0001493152-19-006795.txt : 20190510 0001493152-19-006795.hdr.sgml : 20190510 20190510160140 ACCESSION NUMBER: 0001493152-19-006795 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 62 CONFORMED PERIOD OF REPORT: 20190331 FILED AS OF DATE: 20190510 DATE AS OF CHANGE: 20190510 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TearLab Corp CENTRAL INDEX KEY: 0001299139 STANDARD INDUSTRIAL CLASSIFICATION: SURGICAL & MEDICAL INSTRUMENTS & APPARATUS [3841] IRS NUMBER: 593434771 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-51030 FILM NUMBER: 19814775 BUSINESS ADDRESS: STREET 1: 9980 HUENNEKENS ST. STREET 2: SUITE 100 CITY: SAN DIEGO STATE: CA ZIP: 92121 BUSINESS PHONE: 858-794-1400 MAIL ADDRESS: STREET 1: 9980 HUENNEKENS ST. STREET 2: SUITE 100 CITY: SAN DIEGO STATE: CA ZIP: 92121 FORMER COMPANY: FORMER CONFORMED NAME: OccuLogix, Inc. DATE OF NAME CHANGE: 20040730 10-Q 1 form10-q.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended: March 31, 2019

 

[  ] 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: 000-51030

 

TearLab Corporation

(Exact name of registrant as

specified in its charter)

 

Delaware   59 343 4771

(State or other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

150 LaTerraza Blvd., Suite 101

Escondido, California

  92025
(Address of principal executive offices)   (Zip Code)

 

Registrant’s telephone number, including area code: (858) 455-6006

 

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 [X] The registrant’s is not required to file Exchange Act reports by Section 13 or 15(d) but the registrant has voluntarily filed all Exchange Act reports as if it were required to do so.

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).

Yes [X] No [  ]

 

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

 

Large accelerated filer [  ] Accelerated filer [  ]
   
Non-accelerated filer [X] Smaller reporting company [X]
   
Emerging growth company [  ]  

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes [  ] No [X]

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
Common   TEAR   OTCQB

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 12,196,998 as of May 3, 2019.

 

 

 

   
 

 

    Page
     
PART I. FINANCIAL INFORMATION  
     
Item 1. Financial Statements (Unaudited) 4
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 20
Item 3. Quantitative and Qualitative Disclosures about Market Risk 28
Item 4. Controls and Procedures 28
     
PART II. OTHER INFORMATION  
     
Item 1. Legal Proceedings 29
Item 1A. Risk Factors 30
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 42
Item 3. Defaults Upon Senior Securities 42
Item 4. Mine Safety Disclosures 42
Item 5. Other Information 42
Item 6. Exhibits 42

 

 2 
 

 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q contains forward-looking statements relating to future events and our future performance within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “could,” “would,” “expects,” “plans,” “intends,” “anticipates,” “believes,” “estimates,” “projects,” “predicts,” “pursue,” “potential” and similar expressions intended to identify forward-looking statements. These forward-looking statements include, without limitation, statements relating to future events, future results, and future economic conditions in general and statements about:

 

Our ability to continue as a going concern;
The adequacy of our funding and our forecast of the period of time through which our financial resources will be adequate to support our operations;
Our future strategy, structure, and business prospects and the ability to identify and execute any strategic alternatives;
Our ability to obtain additional financing for working capital on acceptable terms and in a timely manner while our common stock is traded on the OTCQB market;
The planned continued commercialization of our current product;
Our ability to expand into next generation products, including our expectations regarding the resubmission of our 510(k) application and the timeline for commencing commercial sales of the TearLab DiscoveryTM Platform;
Our ability to meet the financial covenants under our credit facilities;
Use of cash, cash needs and ability to raise capital;
The size and growth of the potential markets for our product and technology;
The effect of our strategy to streamline our organization and lower our costs, including the impact of our new business model adopted in December 2017;
The adequacy of current, and the development of new distributor, reseller, and supplier relationships, and our efforts to expand relationships with distributors and resellers in additional countries;
Our anticipated expansion of United States and international sales and operations;
Our ability to obtain and protect our intellectual property and proprietary rights;
The results of our clinical trials;
Our ability to maintain reimbursement for our product and support our pricing strategies;
Our ability to execute our marketing strategy to ensure visibility and evidence-based positioning of the TearLab® Osmolarity System among eye care professionals given our reduced commercial resources;
Our ability to attract and retain a sufficient number of scientists, clinicians, sales personnel and other key personnel with extensive experience in medical technology, who are in short supply;
Our beliefs about our employee relations;
Our efforts to assist our customers in obtaining their CLIA waiver or providing them with support from certified professionals; and
The impact of our delisting from the NASDAQ Capital Market and our common stock being traded on the OTCQB.

 

These statements involve known and unknown risks, uncertainties and other factors, including the risks described in Part II, Item 1A. of this Quarterly Report on Form 10-Q, which may cause our actual results, performance or achievements to be materially different from any future results, performances, time frames or achievements expressed or implied by the forward-looking statements. Given these risks, uncertainties and other factors, you should not place undue reliance on these forward-looking statements. Information regarding market and industry statistics contained in this Quarterly Report on Form 10-Q is included based on information available to us that we believe is accurate. It is generally based on academic and other publications that are not produced for purposes of securities offerings or economic analysis. We have not reviewed or included data from all sources and cannot assure you of the accuracy of the market and industry data we have included.

 

Unless the context indicates or requires otherwise, in this Quarterly Report on Form 10-Q, references to the “Company” shall mean TearLab Corporation or TearLab Corp. and its subsidiaries. References to “$” or “dollars” shall mean U.S. dollars unless otherwise indicated.

 

 3 
 

 

TearLab Corporation

 

PART I. FINANCIAL INFORMATION
   
ITEM 1. FINANCIAL STATEMENTS (Unaudited)

 

CONDENSED CONSOLIDATED BALANCE SHEETS

(expressed in thousands of U.S. dollars except number of shares)

(Unaudited)

 

   March 31, 2019   December 31, 2018 
         
ASSETS          
Current assets          
Cash  $8,860   $8,473 
Accounts receivable, net   1,098    1,186 
Inventory   2,207    1,987 
Prepaid expenses and other current assets   632    690 
Total current assets   12,797    12,336 
           
Fixed assets, net   1,797    2,024 
Intangible assets, net   2    2 
Right of Use assets   738    - 
Other non-current assets   150    151 
Total assets  $15,484   $14,513 
           
LIABILITIES AND STOCKHOLDERS’ DEFICIT          
Current liabilities          
Accounts payable  $1,319   $681 
Accrued liabilities   1,920    2,363 
Deferred revenue/rent   7    13 
Current portion of long-term debt   7,981    - 
Current portion of lease liability   221    - 
Total current liabilities   11,448    3,057 
           
Long-term debt, net of current portion   25,381    32,014 
Long-term lease liability, net of current portion   518    - 
Long-term third party payable   113    111 
Total liabilities   37,460    35,182 
           
Commitments and contingencies (Note 8)          
           
Stockholders’ deficit          
Capital stock          
Preferred Stock, $0.001 par value, 10,000,000 shares authorized, 380 and 556 issued and outstanding at March 31, 2019 and December 31, 2018, respectively   -    - 
Common stock, $0.001 par value, 40,000,000 shares authorized, 11,696,998 and 11,296,998 issued and outstanding at March 31, 2019 and December 31, 2018, respectively   12    11 
Additional paid-in capital   510,411    510,380 
Accumulated deficit   (532,399)   (531,060)
Total stockholders’ deficit   (21,976)   (20,669)
Total liabilities and stockholders’ deficit  $15,484   $14,513 

 

See accompanying notes to interim condensed consolidated financial statements

 

 4 
 

 

TearLab Corporation

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(expressed in thousands of U.S. dollars except shares and per share amounts)

(Unaudited)

 

   Three months ended 
   March 31, 
   2019   2018 
         
Revenue          
Product sales  $4,996   $5,775 
Reader equipment rentals   687    671 
Total revenue   5,683    6,446 
Cost of goods sold          
Cost of goods sold (excluding amortization of intangible assets)   1,930    1,836 
Cost of goods sold - reader equipment depreciation   153    288 
Gross profit   3,600    4,322 
Operating expenses          
Sales and marketing   875    1,020 
Clinical, regulatory and research & development   874    1,041 
General and administrative   1,844    2,044 
Total operating expenses   3,593    4,105 
Income from operations   7    217 
Other income (expense)          
Interest income (expense)   (1,350)   (1,105)
Other, net   4    5 
Total other income (expense)   (1,346)   (1,100)
Net loss and comprehensive loss  $(1,339)  $(883)
Weighted average shares outstanding - basic and fully diluted   11,559,220    9,562,122 
Net loss per share  $(0.12)  $(0.09)

 

See accompanying notes to interim condensed consolidated financial statements

 

 5 
 

 

TearLab Corporation

 

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

(in thousands, except share data)

 

    Common stock     Series A
Convertible
Preferred stock
    Additional paid-in     Accumulated     Stockholders’  
  Shares     Amount     Shares     Amount     Capital     Deficit     Deficit  
For the three months ended March 31, 2019                                                        
Balance, January 1, 2019     11,296,998     $        11       556     $           -     $ 510,380     $ (531,060 )   $ (20,669 )
Series A Convertible Preferred stock converted to common     400,000       1       (176 )     -       -       -       1  
Stock-based compensation     -       -       -       -       31       -       31  
Net loss and comprehensive loss     -       -       -       -       -       (1,339 )     (1,339 )
Balance, March 31, 2019     11,696,998     $ 12       380     $ -     $ 510,411     $ (532,399 )   $ (21,976 )
                                                         
For the three months ended March 31, 2018                                                        
Balance, January 1, 2018     7,986,998     $ 8       2,012     $ -     $ 510,235     $ (528,809 )   $ (18,566 )
Series A Convertible Preferred stock converted to common     2,452,000       2       (1,078 )     -       (2)       -       -  
Stock-based compensation     -       -       -       -       8       -       8  
Common Stock Warrants issued     -       -       -       -       (3 )             (3 )
Net loss and comprehensive loss     -       -       -       -       -       (883 )     (883 )
Balance, March 31, 2018     10,438,998     $ 10       934     $ -     $ 510,238     $ (529,692 )   $ (19,444 )

 

See accompanying notes to consolidated financial statements

 

 6 
 

 

TearLab Corporation

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(expressed in thousands of U.S. dollars)

(Unaudited)

 

   Three months ended 
   March 31, 
   2019   2018 
         
OPERATING ACTIVITIES          
Net loss for the period  $(1,339)  $(883)
Adjustments to reconcile net loss to cash used in operating activities:          
Stock-based compensation   31    8 
Depreciation of fixed assets   221    353 
Amortization of intangible assets   -    3 
Deferred interest on long-term debt   1,007    914 
Amortization of debt discount   343    193 
Loss on disposal of equipment   17    - 
Changes in operating assets and liabilities:          
Accounts receivable, net   88    84 
Inventory   (220)   314 
Prepaid expenses and other assets   59    111 
Accounts payable   638    (647)
Accrued liabilities   (443)   (210)
Deferred rent/revenue   (4)   (8)
Cash provided by operating activities   398    232 
           
INVESTING ACTIVITIES          
Additions to fixed assets   (11)   (73)
Cash used in investing activities   (11)   (73)
           
FINANCING ACTIVITIES          
Cash provided by financing activities   -    - 
           
Increase in cash during the period   387    159 
Cash, beginning of period   8,473    7,272 
Cash, end of period  $8,860   $7,431 
           
Supplemental cash flow information          
Right-of-use assets acquired through operating leases  $801   $- 
Cash paid for operating leases   88      

 

See accompanying notes to interim condensed consolidated financial statements

 

 7 
 

 

TearLab Corporation

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(expressed in thousands of U.S. dollars except as otherwise stated)

(Unaudited)

 

1. BASIS OF PRESENTATION

 

Nature of Operations

 

TearLab Corporation (“TearLab” or the “Company”), a Delaware corporation, is an ophthalmic device company that is commercializing a proprietary in vitro diagnostic tear testing platform, the TearLab® Osmolarity System to test for dry eye disease, or DED, which enables eye care practitioners to test for highly sensitive and specific biomarkers using nanoliters of tear film at the point-of-care.

 

The accompanying condensed consolidated financial statements include the accounts of the Company and all of its wholly owned subsidiaries. Intercompany accounts and transactions have been eliminated on consolidation.

 

Liquidity and Going Concern

 

The accompanying condensed consolidated financial statements have been prepared on the going concern basis, which assumes that the Company will continue to operate as a going concern and which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The Company has sustained substantial losses of $1,339 and $883 for the three months ended March 31, 2019 and 2018, respectively. Based on the Company’s expected rate of cash consumption in the latter quarters of 2019, the Company estimates it will need additional capital in the first quarter of 2020 and its prospects for obtaining that capital are uncertain. The Company may be able to raise either additional debt financing or additional equity financing. However, the Company can make no assurances that it will be able to raise the required additional capital, either through debt or equity financing, on acceptable terms or at all. Unless the Company succeeds in raising additional capital or successfully increases cash generated from operations, the Company anticipates that it will be unable to continue operations through the end of the first quarter of 2020 without violating an existing covenant on the Term Loan Agreement, including the inability to make our debt payment due within twelve months (see Note 5). As a result of the Company’s historical losses and financial condition, there is substantial doubt about the Company’s ability to continue as a going concern.

 

2. SIGNIFICANT ACCOUNTING POLICIES

 

The Condensed Consolidated Balance Sheet at December 31, 2018 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States (“U.S. GAAP”) for complete financial statements. These unaudited interim condensed consolidated financial statements have been prepared using significant accounting policies that are consistent with the policies used in preparing the Company’s audited consolidated financial statements for the year ended December 31, 2018. The audited financial statements for the year ended December 31, 2018, filed with the SEC with the Company’s annual report on Form 10-K on March 22, 2019 include a summary of significant accounting policies and should be read in conjunction with this Form 10-Q. Management believes that all adjustments necessary for the fair presentation of results, consisting of normal recurring items, have been included in the unaudited condensed consolidated financial statements for the interim periods presented.

 

 8 
 

 

TearLab Corporation

 

Use of Estimates

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. The principal areas of judgment relate to revenue and inventory reserves, allowance for doubtful accounts, impairment of long-lived and intangible assets, and the fair value of stock options and warrants.

 

Revenue Recognition

 

Revenue is recognized when obligations under the terms of a contract with our customer are satisfied; generally, this occurs with the transfer of control of our products or services. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services which includes estimates of variable consideration that results from returns, rebates or test card replacements. The Company records allowances for returns or rebates and reports revenue net of such amounts, which was immaterial for the three months ended March 31, 2019 and 2018, respectively. Sales and other taxes we collect concurrent with revenue-producing activities are excluded from revenue. The Company’s payment terms are typically upon shipment or net 30.

 

The Company sells its proprietary TearLab® Osmolality System and related test cards to external customers, who are primarily eye care professionals, for use in osmolality testing procedures. Revenue is primarily derived from the sale of disposable test cards. Products are generally shipped from a distribution and warehousing facility located in San Diego, California. The Company’s sales are currently direct to customers in the United States and to distributors in the rest of the world.

 

The Company enters into contracts where revenue is derived either from agreements whereby the customer is provided the right to use the TearLab® Osmolarity System (reader equipment) at no separate cost to the customer in consideration for a minimum or implied purchase commitment of disposable test cards over the related contract term (referred to as either “Use Agreements”, “Masters Agreements” or “Flex Agreements”), or from agreements to sell the reader equipment and disposable test cards at their stand-alone selling price with no contractual future purchase commitment (referred to as “Purchase Agreements”).

 

Use, Masters, and Flex Agreements

 

Purchase commitments for Use Agreements and Flex Agreements are expressed in the agreement for a specified period of time (generally one to three years). The purchase commitment for Masters Agreements is implied for large physician practices with an expectation of purchasing certain levels of test cards. The Company recovers the cost of providing the reader equipment in the amount charged for disposable test cards. Two performance obligations exist under these contracts, related to the customers’ right to use the reader equipment and orders of test cards. As the customer has the ability and right to operate the reader equipment in a manner it determines as well as obtain the output from using the reader equipment, the revenue related to the reader equipment use performance obligation is recognized in accordance with ASC 842 – Leases, wherein revenue related to the reader equipment is recognized over the defined contract term. Revenue related to disposable test cards is recognized as the disposable test cards are shipped. Based on the nature of these contracts, which provide terms for the future purchase of test cards but do not contractually obligate the customer to do so, each purchase of test cards is treated as its own distinct contract with a performance obligation to provide the test cards ordered, memorialized by the customers’ purchase order/request. Revenue under such agreements is allocated between the lease of the reader equipment and the sale of the disposables based upon each component’s relative standalone selling price, which is estimated using the selling prices of the reader device and test cards under Purchase Agreements, discussed further below.

 

When reader equipment is placed with a customer at no separate cost, the Company retains title to the equipment and it remains capitalized on the Company’s Consolidated Balance Sheet as equipment classified within fixed assets, net. The equipment is depreciated on a straight-line basis once shipped to a customer location over its estimated useful life and depreciation expense is included in cost of goods sold within the Condensed Consolidated Statements of Operations and Comprehensive Loss.

 

Purchase Agreements

 

Revenue recognition for Purchase Agreements is based on the individual performance obligations determined to exist in the contract. Since the reader equipment and the test cards are separate and distinct delivered items, the delivery of each are considered separate performance obligations. The reader equipment and test cards are separately identified under the Purchase Agreements and are sold at their standalone selling price. The Company recognizes revenue for each of the performance obligations only when it determines that all applicable recognition criteria have been met, which is usually upon shipment to the customer. Under Purchase Agreements, the customer is not contractually obligated to purchase additional test cards, and each subsequent order of test cards represents a separate and distinct contract with the performance obligation to provide the test cards ordered.

 

Amounts billed to customers for shipping and handling of a sales transaction are included as revenue. For the three months ended March 31, 2019 and 2018, the Company recognized revenue from shipping and handling of $33 and $39, respectively.

 

 9 
 

 

TearLab Corporation

 

The following table presents our revenues disaggregated by revenue source. Sales and usage-based taxes are excluded from revenues:

 

   Three months ended March 31, 
   2019   2018 
         
Product Sales  $4,996   $5,775 
Reader Equipment Rentals   687    671 
   $5,683   $6,446 

 

Arrangements with Multiple Performance Obligations

 

Our contracts with customers may include multiple performance obligations. For such arrangements, we allocate revenue to each performance obligation based on its relative standalone selling price. We generally determine standalone selling prices based on the separate prices charged to customers for the reader device and test cards under Purchase Agreements.

 

Return Reserve

 

Although the Company has a no return policy for its products, the Company has established a return reserve for product sales that contain an implicit right of return. The Company reserves for estimated returns or refunds by reducing revenue at the time of shipment based on historical experience. The reserve of $6 as of March 31, 2019 and December 31, 2018, respectively, has been recorded as a reduction of revenue and is included in accounts receivable.

 

Practical Expedients and Exemptions

 

We generally expense outside sales commissions when incurred because the amortization period would have been one year or less. These costs are recorded within sales and marketing expenses.

 

We do not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed.

 

Leases

 

On January 1, 2019, the Company adopted the Financial Accounting Standards Board (‘FASB’) Accounting Standards Update (‘ASU’) 2016-02, Leases, which requires the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous guidance. The original guidance required application on a modified retrospective basis with the earliest period presented. In August 2018, the FASB issued ASU 2018-11, Targeted Improvements to ASC 842, which included an option to not restate comparative periods in transition and elect to use the effective date of ASC 842, Leases, as the date of initial application of transition, which the Company elected. Lease arrangements are determined at the inception of the contract with and included in right-of-use (“ROU”) assets and long-term lease liabilities on the consolidated balance sheets. The adoption of ASC 842 had an immaterial impact on our Condensed Consolidated Statement of Operations and Comprehensive Loss and Condensed Consolidated Statement of Cash Flows for the three-month period ended March 31, 2019. Additionally, the Company has elected the package practical expedient with respect to lease definition, classification and direct costs. In addition, the Company elected not to apply ASC Topic 842 to arrangements with lease terms of 12 month or less. Additional information and disclosures required by the new standard are contained in Note 8.

 

Recent accounting pronouncements

 

In June 2018, the FASB issued Accounting Standards Update (“ASU”) No. 2018-07, “Compensation – Stock Compensation (Topic 718).” ASU 2018-07 simplifies the accounting for nonemployee share-based payment transactions. This ASU is effective for public entities for interim and annual reporting periods beginning after December 15, 2018. The Company adopted ASU 2018-07 effective January 1, 2019 with an immaterial impact to our financial statements.

 

 10 
 

 

TearLab Corporation

 

3. BALANCE SHEET DETAILS

 

Accounts receivable

 

   March 31, 2019   December 31, 2018 
         
Trade receivables  $1,207   $1,324 
Allowance for doubtful accounts   (109)   (138)
   $1,098   $1,186 

 

Inventory

 

Inventory is recorded at the lower of cost and net realizable value on a first-in, first-out basis and consists of finished goods.

 

   March 31, 2019   December 31, 2018 
         
Finished goods  $2,207   $1,987 
Inventory reserves   -    - 
   $2,207   $1,987 

 

The Company evaluates inventory for estimated excess quantities and obsolescence, based on expected future sales levels and projections of future demand, and establishes inventory reserves for obsolete and excess inventories. In addition, the Company assesses the impact of changing technology and market conditions. The Company has entered into a long-term purchase commitment to buy the test cards from MiniFAB (Note 8). As part of its analysis of excess or obsolete inventories, the Company considers future annual minimum purchases, estimated future usage and the expiry dating of the cards to determine if any inventory reserve is needed.

 

Prepaid expenses and other current assets

 

    March 31, 2019     December 31, 2018  
Prepaid trade shows   $ 107     $ 18  
Prepaid insurance     249       322  
Manufacturing deposits     111       111  
Subscriptions     132       140  
Other fees and services     32       98  
Other current assets     1       1  
    $ 632     $ 690  

 

 11 
 

 

TearLab Corporation

 

Fixed assets

 

    March 31, 2019     December 31, 2018  
Capitalized TearLab equipment   $ 6,742     $ 6,922  
Manufacturing equipment     317       317  
Leasehold improvements     13       13  
Computer equipment and software     836       846  
Furniture and office equipment     368       368  
Medical equipment     1,429       1,366  
    $ 9,705     $ 9,832  
Less accumulated depreciation     (7,908 )     (7,808 )
    $ 1,797     $ 2,024  

 

Depreciation expense was $221 and $353 during the three months ended March 31, 2019 and 2018, respectively.

 

Accrued liabilities

 

   March 31, 2019   December 31, 2018 
Due to professionals  $17   $17 
Due to employees and directors   760    1,289 
Sales and use tax liabilities   268    257 
Royalty liability   263    290 
Warranty   58    74 
Other   554    436 
   $1,920   $2,363 

 

 12 
 

 

TearLab Corporation

 

4. INTANGIBLE ASSETS

 

The Company’s intangible assets consist of the value of TearLab® Technology acquired in the acquisition of TearLab Research, Inc., a wholly-owned subsidiary of the Company and a prescriber list. The TearLab Technology, which consists of a disposable lab card and card reader, supported by an array of patents and patent applications that are either held or in-licensed by the Company. Amortization expense for the three months ended March 31, 2019 and 2018 was $0.1 and $3, respectively.

 

Intangible assets subject to amortization consist of the following:

 

  

Remaining

Useful Life

   Gross Value at   Accumulated   Net Book Value at 
   (Years)   March 31, 2019   Amortization   March 31, 2019 
                 
TearLab® technology  0   $12,172   $(12,172)  $- 
Patents and trademarks  1    271    (269)   2 
Prescriber list  0    90    (90)   - 
Total      $12,533   $(12,531)  $2 

 

   Gross Value at   Accumulated   Net Book Value at 
   December 31, 2018   Amortization   December 31, 2018 
             
TearLab® technology  $12,172   $(12,172)  $          - 
Patents and trademarks   271    (269)   2 
Prescriber list   90    (90)   - 
Total  $12,533   $(12,531)  $2 

 

The estimated amortization expense for the intangible assets for the remainder of 2019 and thereafter is as follows:

 

   Amortization 
   of intangible 
   assets 
     
Remainder of 2019  $            1 
Thereafter   1 
   $2 

 

5. TERM LOAN

 

On March 4, 2015, the Company executed a term loan agreement (the “Term Loan Agreement”) with CRG LP and certain of its affiliate funds (“CRG”) as lenders providing the Company with access of up to $35,000 under the arrangement. The Company received $15,000 in gross proceeds under the arrangement on March 4, 2015, and an additional $10,000 on October 6, 2015. The Term Loan Agreement matures on December 31, 2020 and bears interest at 13% per annum, with quarterly payments of interest only for the first four years. While interest on the loan is accrued at 13% per annum, the Company may elect to make interest-only payments at 8.5% per annum. The unpaid interest of 4.5% is added to the principal of the loan and is subject to additional accrued interest (“PIK interest”). The accrued interest can be deferred and paid together with the principal in the fifth and sixth years.

 

As part of Amendment No. 2 to the Term Loan Agreement, and funding of the second tranche, CRG received 35,000 warrants dated as of October 6, 2015 to purchase common shares of the Company at a price of $50.00 per share (the “2015 CRG Warrants”). The 2015 CRG Warrants have a five-year life and are classified as equity on the Consolidated Balance Sheets as of March 31, 2019 and 2018. The 2015 CRG Warrants were valued at their issuance date using the Black-Scholes Merton model. The related reduction of the long-term debt will be amortized over the life of the debt. On April 7, 2016, the Company entered into Amendment No. 4 to the Term Loan Agreement and the company issued CRG additional warrants to purchase 35,000 common shares of the Company’s stock at $15.00 per share (the “2016 CRG Warrants” and together with the 2015 CRG Warrants, the “CRG Warrants”), which expire 5 years after issuance.

 

On October 12, 2017, the Company entered into Amendment No. 5 to the Term Loan Agreement. This amendment reduced the exercise price of all of the CRG Warrants from $15.00 per share to $1.50 per share and provided broad anti-dilution protection such that the CRG Warrants maintained the same 1.22% ownership following any capital raises the Company completed through March 31, 2018.

 

On April 4, 2018 with an effective date of March 31, 2018, the Company entered into Amendment No. 6 to the Term Loan Agreement. Pursuant to the terms of this amendment, the cash interest payments due in 2018 were deferred and added to the principal balance under the Loan Agreement at the end of each quarter. This amendment also provided for an additional facility fee equal to 3% of the sum of the aggregate amount of the principal drawn under the Term Loan Agreement and any PIK loans issued, so that the total facility fee shall be 9.5%, applicable to the entire balance (the “Facility Fee”). The Facility Fee is being accrued to interest expense using the effective interest method. In addition, this amendment reduced the minimum liquidity covenant to $3 million. Concurrent with the reduction of the liquidity covenant the Company agreed to repay CRG $1.0 million of principal on the Term Loan Agreement in April 2018. Lastly, this amendment reduced the strike price of the existing CRG Warrants to $0.44 per share (see Note 6). The Amendment was accounted for as a modification in accordance with U.S. GAAP.

 

On November 12, 2018 the Company entered into Amendment No. 7 to the Term Loan Agreement. Pursuant to the terms of the agreement, the Amendment extended the “Interest-Only Period” under the Term Loan Agreement from the sixteenth (16th) payment date to the twentieth (20th) payment date following the first borrowing date, which has the effect of pushing out the principal payments to 2020. In addition, the cash interest payments under the Term Loan Agreement for periods ending on March 31, 2019 and June 30, 2019 will be deferred and added to the principal balance under the Term Loan Agreement at the end of each such quarter. The Company evaluated the amendment and it was accounted for as a modification in accordance with GAAP, with no incremental expense incurred. Additionally, if the Federal Drug Administration (“FDA”) receives and accepts our application for review of our DiscoveryTM Platform on or before June 30, 2019 the Company may elect to pay the interest on the outstanding principal amount of the loans under the Term Loan Agreement payable during the quarter ended September 30, 2019 entirely in the form of a PIK Loan. Finally, the Amendment reduced the minimum required revenue for 2018 under the Term Loan Agreement from $25 million to $24 million.

 

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TearLab Corporation

 

The loan is collateralized by all assets of the Company. Additionally, the terms of the Term Loan Agreement contain various affirmative and negative covenants agreed to by the Company. Among them, the Company must attain minimum certain annual revenue and minimum cash threshold levels. The minimum revenue is $38,000 for 2019 and $45,000 for 2020.

 

If the Company does not have annual revenue greater or equal to the annual revenue covenant in a calendar year, the Company will have the right within 90 days of the end of the respective calendar year to raise subordinated debt or equity (the “CRG Equity Cure”) equal to twice the difference between the annual revenue and the revenue covenant, with the total proceeds from this financing to be used to reduce the principal of the Term Loan Agreement. In the event of a default, the Company may be required to repay any outstanding amounts earlier than anticipated, and CRG may foreclose on their security interest in the Company’s assets.

 

At March 31, 2019, the Company was in compliance with all of the covenants.

 

The Company incurred financing and legal fees associated with the debt of $606, which were recorded as a direct discount to the debt and are being amortized using the effective interest method. The Company presents the debt issuance costs related to the recognized debt liability on the Consolidated Balance Sheet as a reduction of the liability.

 

The Term Loan Agreement provided for prepayment fees of 5% of the outstanding balance of the loan if the loan was repaid prior to March 31, 2016. The prepayment fee is reduced 1% per year for each subsequent year until maturity.

 

The following is a summary of the Term Loan Agreement as of March 31, 2019 and related maturities of outstanding principal:

 

Principal balance outstanding  $24,000 
PIK interest   7,922 
Facility fee   1,738 
less discount on term loan:     
deferred financing fees, net   (148)
detachable warrants, net   (150)
   $33,362 
Less, current portion of Term loan   7,981 
Total Term Loan  $25,381 

 

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TearLab Corporation

 

Principal due for each of the next two years:

 

2019  - 
2020   33,660 
Total principal due   33,660 
Less: discount on term loan   (298)
Total term loan  $33,362 

 

6. STOCKHOLDERS’ EQUITY

 

(a) Authorized share capital

 

On October 12, 2017, the stockholders of the Company approved an amendment to the Company’s Amended and Restated Certificate of Incorporation to increase the number of authorized shares of common stock from 9,500,000 to 40,000,000. 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 December 8, 2017, the Company issued 2,013,636 shares of common stock, 2,114 shares of Series A Convertible Preferred Stock (“Preferred Stock”), Series A warrants to purchase 6,818,181 shares of common Stock (“Series A Warrants”) and Series B warrants to purchase 6,818,181 shares of common stock (“Series B Warrants”) for gross proceeds of $3,000, less issuance costs of $596. Additionally, the Company granted the placement agent compensation warrants to purchase 477,273 shares of common stock. The Preferred Stock is convertible, subject to certain limitations, into an aggregate of 4,804,545 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.

 

As of March 31, 2019, 1,734 shares of Series A Preferred Stock have been converted into 3,940,909 shares of common stock.

 

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TearLab Corporation

 

(c) Stock Incentive Plan

 

On June 23, 2017, the Company’s stockholders approved an amendment to the 2002 Stock Incentive Plan (the “Stock Incentive Plan”), to increase the total number of shares reserved for issuance to 1,070,000 from 720,000. Stock Incentive Plan shares are available for grant to employees, directors and consultants. Shares 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.

 

Share-based payment transactions with employees are recognized in the condensed consolidated 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 
   March 31, 
   2019   2018 
         
Sales and marketing  $8   $18 
Clinical, regulatory and research and development   4    8 
General and administrative   19    (18)
Stock-based compensation expense before income taxes  $31   $8 

 

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TearLab Corporation

 

(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 28,601 shares of the Company’s common stock were reserved for issuance under the plan, which permits eligible employees to purchase common stock at a discount through payroll deductions. In 2018 the Company’s Board of Directors terminated the ESPP.

 

(e) Warrants

 

On October 8, 2015, as part of Amendment No. 2 to the Term Loan Agreement and funding of the $10,000 tranche, CRG received warrants to purchase 35,000 common shares in the Company at a price of $50.00 per share (the “2015 CRG Warrants”). The 2015 CRG Warrants are exercisable any time prior to October 8, 2020. The 2015 CRG Warrants are classified as equity on the Condensed Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018. The 2015 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 three months ended March 31, 2019 or 2018.

 

On April 7, 2016, as part of Amendment No. 4 to the Term Loan Agreement, the exercise price of the 2015 CRG Warrants was changed to allow the holder to purchase 35,000 common shares in the Company at a price of $15.00 per share and CRG was issued an additional 35,000 warrants to purchase common shares at an exercise price of $15.00 (the “2016 CRG Warrants” and, together with the 2015 CRG Warrants, the “CRG Warrants”). The modification to the terms of the 2015 CRG Warrants resulted in a change in fair value of $54 which was included as interest expense. 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 1,253,500 shares of common stock for $11.25 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.

 

On October 12, 2017, as part of Amendment No. 5 to the Term Loan Agreement, the exercise price of the CRG Warrants was changed to allow the holder to purchase common shares in the Company at a price of $1.50 per share as well as provide broad anti-dilution protection such that the CRG Warrants shall maintain the same 1.22% ownership following any capital raises the Company completed through March 31, 2018. The modification to the terms of the CRG Warrants resulted in a change in fair value of $44 which was included as interest expense. The 2015 CRG Warrants change in fair value was calculated using the Black-Scholes Merton model with both exercise prices, assuming volatility of 94%, an expected life of 2.99 years, a risk-free interest rate of 1.70% and 0% dividend yield. The 2016 CRG Warrants change in fair value was calculated using the Black-Scholes Merton model with both exercise prices, assuming volatility of 90%, an expected life of 3.48 years, a risk-free interest rate of 1.80% and 0% dividend yield.

 

On December 8, 2017, the Company issued Series A Warrants to purchase 6,818,181 shares of common stock for $0.44 per share and Series B Warrants to purchase 6,818,181 shares of common stock for $0.44 per share in conjunction with shares of common stock and Series A Convertible Preferred stock issued on that same date. The Series A Warrants were exercisable immediately and expire 5 years after the issuance 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 88%, an expected life of 5 years, a risk free interest rate of 2.14% and a 0% dividend yield and are classified as equity on the Condensed Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018. The Series B Warrants were exercisable immediately and expired 6 months after the issuance date. Fair value of the Series B Warrants for purposes of allocating the net proceeds of the equity offering, was determined using the Black-Scholes Merton model assuming a volatility of 158.6%, an expected life of 6 months, a risk free rate of 1.45% and a 0% dividend yield and are classified as equity on the Condensed Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018. All Series B Warrants expired on June 7, 2018 with no warrants exercised. In addition, we granted the placement agent compensation warrants to purchase 477,273 shares of common stock at $0.55 per share. The compensation warrants are in the same form as Series A Warrants, excluding the exercise price, and will terminate on the five-year anniversary date. The placement agent warrants are classified as equity on the Condensed Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018.

 

In connection with the December 2017 offering the Company issued CRG warrants to purchase 83,240 shares of common stock at an exercise price of $1.50 (“2017 CRG Warrants”) as a result of triggering the anti-dilution clause of the debt amendment (see Note 5). The anti-dilution clause is considered down-round protection, however the Company early adopted ASU 2017-11 and therefore the down-round feature is excluded from the consideration of whether the warrants are indexed to the Company’s own stock and therefore the warrants are not required to be liabilities under the guidance. The 2017 CRG Warrants are classified as equity on the Condensed Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018 and were valued at $30 upon issuance using the Black-Scholes Merton model assuming volatility of 88%, an expected life of 5 years, a risk-free interest rate of 2.14% and 0% dividend yield. On April 4, 2018, in connection with Amendment No. 6 to the Term Loan Agreement, the strike price of all existing CRG warrants was reduced to $0.44 per share (see Note 5). The modification to the terms of the CRG Warrants and the 2017 CRG Warrants resulted in a change in fair value of $10 which was included as interest expense.

 

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TearLab Corporation

 

7. NET INCOME (LOSS) PER SHARE

 

Basic earnings per share (“EPS”) excludes dilutive securities and is computed by dividing net loss available to common stockholders by the weighted average number of shares of common stock outstanding for the year. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted and the resulting additional shares are dilutive because their inclusion decreases the amount of EPS.

 

The following securities were not included in the calculation of diluted earnings per share because their effects were anti-dilutive:

 

(in thousands of shares)  As of March 31, 
   2019   2018 
Stock options   891    629 
Warrants   8,702    15,520 
Convertible preferred shares   -    1 
           
Total   9,593    16,150 

 

8. COMMITMENTS AND CONTINGENCIES

 

Leases

 

Operating lease right-of-use (“ROU”) assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most leases do not provide an implicit rate, we use an incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred. The lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option.

 

The Company has commitments relating to operating leases recognized on a straight-line basis over the term of the lease for rental of two office spaces and various equipment from unrelated parties. Our California office lease was signed May 1, 2018, with a commencement date of July 1, 2018, expires on November 30, 2023 and has an option for a 5-year extension and escalating payments. On December 21, 2018 the Company entered into a fourth amendment to our Texas office lease to extend the term of the lease until December 31, 2019. In addition, the Company has vehicle leases expiring at various times through January 2021, and an equipment lease expiring in December 2021.

 

The adoption of ASC Topic 842 resulted in the Company recognizing right of use assets of $738 and a lease liability of $739, with the difference due the write-off of prior recorded deferred rent.

 

The components of lease costs were as follows:

 

   Three months ended 
   March 31, 2019 
Operating lease costs  $      88 
Short-term lease costs   - 
Variable lease costs   - 
   $88 

 

Future minimum lease payments under non-cancellable leases as of March 31, 2019 were as follows:

 

2019  $238 
2020   202 
2021   184 
2022   164 
2023   169 
Total lease payments   957 
Less present value discount   218 
Present value of lease liabilities  $739 
Weighted average remaining lease term   3.9 
Weighted average discount rate   13%

 

Commitments

 

On May 1, 2018 with an effective date of July 1, 2017 the Company entered into a Restated License Agreement (the “Agreement”) to its exclusive license agreement for the commercial development of the invention disclosed in UCSD Disclosure Docket No. SD2002-180 and titled “Volume Independent Tear Film Osmometer” (UCSD License Agreement #2003-03-0433), dated as of March 12, 2003, as amended by Amendment 1, dated as of June 9, 2003, Amendment 2, dated as of September 5, 2005, Amendment 3, dated as of July 7, 2006, Amendment 4, dated as of October 9, 2006, and Amendment 5, dated as of July 9, 2007, by and among the Company and The Regents of the University of California (collectively the “Existing License”) to amend certain terms related to royalties under the Agreement and treatment upon a change of control transaction. The Company is required to make royalty payments of anywhere from 3% to 4.25% based on quarterly net sales. Additionally, the Company is required to pay a royalty of 20% of any sublicense fees it receives. Should a change of control transaction occur during the term of the agreement the royalty rates would range anywhere from 3.5% to 4.75% based on quarterly net sales and the Company would have to make a milestone payment of $0.5 million. In addition, if the Company has not commenced commercial sales of the TearLab DiscoveryTM Platform on or before July 1, 2019 the Company will be required to pay a milestone payment of 1.25% of cumulative net sales for the two-year period following the effective date of the amendment.

 

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TearLab Corporation

 

Effective October 1, 2006 the Company entered into a second patent license and royalty agreement with the University of California San Diego to obtain an exclusive license to make, use, sell, offer for sale, and import TearLab technology in development. Starting in 2009, the Company was required to make minimum royalty payments of $35 or 5.5% of gross sales per year, whichever is higher. However, if this new technology is combined with existing technology, the maximum royalty payable on the sale of the combined products would be 5.5% of gross sales per year. As the new technology is currently in development, there is no revenue and the minimum royalty payment of $35 is applicable.

 

Future minimum royalty payments under this agreement as of March 31, 2019 are as follows:

 

2020   35 
2021   35 
2022   35 
2023   35 
2024   35 
Thereafter   210 
Total  $385 

 

On March 7, 2016, the Company, through its subsidiary, TearLab Research, Inc., entered into a supply and development agreement (“Supply Agreement”) with MiniFAB (Aust) Pty Ltd (“MiniFAB”). The agreement is an exclusive supply agreement through June 2021, for the purchase and delivery of individual osmolarity test cards with the freight costs borne by MiniFab. The Company has the benefit of a lower purchase price and certain savings from freight costs will remain in place throughout the agreement. The Supply Agreement requires, in any given 6 calendar months, the Company must place aggregate purchase orders equal to at least 50% of the orders forecasted for that 6-month period at its onset. The Supply Agreement can be extended by either party for a term of five years with the option for the Company to buyout the exclusive supply provision during any extended term. This Supply Agreement replaces the August 2011 agreement between MiniFAB and the Company. On August 9, 2018 the Company entered into an addendum to the 2016 Manufacturing and Supply and Development Agreement with MiniFab. The amendment fixes the price of the osmolarity test cards at their current price until the earlier of: the average monthly order volume of osmolarity cards on a rolling six month average falls below 20,000 cards; or the aggregate product volume in the calendar year commencing 12 months after the launch of the DiscoveryTM product is below 2.4 million cards; or the aggregate product volume in any calendar year after 24 months after the launch of the DiscoveryTM product is below 3.0 million cards at which point the Company and MiniFab will renegotiate pricing.

 

On August 9, 2018, the Company entered into a manufacturing, supply and development agreement (the “MiniFAB Agreement”) with MiniFAB. Pursuant to the terms of the MiniFAB Agreement, MiniFAB will manufacture and supply test cards for the Company’s next generation platform, the TearLab Discovery™ System. The MiniFAB Agreement is exclusive through the first term of 10 years and automatically renews for an additional term of 5 years unless either party cancels. TearLab will pay for 65% of the capital expenditures under the MiniFAB Agreement (“capex”) as incurred and MiniFAB will pay for the remaining 35% of capex, which will be recoverable from TearLab through an amortized cost component in the price for the product charged to TearLab once the monthly card volumes reach 200,000 per month. The capex amounts are limited to an aggregate of $1.0 million AUD for the initial development and production phase (“Phase 1”) and anticipated to be in the vicinity of $3.0 million AUD for further investment of production capacity (“Phase 2”). In addition, TearLab will be responsible for the payment or reimbursement of all non-recurrent expenditure and tooling, limited to $1.2 million AUD for Phase 1 and estimated at $2.0 million AUD for Phase 2. In December 2018, the Company made an initial capex investment of $317 for a machine that was placed into fixed assets and is being amortized over a 15-year period as well as a corresponding $113 of long-term third-party payable for capex to be amortized through the card cost component for the three months ending March 31, 2019.

 

In the normal course of business, the Company enters into purchase obligations for future goods and services needed for the operations of the business. Such commitments are not in excess of expected requirements and are not reasonably likely to result in performance penalties or payments that would have a material adverse effect on the Company’s liquidity.

 

Contingencies

 

We are not currently a party to any litigation, nor are we aware of any pending or threatened litigation against us, that we believe would materially affect our business, operating results, financial condition or cash flows. Our industry is characterized by frequent claims and litigation including securities litigation, claims regarding patent and other intellectual property rights and claims for product liability. As a result, in the future, we may be involved in various legal proceedings from time to time.

 

We initiated a patent infringement lawsuit against i-Med Pharma, Inc. in February 2016 alleging infringement of our Canadian patent. In February 2018, the Federal Court of Canada issued a ruling in favor of i-Med Pharma, Inc. which invalidated specific claims in our Canadian patent which were alleged to be infringed. We are appealing this ruling to the Canadian Federal Appellate Court. As part of the ruling, the Federal Court ruling awarded costs to i-Med Pharma, Inc., for $0.5 million. The final $0.2 million was paid in April 2018. We do not believe the outcome of this litigation will materially affect our business, operating results, financial condition or cash flows.

 

9. RELATED PARTY

 

The Company has an agreement with its Chief Scientific Officer whereas if the Company enters into an agreement with UCSD to reduce the overall royalty rate the Company shall pay to its Chief Scientific Officer a royalty on net sales equal to one and a half percent of the percent change in the UCSD royalty rate. The restated UCSD patent license and royalty agreement (see Note 8) resulted in a royalty due at a rate of 0.68%. Related party royalty expense was $38 and $0 as of March 31, 2019 and 2018, respectively. The Company had $78 and $40 in accrued royalties at March 31, 2019 and December 31, 2018, respectively for the related party royalty.

 

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TearLab Corporation

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes, included in Item 1 of this Report. Unless otherwise specified, all dollar amounts are U.S. dollars.

 

Overview

 

We are an in-vitro diagnostic company that has commercialized a proprietary tear testing platform, the TearLab® Osmolarity System that enables eye care practitioners to test for a highly sensitive and specific biomarker using nanoliters of tear film at the point-of-care. Our first product measures tear film osmolarity for the diagnosis of Dry Eye Disease or DED.

 

We develop technologies to enable eye care practitioners to test a wide range of biomarkers (chemistries, metabolites, genes and proteins) at the point-of-care. Commercializing and further development of that tear testing platform is now the focus of our business.

 

Our product, the TearLab® Osmolarity System, enables the rapid measurement of tear osmolarity in the doctor’s office. Osmolarity is a quantitative and highly specific biomarker that has been shown to assist in the diagnosis and disease management of DED. Based on the Beaver Dam Offspring Study (2005-2008), prevalence of DED was 14.5% across an adult population aged 21-84, impacting 17.9% of women and 10.5% of men in the study. The innovation of the TearLab® Osmolarity System is its ability to precisely and rapidly measure osmolarity in nanoliter volumes of tear samples, using a highly efficient and novel tear collection system at the point of care. Historically, eye care researchers have relied on expensive instruments to perform tear biomarker analysis. In addition to their cost, these conventional systems are slow, highly variable in their measurement readings, and not categorized as waived by the United States Food and Drug Administration, or the FDA, under regulations promulgated under the Clinical Laboratory Improvement Amendments, or CLIA.

 

The TearLab® Osmolarity System consists of the following three components: (1) the TearLab disposable, which is a single-use microfluidic microchip; (2) the TearLab Pen, which is a hand-held device that interfaces with the TearLab disposable; and (3) the TearLab Reader, which is a small desktop unit that allows for the docking of the TearLab Pen and provides a quantitative reading for the operator.

 

We enter into contracts where revenue is derived either from agreements whereby the customer is provided the right to use the TearLab® Osmolarity System at no separate cost to the customer in consideration for a minimum purchase commitment or implied minimum purchase commitment of disposable test cards over the related contract term (which we refer to as either “Use Agreements”, “Masters Agreements” or “Flex Agreements”), or from agreements with separate sales of the reader equipment and disposable test cards (“Purchase Agreements”).

 

In October 2008, the TearLab® Osmolarity System received CE mark approval, clearing the way for sales in the European Union and all countries recognizing the CE mark. In connection with the CE mark clearance, we have entered into multi-year agreements with numerous distributors for distribution of the TearLab® Osmolarity System. Currently, we have signed distribution agreements in Central and South America, Europe, Asia, Canada, and Australia. We sell directly to the customer in the United States.

 

On January 4, 2018, we announced that we had submitted a 510(k) application to the FDA for the potential clearance of the TearLab DiscoveryTM Platform. The submission covered Discovery and the MMP-9 biomarker. On February 14, 2018, we announced that the application had successfully passed the acceptance review phase with the FDA. On April 11, 2018 we announced that we received written feedback from the FDA, requesting that we provide additional information to establish correlation to the FDA-cleared predicate chosen to establish 510(k) substantial equivalence. On September 4, 2018, we submitted, and the FDA accepted, our response to the FDA’s comments regarding the 510(k) application for the Discovery Platform. On October 10, 2018, we announced that the FDA determined that the TearLab Discovery™ MMP-9 test, had not met the criteria for substantial equivalence based upon data and information we had submitted. We plan to utilize the guidance provided by the FDA to compile the additional information necessary to resubmit for 510(k) clearance. After securing FDA clearance, we intend to pursue a CLIA waiver in an effort to prepare for commercialization in the US market.

 

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TearLab Corporation

 

RESULTS OF OPERATIONS

 

Revenue, Cost of Sales and Gross Margin

 

(in thousands)  Three months ended
March 31,
 
   2019   2018   Change 
             
TearLab revenue  $5,683   $6,446   $(763)
TearLab – cost of sales   2,083    2,124    (41)
TearLab gross profit   3,600    4,322    (722)
Gross profit percentage   63%   67%     

 

Revenue

 

TearLab revenue consists of sales of the TearLab® Osmolarity System, which is a hand-held tear film test for the measurement of tear osmolarity, a quantitative and highly specific biomarker that has shown to correlate with dry eye disease (“DED”).

 

The TearLab® Osmolarity System consists of the following three components: (1) the TearLab disposable, which is a single-use microfluidic lab test card; (2) the TearLab pen, which is a hand-held device that interfaces with the TearLab disposable; and (3) the TearLab reader, which is a small desktop unit that allows for the docking of the TearLab disposable and the TearLab pen and provides a quantitative reading for the operator.

 

Having received 510(K) clearance and a CLIA waiver from the FDA in the United States, we sell to customers in the United States who hold CLIA licenses and actively support and assist our customers to obtain their licenses or provide them with support from certified professionals. This CLIA waiver documentation allows us to sell our product to the approximately 50,000 eye care practitioners in the United States that are candidates to operate under a CLIA waiver certification.

 

We are working with our established distributors in Central and South America, Europe, Asia, Canada, and Australia to increase sales. The ability for reimbursement to be obtained in many of the countries where we have distributors will facilitate our ability to increase sales and stimulate the commercialization process. In countries where we have distributors, we are supporting physicians in local clinical trials and providing them with the required guidance to understand the relationship between DED and osmolarity and how to manage their patients with objective diagnostic data.

 

TearLab revenue for the three months ended March 31, 2019 was $5.7 million compared to $6.4 million for the three months ended March 31, 2018. This decrease was driven by the decrease in both reader revenue and test card revenue compared to first quarter of 2018.

 

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TearLab Corporation

 

Cost of Sales

 

TearLab cost of sales includes costs of goods sold, depreciation of reader systems, warranty, and royalty costs. Our cost of goods sold consists primarily of costs for the manufacture of the TearLab® Osmolarity System, including the costs we incur for the purchase of component parts from our suppliers, applicable freight and shipping costs, fees related to warehousing and logistics inventory management.

 

TearLab cost of sales decreased 2% for the three months ended March 31, 2019 compared to March 31, 2018. The decrease was driven by reduced warranty costs, a credit from one of our suppliers for inventory damaged in transit as well as lower revenue volume.

 

Gross Profit

 

TearLab gross profit for the three months ended March 31, 2019 was $3.6 million compared to the $4.3 million for the three months ended March 31, 2018. The gross profit percentage of revenue for the three months ended March 31, 2019 was 63% compared to 67% for the three months ended March 31, 2018. The decline in gross profit percentage was driven by the decline in revenue as well as the impact of the 2018 restated patent license and royalty agreement with the University of California San Diego (“UCSD”), (see Note 8). Excluding the 2017 impact of the restated agreement of $0.3 million, 2018 gross profit percentage would have been 62% for the three months ended March 31, 2018.

 

Operating Expenses

 

(in thousands)  Three months ended March 31, 
   2019   2018   Change 
             
Sales and marketing  $875   $1,020   $(145)
Clinical, regulatory and research and development   874    1,041    (167)
General and administrative   1,844    2,044    (200)
Operating expenses  $3,593   $4,105   $(512)

 

Sales and Marketing Expense

 

Sales and marketing expenses decreased by $0.1 million or 14% in the three months ended March 31, 2019, as compared with the three months ended March 31, 2018. The reduction in sales and marketing expenses is attributable to the impact of our business model aimed at reducing costs.

 

Clinical, Regulatory and Research and Development Expenses

 

Total clinical, regulatory and research and development expenses decreased $0.2 million or 16% in the three months ended March 31, 2019 as compared with the three months ended March 31, 2018. The decrease in expense was primarily due to lower development cost of the TearLab DiscoveryTM Platform.

 

General and Administrative Expenses

 

Total general and administrative expenses decreased $0.2 million or 10% in the three months ended March 31, 2019 as compared with the three months ended March 31, 2018. The decrease was primarily due to the impact of our business model that is aimed at reducing costs.

 

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TearLab Corporation

 

Other Income (Expense)

 

(in thousands)  Three Months Ended
March 31,
 
   2019   2018   Change 
             
Interest income (expense)  $(1,350)  $(1,105)  $(245)
Other (net)   4    5    (1)
Other income  $(1,346)  $(1,100)  $(246)

 

Interest Income (Expense)

 

Interest expense for the three months ended March 31, 2019 and 2018 was from our long-term debt under the Term Loan Agreement, which was most recently amended on November 12, 2018. Interest expense increased for the three months ended March 31, 2019 when compared to the same period in the previous fiscal year based on larger average balances of long-term debt outstanding, the impact of the updated strike price of the warrants issued to the lenders, and changes to the facility fee.

 

Other (net)

 

Other income (loss) for the three months ended March 31, 2019 and 2018 consists primarily of foreign exchange transaction gains and losses, based on fluctuations of the Company’s foreign denominated currencies.

 

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TearLab Corporation

 

Liquidity and Capital Resources

 

(in thousands)  March 31, 2019   December 31, 2018   Change 
Cash and cash equivalents  $8,860   $8,473   $387 
Percentage of total assets   57.2%   58.4%     
                
Working capital  $1,349   $9,279   $(7,930)

 

Financial Condition

 

In December 2017 TearLab raised $3 million in gross proceeds through a registered direct offering to support our operations and regulatory expenses. In addition, in April 2018, with an effective date of March 31, 2018, we renegotiated our Term Loan Agreement with CRG. This new agreement lowers the minimum liquidity requirement from an end of the day cash balance of $5 million to $3 million and it defers cash interest payments due in 2018. These changes will allow our current funding to provide us with the time needed to gain our 510(k) approval for the Discovery™ Platform from the FDA as the Discovery™ Platform is critical to our success moving forward. In November 2018, with amendment No.6 CRG further extended our “Interest-only period,” which has the effect of pushing out the principal payments to 2020. Based on our current rate of cash consumption in addition to our projections, we estimate we will need additional capital in the first quarter of 2020. Our prospects for obtaining that capital are uncertain. Due to the Company’s historical losses and financial condition, there is substantial doubt about the Company’s ability to continue as a going concern.

 

Our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement and involves risks and uncertainties. Actual results could vary as a result of a number of factors. We have based this estimate on assumptions that may prove to be wrong. We could utilize our available capital resources sooner than we currently expect. Our future funding requirements will depend on many factors, including but not limited to:

 

  Our ability to execute our commercial strategy with our current resources, under our new business model;
  the cost and results of continuing development of our next generation TearLab Discovery™ Platform including the cost of suppliers and service providers that require advance payment;
  whether government and third-party payers agree to continue reimbursement of the TearLab® Osmolarity System at current levels;
  the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights; and
  the effect of competing technological and market developments.

 

At the present time, our only product is the TearLab® Osmolarity System, and although we have received 510(k) approval from the FDA and a CLIA waiver approval from the FDA, at this time we do not know when we will generate revenue from the TearLab® Osmolarity System in the United States sufficient to fully fund our operations. If events or circumstances occur such that we do not meet our plans to fund the business, we may be required to reduce operating expenses and reduce the planned levels of inventory and fixed assets which could have an adverse impact on our ability to achieve our intended business objectives and/or continue the development of the TearLab Discovery™ Platform.

 

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Indebtedness

 

On March 4, 2015, the Company executed a term loan agreement (the “Term Loan Agreement”) with CRG LP and certain of its affiliate funds (“CRG”) as lenders providing the Company with access of up to $35,000 under the arrangement. The Company received $15,000 in gross proceeds under the arrangement on March 4, 2015, and an additional $10,000 on October 6, 2015. The Term Loan Agreement matures on December 31, 2020 and bears interest at 13% per annum, with quarterly payments of interest only for the first four years. While interest on the loan is accrued at 13% per annum, the Company may elect to make interest-only payments at 8.5% per annum. The unpaid interest of 4.5% is added to the principal of the loan and is subject to additional accrued interest (“PIK interest”). The accrued interest can be deferred and paid together with the principal in the fifth and sixth years.

 

As part of Amendment No. 2 to the Term Loan Agreement, and funding of the second tranche, CRG received 35,000 warrants dated as of October 6, 2015 to purchase common shares of the Company at a price of $50.00 per share (the “2015 CRG Warrants”). The 2015 CRG Warrants have a five-year life and are classified as equity on the Consolidated Balance Sheets as of March 31, 2019 and 2018. The 2015 CRG Warrants were valued at their issuance date using the Black-Scholes Merton model. The related reduction of the long-term debt will be amortized over the life of the debt. On April 7, 2016, the Company entered into Amendment No. 4 to the Term Loan Agreement and the company issued CRG additional warrants to purchase 35,000 common shares of the Company’s stock at 15.00 per share (the “2016 CRG Warrants” and together with the 2015 CRG Warrants, the “CRG Warrants”), which expire 5 years after issuance.

 

On October 12, 2017, the Company entered into Amendment No. 5 to the Term Loan Agreement. This amendment reduced the exercise price of all of the CRG Warrants from $15.00 per share to $1.50 per share and provided broad anti-dilution protection such that the CRG Warrants maintained the same 1.22% ownership following any capital raises the Company completed through March 31, 2018.

 

In connection with the December 2017 offering the Company issued CRG additional warrants to purchase 83,240 shares of commons stock at an exercise price of $1.50 (“2017 CRG Warrants”).

 

On April 4, 2018 with an effective date of March 31, 2018, the Company entered into Amendment No. 6 to the Term Loan Agreement. Pursuant to the terms of this amendment, the cash interest payments due in 2018 were deferred and added to the principal balance under the Term Loan Agreement at the end of each quarter. This amendment also provides for an additional facility fee equal to 3% of the sum of the aggregate amount of the principal drawn under the Term Loan Agreement and any PIK loans issued, so that the total facility fee shall be 9.5%, applicable to the entire balance. In addition, this amendment reduces the minimum liquidity covenant to $3 million. Concurrent with the reduction of the liquidity covenant the Company agreed to repay CRG $1.0 million of principal on the Term Loan Agreement in April 2018. Lastly, this amendment reduced the strike price of the existing CRG Warrants and the 2017 CRG Warrants to $0.44 per share. This amendment was accounted for as a modification in accordance with U.S. GAAP.

 

On November 12, 2018 the Company entered into Amendment No. 7 to the Term Loan Agreement. Pursuant to the terms of the agreement, the Amendment extends the “Interest-Only Period” under the Term Loan Agreement from the sixteenth (16th) payment date to the twentieth (20th) payment date following the first borrowing date, which has the effect of pushing out the principal payments to 2020. In addition, the cash interest payments under the Term Loan Agreement for periods ending on March 31, 2019 and June 30, 2019 will be deferred and added to the principal balance under the Term Loan Agreement at the end of each such quarter. Additionally, if the Federal Drug Administration (“FDA”) receives and accepts our application for review of our DiscoveryTM Platform on or before June 30, 2019 the Company may elect to pay the interest on the outstanding principal amount of the loans under the Term Loan Agreement payable during the quarter ended September 30, 2019 entirely in the form of a PIK Loan. Finally, the Amendment reduced the minimum required revenue for 2018 under the Term Loan Agreement from $25 million to $24 million.

 

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TearLab Corporation

 

The Term Loan Agreement is collateralized by all assets of the Company. Additionally, the terms of the Term Loan Agreement contain various affirmative and negative covenants agreed to by the Company. Among them, the Company must attain minimum certain annual revenue and minimum cash threshold levels. The minimum annual revenue threshold level required by the Term Loan Agreement is $38.0 million, and $45 million, respectively, for the calendar years 2019 and 2020. The minimum cash balance required is $3.0 million, subject to certain conditions.

 

If the Company does not have annual revenue greater or equal to the annual revenue covenant in a calendar year, the Company will have to raise subordinated debt or equity (the “CRG Equity Cure”) equal to twice the difference between the annual revenue and the revenue covenant, with the total proceeds from this financing to be used to reduce the principal of the Term Loan Agreement. In the event the Company does not achieve the minimum revenue threshold and it cannot complete the CRG Equity Cure, it may be in default of the Term Loan Agreement. In the event of a default, we may be required to repay any outstanding amounts earlier than anticipated, and the lenders may foreclose on their security interest in our assets.

 

Ongoing Sources and Uses of Cash

 

We anticipate that our cash and cash equivalents and cash generated from revenue will be sufficient to sustain our operations into the first quarter of 2020. We continually evaluate various financing possibilities but we typically expect our primary sources of cash will be related to the collection of accounts receivable. Our accounts receivable collections will be impacted by our ability to maintain current customers and annuity revenue base, while reducing costs as per our new business model.

 

We expect our primary uses of cash will be to fund our operating expenses and the development and generation of clinical data for our next generation platform.

 

Changes in Cash Flows

 

Cash Provided by Operating Activities

 

Net cash provided by operating activities during the three months ended March 31, 2019 was $0.4 million. Net cash provided by operating activities during the three-month period was more than our net loss of $1.3 million primarily due to the depreciation of fixed assets, and deferred interest and the amortization of the discount on our long-term debt. In aggregate, these non-cash items totaled $1.6 million.

 

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TearLab Corporation

 

The net change in working capital and non-current asset balances related to operations for the three months ended March 31, 2019 and 2018 consists of the following:

 

   Three Months Ended 
(in thousands)  March 31, 
   2019   2018 
Changes in operating assets and liabilities:          
           
Accounts receivable, net  $88   $84 
Inventory   (220)   314 
Prepaid expenses and other assets   59    111 
Accounts payable   638    (647)
Accrued liabilities   (443)   (210)
Deferred rent/revenue   (4)   (8)
   $118   $(356)

 

Explanations of the more significant net changes in working capital and non-current asset balances are as follows:

 

  Inventory levels of test cards on hand increased in the three months ended March 31, 2019 due to lower sales volumes;
     
  Accounts payable had a net increase during the three months ended March 31, 2019, mostly due to invoices received for professional services and increase in work performed relating to the development of our next generation of product; and
     
  Accrued liabilities had a net decrease during the three months ended March 31, 2019, primarily due to the payment of accrued compensation amounts.

 

Cash Used in Investing Activities

 

Net cash used in investing activities for the three months ended March 31, 2019 and 2018 was $0.01 million and $0.07 million, respectively, to acquire fixed assets.

 

Cash Provided by Financing Activities

 

There was zero in net cash provided by financing activities during the three months ended March 31, 2019 and 2018, respectively.

 

Off-Balance-Sheet Arrangements

 

As of March 31, 2019, we did not have any material off-balance-sheet arrangements as defined in Item 303(1)(4)(ii) of SEC Regulation S-K.

 

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TearLab Corporation

 

Critical Accounting Policies and Estimates

 

Management’s discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements which are prepared in accordance with accounting principles that are generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, related disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. We continually evaluate our estimates and judgments, the most critical of which are those related to revenue recognition and inventory valuation. We base our estimates and judgments on historical experience and other factors that we believe to be reasonable under the circumstances. Materially different results can occur as circumstances change and additional information becomes known.

 

There were no significant changes during the three months ended March 31, 2019 to the items that we disclosed as our critical accounting policies and estimates in Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. For further clarification with regards to the Company’s specific policies for revenue recognition, see Note 2 of the Notes to the Unaudited Condensed Consolidated Financial Statements for the three months ended March 31, 2019 included in Item 1.

 

Recent Accounting Pronouncements

 

For information on the recent accounting pronouncements impacting our business, see Note 2 of the Notes to the Unaudited Condensed Consolidated Financial Statements for the three months ended March 31, 2019 included in Item 1.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

Currency Fluctuations and Exchange Risk

 

Our sales are denominated primarily in U.S. dollars. Most of our expenses are denominated in U.S. dollars, however, a minor portion of our other expenses are in Canadian dollars, Australian dollars, Euro and pounds sterling. We cannot predict any future trends in the exchange rate of the Canadian dollar, Australian dollar, euro or pound sterling against the U.S. dollar. Any strengthening of the Canadian dollar, Australian dollar, euro or pound sterling in relation to the U.S. dollar would increase the U.S. dollar cost of our operations, and affect our U.S. dollar measured results of operations. We maintain bank accounts in Canadian dollars to meet short term operating requirements. We do not engage in any hedging or other transactions intended to manage these risks. In the future, we may undertake hedging or other similar transactions or invest in market risk sensitive instruments if we determine that is advisable to offset these risks.

 

Interest Rate Risk

 

Our long-term debt carries a fixed rate of 13% interest. A decrease in market interest rates would increase the fair value of our long-term debt.

 

ITEM 4. CONTROLS AND PROCEDURES.

 

(a) Disclosure Controls and Procedures.

 

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to the our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefit of controls must be considered relative to their costs. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

 

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TearLab Corporation

 

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). Based on that evaluation, our chief executive officer and chief financial officer concluded that, as at March 31, 2019 our disclosure controls and procedures were effective at the reasonable assurance level.

 

(b) Changes in Internal Control over Financial Reporting.

 

During the first quarter of 2019, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

PART II. OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS.

 

We are not currently a party to any litigation, nor are we aware of any pending or threatened litigation against us that we believe would materially affect our business, operating results, financial condition or cash flows. However, our industry is characterized by frequent claims and litigation including securities litigation, claims regarding patent and other intellectual property rights and claims for product liability. As a result, in the future, we may be involved in various legal proceedings from time to time.

 

We initiated a patent infringement lawsuit against i-Med Pharma, Inc. in February 2016 alleging infringement of our Canadian patent. In February 2018, the Federal Court of Canada issued a ruling in favor of i-Med Pharma, Inc. which invalidated specific claims in our Canadian patent which were alleged to be infringed. We are appealing this ruling to the Canadian Federal Appellate Court. As part of the ruling, the Federal Court ruling awarded costs to i-Med Pharma, Inc., for $0.5 million. The final $0.2 million was paid in April 2018. We do not believe that the outcome of this litigation will materially affect our business, operating results, financial condition or cash flows.

 

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TearLab Corporation

 

ITEM 1A. RISK FACTORS.

 

Risks Relating to Our Financial Condition

 

We may need to raise additional capital in the future. Such capital, may not be available to us on reasonable terms, if at all, when or as we require additional funding. If we issue additional shares of our common stock or other securities that may be convertible into or exercisable or exchangeable for our common stock, our existing stockholders would experience further dilution.

 

Based on a revised operating model that we implemented in December 2017, we expect that we will need to raise additional capital prior to the end of the first quarter of 2020. This estimate is subject to risk based primarily on our success in implementing the revised operating model, maintaining certain revenue levels despite a reduction in our commercial resources that was made in order to reduce our cash burn and accurately forecasting the remaining development expenses required to gain FDA clearance of our next generation diagnostic platform, and we cannot assure you that we will be successful in implementing this new model. Any financings undertaken to raise needed capital may involve the issuance of debt, equity and/or securities convertible into or exercisable or exchangeable for our equity securities. These financings may not be available to us on reasonable terms or at all when and as we require funding. Any failure to obtain additional working capital when required would have a material adverse effect on our business and financial condition, our ability to continue as a going concern and would be expected to result in a decline in our stock price. If we consummate such financings, the terms of such financings may adversely affect the interests of our existing stockholders. Any issuances of our common stock, preferred stock, or securities such as warrants or notes that are convertible into, exercisable or exchangeable for our capital stock, would have a dilutive effect on the voting and economic interest of our existing stockholders. If access to sufficient capital is not available as and when needed, our business will be materially impaired and we may be required to cease operations, curtail product development, manufacturing improvements, or sales generation programs, attempt to obtain funds through licensing certain technologies or products, or we may be required to significantly reduce expense, sell assets, seek a merger or joint venture partner, file for protection from creditors, liquidate all our assets or cease operations and wind down our business.

 

We have limited working capital and a history of losses that raise substantial doubts as to whether we will be able to continue as a going concern.

 

We have prepared our condensed consolidated financial statements on the basis that we would continue as a going concern. However, we have incurred losses in each year since our inception and there is substantial doubt about our ability to continue as a going concern. We do not currently have any available borrowing under our term loan or credit facility. Our condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary if we were not able to continue as a going concern. If we are unable to generate positive cash flows from operations, we would need to undertake a review of potential business alternatives, which may include, but are not limited to, a merger or sale of the company or ceasing operations and winding down the business.

 

We have incurred losses since inception and anticipate that we will incur continued losses for the foreseeable future.

 

We have incurred losses in each year since our inception. As of March 31, 2019, we had an accumulated deficit of $532.4 million. Our losses have resulted primarily from expenses incurred in research and development of our product candidates from the former retina and glaucoma business divisions. We do not know when or if we will successfully commercialize the TearLab® Osmolarity System in the United States or in international markets or receive approval to commercialize our next generation TearLab DiscoveryTM Platform on a scale that will allow us to achieve and sustain profitability. As a result, and because of the numerous risks and uncertainties facing us, it is difficult to provide the extent of any future losses or the time required to achieve profitability, if at all. Any failure to become and remain profitable would require us to undertake a review of the potential business alternatives discussed above.

 

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We may not be able to generate sufficient cash to service our indebtedness, which currently consists of our credit facility with CRG. We may not be able to satisfy our minimum revenue and cash covenants, as required by the CRG term loan. If our annual sales revenue levels do not meet or exceed the levels required by the CRG covenants, we will be required to raise additional equity or subordinated debt, with the proceeds paid to reduce the outstanding principal of the CRG term loan. This financing could dilute existing shareholders and impact the value of their investment.

 

On March 4, 2015, we executed a term loan agreement with CRG as lenders (the “Term Loan Agreement”) providing us with access of up to $35.0 million under the Term Loan Agreement. We entered into an amendment of the Term Loan Agreement with CRG on August 6, 2015. We received $25.0 million in gross proceeds during 2015. We can make no assurance that we will be able to raise either additional debt financing or additional equity capital. There can be no assurances that there will be adequate financing available to us on acceptable terms or at all.

 

Our ability to make scheduled payments or to refinance our debt obligations depends on numerous factors, including the amount of our cash reserves and our actual and projected financial and operating performance. These amounts and our performance are subject to certain financial and business factors, as well as prevailing economic and competitive conditions, some of which may be beyond our control. We cannot assure you that we will maintain a level of cash reserves or cash flows from operating activities sufficient to permit us to pay the principal, facility fee, and interest on our existing or future indebtedness. If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay capital expenditures, sell assets or operations, seek additional capital or restructure or refinance our indebtedness. We cannot assure you that we would be able to take any of these actions, or that these actions would permit us to meet our scheduled debt service obligations. In addition, in the event of our breach of the Term Loan Agreement, we may be required to repay any outstanding amounts earlier than anticipated, and the lenders may foreclose on their security interest in our assets.

 

The CRG loan is collateralized by all our assets. Additionally, the Term Loan Agreement contains various affirmative and negative covenants agreed to by the Company. Among them, we must attain minimum annual revenue and minimum cash threshold levels. The minimum annual revenue threshold levels required by the Term Loan Agreement are $38.0 million and $45.0 million for calendar years 2019 and 2020, respectively. The minimum cash balance required is $3.0 million, subject to certain conditions.

 

If we do not have annual revenue greater or equal to the annual revenue covenant in a calendar year, we will have the right to cure by raising subordinated debt or equity equal to twice the difference between the annual revenue and the revenue covenant, with the total proceeds from this financing to be used to reduce the principal of the Term Loan Agreement. We cannot assure you that we will be able to achieve the annual revenue thresholds and the daily cash threshold. We cannot assure you that we would be able to raise the financing described above, if required. In addition, in the event of our breach of the Term Loan Agreement, we may not be allowed to draw additional amounts under the Term Loan Agreement, we may be required to repay any outstanding amounts earlier than anticipated, and the lenders may foreclose on their security interest in our assets.

 

Borrowings under the Term Loan Agreement are subject to certain conditions, including the non-occurrence of a material adverse change in our business or operations (financial or otherwise), or a material impairment of the prospect of repayment of obligations.

 

Our existing Term Loan Agreement contains restrictive and financial covenants that may limit our operating flexibility.

 

The Term Loan Agreement contains certain restrictive covenants that limit our ability to incur additional indebtedness and liens, merge with other companies or consummate certain changes of control, acquire other companies, engage in new lines of business, make certain investments, pay dividends, transfer or dispose of assets, amend certain material agreements or enter into various specified transactions. We therefore may not be able to engage in any of the foregoing transactions unless we obtain the consent of CRG or terminate the Term Loan Agreement. There is no guarantee that we will be able to generate sufficient cash flow or sales to meet the financial covenants or pay the principal and interest under the agreement. Furthermore, there is no guarantee that future working capital, borrowings or equity financing will be available to repay or refinance the amounts outstanding under the Term Loan Agreement.

 

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Our financial results may vary significantly from year-to-year and quarter-to-quarter due to a number of factors, which may lead to volatility in the trading price of our common stock.

 

Our annual and quarterly revenue and results of operations have varied in the past and may continue to vary significantly from year-to-year and quarter-to-quarter. The variability in our annual and quarterly results of operations may lead to volatility in our stock price as research analysts and investors respond to these annual fluctuations. These fluctuations are due to numerous factors that are difficult to forecast, including:

 

  fluctuations in demand for our products;
  changes in customer budget cycles and capital spending;
  seasonal variations in customer operations that could occur during holiday or summer vacation periods;
  tendencies among some customers to defer purchase decisions until the end of the quarter or fiscal year;
  the unit value of our systems;
  changes in our pricing and sales policies or the pricing and sales policies of our competitors;
  changes in reimbursement levels that might negatively impact our pricing policies;
  our ability to design, manufacture and deliver products to our customers in a timely and cost-effective manner;
  quality control or yield problems in our manufacturing suppliers;
  our ability to timely obtain adequate quantities of the components used in our products;
  new product introductions or enhancements by us and our competitors;
  unanticipated increases in costs or expenses;
  our complex, variable and, at times, lengthy sales cycle;
  global economic conditions; and
  fluctuations in foreign currency exchange rates.

 

The foregoing factors, as well as other factors, could materially and adversely affect our quarterly and annual results of operations. In addition, a significant amount of our operating expenses are relatively fixed due to our manufacturing, research and development, and sales and general administrative efforts. Any failure to adjust spending quickly enough to compensate for a revenue shortfall could magnify the adverse impact of such revenue shortfall on our results of operations. We expect that our sales will continue to fluctuate on a quarterly basis and our financial results for some periods may differ from those projected by securities analysts, which could significantly decrease the price of our common stock.

 

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Risks Related to Our Business

 

Our near-term success is highly dependent on the success of the TearLab® Osmolarity System, and we cannot be certain that it will be successfully commercialized in the United States.

 

The TearLab® Osmolarity System is currently our only commercialized product. Our product is currently sold outside of the United States pursuant to CE mark approval; in Canada pursuant to a Health Canada Medical Device License; and in the United States as a result of having received 510(k) approval from the FDA to market the TearLab® Osmolarity System to those reference and physician operated laboratories with CLIA waiver certifications. Even though the TearLab® Osmolarity System has received all regulatory approvals in the United States, it may never generate sufficient sales to achieve profitability. If the TearLab® Osmolarity System is not as successfully commercialized as expected, we may not be able to generate sufficient revenue to become profitable or continue our operations. Any failure of the TearLab® Osmolarity System to be successfully commercialized in the United States would have a material adverse effect on our business, operating results, financial condition and cash flows and could result in a substantial decline in the price of our common stock.

 

Our near-term success is highly dependent on increasing sales of the TearLab® Osmolarity System outside the United States, and we cannot be certain that we will successfully increase such sales.

 

Our product is currently sold outside of the United States pursuant to CE mark approval and Health Canada Approval in Canada. Our near-term success is highly dependent on increasing our international sales. We may also be required to register our product with health departments in our foreign market countries. A failure to successfully register in such markets would negatively affect our sales in any such markets. In addition, import taxes are levied on our product in certain foreign markets. Other countries may adopt taxation codes on imported products. Increases in such taxes or other restrictions on our product could negatively affect our ability to import, distribute and price our product.

 

We have outstanding liabilities, which could adversely affect our ability to adjust our business to respond to competitive pressures and to obtain sufficient funds to satisfy our future research and development needs, and to defend our intellectual property.

 

As of March 31, 2019, our total liabilities were $37.5 million including $25.4 million of long-term obligations under our Term Loan Agreement. Our significant liability service requirements could adversely affect our ability to operate our business and may limit our ability to take advantage of potential business opportunities. For example, our liabilities present the following risks:

 

  our liabilities increase our vulnerability to economic downturns and adverse competitive and industry conditions and could place us at a competitive disadvantage compared to those of our competitors that are less leveraged;
  our liabilities could limit our flexibility in planning for, or reacting to, changes in our business and our industry and could limit our ability to pursue other business opportunities, borrow money for operations or capital in the future and implement our business strategies;
  our liabilities could cause our suppliers to change their payment terms, require us to pay for needed goods or services in advance or choose not to do business with us at all which could negatively impact our cash flows, supply chain and our ability to supply products to our customers when needed; and
  our liabilities may restrict us from raising additional funds on satisfactory terms to fund working capital, capital expenditures, product development efforts, strategic acquisitions, investments and alliances, and other general corporate requirements.

 

If we are at any time unable to generate sufficient cash flow to service our liabilities when payment is due, we may be required to attempt to renegotiate the terms of the instruments relating to the liabilities, seek to refinance all or a portion of the liabilities or obtain financing. There can be no assurance that we will be able to successfully renegotiate such terms, that any such refinancing would be possible or that any additional financing could be obtained on terms that are favorable or acceptable to us.

 

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We continue to face challenges in bringing the TearLab® Osmolarity System to market in the United States and may not succeed in executing our business plan.

 

There are numerous risks and uncertainties inherent in the development of new medical technologies. In addition to our requirement for additional capital, our ability to bring the TearLab® Osmolarity System to market in the United States and to execute our business plan successfully is subject to the following risks, among others:

 

  The TearLab® Osmolarity System is rated under a CLIA waiver certification which requires our customers to be certified under the CLIA waiver requirements to be reimbursed under Medicare, including certain parallel state requirements. If our customers are unwilling or unable to comply with such requirements, it could have an adverse effect on their acceptance of and on our ability to market the TearLab® Osmolarity System in the United States.
  Our suppliers and we will be subject to numerous FDA requirements covering the design, testing, manufacturing, quality control, labeling, advertising, promotion and export of the TearLab® Osmolarity System and other matters. If our suppliers or we fail to comply with these regulatory requirements, the TearLab® Osmolarity System could be subject to restrictions or withdrawals from the market and we could become subject to penalties.
  We may be unable to achieve widespread acceptance of the TearLab® Osmolarity System among physicians as a result of our inability to establish adequate sales and marketing capabilities, address competition effectively, obtain and enforce patents to protect proprietary rights from use by would-be competitors, retain key personnel, maintain adequate reimbursement for our product to support our pricing policies and ensure sufficient manufacturing capacity and inventory to support commercialization plans.

 

Our business is subject to health care industry cost-containment measures that could result in reduced sales of our TearLab® Osmolarity System.

 

Most of our customers rely on third-party payers, including government programs and private health insurance plans, to reimburse some or all of the cost of the procedures which use our TearLab® Osmolarity System. The continuing efforts of governmental authorities, insurance companies, and other health care payers to contain or reduce these costs could lead to patients being unable to obtain approval for payment from these third-party payers. If patients cannot obtain third-party payer payment approval, the use of our TearLab® Osmolarity System may decline significantly and our customers may reduce or eliminate the use of our system. The cost-containment measures that health care providers are instituting, both in the U.S. and internationally, could harm our ability to operate profitably. For example, managed care organizations have successfully negotiated volume discounts for pharmaceuticals. While this type of discount pricing does not currently exist for the medical systems we supply, if managed care or other organizations were able to affect discount pricing for such systems, it could result in lower prices to our customers from their customers and, in turn, reduce the amounts we can charge our customers for our products.

 

In addition to general health care industry cost-containment, the Centers for Medicare and Medicaid Services (CMS) released its final rule implementing section 216(a) of the Protecting Access to Medicare Act of 2014 (PAMA) that will require reporting entities to report private payer rates paid to laboratories for lab tests, which will be used to calculate Medicare payment rates. This final rule announced CMS’ decision to move the implementation date for the private payer rate-based fee schedule to January 1, 2018. Reporting entities, which would primarily be certain qualifying customers in the U.S. that derive a certain percentage and volume of their revenue from laboratory tests from Medicare, will report private payer rates for our laboratory tests which will serve under the act as a baseline for future reimbursement. Our product was only minimally impacted by PAMA for the year 2018 through 2020. However, should reimbursement for our products be reduced as a result of PAMA or other cost savings initiatives, this could negatively impact our pricing and commercialization of our products in the U.S.

 

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If we are subject to regulatory enforcement action as a result of our failure to comply with regulatory requirements, our commercial operations would be harmed.

 

While we received the 510(k) clearance and CLIA waiver that we were seeking, we will be subject to significant ongoing regulatory requirements, and if we fail to comply with these requirements, we could be subject to enforcement action by the FDA or state agencies, including:

 

  adverse publicity, warning letters, fines, injunctions, consent decrees and civil penalties;
  repair, replacement, refunds, recall or seizure of our product;
  operating restrictions or partial suspension or total shutdown of production;
  delay or refusal of our requests for 510(k) clearance or premarket approval of new products or of new intended uses or modifications to our existing product;
  refusal to grant export approval for our products;
  withdrawing 510(k) clearances or premarket approvals that have already been granted; and
  criminal prosecution.

 

If the government initiated any of these enforcement actions, our business could be harmed.

 

We are required to demonstrate and maintain compliance with the FDA’s Quality System Regulation, or the QSR. The QSR is a complex regulatory scheme that covers the methods and documentation of the design, testing, control, manufacturing, labeling, quality assurance, packaging, storage and shipping of our products. The FDA must determine that the facilities which manufacture and assemble our products that are intended for sale in the United States, as well as the manufacturing controls and specifications for these products, are compliant with applicable regulatory requirements, including the QSR. The FDA enforces the QSR through periodic unannounced inspections. The FDA has not yet inspected our facilities, and we cannot assure you that we will pass any future FDA inspection. Our failure, or the failure of our suppliers, to take satisfactory corrective action in response to an adverse QSR inspection could result in enforcement actions, including a public warning letter, a shutdown of our manufacturing operations, a recall of our product, civil or criminal penalties or other sanctions, which would significantly harm our available inventory and sales and cause our business to suffer.

 

If we are unable to fully comply with federal and state “fraud and abuse laws,” we could face substantial penalties, which may adversely affect our business, financial condition and results of operations.

 

We are subject to various laws pertaining to health care fraud and abuse, including the U.S. Anti- Kickback Statute, physician self-referral laws (the “Stark Law”), the U.S. False Claims Act, the U.S. False Statements Statute, the Physician Payment Sunshine Act, and state law equivalents to these U.S. federal laws, which may not be limited to government-reimbursed items and may not contain identical exceptions. Violations of these laws are punishable by criminal and civil sanctions, including, in some instances, civil and criminal penalties, damages, fines, exclusion from participation in U.S. federal and state health care programs, including Medicare and Medicaid, and the curtailment or restructuring of operations. Any action against us for violation of these laws could have a significant impact on our business. In addition, we are subject to the U.S. Foreign Corrupt Practices Act. Any action against us for violation by us or our agents or distributors of this act could have a significant impact on our business.

 

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If we fail to comply with contractual obligations and applicable laws and regulations governing the handling of patient identifiable medical information, we could suffer material losses or be adversely affected by exposure to material penalties and liabilities.

 

Many, if not all of our customers, are covered entities under the Health Insurance Portability and Accountability Act of August 1996 or HIPAA. As part of the operation of our business, we provide reimbursement assistance to certain of our customers and as a result we act in the capacity of a business associate with respect to any patient-identifiable medical information, or PHI, we receive in connection with these services. We and our customers must comply with a variety of requirements related to the handling of patient information, including laws and regulations protecting the privacy, confidentiality and security of PHI. The provisions of HIPAA require our customers to have business associate agreements with us under which we are required to appropriately safeguard the PHI we create or receive on their behalf. Further, we and our customers are required to comply with HIPAA security regulations that require us and them to implement certain administrative, physical and technical safeguards to ensure the confidentiality, integrity and availability of electronic PHI, or EPHI. We are required by regulation and contract to protect the security of EPHI that we create, receive, maintain or transmit for our customers consistent with these regulations. To comply with our regulatory and contractual obligations, we may have to reorganize processes and invest in new technologies. We also are required to train personnel regarding HIPAA requirements. If we, or any of our employees or consultants, are unable to maintain the privacy, confidentiality and security of the PHI that is entrusted to us, we and/or our customers could be subject to civil and criminal fines and sanctions and we could be found to have breached our contracts with our customers. Under the Health Information Technology for Economic and Clinical Health Act, or HITECH Act, and recent omnibus revisions to the HIPAA regulations, we are directly subject to HIPAA’s criminal and civil penalties for breaches of our privacy and security obligations and are required to comply with security breach notification requirements. The direct applicability of the HIPAA privacy and security provisions and compliance with the notification requirements requires us to incur additional costs and may restrict our business operations.

 

Our patents may not be valid, and we may not obtain and enforce patents to protect our proprietary rights from use by would-be competitors. Companies with other patents could require us to stop using or pay to use required technology.

 

Our owned and licensed patents may not be valid, and we may not obtain and enforce patents to maintain trade secret protection for our technology. The extent to which we are unable to do so could materially harm our business.

 

We have applied for, and intend to continue to apply for, patents relating to the TearLab® Osmolarity System and related technology and processes. Such applications may not result in the issuance of any patents, and any patents now held or that may be issued may not provide adequate protection from competition. Furthermore, it is possible that patents issued or licensed to us may be challenged successfully. In that event, if we have a preferred competitive position because of any such patents, any preferred position would be lost. If we are unable to secure or to continue to maintain a preferred position, the TearLab® Osmolarity System could become subject to competition from the sale of generic products.

 

Patents issued or licensed to us may be infringed by the products or processes of others. The cost of enforcing patent rights against infringers, if such enforcement is required, could be significant and the time demands could interfere with our normal operations. There has been substantial litigation and other proceedings regarding patent and other intellectual property rights in the pharmaceutical, biotechnology and medical technology industries. For example, we have recently been involved in litigation defending our patent rights in Canada. Efforts to defend our rights could incur significant costs and may or may not be resolved in our favor. We could become a party to additional patent litigation and other proceedings. The cost to us of any patent litigation, even if resolved in our favor, could be substantial. Some of our would-be competitors may sustain the costs of such litigation more effectively than we can because of their greater financial resources. Litigation also may absorb significant management time.

 

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Unpatented trade secrets, improvements, confidential know-how and continuing technological innovation are important to our future scientific and commercial success. Although we attempt, and will continue to attempt, to protect our proprietary information through reliance on trade secret laws and the use of confidentiality agreements with corporate partners, collaborators, employees and consultants and other appropriate means, these measures may not effectively prevent disclosure of our proprietary information, and, in any event, others may develop independently, or obtain access to, the same or similar information.

 

Certain of our patent rights are licensed to us by third parties. If we fail to comply with the terms of these license agreements, our rights to those patents may be terminated, and we will be unable to conduct our business.

 

It is possible that a court may find us to be infringing upon validly issued patents of third parties. In that event, in addition to the cost of defending the underlying suit for infringement, we may have to pay license fees and/or damages and may be enjoined from conducting certain activities. Obtaining licenses under third-party patents can be costly, and such licenses may not be available at all.

 

We may face future product liability claims.

 

The testing, manufacturing, marketing and sale of therapeutic and diagnostic products entail significant inherent risks of allegations of product liability. Our past use of the RHEO System and the components of the SOLX Glaucoma System in clinical trials and the commercial sale of those products may have exposed us to potential liability claims. Our use of the TearLab® Osmolarity System and its commercial sale could also expose us to liability claims. All of such claims might be made directly by patients, health care providers or others selling the products. We carry clinical trials and product liability insurance to cover certain claims that could arise, or that could have arisen, during our clinical trials or during the commercial use of our products. We currently maintain clinical trials and product liability insurance with aggregate annual coverage limits of $2.0 million. Such coverage, and any coverage obtained in the future, may be inadequate to protect us in the event of successful product liability claims, and we may not increase the amount of such insurance coverage or even renew it. A successful product liability claim could materially harm our business. In addition, substantial, complex or extended litigation could result in the incurrence of large expenditures and the diversion of significant resources.

 

If we do not introduce new commercially successful products in a timely manner, our products may become obsolete over time, customers may not buy our products and our revenue and profitability may decline.

 

Demand for our products may change in ways we may not anticipate because of:

 

  evolving customer needs;
  the introduction of new products and technologies; and
  evolving industry standards.

 

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Without the timely introduction of new commercially successful products and enhancements, our products may become obsolete over time, in which case our sales and operating results would suffer. The success of our new product offerings will depend on several factors, including our ability to:

 

  properly identify and anticipate customer needs;
  commercialize new products in a cost-effective and timely manner;
  manufacture and deliver products in sufficient volumes on time;
  obtain and maintain regulatory approval for such new products;
  differentiate our offerings from competitors’ offerings;
  achieve positive clinical outcomes; and
  provide adequate medical and/or consumer education relating to new products.

 

Moreover, innovations generally will require a substantial investment in research and development before we can determine the commercial viability of these innovations and we may not have the financial resources necessary to fund these innovations. In addition, even if we successfully develop enhancements or new generations of our products, these enhancements or new generations of products may not produce revenue in excess of the costs of development and they may be quickly rendered obsolete by changing customer preferences or the introduction by our competitors of products embodying new technologies or features.

 

We rely on a limited number of suppliers of each of the key components of the TearLab® Osmolarity System and are vulnerable to fluctuations in the availability and price of our suppliersproducts and services.

 

We purchase each of the key components of the TearLab® Osmolarity System from a limited number of third-party suppliers. Our suppliers may not provide the components or other products needed by us in the quantities requested, in a timely manner or at a price we are willing to pay. In the event we were unable to renew our agreements with our suppliers or they were to become unable or unwilling to continue to provide important components in the required volumes and quality levels or in a timely manner, or if regulations affecting the components were to change, we would be required to identify and obtain acceptable replacement supply sources. We may not be able to obtain alternative suppliers or vendors on a timely basis, or at all, which could disrupt or delay, or halt altogether, our ability to manufacture or deliver the TearLab® Osmolarity System. If any of these events should occur, our business, financial condition, cash flows and results of operations could be materially adversely affected.

 

We face intense competition, and our failure to compete effectively could have a material adverse effect on our results of operations.

 

We face intense competition in the markets for ophthalmic products and these markets are subject to rapid and significant technological change. Although we have no direct competitors, we have numerous potential competitors in the United States and abroad. We face potential competition from industry participants marketing conventional technologies for the measurement of osmolarity and other in-lab testing technologies, and commercially available methods, such as the Schirmer Test and ocular surface staining. Many of our potential competitors have substantially more resources and a greater marketing scale than we do. If we are unable to develop and produce or market our products to effectively compete against our competitors, our operating results will materially suffer.

 

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If we lose key personnel, or we do not attract and retain highly qualified personnel on a cost-effective basis, it would be more difficult for us to manage our existing business operations and to identify and pursue new growth opportunities.

 

Our success depends, in large part, upon our ability to attract and retain highly qualified scientific, clinical, manufacturing and management personnel. In addition, any difficulties in retaining key personnel or managing this growth could disrupt our operations. Future growth will require us to continue to implement and improve our managerial, operational and financial systems, and to continue to recruit, train and retain, additional qualified personnel, which may impose a strain on our administrative and operational infrastructure. The competition for qualified personnel in the medical technology field is intense. We are highly dependent on our continued ability to attract, motivate and retain highly qualified management, clinical and scientific personnel.

 

Due to our limited resources, we may not effectively recruit, train and retain additional qualified personnel. If we do not retain key personnel or manage our growth effectively, we may not implement our business plan effectively.

 

Furthermore, we have not entered into non-competition agreements with our key employees. In addition, we do not maintain “key person” life insurance on any of our officers, employees or consultants. The loss of the services of existing personnel, the failure to recruit additional key scientific, technical and managerial personnel in a timely manner, and the loss of our employees to our competitors would harm our research and development programs and our business.

 

If we fail to establish and maintain proper and effective internal controls, our ability to produce accurate financial statements on a timely basis could be impaired, which would adversely affect our consolidated operating results, our ability to operate our business and our stock price.

 

Ensuring that we have adequate internal financial and accounting controls and procedures in place to produce accurate financial statements on a timely basis is a costly and time-consuming effort that needs to be re-evaluated frequently. Failure on our part to maintain effective internal financial and accounting controls would cause our financial reporting to be unreliable, could have a material adverse effect on our business, operating results, financial condition and cash flows, and could cause the trading price of our common stock to fall dramatically.

 

Maintaining proper and effective internal controls will require substantial management time and attention and may result in our incurring substantial incremental expenses, including with respect to increasing the breadth and depth of our finance organization to ensure that we have personnel with the appropriate qualifications and training in certain key accounting roles and adherence to certain control disciplines within the accounting and reporting function. Any failure in internal controls or any errors or delays in our financial reporting would have a material adverse effect on our business and results of operations and could have a substantial adverse impact on the trading price of our common stock.

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP. Our management does not expect that our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Our management has identified control deficiencies in the past and may identify additional deficiencies in the future.

 

We cannot be certain that the actions we are taking to improve our internal controls over financial reporting will be sufficient or that any changes in processes and procedures can be completed in a timely manner. In future periods, if the process required by Section 404 of the Sarbanes-Oxley Act of 2002 reveals material weaknesses or significant deficiencies, the correction of any such material weaknesses or significant deficiencies could require additional remedial measures which could be costly and time-consuming. In addition, we may be unable to produce accurate financial statements on a timely basis. Any of the foregoing could cause investors to lose confidence in the reliability of our consolidated financial statements, which could cause the market price of our common stock to decline and make it more difficult for us to finance our operations and growth.

 

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Risks Related to Our Common Stock

 

Our common stock was delisted from The Nasdaq Capital Market, which could make trading in our common stock more difficult for investors, potentially leading to declines in our share price and liquidity and could limit our ability to raise additional capital.

 

Effective at the open of business on November 9, 2017, our common stock was suspended and effectively delisted from The Nasdaq Capital Market and began trading on the OTCQB. The delisting was the result of our non-compliance with Nasdaq Listing Rule 5550(b).

 

Our delisting from The Nasdaq Capital Market could make trading in our common stock more difficult for investors, potentially leading to declines in our share price and liquidity. Without The Nasdaq Capital Market listing, stockholders may have a difficult time getting a quote for the sale or purchase of our stock, the sale or purchase of our stock will likely be made more difficult and the trading volume and liquidity of our stock could decline. Our delisting from The Nasdaq Capital Market could also result in negative publicity and could also make it more difficult for us to raise additional capital. The absence of such a listing may adversely impact the acceptance of our common stock as currency or the value accorded by other parties. Further, following our delisting, we will also incur additional costs under state blue sky laws in connection with any sales of our securities. These requirements could severely limit the market liquidity of our common stock and the ability of our stockholders to sell our common stock in the secondary market.

 

Now that our common stock is traded on an over the counter quotation system, an investor may find it more difficult to sell our stock or obtain accurate quotations as to the market value of our common stock.

 

Following the delisting of our common stock, our common stock now falls within the definition of a “penny stock” as defined in the Securities Exchange Act of 1934, or the Exchange Act, and is covered by Rule 15g-9 of the Exchange Act. Rule 15g-9 imposes additional sales practice requirements on broker-dealers who sell securities to persons other than established customers and accredited investors. For transactions covered by Rule 15g-9, the broker-dealer must make a special suitability determination for the purchaser and receive the purchaser’s written agreement to the transaction prior to the sale. Consequently, Rule 15g-9 will affect the ability or willingness of broker-dealers to sell our securities, and accordingly will affect the ability of stockholders to sell their securities in the public market. These additional procedures could also limit our ability to raise additional capital in the future.

 

The trading price of our common stock may be volatile.

 

The market prices for, and the trading volumes of, securities of medical device companies, such as ours, have been historically volatile. The market has experienced, from time to time, significant price and volume fluctuations unrelated to the operating performance of particular companies. In addition, the fact that our common stock now trades on the OTCQB market could contribute to trading volumes in our shares being sporadic and volatility in the share price. If adverse market conditions exist, you may have difficulty selling your shares. The market price of our common shares may fluctuate significantly due to a variety of factors, including:

 

  the results of pre-clinical testing and clinical trials by us, our collaborators and/or our competitors;
  technological innovations or new diagnostic products;
  governmental regulations;
  developments in patent or other proprietary rights;
  litigation;
  public concern regarding the safety of products developed by us or others;
  comments by securities analysts;
  the issuance of additional shares to obtain financing or for acquisitions;
  general market conditions in our industry or in the economy as a whole;
  political instability, natural disasters, war and/or events of terrorism; and
  the impact of our delisting from The Nasdaq Capital Market.

 

In addition, the stock market in general has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of individual companies. Broad market and industry factors may seriously affect the market price of our stock, regardless of actual operating performance. In the past, securities class action litigation often follows periods of volatility in the overall market and market price of a particular company’s securities. This litigation, if instituted against us, could result in substantial costs and a diversion of our management’s attention and resources.

 

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Because we do not expect to pay dividends on our common stock, stockholders will benefit from an investment in our common stock only if it appreciates in value.

 

We have never paid cash dividends on our common stock and have no present intention to pay any dividends in the future. We are not profitable and may not earn sufficient revenue to meet all operating cash needs. As a result, we intend to use all available cash and liquid assets in the development of our business. Any future determination about the payment of dividends will be made at the discretion of our board of directors and will depend upon our earnings, if any, our capital requirements, our operating and financial conditions and on such other factors as our board of directors may deem relevant. As a result, the success of an investment in our common stock will depend upon any future appreciation in its value. There is no guarantee that our common stock will appreciate in value or even maintain the price at which stockholders have purchased their shares.

 

Warrant holders will not be entitled to any of the rights of common stockholders, but will be subject to all changes made with respect thereto.

 

If you hold warrants, you will not be entitled to any rights with respect to our common stock (including, without limitation, voting rights and rights to receive any dividends or other distributions on our common stock), but you will be subject to all changes affecting our common stock. You will have rights with respect to our common stock only if you receive our common stock upon exercise of the warrants and only as of the date when you become a record owner of the shares of our common stock upon such exercise. For example, if a proposed amendment to our charter or bylaws requires stockholder approval and the record date for determining the stockholders of record entitled to vote on the amendment occurs prior to the date that you are deemed to be the owner of the shares of our common stock due upon exercise of your warrants, you will not be entitled to vote on the amendment; although, you will nevertheless be subject to any changes in the powers, preferences or special rights of our common stock.

 

We can issue shares of preferred stock that may adversely affect the rights of holders of our common stock.

 

Our certificate of incorporation authorizes us to issue up to 10.0 million shares of preferred stock with designations, rights, and preferences determined from time to time by our board of directors. Accordingly, our board of directors is empowered, without stockholder approval, to issue preferred stock with dividend, liquidation, conversion, voting or other rights superior to those of holders of our common stock. For example, an issuance of shares of preferred stock could:

 

  adversely affect the voting power of the holders of our common stock;
  make it more difficult for a third party to gain control of us;
  discourage bids for our common stock at a premium;
  limit or eliminate any payments that the holders of our common stock could expect to receive upon our liquidation; or
  otherwise adversely affect the market price or our common stock.

 

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

 

None.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

 

Not applicable.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5. OTHER INFORMATION.

 

ITEM 6. EXHIBITS

 

Exhibit

Number

  Exhibit Description  

Incorporated

by Reference

         
31.1   CEO’s Certification required by Rule 13A-14(a) of the Securities Exchange Act of 1934.    
         
31.2   CFO’s Certification required by Rule 13A-14(a) of the Securities Exchange Act of 1934.    
         
32.1+   CEO’s Certification of periodic financial reports pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, U.S.C. Section 1350.    
         
32.2+   CFO’s Certification of periodic financial reports pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, U.S.C. Section 1350.    
         
101.INS*   XBRL Instance    
         
101.SCH*   XBRL Taxonomy Schema    
         
101.CAL*   XBRL Taxonomy Extension Calculation    
         
101.DEF*   XBRL Taxonomy Extension Definition    
         
101.LAB*   XBRL Taxonomy Extension Labels    
         
101.PRE*   SXBRL Taxonomy Extension Presentation    

 

*XBRL information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section.

 

+In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release No. 33-8238 and 34-47986, Final Rule: Management’s Reports on Internal Control Over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports, the certifications furnished pursuant to this item will not be deemed “filed” for purposes of Section 18 of the Exchange Act (15 U.S.C. 78r), or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference

 

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TearLab Corporation

 

SIGNATURE

 

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.

 

  TearLab Corp.
  (Registrant)
   
Date: May 10, 2019 /s/ Joseph Jensen
  Joseph Jensen
  Chief Executive Officer

 

 43 
 

 

EX-31.1 2 ex31-1.htm

 

Exhibit 31.1

 

CERTIFICATION PURSUANT TO RULE 13A-14 OR 15D-14 OF THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Joseph Jensen, certify that:

 

1. I have reviewed this Quarterly Report on Form 10-Q of TearLab Corporation;
   
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 have:

 

  a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under the Company’s supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, 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 the Company’s 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 the Company’s 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 the Company’s most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of Registrant’s board of directors (or persons performing the equivalent function):

 

  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.

 

Dated: May 10, 2019

 

  /s/ Joseph Jensen
  Joseph Jensen
  Chief Executive Officer

 

   
   

 

EX-31.2 3 ex31-2.htm

 

 

Exhibit 31.2

 

CERTIFICATION PURSUANT TO RULE 13A-14 OR 15D-14 OF THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Michael Marquez, certify that:

 

1. I have reviewed this Quarterly Report on Form 10-Q of TearLab Corporation;
   
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 have:

 

  a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under the Company’s supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, 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 the Company’s 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 the Company’s 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 the Company’s most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of Registrant’s board of directors (or persons performing the equivalent function):

 

  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.

 

Dated: May 10, 2019

 

   /s/ Michael Marquez
  Michael Marquez
  Chief Financial Officer

 

   
   

 

EX-32.1 4 ex32-1.htm

 

Exhibit 32.1

 

CERTIFICATION PURSUANT TO

18 U.S.C SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report on Form 10-Q of TearLab Corporation (the “Company”) for the quarter ended March 31, 2019, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Joseph Jensen, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

 

1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
   
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

  By: /s/ Joseph Jensen
    Joseph Jensen
    Chief Executive Officer

 

Dated: May 10, 2019

 

   
   

 

EX-32.2 5 ex32-2.htm

 

Exhibit 32.2

 

CERTIFICATION PURSUANT TO

18 U.S.C SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report on Form 10-Q of TearLab Corporation (the “Company”) for the quarter ended March 31, 2019, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael Marquez, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

 

1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
   
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

  By:  /s/ Michael Marquez
    Michael Marquez
    Chief Financial Officer

 

Dated: May 10, 2019

 

   
   

 

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expenditure and tooling Initial capex investment Long-term third-party payable Amortizaion Period Loss contingency damages paid Operating lease costs Short-term lease costs Variable lease costs Lease costs 2019 2020 2021 2022 2023 Total lease payments Less present value discount Present value of lease liabilities Weighted average remaining lease term Weighted average discount rate 2020 2021 2022 2023 2024 Thereafter Total Royalty rate Royalty expense Accrued royalties Additional agreement term. Amortizaion Period. Arrangements with Multiple Performance Obligations [Policy Text Block] Black-Scholes Merton Model [Member] CRG Warrants [Member] Canadian [Member] Capital expenditure limitation. Capitalized Tear Lab Equipment [Member] CRG LP Additional Warrants [Member] CRG LP [Member] Represents the employee stock purchase plan adopted during the period. ESPP Shares [Member]. Element represents title of individuals. i-Med Pharma, Inc. [Member] Initial agreement term. Manufacturing Equipment [Member] Maximum royalty payable on sale of combined products. Medical Equipment [Member] Milestone payments to be made based upon change in royalty. MiniFAB Agreement [Member] MiniFAB [Member] Minimum percentage of purchase. Non-statutory stock type options. Officer Director Or Consultant [Member] One Supplier [Member] Patents And Trademarks [Member] Payment or reimbursement of non-recurrent expenditure and tooling. Percentage of capital expenditures payable. Phase 1 [Member] Phase 2 [Member] Placement Agent Warrants [Member] Practical Expedients and Exemptions [Policy Text Block] Preferred Stock One [Member]. Prescriber List [Member] Purchase Agreements [Policy Text Block] Reader Equipment Rentals [Member] Rest of World [Member] Restated License Agreement [Member] Return Reserve [Policy Text Block] Revenue milestone payment percentage. Royalty payment, description. Royalty payment, percentage. Royalty rate. Second Tranche [Member]. Series A Convertible Preferred Stock [Member] Series A Warrants [Member] Series B Warrants [Member] State [Member] Name of share-based compensation plan. Supplier [Member] Supply Agreement [Member] Supply Agreement Pricing description. TearLab [Member] Tear Lab Technology [Member] Term Loan Agreement [Member] Term Loan [Member]. Terms of capital expenditure recovery. United States [Member] United States Tax Reform [Member] Use, Masters, and Flex Agreements [Policy Text Block] Warrants [Member] Right-of-use assets acquired through operating leases. Cash paid for operating leases. Prepaid Trade Shows Current. Prepaid Manufacturing Deposits Current, Prepaid Subscriptions Current. 2019 [Member] 2020 [Member] Additional facility fee percentage on principal. Minimum liquidity covenant amount. Payment of liquidity covenant. Term loan minimum annual revenue threshold. Term loan minimum reduced annual revenue threshold. Percentage of term loan prepayment fee rate. Percentage of reduction in annual prepayment fee. Fair value of detachable warrants, net. Percentage of options exercisable at a rate. Warrants exercisable date. Reduced warrants per share. Warrant expiraton date, description. Vehicle Leases [Member] Equipment Lease [Member] September 30, 2019 [Member] AUD [Member] Present value discount. TermLoanAgreementMember Preferred Stock [Member] WarrantsMember Assets, Current Assets Liabilities, Current Liabilities Stockholders' Equity Attributable to Parent Liabilities and Equity Cost of Goods and Services Sold Gross Profit Operating Expenses Operating Income (Loss) Nonoperating Income (Expense) Shares, Outstanding Adjustments to Additional Paid in Capital, Warrant Issued Share-based Payment Arrangement, Noncash Expense Gain (Loss) on Disposition of Property Plant Equipment, Excluding Oil and Gas Property and Timber Property Increase (Decrease) in Accounts Receivable Increase (Decrease) in Inventories Increase (Decrease) in Prepaid Expense and Other Assets Increase (Decrease) in Accounts Payable Increase (Decrease) in Accrued Liabilities Net Cash Provided by (Used in) Operating Activities Payments to Acquire Property, Plant, and Equipment Net Cash Provided by (Used in) Investing Activities Cash and Cash Equivalents, Period Increase (Decrease) Accounts Receivable, Allowance for Credit Loss, Current Inventory Valuation Reserves Accumulated Depreciation, Depletion and Amortization, Property, Plant, and Equipment Debt Issuance Costs, Current, Net Long-term Debt Debt Instrument, Unamortized Discount Lease, Cost Operating Leases, Future Minimum Payments, Remainder of Fiscal Year Operating Leases, Future Minimum Payments Due, Next Twelve Months Operating Leases, Future Minimum Payments Due Contractual Obligation, Due in Next Fiscal Year Contractual Obligation, Due in Second Year Contractual Obligation, Due in Third Year Contractual Obligation, Due in Fourth Year Contractual Obligation, Due after Fifth Year Contractual Obligation EX-101.PRE 11 tear-20190331_pre.xml XBRL PRESENTATION FILE XML 12 R1.htm IDEA: XBRL DOCUMENT v3.19.1
Document and Entity Information - shares
3 Months Ended
Mar. 31, 2019
May 03, 2019
Document And Entity Information    
Entity Registrant Name TearLab Corp  
Entity Central Index Key 0001299139  
Document Type 10-Q  
Document Period End Date Mar. 31, 2019  
Amendment Flag false  
Current Fiscal Year End Date --12-31  
Entity Filer Category Non-accelerated Filer  
Entity Small Business Flag true  
Entity Emerging Growth Company false  
Entity Ex Transition Period false  
Entity Common Stock, Shares Outstanding   12,196,998
Trading Symbol TEAR  
Document Fiscal Period Focus Q1  
Document Fiscal Year Focus 2019  
XML 13 R2.htm IDEA: XBRL DOCUMENT v3.19.1
Condensed Consolidated Balance Sheets (Unaudited) - USD ($)
$ in Thousands
Mar. 31, 2019
Dec. 31, 2018
Current assets    
Cash $ 8,860 $ 8,473
Accounts receivable, net 1,098 1,186
Inventory 2,207 1,987
Prepaid expenses and other current assets 632 690
Total current assets 12,797 12,336
Fixed assets, net 1,797 2,024
Intangible assets, net 2 2
Right of Use assets 738
Other non-current assets 150 151
Total assets 15,484 14,513
Current liabilities    
Accounts payable 1,319 681
Accrued liabilities 1,920 2,363
Deferred revenue/rent 7 13
Current portion of long-term debt 7,981
Current portion of lease liability 221
Total current liabilities 11,448 3,057
Long-term debt, net of current portion 25,381 32,014
Long-term lease liability, net of current portion 518
Long-term third party payable 113 111
Total liabilities 37,460 35,182
Commitments and contingencies (Note 8)
Stockholders' deficit    
Capital stock
Preferred Stock, $0.001 par value, 10,000,000 shares authorized, 380 and 556 issued and outstanding at March 31, 2019 and December 31, 2018, respectively
Common stock, $0.001 par value, 40,000,000 shares authorized, 11,696,998 and 11,296,998 issued and outstanding at March 31, 2019 and December 31, 2018, respectively 12 11
Additional paid-in capital 510,411 510,380
Accumulated deficit (532,399) (531,060)
Total stockholders' deficit (21,976) (20,669)
Total liabilities and stockholders' deficit $ 15,484 $ 14,513
XML 14 R3.htm IDEA: XBRL DOCUMENT v3.19.1
Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) - $ / shares
Mar. 31, 2019
Dec. 31, 2018
Statement of Financial Position [Abstract]    
Preferred stock, par value $ 0.001 $ 0.001
Preferred stock, shares authorized 10,000,000 10,000,000
Preferred stock, shares issued 380 556
Preferred stock, shares outstanding 380 556
Common stock, par value $ 0.001 $ 0.001
Common stock, shares authorized 40,000,000 40,000,000
Common stock, shares issued 11,696,998 11,296,998
Common stock, shares outstanding 11,696,998 11,296,998
XML 15 R4.htm IDEA: XBRL DOCUMENT v3.19.1
Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Revenue    
Total revenue $ 5,683 $ 6,446
Cost of goods sold    
Gross profit 3,600 4,322
Operating expenses    
Sales and marketing 875 1,020
Clinical, regulatory and research & development 874 1,041
General and administrative 1,844 2,044
Total operating expenses 3,593 4,105
Income from operations 7 217
Other income (expense)    
Interest income (expense) (1,350) (1,105)
Other, net 4 5
Total other income (expense) (1,346) (1,100)
Net loss and comprehensive loss $ (1,339) $ (883)
Weighted average shares outstanding - basic and fully diluted 11,559,220 9,562,122
Net loss per share $ (0.12) $ (0.09)
Product Sales [Member]    
Revenue    
Total revenue $ 4,996 $ 5,775
Cost of goods sold    
Cost of goods sold 1,930 1,836
Reader Equipment Rentals [Member]    
Revenue    
Total revenue 687 671
Cost of goods sold    
Cost of goods sold $ 153 $ 288
XML 16 R5.htm IDEA: XBRL DOCUMENT v3.19.1
Condensed Consolidated Statements of Stockholders' Deficit - USD ($)
$ in Thousands
Common Stock [Member]
Series A Convertible Preferred Stock [Member]
Additional Paid-in Capital [Member]
Accumulated Deficit [Member]
Total
Balance at Dec. 31, 2017 $ 8 $ 510,235 $ (528,809) $ (18,566)
Balance, Shares at Dec. 31, 2017 7,986,998 2,012      
Series A Convertible Preferred conversion to common $ 2 (2)
Series A Convertible Preferred conversion to common, shares 2,452,000 (1,078)      
Stock-based compensation 8 8
Common stock warrants issued (3) (3)
Net loss and comprehensive loss (883) (883)
Balance at Mar. 31, 2018 $ 10 510,238 (529,692) (19,444)
Balance, Shares at Mar. 31, 2018 10,438,998 934      
Balance at Dec. 31, 2018 $ 11 510,380 (531,060) (20,669)
Balance, Shares at Dec. 31, 2018 11,296,998 556      
Series A Convertible Preferred conversion to common $ 1 1
Series A Convertible Preferred conversion to common, shares 400,000 (176)      
Stock-based compensation 31 31
Net loss and comprehensive loss (1,339) (1,339)
Balance at Mar. 31, 2019 $ 12 $ 510,411 $ (532,399) $ (21,976)
Balance, Shares at Mar. 31, 2019 11,696,998 380      
XML 17 R6.htm IDEA: XBRL DOCUMENT v3.19.1
Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
OPERATING ACTIVITIES    
Net loss for the period $ (1,339) $ (883)
Adjustments to reconcile net loss to cash used in operating activities:    
Stock-based compensation 31 8
Depreciation of fixed assets 221 353
Amortization of intangible assets 3
Deferred interest on long-term debt 1,007 914
Amortization of debt discount 343 193
Loss on disposal of equipment 17
Changes in operating assets and liabilities:    
Accounts receivable, net 88 84
Inventory (220) 314
Prepaid expenses and other assets 59 111
Accounts payable 638 (647)
Accrued liabilities (443) (210)
Deferred rent/revenue (4) (8)
Cash provided by operating activities 398 232
INVESTING ACTIVITIES    
Additions to fixed assets (11) (73)
Cash used in investing activities (11) (73)
FINANCING ACTIVITIES    
Cash provided by financing activities
Increase in cash during the period 387 159
Cash, beginning of period 8,473 7,272
Cash, end of period 8,860 7,431
Supplemental cash flow information    
Right-of-use assets acquired through operating leases 801
Cash paid for operating leases $ 88
XML 18 R7.htm IDEA: XBRL DOCUMENT v3.19.1
Basis of Presentation
3 Months Ended
Mar. 31, 2019
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Basis of Presentation

1. BASIS OF PRESENTATION

 

Nature of Operations

 

TearLab Corporation (“TearLab” or the “Company”), a Delaware corporation, is an ophthalmic device company that is commercializing a proprietary in vitro diagnostic tear testing platform, the TearLab® Osmolarity System to test for dry eye disease, or DED, which enables eye care practitioners to test for highly sensitive and specific biomarkers using nanoliters of tear film at the point-of-care.

 

The accompanying condensed consolidated financial statements include the accounts of the Company and all of its wholly owned subsidiaries. Intercompany accounts and transactions have been eliminated on consolidation.

 

Liquidity and Going Concern

 

The accompanying condensed consolidated financial statements have been prepared on the going concern basis, which assumes that the Company will continue to operate as a going concern and which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The Company has sustained substantial losses of $1,339 and $883 for the three months ended March 31, 2019 and 2018, respectively. Based on the Company’s expected rate of cash consumption in the latter quarters of 2019, the Company estimates it will need additional capital in the first quarter of 2020 and its prospects for obtaining that capital are uncertain. The Company may be able to raise either additional debt financing or additional equity financing. However, the Company can make no assurances that it will be able to raise the required additional capital, either through debt or equity financing, on acceptable terms or at all. Unless the Company succeeds in raising additional capital or successfully increases cash generated from operations, the Company anticipates that it will be unable to continue operations through the end of the first quarter of 2020 without violating an existing covenant on the Term Loan Agreement, including the inability to make our debt payment due within twelve months (see Note 5). As a result of the Company’s historical losses and financial condition, there is substantial doubt about the Company’s ability to continue as a going concern.

XML 19 R8.htm IDEA: XBRL DOCUMENT v3.19.1
Significant Accounting Policies
3 Months Ended
Mar. 31, 2019
Accounting Policies [Abstract]  
Significant Accounting Policies

2. SIGNIFICANT ACCOUNTING POLICIES

 

The Condensed Consolidated Balance Sheet at December 31, 2018 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States (“U.S. GAAP”) for complete financial statements. These unaudited interim condensed consolidated financial statements have been prepared using significant accounting policies that are consistent with the policies used in preparing the Company’s audited consolidated financial statements for the year ended December 31, 2018. The audited financial statements for the year ended December 31, 2018, filed with the SEC with the Company’s annual report on Form 10-K on March 22, 2019 include a summary of significant accounting policies and should be read in conjunction with this Form 10-Q. Management believes that all adjustments necessary for the fair presentation of results, consisting of normal recurring items, have been included in the unaudited condensed consolidated financial statements for the interim periods presented.

 

TearLab Corporation

 

Use of Estimates

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. The principal areas of judgment relate to revenue and inventory reserves, allowance for doubtful accounts, impairment of long-lived and intangible assets, and the fair value of stock options and warrants.

 

Revenue Recognition

 

Revenue is recognized when obligations under the terms of a contract with our customer are satisfied; generally, this occurs with the transfer of control of our products or services. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services which includes estimates of variable consideration that results from returns, rebates or test card replacements. The Company records allowances for returns or rebates and reports revenue net of such amounts, which was immaterial for the three months ended March 31, 2019 and 2018, respectively. Sales and other taxes we collect concurrent with revenue-producing activities are excluded from revenue. The Company’s payment terms are typically upon shipment or net 30.

 

The Company sells its proprietary TearLab® Osmolality System and related test cards to external customers, who are primarily eye care professionals, for use in osmolality testing procedures. Revenue is primarily derived from the sale of disposable test cards. Products are generally shipped from a distribution and warehousing facility located in San Diego, California. The Company’s sales are currently direct to customers in the United States and to distributors in the rest of the world.

 

The Company enters into contracts where revenue is derived either from agreements whereby the customer is provided the right to use the TearLab® Osmolarity System (reader equipment) at no separate cost to the customer in consideration for a minimum or implied purchase commitment of disposable test cards over the related contract term (referred to as either “Use Agreements”, “Masters Agreements” or “Flex Agreements”), or from agreements to sell the reader equipment and disposable test cards at their stand-alone selling price with no contractual future purchase commitment (referred to as “Purchase Agreements”).

 

Use, Masters, and Flex Agreements

 

Purchase commitments for Use Agreements and Flex Agreements are expressed in the agreement for a specified period of time (generally one to three years). The purchase commitment for Masters Agreements is implied for large physician practices with an expectation of purchasing certain levels of test cards. The Company recovers the cost of providing the reader equipment in the amount charged for disposable test cards. Two performance obligations exist under these contracts, related to the customers’ right to use the reader equipment and orders of test cards. As the customer has the ability and right to operate the reader equipment in a manner it determines as well as obtain the output from using the reader equipment, the revenue related to the reader equipment use performance obligation is recognized in accordance with ASC 842 – Leases, wherein revenue related to the reader equipment is recognized over the defined contract term. Revenue related to disposable test cards is recognized as the disposable test cards are shipped. Based on the nature of these contracts, which provide terms for the future purchase of test cards but do not contractually obligate the customer to do so, each purchase of test cards is treated as its own distinct contract with a performance obligation to provide the test cards ordered, memorialized by the customers’ purchase order/request. Revenue under such agreements is allocated between the lease of the reader equipment and the sale of the disposables based upon each component’s relative standalone selling price, which is estimated using the selling prices of the reader device and test cards under Purchase Agreements, discussed further below.

 

When reader equipment is placed with a customer at no separate cost, the Company retains title to the equipment and it remains capitalized on the Company’s Consolidated Balance Sheet as equipment classified within fixed assets, net. The equipment is depreciated on a straight-line basis once shipped to a customer location over its estimated useful life and depreciation expense is included in cost of goods sold within the Condensed Consolidated Statements of Operations and Comprehensive Loss.

 

Purchase Agreements

 

Revenue recognition for Purchase Agreements is based on the individual performance obligations determined to exist in the contract. Since the reader equipment and the test cards are separate and distinct delivered items, the delivery of each are considered separate performance obligations. The reader equipment and test cards are separately identified under the Purchase Agreements and are sold at their standalone selling price. The Company recognizes revenue for each of the performance obligations only when it determines that all applicable recognition criteria have been met, which is usually upon shipment to the customer. Under Purchase Agreements, the customer is not contractually obligated to purchase additional test cards, and each subsequent order of test cards represents a separate and distinct contract with the performance obligation to provide the test cards ordered.

 

Amounts billed to customers for shipping and handling of a sales transaction are included as revenue. For the three months ended March 31, 2019 and 2018, the Company recognized revenue from shipping and handling of $33 and $39, respectively.

 

TearLab Corporation

 

The following table presents our revenues disaggregated by revenue source. Sales and usage-based taxes are excluded from revenues:

 

    Three months ended March 31,  
    2019     2018  
             
Product Sales   $ 4,996     $ 5,775  
Reader Equipment Rentals     687       671  
    $ 5,683     $ 6,446  

 

Arrangements with Multiple Performance Obligations

 

Our contracts with customers may include multiple performance obligations. For such arrangements, we allocate revenue to each performance obligation based on its relative standalone selling price. We generally determine standalone selling prices based on the separate prices charged to customers for the reader device and test cards under Purchase Agreements.

 

Return Reserve

 

Although the Company has a no return policy for its products, the Company has established a return reserve for product sales that contain an implicit right of return. The Company reserves for estimated returns or refunds by reducing revenue at the time of shipment based on historical experience. The reserve of $6 as of March 31, 2019 and December 31, 2018, respectively, has been recorded as a reduction of revenue and is included in accounts receivable.

 

Practical Expedients and Exemptions

 

We generally expense outside sales commissions when incurred because the amortization period would have been one year or less. These costs are recorded within sales and marketing expenses.

 

We do not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed.

 

Leases

 

On January 1, 2019, the Company adopted the Financial Accounting Standards Board (‘FASB’) Accounting Standards Update (‘ASU’) 2016-02, Leases, which requires the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous guidance. The original guidance required application on a modified retrospective basis with the earliest period presented. In August 2018, the FASB issued ASU 2018-11, Targeted Improvements to ASC 842, which included an option to not restate comparative periods in transition and elect to use the effective date of ASC 842, Leases, as the date of initial application of transition, which the Company elected. Lease arrangements are determined at the inception of the contract with and included in right-of-use (“ROU”) assets and long-term lease liabilities on the consolidated balance sheets. The adoption of ASC 842 had an immaterial impact on our Condensed Consolidated Statement of Operations and Comprehensive Loss and Condensed Consolidated Statement of Cash Flows for the three-month period ended March 31, 2019. Additionally, the Company has elected the package practical expedient with respect to lease definition, classification and direct costs. In addition, the Company elected not to apply ASC Topic 842 to arrangements with lease terms of 12 month or less. Additional information and disclosures required by the new standard are contained in Note 8.

 

Recent accounting pronouncements

 

In June 2018, the FASB issued Accounting Standards Update (“ASU”) No. 2018-07, “Compensation – Stock Compensation (Topic 718).” ASU 2018-07 simplifies the accounting for nonemployee share-based payment transactions. This ASU is effective for public entities for interim and annual reporting periods beginning after December 15, 2018. The Company adopted ASU 2018-07 effective January 1, 2019 with an immaterial impact to our financial statements.

XML 20 R9.htm IDEA: XBRL DOCUMENT v3.19.1
Balance Sheet Details
3 Months Ended
Mar. 31, 2019
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Balance Sheet Details

3. BALANCE SHEET DETAILS

 

Accounts receivable

 

    March 31, 2019     December 31, 2018  
             
Trade receivables   $ 1,207     $ 1,324  
Allowance for doubtful accounts     (109 )     (138 )
    $ 1,098     $ 1,186  

 

Inventory

 

Inventory is recorded at the lower of cost and net realizable value on a first-in, first-out basis and consists of finished goods.

 

    March 31, 2019     December 31, 2018  
             
Finished goods   $ 2,207     $ 1,987  
Inventory reserves     -       -  
    $ 2,207     $ 1,987  

 

The Company evaluates inventory for estimated excess quantities and obsolescence, based on expected future sales levels and projections of future demand, and establishes inventory reserves for obsolete and excess inventories. In addition, the Company assesses the impact of changing technology and market conditions. The Company has entered into a long-term purchase commitment to buy the test cards from MiniFAB (Note 8). As part of its analysis of excess or obsolete inventories, the Company considers future annual minimum purchases, estimated future usage and the expiry dating of the cards to determine if any inventory reserve is needed.

 

Prepaid expenses and other current assets

 

    March 31, 2019     December 31, 2018  
Prepaid trade shows   $ 107     $ 18  
Prepaid insurance     249       322  
Manufacturing deposits     111       111  
Subscriptions     132       140  
Other fees and services     32       98  
Other current assets     1       1  
    $ 632     $ 690  

 

 Fixed assets

 

    March 31, 2019     December 31, 2018  
Capitalized TearLab equipment   $ 6,742     $ 6,922  
Manufacturing equipment     317       317  
Leasehold improvements     13       13  
Computer equipment and software     836       846  
Furniture and office equipment     368       368  
Medical equipment     1,429       1,366  
    $ 9,705     $ 9,832  
Less accumulated depreciation     (7,908 )     (7,808 )
    $ 1,797     $ 2,024  

 

Depreciation expense was $221 and $353 during the three months ended March 31, 2019 and 2018, respectively.

 

Accrued liabilities

 

    March 31, 2019     December 31, 2018  
Due to professionals   $ 17     $ 17  
Due to employees and directors     760       1,289  
Sales and use tax liabilities     268       257  
Royalty liability     263       290  
Warranty     58       74  
Other     554       436  
    $ 1,920     $ 2,363  

XML 21 R10.htm IDEA: XBRL DOCUMENT v3.19.1
Intangible Assets
3 Months Ended
Mar. 31, 2019
Goodwill and Intangible Assets Disclosure [Abstract]  
Intangible Assets

4. INTANGIBLE ASSETS

 

The Company’s intangible assets consist of the value of TearLab® Technology acquired in the acquisition of TearLab Research, Inc., a wholly-owned subsidiary of the Company and a prescriber list. The TearLab Technology, which consists of a disposable lab card and card reader, supported by an array of patents and patent applications that are either held or in-licensed by the Company. Amortization expense for the three months ended March 31, 2019 and 2018 was $0.1 and $3, respectively.

 

Intangible assets subject to amortization consist of the following:

 

   

Remaining

Useful Life

    Gross Value at     Accumulated     Net Book Value at  
    (Years)     March 31, 2019     Amortization     March 31, 2019  
                         
TearLab® technology   0     $ 12,172     $ (12,172 )   $ -  
Patents and trademarks   1       271       (269 )     2  
Prescriber list   0       90       (90 )     -  
Total         $ 12,533     $ (12,531 )   $ 2  

 

    Gross Value at     Accumulated     Net Book Value at  
    December 31, 2018     Amortization     December 31, 2018  
                   
TearLab® technology   $ 12,172     $ (12,172 )   $           -  
Patents and trademarks     271       (269 )     2  
Prescriber list     90       (90 )     -  
Total   $ 12,533     $ (12,531 )   $ 2  

 

The estimated amortization expense for the intangible assets for the remainder of 2019 and thereafter is as follows:

 

    Amortization  
    of intangible  
    assets  
       
Remainder of 2019   $             1  
Thereafter     1  
    $ 2  

XML 22 R11.htm IDEA: XBRL DOCUMENT v3.19.1
Term Loan
3 Months Ended
Mar. 31, 2019
Debt Disclosure [Abstract]  
Term Loan

5. TERM LOAN

 

On March 4, 2015, the Company executed a term loan agreement (the “Term Loan Agreement”) with CRG LP and certain of its affiliate funds (“CRG”) as lenders providing the Company with access of up to $35,000 under the arrangement. The Company received $15,000 in gross proceeds under the arrangement on March 4, 2015, and an additional $10,000 on October 6, 2015. The Term Loan Agreement matures on December 31, 2020 and bears interest at 13% per annum, with quarterly payments of interest only for the first four years. While interest on the loan is accrued at 13% per annum, the Company may elect to make interest-only payments at 8.5% per annum. The unpaid interest of 4.5% is added to the principal of the loan and is subject to additional accrued interest (“PIK interest”). The accrued interest can be deferred and paid together with the principal in the fifth and sixth years.

 

As part of Amendment No. 2 to the Term Loan Agreement, and funding of the second tranche, CRG received 35,000 warrants dated as of October 6, 2015 to purchase common shares of the Company at a price of $50.00 per share (the “2015 CRG Warrants”). The 2015 CRG Warrants have a five-year life and are classified as equity on the Consolidated Balance Sheets as of March 31, 2019 and 2018. The 2015 CRG Warrants were valued at their issuance date using the Black-Scholes Merton model. The related reduction of the long-term debt will be amortized over the life of the debt. On April 7, 2016, the Company entered into Amendment No. 4 to the Term Loan Agreement and the company issued CRG additional warrants to purchase 35,000 common shares of the Company’s stock at $15.00 per share (the “2016 CRG Warrants” and together with the 2015 CRG Warrants, the “CRG Warrants”), which expire 5 years after issuance.

 

On October 12, 2017, the Company entered into Amendment No. 5 to the Term Loan Agreement. This amendment reduced the exercise price of all of the CRG Warrants from $15.00 per share to $1.50 per share and provided broad anti-dilution protection such that the CRG Warrants maintained the same 1.22% ownership following any capital raises the Company completed through March 31, 2018.

 

On April 4, 2018 with an effective date of March 31, 2018, the Company entered into Amendment No. 6 to the Term Loan Agreement. Pursuant to the terms of this amendment, the cash interest payments due in 2018 were deferred and added to the principal balance under the Loan Agreement at the end of each quarter. This amendment also provided for an additional facility fee equal to 3% of the sum of the aggregate amount of the principal drawn under the Term Loan Agreement and any PIK loans issued, so that the total facility fee shall be 9.5%, applicable to the entire balance (the “Facility Fee”). The Facility Fee is being accrued to interest expense using the effective interest method. In addition, this amendment reduced the minimum liquidity covenant to $3 million. Concurrent with the reduction of the liquidity covenant the Company agreed to repay CRG $1.0 million of principal on the Term Loan Agreement in April 2018. Lastly, this amendment reduced the strike price of the existing CRG Warrants to $0.44 per share (see Note 6). The Amendment was accounted for as a modification in accordance with U.S. GAAP.

 

On November 12, 2018 the Company entered into Amendment No. 7 to the Term Loan Agreement. Pursuant to the terms of the agreement, the Amendment extended the “Interest-Only Period” under the Term Loan Agreement from the sixteenth (16th) payment date to the twentieth (20th) payment date following the first borrowing date, which has the effect of pushing out the principal payments to 2020. In addition, the cash interest payments under the Term Loan Agreement for periods ending on March 31, 2019 and June 30, 2019 will be deferred and added to the principal balance under the Term Loan Agreement at the end of each such quarter. The Company evaluated the amendment and it was accounted for as a modification in accordance with GAAP, with no incremental expense incurred. Additionally, if the Federal Drug Administration (“FDA”) receives and accepts our application for review of our DiscoveryTM Platform on or before June 30, 2019 the Company may elect to pay the interest on the outstanding principal amount of the loans under the Term Loan Agreement payable during the quarter ended September 30, 2019 entirely in the form of a PIK Loan. Finally, the Amendment reduced the minimum required revenue for 2018 under the Term Loan Agreement from $25 million to $24 million.

  

The loan is collateralized by all assets of the Company. Additionally, the terms of the Term Loan Agreement contain various affirmative and negative covenants agreed to by the Company. Among them, the Company must attain minimum certain annual revenue and minimum cash threshold levels. The minimum revenue is $38,000 for 2019 and $45,000 for 2020.

 

If the Company does not have annual revenue greater or equal to the annual revenue covenant in a calendar year, the Company will have the right within 90 days of the end of the respective calendar year to raise subordinated debt or equity (the “CRG Equity Cure”) equal to twice the difference between the annual revenue and the revenue covenant, with the total proceeds from this financing to be used to reduce the principal of the Term Loan Agreement. In the event of a default, the Company may be required to repay any outstanding amounts earlier than anticipated, and CRG may foreclose on their security interest in the Company’s assets.

 

At March 31, 2019, the Company was in compliance with all of the covenants.

 

The Company incurred financing and legal fees associated with the debt of $606, which were recorded as a direct discount to the debt and are being amortized using the effective interest method. The Company presents the debt issuance costs related to the recognized debt liability on the Consolidated Balance Sheet as a reduction of the liability.

 

The Term Loan Agreement provided for prepayment fees of 5% of the outstanding balance of the loan if the loan was repaid prior to March 31, 2016. The prepayment fee is reduced 1% per year for each subsequent year until maturity.

 

The following is a summary of the Term Loan Agreement as of March 31, 2019 and related maturities of outstanding principal:

 

Principal balance outstanding   $ 24,000  
PIK interest     7,922  
Facility fee     1,738  
less discount on term loan:        
deferred financing fees, net     (148 )
detachable warrants, net     (150 )
    $ 33,362  
Less, current portion of Term loan     7,981  
Total Term Loan   $ 25,381  

 

Principal due for each of the next two years:

 

2019   -  
2020     33,660  
Total principal due     33,660  
Less: discount on term loan     (298 )
Total term loan   $ 33,362  
XML 23 R12.htm IDEA: XBRL DOCUMENT v3.19.1
Stockholders' Equity
3 Months Ended
Mar. 31, 2019
Equity [Abstract]  
Stockholders' Equity

6. STOCKHOLDERS’ EQUITY

 

(a) Authorized share capital

 

On October 12, 2017, the stockholders of the Company approved an amendment to the Company’s Amended and Restated Certificate of Incorporation to increase the number of authorized shares of common stock from 9,500,000 to 40,000,000. 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 December 8, 2017, the Company issued 2,013,636 shares of common stock, 2,114 shares of Series A Convertible Preferred Stock (“Preferred Stock”), Series A warrants to purchase 6,818,181 shares of common Stock (“Series A Warrants”) and Series B warrants to purchase 6,818,181 shares of common stock (“Series B Warrants”) for gross proceeds of $3,000, less issuance costs of $596. Additionally, the Company granted the placement agent compensation warrants to purchase 477,273 shares of common stock. The Preferred Stock is convertible, subject to certain limitations, into an aggregate of 4,804,545 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.

 

As of March 31, 2019, 1,734 shares of Series A Preferred Stock have been converted into 3,940,909 shares of common stock. 

 

(c) Stock Incentive Plan

 

On June 23, 2017, the Company’s stockholders approved an amendment to the 2002 Stock Incentive Plan (the “Stock Incentive Plan”), to increase the total number of shares reserved for issuance to 1,070,000 from 720,000. Stock Incentive Plan shares are available for grant to employees, directors and consultants. Shares 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.

 

Share-based payment transactions with employees are recognized in the condensed consolidated 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  
    March 31,  
    2019     2018  
             
Sales and marketing   $ 8     $ 18  
Clinical, regulatory and research and development     4       8  
General and administrative     19       (18 )
Stock-based compensation expense before income taxes   $ 31     $ 8  

 

(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 28,601 shares of the Company’s common stock were reserved for issuance under the plan, which permits eligible employees to purchase common stock at a discount through payroll deductions. In 2018 the Company’s Board of Directors terminated the ESPP.

 

(e) Warrants

 

On October 8, 2015, as part of Amendment No. 2 to the Term Loan Agreement and funding of the $10,000 tranche, CRG received warrants to purchase 35,000 common shares in the Company at a price of $50.00 per share (the “2015 CRG Warrants”). The 2015 CRG Warrants are exercisable any time prior to October 8, 2020. The 2015 CRG Warrants are classified as equity on the Condensed Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018. The 2015 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 three months ended March 31, 2019 or 2018.

 

On April 7, 2016, as part of Amendment No. 4 to the Term Loan Agreement, the exercise price of the 2015 CRG Warrants was changed to allow the holder to purchase 35,000 common shares in the Company at a price of $15.00 per share and CRG was issued an additional 35,000 warrants to purchase common shares at an exercise price of $15.00 (the “2016 CRG Warrants” and, together with the 2015 CRG Warrants, the “CRG Warrants”). The modification to the terms of the 2015 CRG Warrants resulted in a change in fair value of $54 which was included as interest expense. 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 1,253,500 shares of common stock for $11.25 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.

 

On October 12, 2017, as part of Amendment No. 5 to the Term Loan Agreement, the exercise price of the CRG Warrants was changed to allow the holder to purchase common shares in the Company at a price of $1.50 per share as well as provide broad anti-dilution protection such that the CRG Warrants shall maintain the same 1.22% ownership following any capital raises the Company completed through March 31, 2018. The modification to the terms of the CRG Warrants resulted in a change in fair value of $44 which was included as interest expense. The 2015 CRG Warrants change in fair value was calculated using the Black-Scholes Merton model with both exercise prices, assuming volatility of 94%, an expected life of 2.99 years, a risk-free interest rate of 1.70% and 0% dividend yield. The 2016 CRG Warrants change in fair value was calculated using the Black-Scholes Merton model with both exercise prices, assuming volatility of 90%, an expected life of 3.48 years, a risk-free interest rate of 1.80% and 0% dividend yield.

 

On December 8, 2017, the Company issued Series A Warrants to purchase 6,818,181 shares of common stock for $0.44 per share and Series B Warrants to purchase 6,818,181 shares of common stock for $0.44 per share in conjunction with shares of common stock and Series A Convertible Preferred stock issued on that same date. The Series A Warrants were exercisable immediately and expire 5 years after the issuance 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 88%, an expected life of 5 years, a risk free interest rate of 2.14% and a 0% dividend yield and are classified as equity on the Condensed Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018. The Series B Warrants were exercisable immediately and expired 6 months after the issuance date. Fair value of the Series B Warrants for purposes of allocating the net proceeds of the equity offering, was determined using the Black-Scholes Merton model assuming a volatility of 158.6%, an expected life of 6 months, a risk free rate of 1.45% and a 0% dividend yield and are classified as equity on the Condensed Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018. All Series B Warrants expired on June 7, 2018 with no warrants exercised. In addition, we granted the placement agent compensation warrants to purchase 477,273 shares of common stock at $0.55 per share. The compensation warrants are in the same form as Series A Warrants, excluding the exercise price, and will terminate on the five-year anniversary date. The placement agent warrants are classified as equity on the Condensed Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018.

 

In connection with the December 2017 offering the Company issued CRG warrants to purchase 83,240 shares of common stock at an exercise price of $1.50 (“2017 CRG Warrants”) as a result of triggering the anti-dilution clause of the debt amendment (see Note 5). The anti-dilution clause is considered down-round protection, however the Company early adopted ASU 2017-11 and therefore the down-round feature is excluded from the consideration of whether the warrants are indexed to the Company’s own stock and therefore the warrants are not required to be liabilities under the guidance. The 2017 CRG Warrants are classified as equity on the Condensed Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018 and were valued at $30 upon issuance using the Black-Scholes Merton model assuming volatility of 88%, an expected life of 5 years, a risk-free interest rate of 2.14% and 0% dividend yield. On April 4, 2018, in connection with Amendment No. 6 to the Term Loan Agreement, the strike price of all existing CRG warrants was reduced to $0.44 per share (see Note 5). The modification to the terms of the CRG Warrants and the 2017 CRG Warrants resulted in a change in fair value of $10 which was included as interest expense.

XML 24 R13.htm IDEA: XBRL DOCUMENT v3.19.1
Net Income (Loss) Per Share
3 Months Ended
Mar. 31, 2019
Earnings Per Share [Abstract]  
Net Income (Loss) Per Share

7. NET INCOME (LOSS) PER SHARE

 

Basic earnings per share (“EPS”) excludes dilutive securities and is computed by dividing net loss available to common stockholders by the weighted average number of shares of common stock outstanding for the year. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted and the resulting additional shares are dilutive because their inclusion decreases the amount of EPS.

 

The following securities were not included in the calculation of diluted earnings per share because their effects were anti-dilutive:

 

(in thousands of shares)   As of March 31,  
    2019     2018  
Stock options     891       629  
Warrants     8,702       15,520  
Convertible preferred shares     -       1  
                 
Total     9,593       16,150  

XML 25 R14.htm IDEA: XBRL DOCUMENT v3.19.1
Commitments and Contingencies
3 Months Ended
Mar. 31, 2019
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies

8. COMMITMENTS AND CONTINGENCIES

 

Leases

 

Operating lease right-of-use (“ROU”) assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most leases do not provide an implicit rate, we use an incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred. The lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option.

 

The Company has commitments relating to operating leases recognized on a straight-line basis over the term of the lease for rental of two office spaces and various equipment from unrelated parties. Our California office lease was signed May 1, 2018, with a commencement date of July 1, 2018, expires on November 30, 2023 and has an option for a 5-year extension and escalating payments. On December 21, 2018 the Company entered into a fourth amendment to our Texas office lease to extend the term of the lease until December 31, 2019. In addition, the Company has vehicle leases expiring at various times through January 2021, and an equipment lease expiring in December 2021.

 

The adoption of ASC Topic 842 resulted in the Company recognizing right of use assets of $738 and a lease liability of $739, with the difference due the write-off of prior recorded deferred rent.

 

The components of lease costs were as follows:

 

    Three months ended  
    March 31, 2019  
Operating lease costs   $       88  
Short-term lease costs     -  
Variable lease costs     -  
    $ 88  

 

Future minimum lease payments under non-cancellable leases as of March 31, 2019 were as follows:

 

2019   $ 238  
2020     202  
2021     184  
2022     164  
2023     169  
Total lease payments     957  
Less present value discount     218  
Present value of lease liabilities   $ 739  
Weighted average remaining lease term     3.9  
Weighted average discount rate     13 %

 

Commitments

 

On May 1, 2018 with an effective date of July 1, 2017 the Company entered into a Restated License Agreement (the “Agreement”) to its exclusive license agreement for the commercial development of the invention disclosed in UCSD Disclosure Docket No. SD2002-180 and titled “Volume Independent Tear Film Osmometer” (UCSD License Agreement #2003-03-0433), dated as of March 12, 2003, as amended by Amendment 1, dated as of June 9, 2003, Amendment 2, dated as of September 5, 2005, Amendment 3, dated as of July 7, 2006, Amendment 4, dated as of October 9, 2006, and Amendment 5, dated as of July 9, 2007, by and among the Company and The Regents of the University of California (collectively the “Existing License”) to amend certain terms related to royalties under the Agreement and treatment upon a change of control transaction. The Company is required to make royalty payments of anywhere from 3% to 4.25% based on quarterly net sales. Additionally, the Company is required to pay a royalty of 20% of any sublicense fees it receives. Should a change of control transaction occur during the term of the agreement the royalty rates would range anywhere from 3.5% to 4.75% based on quarterly net sales and the Company would have to make a milestone payment of $0.5 million. In addition, if the Company has not commenced commercial sales of the TearLab DiscoveryTM Platform on or before July 1, 2019 the Company will be required to pay a milestone payment of 1.25% of cumulative net sales for the two-year period following the effective date of the amendment. 

 

Effective October 1, 2006 the Company entered into a second patent license and royalty agreement with the University of California San Diego to obtain an exclusive license to make, use, sell, offer for sale, and import TearLab technology in development. Starting in 2009, the Company was required to make minimum royalty payments of $35 or 5.5% of gross sales per year, whichever is higher. However, if this new technology is combined with existing technology, the maximum royalty payable on the sale of the combined products would be 5.5% of gross sales per year. As the new technology is currently in development, there is no revenue and the minimum royalty payment of $35 is applicable.

 

Future minimum royalty payments under this agreement as of March 31, 2019 are as follows:

 

2020     35  
2021     35  
2022     35  
2023     35  
2024     35  
Thereafter     210  
Total   $ 385  

 

On March 7, 2016, the Company, through its subsidiary, TearLab Research, Inc., entered into a supply and development agreement (“Supply Agreement”) with MiniFAB (Aust) Pty Ltd (“MiniFAB”). The agreement is an exclusive supply agreement through June 2021, for the purchase and delivery of individual osmolarity test cards with the freight costs borne by MiniFab. The Company has the benefit of a lower purchase price and certain savings from freight costs will remain in place throughout the agreement. The Supply Agreement requires, in any given 6 calendar months, the Company must place aggregate purchase orders equal to at least 50% of the orders forecasted for that 6-month period at its onset. The Supply Agreement can be extended by either party for a term of five years with the option for the Company to buyout the exclusive supply provision during any extended term. This Supply Agreement replaces the August 2011 agreement between MiniFAB and the Company. On August 9, 2018 the Company entered into an addendum to the 2016 Manufacturing and Supply and Development Agreement with MiniFab. The amendment fixes the price of the osmolarity test cards at their current price until the earlier of: the average monthly order volume of osmolarity cards on a rolling six month average falls below 20,000 cards; or the aggregate product volume in the calendar year commencing 12 months after the launch of the DiscoveryTM product is below 2.4 million cards; or the aggregate product volume in any calendar year after 24 months after the launch of the DiscoveryTM product is below 3.0 million cards at which point the Company and MiniFab will renegotiate pricing.

 

On August 9, 2018, the Company entered into a manufacturing, supply and development agreement (the “MiniFAB Agreement”) with MiniFAB. Pursuant to the terms of the MiniFAB Agreement, MiniFAB will manufacture and supply test cards for the Company’s next generation platform, the TearLab Discovery™ System. The MiniFAB Agreement is exclusive through the first term of 10 years and automatically renews for an additional term of 5 years unless either party cancels. TearLab will pay for 65% of the capital expenditures under the MiniFAB Agreement (“capex”) as incurred and MiniFAB will pay for the remaining 35% of capex, which will be recoverable from TearLab through an amortized cost component in the price for the product charged to TearLab once the monthly card volumes reach 200,000 per month. The capex amounts are limited to an aggregate of $1.0 million AUD for the initial development and production phase (“Phase 1”) and anticipated to be in the vicinity of $3.0 million AUD for further investment of production capacity (“Phase 2”). In addition, TearLab will be responsible for the payment or reimbursement of all non-recurrent expenditure and tooling, limited to $1.2 million AUD for Phase 1 and estimated at $2.0 million AUD for Phase 2. In December 2018, the Company made an initial capex investment of $317 for a machine that was placed into fixed assets and is being amortized over a 15-year period as well as a corresponding $113 of long-term third-party payable for capex to be amortized through the card cost component for the three months ending March 31, 2019.

 

In the normal course of business, the Company enters into purchase obligations for future goods and services needed for the operations of the business. Such commitments are not in excess of expected requirements and are not reasonably likely to result in performance penalties or payments that would have a material adverse effect on the Company’s liquidity.

 

Contingencies

 

We are not currently a party to any litigation, nor are we aware of any pending or threatened litigation against us, that we believe would materially affect our business, operating results, financial condition or cash flows. Our industry is characterized by frequent claims and litigation including securities litigation, claims regarding patent and other intellectual property rights and claims for product liability. As a result, in the future, we may be involved in various legal proceedings from time to time.

 

We initiated a patent infringement lawsuit against i-Med Pharma, Inc. in February 2016 alleging infringement of our Canadian patent. In February 2018, the Federal Court of Canada issued a ruling in favor of i-Med Pharma, Inc. which invalidated specific claims in our Canadian patent which were alleged to be infringed. We are appealing this ruling to the Canadian Federal Appellate Court. As part of the ruling, the Federal Court ruling awarded costs to i-Med Pharma, Inc., for $0.5 million. The final $0.2 million was paid in April 2018. We do not believe the outcome of this litigation will materially affect our business, operating results, financial condition or cash flows.

XML 26 R15.htm IDEA: XBRL DOCUMENT v3.19.1
Related Party
3 Months Ended
Mar. 31, 2019
Related Party Transactions [Abstract]  
Related Party

9. RELATED PARTY

 

The Company has an agreement with its Chief Scientific Officer whereas if the Company enters into an agreement with UCSD to reduce the overall royalty rate the Company shall pay to its Chief Scientific Officer a royalty on net sales equal to one and a half percent of the percent change in the UCSD royalty rate. The restated UCSD patent license and royalty agreement (see Note 8) resulted in a royalty due at a rate of 0.68%. Related party royalty expense was $38 and $0 as of March 31, 2019 and 2018, respectively. The Company had $78 and $40 in accrued royalties at March 31, 2019 and December 31, 2018, respectively for the related party royalty.

XML 27 R16.htm IDEA: XBRL DOCUMENT v3.19.1
Significant Accounting Policies (Policies)
3 Months Ended
Mar. 31, 2019
Accounting Policies [Abstract]  
Use of Estimates

Use of Estimates

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. The principal areas of judgment relate to revenue and inventory reserves, allowance for doubtful accounts, impairment of long-lived and intangible assets, and the fair value of stock options and warrants.

Revenue Recognition

Revenue Recognition

 

Revenue is recognized when obligations under the terms of a contract with our customer are satisfied; generally, this occurs with the transfer of control of our products or services. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services which includes estimates of variable consideration that results from returns, rebates or test card replacements. The Company records allowances for returns or rebates and reports revenue net of such amounts, which was immaterial for the three months ended March 31, 2019 and 2018, respectively. Sales and other taxes we collect concurrent with revenue-producing activities are excluded from revenue. The Company’s payment terms are typically upon shipment or net 30.

 

The Company sells its proprietary TearLab® Osmolality System and related test cards to external customers, who are primarily eye care professionals, for use in osmolality testing procedures. Revenue is primarily derived from the sale of disposable test cards. Products are generally shipped from a distribution and warehousing facility located in San Diego, California. The Company’s sales are currently direct to customers in the United States and to distributors in the rest of the world.

 

The Company enters into contracts where revenue is derived either from agreements whereby the customer is provided the right to use the TearLab® Osmolarity System (reader equipment) at no separate cost to the customer in consideration for a minimum or implied purchase commitment of disposable test cards over the related contract term (referred to as either “Use Agreements”, “Masters Agreements” or “Flex Agreements”), or from agreements to sell the reader equipment and disposable test cards at their stand-alone selling price with no contractual future purchase commitment (referred to as “Purchase Agreements”).

Use, Masters, and Flex Agreements

Use, Masters, and Flex Agreements

 

Purchase commitments for Use Agreements and Flex Agreements are expressed in the agreement for a specified period of time (generally one to three years). The purchase commitment for Masters Agreements is implied for large physician practices with an expectation of purchasing certain levels of test cards. The Company recovers the cost of providing the reader equipment in the amount charged for disposable test cards. Two performance obligations exist under these contracts, related to the customers’ right to use the reader equipment and orders of test cards. As the customer has the ability and right to operate the reader equipment in a manner it determines as well as obtain the output from using the reader equipment, the revenue related to the reader equipment use performance obligation is recognized in accordance with ASC 842 – Leases, wherein revenue related to the reader equipment is recognized over the defined contract term. Revenue related to disposable test cards is recognized as the disposable test cards are shipped. Based on the nature of these contracts, which provide terms for the future purchase of test cards but do not contractually obligate the customer to do so, each purchase of test cards is treated as its own distinct contract with a performance obligation to provide the test cards ordered, memorialized by the customers’ purchase order/request. Revenue under such agreements is allocated between the lease of the reader equipment and the sale of the disposables based upon each component’s relative standalone selling price, which is estimated using the selling prices of the reader device and test cards under Purchase Agreements, discussed further below.

 

When reader equipment is placed with a customer at no separate cost, the Company retains title to the equipment and it remains capitalized on the Company’s Consolidated Balance Sheet as equipment classified within fixed assets, net. The equipment is depreciated on a straight-line basis once shipped to a customer location over its estimated useful life and depreciation expense is included in cost of goods sold within the Condensed Consolidated Statements of Operations and Comprehensive Loss.

Purchase Agreements

Purchase Agreements

 

Revenue recognition for Purchase Agreements is based on the individual performance obligations determined to exist in the contract. Since the reader equipment and the test cards are separate and distinct delivered items, the delivery of each are considered separate performance obligations. The reader equipment and test cards are separately identified under the Purchase Agreements and are sold at their standalone selling price. The Company recognizes revenue for each of the performance obligations only when it determines that all applicable recognition criteria have been met, which is usually upon shipment to the customer. Under Purchase Agreements, the customer is not contractually obligated to purchase additional test cards, and each subsequent order of test cards represents a separate and distinct contract with the performance obligation to provide the test cards ordered.

 

Amounts billed to customers for shipping and handling of a sales transaction are included as revenue. For the three months ended March 31, 2019 and 2018, the Company recognized revenue from shipping and handling of $33 and $39, respectively.  

 

The following table presents our revenues disaggregated by revenue source. Sales and usage-based taxes are excluded from revenues:

 

    Three months ended March 31,  
    2019     2018  
             
Product Sales   $ 4,996     $ 5,775  
Reader Equipment Rentals     687       671  
    $ 5,683     $ 6,446  

Arrangements with Multiple Performance Obligations

Arrangements with Multiple Performance Obligations

 

Our contracts with customers may include multiple performance obligations. For such arrangements, we allocate revenue to each performance obligation based on its relative standalone selling price. We generally determine standalone selling prices based on the separate prices charged to customers for the reader device and test cards under Purchase Agreements.

Return Reserve

Return Reserve

 

Although the Company has a no return policy for its products, the Company has established a return reserve for product sales that contain an implicit right of return. The Company reserves for estimated returns or refunds by reducing revenue at the time of shipment based on historical experience. The reserve of $6 as of March 31, 2019 and December 31, 2018, respectively, has been recorded as a reduction of revenue and is included in accounts receivable.

Practical Expedients and Exemptions

Practical Expedients and Exemptions

 

We generally expense outside sales commissions when incurred because the amortization period would have been one year or less. These costs are recorded within sales and marketing expenses.

 

We do not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed.

Leases

Leases

 

On January 1, 2019, the Company adopted the Financial Accounting Standards Board (‘FASB’) Accounting Standards Update (‘ASU’) 2016-02, Leases, which requires the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous guidance. The original guidance required application on a modified retrospective basis with the earliest period presented. In August 2018, the FASB issued ASU 2018-11, Targeted Improvements to ASC 842, which included an option to not restate comparative periods in transition and elect to use the effective date of ASC 842, Leases, as the date of initial application of transition, which the Company elected. Lease arrangements are determined at the inception of the contract with and included in right-of-use (“ROU”) assets and long-term lease liabilities on the consolidated balance sheets. The adoption of ASC 842 had an immaterial impact on our Condensed Consolidated Statement of Operations and Comprehensive Loss and Condensed Consolidated Statement of Cash Flows for the three-month period ended March 31, 2019. Additionally, the Company has elected the package practical expedient with respect to lease definition, classification and direct costs. In addition, the Company elected not to apply ASC Topic 842 to arrangements with lease terms of 12 month or less. Additional information and disclosures required by the new standard are contained in Note 8.

Recent Accounting Pronouncements

Recent accounting pronouncements

 

In June 2018, the FASB issued Accounting Standards Update (“ASU”) No. 2018-07, “Compensation – Stock Compensation (Topic 718).” ASU 2018-07 simplifies the accounting for nonemployee share-based payment transactions. This ASU is effective for public entities for interim and annual reporting periods beginning after December 15, 2018. The Company adopted ASU 2018-07 effective January 1, 2019 with an immaterial impact to our financial statements.

XML 28 R17.htm IDEA: XBRL DOCUMENT v3.19.1
Significant Accounting Policies (Tables)
3 Months Ended
Mar. 31, 2019
Accounting Policies [Abstract]  
Schedule of Disaggregated Revenues

The following table presents our revenues disaggregated by revenue source. Sales and usage-based taxes are excluded from revenues:

 

    Three months ended March 31,  
    2019     2018  
             
Product Sales   $ 4,996     $ 5,775  
Reader Equipment Rentals     687       671  
    $ 5,683     $ 6,446  

XML 29 R18.htm IDEA: XBRL DOCUMENT v3.19.1
Balance Sheet Details (Tables)
3 Months Ended
Mar. 31, 2019
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Schedule of Accounts Receivable

Accounts receivable

 

    March 31, 2019     December 31, 2018  
             
Trade receivables   $ 1,207     $ 1,324  
Allowance for doubtful accounts     (109 )     (138 )
    $ 1,098     $ 1,186  

Schedule of Inventory

Inventory 

 

    March 31, 2019     December 31, 2018  
             
Finished goods   $ 2,207     $ 1,987  
Inventory reserves     -       -  
    $ 2,207     $ 1,987  

Summary of Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets

 

    March 31, 2019     December 31, 2018  
Prepaid trade shows   $ 107     $ 18  
Prepaid insurance     249       322  
Manufacturing deposits     111       111  
Subscriptions     132       140  
Other fees and services     32       98  
Other current assets     1       1  
    $ 632     $ 690  

Schedule of Fixed Assets

 Fixed assets

 

    March 31, 2019     December 31, 2018  
Capitalized TearLab equipment   $ 6,742     $ 6,922  
Manufacturing equipment     317       317  
Leasehold improvements     13       13  
Computer equipment and software     836       846  
Furniture and office equipment     368       368  
Medical equipment     1,429       1,366  
    $ 9,705     $ 9,832  
Less accumulated depreciation     (7,908 )     (7,808 )
    $ 1,797     $ 2,024  

Schedule of Accrued Liabilities

Accrued liabilities

 

    March 31, 2019     December 31, 2018  
Due to professionals   $ 17     $ 17  
Due to employees and directors     760       1,289  
Sales and use tax liabilities     268       257  
Royalty liability     263       290  
Warranty     58       74  
Other     554       436  
    $ 1,920     $ 2,363  

XML 30 R19.htm IDEA: XBRL DOCUMENT v3.19.1
Intangible Assets (Tables)
3 Months Ended
Mar. 31, 2019
Goodwill and Intangible Assets Disclosure [Abstract]  
Schedule of Amortization of Intangible Assets

Intangible assets subject to amortization consist of the following:

 

   

Remaining

Useful Life

    Gross Value at     Accumulated     Net Book Value at  
    (Years)     March 31, 2019     Amortization     March 31, 2019  
                         
TearLab® technology   0     $ 12,172     $ (12,172 )   $ -  
Patents and trademarks   1       271       (269 )     2  
Prescriber list   0       90       (90 )     -  
Total         $ 12,533     $ (12,531 )   $ 2  

 

    Gross Value at     Accumulated     Net Book Value at  
    December 31, 2018     Amortization     December 31, 2018  
                   
TearLab® technology   $ 12,172     $ (12,172 )   $           -  
Patents and trademarks     271       (269 )     2  
Prescriber list     90       (90 )     -  
Total   $ 12,533     $ (12,531 )   $ 2  

Schedule of Estimated Amortization Expense of Intangible Assets

The estimated amortization expense for the intangible assets for the remainder of 2019 and thereafter is as follows:

 

    Amortization  
    of intangible  
    assets  
       
Remainder of 2019   $             1  
Thereafter     1  
    $ 2  

XML 31 R20.htm IDEA: XBRL DOCUMENT v3.19.1
Term Loan (Tables)
3 Months Ended
Mar. 31, 2019
Debt Disclosure [Abstract]  
Schedule of Term Loan

The following is a summary of the Term Loan Agreement as of March 31, 2019 and related maturities of outstanding principal:

 

Principal balance outstanding   $ 24,000  
PIK interest     7,922  
Facility fee     1,738  
less discount on term loan:        
deferred financing fees, net     (148 )
detachable warrants, net     (150 )
    $ 33,362  
Less, current portion of Term loan     7,981  
Total Term Loan   $ 25,381  

Schedule of Maturities of Outstanding Principal of Term Loan

Principal due for each of the next two years:

 

2019   -  
2020     33,660  
Total principal due     33,660  
Less: discount on term loan     (298 )
Total term loan   $ 33,362  

XML 32 R21.htm IDEA: XBRL DOCUMENT v3.19.1
Stockholders' Equity (Tables)
3 Months Ended
Mar. 31, 2019
Equity [Abstract]  
Schedule of Stock-Based Compensation Expense

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  
    March 31,  
    2019     2018  
             
Sales and marketing   $ 8     $ 18  
Clinical, regulatory and research and development     4       8  
General and administrative     19       (18 )
Stock-based compensation expense before income taxes   $ 31     $ 8  

XML 33 R22.htm IDEA: XBRL DOCUMENT v3.19.1
Net Income (Loss) Per Share (Tables)
3 Months Ended
Mar. 31, 2019
Earnings Per Share [Abstract]  
Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share

The following securities were not included in the calculation of diluted earnings per share because their effects were anti-dilutive:

 

(in thousands of shares)   As of March 31,  
    2019     2018  
Stock options     891       629  
Warrants     8,702       15,520  
Convertible preferred shares     -       1  
                 
Total     9,593       16,150  

XML 34 R23.htm IDEA: XBRL DOCUMENT v3.19.1
Commitments and Contingencies (Tables)
3 Months Ended
Mar. 31, 2019
Commitments and Contingencies Disclosure [Abstract]  
Schedule of Components of Lease Costs

The components of lease costs were as follows:

 

    Three months ended  
    March 31, 2019  
Operating lease costs   $       88  
Short-term lease costs     -  
Variable lease costs     -  
    $ 88  

Schedule of Future Minimum Lease Payments Under Non-cancellable Leases

Future minimum lease payments under non-cancellable leases as of March 31, 2019 were as follows:

 

2019   $ 238  
2020     202  
2021     184  
2022     164  
2023     169  
Total lease payments     957  
Less present value discount     218  
Present value of lease liabilities   $ 739  
Weighted average remaining lease term     3.9  
Weighted average discount rate     13 %

Schedule of Future Minimum Royalty Payments

Future minimum royalty payments under this agreement as of March 31, 2019 are as follows:

 

2020     35  
2021     35  
2022     35  
2023     35  
2024     35  
Thereafter     210  
Total   $ 385  

XML 35 R24.htm IDEA: XBRL DOCUMENT v3.19.1
Basis of Presentation (Details Narrative) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Organization, Consolidation and Presentation of Financial Statements [Abstract]    
Net income (loss) $ 1,339 $ 883
XML 36 R25.htm IDEA: XBRL DOCUMENT v3.19.1
Significant Accounting Policies (Details Narrative) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Dec. 31, 2018
Revenue recognized $ 5,683 $ 6,446  
Reserve of product sales 6   $ 6
Shipping and Handling [Member]      
Revenue recognized $ 33 $ 39  
XML 37 R26.htm IDEA: XBRL DOCUMENT v3.19.1
Significant Accounting Policies - Schedule of Disaggregated Revenues (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Total revenue $ 5,683 $ 6,446
Product Sales [Member]    
Total revenue 4,996 5,775
Reader Equipment Rentals [Member]    
Total revenue $ 687 $ 671
XML 38 R27.htm IDEA: XBRL DOCUMENT v3.19.1
Balance Sheet Details (Details Narrative) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Organization, Consolidation and Presentation of Financial Statements [Abstract]    
Depreciation expense $ 221 $ 353
XML 39 R28.htm IDEA: XBRL DOCUMENT v3.19.1
Balance Sheet Details - Schedule of Accounts Receivable (Details) - USD ($)
$ in Thousands
Mar. 31, 2019
Dec. 31, 2018
Organization, Consolidation and Presentation of Financial Statements [Abstract]    
Trade receivables $ 1,207 $ 1,324
Allowance for doubtful accounts (109) (138)
Accounts receivable net $ 1,098 $ 1,186
XML 40 R29.htm IDEA: XBRL DOCUMENT v3.19.1
Balance Sheet Details - Schedule of Inventory (Details) - USD ($)
$ in Thousands
Mar. 31, 2019
Dec. 31, 2018
Organization, Consolidation and Presentation of Financial Statements [Abstract]    
Finished goods $ 2,207 $ 1,987
Inventory reserves
Inventory net $ 2,207 $ 1,987
XML 41 R30.htm IDEA: XBRL DOCUMENT v3.19.1
Balance Sheet Details - Summary of Prepaid Expenses and Other Current Assets (Details) - USD ($)
$ in Thousands
Mar. 31, 2019
Dec. 31, 2018
Organization, Consolidation and Presentation of Financial Statements [Abstract]    
Prepaid trade shows $ 107 $ 18
Prepaid insurance 249 322
Manufacturing deposits 111 111
Subscriptions 132 140
Other fees and services 32 98
Other current assets 1 1
Prepaid expense and other current assets $ 632 $ 690
XML 42 R31.htm IDEA: XBRL DOCUMENT v3.19.1
Balance Sheet Details - Schedule of Fixed Assets (Details) - USD ($)
$ in Thousands
Mar. 31, 2019
Dec. 31, 2018
Property plant and equipment, gross $ 9,705 $ 9,832
Less accumulated depreciation (7,908) (7,808)
Property plant and equipment net 1,797 2,024
Capitalized TearLab Equipment [Member]    
Property plant and equipment, gross 6,742 6,922
Manufacturing Equipment [Member]    
Property plant and equipment, gross 317 317
Leasehold Improvements [Member]    
Property plant and equipment, gross 13 13
Computer Equipment and Software [Member]    
Property plant and equipment, gross 836 846
Furniture and Office Equipment [Member]    
Property plant and equipment, gross 368 368
Medical Equipment [Member]    
Property plant and equipment, gross $ 1,429 $ 1,366
XML 43 R32.htm IDEA: XBRL DOCUMENT v3.19.1
Balance Sheet Details - Schedule of Accrued Liabilities (Details) - USD ($)
$ in Thousands
Mar. 31, 2019
Dec. 31, 2018
Organization, Consolidation and Presentation of Financial Statements [Abstract]    
Due to professionals $ 17 $ 17
Due to employees and directors 760 1,289
Sales and use tax liabilities 268 257
Royalty liability 263 290
Warranty 58 74
Other 554 436
Accrued liabilities current $ 1,920 $ 2,363
XML 44 R33.htm IDEA: XBRL DOCUMENT v3.19.1
Intangible Assets (Details Narrative) - USD ($)
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Goodwill and Intangible Assets Disclosure [Abstract]    
Amortization expense $ 100 $ 3,000
XML 45 R34.htm IDEA: XBRL DOCUMENT v3.19.1
Intangible Assets - Schedule of Amortization of Intangible Assets (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2019
Dec. 31, 2018
Gross Value $ 12,533 $ 12,533
Accumulated Amortization (12,531) (12,531)
Net Book Value $ 2 2
TearLab Technology [Member]    
Remaining Useful Life (Years) 0 years  
Gross Value $ 12,172 12,172
Accumulated Amortization (12,172) (12,172)
Net Book Value
Patents and Trademarks [Member]    
Remaining Useful Life (Years) 1 year  
Gross Value $ 271 271
Accumulated Amortization (269) (269)
Net Book Value $ 2 2
Prescriber List [Member]    
Remaining Useful Life (Years) 0 years  
Gross Value $ 90 90
Accumulated Amortization (90) (90)
Net Book Value
XML 46 R35.htm IDEA: XBRL DOCUMENT v3.19.1
Intangible Assets - Schedule of Estimated Amortization Expense of Intangible Assets (Details) - USD ($)
$ in Thousands
Mar. 31, 2019
Dec. 31, 2018
Total $ 2 $ 2
Indefinite-lived Intangible Assets [Member]    
Remainder of 2019 1  
Thereafter 1  
Total $ 2  
XML 47 R36.htm IDEA: XBRL DOCUMENT v3.19.1
Term Loan (Details Narrative) - USD ($)
$ / shares in Units, $ in Thousands
3 Months Ended
Apr. 04, 2018
Oct. 06, 2015
Mar. 04, 2015
Mar. 31, 2019
Dec. 31, 2018
Mar. 31, 2018
Oct. 12, 2017
Apr. 07, 2016
Mar. 31, 2016
Oct. 08, 2015
Long-term debt       $ 25,381 $ 32,014          
Financing and legal fees to long-term debt       1,738            
Term Loan Agreement [Member] | 2019 [Member]                    
Term loan minimum annual revenue threshold       38            
Term Loan Agreement [Member] | 2020 [Member]                    
Term loan minimum annual revenue threshold       $ 45            
CRG Warrants [Member]                    
Warrants to purchase common shares               35,000   35,000
Warrants exercise price               $ 15.00   $ 50.00
Warrants term       5 years   5 years        
Term Loan Agreement [Member] | CRG LP Additional Warrants [Member]                    
Warrants to purchase common shares               35,000    
Warrants exercise price             $ 1.50 $ 15.00    
Warrants term               5 years    
Ownership percentage             1.22%      
CRG LP [Member] | Term Loan Agreement [Member]                    
Additional facility fee percentage on principal 3.00%                  
Facility fee percentage on principal 9.50%                  
Minimum liquidity covenant amount $ 3,000                  
Payment of liquidity covenant $ 1,000                  
CRG LP [Member] | CRG Warrants [Member] | Term Loan Agreement [Member]                    
Warrants exercise price $ 0.44                  
Term Loan Agreement [Member] | CRG LP [Member]                    
Long-term debt     $ 35,000              
Proceeds from issuance of long-term debt     $ 15,000              
Debt instrument date     Dec. 31, 2020              
Debt instrument interest rate percentage     13.00%              
Warrants to purchase common shares   35,000                
Warrants exercise price   $ 50.00                
Ownership percentage             1.22%      
Financing and legal fees to long-term debt       $ 606            
Percentage of prepayment fee                 5.00%  
Percentage of reduction in annual prepayment fee                 1.00%  
Term Loan Agreement [Member] | CRG LP [Member] | September 30, 2019 [Member]                    
Term loan minimum annual revenue threshold       25,000            
Term loan minimum reduced annual revenue threshold       $ 24,000            
Term Loan Agreement [Member] | CRG LP [Member] | Maximum [Member]                    
Warrants exercise price             $ 15.00      
Term Loan Agreement [Member] | CRG LP [Member] | Minimum [Member]                    
Warrants exercise price             $ 1.50      
Term Loan Agreement [Member] | CRG LP [Member] | Interest-Only Payment [Member]                    
Debt instrument interest rate percentage     8.50%              
Term Loan Agreement [Member] | CRG LP [Member] | Unpaid Interest With Principal [Member]                    
Debt instrument interest rate percentage     4.50%              
Term Loan Agreement [Member] | CRG LP [Member] | Second Tranche [Member]                    
Proceeds from issuance of long-term debt   $ 10,000                
XML 48 R37.htm IDEA: XBRL DOCUMENT v3.19.1
Term Loan - Schedule of Term Loan (Details) - USD ($)
$ in Thousands
Mar. 31, 2019
Dec. 31, 2018
Debt Disclosure [Abstract]    
Principal balance outstanding $ 24,000  
PIK interest 7,922  
Facility fee 1,738  
Less discount on term loan: deferred financing fees, net (148)  
Less discount on term loan: detachable warrants, net (150)  
Term Loan 33,362  
Less, current portion of Term loan 7,981
Total Term Loan $ 25,381 $ 32,014
XML 49 R38.htm IDEA: XBRL DOCUMENT v3.19.1
Term Loan - Schedule of Maturities of Outstanding Principal of Term Loan (Details) - USD ($)
$ in Thousands
Mar. 31, 2019
Dec. 31, 2018
Total principal due $ 33,362  
Total term loan 25,381 $ 32,014
Term Loan Agreement [Member]    
2019  
2020 33,660  
Total principal due 33,660  
Less: discount on term loan (298)  
Total term loan $ 33,362  
XML 50 R39.htm IDEA: XBRL DOCUMENT v3.19.1
Stockholders' Equity (Details Narrative) - USD ($)
$ / shares in Units, $ in Thousands
3 Months Ended 12 Months Ended
Apr. 04, 2018
Dec. 08, 2017
Oct. 12, 2017
Jun. 23, 2017
May 09, 2016
Apr. 07, 2016
Oct. 08, 2015
Mar. 31, 2019
Mar. 31, 2018
Dec. 31, 2018
Dec. 31, 2017
Common stock shares authorized     9,500,000         40,000,000   40,000,000  
Common stock par value     $ 0.001         $ 0.001   $ 0.001  
Preferred stock shares authorized     10,000,000         10,000,000   10,000,000  
Preferred stock par value     $ 0.001         $ 0.001   $ 0.001  
Stock issued during period, shares new issue   2,013,636                  
Preferred stock, issued               380   556  
2002 Stock Incentive Plan [Member]                      
Share-based compensation common stock purchase price percentage               10.00%      
Share-based compensation expiration period               10 years      
Expected weighted-average period               5 years      
2002 Stock Incentive Plan [Member] | Maximum [Member]                      
Share-based compensation common stock purchase price percentage       110.00%              
2002 Stock Incentive Plan [Member] | Maximum [Member] | Officer Director Or Consultant [Member]                      
Percentage of options exercisable at a rate                   20.00%  
2002 Stock Incentive Plan [Member] | Maximum [Member] | Non-Statutory Stock Options [Member]                      
Share-based compensation common stock purchase price percentage       85.00%              
2002 Stock Incentive Plan [Member] | Minimum [Member]                      
Share-based compensation common stock purchase price percentage       10.00%              
2002 Stock Incentive Plan [Member] | Employees, Directors and Consultants [Member]                      
Share-based compensation number of shares reserved for issuance       720,000              
2002 Stock Incentive Plan [Member] | Employees, Directors and Consultants [Member] | Maximum [Member]                      
Share-based compensation number of shares reserved for issuance       1,070,000              
Employee Stock Purchase Plan 2014 [Member]                      
Common stock capital shares reserved for future issuance               28,601      
Term Loan Agreement [Member] | Tranche One [Member]                      
Proceeds from issuance of long-term debt             $ 10,000        
Common Stock [Member]                      
Number of shares converted               400,000 2,452,000    
Series A Preferred Stock [Member]                      
Number of shares converted               1,734      
Number of shares converted into common stock               3,940,909      
Series A Convertible Preferred Stock [Member]                      
Preferred stock, issued   2,114                  
Series A Warrants [Member]                      
Preferred stock, issued   6,818,181                  
Series A Warrants [Member] | Black-Scholes Merton Model [Member]                      
Class of warrant or right number of securities called by warrants or rights   6,818,181     1,253,500            
Expected weighted-average period   5 years     6 years            
Class of warrant or right exercise price of warrants or rights   $ 0.44     $ 11.25            
Fair value assumptions, volatility percentage   88.00%     76.00%            
Fair value assumptions, risk-free interest rate   2.14%     1.30%            
Fair value assumptions, dividend yield   0.00%     0.00%            
Warrant expiration date, description   Expire 5 years after the issuance date     Expire 5 years after the Initial Exercise Date            
Series B Warrants [Member]                      
Preferred stock, issued   6,818,181                  
Proceeds from issuance or sale of equity   $ 3,000                  
Payments of stock issuance costs   $ 596                  
Series B Warrants [Member] | Black-Scholes Merton Model [Member]                      
Class of warrant or right number of securities called by warrants or rights   6,818,181                  
Expected weighted-average period   6 months                  
Class of warrant or right exercise price of warrants or rights   $ 0.44                  
Fair value assumptions, volatility percentage   158.60%                  
Fair value assumptions, risk-free interest rate   1.45%                  
Fair value assumptions, dividend yield   0.00%                  
Warrant expiration date, description   Expired 6 months after the issuance date                  
Placement Agent Warrants [Member]                      
Class of warrant or right number of securities called by warrants or rights   477,273                  
Common Stock [Member]                      
Number of shares converted   4,804,545                  
CRG Warrants [Member]                      
Class of warrant or right number of securities called by warrants or rights           35,000 35,000        
Expected weighted-average period             5 years        
Class of warrant or right exercise price of warrants or rights           $ 15.00 $ 50.00        
Warrants exercisable date             Oct. 08, 2020        
Fair value of warrants             $ 290        
Fair value assumptions, volatility percentage             73.00%        
Fair value assumptions, risk-free interest rate             1.71%        
Fair value assumptions, dividend yield             0.00%        
Proceeds from warrant exercise                  
CRG Warrants [Member] | Black-Scholes Merton Model [Member]                      
Class of warrant or right number of securities called by warrants or rights                     83,240
Expected weighted-average period               5 years   5 years  
Class of warrant or right exercise price of warrants or rights                     $ 1.50
Fair value of warrants               $ 30   $ 30  
Fair value assumptions, volatility percentage               88.00%   88.00%  
Fair value assumptions, risk-free interest rate               2.14%   2.14%  
Fair value assumptions, dividend yield               0.00%   0.00%  
CRG Warrants [Member] | Term Loan Agreement [Member]                      
Reduced warrants per share $ 0.44                    
Interest expense $ 10                    
CRG Warrants [Member] | Term Loan Agreement [Member] | Black-Scholes Merton Model [Member]                      
Expected weighted-average period     3 years 5 months 23 days     5 years          
Fair value of warrants           $ 106          
Fair value assumptions, volatility percentage     90.00%     76.00%          
Fair value assumptions, risk-free interest rate     1.80%     1.30%          
Fair value assumptions, dividend yield     0.00%     0.00%          
CRG LP Additional Warrants [Member] | Term Loan Agreement [Member]                      
Class of warrant or right number of securities called by warrants or rights           35,000          
Class of warrant or right exercise price of warrants or rights     $ 1.50     $ 15.00          
Ownership percentage     1.22%                
CRG LP Additional Warrants [Member] | Term Loan Agreement [Member] | Black-Scholes Merton Model [Member]                      
Expected weighted-average period     2 years 11 months 26 days     4 years 6 months          
Fair value of warrants     $ 44     $ 54          
Fair value assumptions, volatility percentage     94.00%     76.00%          
Fair value assumptions, risk-free interest rate     1.70%     1.06%          
Fair value assumptions, dividend yield     0.00%     0.00%          
Warrants [Member] | Black-Scholes Merton Model [Member]                      
Class of warrant or right number of securities called by warrants or rights               477,273      
Class of warrant or right exercise price of warrants or rights               $ 0.55      
Warrants [Member] | Black-Scholes Merton Model [Member] | Valuation Technique, Option Pricing Model [Member]                      
Expected weighted-average period               5 years      
XML 51 R40.htm IDEA: XBRL DOCUMENT v3.19.1
Stockholders' Equity - Schedule of Stock-Based Compensation Expense (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Stock-based compensation expense before income taxes $ 31 $ 8
Sales and Marketing [Member]    
Stock-based compensation expense before income taxes 8 18
Clinical, Regulatory and Research and Development [Member]    
Stock-based compensation expense before income taxes 4 8
General and Administrative [Member]    
Stock-based compensation expense before income taxes $ 19 $ (18)
XML 52 R41.htm IDEA: XBRL DOCUMENT v3.19.1
Net Income (Loss) Per Share - Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share (Details) - shares
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Antidilutive securities number of shares 9,593,000 16,150,000
Stock Option [Member]    
Antidilutive securities number of shares 891,000 629,000
Warrants [Member]    
Antidilutive securities number of shares 8,702,000 15,520,000
Convertible Preferred Shares [Member]    
Antidilutive securities number of shares 1,000
XML 53 R42.htm IDEA: XBRL DOCUMENT v3.19.1
Commitments and Contingencies (Details Narrative)
$ in Thousands, $ in Thousands
1 Months Ended 3 Months Ended
Aug. 09, 2019
AUD ($)
Aug. 09, 2018
May 01, 2018
Mar. 07, 2016
Oct. 01, 2006
USD ($)
Dec. 31, 2018
USD ($)
Apr. 30, 2018
USD ($)
Feb. 28, 2018
USD ($)
Mar. 31, 2019
USD ($)
Mar. 31, 2018
USD ($)
Operating lease term description                 The Company has commitments relating to operating leases recognized on a straight-line basis over the term of the lease for rental of two office spaces and various equipment from unrelated parties. Our California office lease was signed May 1, 2018, with a commencement date of July 1, 2018, expires on November 30, 2023 and has an option for a 5-year extension and escalating payments. On December 21, 2018 the Company entered into a fourth amendment to our Texas office lease to extend the term of the lease until December 31, 2019  
Right of use asset               $ 738  
Lease liabilities                 739  
Royalty payments         $ 35       38 $ 0
Maximum royalty payable on sale of combined products         5.50%          
Initial capex investment           317        
Long-term third-party payable           $ 111     113  
Amortizaion Period           15 years        
i-Med Pharma, Inc. [Member]                    
Loss contingency damages paid             $ 200 $ 500    
Restated License Agreement [Member]                    
Royalty payment, percentage     20.00%              
Revenue milestone payments                 $ 500  
Revenue milestone payment percentage                 1.25%  
Restated License Agreement [Member] | Minimum [Member]                    
Royalty payment, percentage     3.00%           3.50%  
Restated License Agreement [Member] | Maximum [Member]                    
Royalty payment, percentage     4.25%           4.75%  
Supply Agreement [Member] | MiniFAB [Member]                    
Minimum percentage of purchase       50.00%            
Supply Agreement Pricing description       The amendment fixes the price of the osmolarity test cards at their current price until the earlier of: the average monthly order volume of osmolarity cards on a rolling six month average falls below 20,000 cards; or the aggregate product volume in the calendar year commencing 12 months after the launch of the DiscoveryTM product is below 2.4 million cards; or the aggregate product volume in any calendar year after 24 months after the launch of the DiscoveryTM product is below 3.0 million cards at which point the Company and MiniFab will renegotiate pricing.            
MiniFAB Agreement [Member]                    
Initial agreement term   10 years                
Additional agreement term   5 years                
MiniFAB Agreement [Member] | Phase 1 [Member] | AUD [Member]                    
Capital expenditure limitation $ 1,000                  
Payment or reimbursement of non-recurrent expenditure and tooling 1,200                  
MiniFAB Agreement [Member] | Phase 2 [Member] | AUD [Member]                    
Capital expenditure limitation 3,000                  
Payment or reimbursement of non-recurrent expenditure and tooling $ 2,000                  
MiniFAB Agreement [Member] | TearLab [Member]                    
Percentage of capital expenditures payable   65.00%                
Terms of capital expenditure recovery   TearLab will pay for 65% of the capital expenditures under the MiniFAB Agreement ("capex") as incurred and MiniFAB will pay for the remaining 35% of capex, which will be recoverable from TearLab through an amortized cost component in the price for the product charged to TearLab once the monthly card volumes reach 200,000 per month.                
MiniFAB Agreement [Member] | MiniFAB [Member]                    
Percentage of capital expenditures payable 35.00%                  
Vehicle Leases [Member]                    
Operating lease term description                 Expiring at various times through January 2021  
Equipment Lease [Member]                    
Operating lease term description                 Expiring in December 2021  
XML 54 R43.htm IDEA: XBRL DOCUMENT v3.19.1
Commitments and Contingencies - Schedule of Components of Lease Costs (Details)
$ in Thousands
3 Months Ended
Mar. 31, 2019
USD ($)
Commitments and Contingencies Disclosure [Abstract]  
Operating lease costs $ 88
Short-term lease costs
Variable lease costs
Lease costs $ 88
XML 55 R44.htm IDEA: XBRL DOCUMENT v3.19.1
Commitments and Contingencies - Schedule of Future Minimum Lease Payments Under Non-cancellable Leases (Details)
$ in Thousands
Mar. 31, 2019
USD ($)
Commitments and Contingencies Disclosure [Abstract]  
2019 $ 238
2020 202
2021 184
2022 164
2023 169
Total lease payments 957
Less present value discount 218
Present value of lease liabilities $ 739
Weighted average remaining lease term 3 years 10 months 25 days
Weighted average discount rate 13.00%
XML 56 R45.htm IDEA: XBRL DOCUMENT v3.19.1
Commitments and Contingencies - Schedule of Future Minimum Royalty Payments (Details)
$ in Thousands
Mar. 31, 2019
USD ($)
Commitments and Contingencies Disclosure [Abstract]  
2020 $ 35
2021 35
2022 35
2023 35
2024 35
Thereafter 210
Total $ 385
XML 57 R46.htm IDEA: XBRL DOCUMENT v3.19.1
Related Party (Details Narrative) - USD ($)
$ in Thousands
3 Months Ended
Oct. 01, 2006
Mar. 31, 2019
Mar. 31, 2018
Dec. 31, 2018
Related Party Transactions [Abstract]        
Royalty rate   0.68%    
Royalty expense $ 35 $ 38 $ 0  
Accrued royalties   $ 78   $ 40
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