Apollo Endosurgery, Inc. - Quarter Report: 2015 March (Form 10-Q)

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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, 2015

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)

Delaware		16-1630142
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

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):

Large accelerated filer o		Accelerated filer o

Non-accelerated filer o		Smaller reporting company x
(Do not check if a smaller reporting company)

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 common stock as of May 9, 2015 was 19,426,362.

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LPATH, INC.

FORM 10-Q

March 31, 2015

TABLE OF CONTENTS

PART I	FINANCIAL INFORMATION	4

ITEM 1:	Financial Statements	4

ITEM 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	10

ITEM 4:	Controls and Procedures	13

PART II	OTHER INFORMATION	15

ITEM 1:	Legal Proceedings	15

ITEM 1A:	Risk Factors	15

ITEM 2:	Unregistered Sales of Equity Securities and Use of Proceeds	15

ITEM 3:	Defaults upon Senior Securities	15

ITEM 4:	Mine Safety Disclosure	15

ITEM 5:	Other Information	15

ITEM 6:	Exhibits	16

SIGNATURES		17

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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, 2014 filed with the Securities and Exchange Commission on March 24, 2015. 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.

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PART I. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

LPATH, INC.

Condensed Consolidated Balance Sheets

(Unaudited)

	March 31,			December 31,
	2015			2014
ASSETS
Current Assets:
Cash and cash equivalents	$	12,673,465		$	17,282,325
Accounts receivable	1,442,823			727,178
Prepaid expenses and other current assets	431,044			413,260
Total current assets	14,547,332			18,422,763

Equipment and leasehold improvements, net	219,628			221,148
Patents, net	2,267,873			2,236,909
Deposits and other assets	77,350			77,350

Total assets	$	17,112,183		$	20,958,170

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	2,017,473		$	2,865,165
Accrued compensation	674,492			848,583
Accrued expenses	349,064			383,623
Deferred contract revenue	62,500			125,000
Deferred rent, short-term portion	36,214			33,744
Total current liabilities	3,139,743			4,256,115

Deferred rent, long-term portion	25,958			35,629
Warrants	600,000			850,000
Total liabilities	3,765,701			5,141,744

Stockholders’ Equity:
Common stock - $.001 par value; 100,000,000 shares authorized; 19,402,430 and 19,224,708 issued and outstanding at March 31, 2015 and December 31, 2014, respectively	19,402			19,225
Additional paid-in capital	82,132,619			81,830,410
Accumulated deficit	(68,805,539		)	(66,033,209		)
Total stockholders’ equity	13,346,482			15,816,426

Total liabilities and stockholders’ equity	$	17,112,183		$	20,958,170

See accompanying notes to the condensed consolidated financial statements.

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LPATH, INC.

Condensed Consolidated Statements of Operations

(Unaudited)

	Three Months Ended March 31,
	2015			2014

Revenues:
Grant and royalty revenue	$	13,635		$	116,099
Research and development revenue under collaborative agreements	770,266			1,603,277
Total revenues	783,901			1,719,376

Expenses:
Research and development	2,755,488			3,663,008
General and administrative	1,050,743			1,156,957
Total expenses	3,806,231			4,819,965

Loss from operations	(3,022,330		)	(3,100,589		)

Other income (expense), net	—			—
Change in fair value of warrants	250,000			(200,000		)
Total other income (expense), net	250,000			(200,000		)

Net loss	$	(2,772,330	)	$	(3,300,589	)

Basic and diluted net loss per share	$	(0.14	)	$	(0.23	)

Weighted-average shares outstanding used in the calculation	19,715,009			14,511,710

See accompanying notes to the condensed consolidated financial statements.

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LPATH, INC.

Condensed Consolidated Statements of Cash Flows

Three Months Ended March 31,

(Unaudited)

	2015			2014
Cash flows from operating activities:
Net loss	$	(2,772,330	)	$	(3,300,589	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation expense	251,059			317,801
Change in fair value of warrants	(250,000		)	200,000
Depreciation and amortization	70,598			35,916
Changes in operating assets and liabilities:
Accounts receivable	(715,645		)	(1,394,256		)
Prepaid expenses and other current assets	(17,784		)	(153,092		)
Accounts payable and accrued expenses	(1,050,472		)	501,966
Deferred contract revenue	(62,500		)	(124,000		)
Other	(7,201		)	(4,803		)
Net cash used in operating activities	(4,554,275		)	(3,921,057		)

Cash flows from investing activities:
Equipment and leasehold improvement expenditures	(21,117		)	(91,248		)
Patent expenditures	(78,925		)	(98,508		)
Net cash used in investing activities	(100,042		)	(189,756		)

Cash flows from financing activities:
Proceeds from sale of common stock and warrants, net	—			8,440,807
Proceeds from options and warrants exercised	45,457			250
Payment for restricted stock tax liability on net settlement	—			(70,627		)
Net cash provided by financing activities	45,457			8,370,430

Net increase (decrease) in cash and cash equivalents	(4,608,860		)	4,259,617

Cash and cash equivalents at beginning of period	17,282,325			11,851,639
Cash and cash equivalents at end of period	$	12,673,465		$	16,111,256

Supplemental disclosure of cash flow information:
Cash paid during the year for:
Income taxes	$	1,600		$	1,600
Supplemental disclosure of non-cash investing and financing activities:
Change in fair value of warrant liability	$	(250,000	)	$	200,000

See accompanying notes to the condensed consolidated financial statements.

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LPATH, INC.

Notes to Condensed Consolidated Financial Statements

March 31, 2015

Note 1 — BASIS FOR PRESENTATION

The unaudited condensed consolidated balance sheet of Lpath, Inc. (“Lpath” or “the company”) as of December 31, 2014 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, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015 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, 2014.

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.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09, Revenues from Contracts with Customers (Topic 606). This guidance applies to any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards. The core principle of this guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance supersedes existing revenue recognition guidance, including most industry-specific guidance, as well as certain related guidance on accounting for contract costs. In April 2015, the FASB proposed a deferral of the effective date of ASU 2014-09. The proposal would defer required adoption for one year, until December 15, 2017, and would permit early application though in no case could the new guidance be applied before the original effective date. The company is currently evaluating the impact of this ASU on its consolidated financial statements.

In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. ASU 2014-15 defines management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern and to provide related footnote disclosures. The guidance in ASU 2014-15 is effective for annual reporting periods beginning after December 15, 2016, with early application permitted. The company is currently evaluating the impact of ASU 2014-15 on the Company’s financial statements.

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.

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The company recognized revenue under the Pfizer Agreement as follows:

	Three Months Ended
	March 31,
	2015		2014
Cost reimbursements	$	707,766	$	1,479,277
Amortization of development fees	62,500		124,000
	$	770,266	$	1,603,277

Note 3 — SHARE-BASED PAYMENTS

The company recognized share-based compensation expense as follows:

	Three Months Ended
	March 31,
	2015		2014

Research and development	$	124,037	$	114,652
General and administrative	127,022		203,149

Total share-based compensation expense	$	251,059	$	317,801

As of March 31, 2015, there was a total of $2.0 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 3.3 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, 2015 and 2014.

Note 4 — FAIR VALUE MEASUREMENTS

Lpath has issued warrants, of which some are classified as equity and some as liabilities. 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. The company’s recurring fair value measurements at March 31, 2015 were as follows:

	Fair Value as of March 31, 2015		Significant Unobservable Inputs (Level 3)
Liabilities:
Warrants expiring March 2017	$	600,000	$	600,000

The company determined the fair value of the warrant liability for certain warrants, as applicable, using a Black-Scholes model. The model considered amounts and timing of future possible equity and warrant issuances and volatility of the company’s stock price equal to 100%, as specified in the underlying warrants.

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):

Liabilities:
Warrant liability as of January 1, 2015	$	850,000
Change in fair value of warrants	(250,000		)

Warrant liability as of March 31, 2015	$	600,000

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The terms of all outstanding warrants permit the company, upon exercise of the warrants, to settle the contract by the delivery of unregistered shares. As of March 31, 2015 there were 4,591,359 warrants outstanding with a weighted-average exercise price of $4.21 per share expiring through September 2019.

Note 5 — EARNINGS PER SHARE

Basic net loss per common share is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of common shares outstanding during the period, without consideration for potentially dilutive securities. Because the company reported a net loss for the three months ended March 31, 2015 and 2014, diluted net loss per common share is the same as basic net loss per common share for those periods. Anti-dilutive common stock equivalents were excluded from the calculation of diluted loss per share as follows:

	Three Months Ended
	March 31,
	2015	2014
Stock options	1,043,780	807,901
Warrants	4,591,359	923,956
Restricted stock units	560,345	654,784
Total	6,195,484	2,386,641

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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, 2014, 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 2014 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 that is currently awaiting FDA clearance to initiate a Phase 1 clinical trial.

iSONEP™ is the ocular formulation of sonepcizumab, a humanized monoclonal antibody (“mAb”) against sphingosine-1-phosphate (“S1P”). Sphingomab™ is the original mouse version of this monoclonal antibody. iSONEP is administered by intravitreal injection, and has demonstrated multiple mechanisms of action in ocular models of disease, including anti-angiogenesis, anti-inflammatory, anti-fibrotic and anti-vascular permeability. This combination of mechanisms would suggest: (i) iSONEP might have a comparative advantage over currently marketed products for “wet” age-related macular degeneration (“wet AMD”) and (ii) iSONEP might demonstrate clinical efficacy in a broad range of retinal diseases where there is currently a significant unmet medical need, including diabetic retinopathy, dry AMD, and glaucoma-related surgery.

We entered into an agreement with Pfizer Inc. in December 2010, and amended it in 2012 (collectively, the “Pfizer Agreement”), that provides Pfizer with an exclusive option for a worldwide license to develop and commercialize iSONEP. Under the Pfizer Agreement, we are conducting a Phase 2 study in wet AMD patients (the “Nexus trial”). We began enrolling patients in the Nexus trial in October 2011. We completed enrollment of the Nexus trial in December 2014, and the last patient in that trial received their last dose of iSONEP in March 2015. After the last patient completed their evaluation visit in April 2015, we began the process of compiling and analyzing the results of the Nexus trial. We expect that data from the Nexus trial will be available in the second quarter of 2015. 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 “Risk Factors — We may have delays in completing our clinical trials, and we may not complete them at all.”

Following completion of the Nexus trial and within 75 days of delivery to Pfizer of all required Nexus trial data, Pfizer (or a third party who may acquire Pfizer’s rights) has the right to exercise its option for a worldwide license to iSONEP for an undisclosed option fee and, if Pfizer (or a third party who may acquire Pfizer’s rights) exercises its option, we will be eligible to receive development, regulatory, and commercial milestone payments that could total up to $497.5 million. In addition, we will be entitled to receive tiered double-digit royalties based on sales of iSONEP.

In October 2013, Lpath announced that it had received notice from Pfizer that Pfizer would be seeking to divest certain ophthalmology research and development assets, including Pfizer’s rights and obligations under the Pfizer Agreement. Lpath presented offers to Pfizer to reacquire those rights. However, in December 2013, Pfizer informed Lpath that its offers were not competitive with other offers. Acquisition of Pfizer’s rights and obligations under the terms of the Pfizer Agreement by a third party would not affect the terms of the Pfizer Agreement, as the existing rights and obligations currently held by Pfizer will be assumed by the third party or remain with Pfizer based on the terms of the agreement between Pfizer and the third party. Since December 2013, Pfizer has maintained its position that it is continuing a process to divest certain of its ophthalmology research and development assets, including its rights and obligations under the Pfizer Agreement. Nevertheless, Lpath believes that Pfizer may now be waiting until they receive the results of the Nexus trial before completing or stopping its process, given that Lpath is closer to the completion of the Nexus trial. As of March 31, 2015, Pfizer had paid Lpath $25.2 million pursuant to the terms of the Pfizer Agreement, including the $14 million upfront payment. The amendment to the Pfizer Agreement did not modify Lpath’s obligation to fund $6.0 million of Nexus trial expenses, which it completed during 2013. The terms of the Pfizer Agreement specify that, since Lpath has fulfilled its funding obligation, Pfizer (or any third party who acquires Pfizer’s rights) will fund the remaining expenses necessary to complete the Nexus trial.

ASONEP™ is the systemic formulation of sonepcizumab. We are collaborating with investigators at several medical research institutions on a Phase 2 clinical trial testing ASONEP as a treatment for renal cell carcinoma. On March 24, 2015, we announced that our Phase 2a single-agent, open-label study of ASONEP™ did not meet the primary endpoint of statistically significant progression-free survival in patients with advanced renal cell carcinoma (RCC). To successfully meet the primary endpoint of progression-free

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survival, at least 20 out of 39 patients needed to be progression-free at four months of treatment. Fourteen out of 40 patients (over enrolled by one patient) were progression-free at four months. Eight of the fourteen patients were progression-free for at least six months, of which three patients remained progression-free for over 20 months. Five patients currently continue to receive weekly infusions of ASONEP. Overall, ASONEP was well-tolerated.

We have also recently analyzed the expression profile of the S1P pathway from a genetic database of thousands of cancer patient genomes and believe there could be a rationale for ASONEP in other cancer types where S1P pathway dysregulation suggests a stronger pharmacological rationale. At the conclusion of this RCC trial, we will take a strategic look at exploring with a partner those other opportunities where ASONEP may have the best chance of success.

As part of the Pfizer Agreement, Lpath has granted to Pfizer (or a third party who may acquire Pfizer’s rights) a time-limited right of first refusal for ASONEP, which period ends concurrently with Pfizer’s option to acquire the license to iSONEP.

Lpathomab™ is a mAb against lysophosphatidic acid (“LPA”), a bioactive lipid that has been characterized in scientific literature as playing a key role in nerve injury and neuropathic pain. Published research has also demonstrated that LPA is a significant promoter of cancer-cell growth and metastasis in a broad range of tumor types, and plays a key role in pulmonary fibrosis.

Preclinical studies showed strong in vivo results with Lpathomab in several different pain models, which suggest that LPA may be an attractive target across a variety of chronic pain conditions, including diabetic peripheral neuropathy, post-herpetic neuralgia, chemotherapy-induced neuropathic pain and pain associated with lumbosacral radiculopathy.

In January 2015 we submitted the Investigational New Drug (IND) application to the FDA to conduct a Phase 1 study of Lpathomab™ for the treatment of various forms of severe chronic pain. The primary objective of the study is to evaluate the safety and tolerability of Lpathomab in subjects that are experiencing severe chronic pain. In March 2015 we were requested by the FDA to provide additional information. At the time of that request, the FDA also informed us that since we would not be able to provide the requested information within the prescribed 30-day IND review period, the IND application would be placed on clinical hold until we respond to their request and they complete their review. We have provided the FDA with the requested information. We plan to begin enrolling patients in the Phase 1 trial once the FDA’s IND review has been completed and the study has been approved by the investigational review boards for the clinical trial sites.

Lpath has incurred significant net losses since its inception. As of March 31, 2015, we had an accumulated deficit of approximately $68.8 million. As they are currently planned, we estimate that our ongoing drug discovery and development efforts, including general and administrative expenses, will require Lpath to expend approximately $16 million from March 31, 2015, through the first quarter of 2016. As of March 31, 2015, we had cash and cash equivalents totaling $12.7 million. Additional near-term sources of cash include our accounts receivable of $1.4 million and additional funding from Pfizer under the terms of the Pfizer Agreement to support our Nexus clinical trial. We believe these funds should be sufficient to fund our planned drug discovery and development activities through the first quarter of 2016.

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.

Results of Operations

Grant and Royalty Revenue. Grant and royalty revenues for the quarter ended March 31, 2015 were $14,000 compared to $116,000 for the quarter ended March 31, 2014. The decrease of $102,000 in 2015 was due principally to the substantial conclusion of our active grants in the second half of 2014.

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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:

	Three Months Ended
	March 31,
	2015		2014
Cost reimbursements	$	707,766	$	1,479,277
Amortization of development fees	62,500		124,000
	$	770,266	$	1,603,277

Since we completed enrollment of the Nexus trial in December 2014, and the last patient in that trial received their last dose of iSONEP in March 2015, reimbursable costs of the trial are winding down in 2015.

Research and Development Expenses. Research and development expenses decreased to $2,755,000 for the first quarter of 2015 from $3,663,000 for the first quarter of 2014, a decrease of $908,000. The decrease in expenses in 2015 was due to lower level of activity in our ongoing clinical trials as they proceed toward conclusion in the second half of 2015.

General and Administrative Expenses. General and administrative expenses were $1,051,000 for the quarter ended March 31, 2015 compared to $1,157,000 for the same period in 2014, a decrease of $107,000. This decrease is principally attributable to decreased expenses incurred related to legal and professional fees and decreased stock compensation expenses.

Change in Fair Value of Warrants. Various factors are considered in the pricing model 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 Lpath’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 $250,000 net change in fair value of the warrants credited to the results of operations, recognized during the three months ended March 31, 2015, 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 Lpath.

Liquidity and Capital Resources

As they are currently planned, we estimate that our ongoing drug discovery and development efforts, including general and administrative expenses, will require Lpath to expend approximately $16 million from April 1, 2015, through the first quarter of 2016. As of March 31, 2015, Lpath had cash and cash equivalents totaling $12.7 million. Additional near-term sources of cash include our accounts receivable of $1.4 million and additional funding from Pfizer under the terms of the Pfizer Agreement to support our Nexus clinical trial. We may also receive additional funding from future awards of NIH grants. We believe these funds should be sufficient to fund our planned drug discovery and development activities through the first quarter of 2016 without including any funds that we may receive should Pfizer exercise its iSONEP option.

Based on our current plans and available resources, we will be required to secure additional capital to continue to fund our planned drug discovery and development projects beyond the first quarter of 2016. In addition, our expenses may exceed our current plans and expectations.

If Pfizer (or a third party who may acquire Pfizer’s rights) elects to exercise its option to continue the clinical development of iSONEP beyond the current Nexus clinical trial, the terms of the Pfizer Agreement provide that we will receive additional funding that we may use to support our operations beyond the first quarter of 2016. However, we cannot assure you that we will be successful in maintaining our commercial relationship with Pfizer (or a third party who may acquire Pfizer’s rights), that Pfizer (or that a third party who may acquire Pfizer’s rights) will exercise its option to develop and 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.

Until we can generate significant cash from operations, we expect that we will be required to issue additional equity or debt securities or enter into other commercial arrangements, including relationships with corporate and other partners, to secure the additional financial resources to support our development efforts and future operations. However, we may not be successful in obtaining funding from new or existing collaboration or license agreements, 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

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less favorable terms than we would otherwise choose. For example, in the future, we could determine to delay or scale back some of our planned drug discovery and development projects to extend our runway beyond the first quarter of 2016. Nevertheless, the 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, 2014.

Recent Accounting Pronouncements

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.

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Under the supervision of our Interim 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 Interim 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 Interim 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.

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PART II — OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

We are not currently a party in any material legal proceedings.

Item 1A. RISK FACTORS

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, 2014, which we filed with the SEC on March 24, 2015 (the “Form 10-K”). The risks and uncertainties described in “Item 1A — Risk Factors” of our 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 Form 10-K, 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, financial condition or prospects.

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

Item 5. OTHER INFORMATION

None.

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Item 6. EXHIBITS

(a) Exhibits:

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 (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).

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).

2.3		Plan of Conversion, dated July 17, 2014, of Lpath, Inc. (filed as Exhibit 2.1 to the Current Report on Form 8-K filed with the SEC on July 21, 2014 and incorporated herein by reference).

3.1		Certificate of Incorporation (filed as Exhibit 3.3 to the Current Report on Form 8-K filed with the SEC on July 21, 2014 and incorporated herein by reference).

3.2		Bylaws (filed as Exhibit 3.4 to the Current Report on Form 8-K filed with the SEC on July 21, 2014 and incorporated herein by reference).

4.1		Form of Common Stock Purchase Warrant for Investors in the Units. (filed as an exhibit to Current Report on Form 8-K filed with the SEC on March 6, 2012 and incorporated herein by reference.)

4.2		Form of Common Stock Purchase Warrant for Placement Agents of the Units. (filed as an exhibit to the Current Report on Form 8-K filed with the SEC on March 6, 2012 and incorporated herein by reference.)

4.3		Form of Warrant for Griffin Securities, Inc. (filed as an exhibit to the Current Report on Form 8-K filed with the SEC on March 6, 2012 and incorporated herein by reference.)

4.4		Form of Warrant Issued to Investors in the September 2014 Offering (filed as Exhibit 4.1 to the Current Report on Form 8-K filed with the SEC on September 22, 2014 and incorporated herein by reference).

4.5		Form of Warrant issued to Maxim Group LLC in the September 2014 Offering (filed as Exhibit 4.2 to the Current Report on Form 8-K filed with the SEC on September 22, 2014 and incorporated herein by reference).

31.1		Section 302 Certification by Interim Chief Executive Officer of Lpath, Inc.*

31.2		Section 302 Certification by Chief Financial Officer of Lpath, Inc.*

32.1		Section 906 Certification by Interim Chief Executive Officer and Chief Financial Officer of Lpath, Inc.*

101.INS# XBRL		Instance Document*

101.SCH# XBRL		Taxonomy Extension Schema Document*

101.CAL# XBRL		Taxonomy Extension Calculation Linkbase Document*

101.DEF# XBRL		Taxonomy Extension Definition Linkbase Document*

101.LAB# XBRL		Taxonomy Extension Label Linkbase Document*

101.PRE# XBRL		Taxonomy Extension Presentation Linkbase Document*

* Provided herewith.

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.

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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.

Date: May 8, 2015	/S/ MICHAEL LACK
	Michael Lack
	Interim Chief Executive Officer
	(Principal Executive Officer)


	/S/ GARY J. G. ATKINSON
	Gary J. G. Atkinson,
	Senior Vice President and Chief Financial Officer
	(Principal Financial and Accounting Officer)