**UNITED STATES**

**SECURITIES 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 September 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 small business issuer in its charter)

 

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

 

**6335 Ferris Square, SuiteA, San Diego, CA 92121**

(Address of principal executive offices, including zipcode)

 

**(858) 678-0800**

(Issuer’s telephonenumber)

 

Check whether the issuer(1) filed all reports required to be filed by Section 13 or 15(d) of theExchange Act during the past 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days.   Yes x     No o

 

Indicate by check mark whether the registrant is a shell company (asdefined in Rule 12b-2 of the Exchange Act).   Yes o     No x

 

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

 

Transitional Small Business DisclosureFormat (check one):   Yes o     No x

 

 

 

----

 

**LPATH, INC.**

**FORM 10-QSB**

**TABLE OFCONTENTS**
| **PART I**  | **FINANCIAL INFORMATION**                                                                                                     |
|------------------|-------------------------------------------------------------------------------------------------------------------------------|
|             |                                                                                                                          |
| ITEM 1:          | Financial Statements:                                                                                                         |
|             |                                                                                                                          |
|             | Condensed Consolidated  Balance Sheets as of September 30, 2006 (unaudited) and December 31,  2005                       |
|             |                                                                                                                          |
|             | Condensed Consolidated  Statements of Operations for the three and nine months ended September 30,  2006 and 2005 (unaudited) |
|             |                                                                                                                          |
|             | Condensed Consolidated  Statements of Cash Flows for the nine months ended September 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**   |                                                                                                                          |

 

2

----

 

**PART I.  FINANCIAL INFORMATION**

**Item 1.      Financial Statements**

**LPATH,INC.**

**Condensed Consolidated Balance Sheets**

** **
| ** **                                                                                                                                                                                 | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                                 | ** ** | **2006**               | ** ** | **2005**              | ** ** |
| ** **                                                                                                                                                                                 | ** ** | **(Unaudited)**        | ** ** | **Note**              | ** ** |
| **ASSETS**                                                                                                                                                                                 | ** ** | ** **             | ** ** | ** **            | ** ** |
| Current Assets:                                                                                                                                                                            |       |                   |       |                  |       |
| Cash and cash  equivalents                                                                                                                                                                 |       | $                      | 2,862,351  |                  | $          | 5,190,273 |   |
| Grant revenue  receivable                                                                                                                                                                  |       | 95,741                 |       | 186,728               |       |
| Prepaid expenses  and other current assets                                                                                                                                                 |       | 110,151                |       | 127,076               |       |
| Total current  assets                                                                                                                                                                      |       | 3,068,243              |       | 5,504,077             |       |
|                                                                                                                                                                                       |       |                   |       |                  |       |
| Equipment, net                                                                                                                                                                             |       | 230,436                |       | 118,385               |       |
| Patents, net                                                                                                                                                                               |       | 330,337                |       | 220,953               |       |
| Deposits and other assets                                                                                                                                                                  |       | 79,289                 |       | 101,486               |       |
|                                                                                                                                                                                       |       |                   |       |                  |       |
| Total assets                                                                                                                                                                               |       | $                      | 3,708,305  |                  | $          | 5,944,901 |   |
|                                                                                                                                                                                       |       |                   |       |                  |       |
| **LIABILITIES AND STOCKHOLDERS’  EQUITY**                                                                                                                                             | ** ** | ** **             | ** ** | ** **            | ** ** |
| Current Liabilities:                                                                                                                                                                       |       |                   |       |                  |       |
| Accounts payable                                                                                                                                                                           |       | $                      | 371,293    |                  | $          | 347,597 |   |
| Accrued expenses                                                                                                                                                                           |       | 346,812                |       | 247,037               |       |
| Total current  liabilities                                                                                                                                                                 |       | 718,105                |       | 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 September 30, 2006 and December 31, 2005,  respectively. |       | 24,616                 |       | 23,524                |       |
| Additional paid-in  capital                                                                                                                                                                |       | 14,501,297             |       | 12,798,057            |       |
| Accumulated deficit                                                                                                                                                                        |       | (11,535,713            | )          | (7,471,314            | )          |
| Total  stockholders’ equity                                                                                                                                                           |       | 2,990,200              |       | 5,350,267             |       |
| Total liabilities and  stockholders’ equity                                                                                                                                           |       | $                      | 3,708,305  |                  | $          | 5,944,901 |   |

 

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

3

----

 

**LPATH,INC.**

###### **Condensed Consolidated Statements of Operations**

**(Unaudited)**

 
| ** **                                                                              | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|-----------------------------------------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                                                              | ** ** | **September 30,**           | ** ** | **September 30,**          | ** ** |
| ** **                                                                              | ** ** | **2006**                         | ** ** | **2005**                        | ** ** | **2006** | ** ** | **2005** | ** ** |
|                                                                                    |       |                             |       |                            |       |   |   |   |   |
| Grant revenue                                                                           |       | $                                | 97,077     |                            | $          | 244,465 |   | $ | 411,211 |   | $ | 556,891 |   |
|                                                                                    |       |                             |       |                            |       |   |   |   |   |
| Expenses:                                                                               |       |                             |       |                            |       |   |   |   |   |
| Research and  development expenses                                                      |       | 907,349                          |       | 554,203                         |       | 2,989,881 |   | 938,349 |   |
| General and  administrative expenses                                                    |       | 501,654                          |       | 304,207                         |       | 1,623,575 |   | 606,674 |   |
| Total expenses                                                                          |       | 1,409,003                        |       | 858,410                         |       | 4,613,456 |   | 1,545,023 |   |
|                                                                                    |       |                             |       |                            |       |   |   |   |   |
| Loss from operations                                                                    |       | (1,311,926                       | )          | (613,945                        | )          | (4,202,245 | ) | (988,132 | ) |
|                                                                                    |       |                             |       |                            |       |   |   |   |   |
| Other income (expense):                                                                 |       |                             |       |                            |       |   |   |   |   |
| Interest income                                                                         |       | 36,242                           |       | 786                             |       | 137,846 |   | 1,799 |   |
| Interest expense                                                                        |       | —                           |       | (41,377                         | )          | — |   | (111,456 | ) |
| Total other  income (expense)                                                           |       | 36,242                           |       | (40,591                         | )          | 137,846 |   | (109,657 | ) |
|                                                                                    |       |                             |       |                            |       |   |   |   |   |
| Net loss                                                                                |       | (1,275,684                       | )          | (654,536                        | )          | (4,064,399 | ) | (1,097,789 | ) |
|                                                                                    |       |                             |       |                            |       |   |   |   |   |
| Redeemable preferred  stock accretion                                                   |       | —                           |       | (3,250                          | )          | — |   | (9,750 | ) |
|                                                                                    |       |                             |       |                            |       |   |   |   |   |
| Net loss attributable  tocommon  stockholders                                           |       | $                                | (1,275,684 | )                               | $          | (657,786 | ) | $ | (4,064,399 | ) | $ | (1,107,539 | ) |
|                                                                                    |       |                             |       |                            |       |   |   |   |   |
| Basic and diluted net  loss per share                                                   |       | $                                | (0.05      | )                               | $          | (0.24 | ) | $ | (0.17 | ) | $ | (0.53 | ) |
|                                                                                    |       |                             |       |                            |       |   |   |   |   |
| Weighted average number of common shares outstanding used  in the calculation |       | 24,616,393                       |       | 2,716,559                       |       | 24,403,844 |   | 2,099,048 |   |

 

See accompanyingnotes to condensed consolidated financial statements

4

----

 

**LPATH, INC.**

**Condensed Consolidated Statements of Cash Flows**

###### **(Unaudited)**

 
| ** **                                                                      | ** ** | **Nine Months Ended  September 30,** | ** ** |
|---------------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                                      | ** ** | **2006**                                            | ** ** | **2005** | ** ** |
| Cash flows from  operating activities:                                          |       |                                                |       |   |   |
| Net loss                                                                        |       | $                                                   | (4,064,399 | ) | $ | (1,097,789 | ) |
| Adjustments to  reconcile net loss to net cash used in operating activities:    |       |                                                |       |   |   |
| Stock-based  compensation expense                                               |       | 709,397                                             |       | 188,650 |   |
| Depreciation and  amortization                                                  |       | 32,538                                              |       | 63,623 |   |
| Expenses paid by  note to related party                                         |       | —                                              |       | 54,440 |   |
| Non-cash  interest expense                                                      |       | —                                              |       | 16,968 |   |
| Deferred rent  expense                                                          |       | 34,850                                              |       | — |   |
| Changes in  operating assets and liabilities:                                   |       |                                                |       |   |   |
| Grant revenue  receivable                                                       |       | 90,987                                              |       | (104,653 | ) |
| Prepaid expenses  and other current assets                                      |       | 16,925                                              |       | 913 |   |
| Deposits and  other assets                                                      |       | —                                              |       | (20,586 | ) |
| Accounts payable  and accrued expenses                                          |       | 181,818                                             |       | 193,479 |   |
| Net cash used in  operating activities                                          |       | (2,997,884                                          | )          | (704,955 | ) |
|                                                                            |       |                                                |       |   |   |
| Cash flows from  investing activities:                                          |       |                                                |       |   |   |
| Equipment  expenditures                                                         |       | (138,735                                            | )          | (54,802 | ) |
| Patent  expenditures                                                            |       | (115,238                                            | )          | (34,384 | ) |
| Net cash used in  investing activities                                          |       | (253,973                                            | )          | (89,186 | ) |
|                                                                            |       |                                                |       |   |   |
| Cash flows from  financing activities:                                          |       |                                                |       |   |   |
| Proceeds from  sale of common stock and warrants, net                           |       | 923,685                                             |       | 555,000 |   |
| Proceeds from  options exercised                                                |       | 250                                                 |       | — |   |
| Proceeds from  issuance of convertible notes payable                            |       | —                                              |       | 335,000 |   |
| Net cash provided  by financing activities                                      |       | 923,935                                             |       | 890,000 |   |
|                                                                            |       |                                                |       |   |   |
| Net increase  (decrease) in cash                                                |       | (2,327,922                                          | )          | 95,859 |   |
|                                                                            |       |                                                |       |   |   |
| Cash at beginning of  period                                                    |       | 5,190,273                                           |       | 36,183 |   |
| Cash at end of period                                                           |       | $                                                   | 2,862,351  |   | $ | 132,042 |   |
|                                                                            |       |                                                |       |   |   |
| **Supplemental Schedule of  Non-cash Investing and Financing Activities:**      |       |                                                |       |   |   |
| Common stock warrants  issued with convertible debt                             |       | $                                                   | —     |   | $ | 91,569 |   |
| Common stock warrants  issued for lease guaranty                                |       | $                                                   | —     |   | $ | 61,485 |   |
| Reversal of estimated fair value of potential liability for liquidated  damages |       | $                                                   | (71,000    | ) | $ | — |   |

 

See accompanyingnotes to condensed consolidated financial statements

5

----

 

**LPATH,INC.**

**Notes to Condensed ConsolidatedFinancial Statements**

**September 30, 2006**

###### **Note 1 —ORGANIZATION AND BASIS OF PRESENTATION**

Organization

Lpath, Inc. (“Lpath,” “we,” or “company”) is anemerging drug discovery company focused on  bioactive signaling lipids as targets for treating and diagnosingimportant human diseases.  Lpath hasactive programs in cancer, heart disease, and age-related macular degeneration.

Lpath TherapeuticsInc. (“LTI”), the predecessor company to Lpath, was founded in 1998. OnNovember 30, 2005, LTI merged with a subsidiary of Neighborhood Connections,Inc. (“NCI”), a publicly traded corporation to form Lpath (“the Merger”).Although NCI (which changed its name to Lpath, Inc. in connection with theMerger) acquired LTI as a result of the Merger, the former shareholders of LTIheld a majority of the voting interest in the combined enterprise immediatelyafter the Merger. Additionally, the Merger resulted in LTI’s management andBoard of Directors assuming operational control of Lpath, Inc. Accordingly, theMerger has been treated as a re-capitalization of LTI and the financialinformation presented here and elsewhere in this Quarterly Report reflects thehistorical activity of LTI, unless otherwise indicated. NCI conducted limitedoperations prior to the Merger in a line of business wholly unrelated tobiopharmaceutical operations, and the results of NCI’s operations are notreflected in the financial information 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.

6

----

 

###### **Note 2 —SIGNIFICANT ACCOUNTING POLICIES**

Revenue Recognition — Grant Revenue

Lpath’s sole source ofrevenue to date has been research grants received from the National Institutesof Health.  Lpath recognizes grantrevenue as the related research expenses are incurred, up to contractuallimits.

 

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, and accruedexpenses approximate the fair value because of the 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 with obtainingpatents are capitalized. Upon issuance of a patent, amortization is computedusing the straight-line method over the estimated remaining useful life of thepatent.

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.

7

----

 

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 and is presented as a component of accrued expenses in the accompanyingcondensed consolidated balance sheets.

Stock-Based Compensation

Prior to January 1, 2006, Lpath followed SFASNo. 123, *Accounting for Stock-BasedCompensation*.  On January 1, 2006, the company adoptedSFAS No. 123R, *Share-Based Payment*,using the modified prospective method, which results in the provisions of SFASNo. 123R being applied to the consolidated financial statements on agoing-forward basis. Prior periods have not been restated. SFAS No. 123R requirescompanies to recognize stock-based compensation awards granted to its employeesas compensation expense based on a fair value method. Under the fair valuerecognition provisions of SFAS No. 123R, stock-based compensation cost ismeasured at the grant date based on the fair value of the award and isrecognized as expense over the service period, which generally represents thevesting period. The grant date fair value of stock options is calculated usingthe Black-Scholes option-pricing model. This method is substantially the samemethod that the company was using under SFAS No. 123 except that under SFAS No.123R the expense recognized over the service period is required to include anestimate of the awards that will be forfeited. Previously, the company recordedthe effects of forfeitures as they occurred.  Management presentlyestimates that the effect of forfeitures on the financial statements will beinsignificant.  Accordingly, the adoption of SFAS No. 123R had no materialeffect on prior or current periods.

The company accounts for stock-based compensationissued to non-employees under SFAS No. 123R, and Emerging Issues Task Force (“EITF”)Issue 96-18, *Accounting for EquityInvestments that are Issued to Other than Employees for Acquiring, or in Conjunctionwith Selling, Goods or Services. *Assuch, the value of such options is periodically remeasured and income orexpense is recognized during 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 hasfederal and California research and development tax credit carryforwards, eachtotaling approximately $214,000 as of December 31, 2005, available tooffset future taxes.  The federal creditsbegin expiring in 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

8

----

 

been established toreserve the potential benefits of these carryforwards in Lpath’s financialstatements to reflect the uncertainty of future taxable income required toutilize available 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.

 

Per Share Data

 

In accordance with SFASNo. 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 the period.

 

Basic and diluted netloss applicable to common stock per share is computed using the weightedaverage number of common shares outstanding during the period. Common stockequivalents from stock options and warrants of 13,224,879 and 12,801,062 forthe three and nine months ended September 30, 2006, respectively, and commonstock equivalents of 4,751,611 and 3,352,889 from stock options and warrants forthe three and nine months ended September 30, 2005, respectively, are excludedfrom the calculation of diluted net loss per share for all periods presentedbecause the effect is anti-dilutive.

 

Estimates

 

The preparation ofcondensed consolidated financial statements in conformity with accountingprinciples generally accepted in the United States requires management to makeestimates and assumptions that affect reported amounts of assets andliabilities and disclosure of contingent assets and liabilities at the date ofthe financial statements and the reported amounts of revenues and expensesduring the reporting period.  By theirnature, estimates are subject to an inherent degree of uncertainty and, assuch, actual results may differ from those estimates.

 

Recent AccountingPronouncements

 

Including FinancialAccounting Standards (FAS) No. 158 Employers’ Accounting for Defined BenefitPension and Other Postretirement Plans, issued in September 2006, FAS No. 157Fair Value Measurements, issued in September 2006, FAS No. 155 Accounting forCertain Hybrid Financial Instruments, issued in February 2006 and FASBInterpretation No. 48 Accounting for Uncertainty in Income Taxes issued in June2006, there have been no recent accounting pronouncements that managementbelieves will have a significant impact on Lpath’s financial position orresults of operations.

 

Reclassifications

 

Certain prior periodamounts have been reclassified to conform to the current periodpresentation.  These reclassificationshad no effect on total assets, stockholders’ equity, or net loss for that year.

9

----

 

**Note 3 — GOING CONCERN**

The accompanying condensed consolidated financial statements have beenprepared on a going concern basis, which contemplates the realization of assetsand the satisfaction of liabilities in the normal course of business. Lpath hasincurred net losses since its inception and has an accumulated deficit of$11,536,000 as of September 30, 2006. The Company does not expect to generatemeaningful revenues from its drug development programs in the foreseeablefuture.  These factors, among others,raise substantial doubt about the company’s ability to continue as a goingconcern. Lpath’s independent registered public accountants, Levitz, Zacks &Ciceric, indicated in their audit report on the 2005 consolidated financialstatements that there is substantial doubt about the Company’s ability tocontinue as a going concern.  Theaccompanying financial statements do not include any adjustments that mightresult from 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 $2,862,000 as of September 30, 2006, the cost ofits ongoing drug discovery and development efforts, based upon its currentlyplanned activities for 2006 and 2007, are expected to consume in excess of$10,000,000 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 similarcollaborations.

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

 

10

----

 

**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 subsidiary of Neighborhood Connections, Inc. (“NCI”), a publiclytraded corporation, to form Lpath (“the Merger”). Although NCI (whichchanged its name to Lpath, Inc. in connection with the Merger) acquired LTI asa result of the Merger, the former shareholders of LTI held a majority of thevoting interest in the combined enterprise immediately after the Merger.Additionally, the Merger resulted in LTI’s management and Board of Directorsassuming operational control of Lpath, Inc. Accordingly, the Merger has beentreated as a re-capitalization of LTI and the financial information presentedhere and elsewhere in this Quarterly Report reflects the historical activity ofLTI, 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 an emergingdrug discovery company focused on bioactive signaling lipids as targets fortreating 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 potential competitor to other successful anti-angiogeniccancer treatments.  *Sphingomab*, 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. This unique ability to generate monoclonal antibodies against lysolipidsis based on Lpath’s ImmuneY2TM technology. Using this ImmuneY2 technology, we have now discovered our secondproduct candidate: a monoclonal antibody against lysophosphatidic acid (“LPA”),a key bioactive lipid that has long beenrecognized as a significant promoter of cancer-cell growth and metastasis in abroad 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 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 has incurred significant net losses since itsinception. As of September 30, 2006, Lpath had an accumulated deficit ofapproximately $11,536,000.  Lpath expectsits operating losses to increase for the next several years as it pursues theclinical development of its product candidates.

11

----

 

**Revenue**

Lpath has generated approximately $1,600,000 inrevenue since its inception from research grants awarded by the NationalInstitutes of Health.  Lpath expects tocontinue to receive small amounts of revenue from research grants.  Lpath does not expect to generate any revenuefrom licensing, milestones, or product sales until it executes a partnership orcollaboration arrangement or is able to commercialize its first product.

**Research and Development Expenses**

Lpath’s research and development expenses consistprimarily of salaries and related employee benefits, costs associated with itsdrug discovery research, and costs incurred in preparation for clinicaldevelopment, including regulatory expenses. Lpath’s historical research and development expenses are principallyrelated to the research and preclinical development efforts relating to itslead product candidate, *Sphingomab*.

Lpath charges all research and development expensesto operations as incurred.  Lpath expectsits research and development expenses to increase significantly in the futureas its product candidates continue to move through preclinical testing andclinical trials.

Due to the risks inherent in the drug discovery andclinical trial process, and given the early stage of our product developmentprograms, Lpath is unable to estimate with any certainty the costs it willincur in the continued development of its product candidates for potentialcommercialization.  Clinical developmenttimelines, the probability of success, and development costs all varywidely.  While Lpath is currently focusedon advancing each of its product development programs, Lpath anticipates thatit will make determinations as to the scientific and clinical success of eachproduct candidate, 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.

Lpath expects its research and development expensesto be approximately $15 million over the 24-month period ending December 31,2007.  These expenses will be incurred toconduct preclinical testing of our two most advanced product candidates, *Sphingomab* and LpathomabTM. Lpath expects these expenditures to increase as it continues theadvancement of its product-development programs. To date, Lpath has not yetinitiated 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 per product candidate.  Any failure by Lpath or delay in completingclinical trials or in obtaining regulatory approvals would cause Lpath’sresearch and development expenses to increase and, in turn, would have amaterial adverse effect on Lpath’s results of operations and its ability tocontinue as a going concern.

**General and AdministrativeExpenses**

Lpath’s general and administrative expenses areprincipally comprised of salaries, benefits and professional fees related toLpath’s administrative, finance, human resources, legal, and internal systemssupport functions.  In addition, generaland administrative expenses include insurance and facilities costs.

Lpath anticipatesincreases in general and administrative expenses as we add personnel, becomesubject to any additional reporting obligations applicable to publicly-heldcompanies, and further develop and prepare for the commercialization of itsproduct candidates.

12

----

 

**Results of Operations**

***Comparison of theThree Months Ended September 30, 2006 and September 30, 2005***

*Grant Revenue.* Grant revenue for the three months endedSeptember 30, 2006 was $97,000 compared with $244,000 for the three monthsended September 30, 2005.  The $147,000decrease is a result of reduced levels of effort on certain grants from thelevels incurred in 2005, and the completion of a grant prior to the thirdquarter of 2006.

*Research and Development Expenses.* Research and development expenses were $907,000 for the three monthsended September 30, 2006, compared with $554,000 for the comparable quarter in2005.  The $353,000 increase in expensesreflects the progress of the company and its capabilities in the third quarterof 2006 compared with the same period in 2005. Employee compensation and benefits expense increased by approximately$141,000 commensurate with the increase in research and developmentstaffing.  The amount spent for researchsupplies and materials increased approximately $99,000 as we increased thelevel of effort on key drug discovery and development projects.  The move, in the fourth quarter of 2005, intonew lab and office space resulted in an increase of $66,000 in facilities andrelated expenses for the third quarter of 2006, as compared to the same periodin 2005.  The increase for the quarterended also included a $9,000 increase in stock-based compensation expense relatedto stock option grants to both employees and consultants.

*General and AdministrativeExpenses.*  General and administrative expenses were$502,000 for the three months ended September 30, 2006, compared with $304,000for the comparable quarter in 2005.  Theincrease of $198,000 was due to increases in employee compensation, and thecosts of outside services necessary to support a publicly-traded company,including legal, accounting, investor relations, stock administration services,and liability insurance for directors and officers.  Employee compensation expense increased byapproximately $91,000 reflecting the fact that certain members of ourmanagement team were not full-time employees in 2005.  Lpath hired its CEO in March 2005, but he didnot become a full-time employee until January 2006.  Accounting fees, legal fees, investorrelations, stock administration, consulting, and insurance expenses increased,in aggregate, by approximately $128,000. The increase for the quarter ended also included a $61,000 increase instock-based compensation expense related to stock option grants to bothemployees and consultants.  The increasein general and administrative expenses was partially offset by a decline of$118,000 in expenses associated with our 2005 reverse merger.

*Interest Income.* Interest income was $36,000 for the three months ended September 30,2006 as compared to $1,000 for the three months ended September 30, 2005.  The $35,000 increase was a result of higherlevels of invested cash as compared to the prior year.

*Interest Expense.* Interest expense for the three months ended September 30, 2006 was zerocompared to $41,000 for the three months ending September 30, 2005.  Lpath’s interest expense in 2005 primarilyresulted from borrowings secured by convertible notes.  At September 30, 2005, the outstandingprincipal and accrued interest on these notes totaled $1,065,000.  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 September 30, 2006,Lpath had no debt securities outstanding and incurred no interest expense.

***Comparison of the Nine Months Ended September 30, 2006 and September30, 2005***

*Grant Revenue.* Grant revenue for the nine months ended September 30, 2006 was$411,000 compared with $557,000 for the nine months ended September 30,2005.  The $146,000 decrease is a resultof the completion of a grant in 2006, and reduced levels of effort as othergrants neared completion.

13

----

 

*Research and Development Expenses.* Research and development expenses were $2,990,000 for the nine monthsended September 30, 2006, compared with $938,000 for the comparable period in2005.  The $2,052,000 increase inexpenses reflects the progress of the Company and its capabilities in the firstnine months of 2006 compared to the same period in 2005.  Consulting and outside service expensesincreased by approximately $992,000 primarily due to the work required in thehumanization phase of monoclonal antibody development.  Lpath contracted with a biomedical researchcompany to perform this task.  The use ofconsultants and other contracted services to augment the capabilities of ourresearch and development team also contributed to the increase in expendituresfor outside services.  The amount spentfor research supplies and materials increased approximately $208,000 as weincreased the level of effort on key drug discovery and development projects.  Employee compensation and benefits expenseincreased by approximately $312,000 for the nine-month period ended September30, 2006, commensurate with the increase in research and developmentstaffing.  The move into a new lab andoffice space resulted in an increase of approximately $178,000 in facilitiesand related expenses for the nine-month period ended, as compared to the sameperiod in 2005.  The increase in expensesfor the nine-month period ended also included a $256,000 increase instock-based compensation expense primarily due to stock options issued toemployees.

*General and AdministrativeExpenses.*  General and administrative expenses were$1,624,000 for the nine months ended September 30, 2006, compared with $607,000for the comparable period in 2005.  Theincrease of $1,017,000 was due to increases in employee compensation, and thecosts of outside services necessary to support a publicly-traded company,including legal, accounting, investor relations, stock administration services,and liability insurance for directors and officers.  Employee compensation expense increased byapproximately $326,000 reflecting the fact that certain members of ourmanagement team were not full-time employees in 2005.  Lpath hired its CEO in March 2005, but he didnot become a full-time employee until January 2006.  Accounting fees, legal fees, investorrelations, stock administration, consulting, and insurance expenses increased,in aggregate, by approximately $448,000. Stock-based compensation charges also increased by $265,000, primarilydue to stock options granted to our CEO in 2005.

*Interest Income.* Interest income was $138,000 for the nine months ended September 30,2006 as compared to $2,000 for the nine months ended September 30, 2005.  The $136,000 increase was a result of higherlevels of invested cash as compared to the prior year.

*Interest Expense.* Interest expense for the nine months ended September 30, 2006 was zerocompared to $111,000 for the nine months ending September 30, 2005.  Lpath’s interest expense in 2005 primarilyresulted from borrowings secured by convertible notes.  At September 30, 2005, the outstandingprincipal and accrued interest on these notes totaled $1,065,000.  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 nine months of 2006 Lpathhad no debt securities outstanding and incurred no interest expense.

**Liquidity and Capital Resources**

Since Lpath’sinception, its operations have been financed through the private placement ofequity and debt securities.  ThroughSeptember 30, 2006, Lpath had received net proceeds of approximately$12,600,000 from the sale of equity securities and from the issuance ofconvertible promissory notes.  As ofSeptember 30, 2006, Lpath had cash and cash equivalents totaling $2,862,000.

Duringthe nine months ended September 30, 2006, we used net cash of $2,998,000 foroperating activities compared to $705,000 in the nine months ended September30, 2005.  The increase in 

14

----

net cash used in operating activities was primarilydriven by increased expenses related to the preclinical development activitiesfor our lead drug candidate SphingomabTM, increased headcount, and the costs ofconsultants and outside services, as well as increased legal, accounting, andother services associated with being a publicly-traded company.

Net cash used in investing activities during thenine-month period ended September 30, 2006 amounted to $254,000 compared to$89,000 for the same period in 2005.  Ofthe amount used for investing activities in the nine-month period endedSeptember 30, 2006 $139,000 was used to purchase equipment and $115,000 wasinvested in patents to protect our proprietary technology.  In the comparable period of 2005 $55,000 wasused to purchase equipment and $34,000 was spent on patent activities.

Net cash provided from financing activities duringthe nine-month period ended September 30, 2006 totaled approximately $924,000compared to $890,000 in the nine months ended 2005.  During the first nine months of 2006 Lpathsold common stock and warrants to purchase common stock for $924,000, net ofissuance costs.  In the first nine monthsof 2005 Lpath borrowed $335,000 under the terms of convertible promissory notesas well as sold common stock and warrants to purchase common stock for$555,000, net of issuance costs.

In August 2005 we entered into a five-yearfacilities lease.  Since the inception ofthis lease, a portion of the facility has been subleased, on terms identical toLpath’s underlying lease, to a company that is co-owned by Lpath’s two largestshareholders.  The sublease was approvedby the landlord.  The following tabledescribes Lpath’s commitments to settle contractual obligations in cash as ofSeptember 30, 2006:
| ** **                   | ** ** | **Payments Due by Period** | ** ** |
|------------------------------|------------|-------------------------------------------|------------|
| ** **                   | ** ** | **Through  December  2006**               | ** ** | **2007  through  2008** | ** ** | **2009  through  2010** | ** ** | **After  2010** | ** ** | **Total** | ** ** |
|                         |       |                                      |       |   |   |   |   |   |   |   |   |
| Operating lease  obligations |       | $                                         | 43,374     |   | $ | 344,836 |   | $ | 364,624 |   | $ | 0 |   | $ | 752,834 |   |
|                         |       |                                      |       |   |   |   |   |   |   |   |   |
| Sublease income              |       | 14,423                                    |       | 109,140 |   | 115,160 |   | 0 |   | 238,723 |   |
|                         |       |                                      |       |   |   |   |   |   |   |   |   |
| **Total**                    |       | $                                         | 28,951     |   | $ | 235,696 |   | $ | 249,464 |   | $ | 0 |   | $ | 514,111 |   |

 

Lpath has enteredinto agreements with other biomedical research companies to utilize theirproprietary processes to assist Lpath in preparing its lead drug candidate forclinical trials and to manufacture the material to be used in those clinicaltrials.  Lpath also plans to enter intoagreements with third parties to perform specialized drug discovery tasks,conduct our preclinical studies, and provide analytical services.  Lpath’s payment obligations under theseagreements depend upon the progress of its discovery and developmentprograms.  Therefore, Lpath is unable toestimate with certainty the future costs it will incur under these agreements.  In addition, under the terms of the existingcollaboration agreement Lpath is obligated to make additional milestonepayments upon the occurrence of certain product-development events and certainroyalty payments.  These milestonepayments and royalty payments under Lpath’s license agreements are not includedin the table above because Lpath cannot, at this time, determine when or if therelated milestones will be achieved or the events triggering the commencementof payment obligations will occur.

15

----

 

We believe that ourexisting cash together with future revenue from the grants we have been awardedwill be sufficient to meet Lpath’s projected operating requirements into thefirst quarter of 2007.  The company hasengaged placement agents to explore possible private financingopportunities.  However, we cannot becertain that the company will be successful in obtaining additional financing.

We expect our cashrequirements to increase significantly over the next 24 months as we continueto: (i) increase our research and development, especially preclinicalactivities, (ii) begin the process of seeking regulatory approvals and fund theassociated clinical trials, and (iii) pursue commercialization and strategicpartnering of our current product candidates. As we expand our research and development efforts and pursue additionalproduct opportunities, we anticipate significant cash requirements associatedwith hiring additional personnel, increasing utilization of contracted servicesto assist with our clinical trials, and investing in equipment andfacilities.  The costs of filing andprosecuting patents to protect our intellectual property will alsoincrease.  The amount and timing of cashrequirements will depend on regulatory and market acceptability of our productcandidates, if any, and the resources we devote to the research, development,regulatory, manufacturing, and commercialization activities required to supportour product candidates.

Until we cangenerate significant cash from operations, we expect to continue to fund ouroperations with the proceeds 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 resources will be adequate or that additional financing will beavailable when needed or that, if available, financing will be obtained onterms favorable to us or to our stockholders. Having insufficient funds may require us to delay, scale back, oreliminate some or all of our development programs, relinquish some or even allrights to product candidates at an earlier stage of development, or renegotiateless favorable terms than we would otherwise choose. Failure to obtain adequatefinancing may also adversely affect our ability to operate as a goingconcern.  If we raise additional fundsfrom the issuance of equity securities, substantial dilution to our existingstockholders would likely result.  If weraise additional funds by incurring debt financing, the terms of the debt mayinvolve significant cash payment obligations as well as covenants and specificfinancial ratios that may restrict our ability to operate our business.

**Recent Accounting Pronouncements**

There have been no recent accounting pronouncementsthat will have a significant impact on Lpath’s financial condition or resultsof 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 September 30,2006, our disclosure controls and procedures were effective.

16

----

 

**Changes in Internal Controls Over Financial Reporting**

There have been no significant changes in ourinternal controls over financial reporting during the quarter ended September30, 2006 that have materially affected, or that are reasonably likely tomaterially affect, our internal control over financial reporting.

**PART II — OTHER INFORMATON**

**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.****                                  ****UNREGISTERED SALES OF EQUITYSECURITIES AND USE OF PROCEEDS**

None.

**Item 3.****                                  ****DEFAULTS UPON SENIORSECURITIES**

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.            OTHER INFORMATION**

None.

17

----

 

**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    |   | Amended and Restated By-laws adopted on October 9,  2006.                                                                                                                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                             |
| 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.                                                                                                                                        |

 

18

----

 
|         |   |                                                                                                                                                                                                                                                                                                                               |
|---------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 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.                                                                                                                                                                                                                                |
|    |   |                                                                                                                                                                                                                                                                                                                               |
| 10.13   |   | Development and Manufacturing Services Agreement  dated August 16, 2006 between Lpath Inc. and Laureate Pharma, Inc.  (portions of this exhibit have been omitted pursuant to a request for  confidential treatment).                                                                                                         |
|    |   |                                                                                                                                                                                                                                                                                                                               |
| 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.                                                                                                                                                                                                                                                                           |

----

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

#                    Filedas an exhibit to the Annual Report on Form 10-KSB for the year ended December31, 2005 filed with the SEC on March 16, 2006 and incorporated herein byreference

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

19

----

 

**SIGNATURES**

Pursuant to the requirementsof the Securities Exchange Act of 1934, this report has been signed below bythe following persons on behalf of the Registrant and in the capacities and onthe dates indicated. 
|                          | **Lpath, Inc.**

** **

** **                                                                          |
|--------------------------|------------------------------------------------------------------------------------------------------------------|
| Date: November  13, 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) |
|                          |                                                                                                                  |  |  |  |  |

 

 

20

----