| Stockholders' Equity | 6. STOCKHOLDERS’ EQUITY (a) Authorized share capital On June 24, 2016,
the Company’s stockholders approved an amendment to the Company’s certificate of incorporation to increase the total
number of authorized shares of common stock of the Company to 95,000,000 from 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 and preferred shares On May 9, 2016 the
Company issued 18,610,900 shares of common stock, 3,291.8 shares of Series A Convertible Preferred Stock (“Preferred Stock”)
and Series A warrants to purchase 11,500,000 shares of common stock (“Series A Warrants”) for gross proceeds of $17,250,
less issuance costs of $1,793. The Preferred Stock is convertible, subject to certain limitations, into an aggregate of 4,389,100
shares of common stock, contains no voting rights, participates in any common stock dividends, and is treated as if converted upon
any ordinary liquidation event. The common stock, the Series A Convertible Preferred Stock, and the Series A Warrants are all included
in equity in the Company’s Condensed Consolidated Balance Sheets as of September 30, 2016. The net proceeds were allocated
to common stock, Preferred Stock, and Series A Warrants based on their relative fair values, as follows:
Common stock $ 9,632
Preferred stock 2,275
Series A warrants 3,550
Net proceeds $ 15,457 On August 2, 2016,
527.5 shares of Series A Convertible Preferred stock were converted into 703,334 shares of commons stock. (c) Stock incentive plan The Company has
a stock incentive plan, the 2002 Stock Incentive Plan (the “Stock Incentive Plan”), under which 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 Company’s 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 Company’s
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 Company’s 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 Company’s condensed consolidated statements of operations and comprehensive loss (in thousands):
Three months ended Nine months ended
September 30, September 30,
2016 2015 2016 2015
Sales and marketing $ 196 $ 412 $ 617 $ 1,311
Clinical, regulatory and research and development 50 99 279 320
General and administrative 333 476 1,207 1,587
Stock-based compensation expense before income taxes $ 579 $ 987 $ 2,103 $ 3,218 (d) Employee Stock Purchase Plan In July 2014, the
Company’s Board of Directors adopted the 2014 Employee Stock Purchase Plan (the “ESPP”) which was approved by
the Company’s stockholders in June 2014 at the Company’s Annual Meeting of Stockholders. A total of 671,500 shares
of the Company’s 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 Company’s Board of Directors. Employees may invest up to 20% of their gross compensation through payroll deductions.
In no event may an employee purchase more than $25 worth of stock in the plan during each calendar year or purchase more than 5,000
shares per offering period. During the three months ended September 30, 2016 and 2015, the Company recorded $2 and $27 of expense,
respectively, under the ESPP. During the nine months ended September 30, 2016 and 2015, the Company recorded $8 and $66 of expense,
respectively, under the ESPP. During the nine months ended September 30, 2016 and 2015, the Company issued 141,052 and 54,211 shares
of common stock, respectively, under the ESPP. (e) Warrants 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 was
$1.86 per share. The 2011 Warrants expired on June 30, 2016. There were 219,604 of the 2011 Warrants that expired unexercised.
Prior to their expiration, the 2011 Warrants were recorded as a liability on the Company’s balance sheet and remeasured each
period using the Black-Scholes Merton option-pricing model. There were no exercises of 2011 Warrants during the nine months ended
September 30, 2016 or 2015. The liability for the 2011 Warrants outstanding as of December 31, 2015 had a value of $29. The value
of the 2011 Warrants outstanding as of December 31, 2015 was recorded as a Change in fair value of warrant obligations in the Consolidated
Statements of Operations and Comprehensive Loss during the nine months ended September 30, 2016, reflecting the expiration of the
instruments and the associated liability. On October 8, 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 8, 2020. The CRG Warrants are classified as equity on the Consolidated Balance Sheets as of December 31,
2015 and September 30, 2016. The CRG Warrants were valued at $290 upon 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 nine months ended September 30, 2016. On April 8, 2016, the
Company further amended its Term Loan Agreement. As part of the amendment, the exercise price of the CRG Warrants was changed to
allow the holder to purchase 350,000 common shares in the Company at a price of $1.50 per share and CRG was issued an additional
350,000 warrants to purchase common shares at an exercise price of $1.50 (the “2016 CRG Warrants”). The modification
to the terms of the CRG Warrants resulted in a change in fair value of $54 which was included as interest expense for the nine
months ended September 30, 2016. The change in fair value was calculated using the Black-Scholes Merton model with both exercise
prices, assuming volatility of 76%, an expected life of 4.5 years, a risk-free interest rate of 1.06%, and 0% dividend yield. The
2016 CRG Warrants were valued at $106 upon issuance using the Black-Scholes Merton model assuming volatility of 76%, an expected
life of 5.0 years, a risk-free interest rate of 1.30% and 0% dividend yield. On May 9, 2016, the Company
issued Series A Warrants to purchase 11,500,000 shares of common stock for $1.125 per common share attached to shares of common
and Series A Convertible Preferred Stock issued on the same date. The Series A Warrants can be exercised after May 9, 2017 (the
“Initial Exercise Date”) and expire 5 years after the Initial Exercise Date. Fair value of the Series A Warrants, for
purposes of allocating the net proceeds of the equity offering, was determined using the Black-Scholes Merton model assuming volatility
of 76%, an expected life of 6.0 years, a risk-free interest rate of 1.30%, and 0% dividend yield. (e) Exchange Right In August 2014, the Company
sold membership units in OcuHub LLC, a Delaware limited liability company, which was a wholly owned subsidiary of TearLab Corporation
at the time, 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 Company’s common stock. On March 31, 2016, the members exchanged the ownership interest in OcuHub LLC for 385,800
shares of the Company’s common stock. |
