FAIR VALUE MEASUREMENTS

9 Months Ended

Sep. 30, 2013

FAIR VALUE MEASUREMENTS

FAIR VALUE MEASUREMENTS

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 fair value and significant unobservable inputs (level 3) of the March 2012 warrants were $3,100,000 as of September 30, 2013.

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:
Warrant liability as of January 1, 2013	$	3,100,000
Change in fair value of warrants	—
Warrant liability as of September 30, 2013	$	3,100,000

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 historical volatility of the company’s stock price.

The terms of all outstanding warrants permit the company, upon exercise of the warrants, to settle the contract by the delivery of unregistered shares. During the nine months ended September 30, 2013, 337,918 warrants expired.  As of September 30, 2013, there were 931,099 warrants outstanding, classified as both liabilities and equity, with a weighted-average exercise price of $7.59 per share expiring through March 2017.