair value of the warrants at the
date of issuance using the Black-Scholes Merton option pricing model with a 101% volatility, 5.0 years expected life and a risk-free
interest rate of 1.76%. The 2011 Warrants are recorded as a liability on the Companys balance sheet and remeasured each
period using the Black-Scholes Merton option-pricing model. There were no exercises of 2011 Warrants during the three months ended
March 31, 2016 or 2015. There were 219,604 of the 2011 Warrants outstanding as of March 31, 2016 and December 31, 2015 with a value
of $2 and $29, respectively. Changes in the fair value of the 2011 Warrants outstanding were presented as Changes in fair value
of warrant obligations in the Consolidated Statements of Operations and Comprehensive Loss. The estimated fair
value of the 2011 Warrants at March 31, 2016 was determined using the Black-Scholes option-pricing model with the following assumptions:
Volatility 122 %
Expected life of Warrants 0.25 years
Risk-free interest rate 0.21 %
Dividend yield 0 % In October 2015,
as part of the second amendment to the Term Loan Agreement and funding of the $10,000 tranche, CRG received warrants to purchase
350,000 common shares in the Company at a price of $5.00 per share (the CRG Warrants). The CRG Warrants are exercisable
any time prior to October 6, 2020. The CRG Warrants are classified as equity on the Consolidated Balance Sheets as of December
31, 2015 and March 31, 2016. The CRG Warrants were valued at issuance using the Black-Scholes Merton model assuming volatility
of 73%, an expected life of 5.0 years, a risk-free interest rate of 1.71%, and 0% dividend yield. No CRG Warrants were exercised
during the three months ended March 31, 2016. On April 8, 2016, the Company amended its Term Loan Agreement. As part of the amendment,
the term of the CRG Warrants were changed to allow the holder to purchase 350,000 common shares in the Company at a price of $1.50
per share. (e) 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 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 the
Companys common stock. On March 31, 2016, the members exchanged the ownership interest in OcuHub LLC for 385,800 shares
of the Companys common stock. |
