UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2014
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: 001-35706
LPATH, INC.
(Exact name of registrant as specified in its charter)
Delaware |
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16-1630142 |
(State or other jurisdiction of |
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(I.R.S. Employer |
4025 Sorrento Valley Blvd., San Diego, CA 92121
(Address of principal executive offices, including zip code)
(858) 678-0800
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of large accelerated filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o |
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Accelerated filer o |
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Non-accelerated filer o |
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Smaller reporting company x |
(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
The number of shares of issuers outstanding common stock as of November 11, 2014 was 19,277,600.
LPATH, INC.
FORM 10-Q
September 30, 2014
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Managements Discussion and Analysis of Financial Condition and Results of Operations |
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ITEM 1A: |
Risk Factors |
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This report includes statements of our expectations, intentions, plans, and beliefs that constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act), and are intended to come within the safe harbor protection provided by those sections. These forward-looking statements are principally, but not solely, contained in the section captioned Managements Discussion and Analysis of Financial Condition and Results of Operations. Forward-looking statements include, without limitation, any statement that may predict, forecast, indicate or imply future results, performance or achievements, and may contain the words estimate, project, intend, forecast, anticipate, plan, planning, expect, believe, will, will likely, should, could, would, may or words or expressions of similar meaning. The matters discussed in these forward-looking statements are subject to risks, uncertainties and other factors that could cause our actual results to differ materially from those projected, anticipated or implied in the forward-looking statements. Many of these risks, uncertainties and other factors are beyond our ability to control, influence, or predict. The most significant of these risks, uncertainties and other factors are described in Item 1ARisk Factors of this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the fiscal year ended December 31, 2013 filed with the Securities and Exchange Commission on March 18, 2014. These forward-looking statements reflect our views and assumptions only as of the date such forward-looking statements are made. Except to the limited extent required by applicable law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
LPATH, INC.
Condensed Consolidated Balance Sheets
(Unaudited)
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September 30, |
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December 31, |
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2014 |
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2013 |
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ASSETS |
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Current Assets: |
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Cash and cash equivalents |
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$ |
20,508,779 |
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$ |
11,851,639 |
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Accounts receivable |
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2,058,985 |
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1,310,037 |
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Prepaid expenses and other current assets |
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1,661,365 |
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292,477 |
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Total current assets |
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24,229,129 |
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13,454,153 |
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Equipment and leasehold improvements, net |
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237,238 |
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211,362 |
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Patents, net |
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2,141,921 |
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1,926,868 |
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Deposits and other assets |
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77,350 |
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77,350 |
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Total assets |
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$ |
26,685,638 |
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$ |
15,669,733 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Current Liabilities: |
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Accounts payable |
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$ |
2,625,222 |
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$ |
2,025,799 |
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Accrued compensation |
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321,083 |
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693,022 |
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Accrued expenses |
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221,364 |
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291,358 |
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Deferred contract revenue |
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187,500 |
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498,000 |
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Deferred rent, short-term portion |
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31,274 |
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24,008 |
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Total current liabilities |
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3,386,443 |
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3,532,187 |
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Deferred rent, long-term portion |
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45,300 |
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69,373 |
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Warrants |
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1,300,000 |
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2,100,000 |
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Total liabilities |
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4,731,743 |
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5,701,560 |
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Stockholders Equity: |
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Common stock - $.001 par value; 100,000,000 shares authorized; 19,224,708 and 13,387,914 issued and outstanding at September 30, 2014 and December 31, 2013, respectively |
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19,225 |
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13,388 |
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Additional paid-in capital |
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81,608,382 |
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59,432,943 |
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Accumulated deficit |
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(59,673,712 |
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(49,478,158 |
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Total stockholders equity |
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21,953,895 |
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9,968,173 |
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Total liabilities and stockholders equity |
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$ |
26,685,638 |
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$ |
15,669,733 |
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See accompanying notes to the condensed consolidated financial statements.
LPATH, INC.
Condensed Consolidated Statements of Operations
(Unaudited)
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Nine Months Ended September 30, |
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Three Months Ended September 30, |
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2014 |
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2013 |
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2014 |
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2013 |
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Revenues: |
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Grant and royalty revenue |
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$ |
448,380 |
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$ |
1,282,920 |
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$ |
132,297 |
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$ |
705,625 |
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Research and development revenue under collaborative agreements |
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3,713,553 |
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4,396,132 |
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978,167 |
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1,845,021 |
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Total revenues |
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4,161,933 |
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5,679,052 |
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1,110,464 |
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2,550,646 |
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Expenses: |
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Research and development |
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11,868,453 |
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7,777,218 |
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3,630,481 |
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3,353,057 |
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General and administrative |
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3,289,052 |
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3,089,402 |
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1,049,087 |
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976,660 |
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Total expenses |
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15,157,505 |
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10,866,620 |
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4,679,568 |
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4,329,717 |
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Loss from operations |
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(10,995,572 |
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(5,187,568 |
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(3,569,104 |
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(1,779,071 |
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Other income (expense), net |
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18 |
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26,602 |
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(420 |
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Change in fair value of warrants |
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800,000 |
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400,000 |
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(750,000 |
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Total other income (expense), net |
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800,018 |
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26,602 |
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400,000 |
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(750,420 |
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Net loss |
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$ |
(10,195,554 |
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$ |
(5,160,966 |
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(3,169,104 |
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(2,529,491 |
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Basic and diluted net loss per share |
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(0.66 |
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(0.38 |
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(0.20 |
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(0.19 |
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Weighted-average shares outstanding used in the calculation |
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15,516,950 |
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13,416,748 |
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16,155,752 |
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13,428,623 |
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See accompanying notes to the condensed consolidated financial statements.
LPATH, INC.
Condensed Consolidated Statements of Cash Flows
Nine Months Ended September 30,
(Unaudited)
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2014 |
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2013 |
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Cash flows from operating activities: |
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Net loss |
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(10,195,554 |
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(5,160,966 |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Stock-based compensation expense |
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999,895 |
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630,659 |
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Change in fair value of warrants |
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(800,000 |
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Depreciation and amortization |
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166,983 |
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161,461 |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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(748,948 |
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(388,379 |
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Prepaid expenses and other current assets |
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(1,368,888 |
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46,907 |
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Accounts payable and accrued expenses |
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131,573 |
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(271,806 |
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Deferred contract revenue |
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(310,500 |
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(4,336,036 |
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Other |
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(16,807 |
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(36,774 |
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Net cash used in operating activities |
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(12,142,246 |
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(9,354,934 |
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Cash flows from investing activities: |
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Equipment and leasehold improvement expenditures |
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(99,007 |
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(37,734 |
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Patent expenditures |
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(308,905 |
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(272,196 |
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Net cash used in investing activities |
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(407,912 |
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(309,930 |
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Cash flows from financing activities: |
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Proceeds from sale of common stock and warrants, net |
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21,290,025 |
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Proceeds from options and warrants exercised |
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250 |
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3,289 |
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Payment for restricted stock tax liability on net settlement |
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(82,977 |
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(44,833 |
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Net cash provided by (used in) financing activities |
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21,207,298 |
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(41,544 |
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Net increase (decrease) in cash and cash equivalents |
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8,657,140 |
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(9,706,408 |
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Cash and cash equivalents at beginning of period |
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11,851,639 |
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24,621,083 |
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Cash and cash equivalents at end of period |
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$ |
20,508,779 |
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$ |
14,914,675 |
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Supplemental disclosure of cash flow information: |
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Cash paid during the year for: |
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Income taxes |
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$ |
1,600 |
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$ |
1,600 |
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Supplemental disclosure of non-cash investing and financing activities: |
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Change in fair value of warrant liability |
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$ |
(800,000 |
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$ |
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See accompanying notes to the condensed consolidated financial statements.
LPATH, INC.
Notes to Condensed Consolidated Financial Statements
September 30, 2014
Note 1 BASIS FOR PRESENTATION
The unaudited condensed consolidated balance sheet of Lpath, Inc. (Lpath or the company) as of December 31, 2013 was derived from our audited financial statements, but does not contain all disclosures required by accounting principles generally accepted in the United States of America, and certain information and disclosures normally included have been condensed or omitted pursuant to the rules and regulations of the SEC.
In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Except as otherwise disclosed, all such adjustments are of a normal recurring nature. Operating results for the three-month and nine-month periods ended September 30, 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, 2014 or for any future financial period. For further information, refer to the consolidated financial statements and notes included in the companys annual report on Form 10-K for the year ended December 31, 2013.
The preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Recent Accounting Pronouncements
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, a converged standard on revenue recognition. The new pronouncement requires revenue recognition to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance also specifies the accounting for some costs to obtain or fulfil a contract with a customer, as well as enhanced disclosure requirements. ASU 2014-9 is effective for annual reporting periods beginning after December 15, 2016. Early adoption is not permitted. The adoption of ASU 2014-9 is not expected to have a material effect on our consolidated financial statements.
Note 2 RESEARCH AND DEVELOPMENT COLLABORATIVE AGREEMENTS
In 2010, Lpath entered into an agreement providing Pfizer Inc. (Pfizer) with an exclusive option for a worldwide license to develop and commercialize iSONEP (the Pfizer Agreement), Lpaths lead monoclonal antibody product candidate that is being evaluated for the treatment of wet age-related macular degeneration (wet AMD) and other ocular disorders.
Following completion of the clinical trial, Pfizer has the right to exercise its option for worldwide rights to iSONEP for an undisclosed option fee and, if Pfizer exercises its option, Lpath will be eligible to receive development, regulatory, and commercial milestone payments that could total up to $497.5 million. In addition, Lpath will be entitled to receive tiered double-digit royalties based on sales of iSONEP. As part of the agreement, Lpath has granted to Pfizer a time-limited right of first refusal for ASONEP, Lpaths product candidate that is being evaluated for the treatment of cancer.
The company recognized revenue under research and development collaborative agreements as follows:
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Nine Months Ended |
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Three Months Ended |
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September 30, |
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September 30, |
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2014 |
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2013 |
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2014 |
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2013 |
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Cost reimbursements |
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$ |
3,403,053 |
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$ |
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$ |
915,667 |
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$ |
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Amortization of license and development fees |
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310,500 |
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4,336,036 |
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62,500 |
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1,845,021 |
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Other |
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60,096 |
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$ |
3,713,553 |
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$ |
4,396,132 |
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$ |
978,167 |
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$ |
1,845,021 |
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Note 3 SHARE-BASED PAYMENTS
The company recognized share-based compensation expense as follows:
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Nine Months Ended |
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Three Months Ended |
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September 30, |
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September 30, |
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2014 |
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2013 |
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2014 |
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2013 |
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Research and development |
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$ |
352,994 |
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$ |
227,260 |
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$ |
120,081 |
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$ |
104,411 |
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General and administrative |
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646,901 |
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403,399 |
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175,588 |
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123,489 |
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Total share-based compensation expense |
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$ |
999,895 |
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$ |
630,659 |
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$ |
295,669 |
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$ |
227,900 |
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As of September 30, 2014, there was a total of $2.1 million in unrecognized compensation expense related to unvested stock-based compensation issued under the Lpath, Inc. Amended and Restated 2005 Equity Incentive Plan. That expense is expected to be recognized over a weighted-average period of 2.4 years. Because of its net operating loss carryforwards, the company did not realize any tax benefits for the tax deductions from share-based payment arrangements during the three-month periods ended September 30, 2014 and 2013.
Note 4 FAIR VALUE MEASUREMENTS
Lpath has issued warrants, of which some are classified as equity and some as liabilities. The warrants issued in March 2012 (and expiring in March 2017) provide that in the event of a fundamental transaction, as defined by the warrant agreement, the company may, under certain circumstances, be obligated to settle the March 2012 warrants for cash equal to the value of the warrants determined in accordance with the warrant agreement. The companys recurring fair value measurements at September 30, 2014 were as follows:
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Fair Value as of |
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Significant |
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Liabilities: |
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Warrants expiring March 2017 |
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$ |
1,300,000 |
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$ |
1,300,000 |
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The company determined the fair value of the warrant liability for certain warrants, as applicable, using a Black-Scholes model. The model considered amounts and timing of future possible equity and warrant issuances and volatility of the companys stock price equal to 100%, as specified in the underlying warrants.
Recurring Level 3 Activity, Reconciliation, and Basis for Valuation
The table below provides a reconciliation of the beginning and ending balances for the liabilities measured at fair value using significant unobservable inputs (Level 3).
Fair value measurements using significant unobservable inputs (Level 3):
Liabilities: |
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Warrant liability as of January 1, 2014 |
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$ |
2,100,000 |
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Change in fair value of warrants |
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(800,000 |
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Warrant liability as of September 30, 2014 |
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$ |
1,300,000 |
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The terms of all outstanding warrants permit the company, upon exercise of the warrants, to settle the contract by the delivery of unregistered shares. As of September 30, 2014, there were 4,587,359 warrants outstanding with a weighted-average exercise price of $4.21 per share expiring through September 2019.
Note 5 COMMON STOCK
On March 18, 2014, Lpath entered into an at-the-market issuance sales agreement with MLV (the MLV Agreement). Pursuant to the MLV Agreement, the company may from time to time, at the companys option, issue and, through MLV, sell shares of its common stock having an aggregate offering price of up to $23 million (subject to limitations set by the SEC if the aggregate market-value of the companys common stock held by non-affiliates remains below $75 million, which limitations reduce the amount that we can offer at this time to approximately $4.9 million and subject to certain time based limitations pursuant to the securities purchase agreement entered into in connection with the direct offering discussed below) from time to time, at the companys option, through MLV. Sales of common stock through MLV, if any, will be made by any method that is deemed an at-the-market offering as defined in Rule 415 promulgated under the Securities Act of 1933, as amended, including by means of ordinary brokers transactions at market prices, in block transactions or as otherwise agreed by the Lpath and MLV. Subject to the terms and conditions of the MLV Agreement, MLV will use commercially reasonable efforts to sell the common stock based upon the companys instructions (including any price, time or size limits or other customary parameters or conditions the Company may impose). Lpath is not obligated to make any sales of its common stock under the MLV Agreement. Any shares sold will be sold pursuant to the companys effective shelf registration statement on Form S-3. The company will pay MLV a commission of up to 3.0% of the gross proceeds. The MLV Agreement will terminate upon the earlier of the sale of all common stock subject to the MLV Agreement or termination of the MLV Agreement by the company or MLV. During the quarter ended September 30, 2014, the company sold 27,505 shares at sales prices ranging from $3.50 to $4.08 per share, resulting in $99,000 in net proceeds.
In September 2014, Lpath sold 3,605,042 registered shares of common stock and warrants to purchase 3,605,042 unregistered shares of common stock in a direct offering at a purchase price of $3.475 per share-and-warrant-share combination. The warrants have an exercise price of $3.36 per underlying share, are immediately exercisable, and terminate on the five-year anniversary of issuance. Each warrant may be exercised using a cashless exercise procedure if the resale of the underlying shares are not covered by an effective registration statement. Net proceeds of this offering totaled $11,500,000 after deducting placement agent fees and other expenses of the offering. Maxim Group LLC (Maxim) acted as the exclusive placement agent for the offering. Maxim received a placement agent fee of $751,651 and an unregistered warrant to purchase 54,076 unregistered shares of common stock (the Maxim Warrant) as well as the reimbursement of fees and expenses up to $60,000. The Maxim Warrant has an exercise price of $3.36 per share, is immediately exercisable, and will terminate on August 23, 2018.
As part of the transaction, Lpath has agreed not to issue any shares of Common Stock or securities convertible into shares of Common Stock until March 19, 2015, except for certain exempt issuances. Lpath also agreed not to offer any variable-rate securities until October 23, 2015, provided, however, that the Company can recommence sales under its existing at-the-market vehicle after March 19, 2015.
Note 6 EARNINGS PER SHARE
Anti-dilutive common stock equivalents were excluded from the calculation of diluted loss per share as follows:
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Nine and Three Months Ended |
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September 30, |
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2014 |
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2013 |
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Stock options |
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802,829 |
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363,269 |
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Warrants |
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4,587,359 |
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931,099 |
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Restricted stock units |
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636,209 |
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712,038 |
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Total |
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6,026,397 |
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2,006,406 |
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Note 7 SUBSEQUENT EVENT
On November 3, 2014, the Board of Directors (the Board) of the Company accepted the resignation of Scott Pancoast as the Companys President and Chief Executive Officer and as a member of the Board. Mr. Pancoasts resignation did not result from any disagreement with the Company on any matter relating to the companys operations, policies, or practices. In connection with Mr. Pancoasts resignation, on November 3, 2014 (the Separation Date), the Company and Mr. Pancoast entered into a separation agreement and general release (the Separation Agreement). Pursuant to the terms of the Separation Agreement, Mr. Pancoast will receive (i) $300,000, less applicable payroll deductions and required withholdings, payable in eight monthly installments of $37,500, and (ii) a final payment of $3,750, payable on the nine-month anniversary of the Separation Date. In addition, the Company will pay or reimburse Mr. Pancoast for the COBRA premiums required to insure Mr. Pancoast and his legal dependents for a period of 24 months following the Separation Date. Additionally, (i) the portion of Mr. Pancoasts stock options that would have vested by May 3, 2016 will immediately vest and Mr. Pancoast will have until March 10, 2016 to exercise such options and (ii) the portion of Mr. Pancoasts restricted stock units that would have vested by November 8, 2015 will immediately vest. Additionally, as part of the Separation Agreement, Mr. Pancoast agreed to a 12-month standstill and customary general releases. The description of the Separation Agreement set forth above does not purport to be complete and is qualified in its entirety by reference to the Separation Agreement attached as Exhibit 10.1 to the Companys Current Report on Form 8-K, filed with the SEC on November 4, 2014 and incorporated herein by reference.
On November 3, 2014, the Board also appointed Michael Lack, as the Companys Interim Chief Executive Officer and Principal Executive Officer. Mr. Lack will lead the Company while the Board conducts a search for a new Chief Executive Officer. The Company entered into a consulting agreement (the Consulting Agreement) with Mr. Lack in connection with his appointment as Interim Chief Executive Officer. Under the Consulting Agreement, Mr. Lack will receive a monthly salary of $37,500, with a guarantee of such salary level for a period of four months, subject to certain exceptions. In addition, the Board granted Mr. Lack restricted stock units for 15,000 shares of Common Stock that will vest in full, subject to certain exceptions, on the earlier of (i) the one-year anniversary of the date of his appointment or (ii) the date on which he no longer provides services to the Company.
Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion and analysis of the financial condition and results of operations of Lpath, Inc. (Lpath, the company, we, us, or our) should be read in conjunction with our condensed consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q and the audited financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2013, as filed with the Securities and Exchange Commission (the SEC). In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors including, but not limited to, those identified in Item 1ARisk Factors of this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the fiscal year ended December 31, 2013.
Overview
We are a biotechnology company focused on the discovery and development of lipidomic-based therapeutic antibodies, an emerging field of medical science that targets bioactive signaling lipids to treat a wide range of human diseases. We have two product candidates that are currently in clinical development, and one in pre-clinical evaluation.
iSONEP is the ocular formulation of sonepcizumab, a humanized monoclonal antibody (mAb) against sphingosine-1-phosphate (S1P). Sphingomab is the original mouse version of this monoclonal antibody. iSONEP is administered by intravitreal injection, and has demonstrated multiple mechanisms of action in ocular models of disease, including anti-angiogenesis, anti-inflammatory, anti-fibrotic and anti-vascular permeability. This combination of mechanisms would suggest: (i) iSONEP might have a comparative advantage over currently marketed products for wet age-related macular degeneration (wet AMD) and (ii) iSONEP might demonstrate clinical efficacy in a broad range of retinal diseases where there is currently a significant unmet medical need, including diabetic retinopathy, dry AMD, and glaucoma-related surgery.
We entered into an agreement with Pfizer Inc. in December 2010, and amended it in 2012 (collectively, the Pfizer Agreement), that provides Pfizer with an exclusive option for a worldwide license to develop and commercialize iSONEP. Under the Pfizer Agreement, we are conducting a Phase 2 study in wet AMD patients (the Nexus trial). We began enrolling patients in the Nexus trial in October 2011. We anticipate that we will enroll the last Nexus trial patient during the second half of 2014. The actual time required to complete our clinical trials will depend upon a number of factors outside of our direct control, including those discussed in Risk Factors We may have delays in completing our clinical trials, and we may not complete them at all in our Form 10-K for the fiscal year ended December 31, 2013.
In October 2013, we announced that we had received notice from Pfizer that Pfizer would be seeking to divest certain ophthalmology research and development assets, including Pfizers rights and obligations under the Pfizer Agreement. We presented offers to Pfizer to reacquire those rights. However, in December 2013, Pfizer informed us that our offers were not competitive with other offers. Acquisition of Pfizers rights and obligations under the terms of the Pfizer Agreement by a third party would not affect the terms of the Pfizer Agreement, as the existing rights and obligations currently held by Pfizer will be assumed by the third party or remain with Pfizer based on the terms of the agreement between Pfizer and the third party. Since December 2013, Pfizer has maintained its position that it is continuing a process to divest certain of its ophthalmology research and development assets, including its rights and obligations under the Pfizer Agreement. Nevertheless, we believe that Pfizer may now be waiting until they receive the results of the Nexus trial before completing or stopping its process, given that we are closer to the completion of the Nexus trial.
Following completion of the Nexus study, Pfizer (or a third party who may acquire Pfizers rights) has the right to exercise its option for worldwide rights to iSONEP for an undisclosed option fee and, if Pfizer (or a third party who may acquire Pfizers rights) exercises its option, we will be eligible to receive development, regulatory, and commercial milestone payments that could total up to $497.5 million. In addition, we will be entitled to receive tiered double-digit royalties based on sales of iSONEP.
As of September 30, 2014, Pfizer had paid the Company $22.6 million pursuant to the terms of the Pfizer Agreement. The amendment to the Pfizer Agreement did not modify the Companys obligation to fund $6.0 million of Nexus trial expenses, which it completed during 2013. The terms of the Pfizer Agreement specify that, since the Company has fulfilled its funding obligation, Pfizer (or any third party who acquires Pfizers rights) will fund the remaining expenses necessary to complete the Nexus trial. Pfizer has continued to meet its funding obligations under the Pfizer Agreement.
ASONEP is the systemic formulation of sonepcizumab. We are collaborating with investigators at several medical research institutions on a Phase 2 clinical trial testing ASONEP as a treatment for renal cell carcinoma. This study is ongoing and we expect to complete it in 2015.
As part of the Pfizer Agreement, Lpath has granted to Pfizer (or a third party who may acquire Pfizers rights) a time-limited right of first refusal for ASONEP, which period ends on the latest date that Pfizer, or a third party who may acquire Pfizers rights, may exercise its option to continue development of iSONEP.
Lpathomab, our pre-clinical product candidate, is a mAb against lysophosphatidic acid (LPA), a key bioactive lipid that has long been recognized as a significant promoter of cancer-cell growth and metastasis in a broad range of tumor types. Published research has also demonstrated that LPA is a significant contributor to neuropathic pain and traumatic brain injury, and plays a key role in pulmonary fibrosis. We have selected the clinical candidate mAb from among three humanized mAbs that inhibit LPA. These mAbs were tested against each other in various models of human disease to determine which mAb would be most likely to succeed in clinical trials. We are now engaged in manufacturing the cGMP clinical drug product and expect to complete all Investigational New Drug (IND) enabling studies by the end of 2014. We plan to file the IND in early 2015, and begin testing Lpathomab in clinical trials thereafter.
Lpath has incurred significant net losses since its inception. As of September 30, 2014, we had an accumulated deficit of approximately $59.7 million. We expect that the cost of our ongoing research and development activities, including general and administrative expenses, will approximate $23 million from October 1, 2014 through the end of 2015. This estimate includes the expenses to conduct the Nexus clinical trial for iSONEP, as well as the Phase 2 clinical trial for ASONEP. In addition, this estimate includes the expenses to complete the manufacturing of the Lpathomab clinical drug product and the IND-enabling studies for Lpathomab. As of September 30, 2014, we had cash and cash equivalents totaling $20.5 million. Additional near-term sources of cash include our accounts receivable of $2.1 million, as well as additional funding pursuant to the terms of the Pfizer Agreement to support our Nexus clinical trial. We believe these funds should be sufficient to fund our planned drug discovery and development activities at least through the first quarter of 2016. However, the continuation of our current clinical development activities beyond the first quarter of 2016 is dependent upon our ability to obtain additional funding. In the event that we are unable to obtain additional funding, certain planned research and development activities will be deferred or curtailed.
We expect our expenditures to increase as we continue the advancement of our product development programs. The lengthy process of completing clinical trials and seeking regulatory approval for one product candidate typically requires expenditures in excess of approximately $100 million, according to industry data. Any failure by us or delay in completing clinical trials, or in obtaining regulatory approvals, would cause our research and development expenses to increase and, in turn, have a material adverse effect on our results of operations.
Results of Operations
Grant and Royalty Revenue. Grant and royalty revenues for the quarter ended September 30, 2014 were $132,000 compared to $706,000 for the quarter ended September 30, 2013, a decrease of $574,000. For the first three quarters of 2014, grant and royalty revenues were $448,000 compared to $1,283,000 for the first three quarters of 2013, a decrease of $835,000. The decreases in 2014 were due to the completion of one of our NIH grants in August 2013.
Research and Development Revenue Under Collaborative Agreement. As described in Note 2 to the condensed consolidated financial statements, in December 2010 we entered into an agreement with Pfizer that provides financial support for our iSONEP and ASONEP development programs. We recognized revenues under research and development collaborative agreements as follows:
|
|
Nine Months Ended |
|
Three Months Ended |
| ||||||||
|
|
September 30, |
|
September 30, |
| ||||||||
|
|
2014 |
|
2013 |
|
2014 |
|
2013 |
| ||||
Cost reimbursements |
|
$ |
3,403,053 |
|
$ |
|
|
$ |
915,667 |
|
$ |
|
|
Amortization of license and development fees |
|
310,500 |
|
4,336,036 |
|
62,500 |
|
1,845,021 |
| ||||
Other |
|
|
|
60,096 |
|
|
|
|
| ||||
|
|
$ |
3,713,553 |
|
$ |
4,396,132 |
|
$ |
978,167 |
|
$ |
1,845,021 |
|
During the fourth quarter of 2013, we reached the point in the Pfizer Agreement where Pfizer became responsible for funding the iSONEP development costs pursuant to the terms of the Pfizer Agreement. During 2013, Lpath was responsible for funding iSONEP development costs, resulting in increased amortization of development fees in 2013 compared to 2014.
Research and Development Expenses. Research and development expenses increased to $11,868,000 for the first three quarters of 2014 from $7,777,000 for the first three quarters of 2013, an increase of $4,091,000. For the third quarter of 2014, research and development expenses increased to $3,630,000 from $3,353,000 for the third quarter of 2013, an increase of $277,000. The increases in 2014 were driven by the increased costs of our ongoing clinical trials, especially the expenses related to manufacturing process development and IND-enabling studies for the Lpathomab program, as well as the addition of new employees in the research and development functions.
General and Administrative Expenses. General and administrative expenses were $3,289,000 for the nine-month period ended September 30, 2014 compared to $3,089,000 for the same period in 2013, an increase of $200,000. General and administrative expenses were $1,049,000 for the quarter ended September 30, 2014 compared to $977,000 for the same period in 2013, an increase of $72,000. These increases are principally attributable to increased stock compensation expense incurred in connection with stock options issued to employees in 2014.
Change in Fair Value of Warrants. Various factors are considered in the pricing model we use to value outstanding warrants, including the companys current stock price, the remaining life of the warrants, and the risk-free interest rate. Future changes in these factors will have a significant impact on the computed fair value of the warrant liability. The most significant factor in the valuation model is the companys stock price. Lpaths stock is thinly traded and relatively small transactions can impact the companys quoted stock price significantly. As such, we expect future changes in the fair value of the warrants to continue to vary significantly from quarter to quarter. Management cautions that the net change in fair value of the warrants reflected in the statement of operations, and all similar changes in the future, should not be given undue importance when considering the financial condition of Lpath and the results of its operations. Management does not believe that these adjustments, which are required by current generally accepted accounting principles, reflect economic activities or financial obligations undertaken by the company.
Liquidity and Capital Resources
As they are currently planned, we estimate that our ongoing drug discovery and development efforts, including general and administrative expenses, will require Lpath to expend approximately $23 million from October 1, 2014, through the end of 2015. In September 2014, we closed a direct offering in which we sold 3,605,042 registered shares of common stock and warrants to purchase 3,605,042 unregistered shares of common stock at a purchase price of $3.475 per share-and-warrant-share combination. The gross proceeds were $12.5 million before deducting placement fees and other estimated offering expenses of approximately $950,000. The warrants have an exercise price of $3.36 per underlying share, are immediately exercisable, and terminate on the five-year anniversary of issuance.
As of September 30, 2014, we had cash and cash equivalents totaling $20.5 million. Additional near-term sources of cash include our accounts receivable of $2.1 million, and additional funding from Pfizer under the terms of the Pfizer Agreement to support our Nexus clinical trial. We believe these funds should be sufficient to fund our planned drug discovery and development activities at least through the first quarter of 2016.
Based on our current plans and available resources, we will be required to secure additional capital to continue to fund our planned drug discovery and development projects beyond the first quarter of 2016. In addition, our expenses may exceed our current plans and expectations.
If Pfizer (or a third party who may acquire Pfizers rights) elects to exercise its option to continue the clinical development of iSONEP beyond the current Nexus clinical trial, the terms of the Pfizer Agreement provide that we will receive additional funding that we may use to support our operations beyond the first quarter of 2016. However, we cannot assure you that we will be successful in maintaining our commercial relationship with Pfizer (or a third party who may acquire Pfizers rights), that Pfizer (or that a third party who may acquire Pfizers rights) will exercise its option to develop and commercialize iSONEP, or that iSONEP will achieve the developmental, regulatory, and commercial milestones necessary to entitle us to future payments under the Pfizer Agreement on a timely basis, or at all.
In addition, in March 2014 we entered into an at-the-market issuance sales agreement with MLV & Co. LLC and filed a prospectus supplement under which we may sell a total of up to $23,000,000 in shares of our common stock (subject to limitations set by the SEC if the aggregate market-value of our common stock held by non-affiliates remains below $75 million, which reduces the amount that we can offer to approximately $4.9 million as of the closing of our direct offering discussed above, and subject to certain time based limitations pursuant to the securities purchase agreement entered into in connection with the direct offering). As part of the transaction, Lpath has agreed not to issue any shares of Common Stock or securities convertible into shares of Common Stock until March 19, 2015, except for certain exempt issuances. Lpath also agreed not to offer any variable-rate securities until October 23, 2015, provided, however, that the Company can recommence sales under its existing at-the-market vehicle after March 19, 2015.
We expect that we will be required to issue additional equity or debt securities or enter into other commercial arrangements, including relationships with corporate and other partners, to secure the additional financial resources to support our development efforts and future operations. We may not be successful in obtaining funding from new or existing collaboration or license agreements, or in receiving milestone or royalty payments under those agreements. In addition, we cannot be sure that additional financing will be available when needed or that, if available, financing will be obtained on terms favorable to us or to our stockholders. Having insufficient funds may require us to delay, scale back, or eliminate some or all of our development programs, relinquish some or even all rights to product candidates at an earlier stage of development, or renegotiate less favorable terms than we would otherwise choose. For example, in the future, we could determine to delay or scale back some of our planned drug discovery and development projects to extend our runway beyond the first quarter of 2016. Nevertheless, the failure to obtain adequate financing could eventually adversely affect our ability to operate as a going concern. If we raise additional funds from the issuance of equity securities, substantial dilution to our existing stockholders would likely result. If we raise additional funds by incurring debt financing, the terms of the debt may involve significant cash payment obligations as well as covenants and specific financial ratios that may restrict our ability to operate our business.
Critical Accounting Policies, Estimates, and Judgments
Our condensed consolidated financial statements are prepared in accordance with accounting principles that are generally accepted in the United States. The preparation of these condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. We continually evaluate our estimates and judgments, the most critical of which are those related to revenue recognition, valuation of long-lived assets and warrant liability, share-based compensation, the timing of the achievement of drug development milestones, and income taxes. We base our estimates and judgments on historical experience and other factors that we believe to be reasonable under the circumstances. Materially different results can occur as circumstances change and additional information becomes known. Besides the estimates identified above that are considered critical, we make many other accounting estimates in preparing our condensed consolidated financial statements and related disclosures. All estimates, whether or not deemed critical, affect reported amounts of assets, liabilities, revenues and expenses, as well as disclosures of contingent assets and liabilities. These estimates and judgments are also based on historical experience and other factors that are believed to be reasonable under the circumstances. Materially different results can occur as circumstances change and additional information becomes known, even for estimates and judgments that are not deemed critical.
For further information, refer to the consolidated financial statements and notes thereto included in the companys annual report on Form 10-K for the year ended December 31, 2013.
Recent Accounting Pronouncements
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, a converged standard on revenue recognition. The new pronouncement requires revenue recognition to depict the transfer of promised goods or services to customer in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance also specifies the accounting for some costs to obtain or fulfill a contract with a customer, as well as enhanced disclosure requirements. ASU 2014-9 is effective for annual reporting periods beginning after December 15, 2016. Early adoption is not permitted. The adoption of ASU 2014-9 is not expected to have a material effect on our consolidated financial statements.
Resignation of Scott Pancoast and Appointment of Interim Chief Executive Officer
On November 3, 2014, the Board of Directors (the Board) of the company accepted the resignation of Scott Pancoast as the companys President and Chief Executive Officer and as a member of the Board. Mr. Pancoasts resignation did not result from any disagreement with the company on any matter relating to the companys operations, policies, or practices. In connection with Mr. Pancoasts resignation, on November 3, 2014 (the Separation Date), the company and Mr. Pancoast entered into a separation agreement and general release (the Separation Agreement). Pursuant to the terms of the Separation Agreement, Mr. Pancoast will receive (i) $300,000, less applicable payroll deductions and required withholdings, payable in eight monthly installments of $37,500, and (ii) a final payment of $3,750, payable on the nine-month anniversary of the Separation Date. In addition, the company will pay or reimburse Mr. Pancoast for the COBRA premiums required to insure Mr. Pancoast and his legal dependents for a period of 24 months following the Separation Date. Additionally, (i) the portion of Mr. Pancoasts stock options that would have vested by May 3, 2016 will immediately vest and Mr. Pancoast will have until March 10, 2016 to exercise such options and (ii) the portion of Mr. Pancoasts restricted stock units that would have vested by November 8, 2015 will immediately vest. Additionally, as part of the Separation Agreement, Mr. Pancoast agreed to a 12-month standstill and customary general releases.
On November 3, 2014, the Board also appointed Michael Lack, as the companys Interim Chief Executive Officer and Principal Executive Officer. Mr. Lack will lead the company while the Board conducts a search for a new Chief Executive Officer. The company entered into a consulting agreement (the Consulting Agreement) with Mr. Lack in connection with his appointment as Interim Chief Executive Officer. Under the Consulting Agreement, Mr. Lack will receive a monthly salary of $37,500, with a guarantee of such salary level for a period of four months, subject to certain exceptions. In addition, the Board granted Mr. Lack restricted stock units for 15,000 shares of Common Stock that will vest in full, subject to certain exceptions, on the earlier of (i) the one-year anniversary of the date of his appointment or (ii) the date on which he no longer provides services to the company.
Item 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed pursuant to the Securities Exchange Act of 1934, as amended (the Exchange Act) is recorded, processed, summarized, and reported within the time periods specified in the SECs rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial and accounting officer, as appropriate, to allow timely decisions regarding required disclosure.
Under the supervision of our Interim Chief Executive Officer and our Chief Financial Officer, and with the participation of all members of management, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Exchange Act. Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report on Form 10-Q.
Our management, including our Interim Chief Executive Officer and our Chief Financial Officer, cannot be certain that our disclosure controls and procedures or our internal controls will prevent all instances of errors and fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected.
Changes in Internal Controls over Financial Reporting
In connection with the evaluation required by Exchange Act Rule 13a-15(d), our management, including our Interim Chief Executive Officer and our Chief Financial Officer, concluded that no changes in our internal control over financial reporting occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 1A. RISK FACTORS
In evaluating us and our common stock, we urge you to carefully consider the risks and other information in this Quarterly Report on Form 10-Q, as well as the risk factors disclosed in Item 1A. to Part I of our Annual Report on Form 10-K for the fiscal year ended December 31, 2013, which we filed with the SEC on March 18, 2014 (the Form 10-K) and Item 1A. to Part II of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2014, which we filed with the SEC on August 8, 2014 (the June 30 Form 10-Q). The risks and uncertainties described in Item 1A Risk Factors of our Form 10-K and Item 1A Risk Factors of our June 30 Form 10-Q have not materially changed. Any of the risks discussed in this Quarterly Report on Form 10-Q or any of the risks disclosed in Item 1A. to Part I of our Form 10-K and Item 1A. to Part II of our June 30 Form 10-Q, as well as additional risks and uncertainties not currently known to us or that we currently deem immaterial, could materially and adversely affect our results of operations, financial condition or prospects.
We are not currently a party in any material legal proceedings.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. MINE SAFETY DISCLOSURE
Not applicable
None.
(a) Exhibits:
The following exhibit index shows those exhibits filed with this report and those incorporated herein by reference:
2.1 |
|
Agreement and Plan of Reorganization, by and between Neighborhood Connections, Inc., Neighborhood Connections Acquisition Corporation, and Lpath Therapeutics Inc. dated July 15, 2005 (filed as an exhibit to the Current Report on Form 8-K filed with the SEC on December 6, 2005 and incorporated herein by reference). |
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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). |
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|
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2.3 |
|
Plan of Conversion, dated July 17, 2014, changing the Companys state of incorporation from the State of Nevada to the State of Delaware (filed as Exhibit 2.1 to the Current Report on Form 8-K filed on July 21, 2014 and incorporated herein by reference). |
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3.1 |
|
Certificate of Incorporation (filed as Exhibit 3.3 to the Current Report on Form 8-K filed on July 21, 2014 and incorporated herein by reference). |
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3.2 |
|
Bylaws (filed as Exhibit 3.4 to the Current Report on Form 8-K filed on July 21, 2014 and incorporated herein by reference). |
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4.1 |
|
Form of Common Stock Purchase Warrant for Investors in the Units. (filed as an exhibit to Form 8-K filed with the SEC on March 6, 2012 and incorporated herein by reference.) |
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4.2 |
|
Form of Common Stock Purchase Warrant for Placement Agents of the Units. (filed as an exhibit to the Current Report on Form 8-K filed with the SEC on March 6, 2012 and incorporated herein by reference.) |
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4.3 |
|
Form of Warrant for Griffin Securities, Inc. (filed as an exhibit to the Current Report on Form 8-K filed with the SEC on March 6, 2012 and incorporated herein by reference.) |
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4.4 |
|
Form of Common Stock Certificate (filed as Exhibit 4.1 to the Current Report on Form 8-K filed on July 21, 2014 and incorporated herein by reference). |
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4.5 |
|
Form of Warrant to be issued to the investors (filed as Exhibit 4.1 to the Current Report on Form 8-K filed with the SEC on September 22, 2014 and incorporated herein by reference). |
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4.6 |
|
Form of Warrant to be issued to Maxim Group LLC (filed as Exhibit 4.2 to the Current Report on Form 8-K filed with the SEC on September 22, 2014 and incorporated herein by reference). |
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4.7 |
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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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4.8 |
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Registration Rights Agreement, dated August 12, 2008, by and among Lpath, Inc. and each of the investors identified therein (filed as Exhibit 10.18 to the registration statement on Form S-1 filed with the SEC on September 11, 2008 and incorporated herein by reference). |
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4.9 |
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Registration Rights Agreement, dated November 16, 2010, by and between Lpath, Inc. and each purchaser identified therein (filed as Exhibit 10.18 to the Current Report on Form 8-K filed with the SEC on November 18, 2010 and incorporated herein by reference). |
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4.10 |
|
Form of Registration Rights Agreement between Lpath, Inc. and certain investors (filed as a Exhibit 10.2 to the Current Report on Form 8-K filed with the SEC on September 22, 2014 and incorporated herein by reference). |
10.1 |
|
Form of Indemnification Agreement entered into between Lpath, Inc. and its officers and directors (filed as Exhibit 10.1 to the Current Report on Form 8-K filed on July 21, 2014 and incorporated herein by reference). |
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10.2 |
|
Securities Purchase Agreement, dated September 19, 2014, between Lpath, Inc. and certain investors (filed as Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on September 22, 2014 and incorporated herein by reference). |
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10.3 |
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Separation Agreement, dated as of November 3, 2014, by and between the Company and Scott Pancoast (filed as Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on November 4, 2014 and incorporated herein by reference). |
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10.4+ |
|
Consulting Agreement, dated as of November 3, 2014, by and between the Company and Michael Lack (filed as Exhibit 10.2 to the Current Report on Form 8-K filed with the SEC on November 4, 2014 and incorporated herein by reference). |
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10.5+ |
|
Form of RSU Agreement entered into with Michael Lack (filed as Exhibit 10.3 to the Current Report on Form 8-K filed with the SEC on November 4, 2014 and incorporated herein by reference). |
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10.6+ |
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Form of RSU Agreement entered into with the Companys officers and directors.* |
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31.1 |
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Section 302 Certification by Chief Executive Officer of Lpath, Inc.* |
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31.2 |
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Section 302 Certification by Chief Financial Officer of Lpath, Inc.* |
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32.1 |
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Section 906 Certification by Chief Executive Officer and Chief Financial Officer of Lpath, Inc.* |
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101.INS# XBRL |
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Instance Document |
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101.SCH# XBRL |
|
Taxonomy Extension Schema Document |
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101.CAL# XBRL |
|
Taxonomy Extension Calculation Linkbase Document |
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101.DEF# XBRL |
|
Taxonomy Extension Definition Linkbase Document |
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101.LAB# XBRL |
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Taxonomy Extension Label Linkbase Document |
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101.PRE# XBRL |
|
Taxonomy Extension Presentation Linkbase Document |
+ Management contract or compensation plan or arrangement
* Provided herewith.
(c) Financial Statement Schedules
All financial statement schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or other notes hereto.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
|
Lpath, Inc. |
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Date: November 12, 2014 |
/S/ MICHAEL LACK |
|
MICHAEL LACK |
|
Interim Chief Executive Officer |
|
(Principal Executive Officer) |
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/S/ GARY J. G. ATKINSON |
|
Gary J. G. Atkinson, |
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Senior Vice President and Chief Financial Officer |
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(Principal Financial and Accounting Officer) |
EXHIBIT 10.6
LPATH, INC.
AMENDED AND RESTATED 2005 EQUITY INCENTIVE PLAN
NOTICE OF GRANT OF RESTRICTED STOCK UNITS
(Deferred Settlement Date)
Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Notice of Grant.
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You have been granted XX,000 Restricted Stock Units. Each such Restricted Stock Unit is equivalent to one share of Common Stock of the Corporation (a Share) for purposes of determining the number of Shares subject to this award. No Share subject to this award of Restricted Stock Units will be issued (nor will you have the rights of a stockholder with respect to the underlying Shares) until the vesting conditions and the settlement date described below are satisfied. Additional terms of this grant are as follows:
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The Restricted Stock Units will vest in accordance with Exhibit B, subject to your continuing to provide Service (as defined in the Restricted Stock Unit Agreement attached as Exhibit A hereto (the Agreement)) through the applicable vesting date. |
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Settlement Date: |
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To the extent vested, Restricted Stock Units will be settled through the issuance of shares of Common Stock, on the first to occur of: (i) the fifth anniversary of the Date of Grant; (ii) termination of your Service; (iii) Disability (as defined in the Agreement); (iv) death; or (v) a Corporate Transaction (as defined in the Plan). |
You acknowledge and agree that this Notice of Grant and the vesting schedule set forth herein does not constitute an express or implied promise of continued Service for the vesting period, for any period, or at all, and shall not interfere with your right or the Corporations right to terminate your Service at any time, with or without cause.
This grant has been authorized by the Corporations Board of Directors. If any number in this Notice is inconsistent with that which was authorized by the Board, then it is an error and the Corporation reserves the right to replace this Notice with a corrected version.
You hereby agree to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions relating to the Plan and this Award.
By your signature and the signature of the Corporations representative below, you and the Corporation agree that this Notice of Grant, the form of Restricted Stock Unit Agreement attached as Exhibit A hereto, and the Lpath, Inc. Amended and Restated 2005 Equity Incentive Plan constitute your entire agreement with respect to this Award and may not be modified adversely except by means of a writing signed by the Corporation and you.
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LPATH, INC. |
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EXHIBIT A
LPATH, INC.
AMENDED AND RESTATED 2005 EQUITY INCENTIVE PLAN
RESTRICTED STOCK UNIT AGREEMENT
(Deferred Settlement Date)
1. Grant. The Corporation hereby grants to the Participant an award of Restricted Stock Units (RSUs), as set forth in the Notice of Grant of Restricted Stock Units and subject to the terms and conditions in this Agreement and the Corporations Amended and Restated 2005 Equity Incentive Plan (the Plan). Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Restricted Stock Unit Agreement (the Agreement).
2. Corporations Obligation. Each RSU represents the right to receive a Share, to the extent vested, on the Settlement Date. Unless and until the RSUs vest and the Settlement Date has occurred, the Participant will have no right to receive Shares under such RSUs. Prior to actual distribution of Shares pursuant to any vested RSUs, such RSUs will represent an unsecured obligation of the Corporation, payable (if at all) only from the general assets of the Corporation.
3. Vesting Schedule. Subject to paragraph 4, the RSUs awarded by this Agreement will vest according to the vesting schedule specified in the Notice of Grant.
4. Forfeiture upon Termination of Service. Notwithstanding any contrary provision of this Agreement or the Notice of Grant, if the Participant terminates Service for any or no reason prior to vesting, the unvested RSUs awarded by this Agreement will thereupon be forfeited at no cost to the Corporation. For the purposes of this Award, the term Service shall be defined as follows: the provision of services to the Corporation (or any Parent or Subsidiary) by a person in the capacity of (i) a full-time Employee, or (ii) a consultant. Termination of Service shall be deemed to occur upon (i) any termination of employment by an Employee or if a full-time Employee becomes a part-time Employee, or (ii) by termination of a consultants relationship with the Corporation or a reduction in the level of services performed by the consultant by 33% or more as compared to the services provided at the Date of Grant.
5. Payment after Vesting. Any RSUs that vest in accordance with paragraph 3 will be paid to the Participant (or in the event of the Participants death, to his or her estate) in Shares on the applicable Settlement Date; provided that to the extent determined appropriate by the Administrator, pursuant to paragraph 12, the minimum statutorily required federal, state and local withholding taxes with respect to such RSUs will be paid by reducing the number of vested Shares actually paid to the Participant. For the purposes of this Award, the term Disability shall be defined as follows: a Participant shall be considered disabled if the Participant is, by reason of any medically determined physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than 3 months under a disability plan covering Employees of the Corporation.
6. Payments after Death. Any distribution or delivery to be made to the Participant under this Agreement will, if the Participant is then deceased, be made to the administrator or executor of the Participants estate. Any such administrator or executor must furnish the Corporation with (a) written notice of his or her status as transferee, and (b) evidence satisfactory to the Corporation to establish the validity of the transfer and compliance with any laws or regulations pertaining to said transfer.
7. Rights as Stockholder. Neither the Participant nor any person claiming under or through the Participant will have any of the rights or privileges of a stockholder of the Corporation in respect of any Shares deliverable hereunder unless and until certificates representing such Shares will have been issued, recorded on the records of the Corporation or its transfer agents or registrars, and delivered to the Participant or Participants broker.
8. No Effect on Employment. The Participants employment with the Corporation and its Subsidiaries is on an at-will basis only. Accordingly, the terms of the Participants employment with the Corporation and its Subsidiaries will be determined from time to time by the Corporation or the Subsidiary employing the Participant (as the case may be), and the Corporation or the Subsidiary will have the right, which is hereby expressly reserved, to terminate or change the terms of the employment of the Participant at any time for any reason whatsoever, with or without good cause or notice.
9. Address for Notices. Any notice to be given to the Corporation under the terms of this Agreement will be addressed to the Corporation at 4025 Sorrento Valley Blvd., San Diego, California 92121, Attn: Stock Administration, or at such other address as the Corporation may hereafter designate in writing or electronically.
10. Grant is Not Transferable. Except to the limited extent provided in paragraph 6, this grant and the rights and privileges conferred hereby will not be transferred, assigned, pledged or hypothecated in any way (whether by operation of law or otherwise) and will not be subject to sale under execution, attachment or similar process. Upon any attempt to transfer, assign, pledge, hypothecate or otherwise dispose of this grant, or any right or privilege conferred hereby, or upon any attempted sale under any execution, attachment or similar process, this grant and the rights and privileges conferred hereby immediately will become null and void.
11. Binding Agreement. Subject to the limitation on the transferability of this grant contained herein, this Agreement will be binding upon and inure to the benefit of the heirs, legatees, legal representatives, successors and assigns of the parties hereto.
12. Withholding of Taxes. When the Shares are issued as payment for vested RSUs, the Participant will recognize immediate U.S. taxable income if the Participant is a U.S. taxpayer. In addition, at each vesting date Participant will be subject to applicable employment taxes on the value of the RSUs that become vested on that date. If the Participant is a non-U.S. taxpayer, the Participant will be subject to applicable taxes in his or her jurisdiction. The Corporation will withhold a portion of the Shares otherwise issuable in payment for vested RSUs that have an aggregate market value sufficient to pay the minimum federal, state and local income, employment and any other applicable taxes required to be withheld by the Corporation with respect to the Shares. No fractional Shares will be withheld or issued pursuant to the grant
of RSUs and the issuance of Shares hereunder. The Corporation may instead, in its discretion, either (i) withhold any amount necessary to pay the applicable taxes from the Participants salary or other amounts payable to the Participant, with no withholding in Shares, or (ii) arrange for the appropriate number of Shares subject to the vested portion of the Award to be sold on the open market, if permitted by all applicable law, with the proceeds of such sale remitted to the Corporation in an amount necessary to satisfy the minimum tax withholding obligation of the Corporation. In the event the withholding requirements are not satisfied through the withholding Shares (or, through the Participants salary or other amounts payable to the Participant or through the sale of Share on the open market), no Shares will be issued to the Participant (or his or her estate) in settlement of the RSU unless and until satisfactory arrangements (as determined by the Administrator) have been made by the Participant with respect to the payment of any income and other taxes which the Corporation determines must be withheld or collected with respect to such RSUs. By accepting this RSU, the Participant expressly consents to the withholding of Shares and/or cash as provided for in this paragraph 12. All income and other taxes related to the RSU and any Shares delivered in payment thereof are the sole responsibility of the Participant.
13. Additional Conditions to Issuance of Stock. If at any time the Corporation will determine, in its discretion, that the listing, registration or qualification of the Shares upon any securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory authority is necessary or desirable as a condition to the issuance of Shares to the Participant (or his or her estate), such issuance will not occur unless and until such listing, registration, qualification, consent or approval will have been effected or obtained free of any conditions not acceptable to the Corporation. The Corporation will make all reasonable efforts to meet the requirements of any such state or federal law or securities exchange and to obtain any such consent or approval of any such governmental authority.
14. Plan Governs. This Agreement and the Notice of Grant are subject to all terms and provisions of the Plan. In the event of a conflict between one or more provisions of this Agreement or the Notice of Grant and one or more provisions of the Plan, the provisions of the Plan will govern.
15. Administrator Authority. The Administrator will have the power to interpret the Plan and this Agreement and to adopt such rules for the administration, interpretation and application of the Plan as are consistent therewith and to interpret or revoke any such rules (including, but not limited to, the determination of whether or not any RSUs have vested). All actions taken and all interpretations and determinations made by the Administrator in good faith will be final and binding upon Participant, the Corporation and all other interested persons. No member of the Administrator will be personally liable for any action, determination or interpretation made in good faith with respect to the Plan or this Agreement.
16. Modifications to the Agreement. The Participant expressly warrants that he or she is not accepting this Agreement in reliance on any promises, representations, or inducements other than those contained herein. Modifications to this Agreement or the Plan can be made only in an express written amendment executed by a duly authorized officer of the Corporation. Notwithstanding anything to the contrary in the Plan or this Agreement, the Corporation reserves the right to revise the Agreement as it deems necessary or advisable, in its sole discretion and without the consent of the Participant, to comply with Section 409A of the Code or to otherwise avoid imposition of any additional tax or income recognition under Section 409A of the Code prior to the actual payment of Shares pursuant to this award of RSUs.
17. Notice of Governing Law. This grant of RSUs shall be governed by, and construed in accordance with, the laws of the State of California without regard to principles of conflict of laws.
EXHIBIT B
AMENDED AND RESTATED 2005 EQUITY INCENTIVE PLAN
RESTRICTED STOCK UNIT VESTING
(Deferred Settlement Date)
The Restricted Stock Unit (RSU) Shares shall initially be unvested. Grantee shall acquire a vested interest in the RSU Shares as follows:
1. No RSU Shares shall vest unless and until the Grantee has completed 12 months of Service (as defined in the Plan) measured from the Vesting Commencement Date (Initial Service Period).
2. Upon the completion of the Initial Service Period specified above, 25% RSU Shares shall become vested.
3. The remaining RSU Shares shall vest in a series of successive equal quarterly installments over each of the following 12 quarters of Service completed by the Grantee after the Initial Service Period specified above.
4. In no event shall any additional RSU Shares vest after Grantees cessation of Service.
Exhibit 31.1
CERTIFICATION
I, Michael Lack, Interim Chief Executive Officer of Lpath, Inc. (the Registrant), certify that:
1. I have reviewed this quarterly report on Form 10-Q of the Registrant;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report.
4. The Registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the Registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the Registrants internal control over financial reporting that occurred during the Registrants most recent fiscal quarter (the Registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrants internal control over financial reporting.
5. The Registrants other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrants auditors and the audit committee of the Registrants board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrants ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrants internal control over financial reporting.
Date: November 12, 2014 |
By: |
/S/ MICHAEL LACK |
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Michael Lack |
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Interim Chief Executive Officer |
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(Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION
I, Gary J. G. Atkinson, Chief Financial Officer of Lpath, Inc. (the Registrant), certify that:
1. I have reviewed this quarterly report on Form 10-Q of the Registrant;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report.
4. The Registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the Registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the Registrants internal control over financial reporting that occurred during the Registrants most recent fiscal quarter (the Registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrants internal control over financial reporting.
5. The Registrants other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrants auditors and the audit committee of the Registrants board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrants ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrants internal control over financial reporting.
Date: November 12, 2014 |
By: |
/S/ GARY J. G. ATKINSON |
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Gary J. G. Atkinson |
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Senior Vice President and Chief Financial Officer |
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(Principal Financial and Accounting Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
In connection with the Quarterly Report of Lpath, Inc. (the Corporation) on Form 10-Q for the period ended September 30, 2014 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Michael Lack, Interim Chief Executive Officer and I, Gary J. G. Atkinson, Vice President and Chief Financial Officer, of the Corporation, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to our knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation.
Date: November 12, 2014 |
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/S/ MICHAEL LACK |
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Michael Lack |
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Interim Chief Executive Officer |
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/S/ GARY J. G. ATKINSON |
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Gary J. G. Atkinson |
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Senior Vice President and Chief Financial Officer |
A signed original of this written statement required by Section 906 has been provided to Lpath, Inc. and will be retained by Lpath, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
This certification accompanies the Form 10-Q to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of Lpath, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing.
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