UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2008
OR
o 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: 000-50344
LPATH, INC.
(Name of small business issuer in its charter)
Nevada |
| 16-1630142 |
(State or other jurisdiction of |
| (I.R.S. Employer Identification No.) |
6335 Ferris Square, Suite A, San Diego, CA 92121
(Address of principal executive offices, including zip code)
(858) 678-0800
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o |
| Accelerated filer o |
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Non-accelerated filer o |
| Smaller reporting company x |
(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
The number of shares of issuer’s outstanding Class A common stock as of November 11, 2008 was 52,611,911.
LPATH, INC.
FORM 10-Q
September 30, 2008
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | 8 | |
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LPATH, INC.
Condensed Consolidated Balance Sheets
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| September 30, |
| December 31, |
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| 2008 |
| 2007 |
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ASSETS |
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Current Assets: |
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Cash and cash equivalents |
| $ | 5,903,789 |
| $ | 7,521,071 |
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Accounts receivable |
| 380,609 |
| 10,502 |
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Prepaid expenses and other current assets |
| 143,463 |
| 217,581 |
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Total current assets |
| 6,427,861 |
| 7,749,154 |
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Equipment and leasehold improvements, net |
| 318,172 |
| 422,484 |
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Patents, net |
| 422,498 |
| 442,706 |
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Deposits and other assets |
| 37,414 |
| 37,644 |
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Total assets |
| $ | 7,205,945 |
| $ | 8,651,988 |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current Liabilities: |
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Accounts payable |
| $ | 830,875 |
| $ | 989,069 |
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Accrued expenses |
| 509,219 |
| 572,798 |
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Deferred rent, current portion |
| 49,477 |
| 45,405 |
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Leasehold improvement debt, current portion |
| 14,977 |
| 14,107 |
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Total current liabilities |
| 1,404,548 |
| 1,621,379 |
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Deferred rent, long-term portion |
| 63,706 |
| 101,121 |
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Leasehold improvement debt, long-term portion |
| 19,051 |
| 30,395 |
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Long-term accrued liabilities |
| 502,971 |
| 563,865 |
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Total liabilities |
| 1,990,276 |
| 2,316,760 |
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Stockholders’ Equity: |
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Common stock - $.001 par value; 100,000,000 shares authorized; 52,608,161 and 45,046,495 issued and outstanding at September 30, 2008 and December 31, 2007, respectively |
| 52,608 |
| 45,046 |
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Additional paid-in capital |
| 43,005,663 |
| 34,457,999 |
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Accumulated deficit |
| (37,842,602 | ) | (28,167,817 | ) | ||
Total stockholders’ equity |
| 5,215,669 |
| 6,335,228 |
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Total liabilities and stockholders’ equity |
| $ | 7,205,945 |
| $ | 8,651,988 |
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Note: The balance sheet at December 31, 2007 has been derived from the audited consolidated financial statements at that date. See accompanying notes to the condensed consolidated financial statements.
3
LPATH, INC.
Condensed Consolidated Statements of Operations
(Unaudited)
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| September 30, |
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Grant and royalty revenue |
| $ | 905,198 |
| $ | 361,846 |
| $ | 430,484 |
| $ | 11,926 |
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Expenses: |
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Research and development |
| 7,390,689 |
| 9,120,869 |
| 1,747,300 |
| 4,114,359 |
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General and administrative |
| 3,276,928 |
| 2,354,267 |
| 858,517 |
| 653,837 |
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Total expenses |
| 10,667,617 |
| 11,475,136 |
| 2,605,817 |
| 4,768,196 |
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Loss from operations |
| (9,762,419 | ) | (11,113,290 | ) | (2,175,333 | ) | (4,756,270 | ) | ||||
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Other income (expense): |
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Interest income |
| 93,879 |
| 296,761 |
| 16,233 |
| 162,985 |
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Interest expense |
| (6,245 | ) | (20,056 | ) | (4,522 | ) | (3,588 | ) | ||||
Total other income (expense) |
| 87,634 |
| 276,705 |
| 11,711 |
| 159,397 |
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Net loss |
| $ | (9,674,785 | ) | $ | (10,836,585 | ) | $ | (2,163,622 | ) | $ | (4,596,873 | ) |
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Basic and diluted net loss per share |
| $ | (0.21 | ) | $ | (0.30 | ) | $ | (0.04 | ) | $ | (0.10 | ) |
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Weighted average number of common shares outstanding used in the calculation |
| 46,537,324 |
| 36,665,193 |
| 49,137,774 |
| 44,915,735 |
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See accompanying notes to the condensed consolidated financial statements.
4
LPATH, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
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Cash flows from operating activities: |
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Net loss |
| $ | (9,674,785 | ) | $ | (10,836,585 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: |
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Stock-based compensation expense |
| 1,996,657 |
| 1,478,031 |
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Depreciation and amortization |
| 175,984 |
| 125,775 |
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Deferred rent expense |
| (33,343 | ) | 34,082 |
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Foreign currency exchange gain |
| (66,942 | ) | — |
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Changes in operating assets and liabilities: |
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Accounts receivable |
| (370,107 | ) | 105,759 |
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Prepaid expenses and other current assets |
| 74,118 |
| 64,804 |
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Accounts payable and accrued expenses |
| (227,568 | ) | 1,303,723 |
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Deposits and other assets |
| 2,425 |
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Net cash used in operating activities |
| (8,123,561 | ) | (7,726,561 | ) | ||
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Cash flows from investing activities: |
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Equipment expenditures |
| (3,112 | ) | (100,327 | ) | ||
Patent expenditures |
| (60,683 | ) | (89,870 | ) | ||
Net cash used in investing activities |
| (63,795 | ) | (190,197 | ) | ||
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Cash flows from financing activities: |
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Proceeds from sale of common stock and warrants, net |
| 6,369,070 |
| 15,841,690 |
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Proceeds from options and warrants exercised |
| 211,478 |
| 1,486,152 |
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Proceeds from issuance of notes payable to related parties |
| — |
| 100,000 |
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Repayments of notes payable to related parties, including loan fees |
| — |
| (108,163 | ) | ||
Repayments of leasehold improvement debt |
| (10,474 | ) | (5,939 | ) | ||
Net cash provided by financing activities |
| 6,570,074 |
| 17,313,740 |
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Net increase/(decrease) in cash |
| (1,617,282 | ) | 9,396,982 |
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Cash and cash equivalents at beginning of period |
| 7,521,071 |
| 1,361,214 |
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Cash and cash equivalents at end of period |
| $ | 5,903,789 |
| $ | 10,758,196 |
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Supplemental Schedule of Non-cash Investing and Financing Activities: |
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Incurred patent expenditures contained in accrued expenses |
| $ | 13,066 |
| $ | 20,521 |
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Common stock issued in payment of loan fees |
| $ | — |
| $ | 7,837 |
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Leasehold improvements financed by landlord |
| $ | — |
| $ | 58,568 |
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Leasehold improvements paid by landlord |
| $ | — |
| $ | 80,428 |
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See accompanying notes to the condensed consolidated financial statements.
5
LPATH, INC.
Notes to Condensed Consolidated Financial Statements
September 30, 2008
Note 1 –BASIS FOR PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all information and notes required by accounting principles generally accepted in the United States for complete financial statements.
In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Except as otherwise disclosed, all such adjustments are of a normal recurring nature. Operating results for the nine and three month periods ended September 30, 2008 are not necessarily indicative of the results that may be expected for the year ending December 31, 2008. For further information, refer to the consolidated financial statements and footnotes thereto included in the company’s annual report on Form 10-KSB for the year ended December 31, 2007.
The preparation of the financial statements in conformity with U. S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and 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. Actual results could differ from those estimates.
Note 2 — PRIVATE PLACEMENT OF COMMON STOCK AND WARRANTS
In August 2008, the company received gross proceeds of $6,736,000 from the sale of common stock and warrants through a private placement. Lpath issued 7,090,999 shares of Class A common stock at a price of $0.95 per share. Each investor also received warrants to purchase the number of shares of Class A common stock equal to 25% of the number of common shares purchased in this financing. This resulted in the issuance of warrants to purchase a total of 1,772,748 shares of Class A common stock in this transaction. The warrants are exercisable at a price of $1.25 per share, and expire on August 12, 2013.
Stock issuance costs related to the private placement were paid in cash and warrants. Cash expenses for this transaction totaled $368,000, including placement agent fees totaling $276,000 and legal and other fees totaling $92,000. In addition, 166,740 warrants were issued to placement agents. These warrants carry an exercise price of $1.25 per share, and expire on August 12, 2013. All of the warrants issued in conjunction with this financing contain provisions specifying that in the event that Lpath sells shares of its Class A Common Stock at a price per share less than the exercise price of the warrants, then both the exercise price of the warrants and the number of shares that may be acquired with the warrants will be adjusted according to formulas specified in the warrants.
Note 3 – SUBSEQUENT EVENT
On October 28, 2008 (the “Effective Date”), Lpath, Inc. entered into the License Agreement (the “Agreement”) with Merck KgaA, (“Merck”), pursuant to which Merck has agreed to collaborate, through its Merck Serono division, with the company to develop and commercialize ASONEP™, Lpath’s Phase 1 monoclonal antibody which is currently being evaluated as a drug candidate for the treatment of certain cancers.
Pursuant to the terms of the Agreement, the company licensed to Merck exclusive, worldwide rights to develop and commercialize ASONEP™ across all non-ocular indications. The Agreement requires Merck to provide the company with up to $23 million of upfront payments and research and development funding to support the company’s completion of the Phase 1 clinical trial for ASONEP™. On November 6, 2008, Merck paid the company an initial amount of $4,000,000, as provided in the Agreement. During the 12 month period following the Effective Date (the “Initial Development Period”), Merck will be required to provide the company research and development funding of $500,000 per month, which the company intends to use to support development activities related to ASONEP™, including the company’s Phase 1 clinical trials. Within the Initial Development Period, Merck will pay the company additional amounts if certain clinical development objectives are achieved. At Merck’s election, the Initial Development Period may be extended by up to 6 months, in which case Merck will continue to pay Lpath agreed upon amounts for research and development funding.
Upon conclusion of the Initial Development Period, if Merck elects to accept the responsibility and related expenses for further development of ASONEP™, Merck will pay the company $28 million in various installments, the majority of which funds the company believes, based on the company’s reasonable estimates, will be due either upon transfer or within six months of transfer. If, at the conclusion of the Initial Development Period, Merck does not accept the responsibility for further development of ASONEP, all rights granted under the Agreement revert to Lpath.
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Additional payments of up to $422 million could be made by Merck upon achievement of certain development, regulatory, and sales milestones, should ASONEP™ be approved in multiple indications. If Merck successfully brings ASONEP™ to market, Merck would pay the company royalties (the “Royalty Payments”) based on worldwide net sales of the products licensed under the Agreement (the “Licensed Products”), at the incremental royalty rates negotiated by the parties. The Royalty Payments would continue on a country-by country and Licensed Product-by-Licensed Product basis upon the later of 10-years after the date of the first commercial sale of such Licensed Product in such country or the expiration of protection by patents covering such products in such country.
The Agreement does not include any rights to license, develop or commercialize the company’s other product candidates or the company’s underlying drug discovery or development technologies, including iSONEP™ (Lpath’s ocular formulation of the anti-S1P antibody) and Lpathomab™ (an antibody against LPA, a key bioactive lipid). The Agreement, does however provide Merck, contingent upon the occurrence of specified events, with certain rights of first negotiation and rights of first refusal with respect to other non-ocular antibody products of the company.
The Agreement contains customary termination provisions including (but not limited to) the right of Merck to terminate the Agreement in its entirety during the Initial Development Period upon 30 days written notice to Lpath.
Note 4 – SHARE-BASED PAYMENTS
The company recognized share-based compensation expense in accordance with SFAS No. 123R, “Share-Based Payment,” as follows:
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| Three Months Ended |
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| September 30, |
| September 30, |
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| 2008 |
| 2007 |
| 2008 |
| 2007 |
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Research and development |
| $ | 624,042 |
| $ | 1,069,292 |
| $ | 6,153 |
| $ | 426,120 |
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General and administrative |
| 1,372,615 |
| 408,739 |
| 136,031 |
| 118,005 |
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Total share-based compensation expense |
| $ | 1,996,657 |
| $ | 1,478,031 |
| $ | 142,184 |
| $ | 544,125 |
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As of September 30, 2008 there was a total of $3.1 million unrecognized compensation expense related to unvested stock-based compensation under the plan. That expense is expected to be recognized over a weighted-average period of 2 years. Because of its net operating losses, the company did not realize any tax benefits for the tax deductions from share-based payment arrangements during the periods ended September 30, 2008 and 2007.
Note 5 – RECENT ACCOUNTING PRONOUNCEMENTS
No new accounting pronouncement issued or effective during the third quarter of 2008 had or is expected to have a material impact on the consolidated financial statements.
7
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and notes thereto included in this quarterly report on Form 10-Q (the “Quarterly Report”) and the audited financial statements and notes thereto included in our annual report on Form 10-KSB for the year ended December 31, 2007 (the “2007 Annual Report”), as filed with the Securities and Exchange Commission (the “SEC”). In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors including but not limited to those identified in the 2007 Annual Report in the section entitled “Market Risks.”
Overview
Lpath, Inc. is a biotechnology company focused on the discovery and development of lipidomic-based therapeutics. Lipidomics is an emerging field of medical science whereby bioactive signaling lipids are targeted to treat important human diseases. Our lead product candidate, ASONEP™, is a monoclonal antibody against sphingosine-1-phosphate (S1P). ASONEP is currently in Phase 1 clinical trials and holds promise for the treatment of cancer, multiple sclerosis, and other diseases. A second product candidate, iSONEP™ (another formulation of the same S1P-targeted antibody) is currently in Phase I clinical trials, and has demonstrated superior results in various models of human ocular disease, including age-related macular degeneration, retinopathy, and glaucoma. Our third product candidate, Lpathomab™, is an antibody against lysophosphatidic acid (LPA), a key bioactive lipid that has been long recognized as a valid disease target. Lpath’s unique ability to generate novel antibodies against bioactive lipids is based on its ImmuneY2™ technology, a series of proprietary processes developed by the company. We are currently applying the Immune Y2 process to other lipid-signaling agents that are validated targets for disease treatment, thereby potentially creating a pipeline of monoclonal antibody-based drug candidates.
Lpath has incurred significant net losses since its inception. As of September 30, 2008, Lpath had an accumulated deficit of approximately $37.9 million. Lpath expects its operating losses to increase for the next several years as it pursues the clinical development of its product candidates.
Results of Operations
Comparison of the Nine Months Ended September 30, 2008 and September 30, 2007
Grant and Royalty Revenue. Grant and royalty revenue for the nine-month period ended September 30, 2008 increased to $905,000 from $362,000 for the nine-month period ended September 30, 2007. The increase of $543,000 reflects the increased level of activity on studies funded by grants from the National Institutes of Health (“NIH”).
Research and Development Expenses. Research and development (R&D) expenses for the nine months ended September 30, 2008 were $7,391,000 compared to $9,121,000 for the same period in 2007. The decrease of $1,730,000 reflects the significant pre-clinical costs incurred in 2007. In addition, spending for R&D was curtailed in 2008 pending the completion of the financing transaction in August 2008. Outside services expense decreased by approximately $1,398,000 during the nine-months ended September 30, 2008 compared to 2007 primarily due the IND-enabling studies performed in 2007. For the nine-months ended September 30, 2008, employee compensation and benefits expense increased by approximately $119,000 compared to 2007, commensurate with the increase in research and development staffing. Stock-based compensation charges decreased by $445,000 due primarily to the decrease in the market value of Lpath’s common stock, which is a key factor in the calculation of stock-based compensation expense for outside consultants. This was partially offset by the vesting, during 2008, of restricted stock units granted in the fourth quarter of 2007.
General and Administrative Expenses. General and administrative expenses increased $923,000 for the nine-month period ended September 30, 2008 to $3,277,000 compared to $2,354,000 in 2007. Stock-based compensation charges increased by $964,000 due primarily to the vesting of restricted stock units granted in the fourth quarter of 2007. Lpath recognized a foreign currency gain of $67,000 in the third quarter of 2008 due to a reduction in the U. K. Pound exchange rate used to translate the carrying amount of the company’s accrued liability related to a license agreement with a company located in the U.K. Such liability is included in long-term liabilities on the balance sheet.
Interest Income. Interest income was $94,000 for the nine months ended September 30, 2008, compared with $297,000 for the nine months ended September 30, 2007. The $203,000 decrease was the result of higher levels of invested cash in 2007.
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Comparison of the Three Months Ended September 30, 2008 and September 30, 2007
Grant and Royalty Revenue. Grant and royalty revenue for the three-month period ended September 30, 2008 increased to $430,000 from $12,000 for the three-month period ended September 30, 2007. The increase of $418,000 is attributable to the fact that in 2007 all of the company’s work on projects funded by the NIH was completed before the end of the second quarter.
Research and Development Expenses. Research and development expenses decreased from $4,114,000 for the third quarter of 2007 to $1,747,000 for the third quarter of 2008. The decrease of $2,367,000 is principally due to two factors: (1) in 2007 significant expense was incurred for IND-enabling studies, and (2) in 2008 Lpath curtailed spending during the second and third quarters to conserve cash until the August 2008 financing could be completed. As a result, outside services and consulting expenses decreased by approximately $1,921,000. Stock-based compensation charges decreased by $420,000 due primarily to the decrease in the market value of Lpath’s common stock, which is a key factor in the calculation of stock-based compensation expense for outside consultants.
General and Administrative Expenses. General and administrative expenses increased from $654,000 for the three-month period ended September 30, 2007 to $859,000 for the three-month period ended September 30, 2008, an increase of $205,000. Legal, consulting, and investor relations expenses increased in the aggregate by approximately $153,000 in 2008 in conjunction with the company’s efforts to negotiate the licensing agreement concluded in October 2008 as described in Note 3 to the financial statements.
Interest Income. Interest income was $16,000 for the quarter ended September 30, 2008, compared with $163,000 for the quarter ended September 30, 2007. The $147,000 decrease was principally a result of lower levels of invested cash as compared to the prior year.
Liquidity and Capital Resources
Since Lpath’s inception, its operations have been financed primarily through the private placement of equity and debt securities. Through September 30, 2008 Lpath had received net proceeds of approximately $36,400,000 from the sale of equity securities and from the issuance of convertible promissory notes. As of September 30, 2008, Lpath had cash and cash equivalents totaling $5,904,000.
During the nine-month period ended September 30, 2008 we used net cash of $8,124,000 for operating activities compared to $7,727,000 in the nine months ended September 30, 2007. The $397,000 increase in net cash used in operating activities was driven primarily by the payments of accounts payable and accrued expenses and increases in grant revenue receivable. Net cash used in investing activities during the nine-month period ended September 30, 2008 amounted to $64,000 compared to $190,000 during the same period in 2007. Of the amount used for investing activities in 2008, $61,000 was invested in the prosecution of additional patents compared to $90,000 in 2007. In the comparable period of 2007, $100,000 was used to purchase new equipment compared to $3,000 in 2008.
Net cash provided from financing activities during the nine-month period ended September 30, 2008 totaled approximately $6,570,000 compared to $17,314,000 in the first nine months of 2007. In 2007, $1,486,000 was received from stock option and warrant exercises compared to $212,000 in 2008. In 2007, the company realized proceeds from the sale of common stock and warrants totaling $15,842,000 and $100,000 was borrowed under the terms of the promissory notes payable to related parties. In 2008, net proceeds form the sale of common stock and warrants totaled $6,369,000.
As described in Note 3 to the financial statements, on October 28, 2008 Lpath entered into a license agreement with Merck. Merck has agreed to collaborate with the company to develop and commercialize ASONEP™. On November 6, 2008, in connection with the execution of the Agreement, Merck paid to the company an initial amount of $4,000,000. During the ensuing 12-month period Merck will provide research and development funding to the company of $500,000 per month. In addition, during the initial development period Merck will pay additional amounts to the company upon the achievement of specified drug development objectives. While the agreement contains customary termination provisions, the company’s management believes that it is unlikely that the agreement will be terminated within the first twelve months. At Merck’s election, the Initial Development Period may be extended by up to 6 months, in which case Merck will continue to pay Lpath agreed upon amounts for research and development funding.
Our auditors, LevitZacks, included a going concern uncertainly paragraph in their report on our 2007 financial statements because our cash balance as of December 31, 2007 was not adequate to meet our working capital needs for 2008. We completed an equity financing which raised net cash of $6.4 million in August 2008 and entered into a licensing agreement with Merck (Note 3) which provides for an upfront payment of $4 million in November 2008 and is expected to provide research and development funding of at least $500,000 per month from November 2008 to October 2009. We expect our cash on hand at September 30, 2008 and the funds that will be provided under the terms of the Merck licensing agreement will be adequate to meet our working capital needs through 2009.
9
Critical Accounting Policies, Estimates and Judgments
Our financial statements 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, and 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, valuation of long-lived assets, share-based compensation, the timing of the achievement of drug development milestones, and income taxes. 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.
Besides the estimates identified above that are considered critical, we make many other accounting estimates in preparing our financial statements and related disclosures. All estimates, whether or not deemed critical, affect reported amounts of assets, liabilities, revenues and expenses, as well as disclosures of contingent assets and liabilities. These estimates and judgments are also based on historical experience and other factors that are believed to be reasonable under the circumstances. Materially different results can occur as circumstances change and additional information becomes known, even for estimates and judgments that are not deemed critical.
For further information, refer to the consolidated financial statements and notes thereto included in the company’s annual report on Form 10-KSB for the year ended December 31, 2007.
Recent Accounting Pronouncements
No new accounting pronouncement issued or effective during the third quarter of 2008 had or is expected to have a material impact on the consolidated financial statements.
Item 4. CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Under the supervision of our principal executive officer and principal financial officer, and with the participation of all members of management, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a- 15(e) promulgated under the Exchange Act. Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were designed and operating effectively as of the end of the period covered by this Quarterly Report on Form 10-Q.
Our management, including our principal executive officer and our principal financial officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected.
Changes in Internal Control Over Financial Reporting
There has been no change in our internal control over financial reporting during the quarter ended September 30, 2008 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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None.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
None.
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The following exhibit index shows those exhibits filed with this report and those incorporated herein by reference:
2.1* |
| Agreement and Plan of Reorganization, by and between Neighborhood Connections, Inc., Neighborhood Connections Acquisition Corporation, and Lpath Therapeutics Inc. dated July 15, 2005. |
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2.2 |
| Acquisition Agreement and Plan of Merger, dated as of March 19, 2004, between Neighborhood Connections, Inc. and JCG, Inc. (filed as Exhibit 2.1 to the Current Report on Form 8-K filed on March 22, 2004 and incorporated herein by reference). |
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3.1* |
| Amendment to Articles of Incorporation filed December 1, 2005. |
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3.2 |
| Articles of Incorporation filed on September 18, 2002 (filed as Exhibit 3.1 to Amendment No. 1 to the Annual Report on Form 10-KSB/A for the year ended December 31, 2003 (the “2003 Amended 10-KSB”) (filed on March 25, 2004 and incorporated herein by reference). |
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3.3 |
| Amendment to Articles of Incorporation filed on December 27, 2002 (filed as Exhibit 3.3 to the Current Report on Form 8-K/A filed on January 9, 2006 and incorporated herein by reference). |
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3.4 |
| Amended and Restated By-laws (filed as Exhibit 3.4 to the Quarterly Report on Form 10-QSB filed on November 13, 2006 and incorporated herein by reference). |
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3.5 |
| Amended and Restated Bylaws, as amended on April 3, 2007 (conformed) (filed as Exhibit 3.5 to the Registration Statement on Form SB-2, SEC File No. 144199 (the “June 2007 SB-2”) and incorporated herein by reference). |
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3.6 |
| Certificate of Amendment of Articles of Incorporation filed June 8, 2007 (filed as Exhibit 3.6 to the June 2007 SB-2 and incorporated herein by reference). |
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4.1* |
| Form of Warrant issued to Western States Investment Corporation for lease guaranty. |
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4.2* |
| Form of Warrant issued pursuant to the Common Stock and Warrant Purchase Agreement dated June 30, 2005. |
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4.3* |
| Form of Warrant issued to Johnson & Johnson Development Corporation dated April 3, 2002. |
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4.4* |
| Form of Warrant issued to purchasers of Convertible Secured Promissory Notes as amended by the Omnibus Amendment to Convertible Secured Promissory Notes and Warrants dated November 30, 2005. |
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4.5* |
| Form of Warrant issued pursuant to the Common Stock and Warrant Purchase Agreement dated November 30, 2005. |
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4.6# |
| Form of Warrant issued pursuant to the Common Stock and Warrant Purchase Agreement dated January 31, 2006. |
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4.7 |
| Form of Warrant issued pursuant to the Common Stock and Warrant Purchase Agreement dated March 28, 2006 (filed as Exhibit 4.7 to the registration statement on Form SB-2 filed on March 30, 2006, SEC File No. 333-132850, and incorporated herein by reference). |
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4.8 |
| Form of Warrant issued pursuant to the Securities Purchase Agreement dated April 6, 2007 (April 2007 Warrants) (filed as Exhibit 4.7 to the June 2007 SB-2 and incorporated herein by reference). |
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4.9 |
| Form of Warrant issued pursuant to the Securities Purchase Agreement dated June 13, 2007 (June 2007 Warrants) (filed as Exhibit 4.8 to the June 2007 SB-2 and incorporated herein by reference). |
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4.10 |
| Form of Warrant issued pursuant to the Securities Purchase Agreement dated August 12, 2008 (August 2008 Warrants) (filed as Exhibit 4.10 to the September 2008 Form S-1and incorporated herein by reference). |
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10.1* |
| Lease Agreement dated August 12, 2005 between Lpath Therapeutics Inc. and Pointe Camino Windell, LLC. |
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10.2* |
| Research Agreement dated January 28, 2004 between Medlyte, Inc. and San Diego State University, together with Amendments No.1 and No.2. |
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10.3* |
| Assignment Agreement dated June 9, 2005 between Lpath Therapeutics Inc. and LPL Technologies, Inc. |
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10.4 |
| Research Collaboration Agreement dated August 2, 2005 between Lpath Therapeutics Inc. and AERES Biomedical Limited (filed as Exhibit 10.4 to the Current Report on Form 8-K/A filed on January 9, 2006 and incorporated herein by reference) (portions of this exhibit have been omitted pursuant to a request for confidential treatment). |
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10.7* |
| Lpath, Inc. Amended and Restated 2005 Equity Incentive Plan (filed as Appendix A to the company’s Schedule 14-A Proxy Statement filed on August 28, 2007 and incorporated herein by reference).+ |
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10.8# |
| Assignment and Assumption Agreement dated December 1, 2005 by and between Lpath, Inc. and Lpath Therapeutics, Inc. |
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10.9** |
| Form of Employment Agreement between Lpath, Inc. and Scott R. Pancoast dated as of January 1, 2006.+ |
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10.10** |
| Form of Employment Agreement between Lpath, Inc. and Gary Atkinson dated as of February 6, 2006.+ |
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10.11** |
| Form of Consultant Agreement between Lpath, Inc. and William Garland dated as of January 1, 2006.+ |
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10.12** |
| Form of Consultant Agreement between Lpath, Inc. and Roger Sabbadini dated as of February 1, 2006.+ |
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10.13 |
| Development and Manufacturing Services Agreement dated August 16, 2006 between Lpath Inc. and Laureate Pharma, Inc. (filed as Exhibit 10.13 to the Quarterly Report on Form 10-QSB for the quarter ended September 30, 2006 filed on November 13, 2006 and incorporated by reference) (portions of this exhibit have been omitted pursuant to a request for confidential treatment). |
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10.14 |
| Securities Purchase Agreement, dated as of April 6, 2007, by and among Lpath, Inc. and each investor identified therein (filed as Exhibit 10.14 to the June 2007 SB-2 and incorporated herein by reference). |
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10.15 |
| Registration Rights Agreement, dated as of April 6, 2007, by and among Lpath, Inc. and each investor identified therein (filed as Exhibit 10.15 to the June 2007 SB-2 and incorporated herein by reference). |
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10.16## |
| License Agreement dated August 8, 2006 between Lonza Biologics PLC and Lpath, Inc. (portions of this exhibit have been omitted pursuant to a request for confidential treatment). |
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10.17 |
| Securities Purchase Agreement, dated as of August 12, 2008, by and among Lpath, Inc. and each investor identified therein (filed as exhibit 10.17 to the September 2008 Form S-1 and incorporated herein by reference). |
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10.18 |
| Registration Rights Agreement, dated as of August 12, 2008, by and among Lpath, Inc. and each investor identified therein (filed as exhibit 10.18 to the September 2008 Form S-1 and incorporated herein by reference). |
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14.1# |
| Code of Ethics of Lpath, Inc. |
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21.1# |
| List of Subsidiaries of Registrant. |
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31.1 |
| Section 302 Certification by Chief Executive Officer of Lpath, Inc. |
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31.2 |
| Section 302 Certification by Chief Financial Officer of Lpath, Inc. |
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32.1 |
| Section 906 Certification by CEO and CFO of Lpath, Inc. |
*Filed as an exhibit to the Current Report on Form 8-K filed with the SEC on December 6, 2005 and incorporated herein by reference.
#Filed as an exhibit to the Annual Report on Form 10-KSB for the year ended December 31, 2005 filed with the SEC on March 16, 2006 and incorporated herein by reference.
**Filed as an exhibit to the Current Report on Form 8-K filed with the SEC on March 29, 2006 and incorporated herein by reference.
##Filed as an exhibit to the Quarterly Report on Form 10-QSB for the quarterly period ended September 30, 2007 filed with the SEC on November 13, 2007 and incorporated herein by reference.
+Management contract, or compensation plan or arrangement.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
| Lpath, Inc. |
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Date: November 13, 2008 | /s/ Scott R. Pancoast |
| Scott R. Pancoast |
| President and Chief Executive |
| Officer |
| (Principal executive officer) |
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| /s/ Gary J.G. Atkinson |
| Gary J.G. Atkinson, |
| Vice President and Chief |
| Financial Officer |
| (Principal financial and |
| accounting officer) |
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