**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

 

**FORM 10-Q**

 

**x   QUARTERLY REPORT PURSUANT TO SECTION 13OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For the quarterly period endedMarch 31, 2008**

 

**OR**

 

**o****TRANSITION REPORT PURSUANT TOSECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For the transition period from                        to                **

 

**Commission File Number: 000-50344**

 

**LPATH,INC.**

(Name of smallbusiness issuer in its charter)

 

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

 

**6335Ferris Square, Suite A, San Diego, CA 92121**

(Address ofprincipal executive offices, including zip code)

 

**(858)678-0800**

(Registrant’stelephone number, including area code)

 

Indicate by check markwhether the registrant (1) filed all reports required to be filed by Section 13or 15(d) of the Exchange Act during the past 12 months (or for suchshorter period that the registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past 90 days. Yes x No  ̈

 

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, a non-accelerated filer, or a smaller reporting company. Seedefinitions of “large accelerated filer,” “accelerated filer,” and “smallerreporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

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

 

Indicate by check 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 Class A common stock as of May 7, 2008 was45,215,365.

 

 

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**LPATH, INC.**

**FORM 10-Q**

 

**TABLE OF CONTENTS**

 
| **PART I**  | **FINANCIAL  INFORMATION**                                                                  |   |
|------------------|---------------------------------------------------------------------------------------------|--------|
|             |                                                                                        |   |
| ITEM 1:          | Financial  Statements                                                                       |   |
|             |                                                                                        |   |
| ITEM 2:          | Management’s  Discussion and Analysis of Financial Condition and Results of Operations |   |
|             |                                                                                        |   |
| ITEM 4:          | Controls and Procedures                                                                     |   |
|             |                                                                                        |   |
| **PART II** | **OTHER  INFORMATION**                                                                      |   |
|             |                                                                                        |   |
| ITEM 1:          | Legal Proceedings                                                                           |   |
|             |                                                                                        |   |
| ITEM 2:          | Unregistered  Sales of Equity Securities and Use of Proceeds                                |   |
|             |                                                                                        |   |
| ITEM 3:          | Defaults  upon Senior Securities                                                            |   |
|             |                                                                                        |   |
| ITEM 4:          | Submission  of Matters to a Vote of Security Holders                                        |   |
|             |                                                                                        |   |
| ITEM 5:          | Other Information                                                                           |   |
|             |                                                                                        |   |
| ITEM 6:          | Exhibits                                                                                    |   |
|             |                                                                                        |   |
| **SIGNATURES**   |                                                                                        |

 

2

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**PART I.   FINANCIAL INFORMATION**

**Item 1.****                      ****FINANCIAL STATEMENTS**

 

**LPATH, INC.**

**Condensed Consolidated Balance Sheets**

 
| ** **                                                                                                                                                                                             | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                                             | ** ** | **2008**           | ** ** | **2007**              | ** ** |
| ** **                                                                                                                                                                                             | ** ** | **(Unaudited)**    | ** ** | **Note**              | ** ** |
| **ASSETS**                                                                                                                                                                                             |       |               |       |                  |       |
| Current Assets:                                                                                                                                                                                        |       |               |       |                  |       |
| Cash and cash equivalents                                                                                                                                                                              |       | $                  | 5,402,013  |                  | $          | 7,521,071 |   |
| Accounts receivable                                                                                                                                                                                    |       | 13,126             |       | 10,502                |       |
| Prepaid expenses and other current assets                                                                                                                                                              |       | 223,058            |       | 217,581               |       |
| Total current assets                                                                                                                                                                                   |       | 5,638,197          |       | 7,749,154             |       |
|                                                                                                                                                                                                   |       |               |       |                  |       |
| Equipment and leasehold improvements, net                                                                                                                                                              |       | 385,386            |       | 422,484               |       |
| Patents, net                                                                                                                                                                                           |       | 489,225            |       | 442,706               |       |
| Deposits and other assets                                                                                                                                                                              |       | 37,567             |       | 37,644                |       |
|                                                                                                                                                                                                   |       |               |       |                  |       |
| Total assets                                                                                                                                                                                           |       | $                  | 6,550,375  |                  | $          | 8,651,988 |   |
|                                                                                                                                                                                                   |       |               |       |                  |       |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                                                                                          | ** ** | ** **         | ** ** | ** **            | ** ** |
| Current Liabilities:                                                                                                                                                                                   |       |               |       |                  |       |
| Accounts payable                                                                                                                                                                                       |       | $                  | 2,495,221  |                  | $          | 989,069 |   |
| Accrued expenses                                                                                                                                                                                       |       | 465,827            |       | 572,798               |       |
| Deferred rent, current portion                                                                                                                                                                         |       | 46,830             |       | 45,405                |       |
| Leasehold improvement debt, current portion                                                                                                                                                            |       | 14,392             |       | 14,107                |       |
| Total current liabilities                                                                                                                                                                              |       | 3,022,270          |       | 1,621,379             |       |
|                                                                                                                                                                                                   |       |               |       |                  |       |
| Deferred rent, long-term portion                                                                                                                                                                       |       | 88,582             |       | 101,121               |       |
| Leasehold improvement debt, long-term portion                                                                                                                                                          |       | 26,689             |       | 30,395                |       |
| Long-term accrued liabilities                                                                                                                                                                          |       | 561,931            |       | 563,865               |       |
| Total liabilities                                                                                                                                                                                      |       | 3,699,472          |       | 2,316,760             |       |
|                                                                                                                                                                                                   |       |               |       |                  |       |
| Stockholders’ Equity:                                                                                                                                                                             |       |               |       |                  |       |
|                                                                                                                                                                                                   |       |               |       |                  |       |
| Class A Common stock - $.001 par value; 100,000,000 shares  authorized; 45,215,365 and 45,046,495 shares issued and outstanding at  March 31, 2008 and December 31, 2007, respectively. |       | 45,215             |       | 45,046                |       |
|                                                                                                                                                                                                   |       |               |       |                  |       |
| Additional paid-in capital                                                                                                                                                                             |       | 36,051,686         |       | 34,457,999            |       |
| Accumulated deficit                                                                                                                                                                                    |       | (33,245,998        | )          | (28,167,817           | )          |
| Total stockholders’ equity                                                                                                                                                                        |       | 2,850,903          |       | 6,335,228             |       |
|                                                                                                                                                                                                   |       |               |       |                  |       |
| Total liabilities and stockholders’ equity                                                                                                                                                        |       | $                  | 6,550,375  |                  | $          | 8,651,988 |   |

 

Note: The balance sheet at December 31, 2007 has been derived fromthe audited consolidated financial statements at that date.

 

See accompanying notes to condensed consolidated financial statements

 

3

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**LPATH, INC.**

###### **Condensed ConsolidatedStatements of Operations**

**(Unaudited)**

 
| ** **                                                                                                 | ** ** | **Three Months Ended  March 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                                                                 | ** ** | **2008**                                         | ** ** | **2007** | ** ** |
|                                                                                                       |       |                                             |       |   |   |
| Grant and royalty revenue                                                                                  |       | $                                                | 13,126     |   | $ | 196,981 |   |
|                                                                                                       |       |                                             |       |   |   |
| Expenses:                                                                                                  |       |                                             |       |   |   |
| Research and development expenses                                                                          |       | 3,604,437                                        |       | 2,178,647 |   |
| General and administrative expenses                                                                        |       | 1,543,427                                        |       | 733,750 |   |
|                                                                                                       |       |                                             |       |   |   |
| Total expenses                                                                                             |       | 5,147,864                                        |       | 2,912,397 |   |
|                                                                                                       |       |                                             |       |   |   |
| Loss from operations                                                                                       |       | (5,134,738                                       | )          | (2,715,416 | ) |
|                                                                                                       |       |                                             |       |   |   |
| Other income (expense):                                                                                    |       |                                             |       |   |   |
| Interest income                                                                                            |       | 57,355                                           |       | 9,015 |   |
| Interest expense                                                                                           |       | (798                                             | )          | (16,197 | ) |
|                                                                                                       |       |                                             |       |   |   |
| Total other income (expense)                                                                               |       | 56,557                                           |       | (7,182 | ) |
|                                                                                                       |       |                                             |       |   |   |
| Net loss                                                                                                   |       | $                                                | (5,078,181 | ) | $ | (2,722,598 | ) |
|                                                                                                       |       |                                             |       |   |   |
| Basic and diluted net loss per share                                                                       |       | $                                                | (0.11      | ) | $ | (0.11 | ) |
|                                                                                                       |       |                                             |       |   |   |
| Weighted average number of common shares outstanding used to compute  basic and diluted net loss per share |       | 45,167,120                                       |       | 24,703,076 |   |

 

See accompanying notes to condensed consolidated financial statements.

 

4

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**LPATH, INC.**

**Condensed Consolidated Statements of Cash Flows**

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

 
| ** **                                                                   | ** ** | **Three Months Ended  March 31,** | ** ** |
|------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                                   | ** ** | **2008**                                         | ** ** | **2007** | ** ** |
| Cash flows from operating activities:                                        |       |                                             |       |   |   |
| Net loss                                                                     |       | $                                                | (5,078,181 | ) | $ | (2,722,598 | ) |
| Adjustments to reconcile net loss to net cash used in operating  activities: |       |                                             |       |   |   |
| Stock-based compensation expense                                             |       | 1,536,156                                        |       | 624,709 |   |
| Depreciation and amortization                                                |       | 38,766                                           |       | 21,317 |   |
| Deferred rent expense                                                        |       | (11,114                                          | )          | 5,481 |   |
| Changes in operating assets and liabilities:                                 |       |                                             |       |   |   |
| Accounts receivable                                                          |       | (2,624                                           | )          | 118,361 |   |
| Prepaid expenses and other current assets                                    |       | (5,477                                           | )          | 7,966 |   |
| Accounts payable and accrued expenses                                        |       | 1,340,803                                        |       | 1,120,293 |   |
| Deposits and other assets                                                    |       | 2,272                                            |       | 2,601 |   |
| Net cash used in operating activities                                        |       | (2,179,399                                       | )          | (821,870 | ) |
|                                                                         |       |                                             |       |   |   |
| Cash flows from investing activities:                                        |       |                                             |       |   |   |
| Equipment expenditures                                                       |       | —                                           |       | (17,817 | ) |
| Patent expenditures                                                          |       | (15,917                                          | )          | (3,788 | ) |
| Net cash used in investing activities                                        |       | (15,917                                          | )          | (21,605 | ) |
|                                                                         |       |                                             |       |   |   |
| Cash flows from financing activities:                                        |       |                                             |       |   |   |
| Proceeds from exercise of stock options and warrants, net                    |       | 79,679                                           |       | 51,375 |   |
| Proceeds from issuance of notes payable to related parties                   |       | —                                           |       | 100,000 |   |
| Repayment of leasehold improvement debt                                      |       | (3,421                                           | )          | — |   |
| Net cash provided by financing activities                                    |       | 76,258                                           |       | 151,375 |   |
|                                                                         |       |                                             |       |   |   |
| Net increase (decrease) in cash                                              |       | (2,119,058                                       | )          | (692,100 | ) |
|                                                                         |       |                                             |       |   |   |
| Cash and cash equivalents at beginning of period                             |       | 7,521,071                                        |       | 1,361,214 |   |
| Cash and cash equivalents at end of period                                   |       | $                                                | 5,402,013  |   | $ | 669,114 |   |
|                                                                         |       |                                             |       |   |   |
| **Supplemental Schedule of Non-cash Investing and  Financing Activities:**   |       |                                             |       |   |   |
| Incurred patent expenditures contained in accrued expenses                   |       | $                                                | 57,667     |   | $ | 12,988 |   |

 

See accompanying notes to condensed consolidated financial statements.

 

5

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**LPATH, INC.**

**Notes toCondensed Consolidated Financial Statements**

**March 31,2008**

 

**Note 1 –BASIS FOR PRESENTATION**

 

Theaccompanying unaudited condensed consolidated financial statements have beenprepared in accordance with generally accepted accounting principles forinterim financial information and with the instructions to Form 10-Q and Article 10of Regulation S-X. Accordingly, they do not include all information and notesrequired by accounting principles generally accepted in the United States forcomplete financial statements.

 

Inthe opinion of management, all adjustments considered necessary for a fairpresentation have been included. Operating results for the three month periodended March 31, 2008 are not necessarily indicative of the results thatmay be expected for the year ending December 31, 2008. For furtherinformation, refer to the consolidated financial statements and footnotesthereto included in the company’s annual report on Form 10-KSB for theyear ended December 31, 2007.

 

Thepreparation of the financial statements in conformity with U. S. generallyaccepted accounting principles requires management to make estimates andassumptions that affect the reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities at the date of the financialstatements and the reported amounts of revenues and expenses during thereporting period. Actual results could differ from those estimates.

 

**Note 2 –GOING CONCERN**

 

Theaccompanying condensed consolidated financial statements have been preparedassuming that the company will continue as a going concern. In the three monthsended March 31, 2008, Lpath incurred a net loss and utilized net cash inoperating activities of $5,078,181 and $2,179,399, respectively.  In the year ended December 31, 2007 thecompany incurred a net loss and utilized net cash in operating activities of$15,091,760 and $10,918,841, respectively. These conditions raise substantialdoubt about the company’s ability to continue as a going concern. Management’splans with regard to these matters are discussed below. The accompanyingcondensed consolidated financial statements do not include any adjustments thatmight result from the outcome of this uncertainty.

 

During2008 the company expects to continue to incur cash losses from operations.  While the company had cash totaling$5,402,013 as of March 31, 2008, the cost of its ongoing drug discoveryand development efforts, including general and administrative expenses, areexpected to consume a total of more than $18,000,000 in 2008.  Additional capital will be required tocontinue to fund the company’s research and development projects in 2008 andbeyond.  The company’s plans to bridgesuch cash shortfalls in 2008 include the following:

 

1.              Pursue additional fundraising activities from both existing and potential new investors.

 

2.              Explore cash generatingopportunities from strategic alliances, including licensing portions of ourtechnology or entering into corporate partnerships or collaborations.  In such transactions, Lpath could transfercertain rights to one or more of its drug discovery or development programs, orto specific indications within those programs and receive infusions of cash inthe short-term, and potentially in the long-term as well.

 

3.              Continue to seek additionalresearch grants from the National Institutes of Health or other sources.

 

6

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Thecompany is attempting to raise additional capital to fund operations for 2008and beyond; however, no assurance can be given that the company will be able toobtain additional financing when and as needed in the future.

 

# **Note 3 – SHARE-BASED PAYMENTS**

#  

The company recognized share-based compensationexpense in accordance with SFAS No. 123R, “Share-Based Payment,” asfollows:

 
| ** **                             | ** ** | **Three Months Ended** | ** ** |
|----------------------------------------|------------|----------------------------------|------------|
| ** **                             | ** ** | **March 31,**               | ** ** |
| ** **                             | ** ** | **2008**                         | ** ** | **2007** | ** ** |
|                                   |       |                             |       |   |   |
| Research and development               |       | $                                | 605,432    |   | $ | 438,291 |   |
| General and administrative             |       | 930,724                          |       | 186,418 |   |
| Total stock-based compensation expense |       | $                                | 1,536,156  |   | $ | 624,709 |   |

 

Asof March 31, 2008 there was $3.6 million of total unrecognizedcompensation expense related to unvested stock-based compensation under theplan.  That expense is expected to berecognized over a weighted-average period of 2 years.  Because of its net operating losses, thecompany did not realize any tax benefits for the tax deductions fromshare-based payment arrangements during the periods ended March 31, 2008 and2007.

 

7

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

 

*This discussion and analysis of our financial condition and results ofoperations should be read in conjunction with our financial statements andnotes thereto included in this quarterly report on Form 10-Q (the “QuarterlyReport”) and the audited financial statements and notes thereto included in ourannual report on Form 10-KSB for the year ended December 31, 2007(the “2007 Annual Report”), as filed with the Securities and ExchangeCommission (the “SEC”).  In addition tohistorical information, this discussion and analysis contains forward-lookingstatements that involve risks, uncertainties, and assumptions. Our actualresults may differ materially from those anticipated in these forward-lookingstatements as a result of certain factors including but not limited to thoseidentified in the 2007 Annual Report in the section entitled “Market Risks.”*

 

**Overview**

 

Lpath, Inc.is a biotechnology company focused on the discovery and development oflipidomic-based therapeutics.  Lipidomicsis an emerging field of medical science whereby bioactive signaling lipids aretargeted to treat important human diseases. Our lead product candidate, ASONEP**TM**, in Phase I clinicaltrials, is a monoclonal antibody against sphingosine-1-phosphate (S1P), whichholds promise for the treatment of cancer and other diseases.  A second product candidate, iSONEPTM (anotherformulation of the same S1P-targeted antibody) has demonstrated superior resultsin various models of human ocular disease, including age-related maculardegeneration, retinopathy, and glaucoma. We submitted an investigational newdrug application (“IND”) for iSONEP to the U. S. Food and Drug Administrationin April 2008.  Our third productcandidate, LpathomabTM, is an antibody against lysophosphatidic acid (LPA), akey bioactive lipid that has been long recognized as a valid diseasetarget.  Lpath’s unique ability togenerate novel antibodies against bioactive lipids is based on its ImmuneY2TMtechnology, a series of proprietary processes developed by the company.  We are currently applying the Immune Y2process to other lipid-signaling agents that are validated targets for diseasetreatment, thereby potentially creating a pipeline of monoclonal antibody-baseddrug candidates.

 

Lpath has incurred significant net losses since its inception. As of March 31,2008, Lpath had an accumulated deficit of approximately $33 million.  Lpath expects its operating losses toincrease for the next several years as it pursues the clinical development ofits product candidates.

 

**Resultsof Operations**

 

***Comparison of the Three Months EndedMarch 31, 2008 and March 31, 2007***

 

*Grant and Royalty Revenue.* Grant and royalty revenuefor the three-month period ended March 31, 2008 decreased to $13,000 from$197,000 for the three-month period ended March 31, 2007.  The decrease of $184,000 reflects thecompletion of work on certain grants in 2007. Revenue in the first quarter of 2008 was comprised entirely of royalties.

 

*Research and Development Expenses.*  Research and development expenses increasedfrom $2,179,000 for the first quarter of 2007 to $3,604,000 for the firstquarter of 2008.  The increase of$1,425,000 reflects the progress of pre-clinical research and developmentactivities.  Outside services expenseincreased by approximately $1,047,000 primarily due to the costs ofmanufacturing drug supplies to be used in clinical trials.  The use of consultants and other contractedservices to augment the capabilities of our research and development team alsocontributed to the increase in expenditures for outside services byapproximately $75,000.  

 

8

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Employeecompensation and benefits expense increased by approximately $118,000,commensurate with the increase in research and development staffing.  Stock-based compensation charges increased by$167,000 due to the vesting of restricted stock units tied to the achievementof specified clinical trial milestones during the first quarter of 2008.

 

*General and Administrative Expenses.*  General and administrative expenses increasedfrom $734,000 for the three-month period ended March 31, 2007 to$1,543,000 for the three-month period ended March 31, 2008, an increase of$809,000.  Stock-based compensationcharges increased by $744,000 due to the vesting of restricted stock units tiedto the achievement of specified clinical trial milestones during the firstquarter of 2008. Legal fees decreased by approximately $93,000 becausesubstantial legal expenses were incurred in the first quarter of 2007 inpursuit of corporate collaboration arrangements.  This was partially offset by an aggregateincrease of $76,000 in accounting fees, investor relations, and stockadministration expenses primarily due to the costs of outside servicesnecessary to support a publicly-traded company.   Employee compensation and benefits increasedby approximately $58,000, reflective of the changes in general andadministrative personnel between the two years.

 

*Interest Income*.  Interest income was $57,000 for the quarterended March 31, 2008, compared with $9,000 for the quarter ended March 31,2007.  The $48,000 increase wasprincipally a result of higher levels of invested cash as compared to the prioryear.

 

*Interest Expense*.  Interest expense was $1,000 for the quarterended March 31, 2008, compared with $16,000 for the quarter ended March 31,2007.  The $15,000 decrease was due tointerest and fees incurred for bridge financing in March 2007.

 

**Liquidity and Capital Resources**

 

**Since Lpath’sinception, its operations have been financed primarily through the privateplacement of equity and debt securities. Through March 31, 2008 Lpath had received net proceeds ofapproximately $29,900,000 from the sale of equity securities and from theissuance of convertible promissory notes. As of March 31, 2008, Lpath had cash and cash equivalents totaling$5,402,000.**

** **

Duringthe three-months ended March 31, 2008, we used net cash of $2,179,000 foroperating activities compared to $822,000 for the three-months ended March 31,2007.  The increase in net cash used inoperating activities was primarily driven by increased expenses related to theclinical development activities for our lead drug candidate ASONEPTM andpreclinical development activities for our second drug candidate iSONEPTM. Theseexpenses included manufacturing of drug supplies for clinical trials,IND-enabling studies, increased headcount, outside services, and consultingcosts.  The increased expenses for thesedrug-development activities during the quarter also contributed to thesignificant increase in accounts payable and accrued liabilities as of March 31,2008.  These efforts ultimately led tothe submission of the IND for iSONEP and the initiationof our Phase 1 clinical trial for ASONEPTM in April 2008.

 

During2008 the company expects to continue to incur cash losses from operations.  While the company had cash totaling$5,402,013 as of March 31, 2008, the cost of its ongoing drug discoveryand development efforts, including general and administrative expenses, areexpected to consume more than $18,000,000 in 2008.  Additional capital will be required tocontinue to fund the company’s research and development projects in 2008 andbeyond.  The company’s plans to bridgesuch cash shortfalls in 2008 include the following:

 

1.               Pursueadditional fund raising activities from both existing and potential newinvestors.

 

2.               Explore cashgenerating opportunities from strategic alliances, including licensing portionsof our technology or entering into corporate partnerships orcollaborations.  In such transactions,Lpath could transfer certain rights to one or more of its drug discovery ordevelopment programs, or to specific indications within those programs andreceive infusions of cash in the short-term, and potentially in the long-termas well.

 

9

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3.               Continue toseek additional research grants from the National Institutes of Health or othersources.

 

4.               The company isattempting to raise additional capital to fund operations beyond 2008; however,no assurance can be given that the company will be able to obtain additionalfinancing when and as needed in the future.

 

**Recent Accounting Pronouncements**

 

In December 2007, theFASB ratified the consensus reached by the Emerging Issues Task Force (“EITF”)on EITF Issue 07-1, “Accounting for Collaborative Arrangements” (“EITF07-1”). EITF 07-1 requires collaborators to present the results ofactivities for which they act as the principal on a gross basis and report anypayments received from (made to) other collaborators based on other applicableGAAP or, in the absence of other applicable GAAP, based on analogy toauthoritative accounting literature or a reasonable, rational, and consistentlyapplied accounting policy election. Further, EITF 07-1 clarified that thedetermination of whether transactions within a collaborative arrangement arepart of a vendor-customer (or analogous) relationship subject to EITF 01-9, “Accountingfor Consideration Given by a Vendor to a Customer (Including a Reseller of theVendor’s Products).” EITF 07-1 will be effective for the company beginningon January 1, 2009. The adoption of EITF 07-1 is not expected to havea material effect on the company’s consolidated financial statements.

 

**Item 4.**           CONTROLS ANDPROCEDURES

** **

Wemaintain disclosure controls and procedures that are designed to ensure thatinformation required to be disclosed in our Exchange Act reports is recorded,processed, summarized and reported within the time periods specified in the SEC’srules and forms, and that such information is accumulated and communicatedto our management, including our principal executive officer and principalfinancial officer, as appropriate, to allow timely decisions regarding requireddisclosure.

 

Underthe supervision of our principal executive officer and principal financialofficer, and with the participation of all members of management, we conductedan evaluation of our disclosure controls and procedures, as such term isdefined under Rule 13a- 15(e) promulgated under the ExchangeAct. Based on this evaluation, our principal executive officer and ourprincipal financial officer concluded that our disclosure controls andprocedures were designed and operating effectively as of the end of the periodcovered by this Quarterly Report on Form 10-Q.

 

Ourmanagement, including our principal executive officer and our principalfinancial officer, does not expect that our disclosure controls and proceduresor our internal controls will prevent all errors and all fraud. A controlsystem, no matter how well conceived and operated, can provide only reasonable,not absolute, assurance that the objectives of the control system are met.Further, the design of a control system must reflect the fact that there areresource constraints, and the benefits of controls must be considered relativeto their costs. Because of the inherent limitations in all control systems, noevaluation of controls can provide absolute assurance that all control issuesand instances of fraud, if any, within the company have been detected.

 

10

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**Changes in Internal Control Over Financial Reporting**

 

Therehas been no change in our internal control over financial reporting during thequarter ended March 31, 2008 that has materially affected, or isreasonably likely to materially affect, our internal control over financialreporting.

 

**PART II – OTHER INFORMATON**

 

**Item 1.****                              ****LEGALPROCEEDINGS**

 

None.

 

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

 

None.

 

**Item 3.****                              ****DEFAULTSUPON SENIOR SECURITIES**

 

None.

 

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

 

None.

 

**Item 5.****                              ****OTHERINFORMATION**

 

None.

 

11

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**Item 6.****                                  ****EXHIBITS**

 

Thefollowing exhibit index shows those exhibits filed with this report and thoseincorporated herein by reference:

 
| 2.1*   |   | Agreement and Plan of  Reorganization, by and between Neighborhood Connections, Inc.,  Neighborhood Connections Acquisition Corporation, and Lpath Therapeutics Inc.  dated July 15, 2005.                                                                                                         |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                              |
| 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.                                                                                                                                                                                            |

 

12

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| 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).                                                                                                                                        |
|    |   |                                                                                                                                                                                                                                                                                                                                                                 |
| 4.9     |   | Form of  Warrant issued pursuant to the Securities Purchase Agreement dated  June 13, 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). |
|    |   |                                                                                                                                                                                                                                                                                                                                                                 |
| 10.7*   |   | Lpath, Inc.  Amended and Restated 2005 Equity Incentive Plan (filed as Appendix A to the  company’s Schedule 14-A Proxy Statement filed on August 28, 2007 and  incorporated herein by reference).+                                                                                                                                                   |
|    |   |                                                                                                                                                                                                                                                                                                                                                                 |
| 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.+                                                                                                                                                                                                                                                 |

 

13

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| 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).                                                                                                                                                                                |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.16## |   | License  Agreement dated August 8, 2006 between Lonza Biologics PLC and  Lpath, Inc. (portions of this exhibit have been omitted pursuant to a  request for confidential treatment).                                                                                                                                                                                                                      |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                |
| 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.                                                                                                                                                                                                                                                                                                                                      |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                |
| 32.1    |   | Section 906  Certification by CEO and CFO of Lpath, Inc.                                                                                                                                                                                                                                                                                                                                                  |

 

----

*Filedas an exhibit to the Current Report on Form 8-K filed with the SEC on December 6,2005 and incorporated herein by reference.

 

#Filed as anexhibit to the Annual Report on Form 10-KSB for the year ended December 31,2005 filed with the SEC on March 16, 2006 and incorporated herein byreference.

 

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

 

##Filedas an exhibit to the Quarterly Report on Form 10-QSB for the quarterlyperiod ended September 30, 2007 filed with the SEC on November 13,2007 and incorporated herein by reference.

 

+Managementcontract, or compensation plan or arrangement.

 

14

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##### ***SIGNATURES***

 

Pursuantto the requirements of the Securities Exchange Act of 1934, this report hasbeen signed below by the following persons on behalf of the Registrant and inthe capacities and on the dates indicated.

 

 
|                     | **Lpath, Inc.**           |
|--------------------------|--------------------------------|
|                     | ** **                     |
|                     | ** **                     |
| Date:  May 12, 2008 | /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)           |

 

15

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