**UNITED STATES**

**SECURITIES AND EXCHANGECOMMISSION**

**WASHINGTON,D.C. 20549**

**FORM10-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, 2007**                                                                                                                                                                                                                                                                                         |
|                                                                                                                                                                                                                                                                                                                                      |       |                                                                                          |
| **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 businessissuer 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’stelephone number)

Check whether theissuer (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 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 10, 2007 was 44,912,920.

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

 

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**LPATH, INC.**

**FORM10-QSB**

**TABLE OFCONTENTS**
| **PART I**  | **FINANCIAL INFORMATION**                                                                                                     |
|------------------|-------------------------------------------------------------------------------------------------------------------------------|
|             |                                                                                                                          |
| ITEM 1:          | Financial Statements:                                                                                                         |
|             |                                                                                                                          |
|             | Condensed  Consolidated Balance Sheets as of June 30, 2007 (unaudited) and  December 31, 2006                            |
|             |                                                                                                                          |
|             | Condensed  Consolidated Statements of Operations for the three and six months ended June  30, 2007 and 2006 (unaudited)       |
|             |                                                                                                                          |
|             | Condensed  Consolidated Statement of Changes in Stockholders’ Equity for the six months  ended June 30, 2007 (unaudited) |
|             |                                                                                                                          |
|             | Condensed  Consolidated Statements of Cash Flows for the six months ended June 30, 2007  and 2006 (unaudited)                 |
|             |                                                                                                                          |
|             | Notes to  Condensed Consolidated Financial Statements                                                                         |
|             |                                                                                                                          |
| ITEM 2:          | Management’s  Discussion and Analysis or Plan of Operation                                                               |
|             |                                                                                                                          |
| 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.  FINANCIALINFORMATION**

**Item1.   FINANCIAL STATEMENTS**

**LPATH,INC.**

**Condensed Consolidated Balance Sheets**
| ** **                                                                                                                                                                                                                                          | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                                                                                          | ** ** | **2007**          | ** ** | **2006**              | ** ** |
| ** **                                                                                                                                                                                                                                          | ** ** | **(Unaudited)**   | ** ** | **Note**              | ** ** |
| **ASSETS**                                                                                                                                                                                                                                          | ** ** | ** **        | ** ** | ** **            | ** ** |
| Current Assets:                                                                                                                                                                                                                                     |       |              |       |                  |       |
| Cash  and cash equivalents                                                                                                                                                                                                                          |       | $                 | 14,398,102 |                  | $          | 1,361,214 |   |
| Grant  revenue receivable                                                                                                                                                                                                                           |       | 152,939           |       | 118,361               |       |
| Prepaid  expenses                                                                                                                                                                                                                                   |       | 134,811           |       | 201,175               |       |
| Total  current assets                                                                                                                                                                                                                               |       | 14,685,852        |       | 1,680,750             |       |
| Equipment, net                                                                                                                                                                                                                                      |       | 280,124           |       | 259,135               |       |
| Patents, net                                                                                                                                                                                                                                        |       | 411,399           |       | 343,747               |       |
| Deposits and other  assets                                                                                                                                                                                                                          |       | 52,481            |       | 70,603                |       |
| Total  assets                                                                                                                                                                                                                                       |       | $                 | 15,429,856 |                  | $          | 2,354,235 |   |
|                                                                                                                                                                                                                                                |       |              |       |                  |       |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                                                                                                                                                                      | ** ** | ** **        | ** ** | ** **            | ** ** |
| Current Liabilities:                                                                                                                                                                                                                                |       |              |       |                  |       |
| Accounts  payable                                                                                                                                                                                                                                   |       | $                 | 1,420,022  |                  | $          | 494,696 |   |
| Accrued  expenses                                                                                                                                                                                                                                   |       | 465,751           |       | 300,763               |       |
| Total  current liabilities                                                                                                                                                                                                                          |       | 1,885,773         |       | 795,459               |       |
| Stockholders’ Equity:                                                                                                                                                                                                                          |       |              |       |                  |       |
| Common stock - $.001  par value; 100,000,000 and 60,000,000 shares authorized at June 30, 2007 and  December 31, 2006, respectively; 44,820,802 and 24,616,393 shares issued and  outstanding at June 30, 2007 and December 31, 2006, respectively. |       | 44,821            |       | 24,616                |       |
| Additional paid-in  capital                                                                                                                                                                                                                         |       | 32,815,031        |       | 14,610,217            |       |
| Accumulated deficit                                                                                                                                                                                                                                 |       | (19,315,769       | )          | (13,076,057           | )          |
| Total  stockholders’ equity                                                                                                                                                                                                                    |       | 13,544,083        |       | 1,558,776             |       |
| Total  liabilities and stockholders’ equity                                                                                                                                                                                                    |       | $                 | 15,429,856 |                  | $          | 2,354,235 |   |

 

Note: The balance sheet at December 31, 2006 hasbeen derived from the audited consolidatedfinancial statements at that date.

See accompanying notes to condensed consolidatedfinancial statements

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**LPATH,INC.**

###### **Condensed Consolidated Statementsof Operations**

**(Unaudited)**
| ** **                                                                    | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|-------------------------------------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                                                    | ** ** | **June 30,**                | ** ** | **June 30,**              | ** ** |
| ** **                                                                    | ** ** | **2007**                         | ** ** | **2006**                       | ** ** | **2007** | ** ** | **2006** | ** ** |
| Grant revenue                                                                 |       | $                                | 152,939    |                           | $          | 184,659 |   | $ | 349,920 |   | $ | 314,134 |   |
|                                                                          |       |                             |       |                           |       |   |   |   |   |
| Expenses:                                                                     |       |                             |       |                           |       |   |   |   |   |
| Research and development expenses                                             |       | 2,827,863                        |       | 1,090,047                      |       | 5,006,510 |   | 2,043,505 |   |
| General and administrative expenses                                           |       | 966,680                          |       | 610,406                        |       | 1,700,430 |   | 1,160,948 |   |
| Total expenses                                                                |       | 3,794,543                        |       | 1,700,453                      |       | 6,706,940 |   | 3,204,453 |   |
|                                                                          |       |                             |       |                           |       |   |   |   |   |
| Loss from  operations                                                         |       | (3,641,604                       | )          | (1,515,794                     | )          | (6,357,020 | ) | (2,890,319 | ) |
|                                                                          |       |                             |       |                           |       |   |   |   |   |
| Other income  (expense):                                                      |       |                             |       |                           |       |   |   |   |   |
| Interest income                                                               |       | 124,761                          |       | 48,362                         |       | 133,776 |   | 101,602 |   |
| Interest expense                                                              |       | (271                             | )          | —                         |       | (16,468 | ) | — |   |
| Total other income (expense)                                                  |       | 124,490                          |       | 48,362                         |       | 117,308 |   | 101,602 |   |
| Net loss                                                                      |       | $                                | (3,517,114 | )                              | $          | (1,467,432 | ) | $ | (6,239,712 | ) | $ | (2,788,717 | ) |
|                                                                          |       |                             |       |                           |       |   |   |   |   |
| Basic and  diluted net loss per share                                         |       | $                                | (0.09      | )                              | $          | (0.06 | ) | $ | (0.19 | ) | $ | (0.11 | ) |
| Weighted average  number of common shares outstanding used in the calculation |       | 40,154,651                       |       | 24,614,909                     |       | 32,471,547 |   | 24,295,808 |   |

 

See accompanying notes to condensed consolidatedfinancial statements

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**LPATH,INC.**

###### **Condensed Consolidated Statement ofChanges in Stockholders’ Equity**

**(Unaudited)**
| ** **                                               | ** ** | ** ** | ** ** | ** ** | ** ** | **Additional  Paid-in  Capital** | ** ** | **Accumulated  Deficit** | ** ** | **Total  Stockholders’   Equity** | ** **  |
|----------------------------------------------------------|------------|------------|------------|------------|------------|----------------------------------|------------|--------------------------|------------|---------------------------------------------|-------------|
| **Common Stock**                                    |
| **Shares**                                               | ** ** | **Amount** |
| Balance, Dec.  31, 2006                                  |       | 24,616,393 |       | $          | 24,616     |                             | $          | 14,610,217               |       | $                                           | (13,076,057 | ) | $ | 1,558,776 |   |
|                                                     |       |       |       |       |       |                             |       |                     |       |                                        |        |
| Common stock and  warrants issued, net of issuance costs |       | 17,733,737 |       | 17,734     |       | 15,831,793                       |       |                     |       | 15,849,527                                  |        |
| Warrants  exercised                                      |       | 2,148,000  |       | 2,148      |       | 1,402,092                        |       |                     |       | 1,404,240                                   |        |
| Stock options  exercised                                 |       | 322,672    |       | 323        |       | 37,023                           |       |                     |       | 37,346                                      |        |
| Stock-based  compensation                                |       |       |       |       |       | 933,906                          |       |                     |       | 933,906                                     |        |
| Net loss                                                 |       |       |       |       |       |                             |       | (6,239,712               | )          | (6,239,712                                  | )           |
| Balance, June 30, 2007                                   |       | 44,820,802 |       | $          | 44,821     |                             | $          | 32,815,031               |       | $                                           | (19,315,769 | ) | $ | 13,544,083 |   |

 

See accompanying notes to condensed consolidatedfinancial statements

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**LPATH,INC.**

**Condensed Consolidated Statements ofCash Flows**

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

| ** **                                                                      | ** ** | **Six Months Ended  June 30,** | ** ** |
|---------------------------------------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                                      | ** ** | **2007**                                      | ** ** | **2006** | ** ** |
| Cash flows from  operating activities:                                          |       |                                          |       |   |   |
| Net loss                                                                        |       | $                                             | (6,239,712 | ) | $ | (2,788,717 | ) |
| Adjustments to reconcile net loss to net cash used  in operating activities:    |       |                                          |       |   |   |
| Stock-based compensation expense                                                |       | 933,906                                       |       | 566,702 |   |
| Depreciation and amortization                                                   |       | 58,352                                        |       | 19,805 |   |
| Deferred rent expense                                                           |       | 24,430                                        |       | 23,233 |   |
| Changes in operating assets and liabilities:                                    |       |                                          |       |   |   |
| Grant revenue receivable                                                        |       | (34,578                                       | )          | 2,069 |   |
| Prepaid expenses                                                                |       | 66,364                                        |       | (6,856 | ) |
| Deposits and other assets                                                       |       | 1,361                                         |       | — |   |
| Accounts payable and accrued expenses                                           |       | 1,057,607                                     |       | 258,150 |   |
| Net cash used in operating activities                                           |       | (4,132,270                                    | )          | (1,925,614 | ) |
|                                                                            |       |                                          |       |   |   |
| Cash flows from  investing activities:                                          |       |                                          |       |   |   |
| Equipment expenditures                                                          |       | (57,376                                       | )          | (46,036 | ) |
| Patent expenditures                                                             |       | (48,579                                       | )          | (30,682 | ) |
| Net cash used in investing activities                                           |       | (105,955                                      | )          | (76,718 | ) |
|                                                                            |       |                                          |       |   |   |
| Cash flows from  financing activities:                                          |       |                                          |       |   |   |
| Proceeds from sale of common stock and warrants, net                            |       | 15,841,690                                    |       | 923,685 |   |
| Proceeds from exercise of stock options and  warrants, net                      |       | 1,441,586                                     |       | 250 |   |
| Proceeds from issuance of notes payable to related  parties                     |       | 100,000                                       |       | — |   |
| Repayment of notes payable to related parties,  including loan fees             |       | (108,163                                      | )          | — |   |
| Net cash provided by financing activities                                       |       | 17,275,113                                    |       | 923,935 |   |
| Net increase (decrease) in cash                                                 |       | 13,036,888                                    |       | (1,078,397 | ) |
|                                                                            |       |                                          |       |   |   |
| Cash and cash  equivalents at beginning of period                               |       | 1,361,214                                     |       | 5,190,273 |   |
| Cash and cash  equivalents at end of period                                     |       | $                                             | 14,398,102 |   | $ | 4,111,876 |   |
|                                                                            |       |                                          |       |   |   |
| **Supplemental  Schedule of Non-cash Investing and Financing Activities:**      | ** ** | ** **                                    | ** ** | ** ** | ** ** |
| Reversal of  estimated fair value of potential liability for liquidated damages |       | $                                             | —     |   | $ | (71,000 | ) |
| Incurred patent  expenditures contained in accrued expenses                     |       | $                                             | 25,038     |   | $ | 20,000 |   |
| Common stock issued in  payment of loan fees                                    |       | $                                             | 7,837      |   | $ | — |   |

 

See accompanying notes to condensed consolidatedfinancial statements

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**LPATH,INC.**

**Notes to Condensed ConsolidatedFinancial Statements**

**June 30, 2007**

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

Organization

Lpath, Inc. (“Lpath,” “we,” or “the 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. On November30, 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 the Merger) acquiredLTI as a result of the Merger, the former shareholders of LTI held a majorityof the voting 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 was treatedas a re-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 financialstatements for the year ended December 31, 2006 included in Lpath’s AnnualReport 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 are charged toexpense when incurred.

Cash and Cash Equivalents 

Cash and 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 SFAS 115, *Accountingfor Certain Investments 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, grant revenue 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 and cash equivalents. The company maintains its cash balances with one major commercialbank.  The balances are insured by theFederal Deposit Insurance Corporation up to $100,000.

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 and dispositionof long-lived assets in accordance with Statement of Financial AccountingStandards (“SFAS”) No. 144, *Accounting forthe Impairment or Disposal of Long-Lived Assets.*  In accordance with SFAS No. 144, long-livedassets are reviewed for impairment when events or changes in circumstancesindicate that their carrying value may not be recoverable.

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Deferred Rent

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 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. 123Rrequires companies to recognize stock-based compensation awards granted to itsemployees as compensation expense based on a fair value method. Under the fairvalue recognition 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 presently estimates that the effect of forfeitures on thefinancial statements will be insignificant.  Accordingly, the adoption ofSFAS No. 123R had no material effect on prior or current periods.  As of June 30, 2007, total unrecognizedcompensation expense related to unvested stock-based compensation arrangementsalready granted under our stock option plan was $1.6 million, which we expectwill be recognized over a weighted-average period of 1.9 years.  However, it is difficult to predictthe actual amount of share-based compensation expense that we will recognize infuture periods because that expense can be affected by changes in the amount orterms of our stock-based compensation awards issued in the future, changes inthe assumptions used in our model to value those future awards, changes in ourstock price, and changes in interest rates, among other factors.

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 inConjunction with Selling, Goods or Services. *As such, the value of such options is periodically remeasuredand income or expense is recognized during their vesting terms.

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Per Share Data

In accordance with SFAS No. 128, Earnings Per Share, and SEC StaffAccounting Bulletin (“SAB”) No. 98, basic net loss per common share is computedby dividing net loss for the period by the weighted average number of commonshares outstanding during the period.  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 net loss applicable to common stock per share iscomputed using the weighted average number of common shares outstanding duringthe period. Common stock equivalents from stock options and warrants of18,608,011 and 16,096,988 for the three and six months ended June 30, 2007,respectively, and common stock equivalents of 12,986,908 and 12,585,642 fromstock options and warrants for the three and six months ended June 30, 2006,respectively, are excluded from the calculation of diluted net loss per sharefor all periods presented because the effect is anti-dilutive.

Estimates

The preparation of consolidated financial statements in conformity withaccounting principles generally accepted in the United States requiresmanagement to make estimates and assumptions that affect reported amounts ofassets and liabilities and disclosure of contingent assets and liabilities at thedate of the financial statements and the reported amounts of revenues andexpenses during the reporting period.  Bytheir nature, estimates are subject to an inherent degree of uncertainty and,as such, actual results may differ from those estimates.

Recent Accounting Pronouncements

In June 2006, the Financial Accounting Standards Board (“FASB”)issued Interpretation No. 48, **Accounting for Uncertainty in Income Taxes—aninterpretation of FASB Statement No. 109** (“FIN 48”).FIN 48 requires companies to determine whether it is “more likely than not”that a tax position will be sustained upon examination by the appropriatetaxing authorities before any tax benefit can be recorded in the financialstatements. It also provides guidance on the recognition, measurement,classification and interest and penalties related to uncertain tax positions.FIN 48 is effective as of the beginning of an entity’s first fiscal year thatbegins after December 15, 2006.  Theadoption of the provisions of FIN 48 on January 1, 2007 did not have an impacton our results of operations or financial condition.

As of December 31, 2006,Lpath had federal net operating loss carryforwards of approximately $12.8million that will expire beginning in 2018 and continue expiring through2026.  As of December 31, 2006 thecompany’s California net operating loss carryforwards amounted to approximately$12.7 million that will expire beginning in 2008 and continue expiring through2016.  As of December 31, 2006, Lpathalso has federal and California research and development tax creditcarryforwards of $373,000 and $341,000, respectively, available to offsetfuture taxes.  The federal credits beginexpiring in 2019, and the state credits do not expire.  Because realization of such tax benefits is uncertain, Lpath hasprovided a 100% valuation allowance. As a result of the adoption ofFIN 48, Lpath has not recorded any change to retained earnings atJanuary 1, 2007 and it had no unrecognized tax benefits that, ifrecognized, would favorably

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affect Lpath’s effective income tax rate in future periods.  AtMarch 31, 2007, Lpath had no unrecognized tax benefits.

Utilization of theNOL and R&D carryforwards may be subject to a substantial annual limitationdue to ownership changes that have occurred previously or that could occur inthe future pursuant to Section 382 and 383 of the Internal Revenue Code, aswell as similar state provisions. The company has not currently conducted astudy to assess whether a change in control has occurred or whether there havebeen multiple changes in control since the company’s formation due to thesignificant complexity and cost associated with such a study and thepossibility that there could be additional changes in the future.

In December 2006, the Financial Accounting Standards Board (“FASB”)issued FASB Staff Position (“FSP”) EITF 00-19-2, “Accounting for RegistrationPayment Arrangements.” This FSP addresses an issuer’s accounting forregistration payment arrangements and specifies that the contingent obligationto make future payments or otherwise transfer consideration under aregistration payment arrangement should be separately recognized and measuredin accordance with FASB No. 5. The guidance in this FSP amends FASB Statements133 and 150 and FASB Interpretation No. 45 to include scope exceptions forregistration payments arrangements. This FSP further clarifies that a financialinstrument subject to a registration payment arrangement should be accountedfor without regard to the contingent obligation to transfer considerationpursuant to the registration payment arrangement. This guidance shall beeffective immediately for registration payment arrangements and the financialinstruments subject to those arrangements that are entered into or modifiedsubsequent to the date of issuance of this FSP (12-21-2006). For registrationpayment arrangements and financial instruments subject to those arrangementsthat were entered into prior to the issuance of this FSP, this guidance shallbe effective for financial statements issued for fiscal years beginning afterDecember 15, 2006, and interim periods within those fiscal years. Based on the registration rights agreementsin place as of June 30, 2007 our management does not believe this pronouncementwill have a material impact on Lpath’s financial position or results ofoperations.

InFebruary 2007, the FASB issued Statement of Financial Accounting Standards(“SFAS”) No. 159, *The Fair Value Optionfor Financial Assets and Financial Liabilities—Including an Amendment of FASBStatement No. 115.*This standard permits an entity to choose tomeasure many financial instruments and certain other items at fair value. Mostof the provisions in SFAS No. 159 are elective; however, the amendment toSFAS No. 115, *Accounting for CertainInvestments in Debt and Equity Securities,*applies to all entitieswith available-for-sale and trading securities. The fair value optionestablished by SFAS No. 159 permits all entities to choose to measureeligible items at fair value at specified election dates. A business entitywill report unrealized gains and losses on items for which the fair valueoption has been elected in earnings (or another performance indicator if thebusiness entity does not report earnings) at each subsequent reporting date.The fair value option: (a) may be applied instrument by instrument, with afew exceptions, such as investments otherwise accounted for by the equitymethod; (b) is irrevocable (unless a new election date occurs); and(c) is applied only to entire instruments and not to portions ofinstruments. SFAS No. 159 is effective as of the beginning of an entity’sfirst fiscal year that begins after November 15, 2007. Management does not believe thispronouncement will have a material impact on Lpath’s financial position or resultsof operations.

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In June 2007, theFinancial Accounting Standards Board ratified a consensus opinion reached bythe Emerging Issues Task Force (EITF) on EITF Issue 07-3, “Accounting forNonrefundable Advance Payments for Goods or Services Received for Use in FutureResearch and Development Activities.” The guidance in EITF Issue 07-3 requiresus to defer and capitalize nonrefundable advance payments made for goods orservices to be used in research and development activities until the goods havebeen delivered or the related services have been performed. If the goods are nolonger expected to be delivered nor the services expected to be performed, wewould be required to expense the related capitalized advance payments. Theconsensus in EITF Issue 07-3 is effective for fiscal years, and interim periodswithin those fiscal years, beginning after December 15, 2007 and is to beapplied prospectively to new contracts entered into on or after December 15,2007. Early adoption is not permitted. Retrospective application of EITF Issue07-3 is also not permitted. We intend to adopt EITF Issue 07-3 effectiveJanuary 1, 2008. The impact of applying this consensus will depend on the termsof our future research and development contractual arrangements entered into onor after December 15, 2007.

**Note 3 – PRIVATE PLACEMENTS OF COMMON STOCK AND WARRANTS**

During the three monthperiod ended June 30, 2007, the company received gross proceeds of $16,847,000from the sale of common stock and warrants through a private placement.  Lpath issued 17,733,737 shares of Class Acommon stock at a price of $0.95 per share. Each investor also received warrants to purchase the number of shares ofClass A common stock equal to 35% of the number of common shares purchased inthis financing.  This resulted in theissuance of warrants to purchase a total of 6,206,809 shares of Class A commonstock in this transaction.  The warrantsare exercisable at a price of $1.05 per share, and expire five years from thedate of issue.

Stock issuance costsrelated to the private placement were paid in cash and warrants.  Cash expenses for this transaction totaled$998,000, including placement agent fees totaling $790,000 and legal and otherfees totaling $208,000. In addition, 1,707,894 warrants were issued toplacement agents.  These warrants carryan exercise price of $1.05 per share, and expire five years from the date ofissue.  All of the warrants issued inconjunction with this financing contain provisions specifying that in the eventthat Lpath sells shares of its Class A Common Stock at a price per share lessthan the exercise price of the warrants, then both the exercise price of thewarrants and the number of shares that may be acquired with the warrants willbe adjusted according to formulas specified in the warrants.

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**Note4 – OBLIGATIONS UNDER REGISTRATION RIGHTS AGREEMENTS**

The company entered into a Registration Rights Agreement (the “2007Registration Rights Agreement) with the investors in the 2007 privateplacement.  Under the terms of the Agreement,the company was required to register, with the Securities and ExchangeCommission (the “SEC”) on or before July 31, 2007, the common stock issued inthe private placement, together with the common stock to be issued uponexercise of the warrants.  The company’sRegistration Statement (the “2007 Registration Statement”) covering the sharesissued in this private placement was declared effective by the SEC on July 26,2007.  The 2007 Registration RightsAgreement also provides that if the 2007 Registration Statement ceases toremain continuously effective for more than 30 consecutive days or more than anaggregate of 60 calendar days during any 12-month period, the company may berequired to make cash payments, as partial liquidated damages, to each investorin the private placement in an amount equal to 1.25% of the aggregate amountinvested by such investor for each 30-day period, or any portion of a 30-dayperiod following July 31, 2007.  The 2007Registration Rights Agreement provides that the maximum aggregate liquidateddamages payable by the company shall be 8.75% of the aggregate amountinvested.  The company’s obligation tomaintain the effectiveness of the 2007 Registration Statement will continueuntil all of the shares issued in this private placement have been sold, or thedate on which these shares may be sold pursuant to Rule 144(k).  Based on the company’s experience sincefiling its first registration statement in 2006, the company believes that itis unlikely that it will be required to pay any liquidated damages under theprovisions of the 2007 Registration Rights Agreement, and therefore has notrecorded a liability for that potential obligation.

The companyentered into a Registration Rights Agreement (the “2005 Registration Rights Agreement”)with the investors in the November 30, 2005, the January 31, 2006, and theMarch 27, 2006 private placements.  Thecompany met its initial obligations under that Agreement when the company’sRegistration Statement on Form SB-2 (the “2006 Registration Statement”) wasdeclared effective by the SEC on April 21, 2006. The 2005 Registration RightsAgreement also provides that if the 2006 Registration Statement ceases toremain continuously effective for more than 20 consecutive days or more than anaggregate of 45 days during any 12-month period, the company may be required tomake cash payments, as liquidated damages, to each investor in the privateplacement in an amount equal to 1.25% of the aggregate amount invested by suchinvestor for each 30-day period or pro rata for any portion of a 30-dayperiod.  The company’s obligation tomaintain the effectiveness of the 2006 Registration Statement will continueuntil the earliest of (i) September 30, 2010, (ii) the date on which all of theshares issued in this private placement have been sold, or (iii) the date onwhich the shares issued in this financing may be sold pursuant to Rule144(k).  Based on the company’sexperience since filing the 2006 Registration Statement, the company believesthat it is unlikely that it will be required to pay any liquidated damagesunder the provisions of the 2005 Registration Rights Agreement, and thereforehas not recorded a liability for that potential obligation.

**Note 5 – 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

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accumulated deficit of $19,316,000 as of June 30, 2007. The companydoes not expect to generate meaningful revenues from its drug developmentprograms in the foreseeable future. These factors, among others, raise substantial doubt about the company’sability to continue as a going concern. Lpath’s independent registered publicaccountants, LevitZacks, indicated in their audit report on the 2006consolidated financial statements that there is substantial doubt about thecompany’s ability to continue as a going concern.  The accompanying financial statements do notinclude any adjustments that might result from the outcome of this uncertainty.

During 2007 the company expects to continue to incur cash losses fromoperations.  While the company had cashtotaling $14,398,000 as of June 30, 2007, the cost of its ongoing drugdiscovery and development efforts, including general and administrativeexpenses, are expected to consume approximately $15,000,000 in the next twelvemonths.  Given the present anticipatedexpenditures, additional capital will be required to continue to fund thecompany’s research and development projects beyond approximately June of2008.  The company’s plans to bridge suchcash shortfalls include the following:

1.               Pursue additional fund raising activitiesfrom both existing and potential new investors.

2.               Explore cash generating opportunities fromstrategic alliances, including licensing portions of our technology or enteringinto corporate partnerships or collaborations. In such transactions, Lpath could transfer certain rights to one or moreof its drug discovery or development programs, or to specific indicationswithin those programs, and receive infusions of cash in the short term, andpotentially in the long term as well.

3.               Continue to seek additional research grantsfrom the National Institutes of Health or other sources.

# **Note 6 – NOTES PAYABLE:RELATED PARTIES**

On March 8, 2007, Scott Pancoast, our President and CEO, and DonaldSwortwood, both being directors of the company, agreed to commit up to anaggregate of $400,000 in bridge debt financing to us.  Mr. Pancoast and Mr. Swortwood each agreed tocommit up to $200,000. A commitment fee of 4%, or $8,000, was due to each ofMr. Pancoast and Mr. Swortwood as a result of their respective agreements tocommit such funds.  Non-interestedmembers of our Board of Directors and Audit Committee approved the commitmentand its terms.

On March 23, 2007, pursuant to their commitment to provide the bridgedebt financing to us, we and Mr. Pancoast signed a convertible securedpromissory note dated March 23, 2007 in the principal amount of $50,000, andDonald Swortwood and Letitia Swortwood each signed a convertible securedpromissory note dated March 23, 2007 in the principal amount of $25,000.  The promissory notes bear interest at therate of 9% per annum.  The terms of thepromissory notes provide that the outstanding principal balance and all accruedbut unpaid interest will be due upon the earlier of September 30, 2007, or thedate of the next Qualified Financing Round (as defined in the promissorynotes).  All of these promissory noteswere repaid in full, together with accrued interest, on April 10, 2007.

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**Note 7 – SHARE-BASED PAYMENTS**

In November 2005 the company adopted the Lpath, Inc. 2005 Stock Optionand Stock Purchase Plan (“the plan”), which permits stock option grants toemployees, outside consultants, and directors. There are 10,390,000 commonshares authorized for grant under the plan. The plan allows for grants ofincentive stock options with exercise prices of at least 100% of the fairmarket value of Lpath’s common stock and nonqualified options with exerciseprices of at least 85% of the fair market value of the company’s common stock.All options granted to date have a ten-year life and vest over zero to fiveyears.  As of June 30, 2007 atotal of 5,626,408 shares of common stock were available for future grant underthe plan.

The following table presents stock-based compensation expense asincluded in the company’s condensed consolidated statements of operations:
| ** **                              | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|-----------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                              | ** ** | **June 30,**                | ** ** | **June 30,**              | ** ** |
| ** **                              | ** ** | **2007**                         | ** ** | **2006**                       | ** ** | **2007** | ** ** | **2006** | ** ** |
|                                    |       |                             |       |                           |       |   |   |   |   |
| Research and  development               |       | $                                | 204,881    |                           | $          | 76,609 |   | $ | 643,172 |   | $ | 297,173 |   |
| General and  administrative             |       | 104,316                          |       | 120,903                        |       | 290,734 |   | 269,529 |   |
| Total  stock-based compensation expense |       | $                                | 309,197    |                           | $          | 197,512 |   | $ | 933,906 |   | $ | 566,702 |   |

 

Thecompany uses a Black-Scholes option pricing model to estimate the grant-datefair value of share-based awards under SFAS No. 123R.  Fairvalue is determined at the date of grant for employee options and at the dateat which the grantee’s performance is complete for non-employee options.Compensation cost is recognized over the vesting period based on the fair valueof the options.

In accordance withthe adoption of SFAS No. 123R on January 1, 2006, the financial statementeffect of forfeitures is estimated at the time of grant and revised, ifnecessary, if the actual effect differs from those estimates.  As of June 30, 2007, management estimates that the effect offorfeitures on the financial statements will be insignificant.

As of June 30,2007 there was $1.6 million of total unrecognized compensation expense relatedto unvested stock-based compensation under the plan.  That expense is expected to be recognized overa weighted-average period of 1.9 years. Because of our net operating losses, we did not realize any tax benefitsfor the tax deductions from share-based payment arrangements during the periodsended June 30, 2007 and 2006.

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**Note 8 – WARRANTS**

The following table summarizes warrants outstanding as of June 30,2007:
| **Warrant  Expiration Date** | ** ** | **Number of  Shares** | ** ** | ** **        | ** ** | **Exercise Price  per Share** | ** ** |
|-----------------------------------|------------|----------------------------|------------|-------------------|------------|-----------------------------------------|------------|
| ** **                        | ** ** | ** **                 | ** ** | ** **        | ** ** | ** **                              | ** ** |
| May 30, 2008                      |       | 108,125                    |       |              |       | $                                       | 0.80       |   |
|                              |       |                       |       |              |       |                                    |       |
| Jul 31, 2008                      |       | 22,988                     |       |              |       | $                                       | 0.95       |   |
|                              |       |                       |       |              |       |                                    |       |
| Sep 28, 2008                      |       | 23,400                     |       |              |       | $                                       | 0.95       |   |
|                              |       |                       |       |              |       |                                    |       |
| Apr 3, 2009                       |       | 390,000                    |       |              |       | $                                       | 0.05       |   |
|                              |       |                       |       |              |       |                                    |       |
| Sep 30, 2010                      |       | 305,672                    |       |              |       | $                                       | 0.80       |   |
|                              |       |                       |       |              |       |                                    |       |
| Sep 30, 2010                      |       | 22,906                     |       |              |       | $                                       | 0.95       |   |
|                              |       |                       |       |              |       |                                    |       |
| Sep 30, 2010                      |       | 5,294,855                  |       |              |       | $                                       | 1.50       |   |
|                              |       |                       |       |              |       |                                    |       |
| Apr 6, 2012                       |       | 6,392,126                  |       |              |       | $                                       | 1.05       |   |
|                              |       |                       |       |              |       |                                    |       |
| Jun 13, 2012                      |       | 1,522,577                  |       |              |       | $                                       | 1.05       |   |
|                              |       |                       |       |              |       |                                    |       |
| Oct 31, 2012                      |       | 531,394                    |       |              |       | $                                       | 0.16       |   |
|                              |       |                       |       |              |       |                                    |       |
| Total:                            |       | 14,614,043                 |       | Weighted Average: |       | $                                       | 1.15       |   |

 

The terms of alloutstanding warrants permit the company, upon exercise of the warrants, tosettle the contract by the delivery of unregistered shares.

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**Item 2.   MANAGEMENT’SDISCUSSION AND ANALYSIS OR PLAN 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 quarterly reporton 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, 2006 (the “2006 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 2006 AnnualReport in the section entitled “Market Risks.”*

**Overview**

Lpath Therapeutics, Inc. (“LTI”), the predecessorcompany to Lpath, was founded in 1998. On November 30, 2005, LTI merged with apublicly traded corporation, Neighborhood Connections, Inc. (“NCI”), toform Lpath (“the Merger”). Although NCI (which changed its name to Lpath,Inc. in connection with the Merger) acquired LTI as a result of the Merger, theformer stockholders of LTI held a majority of the voting interest in thecombined enterprise immediately after the Merger. Additionally, the Mergerresulted 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.

Lpath, Inc. is a biotechnology company focused onthe discovery and development of lipidomic-based therapeutics.  Lipidomics is an emerging field of medicalscience whereby bioactive signaling lipids are targeted to treat importanthuman diseases.  Our lead productcandidate, **SphingomabTM**, is a humanized monoclonalantibody against a validated cancer target, sphingosine-1-phosphate (S1P), andhas demonstrated compelling results in preclinical studies against multipleforms of cancers, against age-related macular degeneration (AMD), and againstheart failure.  Our second productcandidate, LpathomabTM, is a monoclonal antibody against lysophosphatidic acid(LPA), a key bioactive lipid that has long been recognized as a significantpromoter of cancer-cell growth and metastasis in a broad range of tumor typesand a significant contributor to neuropathic pain.  We believe we are the only company to havedeveloped functional monoclonal antibodies against bioactive lipids such as S1Pand LPA.  These unique antibodies wereproduced using our ImmuneY2TM technology, a series of proprietary processesdeveloped by the company.  We arecurrently applying the ImmuneY2 process to other lipid-signaling agents thatare validated targets for disease treatment, thereby creating a potentialpipeline of monoclonal antibody-based drug candidates.

Lpath has incurred significant netlosses since its inception. As of June 30, 2007, Lpath had an accumulateddeficit of approximately $19.3 million. Lpath expects its operating losses to increase for the next severalyears as it pursues the clinical development of its product candidates.

# **Revenue**

Lpath has generated $2.1 million in revenue to datefrom research grants awarded by the National Institutes of Health.  Lpath expects to continue to receive smallamounts of revenue from research 

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grants.  Lpathdoes not expect to generate any revenue from licensing, milestones, or productsales until it executes a partnership or collaboration arrangement or is ableto commercialize its first product.

# **Researchand Development Expenses**

Lpath’s research and development expenses consistprimarily of salaries and related employee benefits, research supplies andmaterials, external costs associated with its drug discovery research, andexternal costs incurred in preparation for clinical development, includingpreclinical testing and regulatory expenses. Lpath’s historical research and development expenses are principallyrelated to the research and drug discovery efforts in creating its first twoproduct candidates, *Sphingomab*andLpathomab.

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 move through pre-clinical testing and into clinicaltrials.

At this time, due to the risks inherent in the drugdiscovery and clinical trial process and given the early stage of our productdevelopment programs, Lpath is unable to estimate with any certainty the costsit will incur in the continued development of its product candidates for potentialcommercialization.  Clinical developmenttimelines, the probability of success and development costs vary widely.  While Lpath is currently focused on advancingeach of its product development programs, Lpath anticipates that it willcontinually make determinations as to the scientific and clinical success andassessments as to the commercial potential of each of its productcandidates.  In addition, Lpath cannotforecast with any degree of certainty which product candidates will be subjectto future partnering, when such arrangements will be secured, 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 the commercialization of its product candidates.

Lpath expects its research and development expensesto be approximately $24 million over the two year period ending December 31,2008.  This estimate includes theexpenses to complete preclinical testing and initiate clinical trials for *Sphingomab*, our most advanced product candidate, as well asto initiate preclinical testing of our second product candidate,Lpathomab.  Lpath expects theseexpenditures to increase as it continues the advancement of its productdevelopment programs. To date, Lpath has not yet initiated clinical trials forany of its product candidates.  Thelengthy process of completing clinical trials and seeking regulatory approvalfor its product candidates typically requires expenditures in excess ofapproximately $50 million.  Any failureby Lpath or delay in completing clinical trials, or in obtaining regulatoryapprovals, would cause Lpath’s research and development expenses to increaseand, in turn, have a material adverse effect on Lpath’s results of operationsand its ability to continue as a going concern.

## **Generaland Administrative Expenses**

Lpath’s general and administrative expensesprincipally comprise salaries and benefits and professional fees related toLpath’s administrative, finance, human resources, legal, and internal systemssupport functions.  In addition, generaland administrative expenses include insurance and an allocated portion offacilities costs.

Lpath anticipates increases in general andadministrative expenses as it adds personnel, becomes subject to theSarbanes-Oxley compliance obligations applicable to publicly-held companies,and continues to develop and prepare for the commercialization of its productcandidates.

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**Results of Operations**

***Comparison of theThree Months Ended June 30, 2007 and June 30, 2006***

*Grant Revenue.* Grant revenue for the three-month periodended June 30, 2007 decreased to $153,000 from $185,000 for thethree-month period ended June 30, 2006. The decrease of $32,000 was due to the fact that the level of effortrequired by certain grants declined as these grants wound-down to completion inthe second quarter of 2007.

*Research and Development Expenses.* Research and development expenses increased from $1,090,000 for thesecond quarter of 2006 to $2,828,000 for the second quarter of 2007.  The increase of $1,738,000 reflects theprogress of pre-clinical research and development activities from the secondquarter of 2006 to the second quarter of 2007. Outside services expense increased by approximately $1,417,000 primarilydue to the IND-enabling studies performed or initiated during the secondquarter of 2007.  The use of consultantsand other contracted services to augment the capabilities of our research anddevelopment team also contributed to the increase in expenditures for outsideservices.  Employee compensation andbenefits expense increased by approximately $134,000, commensurate with theincrease in research and development staffing. The amount spent for research supplies and other departmental expensesincreased by approximately $59,000 as we increased the level of effort on ourkey drug discovery and development projects. The increase in research and development expenses also included a $128,000increase in stock-based compensation expense related to consultants used tosupport research and development activities.

*General and AdministrativeExpenses.*  General and administrative expenses increasedfrom $610,000 for the three-month period ended June 30, 2006 to $967,000 forthe three-month period ended June 30, 2007. Legal fees, accounting fees, investor relations, stock administration,and insurance expenses increased, in aggregate, by approximately $185,000.  This increase was primarily due to the costsof outside services necessary to support a publicly-traded company, and topursue corporate collaboration and financing opportunities.  Employee compensation, benefits, and generalfacility expenses increased by approximately $188,000, reflective of thechanges in general and administrative personnel between the two years.  Stock-based compensation charges decreased by$16,000.

*Interest Income*. Interest income was $125,000 for the quarter ended June 30, 2007,compared with $48,000 for the quarter ended June 30, 2006.  The $77,000 increase was principally a resultof higher levels of invested cash as compared to the prior year.

***Comparison of theSix Months Ended June 30, 2007 and June 30, 2006***

*Grant Revenue.* Grant revenue for the six-months endedJune 30, 2007 was $350,000 compared with $314,000 for the six-months endedJune 30, 2006, an increase of $36,000. This increase reflects the receipt and completion of a new grant betweenthe first and second quarters of 2007, along with the completion of alladditional outstanding grants as of the end of the second quarter.

*Research and Development Expenses.* Research and development expenses were $5,007,000 for the six-monthsended June 30, 2007, compared with $2,044,000 for the comparable period in2006.  The $2,963,000 increase inexpenses reflects the progress of pre-clinical research and developmentactivities from the first half of 2007 compared to the same period in2006.  Outside service expenses increasedby approximately $2,310,000 primarily due to the IND-enabling studies performedor initiated during the first half of 2007 as compared to the same period in2006.  The use of consultants and othercontracted services to augment the capabilities of our research and developmentteam also contributed to the increase in expenditures for outsideservices.  The amount spent for researchsupplies and other departmental expenses increased by $61,000 as we increasedthe level of effort on key drug discovery and development projects.  Employee compensation and benefits expenseincreased by approximately $246,000 for the six-month period ended,commensurate with the increase in research and development staffing.  The increase in expenses for the six-monthperiod ended also included a $346,000 increase in stock-based 

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compensation expense related to consultants used tosupport research and development activities.

*General and AdministrativeExpenses.*  General and administrative expenses increased$539,000 for the six-month period ended from $1,161,000 in 2006 to $1,700,000in 2007.  Legal fees, accounting fees,investor relations, stock administration, and insurance expenses increased, inaggregate, by approximately $284,000. This increase was primarily due to the costs of outside servicesnecessary to support a publicly-traded company, and to pursue corporatecollaboration and financing opportunities. Employee compensation, benefits, and general facility expenses increasedby approximately $234,000, reflective of the changes in general andadministrative personnel between the two years. Stock-based compensation charges increased by $21,000.

*Interest Income.* Interest income was $134,000 for the six-months ended June 30, 2007 ascompared to $102,000 for the six-months ended June 30, 2006.  The $32,000 increase was a result of higherlevels of invested cash as compared to the prior year.

*Interest Expense.* Interest expense was $16,000 for the six-month period ended June 30,2007,  compared with zero for thecomparable period in 2006.  Lpath’sinterest expense during 2007 was a result of the bridge financing commitmentfees and accrued interest.

**Liquidity and Capital Resources**

**Since Lpath’s inception, itsoperations have been financed through the private placement of equity and debtsecurities.  Through June 30, 2007 Lpathhad received net proceeds of approximately $29,900,000 from the sale of equitysecurities and from the issuance of convertible promissory notes.  As of June 30, 2007, Lpath had cash and cashequivalents totaling $14,398,000.**

During the six-months ended June 30, 2007, we usednet cash of $4,132,000 for operating activities compared to $1,926,000 in thefirst half of 2006.  The increase in netcash used in operating activities was primarily driven by increased expensesrelated to the preclinical development activities for our lead drug candidate SphingomabTM,including IND-enabling studies, increased headcount, outside services, andconsulting costs.  Legal, accounting, andother costs also increased in support of the company’s business development,financing, and investor relations efforts.

Net cash used in investing activities during thesix-month period ended June 30, 2007 amounted to $106,000 compared to $77,000for the same period in 2006.  Of theamount used for investing activities in the six-month period ended June 30,2007, $57,000 was used to purchase equipment and $49,000 was invested inpatents to protect our proprietary technology. In the comparable period in 2006, $46,000 was used to purchase equipmentand $31,000 was spent on patent activities.

Net cash provided from financing activities duringthe six-month period ended June 30, 2007 totaled $17,275,000 compared to$924,000 in the six-months ended June 30, 2006. During the first six months of 2007 Lpath raised $15,842,000, net ofissuance costs, from the sale of common stock and warrants to purchase commonstock.  In addition, in the first sixmonths of 2007 the company received proceeds of $1,442,000, net of issuancecosts, from the exercise of warrants and stock options.  In the first half of 2007 the company alsoused $8,000 to pay loan fees under the terms of the promissory notes to relatedparties.  In the comparable six-monthperiod ended June 30, 2006 Lpath sold common stock and warrants to purchasecommon stock for $924,000, net of issuance costs, and received proceeds of $250from the exercise of stock options.

In August 2005 we entered into a five-yearfacilities lease.  A portion of thefacility is subleased to a company that is co-owned by two of Lpath’s largestshareholders.  The sublease was approvedby the landlord.  This sublease wasamended effective April 1, 2007 to reflect Lpath’s 

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increased use of the premises and the correspondingdecrease in utilization of space in Lpath’s facility by the sublessee.  The following table describes Lpath’scommitments to settle contractual obligations in cash as of June 30, 2007:
| ** **                   | ** ** | **Payments Due by Period**      | ** ** |
|------------------------------|------------|------------------------------------------------|------------|
| ** **                   | ** ** | **Six-months  ended  December 31,  2007** | ** ** | **2008** | ** ** | **2009** | ** ** | **2010** | ** ** | **Total** | ** ** |
| Operating lease  obligations |       | $                                              | 85,580     |   | $ | 206,372 |   | $ | 212,483 |   | $ | 182,639 |   | $ | 687,074 |   |
| Sublease income              |       | 6,082                                          |       | 14,930 |   | 15,376 |   | 13,130 |   | 49,518 |   |
| **Total**                    |       | $                                              | 79,498     |   | $ | 191,442 |   | $ | 197,107 |   | $ | 169,509 |   | $ | 637,556 |   |

 

Lpath has entered into various agreementswith third parties to perform specialized drug discovery tasks, licenseproprietary technology, manufacture product candidates, conduct preclinicalstudies, and provide analytical services. Lpath’s payment obligations under these agreements depend upon theprogress of its discovery and development programs.  Therefore, Lpath is unable to estimate withcertainty the future costs it will incur under these agreements.  In one such arrangement, Lpath has enteredinto a collaboration agreement with a biomedical research company to utilizetheir proprietary processes to assist Lpath in preparing its lead drugcandidate for clinical trials.  Under theterms of that collaboration agreement Lpath is obligated to make additionalmilestone payments and specified royalty payments upon the achievement ofcertain product-development events and commercialization objectives.  Under the terms of a license agreement withanother biomedical research company, an annual license fee of approximately$600,000 per year will begin to accrue following the occurrence of certainevents.  Pursuant to that agreement,payment of that annual license fee will be deferred until Lpath’s drugcandidate incorporating that technology begins Phase II clinical trials.  While the company anticipates that the eventsthat could trigger the accrual of the annual license fee may occur as early asthe third quarter of 2007, it is not possible to predict when the drugcandidate would progress to the commencement of Phase II clinical trials, andconsequently when payment would be required. These deferred license fees, milestone payments and royalty paymentsunder Lpath’s various agreements are not included in the table above becauseLpath cannot, at this time, determine when or if the related milestones will beachieved or the events triggering the commencement of payment obligations willoccur.

**We expect our cash requirements to increasesignificantly in the twelve-month period ending June 30, 2008 as we continueto: (i) increase our research and development, especially preclinicalactivities, (ii) begin the process of seeking regulatory approvals, and (iii)pursue commercialization and strategic partnering of our current productcandidates.  As we expand our researchand development efforts and pursue additional product opportunities, weanticipate significant cash requirements associated with hiring additionalpersonnel, capital expenditures, and investment 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**

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**we devote to the research,development, regulatory, manufacturing, and commercialization activitiesrequired to support our product candidates.**

We believe thatour existing cash will be sufficient to meet Lpath’s projected operatingrequirements until the second quarter of 2008.

**Until we can generate significantcash other than from our capital raising efforts, we expect to continue to fundour operations with the proceeds from offerings of our equity securities, debtfinancing 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 additional financingwill be available when needed or that, if available, financing will be obtainedon 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, relinquishsome 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 mayrestrict our ability to operate our business.**

**Recent Accounting Pronouncements**

In June 2006, the Financial Accounting Standards Board (“FASB”)issued Interpretation No. 48, **Accounting for Uncertainty in Income Taxes—aninterpretation of FASB Statement No. 109** (“FIN 48”).FIN 48 requires companies to determine whether it is “more likely than not”that a tax position will be sustained upon examination by the appropriatetaxing authorities before any tax benefit can be recorded in the financialstatements. It also provides guidance on the recognition, measurement,classification and interest and penalties related to uncertain tax positions.FIN 48 is effective as of the beginning of an entity’s first fiscal year that beginsafter December 15, 2006.  The adoption ofthe provisions of FIN 48 on January 1, 2007 did not have an impact on ourresults of operations or financial condition.

As of December 31,2006, Lpath had federal net operating loss carryforwards of approximately $12.8million that will expire beginning in 2018 and continue expiring through2026.  As of December 31, 2006 thecompany’s California net operating loss carryforwards amounted to approximately$12.7 million that will expire beginning in 2008 and continue expiring through2016.  As of December 31, 2006, Lpathalso has federal and California research and development tax creditcarryforwards of $373,000 and $341,000, respectively, available to offsetfuture taxes.  The federal credits beginexpiring in 2019, and the state credits do not expire.  Because realization of such tax benefits is uncertain, Lpath hasprovided a 100% valuation allowance. As a result of the adoption ofFIN 48, Lpath has not recorded any change to retained earnings atJanuary 1, 2007 and it had no unrecognized tax benefits that, ifrecognized, would favorably affect Lpath’s effective income tax rate in futureperiods.  At March 31, 2007, Lpath had no unrecognized tax benefits.

Utilization of theNOL and R&D carryforwards may be subject to a substantial annual limitationdue to ownership changes that have occurred previously or that could occur inthe future pursuant to Section 382 and 383 of the Internal Revenue Code, aswell as similar state provisions. The company has not currently conducted astudy to assess whether a change in control has occurred or whether there havebeen multiple changes in control since the company’s formation due to the 

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significantcomplexity and cost associated with such a study and the possibility that therecould be additional changes in the future.

In December 2006, the Financial Accounting Standards Board (“FASB”)issued FASB Staff Position (“FSP”) EITF 00-19-2, “Accounting for RegistrationPayment Arrangements.” This FSP addresses an issuer’s accounting forregistration payment arrangements and specifies that the contingent obligationto make future payments or otherwise transfer consideration under aregistration payment arrangement should be separately recognized and measuredin accordance with FASB No. 5. The guidance in this FSP amends FASB Statements133 and 150 and FASB Interpretation No. 45 to include scope exceptions forregistration payments arrangements. This FSP further clarifies that a financialinstrument subject to a registration payment arrangement should be accountedfor without regard to the contingent obligation to transfer considerationpursuant to the registration payment arrangement. This guidance shall beeffective immediately for registration payment arrangements and the financialinstruments subject to those arrangements that are entered into or modifiedsubsequent to the date of issuance of this FSP (12-21-2006). For registrationpayment arrangements and financial instruments subject to those arrangementsthat were entered into prior to the issuance of this FSP, this guidance shallbe effective for financial statements issued for fiscal years beginning afterDecember 15, 2006, and interim periods within those fiscal years. Based on the registration rights agreementsin place as of June 30, 2007 our management does not believe this pronouncementwill have a material impact on Lpath’s financial position or results ofoperations.

InFebruary 2007, the FASB issued Statement of Financial Accounting Standards(“SFAS”) No. 159, *The Fair Value Optionfor Financial Assets and Financial Liabilities—Including an Amendment of FASBStatement No. 115.*This standard permits an entity to choose tomeasure many financial instruments and certain other items at fair value. Mostof the provisions in SFAS No. 159 are elective; however, the amendment toSFAS No. 115, *Accounting for CertainInvestments in Debt and Equity Securities,*applies to all entitieswith available-for-sale and trading securities. The fair value optionestablished by SFAS No. 159 permits all entities to choose to measureeligible items at fair value at specified election dates. A business entitywill report unrealized gains and losses on items for which the fair valueoption has been elected in earnings (or another performance indicator if thebusiness entity does not report earnings) at each subsequent reporting date.The fair value option: (a) may be applied instrument by instrument, with afew exceptions, such as investments otherwise accounted for by the equitymethod; (b) is irrevocable (unless a new election date occurs); and(c) is applied only to entire instruments and not to portions ofinstruments. SFAS No. 159 is effective as of the beginning of an entity’sfirst fiscal year that begins after November 15, 2007. Management does not believe thispronouncement will have a material impact on Lpath’s financial position orresults of operations.

In June 2007, theFinancial Accounting Standards Board ratified a consensus opinion reached bythe Emerging Issues Task Force (EITF) on EITF Issue 07-3, “Accounting forNonrefundable Advance Payments for Goods or Services Received for Use in FutureResearch and Development Activities.” The guidance in EITF Issue 07-3 requiresus to defer and capitalize nonrefundable advance payments made for goods orservices to be used in research and development activities until the goods havebeen delivered or the related services have been performed. If the goods are nolonger expected to be delivered nor the services expected to be performed, wewould be required to expense the related capitalized advance payments. Theconsensus in EITF Issue 07-3 is effective for fiscal years, and interim periodswithin those fiscal years, beginning after December 15, 2007 and is to beapplied prospectively to new contracts entered into on or after December 15,2007. Early adoption is not permitted. Retrospective application of EITF Issue07-3 is also not permitted. We intend to adopt EITF Issue 07-3 effectiveJanuary 1, 2008. The impact 

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of applying thisconsensus will depend on the terms of our future research and developmentcontractual arrangements entered into on or after December 15, 2007.

**Item 3.            CONTROLSAND PROCEDURES**

**Evaluation of Disclosure Controls and Procedures**

Our management, including the Chief Executive Officerand 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, 2007,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 30,2007 that have materially affected, or that are reasonably likely to materiallyaffect, our internal control over financial reporting.

**PART II – OTHER INFORMATON**

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

On June 8, 2007 we held aSpecial Meeting of Stockholders in San Diego, California for the followingpurposes:

1.                                       Toratify an amendment to the Company’s Articles of Incorporation to increase theauthorized Class A common stock from 60,000,000 shares to 100,000,000shares.  The number of votes for,against, and abstaining was 33,350,491, 168,266 and 3,000, respectively.

2.                                       Toratify an amendment to the Company’s 2005 Stock Option/Stock Issuance Plan toincrease the number of shares of Class A common stock available under the planfrom 5,340,000 shares to 10,390,000 shares. The number of votes for, against, and abstaining was 31,781,917, 160,825and 4,000, respectively.

**Item 5.            OTHERINFORMATION**

OnMay 21, 2007, Western States Investment Corporation (“WSIC”), paid Lpath$470,400 to exercise warrants to purchase 588,000 shares of Lpath Class ACommon Stock.  The terms of the warrantincluded an expiration date of May 31, 2007, and an exercise price was $0.80per share.  WSIC is owned by two of Lpath’slargest stockholders, Donald Swortwood and Letitia Swortwood.  WSIC received this warrant in August 2005 inexchange for providing a guaranty for $360,000 of Lpath’s obligation under itsfacility lease.

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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.                                                                                                     |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                         |
| 2.2    |   | Acquisition Agreement and Plan of Merger, dated as  of March 19, 2004, between Neighborhood Connections, Inc. and JCG, Inc.  (filed as Exhibit 2.1 to the Current Report on Form 8-K filed on March 22,  2004 and incorporated herein by reference).                                                         |
|   |   |                                                                                                                                                                                                                                                                                                         |
| 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/A for the year ended December 31,  2003 (the “2003 Amended 10-KSB”) (filed on March 25, 2004 and incorporated  herein by reference). |
|   |   |                                                                                                                                                                                                                                                                                                         |
| 3.3    |   | Amendment to Articles of Incorporation filed on  December 27, 2002 (filed as Exhibit 3.3 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 (filed as  Exhibit 3.4 to the Quarterly Report on Form 10-QSB filed on November 13,  2006 and incorporated herein by reference).                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                         |
| 3.5    |   | Amended and Restated Bylaws, as amended on  April 3, 2007 (conformed) (filed as Exhibit 3.5 to the Registration  Statement on Form SB-2, SEC File No. 144199 (the “June 2007 SB-2”) and  incorporated herein by reference).                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                         |
| 3.6    |   | Certificate of Amendment of Articles of Incorporation  filed June 8, 2007 (filed as Exhibit 3.6 to the June 2007 SB-2 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).                                        |
|   |   |                                                                                                                                                                                                                                                                                                         |
| 4.8    |   | Form of Warrant issued pursuant to the Securities  Purchase Agreement dated April 6, 2007 (April 2007 Warrants) (filed as  Exhibit 4.7 to the June 2007 SB-2 and incorporated herein by reference).                                                                                                          |

 

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| 4.9     |   | Form of Warrant issued pursuant to the Securities  Purchase Agreement dated April 6, 2007 (June 2007 Warrants) (filed as  Exhibit 4.8 to the June 2007 SB-2 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 Amendments  No.1 and No.2.                                                                                                                                                                                                                                            |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                           |
| 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  (filed as Exhibit 10.4 to the Current Report on Form 8-K/A filed on January  9, 2006 and incorporated herein by reference) (portions of this exhibit have  been omitted pursuant to a request for confidential treatment).                                           |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                           |
| 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.  (filed as Exhibit 10.13 to the Quarterly Report on Form 10-QSB for the  quarter ended September 30, 2006 filed on November 13, 2006 and incorporated  by reference) (portions of this exhibit have been omitted pursuant to a  request for confidential treatment). |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.14   |   | Securities Purchase Agreement, dated as of April 6,  2007, by and among Lpath, Inc. and each investor identified therein (filed as  Exhibit 10.14 to the June 2007 SB-2 and incorporated herein by reference).                                                                                                                                                                                 |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.15   |   | Registration Rights Agreement, dated as of April 6,  2007, by and among Lpath, Inc. and each investor identified therein (filed as  Exhibit 10.15 to the June 2007 SB-2 and incorporated herein by reference).                                                                                                                                                                                 |

 

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| 14.1#  |   | Code of Ethics of Lpath, Inc.                                        |
|--------|--------|----------------------------------------------------------------------|
|   |   |                                                                 |
| 21.1#  |   | List of Subsidiaries of Registrant.                                  |
|   |   |                                                                 |
| 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 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: August 13, 2007 | ** ** | ** ** | ** ** | /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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