| GOING CONCERN UNCERTAINTY | Note 3 – GOING CONCERN UNCERTAINTY
The accompanying consolidated financial statements have been prepared assuming that the company will continue as a going concern and be acquired in late December 2016, as described below. Lpath utilized cash in operations of $5.3 million during the nine-months ended September 30, 2016 and $11.9 million during the year ended December 31, 2015. These conditions raise substantial doubt about the company’s ability to continue as a going concern. Management’s plans with regard to these matters are discussed below. The accompanying condensed consolidated financial statements include impairment adjustments that result from the anticipated completion of the merger described below. Refer also to Note 1 – Pending Merger and Note 4 – Impairment Loss.
In May 2015, the Lpath board of directors commenced a process of evaluating Lpath’s strategic alternatives to maximize stockholder value. To assist with this process, the Lpath board of directors engaged a financial advisory firm to help explore Lpath’s available strategic alternatives, including possible mergers and business combinations, a sale of part or all of Lpath’s assets, collaboration and licensing arrangements and/or equity and debt financings. On September 8, 2016, Lpath and Apollo entered into the Merger Agreement pursuant to which a wholly-owned subsidiary of Lpath will merge with and into Apollo, with Apollo surviving as a wholly-owned subsidiary of Lpath. Apollo and Lpath believe that the merger will result in a medical device company focused on the development and global distribution of less invasive products used in the treatment of obesity and other gastrointestinal disorders. Although Lpath has entered into the Merger Agreement and intends to consummate the merger, there is no assurance that Lpath will be able to successfully consummate the merger on a timely basis, or at all.
Lpath has incurred significant net losses since its inception. As of September 30, 2016, Lpath had cash and cash equivalents totaling $3.3 million. To conserve Lpath’s cash resources, Lpath has reduced its headcount and ceased its research and product development activities and all other operations except for those activities necessary to complete the merger with Apollo. As a result of these actions, Lpath believes that its current resources should be sufficient to fund its operations through December 2016. If Lpath is unable to successfully complete the merger, sell shares of its common stock through its ATM Sales Agreement, or secure additional capital prior to the end of December 2016 , Lpath will not have sufficient funds to continue to support its operations and may be required to cease its operations altogether. In addition, even if Lpath completes the merger prior to the end of December 2016, certain contingent payments related to the merger, including severance and change of control payments payable to its existing and former executive officers, will become due and payable, which will result in Lpath’s debt exceeding its net cash at the consummation of the merger by an amount less than $250,000 based on its current estimates. Pursuant to the terms of the Merger Agreement, if Lpath’s debt exceeds its net cash as of the closing of the merger, the ownership percentage of Lpath’s stockholders, option holders and warrant holders in the combined organization immediately following the consummation of the merger will be reduced from 4.2% to 4.1%. Furthermore, under the terms of the Merger Agreement, if Lpath’s debt exceeds its net cash by more than $250,000 as of the closing date of the merger, Lpath will not be in compliance with one of the conditions necessary to require Apollo to consummate the merger, and as a result, Apollo may decide not complete the merger . Notwithstanding the foregoing, Lpath’s operating costs and its costs and expenses related to the merger may exceed its current estimates. |
