Apollo Endosurgery, Inc. - Quarter Report: 2013 March (Form 10-Q)
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 March 31, 2013
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: 001-35706
LPATH, INC.
(Exact name of registrant as specified in its charter)
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Nevada |
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16-1630142 |
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(State or other jurisdiction of |
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(I.R.S. Employer |
4025 Sorrento Valley Blvd., 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 o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
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):
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Large accelerated filer o |
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Accelerated filer o |
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Non-accelerated filer o |
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Smaller reporting company x |
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(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 May 3, 2013 was 13,128,250.
LPATH, INC.
FORM 10-Q
March 31, 2013
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This report includes statements of our expectations, intentions, plans, and beliefs that constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and are intended to come within the safe harbor protection provided by those sections. These forward-looking statements are principally, but not solely, contained in the section captioned “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Forward-looking statements include, without limitation, any statement that may predict, forecast, indicate or imply future results, performance or achievements, and may contain the words “estimate,” “project,” “intend,” “forecast,” “anticipate,” “plan,” “planning,” “expect,” “believe,” “will,” “will likely,” “should,” “could,” “would,” “may” or words or expressions of similar meaning. The matters discussed in these forward-looking statements are subject to risks, uncertainties and other factors that could cause our actual results to differ materially from those projected, anticipated or implied in the forward-looking statements. The most significant of these risks, uncertainties and other factors are described in “Item 1A—Risk Factors” of this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the fiscal year ended December 31, 2012 filed with the Securities and Exchange Commission on March 15, 2013. Except to the limited extent required by applicable law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
LPATH, INC.
Condensed Consolidated Balance Sheets
(Unaudited)
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March 31, |
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December 31, |
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2013 |
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2012 |
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ASSETS |
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Current Assets: |
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Cash and cash equivalents |
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$ |
20,538,358 |
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$ |
24,621,083 |
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Accounts receivable |
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228,060 |
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233,794 |
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Prepaid expenses and other current assets |
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217,099 |
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307,907 |
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Total current assets |
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20,983,517 |
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25,162,784 |
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Equipment and leasehold improvements, net |
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244,216 |
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253,595 |
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Patents, net |
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1,742,171 |
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1,689,804 |
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Deposits and other assets |
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77,350 |
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77,350 |
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Total assets |
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$ |
23,047,254 |
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$ |
27,183,533 |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current Liabilities: |
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Accounts payable |
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$ |
835,980 |
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$ |
1,027,872 |
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Accrued expenses |
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388,320 |
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2,168,382 |
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Deferred contract revenue, current portion |
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4,739,033 |
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5,419,623 |
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Deferred rent, short-term portion |
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16,883 |
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14,555 |
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Total current liabilities |
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5,980,216 |
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8,630,432 |
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Deferred rent, long-term portion |
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88,578 |
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93,381 |
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Deferred contract revenue, long-term portion |
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208,000 |
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415,000 |
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Warrants |
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2,900,000 |
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3,100,000 |
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Total liabilities |
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9,176,794 |
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12,238,813 |
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Stockholders’ Equity: |
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Common stock - $.001 par value; 28,571,429 shares authorized; 13,128,250 and 13,099,319 issued and outstanding at March 31, 2013 and December 31, 2012, respectively |
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13,128 |
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13,099 |
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Additional paid-in capital |
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58,020,506 |
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57,845,088 |
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Accumulated deficit |
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(44,163,174 |
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(42,913,467 |
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Total stockholders’ equity |
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13,870,460 |
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14,944,720 |
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Total liabilities and stockholders’ equity |
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$ |
23,047,254 |
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$ |
27,183,533 |
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See accompanying notes to the condensed consolidated financial statements.
LPATH, INC.
Condensed Consolidated Statements of Operations
(Unaudited)
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Three Months Ended March 31, |
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2013 |
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2012 |
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Revenues: |
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Grant and royalty revenue |
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$ |
224,220 |
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$ |
180,825 |
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Research and development revenue under collaborative agreements |
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887,590 |
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2,577,078 |
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Total revenues |
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1,111,810 |
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2,757,903 |
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Expenses: |
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Research and development |
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1,584,684 |
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3,101,516 |
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General and administrative |
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1,003,855 |
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881,886 |
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Total expenses |
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2,588,539 |
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3,983,402 |
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Loss from operations |
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(1,476,729 |
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(1,225,499 |
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Other income (expense), net |
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27,022 |
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(28,572 |
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Change in fair value of warrants |
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200,000 |
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1,900,000 |
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Total other income, net |
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227,022 |
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1,871,428 |
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Net income (loss) |
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$ |
(1,249,707 |
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$ |
645,929 |
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Earnings (loss) per share |
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Basic |
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$ |
(0.09 |
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$ |
0.07 |
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Diluted |
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$ |
(0.09 |
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0.07 |
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Weighted-average shares outstanding used in the calculations |
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Basic |
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13,401,821 |
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9,558,876 |
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Diluted |
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13,401,821 |
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9,748,539 |
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See accompanying notes to the condensed consolidated financial statements.
LPATH, INC.
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31,
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2013 |
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2012 |
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Cash flows from operating activities: |
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Net income (loss) |
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$ |
(1,249,707 |
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$ |
645,929 |
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Adjustments to reconcile net loss to net cash (used in) provided by operating activities: |
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Stock-based compensation expense |
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193,886 |
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108,024 |
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Change in fair value of warrants |
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(200,000 |
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(1,900,000 |
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Depreciation and amortization |
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42,034 |
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21,533 |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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5,734 |
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(2,062,345 |
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Prepaid expenses and other current assets |
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90,808 |
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143,107 |
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Accounts payable and accrued expenses |
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(1,964,821 |
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(1,092,057 |
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Deferred contract revenue |
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(887,590 |
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(677,046 |
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Other |
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(29,497 |
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42,834 |
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Net cash used in operating activities |
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(3,999,153 |
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(4,770,021 |
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Cash flows from investing activities: |
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Equipment and leasehold improvement expenditures |
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(11,050 |
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(19,160 |
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Patent expenditures |
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(73,972 |
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(47,082 |
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Net cash used in investing activities |
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(85,022 |
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(66,242 |
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Cash flows from financing activities: |
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Proceeds from sale of common stock and warrants, net |
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— |
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8,211,946 |
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Proceeds from options and warrants exercised |
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1,450 |
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— |
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Net cash provided by financing activities |
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1,450 |
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8,211,946 |
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Net (decrease) increase in cash and cash equivalents |
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(4,082,725 |
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3,375,683 |
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Cash and cash equivalents at beginning of period |
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24,621,083 |
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14,410,630 |
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Cash and cash equivalents at end of period |
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$ |
20,538,358 |
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$ |
17,786,313 |
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Supplemental disclosure of cash flow information: |
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Cash paid during the period for: |
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Income taxes |
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$ |
1,600 |
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$ |
1,600 |
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Supplemental disclosure of non-cash investing and financing activities: |
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Change in fair value of warrant liability |
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$ |
(200,000 |
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$ |
(1,900,000 |
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See accompanying notes to the condensed consolidated financial statements.
LPATH, INC.
Notes to Condensed Consolidated Financial Statements
March 31, 2013
Note 1 — BASIS FOR PRESENTATION
The unaudited condensed consolidated balance sheet of Lpath, Inc. (“Lpath” or “the company”) as of December 31, 2012 was derived from our audited financial statements, but does not contain all disclosures required by accounting principles generally accepted in the United States of America, and certain information and disclosures normally included have been condensed or omitted pursuant to the rules and regulations of the SEC.
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 three-month period ended March 31, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013 or for any future financial period. For further information, refer to the consolidated financial statements and notes included in the company’s annual report on Form 10-K for the year ended December 31, 2012.
The preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles (“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 consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Reverse Stock Split
On October 3, 2012, the Board of Directors approved a 1-for-7 reverse split of the company’s issued and outstanding Class A common stock and a corresponding decrease in the number of authorized shares of common stock. The reverse split was effective on October 9, 2012. Fractional shares created by the reverse stock split were rounded up to the nearest whole share. All issued and outstanding common stock, options exercisable for common stock, warrants exercisable for common stock, restricted stock units, and per share amounts contained in the company’s condensed consolidated financial statements have been retroactively adjusted to reflect this reverse stock split for all periods presented.
Note 2 — RESEARCH AND DEVELOPMENT COLLABORATIVE AGREEMENTS
In 2010, Lpath entered into an agreement providing Pfizer Inc. (“Pfizer”) with an exclusive option for a worldwide license to develop and commercialize iSONEP™ (“the Pfizer Agreement”), Lpath’s lead monoclonal antibody product candidate that is being evaluated for the treatment of wet age-related macular degeneration (“wet AMD”) and other ocular disorders.
Following completion of the clinical trial, Pfizer has the right to exercise its option for worldwide rights to iSONEP for an undisclosed option fee and, if Pfizer exercises its option, Lpath will be eligible to receive development, regulatory, and commercial milestone payments that could total up to $497.5 million. In addition, Lpath will be entitled to receive tiered double-digit royalties based on sales of iSONEP. As part of the agreement, Lpath has granted to Pfizer a time-limited right of first refusal for ASONEP™, Lpath’s product candidate that is being evaluated for the treatment of cancer.
The company recognized revenue under the Pfizer Agreement as follows:
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Three Months Ended |
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March 31, |
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2013 |
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2012 |
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Cost reimbursements |
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$ |
— |
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$ |
1,900,032 |
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Amortization of development fees |
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887,590 |
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677,046 |
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$ |
887,590 |
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$ |
2,577,078 |
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Note 3 — SHARE-BASED PAYMENTS
The company recognized share-based compensation expense as follows:
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Three Months Ended |
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March 31, |
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2013 |
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2012 |
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Research and development |
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$ |
40,410 |
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$ |
24,086 |
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General and administrative |
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153,476 |
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83,938 |
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Total share-based compensation expense |
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$ |
193,886 |
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$ |
108,024 |
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As of March 31, 2013, there was a total of $1.4 million in unrecognized compensation expense related to unvested stock-based compensation under the Lpath, Inc. Amended and Restated 2005 Equity Incentive Plan. That expense is expected to be recognized over a weighted-average period of 2.8 years. Because of its net operating loss carryforwards, the company did not realize any tax benefits for the tax deductions from share-based payment arrangements during the three months ended March 31, 2013 and 2012.
Note 4 — FAIR VALUE MEASUREMENTS
Lpath has issued warrants, of which some are classified as equity and some as liabilities. The following table includes warrants classified as liabilities either because they have “down-round” protection or due to cash settlement provisions. The company’s recurring fair value measurements at March 31, 2013 were as follows:
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Fair Value as of |
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Significant |
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Liabilities: |
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Warrants expiring August 2013 |
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$ |
50,000 |
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$ |
50,000 |
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Warrants expiring March 2017 |
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2,850,000 |
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2,850,000 |
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$ |
2,900,000 |
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$ |
2,900,000 |
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The warrants issued in March 2012 (and expiring in March 2017) provide that in the event of a fundamental transaction, as defined by the warrant agreement, the company may, under certain circumstances, be obligated to settle the March 2012 warrants for cash equal to the value of the warrants determined in accordance with the warrant agreement.
Recurring Level 3 Activity, Reconciliation, and Basis for Valuation
The table below provides a reconciliation of the beginning and ending balances for the liabilities measured at fair value using significant unobservable inputs (Level 3).
Fair value measurements using significant unobservable inputs (Level 3):
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Liabilities: |
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Warrant liability as of January 1, 2013 |
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$ |
3,100,000 |
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Change in fair value of warrants |
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(200,000 |
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Warrant liability as of March 31, 2013 |
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$ |
2,900,000 |
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The company determined the fair value of the warrant liability for certain warrants, as applicable, using a Black-Scholes model with consideration given to their “down-round” protection provisions that reduce the exercise price if the company issues new warrants or equity at a price lower than the stated exercise price. The model considered amounts and timing of future possible equity and warrant issuances and historical volatility of the company’s stock price.
The terms of all outstanding warrants permit the company, upon exercise of the warrants, to settle the contract by the delivery of unregistered shares. During the three months ended March 31, 2013, 7,143 warrants expired. As of March 31, 2103, there were 1,261,784 warrants outstanding with a weighted-average exercise price of $7.52 per share expiring through March 2017.
Note 5 — EARNINGS PER SHARE
Basic and diluted earnings per share were calculated as follows:
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Three Months Ended |
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March 31, |
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2013 |
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2012 |
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Net income (loss) |
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$ |
(1,249,707 |
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$ |
645,929 |
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Weighted average number of shares used in basic earnings (loss) per share |
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13,401,821 |
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9,558,876 |
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Additional dilutive shares from the assumed exercise of outstanding: |
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Options |
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— |
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165,414 |
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Restricted stock units |
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— |
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18,415 |
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Warrants |
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— |
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5,835 |
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Weighted average number of shares used in diluted earnings (loss) per share |
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13,401,821 |
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9,748,540 |
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Anti-dilutive common stock equivalents were excluded from the calculation of diluted income (loss) per share as follows:
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Three Months Ended |
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March 31, |
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2013 |
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2012 |
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Stock options |
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364,463 |
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93,000 |
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Warrants |
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1,261,874 |
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2,430,316 |
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Restricted stock units |
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545,552 |
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— |
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Total |
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2,171,889 |
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2,523,316 |
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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion and analysis of the financial condition and results of operations of Lpath, Inc. (“Lpath”, the “company”, “we”, “us”, or “our”) should be read in conjunction with our condensed consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q and the audited financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2012, 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 our 2012 Annual Report on Form 10-K.
Overview
We are a biotechnology company focused on the discovery and development of lipidomic-based therapeutic antibodies, an emerging field of medical science that targets bioactive signaling lipids to treat a wide range of human diseases. We have two product candidates that are currently in clinical development, and one in pre-clinical evaluation.
In December 2010, we entered into an agreement providing Pfizer Inc. (“Pfizer”) with an exclusive option for a worldwide license to develop and commercialize iSONEP (the “Pfizer Agreement”). iSONEP is the ocular formulation of sonepcizumab, a humanized monoclonal antibody (“mAb”) against sphingosine-1-phosphate (“S1P”). As described in our 2012 Annual Report, we are currently conducting a Phase 2a clinical trial with Pfizer (the “Nexus trial”) to test iSONEP™ as a treatment for wet-AMD.
The company expects to complete dosing the last Nexus trial patient during the first half of 2014. The actual time required to complete our clinical trials will depend upon a number of factors outside of our direct control, including those discussed in our 2012 Annual Report “Risk Factors — We may have delays in completing our clinical trials, and we may not complete them at all.”
Following completion of the Nexus study, Pfizer has the right to exercise its option for worldwide rights to iSONEP for an undisclosed option fee and, if Pfizer exercises its option, the company will be eligible to receive development, regulatory and commercial milestone payments that could total up to $497.5 million. In addition, the company will be entitled to receive tiered double-digit royalties based on sales of iSONEP.
ASONEP™ is the systemic formulation of sonepcizumab. We are collaborating with Beth Israel Deaconess Medical Center and other collaborators at academic medical research institutions on a Phase 2 clinical trial testing ASONEP as a treatment for renal cell carcinoma. That clinical trial is currently open for enrollment.
As part of the Pfizer Agreement, Lpath has granted to Pfizer a time-limited right of first refusal for ASONEP which period ends when the iSONEP Nexus clinical trial is completed.
Lpathomab™, our pre-clinical product candidate, is a mAb against lysophosphatidic acid (“LPA”), a key bioactive lipid that has long been recognized as a significant promoter of cancer-cell growth and metastasis in a broad range of tumor types. Published research has also demonstrated that LPA is a significant contributor to neuropathic pain and plays a key role in pulmonary fibrosis. We have selected the clinical candidate mAb from among three humanized mAbs that inhibit LPA. These mAbs were tested against each other in various models of human disease to determine which mAb would be most likely to succeed in clinical trials. We are now in the early stages of antibody manufacturing process development and expect to begin Investigational New Drug (“IND”) enabling studies in 2013. The target date to begin testing Lpathomab in clinical trials is in early 2015.
Lpath has incurred significant net losses since its inception. As of December 31, 2012, we had an accumulated deficit of approximately $42.9 million. We expect that the cost of our ongoing research and development activities, including general and administrative expenses, will approximate $31 million from March 31, 2013 through the end of 2014. This estimate includes the expenses to conduct the Nexus clinical trial for iSONEP, as well as the Phase 2a clinical trial for ASONEP. In addition, this estimate includes the expenses to develop the manufacturing process and conduct the IND-enabling studies for our third product candidate, Lpathomab. We expect our expenditures to increase as we continue the advancement of our product development programs. The lengthy process of completing clinical trials and seeking regulatory approval for one product candidate typically requires expenditures in excess of approximately $100 million, according to industry data. Any failure by us or delay in completing clinical trials, or in obtaining regulatory approvals, would cause our research and development expenses to increase and, in turn, have a material adverse effect on our results of operations
On October 3, 2012, the Board of Directors approved a 1-for-7 reverse split of the company’s issued and outstanding Class A common stock and a corresponding decrease in the number of authorized shares of common stock. The reverse split was effective on October 9, 2012. Fractional shares created by the reverse stock split were rounded up to the nearest whole share. All issued and outstanding common stock, options exercisable for common stock, warrants exercisable for common stock, restricted stock units, and per-share amounts contained in the company’s condensed consolidated financial statements have been retroactively adjusted to reflect this reverse stock split for all periods presented.
Results of Operations
Grant and Royalty Revenue. Grant and royalty revenues for the quarter ended March 31, 2103 were $224,000 compared to $181,000 for the quarter ended March 31, 2012. The increase of $43,000 in 2013 was due to increased reimbursable costs incurred as our Phase 2 clinical trials resumed after having been suspended in early 2012.
Research and Development Revenue Under Collaborative Agreement. As described in Note 2 to the condensed consolidated financial statements, in December 2010 we entered into an agreement with Pfizer that provides financial support for our iSONEP and ASONEP development programs. We recognized revenues as follows:
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Three Months Ended |
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March 31, |
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|
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2013 |
|
2012 |
| ||
|
Cost reimbursements |
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$ |
— |
|
$ |
1,900,032 |
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|
Amortization of development fees |
|
887,590 |
|
677,046 |
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|
|
$ |
887,590 |
|
$ |
2,577,078 |
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At the end of the second quarter of 2012, we reached the point in the contract where Lpath became responsible for funding the next $6,000,000 of iSONEP development costs pursuant to the terms of the Pfizer Agreement. During this period, deferred revenue is recognized as we fund the ongoing development on a dollar-for-dollar basis. The increase in amortization of deferred revenues in 2013 is due to the resumption of our Phase 2 clinical trials.
Research and Development Expenses. Research and development expenses decreased to $1,585,000 for the first quarter of 2013 from $3,102,000 for the first quarter of 2012, a decrease of $1,517,000. The decrease from 2012 was driven by the 2012 costs associated with remanufacturing the drug substance used in our clinical trials.
General and Administrative Expenses. General and administrative expenses were $1,004,000 for the quarter ended March 31, 2013 compared to $882,000 for the same period in 2012, an increase of $122,000. This increase is principally attributable to an increase of $70,000 in stock compensation expense in the first quarter of 2013 and the annual NASDAQ listing fee of $32,000. Because we did not become listed on the NASDAQ Capital Market until October 2012, no similar fee was incurred in the first quarter of 2012.
Change in Fair Value of Warrants. Various factors are considered in the pricing models we use to value outstanding warrants, including the company’s current stock price, the remaining life of the warrants, the volatility of the company’s stock price, and the risk-free interest rate. Future changes in these factors will have a significant impact on the computed fair value of the warrant liability. The most significant factor in the valuation model is the company’s stock price. Lpath’s stock is thinly traded and relatively small transactions can impact the company’s quoted stock price significantly. As such, we expect future changes in the fair value of the warrants to continue to vary significantly from quarter to quarter. Management cautions that the $200,000 net change in fair value of the warrants credited to the results of operations, recognized during the three months ended March 31, 2013, and all similar changes in the future, should not be given undue importance when considering the financial condition of Lpath and the results of its operations. Management does not believe that these adjustments, which are required by current generally accepted accounting principles, reflect economic activities or financial obligations undertaken by the company.
Liquidity and Capital Resources
As of March 31, 2013, Lpath had cash and cash equivalents totaling $20.5 million. Additional near-term sources of cash include $0.3 million remaining on the $3 million BRDG-SPAN grant from the National Eye Institute (part of the NIH) to support iSONEP-related trials, and $1.1 million remaining on the $3 million grant from NIH to support ASONEP clinical trials. As they are currently planned, we estimate that the cost of our ongoing drug discovery and development efforts, including general and administrative expenses, would require approximately $31 million from March 31, 2013 through the end of 2014. This estimate includes the expenses to conduct the Nexus clinical trial for iSONEP, as well as the Phase 2a clinical trial for ASONEP. In addition, this estimate includes the expenses to develop the manufacturing process and conduct the IND-enabling studies for our third product candidate, Lpathomab.
We believe our cash on hand as of March 31, 2013, together with amounts to be received pursuant to the Pfizer Agreement and NIH grants, should be sufficient to fund our ongoing research and development activities, as currently planned, through 2014. However, the NIH has notified all grant recipients that due to the current Congressional budget sequestration, the NIH may not be able to issue continuation awards, or it may be required to negotiate a reduction in the scope of our existing awards to meet the constraints imposed. Additionally, plans for new grants or cooperative agreements may be re-scoped, delayed, or canceled depending on the nature of the work and the availability of resources. As a result, we cannot assure you that we will receive the remaining $1.4 million in funding under our existing NIH grants, and we may not be successful in securing additional grants from the NIH in the future. In the event that the NIH is unable to fund all, or a portion, of our existing awards, we believe that we would still have sufficient resources to fund our ongoing research and development activities through the third quarter of 2014.
In addition, we may receive additional funding to support our operations beyond 2014 under the Pfizer Agreement if Pfizer elects to exercise its option to continue the clinical development of iSONEP. However, we cannot assure you that we will be successful in maintaining our commercial relationship with Pfizer, that Pfizer will exercise its option to commercialize iSONEP, or that iSONEP will achieve the developmental, regulatory, and commercial milestones necessary to entitle us to future payments under the Pfizer Agreement on a timely basis, or at all. Even if Pfizer exercises its option, but does so after 2014, we may be required to secure substantial additional capital to continue to fund our planned drug discovery and development projects beyond 2014.
Until we can generate significant cash from operations, we expect to continue to fund our operations with cash resources generated from a combination of NIH grants, license agreements, and the proceeds of offerings of our equity and debt securities. However, we may not be successful in obtaining funding from new or existing collaboration agreements or licenses, or in receiving milestone or royalty payments under those agreements. In addition, we cannot be sure that additional financing will be available when needed or that, if available, financing will be obtained on terms favorable to us or to our stockholders. Having insufficient funds may require us to delay, scale back, or eliminate some or all of our development programs, relinquish some or even all rights to product candidates at an earlier stage of development, or renegotiate less favorable terms than we would otherwise choose. Failure to obtain adequate financing could eventually adversely affect our ability to operate as a going concern. If we raise additional funds from the issuance of equity securities, substantial dilution to our existing stockholders would likely result. If we raise additional funds by incurring debt financing, the terms of the debt may involve significant cash payment obligations as well as covenants and specific financial ratios that may restrict our ability to operate our business.
Critical Accounting Policies, Estimates, and Judgments
Our condensed consolidated financial statements are prepared in accordance with accounting principles that are generally accepted in the United States. The preparation of these condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the condensed consolidated 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 and warrant liability, 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 condensed consolidated 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-K for the year ended December 31, 2012.
Item 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”) 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 and accounting officer, as appropriate, to allow timely decisions regarding required disclosure.
Under the supervision of our Chief Executive Officer and our Chief 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 Chief Executive Officer and our Chief Financial Officer, cannot be certain that our disclosure controls and procedures or our internal controls will prevent all instances of errors and 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 Controls over Financial Reporting
In connection with the evaluation required by Exchange Act Rule 13a-15(d), our management, including our Chief Executive Officer and our Chief Financial Officer, concluded that no changes in our internal control over financial reporting occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
We are not currently a party in any material legal proceedings.
In evaluating us and our common stock, we urge you to carefully consider the risks and other information in this Quarterly Report on Form 10-Q, as well as the risk factors disclosed in Item 1A. to Part I of our Annual Report on Form 10-K for the fiscal year ended December 31, 2012, which we filed with the SEC on March 15, 2013. The risks and uncertainties described in “Item 1A — Risk Factors” of our Annual Report on Form 10-K have not materially changed. Any of the risks discussed in this Quarterly Report on Form 10-Q or any of the risks disclosed in Item 1A. to Part I of our Annual Report on Form 10-K for the fiscal year ended December 31, 2012, as well as additional risks and uncertainties not currently known to us or that we currently deem immaterial, could materially and adversely affect our results of operations or financial condition.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. MINE SAFETY DISCLOSURE
Not applicable
None.
(a) Exhibits:
The following exhibit index shows those exhibits filed with this report and those incorporated herein by reference:
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2.1 |
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Agreement and Plan of Reorganization, by and between Neighborhood Connections, Inc., Neighborhood Connections Acquisition Corporation, and Lpath Therapeutics Inc. dated July 15, 2005 (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). |
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2.2 |
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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 |
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Composite Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the Registration Statement on Form 8-A, filed with the SEC on October 18, 2012). |
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3.2 |
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Amended and Restated Bylaws, as amended on April 3, 2007 (conformed) (incorporated by reference to Exhibit 3.5 to the Registration Statement on Form SB-2, SEC File No. 144199). |
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3.3 |
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Amendment No. 1 to the Amended and Restated Bylaws of Lpath, Inc. (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on October 26, 2012). |
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4.1 |
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Form of Warrant issued pursuant to the Securities Purchase Agreement dated August 12, 2008 (August 2008 Warrants) (filed as Exhibit 4.10 to the registration statement on Form S-1 filed on September 11, 2008, SEC File No. 333-153423 and incorporated herein by reference). |
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4.2 |
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Form of Warrant issued pursuant to the Securities Purchase Agreement, dated November 16, 2010, by and between Lpath, Inc. and each purchaser identified therein (filed as an exhibit to the Current Report on Form 8-K filed with the SEC on November 18, 2010 and incorporated herein by reference). |
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4.3 |
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Form of Common Stock Purchase Warrant for Investors in the Units. (filed as an exhibit to Form 8-K filed with the SEC on March 6, 2012 and incorporated herein by reference.) |
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4.4 |
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Form of Common Stock Purchase Warrant for Placement Agents of the Units. (filed as an exhibit to Form 8-K filed with the SEC on March 6, 2012 and incorporated herein by reference.) |
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4.5 |
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Form of Warrant for Griffin Securities, Inc. (filed as an exhibit to Form 8-K filed with the SEC on March 6, 2012 and incorporated herein by reference.) |
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21.1 |
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List of Subsidiaries of Registrant (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). |
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31.1 |
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Section 302 Certification by Chief Executive Officer of Lpath, Inc. |
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31.2 |
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Section 302 Certification by Chief Financial Officer of Lpath, Inc. |
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32.1 |
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Section 906 Certification by Chief Executive Officer and Chief Financial Officer of Lpath, Inc. |
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101.INS* |
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XBRL Instance Document |
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101.SCH* |
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XBRL Taxonomy Extension Schema Document |
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101.CAL* |
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XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF* |
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XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB* |
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XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE* |
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XBRL Taxonomy Extension Presentation Linkbase Document |
+ Management contract or compensation plan or arrangement
* In accordance with Regulation S-T, the XBRL-related information in Exhibit 101 shall be deemed “furnished” and not “filed.”
(c) Financial Statement Schedules
All financial statement schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or other notes hereto.
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.
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Lpath, Inc. |
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Date: May 7, 2013 |
/S/ SCOTT R. PANCOAST |
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Scott R. Pancoast |
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President and Chief Executive Officer |
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(Principal Executive Officer) |
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/S/ GARY J. G. ATKINSON |
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Gary J. G. Atkinson, |
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Senior Vice President and Chief Financial Officer |
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(Principal Financial and Accounting Officer) |