** **

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

**FORM 10-QSB**

 
| x                                                                                                                                                                                                                                                                                                                                                                                         | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**  |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                          |
| **For the quarterly  period ended June 30, 2006**                                                                                                                                                                                                                                                                                                                                         |
|                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                          |
| **OR**                                                                                                                                                                                                                                                                                                                                                                                    |
|                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                          |
| o                                                                                                                                                                                                                                                                                                                                                                                         | **TRANSITION REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                          |
| **For the transition  period from                               to                             ** |
|                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                          |
| **Commission file number:  000-50344**                                                                                                                                                                                                                                                                                                                                                    |

**LPATH, INC.**

(Name of smallbusiness issuer in its charter)

| **Nevada**                                                    |   | **16-1630142**                        |
|---------------------------------------------------------------|--------|---------------------------------------|
| (State or other  jurisdiction of                              |   | (I.R.S. Employer  Identification No.) |
| incorporation or  organization)                               |   |                                  |
|                                                          |   |                                  |
| **6335  Ferris Square, Suite A, San Diego, CA 92121**         |
| (Address of  principal executive offices, including zip code) |
|                                                          |
| **(858)  678-0800**                                           |
| (Issuer’s  telephone number)                             |

Check whether the issuer (1) filed all reportsrequired to be filed by Section 13 or 15(d) of the Exchange Act during the past12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.  Yes x  No o

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).  Yes o  No x

The number of shares ofissuer’s outstanding common stock as of August 8, 2006 was 24,616,393.

TransitionalSmall Business Disclosure Format (check one):  Yes o    No x

 

 

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**LPATH,INC.FORM 10-QSBTABLE OF CONTENTS**
| **PART I**  | ** ** | **FINANCIAL  INFORMATION**                                                                                              | ** ** |
|------------------|------------|-------------------------------------------------------------------------------------------------------------------------|------------|
|             |       |                                                                                                                    |       |
| ITEM 1:          |       | Financial  Statements:                                                                                                  |       |
|             |       |                                                                                                                    |       |
|             |       | Condensed Consolidated  Balance Sheets as of June 30, 2006 (unaudited) and December 31, 2005                       |       |
|             |       |                                                                                                                    |       |
|             |       | Condensed  Consolidated Statements of Operations for the three and six months ended June  30, 2006 and 2005 (unaudited) |       |
|             |       |                                                                                                                    |       |
|             |       | Condensed  Consolidated Statements of Cash Flows for the six months ended June 30, 2006  and 2005 (unaudited)           |       |
|             |       |                                                                                                                    |       |
|             |       | Notes  to Condensed Consolidated Financial Statements                                                                   |       |
|             |       |                                                                                                                    |       |
| ITEM 2:          |       | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                             |       |
|             |       |                                                                                                                    |       |
| ITEM 3:          |       | Controls and Procedures                                                                                                 |       |
|             |       |                                                                                                                    |       |
| **PART II** | ** ** | **OTHER INFORMATION**                                                                                                   | ** ** |
|             |       |                                                                                                                    |       |
| ITEM 1:          |       | Legal Proceedings                                                                                                       |       |
|             |       |                                                                                                                    |       |
| ITEM 2:          |       | Unregistered Sales  of Equity Securities and Use of Proceeds                                                            |       |
|             |       |                                                                                                                    |       |
| ITEM 3:          |       | Defaults upon Senior  Securities                                                                                        |       |
|             |       |                                                                                                                    |       |
| ITEM 4:          |       | Submission of Matters  to a Vote of Security Holders                                                                    |       |
|             |       |                                                                                                                    |       |
| ITEM 5:          |       | Other Information                                                                                                       |       |
|             |       |                                                                                                                    |       |
| ITEM 6:          |       | Exhibits                                                                                                                |       |
|             |       |                                                                                                                    |       |
| **SIGNATURES**   |       |                                                                                                                    |       |

#  

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** **

**PART I. FINANCIAL INFORMATION**

**Item 1.      Financial Statements**

**LPATH, INC.Condensed Consolidated Balance Sheets**
| ** **                                                                                                                                                                            | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                            | ** ** | **2006**          | ** ** | **2005**              | ** ** |
| ** **                                                                                                                                                                            | ** ** | **(Unaudited)**   | ** ** | **Note**              | ** ** |
| **ASSETS**                                                                                                                                                                            | ** ** | ** **        | ** ** | ** **            | ** ** |
| Current Assets:                                                                                                                                                                       |       |              |       |                  |       |
| Cash and cash  equivalents                                                                                                                                                            |       | $                 | 4,111,876  |                  | $          | 5,190,273 |   |
| Grant revenue  receivable                                                                                                                                                             |       | 184,659           |       | 186,728               |       |
| Prepaid expenses  and other current assets                                                                                                                                            |       | 133,932           |       | 127,076               |       |
| Total current assets                                                                                                                                                                  |       | 4,430,467         |       | 5,504,077             |       |
|                                                                                                                                                                                  |       |              |       |                  |       |
| Equipment, net                                                                                                                                                                        |       | 148,519           |       | 118,385               |       |
| Patents, net                                                                                                                                                                          |       | 267,732           |       | 220,953               |       |
| Deposits and other  assets                                                                                                                                                            |       | 86,688            |       | 101,486               |       |
|                                                                                                                                                                                  |       |              |       |                  |       |
| Total assets                                                                                                                                                                          |       | $                 | 4,933,406  |                  | $          | 5,944,901 |   |
|                                                                                                                                                                                  |       |              |       |                  |       |
| **LIABILITIES AND STOCKHOLDERS’  EQUITY**                                                                                                                                        | ** ** | ** **        | ** ** | ** **            | ** ** |
| Current Liabilities:                                                                                                                                                                  |       |              |       |                  |       |
| Accounts payable                                                                                                                                                                      |       | $                 | 352,241    |                  | $          | 347,597 |   |
| Accrued expenses                                                                                                                                                                      |       | 457,978           |       | 247,037               |       |
| Total current  liabilities                                                                                                                                                            |       | 810,219           |       | 594,634               |       |
|                                                                                                                                                                                  |       |              |       |                  |       |
|                                                                                                                                                                                  |       |              |       |                  |       |
| Stockholders’ Equity:                                                                                                                                                            |       |              |       |                  |       |
| Common stock - $.001  par value; 60,000,000 shares authorized; 24,616,393 shares and 23,524,921  shares issued and outstanding at June 30, 2006 and December 31, 2005,  respectively. |       | 24,616            |       | 23,524                |       |
| Additional  paid-in capital                                                                                                                                                           |       | 14,358,602        |       | 12,798,057            |       |
| Accumulated  deficit                                                                                                                                                                  |       | (10,260,031       | )          | (7,471,314            | )          |
| Total stockholders’  equity                                                                                                                                                      |       | 4,123,187         |       | 5,350,267             |       |
| Total liabilities and stockholders’ equity                                                                                                                                       |       | $                 | 4,933,406  |                  | $          | 5,944,901 |   |

 

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Note:The balance sheet at December 31, 2005 has been derived from the auditedconsolidated financial statements at that date.

Seeaccompanying notes to condensed consolidated financial statements

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**LPATH, INC.**

**Condensed Consolidated Statements of Operations(Unaudited)**
| ** **                                                                          | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|-------------------------------------------------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                                          | ** ** | **2006**                                        | ** ** | **2005**                                      | ** ** | **2006** | ** ** | **2005** | ** ** |
|                                                                                |       |                                            |       |                                          |       |   |   |   |   |
|  Grant revenue                                                                 |       | $                                               | 184,659    |                                          | $          | 174,467 |   | $ | 314,134 |   | $ | 312,426 |   |
|                                                                                |       |                                            |       |                                          |       |   |   |   |   |
|  Expenses:                                                                     |       |                                            |       |                                          |       |   |   |   |   |
|  Research and development expenses                                             |       | 1,090,047                                       |       | 221,345                                       |       | 2,043,505 |   | 384,146 |   |
|  General and administrative expenses                                           |       | 610,406                                         |       | 226,083                                       |       | 1,160,948 |   | 302,467 |   |
|  Total expenses                                                                |       | 1,700,453                                       |       | 447,428                                       |       | 3,204,453 |   | 686,613 |   |
|                                                                                |       |                                            |       |                                          |       |   |   |   |   |
|  Loss from operations                                                          |       | (1,515,794                                      | )          | (272,961                                      | )          | (2,890,319 | ) | (374,187 | ) |
|                                                                                |       |                                            |       |                                          |       |   |   |   |   |
|  Other income (expense):                                                       |       |                                            |       |                                          |       |   |   |   |   |
|  Interest income                                                               |       | 48,362                                          |       | 637                                           |       | 101,602 |   | 1,012 |   |
|  Interest expense                                                              |       | —                                          |       | (42,905                                       | )          | — |   | (70,079 | ) |
|  Total other income (expense)                                                  |       | 48,362                                          |       | (42,268                                       | )          | 101,602 |   | (69,067 | ) |
|                                                                                |       |                                            |       |                                          |       |   |   |   |   |
|  Net loss                                                                      |       | (1,467,432                                      | )          | (315,229                                      | )          | (2,788,717 | ) | (443,254 | ) |
|                                                                                |       |                                            |       |                                          |       |   |   |   |   |
|  Redeemable preferred stock accretion                                          |       | —                                          |       | (3,250                                        | )          | — |   | (6,500 | ) |
|                                                                                |       |                                            |       |                                          |       |   |   |   |   |
|  Net loss attributable to common stockholders                                  |       | $                                               | (1,467,432 | )                                             | $          | (318,479 | ) | $ | (2,788,717 | ) | $ | (449,754 | ) |
|                                                                                |       |                                            |       |                                          |       |   |   |   |   |
|  Basic and diluted net loss per share                                          |       | $                                               | (0.06      | )                                             | $          | (0.18 | ) | $ | (0.11 | ) | $ | (0.25 | ) |
|                                                                                |       |                                            |       |                                          |       |   |   |   |   |
|  Weighted average number of  common shares outstanding used in the calculation |       | 24,614,909                                      |       | 1,787,692                                     |       | 24,295,808 |   | 1,783,867 |   |

 

See accompanyingnotes to condensed consolidated financial statements

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**LPATH, INC.**

**Condensed Consolidated Statements of Cash Flows****(Unaudited)**
| ** **                                                                      | ** ** | **Six Months Ended  June 30,** | ** ** |
|---------------------------------------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                                      | ** ** | **2006**                                      | ** ** | **2005** | ** ** |
| Cash flows from  operating activities:                                          |       |                                          |       |   |   |
| Net loss                                                                        |       | $                                             | (2,788,717 | ) | $ | (443,254 | ) |
| Adjustments to  reconcile net loss to net cash used in operating activities:    |       |                                          |       |   |   |
| Stock-based  compensation expense                                               |       | 566,702                                       |       | 115,269 |   |
| Depreciation and  amortization                                                  |       | 19,805                                        |       | 25,536 |   |
| Expenses paid by  note to related party                                         |       | —                                        |       | 30,720 |   |
| Non-cash  interest expense                                                      |       | —                                        |       | 70,079 |   |
| Deferred rent  expense                                                          |       | 23,233                                        |       | — |   |
| Changes in  operating assets and liabilities:                                   |       |                                          |       |   |   |
| Grant revenue  receivable                                                       |       | 2,069                                         |       | (3,189 | ) |
| Prepaid expenses                                                                |       | (6,856                                        | )          | (4,981 | ) |
| Deposits and  other assets                                                      |       | —                                        |       | 3,228 |   |
| Accounts payable  and accrued expenses                                          |       | 258,150                                       |       | 29,602 |   |
| Net cash used in  operating activities                                          |       | (1,925,614                                    | )          | (176,990 | ) |
|                                                                            |       |                                          |       |   |   |
| Cash flows from  investing activities:                                          |       |                                          |       |   |   |
| Equipment  expenditures                                                         |       | (46,036                                       | )          | (43,742 | ) |
| Patent  expenditures                                                            |       | (30,682                                       | )          | (17,893 | ) |
| Net cash used in  investing activities                                          |       | (76,718                                       | )          | (61,635 | ) |
|                                                                            |       |                                          |       |   |   |
| Cash flows from  financing activities:                                          |       |                                          |       |   |   |
| Proceeds from  sale of common stock and warrants                                |       | 923,685                                       |       | 317,520 |   |
| Proceeds from  options exercised                                                |       | 250                                           |       | — |   |
| Proceeds from  issuance of convertible notes payable                            |       | —                                        |       | 335,000 |   |
| Net cash  provided by financing activities                                      |       | 923,935                                       |       | 652,520 |   |
|                                                                            |       |                                          |       |   |   |
| Net increase  (decrease) in cash                                                |       | (1,078,397                                    | )          | 413,895 |   |
|                                                                            |       |                                          |       |   |   |
| Cash at beginning of  period                                                    |       | 5,190,273                                     |       | 36,183 |   |
| Cash at end of period                                                           |       | $                                             | 4,111,876  |   | $ | 450,078 |   |
|                                                                            |       |                                          |       |   |   |
| **Supplemental Schedule of  Non-cash Investing and Financing Activities:**      |       |                                          |       |   |   |
| Common stock warrants  issued with convertible debt                             |       | $                                             | —     |   | $ | 82,952 |   |
| Reversal of estimated  fair value of potential liability for liquidated damages |       | $                                             | (71,000    | ) | $ | — |   |
| Incurred patent expenditures contained in accrued expenses                      |       | $                                             | 20,000     |   | $ | — |   |

 

See accompanyingnotes to condensed consolidated financial statements

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**LPATH, INC.**

**Notes to Condensed ConsolidatedFinancial StatementsJune 30, 2006**

**Note 1 – ORGANIZATION AND BASIS OF PRESENTATION**

Organization

Lpath,Inc. (“Lpath,” “we,” or “company”) is an emerging drug discovery companyfocused on using its proprietary ImmuneY2 process to generate antibodiesagainst bioactive signaling lipids and to develop drugs to both diagnose andtreat important human diseases.  Lpathhas active programs in cancer, heart disease, and age-related maculardegeneration.

Lpath Therapeutics Inc. (“LTI”), thepredecessor company to Lpath, was founded in 1998. On November 30, 2005, LTImerged with a publicly traded corporation, Neighborhood Connections, Inc. (“NCI”),to form Lpath (“the Merger”). Although NCI (which changed its name toLpath, Inc. in connection with the Merger) acquired LTI as a result of theMerger, the former shareholders of LTI held a majority of the voting interestin the combined enterprise immediately after the Merger. Additionally, theMerger resulted in LTI’s management and Board of Directors assuming operationalcontrol of Lpath, Inc. Accordingly, the Merger has been treated as are-capitalization of LTI and the financial information presented here andelsewhere in this Quarterly Report reflects the historical activity of LTI,unless otherwise indicated. NCI conducted limited operations prior to themerger in a line of business wholly unrelated to biopharmaceutical operations,and the results of NCI’s operations are not reflected in the financialinformation of Lpath.

Basis of Presentation

The accompanying unaudited condensed consolidatedfinancial statements have been prepared in accordance with accountingprinciples generally accepted in the United States, and with the rules andregulations of the Securities and Exchange Commission related to a quarterlyreport on Form 10-QSB.  Accordingly, theydo not include all of the information and disclosures required by accountingprinciples generally accepted in the United States for complete financialstatements. The interim financial statements include all adjustments that, inthe opinion of management, are necessary for a fair presentation of thefinancial condition and results of operations for the periods presented.  Except as otherwise disclosed, all suchadjustments are of a normal recurring nature.

Results for the interim periods are not necessarilyindicative of the results for the entire year. For more complete financial information, these financial statements, andnotes thereto, should be read in conjunction with the audited consolidatedfinancial statements for the year ended December 31, 2005 included in Lpath’sAnnual Report on Form 10-KSB filed with the Securities and Exchange Commission.

The consolidated financial statements include theaccounts of Lpath, Inc. and its wholly-owned subsidiary, LpathTherapeutics Inc.  All significantintercompany balances and transactions have been eliminated in consolidation.

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**Note 2 – SIGNIFICANT ACCOUNTING POLICIES**

Revenue Recognition **–** Grant Revenue

Lpath’s sole source of revenue to date has been research grantsreceived from the National Institutes of Health.  Lpath recognizes grant revenue as the relatedresearch expenses are incurred, up to contractual limits.

Research and Development

Research and development costs, other than patentexpense, are charged to expense when incurred.

Cash Equivalents 

Cash equivalents consist of highly liquidinvestments with maturities of three months or less from the original purchasedate.  Lpath classifies its securities as“held-to maturity” in accordance with Statement of Financial AccountingStandards (“SFAS”) No. 115, *Accounting for CertainInvestments in Debt and Equity Securities*.  Lpath carries these investments at amortizedcost since the company has the positive intent and ability to hold them tomaturity.

Fair Value of Financial Instruments

Lpath has determined the estimated fair value of itsfinancial instruments.  The amountsreported for cash equivalents, accounts receivable, accounts payable, andaccrued expenses approximate the fair value because of their short maturities.

Concentrationof Credit Risk

Financial instruments thatpotentially subject the company to a significant concentration of credit riskconsist of cash equivalents.  The companyplaces its cash equivalents with high credit-quality financial institutions,and invests its excess cash in money market instruments, certificates ofdeposit, and commercial paper with initial maturities no longer than 90 days.

Equipment

Equipment is recorded at cost. Depreciation iscomputed using the straight-line method over the estimated useful asset lives,which range from three to five years. Repairs and maintenance are charged toexpense as incurred.

Patents

Legal and filing costs directly associated withobtaining patents are capitalized. Upon issuance of a patent, amortization iscomputed using the straight-line method over the estimated remaining usefullife of the patent.

Long-Lived Assets

The company accounts for the impairment anddisposition of long-lived assets in accordance with SFAS No. 144, *Accounting for the Impairment or Disposal ofLong-Lived Assets.*  Inaccordance with SFAS No. 144, long-lived assets are reviewed for impairmentwhen events or changes in circumstances indicate that their carrying value maynot be recoverable.

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DeferredRent

Rent expense is recorded ona straight-line basis over the term of the lease. The difference between rentexpense and amounts paid under the lease agreements is recorded as deferredrent in the accompanying condensed consolidated balance sheets.

Stock-Based Compensation

Prior to January 1, 2006, Lpath followed SFAS No. 123, *Accounting for Stock-Based Compensation*.  OnJanuary 1, 2006, the company adopted SFAS No. 123R, *Share-Based Payment*, using the modified prospective method,which results in the provisions of SFAS No. 123R being applied to theconsolidated financial statements on a going-forward basis. Prior periods havenot been restated. SFAS No. 123R requires companies to recognize stock-basedcompensation awards granted to its employees as compensation expense on a fairvalue method. Under the fair value recognition provisions of SFAS No. 123R,stock-based compensation cost is measured at the grant date based on the fairvalue of the award and is recognized as expense over the service period, whichgenerally represents the vesting period. The grant date fair value of stockoptions is calculated using the Black-Scholes option-pricing model. This methodis substantially the same method that the company was using under SFAS No. 123except that under SFAS No. 123R the expense recognized over the service periodis required to include an estimate of the awards that will be forfeited.Previously, the company recorded the effects of forfeitures as theyoccurred.  Management presently estimates that the effect of forfeitureson the financial statements will be insignificant.  Accordingly, theadoption of SFAS No. 123R had no material effect on prior or current periods.

The company accounts for stock-based compensationissued to non-employees under SFAS No. 123R, *Share-BasedPayment*, and Emerging Issues Task Force (“EITF”) Issue 96-18, *Accounting for Equity Investments that are Issued toOther than Employees for Acquiring, or in Conjunction with Selling, Goods orServices. *As such, the valueof such options is periodically remeasured and income or expense is recognizedduring their vesting terms.

Net Operating Losses and Tax CreditCarryforwards

AtDecember 31, 2005, Lpath had federal and state net operating losscarryforwards of approximately $7,300,000 each.  Under present law, the federal net operatingloss carryforwards  may be available tooffset taxable income through 2025 and California net operating losscarryforwards  may be available to offsettaxable income through 2015.

Lpath also has federal andCalifornia research and development tax credit carryforwards, each totalingapproximately $214,000 as of December 31, 2005, available to offset futuretaxes.  The federal credits begin expiringin 2019, and the state credits do not expire.

Under the provisions of Section 382 of the Internal Revenue Code,substantial changes in Lpath’s ownership may limit the amount of net operatingloss carryforwards and tax credit carryforwards that can be utilized annuallyin the future to offset taxable income. A valuation allowance has

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been established to reservethe potential benefits of these carryforwards in Lpath’s financial statementsto reflect the uncertainty of future taxable income required to utilizeavailable tax loss carryforwards and other deferred tax assets.  If it is determined that a change in Lpath’sownership occurred in prior years, or if a change in ownership occurs in thefuture, Lpath’s ability to use its net operating loss carryforwards in anyfiscal year may be significantly limited.

Net Loss Per Share

In accordance with SFAS No.128, Earnings Per Share, and SEC Staff Accounting Bulletin (“SAB”) No. 98,basic net loss per common share is computed by dividing net loss for the periodby the weighted average number of common shares outstanding during theperiod.  Under SFAS No. 128, diluted netloss per share is computed by dividing the net loss for the period by theweighted average number of common and common equivalent shares, such as stockoptions, warrants, and convertible securities, outstanding during theperiod.  As Lpath incurred net losses inthe periods ended June 30, 2006 and 2005, we did not include common equivalentshares in the computation of diluted net loss per share because the effectwould be anti-dilutive.

Estimates

The preparation of condensedconsolidated financial statements in conformity with accounting principlesgenerally accepted in the United States requires management to make estimatesand assumptions that affect reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities at the date of the financialstatements and the reported amounts of revenues and expenses during thereporting period.  By their nature,estimates are subject to an inherent degree of uncertainty and, as such, actualresults may differ from those estimates.

Recent Accounting Pronouncements

Including FinancialAccounting Standards No. 155 “Accounting for Certain Hybrid FinancialInstruments,” issued in February 2006 and FASB Interpretation No. 48 “Accountingfor Uncertainty in Income Taxes” issued in July 2006, there have been no recentaccounting pronouncements that management believes will have a significantimpact on Lpath’s financial position or results of operations.

**Note 3 – GOING CONCERN**

The accompanying condensedconsolidated financial statements have been prepared on a going concern basis,which contemplates the realization of assets and the satisfaction ofliabilities in the normal course of business. Lpath has incurred net lossessince its inception and has an accumulated deficit of $10,260,000 as of June30, 2006. The Company does not expect to generate meaningful revenues from itsdrug development programs in the foreseeable future.  These factors, among others, raisesubstantial doubt about the company’s ability to continue as a going concern.Lpath’s independent registered public accountants, Levitz, Zacks & Ciceric,indicated in their audit report on the 2005 consolidated financial statementsthat there is substantial doubt about the Company’s ability to continue as agoing concern.  The accompanying

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financial statements do not include any adjustments that might resultfrom the outcome of this uncertainty.

During 2006 the company expects to continue to incur cash losses fromoperations.  While the company had cashand cash equivalents totaling $4,112,000 as of June 30, 2006, the cost of itsongoing drug discovery and development efforts, based upon its currentlyplanned activities for 2006 and 2007, are expected to consume well in excess of$5,000,000 in the next twelve months. Additional capital will be required to continue to fund the company’soperations and its research and development projects in 2007 and beyond.  The company plans to obtain the fundsnecessary to meet its anticipated cash requirements by taking actions such as:

1.               pursuing additional equity or debt fundingfrom both existing investors and new sources.

2.               exploring revenue generating opportunitiesfrom strategic alliances, licensing, co-development, and similar collaborations.

3.               seeking additional research grants from theNational Institutes of Health or other sources.

# **Note 4 – PRIVATEPLACEMENTS OF COMMON STOCK AND WARRANTS**

During the three month period ended March 31, 2006,the company received gross proceeds of $1,032,140 from the sale of 543,236units.  The price was $1.90 perunit.  Each unit included two shares ofcommon stock and a warrant to purchase one additional share of common stock at anexercise price of $1.50 per share.  Thewarrants expire on September 30, 2010. As a result of this private placement, 1,086,472 shares of common stockand 543,236 warrants were issued.

Stock issuance costs related to these privateplacements were paid in cash and warrants. Cash expenses for these placements totaled $108,455 and were nettedagainst the gross proceeds of the private placement.  Of the total cash expenses, $54,845 was paidto placement agents and $53,610 was paid for legal counsel and filing fees.  In addition, warrants to purchase 69,294shares were issued to placement agents. These warrants carry an exercise price of $0.95 per share.  Of the 69,294 warrants issued to placementagents, 22,988 expire on July 31, 2008, 23,400 expire on September 29, 2008,and 22,906 expire on September 30, 2010.

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**Item 2.            MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

*This discussion and analysis ofour financial condition and results of operations should be read in conjunctionwith our financial statements and notes thereto included in this quarterlyreport on Form 10-QSB (the “Quarterly Report”) and the audited financialstatements and notes thereto included in our annual report on Form 10-KSBfor the year ended December 31, 2005 (the “2005 Annual Report”), as filedwith the Securities and Exchange Commission (the “SEC”).  In addition to historical information, thisdiscussion and analysis contains forward-looking statements that involve risks,uncertainties, and assumptions. Our actual results may differ materially fromthose anticipated in these forward-looking statements as a result of certainfactors, including but not limited to those identified in the 2005 AnnualReport in the section entitled “Market Risks.”*

**Overview**

Lpath Therapeutics, Inc. (“LTI”), thepredecessor company to Lpath, was founded in 1998. On November 30, 2005, LTImerged with a publicly traded corporation, Neighborhood Connections, Inc. (“NCI”),to form Lpath (“the Merger”). Although NCI (which changed its name toLpath, Inc. in connection with the Merger) acquired LTI as a result of theMerger, the former shareholders of LTI held a majority of the voting interestin the combined enterprise immediately after the Merger. Additionally, theMerger resulted in LTI’s management and Board of Directors assuming operationalcontrol of Lpath, Inc. Accordingly, the Merger has been treated as are-capitalization of LTI and the financial information presented here andelsewhere in this Quarterly Report reflects the historical activity of LTI,unless otherwise indicated. NCI conducted limited operations prior to themerger in a line of business wholly unrelated to biopharmaceutical operations,and the results of NCI’s operations are not reflected in the financialinformation of Lpath.

We are alipidomic-based therapeutics company with a focus on bioactive signaling lipidsas targets for treating and diagnosing important human diseases.  Lpath has monoclonal antibody-based programsas well as small-molecule-based programs. Our most advanced product candidate, *SphingomabTM*, is a potentially superior competitor to other successfulanti-angiogenic cancer treatments.  *Sphingomab*TM, which acts as a molecularsponge to selectively absorb tumorigenic sphingolipids from blood and tissuesthat tumors rely upon, is the first therapeutic monoclonal antibody everdeveloped against a bioactive lipid.  Thisunique ability to generate monoclonal antibodies against lysolipids is based onLpath’s ImmuneY2TM technology.  Using thisImmuneY2 technology, we have now created our second product candidate, amonoclonal antibody against lysophosphatidic acid (“LPA”). LPA is a keybioactive lipid that has long been recognized as a significant promoter ofcancer-cell growth and metastasis in a broad range of tumor types.  We intend to continue to extend our researchand development efforts to other valuable monoclonal antibodies against othervaluable targets using our proprietary ImmuneY2TM process.  In addition to our antibody-developmentprogram, we also have a program to develop small—molecule inhibitors against akey enzyme in the sphingolipid production pathway.

In the past twelvemonths, Lpath has completed the Merger by which its stock became publiclytraded, raised net proceeds of approximately $7,200,000 through privateplacements, moved into its own research and development facility, and added keyresearch, development, and management personnel.

Lpath hasincurred significant net losses since its inception. As of June 30, 2006, Lpathhad an accumulated deficit of approximately $10,260,000.  Lpath expects its operating losses toincrease for the next several years as it pursues the clinical development ofits product candidates.

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# **Revenue**

Lpathhas generated approximately $1,500,000 in revenue since its inception from researchgrants awarded by the National Institutes of Health.  Lpath expects to continue to receive smallamounts of revenue from research grants. Lpath does not expect to generate any revenue from licensing,milestones, or product sales until it executes a partnership or collaborationarrangement or is able to commercialize its first product.

# **Research and Development Expenses**

Lpath’sresearch and development expenses consist primarily of salaries and relatedemployee benefits, costs associated with its drug discovery research, and costsincurred in preparation for clinical development, including regulatoryexpenses.  Lpath’s historical researchand development expenses are principally related to the research and preclinicaldevelopment efforts relating to its lead product candidate, *Sphingomab TM*.

Lpathcharges all research and development expenses to operations as incurred.  Lpath expects its research and developmentexpenses to increase significantly in the future as its product candidatescontinue to move through pre-clinical testing and clinical trials.

Dueto the risks inherent in the drug discovery and clinical trial process andgiven the early stage of our product development programs, Lpath is unable toestimate with any certainty the costs it will incur in the continueddevelopment of its product candidates for potential commercialization.  Clinical development timelines, theprobability of success, and development costs all vary widely.  While Lpath is currently focused on advancingeach of its product development programs, Lpath anticipates that it will makedeterminations as to the scientific and clinical success of each productcandidate, as well as ongoing assessments as to each product candidate’scommercial potential.  In addition, Lpathcannot forecast with any degree of certainty which product candidates will besubject to future partnering, when such arrangements will besecured, if at all, and to what degree sucharrangements would affect our development plans and capital requirements. As aresult, Lpath cannot be certain when and to what extent it will receive cashinflows from partnering, licensing, or commercialization of its productcandidates.

Lpathexpects its drug development expenses to be approximately $9 million over the24-month period ending December 31, 2007; such expenses will be used to conductpreclinical testing of our two most advanced product candidates, *Sphingomab* and Lpathomab*TM*.  Lpath expects these expenditures to increaseas it continues the advancement of its product development programs. To date,Lpath has not yet initiated clinical trials for any of its product candidates.  The lengthy process of completing clinicaltrials and seeking regulatory approval for its product candidates will requireLpath to incur substantial, but presently uncertain, expenditures, typicallywell in excess of $50 million.  Anyfailure by Lpath or delay in completing clinical trials or in obtainingregulatory approvals would cause Lpath’s research and development expenses toincrease and, in turn, would have a material adverse effect on Lpath’s resultsof operations and its ability to continue as a going concern.

# **General and Administrative Expenses**

Lpath’sgeneral and administrative expenses principally comprise salaries, benefits andprofessional fees related to Lpath’s administrative, finance, human resources,legal, and internal systems support functions. In addition, general and administrative expenses include insurance andfacilities costs.

Lpathanticipates increases in general and administrative expenses as we addpersonnel, become subject to any additional reporting obligations applicable topublicly-held companies, and further develop and prepare for thecommercialization of its product candidates.

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**Results of Operations**

***Comparison of the Three Months EndedJune 30, 2006 and June 30, 2005***

*Grant Revenue.* Grant revenue for the three months ended June 30, 2006 was$185,000 compared with $174,000 for the three months ended June 30, 2005.  This increase reflects typical variations inresearch activities from one quarter to another.

*Research and Development Expenses.* Research and development expenses were $1,090,000 for the three monthsended June 30, 2006, compared with $221,000 for the comparable quarter in2005.  The $869,000 increase in expensesreflects the progress of the Company and its capabilities in the second quarterof 2006 compared with the same period in 2005. Outside service expenses increased by approximately $598,000 primarilydue to the work required in the humanization phase of monoclonal antibodydevelopment; Lpath contracted with a biomedical research company to performthis task.  The use of consultants andother contracted services to augment the capabilities of our research anddevelopment team also contributed to the increase in expenditures for outsideservices.  The amount spent for researchsupplies and materials increased approximately $61,000 as we increased thelevel of effort on key drug discovery and development projects.  Employee compensation and benefits expenseincreased by approximately $108,000 in the quarter ended, commensurate with theincrease in research and development staffing. The move into a new lab and office space resulted in an increase of$47,000 in facilities and related expenses for the second quarter of 2006, ascompared to the same period in 2005.  Theincrease for the quarter ended also included a $33,000 increase in stock-basedcompensation expense related to consultants used to support research anddevelopment activities.

*General and Administrative Expenses.* General and administrative expenses were $610,000 for the three monthsended June 30, 2006, compared with $226,000 for the comparable quarter in2005.  The increase of $384,000 was dueto increases in employee compensation, and the costs of outside servicesnecessary to support a publicly-traded company, including legal, accounting,investor relations, stock administration services, and liability insurance fordirectors and officers.  Employeecompensation expense increased by approximately $108,000 reflecting the factthat certain members of our management team were not full-time employees in2005.  Lpath hired its CEO in March 2005,but he did not become a full-time employee until January 2006.  Accounting fees, legal fees, investorrelations, stock administration, consulting, and insurance expenses increased,in aggregate, by approximately $211,000. Stock-based compensation charges also increased by $61,000, primarilydue to stock options granted to our CEO in 2005.

*Interest Income.*  Interest income was $48,000 forthe three months ended June 30, 2006 as compared to $1,000 for the three monthsended June 30, 2005.  The $47,000increase was a result of higher levels of invested cash as compared to theprior year.

*Interest Expense.*  Interest expense for the threemonths ended June 30, 2006 was zero compared to $43,000 for the three monthsending June 30, 2005.  Lpath’s interestexpense in 2005 primarily resulted from borrowings secured by convertiblenotes.  At June 30, 2005, the outstandingprincipal and accrued interest on these notes totaled $976,000.  In conjunction with the Merger, all of theconvertible notes, together with the accumulated accrued interest, wereconverted into Lpath, Inc. common stock and warrants.  During the quarter ended June 30, 2006, Lpathhad no debt securities outstanding and incurred no interest expense.

***Comparison of the Six Months EndedJune 30, 2006 and June 30, 2005***

*Grant Revenue.* Grant revenue for the six months ended June 30, 2006 was $314,000compared with $312,000 for the six months ended June 30, 2005.  This increase reflects typical variations inresearch activities from one period to another.

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*Research and Development Expenses.* Research and development expenses were $2,044,000 for the six monthsended June 30, 2006, compared with $384,000 for the comparable period in2005.  The $1,660,000 increase in expensesreflects the progress of the Company and its capabilities in the first half of2006 compared to the same period in 2005. Outside service expenses increased by approximately $973,000 primarilydue to the work required in the humanization phase of monoclonal antibodydevelopment.  Lpath has contracted with abiomedical research company to perform this task.  The use of consultants and other contractedservices to augment the capabilities of our research and development team alsocontributed to the increase in expenditures for outside services.  The amount spent for research supplies andmaterials increased approximately $131,000 as we increased the level of efforton key drug discovery and development projects. Employee compensation and benefits expense increased by approximately$171,000 for the six-month period ended, commensurate with the increase inresearch and development staffing.  Themove into a new lab and office space resulted in an increase of approximately$87,000 in facilities and related expenses for the first half of 2006, ascompared to the same period in 2005.  Theincrease in expenses for the six-month period ended also included a $247,000increase in stock-based compensation expense related to consultants used tosupport research and development activities.

*General and Administrative Expenses.* General and administrative expenses were $1,161,000 for the six monthsended June 30, 2006, compared with $302,000 for the comparable period in2005.  The increase of $859,000 was dueto increases in employee compensation, and the costs of outside servicesnecessary to support a publicly-traded company, including legal, accounting,investor relations, stock administration services, and liability insurance fordirectors and officers.  Employeecompensation expense increased by approximately $235,000 reflecting the factthat certain members of our management team were not full-time employees in2005.  Lpath hired its CEO in March 2005,but he did not become a full-time employee until January 2006.  Accounting fees, legal fees, investorrelations, stock administration, consulting, and insurance expenses increased,in aggregate, by approximately $392,000. Stock-based compensation charges also increased by $204,000, primarilydue to stock options granted to our CEO in 2005.

*Interest Income.*  Interest income was $102,000for the six months ended June 30, 2006 as compared to $1,000 for the six monthsended June 30, 2005.  The $101,000increase was a result of higher levels of invested cash as compared to theprior year.

*Interest Expense.*  Interest expense for the sixmonths ended June 30, 2006 was zero compared to $70,000 for the six monthsending June 30, 2005.  Lpath’s interestexpense in 2005 primarily resulted from borrowings secured by convertiblenotes.  At June 30, 2005, the outstandingprincipal and accrued interest on these notes totaled $976,000.  In conjunction with the Merger, all of theconvertible notes, together with the accumulated accrued interest, wereconverted into Lpath, Inc. common stock and warrants.  During the first half of 2006 Lpath had nodebt securities outstanding and incurred no interest expense.

**Liquidity and Capital Resources**

**Since Lpath’s inception, itsoperations have been financed through the private placement of equity and debtsecurities.  Through June 30, 2006,Lpath had received net proceeds of approximately $12,600,000 from the sale ofequity securities and from the issuance of convertible promissory notes.  As of June 30, 2006, Lpath had cash, cashequivalents, and short-term investments totaling $4,112,000.**

Duringthe six months ended June 30, 2006, we used net cash of $1,926,000 foroperating activities compared to $177,000 in the first half of 2005.  The increase in net cash used in operatingactivities was primarily driven by increased expenses related to thepre-clinical development activities for our lead drug candidate SphingomabTM,increased headcount, and the

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costsof consultants and outside services, as well as increased legal, accounting,and other services associated with being a publicly-traded company.

Netcash used in investing activities during the first half of 2006 amounted to$77,000 compared to $62,000 for the first half of 2005.  Of the amount used for investing activitiesin the first half of 2006, $46,000 was used to purchase new equipment and$31,000 was spent on patent activities. In the comparable period of 2005 $44,000 was used to purchase newequipment and $18,000 was spent on patent activities.

Netcash provided from financing activities during the six month period ended June30, 2006 totaled approximately $924,000 compared to $653,000 in the first halfof 2005.  During the first quarter of2006 Lpath sold common stock and warrants to purchase common stock for $924,000,net of issuance costs.  In the first halfof 2005 Lpath borrowed $335,000 under the terms of convertible promissory notesas well as sold common stock and warrants to purchase common stock for$318,000, net of issuance costs.

InAugust 2005 we entered into a five-year facilities lease.  Since the inception of this lease, a portionof the facility has been subleased, on terms identical to Lpath’s underlyinglease, to a company that is co-owned by Lpath’s two largest shareholders.  The sublease was approved by thelandlord.  The following table describesLpath’s commitments to settle contractual obligations in cash as of June 30,2006:

|                              | ** ** | **Payments Due by Period** | ** ** |
|------------------------------|------------|-------------------------------------------|------------|
| ** **                   | ** ** | **Through  December  2006**               | ** ** | **2007  through  2008** | ** ** | **2009  through  2010** | ** ** | **After  2010** | ** ** | **Total** | ** ** |
|                         |       |                                      |       |   |   |   |   |   |   |   |   |
| Operating lease  obligations |       | $                                         | 81,393     |   | $ | 344,836 |   | $ | 364,624 |   | $ | -0- |   | $ | 790,853 |   |
|                         |       |                                      |       |   |   |   |   |   |   |   |   |
| Sublease income              |       | 28,562                                    |       | 109,140 |   | 115,160 |   | -0- |   | 252,862 |   |
|                         |       |                                      |       |   |   |   |   |   |   |   |   |
| **Total**                    |       | $                                         | 52,831     |   | $ | 235,696 |   | $ | 249,464 |   | $ | -0- |   | $ | 537,991 |   |

 

Lpath has entered into a collaboration agreementwith another biomedical research company to utilize their proprietary processesto assist Lpath in preparing its lead drug candidate for clinical trials.  Lpath also plans to enter into agreementswith third parties to perform specialized drug discovery tasks, manufacture ourproduct candidates, conduct our preclinical studies, and provide analyticalservices.  Lpath’s payment obligationsunder these agreements depend upon the progress of its discovery anddevelopment programs.  Therefore, Lpathis unable to estimate with certainty the future costs it will incur under theseagreements.  In addition, under the termsof the existing collaboration agreement Lpath is obligated to make additionalmilestone payments upon the occurrence of certain product-development eventsand certain royalty payments.  Thesemilestone payments and royalty payments under Lpath’s license agreements arenot included in the table above because Lpath cannot, at this time, determinewhen or if the related milestones will be achieved or the events triggering thecommencement of payment obligations will occur.

**We expect our cash requirements toincrease significantly over the next 18 months as we continue to: (i) increaseour research and development, especially preclinical activities, (ii) begin theprocess of seeking regulatory approvals and fund the associated clinicaltrials, and (iii) pursue commercialization and strategic partnering of ourcurrent product candidates.  As we expandour**

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**research and development efforts andpursue additional product opportunities, we anticipate significant cashrequirements associated with hiring additional personnel, capital expenditures,and investment in equipment and facilities. The costs of filing and prosecuting patents to protect our intellectualproperty will also increase.  The amountand timing of cash requirements will depend on regulatory and marketacceptability of our product candidates, if any, and the resources we devote tothe research, development, regulatory, manufacturing, and commercializationactivities required to support our product candidates.**

**We believe that our existing cashtogether with future revenue from the grants we have been awarded will besufficient to meet Lpath’s projected operating requirements through December 2006.**

**Until we can generate significantcash from operations, we expect to continue to fund our operations with theproceeds from offerings of our equity securities.  In addition, we may finance future cash needsthrough debt financing and strategic collaboration agreements.  However, we may not be successful inobtaining additional equity or debt financing or entering into collaborationagreements.  If we do enter intocollaboration agreements, we may not be successful in receiving milestone orroyalty payments under such executed collaboration agreements.  In addition, we cannot be sure that ourexisting cash and investment resources will be adequate or that additionalfinancing will be available when needed or that, if available, financing willbe obtained on terms favorable to us or to our stockholders.  Having insufficient funds may require us todelay, scale back, or eliminate some or all of our development programs,relinquish some or even all rights to product candidates at an earlier stage ofdevelopment, or renegotiate less favorable terms than we would otherwisechoose. Failure to obtain adequate financing may also adversely affect ourability 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 incurringdebt financing, the terms of the debt may involve significant cash paymentobligations as well as covenants and specific financial ratios that may restrictour ability to operate our business.**

**RecentAccounting Pronouncements**

**There have been no recent accountingpronouncements that will have a significant impact on Lpath’s financialcondition or results of operations.**

**Item 3.            CONTROLSAND PROCEDURES**

**Evaluation of Disclosure Controls and Procedures**

Our management, including the Chief ExecutiveOfficer and the Chief Financial Officer, has conducted an evaluation of theeffectiveness of our disclosure controls and procedures pursuant to Rule13a-15(e) under the Securities Exchange Act of 1934.  Based on that evaluation, the Chief ExecutiveOfficer and the Chief Financial Officer concluded that, as of June 30, 2006,our disclosure controls and procedures were effective.

**Changes in Internal Controls Over Financial Reporting**

There have been no significant changes in ourinternal controls over financial reporting during the quarter ended June 30,2006 that have materially affected, or that are reasonably likely to materiallyaffect, our internal control over financial reporting.

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**PART II – OTHERINFORMATON**

**Item 1.**                          LEGALPROCEEDINGS

In the ordinary course of our business, we become involved in variousdisputes regarding our business. However, we do not believe that the ultimate resolution of any suchdispute will be material to our business, financial condition, or results ofoperations.

**Item 2.**                          UNREGISTEREDSALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

**Item 3.**                          DEFAULTSUPON SENIOR SECURITIES

None.

**Item 4.**                          SUBMISSIONOF MATTERS TO A VOTE OF SECURITY HOLDERS

On June 29, 2006 our Annual Meeting was adjournedbefore any shareholder action was taken. On July 25, 2006, we reconvened our Annual Meeting of Stockholders inSan Diego, California for the following purposes:

1.               To elect four directors to serve until our2007 Annual Meeting of Stockholders.  Thevote for the nominees for director was a follows:

Scott Pancoast – 20,601,662 shares were voted in favor of nominee; noshares withheld their vote for this nominee.

Charles Mathews – 20,601,662 shares were voted in favor of nominee; noshares withheld their vote for this nominee.

Donald Swortwood – 18,624,460 shares were voted in favor of nominee; noshares withheld their vote for this nominee.

Geoffrey Swortwood – 18,624,460 shares were voted in favor of nominee;no shares withheld their vote for this nominee.

2.               To vote on a resolution amending the Company’s2005 Stock Option/Stock Issuance Plan to increase the number of shares ofcommon stock available under the plan from 4,340,000 shares to 5,340,000shares.  The number of votes for,against, and abstaining was 18,988,067; 159,311 and 203,000, respectively.

3.               To ratify the appointment of Levitz, Zacks,& Ciceric as the Company’s independent registered public accounting firmfor the fiscal year ending December 31, 2006. The number of votes for, against, and abstaining was 19,460,061; zeroand 203,000, respectively.

**Item 5.**                          OTHERINFORMATION

None.

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**Item 6.**                          EXHIBITS

Thefollowing exhibit index shows those exhibits filed with this report and thoseincorporated 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.                                                                         |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                             |
| 3.1*   |   | Amendment to Articles of Incorporation filed  December 1, 2005.                                                                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                             |
| 3.2    |   | Articles of Incorporation filed on  September 18, 2002 (filed as Exhibit 3.1 to Amendment No. 1 to  the Annual Report on Form 10-KSB for the year ended December 31,  2003 (the “2003 Amended 10-KSB”) and incorporated herein by reference). |
|   |   |                                                                                                                                                                                                                                                                             |
| 3.3    |   | Amendment to Articles of Incorporation filed on  December 27, 2002 (filed as Exhibit 3.3 to Amendment No. 2 to the  Current Report on Form 8-K/A filed on January 9, 2006 and incorporated herein  by reference).                                                           |
|   |   |                                                                                                                                                                                                                                                                             |
| 3.4    |   | By-laws (filed as Exhibit 3.2 to the 2003  Amended 10-KSB and incorporated herein by reference).                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                             |
| 4.1*   |   | Form of Warrant issued to Western States  Investment Corporation for lease guaranty.                                                                                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                             |
| 4.2*   |   | Form of Warrant issued pursuant to the Common  Stock and Warrant Purchase Agreement dated June 30, 2005.                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                             |
| 4.3*   |   | Form of Warrant issued to Johnson &  Johnson Development Corporation dated April 3, 2002.                                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                             |
| 4.4*   |   | Form of Warrant issued to purchasers of  Convertible Secured Promissory Notes as amended by the Omnibus Amendment to  Convertible Secured Promissory Notes and Warrants dated November 30,  2005.                                                                      |
|   |   |                                                                                                                                                                                                                                                                             |
| 4.5*   |   | Form of Warrant issued pursuant to the Common  Stock and Warrant Purchase Agreement dated November 30, 2005.                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                             |
| 4.6#   |   | Form of Warrant issued pursuant to the Common  Stock and Warrant Purchase Agreement dated January 31, 2006.                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                             |
| 4.7    |   | Form of Warrant issued pursuant to the Common Stock  and Warrant Purchase Agreement dated March 28, 2006 (filed as Exhibit 4.7 to  the registration statement on Form SB-2 filed on March 30, 2006, SEC File No.  333- 132850, and  incorporated herein by reference).           |
|   |   |                                                                                                                                                                                                                                                                             |
| 10.1*  |   | Lease Agreement dated August 12, 2005 between  Lpath Therapeutics Inc. and Pointe Camino Windell, LLC.                                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                             |
| 10.2*  |   | Research Agreement dated January 28, 2004  between Medlyte, Inc. and San Diego State University, together with  Amendment No.2.                                                                                                                                        |

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| 10.3*   |   | Assignment Agreement dated June 9, 2005 between  Lpath Therapeutics Inc. and LPL Technologies, Inc.                                                                                                                                                                                                                      |
|---------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |   |                                                                                                                                                                                                                                                                                                                               |
| 10.4    |   | Research Collaboration Agreement dated  August 2, 2005 between Lpath Therapeutics Inc. and AERES Biomedical  Limited (portions of this exhibit have been omitted pursuant to a request for  confidential treatment) (filed as Exhibit 10.4 to Amendment No. 2 to the  Current Report on Form 8-K/A filed on January 9, 2006). |
|    |   |                                                                                                                                                                                                                                                                                                                               |
| 10.5*   |   | Consultant Agreement dated July 1, 2005 between  Lpath Therapeutics Inc. and William Garland.                                                                                                                                                                                                                                 |
|    |   |                                                                                                                                                                                                                                                                                                                               |
| 10.6*   |   | Consultant Agreement dated September 1, 2005  between Lpath Therapeutics Inc. and Roger Sabbadini.                                                                                                                                                                                                                            |
|    |   |                                                                                                                                                                                                                                                                                                                               |
| 10.7*   |   | 2005 Stock Option/Stock Issuance Plan.                                                                                                                                                                                                                                                                                             |
|    |   |                                                                                                                                                                                                                                                                                                                               |
| 10.8#   |   | Assignment and Assumption Agreement dated December  1, 2005 by and between Lpath, Inc. and Lpath Therapeutics, Inc.                                                                                                                                                                                                                |
|    |   |                                                                                                                                                                                                                                                                                                                               |
| 10.9**  |   | Form of Employment Agreement between Lpath, Inc. and  Scott R. Pancoast dated as of January 1, 2006.                                                                                                                                                                                                                               |
|    |   |                                                                                                                                                                                                                                                                                                                               |
| 10.10** |   | Form of Employment Agreement between Lpath, Inc. and  Gary Atkinson dated as of February 6, 2006.                                                                                                                                                                                                                                  |
|    |   |                                                                                                                                                                                                                                                                                                                               |
| 10.11** |   | Form of Consultant Agreement between Lpath, Inc. and  William Garland dated as of January 1, 2006.                                                                                                                                                                                                                                 |
|    |   |                                                                                                                                                                                                                                                                                                                               |
| 10.12** |   | Form of Consultant Agreement between Lpath, Inc. and  Roger Sabbadini dated as of February 1, 2006.                                                                                                                                                                                                                                |
|    |   |                                                                                                                                                                                                                                                                                                                               |
| 31.1    |   | Section 302 Certification by Chief Executive Officer  of Lpath, Inc.                                                                                                                                                                                                                                                               |
|    |   |                                                                                                                                                                                                                                                                                                                               |
| 31.2    |   | Section 302 Certification by Chief Financial Officer  of Lpath, Inc.                                                                                                                                                                                                                                                               |
|    |   |                                                                                                                                                                                                                                                                                                                               |
| 32      |   | Section 906 Certification by CEO and CFO of Lpath,  Inc.                                                                                                                                                                                                                                                                           |

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*Filedas an exhibit to the Current Report on Form 8-K filed with the SEC on December6, 2005 and incorporated herein by reference

#Filed as an exhibit to the Annual Report onForm 10-KSB for the year ended December 31, 2005 filed with the SEC on March16, 2006 and incorporated herein by reference

**Filedas an exhibit to the Current Report on Form 8-K filed with the SEC on March 29,2006 and incorporated herein by reference

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**SIGNATURES**

Pursuant to the requirements of the SecuritiesExchange Act of 1934, this report has been signed below by the followingpersons on behalf of the Registrant and in the capacities and on the datesindicated. 
|                                    | ** ** | **Lpath, Inc.**                                                                            |
|------------------------------------|------------|--------------------------------------------------------------------------------------------|
|                               | ** ** |                                                                                       |
|                               | ** ** |                                                                                       |
|  Date: August   11, 2006 | ** ** | /s/ Scott R. Pancoast                                                                      |   |
|                               | ** ** | Scott R. Pancoast                                                                          |
|                               | ** ** | President and Chief Executive  Officer                                                     |
|                               | ** ** | (Principal executive officer)                                                              |
|                               | ** ** |                                                                                       |
|                               | ** ** |                                                                                       |
|                               |       | /s/ Gary J. G. Atkinson                                                                    |   |
|                               |       | Gary J. G. Atkinson,                                                                       |
|                               |       | Vice President and Chief  Financial Officer  (Principal financial and  accounting officer) |
|                                    |            |                                                                                            |  |  |

 

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