##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2005
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number: 000-50642
 Memory
Pharmaceuticals Corp.
  Delaware
    
    04-3363475(State or Other Jurisdiction of Incorporation or
    
    (I.R.S. Employer Identification No.)Organization)100 Philips Parkway, Montvale, New Jersey
    
    07645(Address of Principal Executive Offices)
    
    (Zip Code)
  
  
  þ o
  o þ
  o þ




---



MEMORY PHARMACEUTICALS CORP.
 Table of Contents
 Part I. Financial Information
    
    
    3Item 1. Financial Statements
    
    
    3BALANCE SHEETS
    
    
    3STATEMENTS OF OPERATIONS
    
    
    4STATEMENTS OF CASH FLOWS
    
    
    5NOTES TO FINANCIAL STATEMENTS
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    14Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    34Item 4. Controls and Procedures
    
    
    34Part II. Other Information
    
    
    35Item 6. Exhibits
    
    
    35SIGNATURES
    
    
    36EX-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32.1: CERTIFICATION
  2




---



##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 MEMORY PHARMACEUTICALS CORP.
 
 BALANCE SHEETS
(in thousands, except for share and per share amounts)
 September 30,
    
    
    December 31,2005
    
    
    2004(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    40,527
    
    
    $
    31,220Marketable securities
    
    
    7,242
    
    
    
    9,876Receivables
    
    
    45
    
    
    
    875Prepaid and other current assets
    
    
    879
    
    
    
    538Total current assets
    
    
    48,693
    
    
    
    42,509Property and equipment, net
    
    
    9,471
    
    
    
    10,376Restricted cash
    
    
    505
    
    
    
    505Other assets
    
    
    
    
    
    
    7Total assets
    
    $
    58,669
    
    
    $
    53,397LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    1,077
    
    
    $
    1,691Accrued expenses
    
    
    3,694
    
    
    
    3,177Current portion of equipment notes payable
    
    
    1,387
    
    
    
    1,806Deferred revenue  current
    
    
    7,338
    
    
    
    7,095Total current liabilities
    
    
    13,496
    
    
    
    13,769Warrant Liability
    
    
    10,721
    
    
    
    Equipment notes payable, less current portion
    
    
    1,144
    
    
    
    1,714Deferred revenue  long-term
    
    
    9,693
    
    
    
    10,472Total liabilities
    
    
    35,054
    
    
    
    25,955Stockholders equity:Common stock, $0.001 par value per share;
100,000,000 shares authorized; 37,213,883
issued and outstanding at September 30,
2005, and 20,547,442 issued and outstanding
at December 31, 2004;
    
    
    37
    
    
    
    21Additional paid-in capital
    
    
    172,254
    
    
    
    148,182Accumulated deficit
    
    
    (148,474
    )
    
    
    (120,434
    )Accumulated other comprehensive loss
    
    
    (27
    )
    
    
    (45
    )Deferred compensation
    
    
    (175
    )
    
    
    (282
    )Total stockholders equity
    
    
    23,615
    
    
    
    27,442Total liabilities and stockholders equity
    
    $
    58,669
    
    
    $
    53,397
  3




---



##### Table of Contents



MEMORY PHARMACEUTICALS CORP.
 
 STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except for share and per share amounts)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Revenue
    
    $
    2,490
    
    
    $
    2,430
    
    
    $
    7,411
    
    
    $
    7,350Operating expenses:Research and development
    
    
    7,765
    
    
    
    7,263
    
    
    
    25,510
    
    
    
    19,061General and administrative
    
    
    2,143
    
    
    
    1,856
    
    
    
    6,425
    
    
    
    5,675Total operating expenses
    
    
    9,908
    
    
    
    9,119
    
    
    
    31,935
    
    
    
    24,736Loss from operations
    
    
    (7,418
    )
    
    
    (6,689
    )
    
    
    (24,524
    )
    
    
    (17,386
    )Unrealized loss on warrants
    
    
    (3,884
    )
    
    
    
    
    
    
    (3,884
    )
    
    
    Interest:Income
    
    
    193
    
    
    
    191
    
    
    
    595
    
    
    
    458Expense
    
    
    (71
    )
    
    
    (109
    )
    
    
    (220
    )
    
    
    (325
    )Interest income, net
    
    
    122
    
    
    
    82
    
    
    
    375
    
    
    
    133Net loss before income taxes
    
    
    (11,180
    )
    
    
    (6,607
    )
    
    
    (28,033
    )
    
    
    (17,253
    )Income taxes
    
    
    3
    
    
    
    2
    
    
    
    7
    
    
    
    7Net loss
    
    
    (11,183
    )
    
    
    (6,609
    )
    
    
    (28,040
    )
    
    
    (17,260
    )Less redeemable convertible preferred stock dividends
and accretion
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,022Net loss attributable to common stockholders
    
    $
    (11,183
    )
    
    $
    (6,609
    )
    
    $
    (28,040
    )
    
    $
    (19,282
    )Basic and diluted net loss per share of common stock
    
    $
    (0.42
    )
    
    $
    (0.32
    )
    
    $
    (1.24
    )
    
    $
    (1.38
    )Basic and diluted weighted average number of shares
of common stock outstanding
    
    
    26,420,436
    
    
    
    20,440,442
    
    
    
    22,661,235
    
    
    
    13,978,520
  4




---



##### Table of Contents



MEMORY PHARMACEUTICALS CORP.
 
 STATEMENTS OF CASH FLOWS
 (unaudited)
 (in thousands)
 Nine Months EndedSeptember 30,2005
    
    
    2004Cash flows provided by / (used in) operating activities:Net loss
    
    $
    (28,040
    )
    
    $
    (17,260
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization
    
    
    1,616
    
    
    
    1,502Non-cash stock based compensation
    
    
    1,401
    
    
    
    1,109Unrealized loss on warrants
    
    
    3,884
    
    
    
    Changes in operating accounts:Receivables
    
    
    830
    
    
    
    1,144Prepaid and other current assets
    
    
    (341
    )
    
    
    721Other assets
    
    
    7
    
    
    
    6Accounts payable
    
    
    (614
    )
    
    
    (317
    )Accrued expenses
    
    
    517
    
    
    
    (338
    )Deferred revenue
    
    
    (536
    )
    
    
    (1,600
    )Net cash used in operating activities
    
    
    (21,276
    )
    
    
    (15,033
    )Cash flows provided by / (used in) investing activities:Purchases of marketable securities
    
    
    
    
    
    
    (11,393
    )Sales of marketable securities
    
    
    2,652
    
    
    
    8,691Additions to property and equipment
    
    
    (711
    )
    
    
    (3,086
    )Net cash provided by / (used in) investing activities
    
    
    1,941
    
    
    
    (5,788
    )Cash flows provided by / (used in) financing activities:Proceeds from issuance of common stock and warrants
    
    
    29,631
    
    
    
    35,630Proceeds from equipment notes payable
    
    
    495
    
    
    
    1,745Principal repayment equipment notes payable
    
    
    (1,484
    )
    
    
    (1,657
    )Net cash provided by financing activities
    
    
    28,642
    
    
    
    35,718Net increase in cash and cash equivalents
    
    
    9,307
    
    
    
    14,897Cash and cash equivalents, beginning of period
    
    
    31,220
    
    
    
    16,884Cash and cash equivalents, end of period
    
    $
    40,527
    
    
    $
    31,781Supplemental cash flow information:Cash paid for interest
    
    $
    220
    
    
    $
    325Cash paid for taxes
    
    
    7
    
    
    
    7Accrued dividends on redeemable convertible preferred stock
    
    
    
    
    
    
    1,862Accretion of redeemable convertible preferred stock to liquidation value
    
    
    
    
    
    
    160
  5




---



##### Table of Contents



MEMORY PHARMACEUTICALS CORP.
 
 NOTES TO FINANCIAL STATEMENTS
 (unaudited)
 (1)
    
    Basis of PresentationAs used herein, we, us, the Company and similar terms refer to Memory Pharmaceuticals
Corp. We are a biopharmaceutical company focused on the development of innovative drug
candidates for the treatment of a broad range of central nervous system, or CNS, conditions that
exhibit significant impairment of memory and other cognitive functions. These conditions
include neurological diseases associated with aging, such as Alzheimers disease, vascular
dementia and mild cognitive impairment, or MCI, Parkinsons disease and also include certain
psychiatric disorders such as schizophrenia and depression.The financial statements included herein have been prepared from our books and records pursuant
to the rules and regulations of the Securities and Exchange Commission (SEC) for reporting on
Form 10-Q. The information and note disclosures normally included in complete financial
statements prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP)
have been condensed or omitted pursuant to these rules and regulations. The interim financial
statements should be read in conjunction with the audited financial statements and notes thereto
included in our Annual Report on Form 10-K for the year ended December 31, 2004.We are responsible for the financial statements included in this document. Our interim
financial statements are unaudited. Interim results may not be indicative of the results and
trends that may be expected for the year. However, we believe all adjustments considered
necessary for a fair presentation of these interim statements have been included and are of a
normal and recurring nature.(2)
    
    Recent Accounting DevelopmentsOn December 16, 2004, the FASB issued Statement No. 123 (revised 2004), Share-Based Payment
(SFAS 123R). This Statement requires that the cost resulting from all share-based payment
transactions be recognized in the financial statements and establishes fair value as the
measurement objective in accounting for all share-based payment arrangements. On March 29,
2005,the SEC issued Staff Accounting Bulletin No. 107, Stock-Based Payment,which summarizes
the views of the staff regarding the interaction between SFAS 123R and certain SEC rules and
regulations and provides the staffs views regarding the valuation of share-based payment
arrangements for public companies. SFAS 123R was originally effective as of the beginning of
the first interim or annual reporting period after June 15, 2005.However, on April 14, 2005
the SEC announced a new rule that amended the effective date for SFAS 123R. The new rule allows
companies to implement SFAS 123R at the beginning of their next fiscal year, instead of the next
reporting period beginning after June 15, 2005. As such, we will adopt SFAS 123R as of the
beginning of the first quarter of 2006. The adoption of SFAS No. 123 is expected to have a
material effect on our financial statements.(3)
    
    Stock-Based CompensationWe apply the intrinsic-value based method of accounting prescribed by APB Opinion No. 25, and
related interpretations including FASB Interpretation No. 44, Accounting for Certain
Transactions involving Stock Compensation, an interpretation of APB Opinion No. 25, issued in
March 2000, to account for our fixed-plan employee stock options. Under this method,
compensation expense is recorded on the date of grant only if the current market price of the
underlying stock exceeds the exercise price. SFAS No. 123, Accounting for Stock-Based
Compensation, as amended by SFAS No. 148, Accounting for Stock-Based Compensation, Transition
and Disclosure,established accounting and disclosure requirements using a fair-value based
method of accounting for stock-based employee compensation plans. As permitted under SFAS No.
123 and No. 148, we have elected to continue to apply the intrinsic-value based method of
accounting for employee stock options described above, and have adopted only the disclosure
requirements of SFAS No. 148.We account for stock options and warrants granted to non-employees based on the fair value of
the stock option or warrant. Fair market value is determined using the Black-Scholes
option-pricing model based on assumptions for expected stock price volatility, expected term of
the option, the risk-free interest rate and expected dividend yield at the grant date. Prior to
April 5, 2004, our common stock was not publicly traded. As a result, in valuing our common
stock, stock options and warrants issued prior to this date, we considered the pricing of
private equity sales, company-specific events, independent valuations, economic trends and the
rights and preferences of the security being valued.
 6




---



##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net loss attributable to common stockholders, as reported
    
    $
    (11,183
    )
    
    $
    (6,609
    )
    
    $
    (28,040
    )
    
    $
    (19,282
    )Add: Stock-based employee compensation expense included in
reported net loss
    
    
    36
    
    
    
    181
    
    
    
    1,401
    
    
    
    484Deduct: Employee stock-based compensation expense under
fair-value based method
    
    
    (639
    )
    
    
    (533
    )
    
    
    (1,671
    )
    
    
    (1,325
    )Deduct: Employee compensation for 2004 Employee Stock
Purchase Plan under fair-value based method
    
    
    (12
    )
    
    
    
    
    
    
    (54
    )
    
    
    Pro forma net loss attributable to common stockholders
    
    $
    (11,798
    )
    
    $
    (6,961
    )
    
    $
    (28,364
    )
    
    $
    (20,123
    )Pro forma basic and diluted net loss per share of common
stock
    
    $
    (0.45
    )
    
    $
    (0.34
    )
    
    $
    (1.25
    )
    
    $
    (1.44
    )Basic and diluted net loss per share of common stock, as
reported
    
    $
    (0.42
    )
    
    $
    (0.32
    )
    
    $
    (1.24
    )
    
    $
    (1.38
    )
  For the Three Months Ended
    
    For the Nine Months EndedSeptember 30,
    
    September 30,2005
    
    2004
    
    2005
    
    2004Expected stock price volatility
    
    80%
    
    60%
    
    80%
    
    60%Expected term until exercise
    
    5 years
    
    5 years
    
    5 years
    
    5 yearsRisk-free interest rate
    
    4.14%
    
    3.7%
    
    3.97%
    
    3.6%Expected dividend yield
    
    0%
    
    0%
    
    0%
    
    0%
  Stock Options
  7




---



##### Table of Contents



In accordance with the terms of a separation agreement with our former President, we agreed to
extend the period during which he would be entitled to exercise certain vested stock options to
purchase shares of our common stock from three months following the effective date of his
resignation, April 1, 2005, to 12 months following such effective date. In connection with this
modification, we recorded a compensation expense of $1.3 million in the second quarter of 2005.(4)
    
    Net Loss Per ShareBasic net loss per share is calculated by dividing net loss attributable to the holders of our
common stock by the weighted average number of shares of common stock outstanding during the
period. Diluted net loss per share is computed by dividing net loss attributable to holders of
our common stock by the weighted average number of shares of common stock and the dilutive
potential common stock equivalents then outstanding. Potential common stock equivalents consist
of stock options, warrants and redeemable convertible preferred stock.Since we had a net loss in each of the periods reported, basic and diluted net loss per share is
the same. As a result, the computation of diluted net loss per share excludes the effect of the
potential exercise of stock options to purchase shares of common stock and warrants to purchase shares of common stock, because the effect would be anti-dilutive. In addition, the diluted
weighted average number of shares outstanding for the nine-month period ended September 30, 2004
also excludes redeemable convertible preferred stock that would have converted into 13,295,427
shares of common stock, since the effects would be anti-dilutive. The weighted average
anti-dilutive shares for the three-month periods and nine-month periods ended September 30, 2005
and 2004 are summarized as follows:
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Common stock options
    
    
    3,905,122
    
    
    
    3,105,151
    
    
    
    3,381,817
    
    
    
    2,830,310Warrants1
    
    
    1,999,651
    
    
    
    119,907
    
    
    
    746,489
    
    
    
    134,529Redeemable convertible preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,432,321Total
    
    
    5,904,773
    
    
    
    3,225,058
    
    
    
    4,128,306
    
    
    
    7,397,160
 
 1
    
    Includes 5,639,232 warrants issued in our September 2005 private placement. SeeNote 12. Pro Forma Net Loss Per SharePro forma net loss per share is calculated using the weighted average number of shares of common
stock outstanding, including the pro forma effects of the automatic conversion of all
outstanding redeemable convertible preferred stock into shares of our common stock effective
upon the closing of our initial public offering, as if such conversion had occurred at the date
of the original issuance.The following table sets forth the calculation of basic and diluted net loss per share and pro
forma basic and diluted net loss per share for the three-month periods ended September 30, 2005
and 2004 and the nine-month periods ended September 30, 2005 and 2004:
 8




---



##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    

    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Basic and Diluted:Net loss
    
    $
    (11,183
    )
    
    $
    (6,609
    )
    
    $
    (28,040
    )
    
    $
    (17,260
    )Dividends and accretion to redemption value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,022
    )Net loss attributable to common stockholders
    
    
    (11,183
    )
    
    
    (6,609
    )
    
    
    (28,040
    )
    
    
    (19,282
    )Basic and diluted weighted average number of
shares of common stock outstanding
    
    
    26,420,436
    
    
    
    20,440,442
    
    
    
    22,661,235
    
    
    
    13,978,520Basic and diluted net loss per share
    
    $
    (0.42
    )
    
    $
    (0.32
    )
    
    $
    (1.23
    )
    
    $
    (1.38
    )Pro forma basic and diluted:Net loss
    
    
    (11,183
    )
    
    
    (6,609
    )
    
    
    (28,040
    )
    
    
    (17,260
    )Basic and diluted weighted average number of
shares of common stock outstanding
    
    
    26,420,436
    
    
    
    20,440,442
    
    
    
    22,661,235
    
    
    
    13,978,520Weighted average number of shares of common
stock outstanding assuming the conversion of
all redeemable convertible preferred stock and
exercise of certain warrants at the date of
original issuance
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,432,321Pro forma basic and diluted weighted average
shares of common stock outstanding
    
    
    26,420,436
    
    
    
    20,440,442
    
    
    
    22,661,235
    
    
    
    18,410,841Pro forma basic and diluted net loss per share
    
    $
    (0.42
    )
    
    $
    (0.32
    )
    
    $
    (1.24
    )
    
    $
    (0.94
    )
 Upon the closing of our initial public offering in April 2004, all of the outstanding shares of
our redeemable convertible preferred stock, including accrued but unpaid dividends, were
automatically converted into 13,295,427 shares of common stock. Additionally, 1,536 shares of
common stock were issued upon the net share settled exercise of warrants, which occurred
immediately prior to the closing of our initial public offering.Dividends on the redeemable convertible preferred stock accrued at an annual rate of 8%, whether
or not funds were legally available or dividends were declared by our Board of Directors. Upon
the closing of our initial public offering on April 8, 2004, all of our preferred stock
converted into common stock, and all related accrued dividends in the amount of $19.5 million
were forfeited.(5)
    
    Initial Public Offering of Common StockIn April 2004, we sold 5,000,000 shares of our common stock in our initial public offering at a
price of $7.00 per share. We also issued an additional 750,000 shares of common stock through
an over-allotment option exercised by our managing underwriters in April 2004, at $7.00 per
share. After deducting underwriting discounts and expenses and estimated offering-related
expenses, the initial public offering resulted in net proceeds to us of approximately $35.3
million. In connection with the initial public offering, all of the outstanding shares of the
Companys redeemable convertible preferred stock were automatically converted into shares of our
common stock as described in Note 6  Redeemable Convertible Preferred Stock.(6)
    
    Redeemable Convertible Preferred StockOn April 8, 2004, the closing date of our initial public offering, all of the outstanding shares
of our redeemable convertible preferred stock, including accrued but unpaid dividends, were
automatically converted into 13,295,427 shares of common stock.
 9




---



##### Table of Contents



CommonShares
    
    
    Carrying
    
    
    Conversion
    
    
    StockSeries
    
    
    Date Issued
    
    Issued
    
    
    Amount
    
    
    Ratio
    
    
    IssuedA
    
    
    April 1998
    
    
    1,000,000
    
    
    $
    987,000
    
    
    
    0.3333
    
    
    
    333,332B
    
    
    December 1998, March 1999
    
    
    6,142,857
    
    
    
    10,732,000
    
    
    
    0.3333
    
    
    
    2,047,615C(1)
    
    
    June, August 2000
    
    
    10,000,000
    
    
    
    24,976,000
    
    
    
    0.3559
    
    
    
    3,558,521D
    
    
    March, April 2002
    
    
    19,290,130
    
    
    
    40,541,000
    
    
    
    0.3333
    
    
    
    6,430,033Roche(2)
    
    September 2003
    
    
    2,777,778
    
    
    
    9,522,000
    
    
    
    0.3333
    
    
    
    925,926$
    86,758,000
    
    
    
    
    
    
    
    13,295,427
 
 (1)
    
    As a result of our issuance of Series D redeemable convertible preferred stock at a price per
share less than $2.50, the conversion ratio of the number of shares of common stock into which each
share of Series C is convertible was adjusted so that each share of Series C is convertible into
0.3559 shares of common stock. Pursuant to this anti-dilution provision, the conversion of Series C
would have resulted in the issuance of an additional 225,195 shares of common stock. However, we
recorded a deemed dividend of $169,000 during 2002 to recognize the value attributable to the
increase in conversion ratio based on an estimated fair value of the common stock.(2)
    
    We issued 2,777,778 shares of Series Roche redeemable convertible preferred stock and 115,740
warrants to purchase common stock at $12.96 per share to Roche for $10.0 million. The proceeds of
$10.0 million were allocated to redeemable convertible preferred stock and additional paid-in capital
based on the relative fair value of the preferred stock and the warrants. We also recorded a
beneficial conversion feature of $584,000, which increased the net loss attributable to common
stockholders during the year ended December 31, 2003. (7) Marketable Securities
  September 30, 2005
    
    
    December 31, 2004Fair Value
    
    
    Unrealized Loss
    
    
    Fair Value
    
    
    Unrealized Loss(in thousands)Corporate debt securities
    
    $
    2,358
    
    
    $
    14
    
    
    $
    5,360
    
    
    $
    27Obligations of US government agencies
    
    $
    1,695
    
    
    
    2
    
    
    
    1,302
    
    
    
    2Mortgage-backed and asset-backed
securities
    
    $
    2,148
    
    
    
    11
    
    
    
    3,214
    
    
    
    16Commercial Paper
    
    $
    1,041
    
    
    
    
    
    
    
    
    
    
    
    $
    7,242
    
    
    $
    27
    
    
    $
    9,876
    
    
    $
    45
  (8) Comprehensive Loss
  10




---



##### Table of Contents



(9) License Agreements and Collaborations
 Bayer AG
  Hoffmann-LaRoche (2002 PDE4 Inhibitor Collaboration)
    11




---



##### Table of Contents



Hoffmann-LaRoche (2003 Nicotinic Alpha-7 Agonist Collaboration)
    Amgen Inc.
  12




---



##### Table of Contents



(10) Research and Development Costs
  (11) Consulting Agreements
   (12) Private Placement
      13




---



##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
   OVERVIEW
      14




---



##### Table of Contents



RESULTS OF OPERATIONS
 Three Months Ended September 30, 2005 compared to Three Months Ended September 30, 2004
 Revenue
   Research and development expense
  15




---



##### Table of Contents



General and administrative expense
  Unrealized loss on warrants
  Interest income and interest expense
  Income taxes
  Nine Months Ended September 30, 2005 compared to Nine Months Ended September 30, 2004
 Revenue
   Research and development expense
  General and administrative expense
  Unrealized loss on warrants
  16




---



##### Table of Contents



Interest income and interest expense
  Income taxes
  Preferred stock dividends and accretion
  Liquidity and capital resources
      17




---



##### Table of Contents



Ø

    the number of compounds and drug candidates that we advance through the development process;Ø
    
    the funding from our collaborations;Ø
    
    whether we are able to enter into a collaboration with regard to MEM 1003 and the terms of any such collaborations;Ø
    
    whether we choose to proceed with the clinical development of MEM 1414 and/or MEM 1917;Ø
    
    the scope and results of our and our collaborators clinical trials;Ø
    
    potential in-licensing or acquisition of other compounds or technologies;Ø
    
    the costs involved in utilizing third party contract research organizations for preclinical studies and clinical trials;Ø
    
    the timing of, and the costs involved in, obtaining regulatory approvals;Ø
    
    the availability of third parties, and the cost, to manufacture compounds for clinical trial supply;Ø
    
    the costs involved in preparing, filing, prosecuting, maintaining and enforcing patent
claims and other patent-related costs, including litigation costs and the results of such
litigation; andØ
    
    the cost of commercialization activities, including product marketing, sales and
distribution.
  CRITICAL ACCOUNTING POLICIES
   Revenue recognition
 Revenue Recognition
 18




---



##### Table of Contents



Accrued expenses
  Ø
    
    professional service fees, such as lawyers and accountants fees;Ø
    
    preclinical and clinical contract research organization fees;Ø
    
    fees paid to data management organizations and investigators in conjunction with clinical trials; andØ
    
    fees paid to manufacturers in conjunction with the production of clinical materials.
  Research and development expense
   19




---



##### Table of Contents



Stock-based compensation
 Accounting for Stock Issued to Employees Accounting for
Stock-Based Compensation. Accounting for Stock-Based
Compensation, Transition and Disclosure
  20




---



##### Table of Contents



RISK FACTORS
 Investing in our common stock involves a high degree of risk. You should consider carefully the
risks and uncertainties described below and the other information contained in this report. If any
of the following risks or uncertainties actually occur, our business, prospects, financial
condition and operating results would likely suffer, possibly materially. In that event, the market
price of our common stock could decline and you could lose part or all of your investment.
 Risks Relating to our Business
 We expect to continue to incur substantial losses, and we may never achieve profitability.
   Our drug candidates and programs are novel and in the early stages of development. As a result, it
is difficult to predict accurately if and when we will achieve the development goals we establish
for these compounds and drug candidates.
   The diseases we are targeting are poorly understood, which increases our chances of failure.
  21




---



##### Table of Contents



We may not be able to succeed in our business model of seeking to enter into collaborations at
early stages of development. We currently do not have a collaboration partner for MEM 1003, our
most clinically advanced drug candidate.
   We are dependent upon our collaboration partners to conduct clinical trials and to manufacture,
market and sell our products.
    22




---



##### Table of Contents



Our collaborations are subject to many risks, which could prevent us from developing and
commercializing our drug candidates.
  Ø
    
    our collaborators may develop and commercialize, either alone or
with others, products and services that are similar to or
competitive with the products that are the subject of the
collaboration with us;Ø
    
    collaborators may underfund or not commit sufficient resources to
the testing, marketing, distribution or other development of our
products;Ø
    
    our collaborators may not properly maintain or defend our
intellectual property rights or they may utilize our proprietary
information in such a way as to invite litigation that could
jeopardize or potentially invalidate our proprietary information
or expose us to potential liability;Ø
    
    our collaborators may encounter conflicts of interest, changes in
business strategy or other business issues which could adversely
affect their willingness or ability to fulfill their obligations
to us (for example, pharmaceutical and biotechnology companies
historically have re-evaluated their priorities following mergers
and consolidations, which have been common in recent years in
these industries); andØ
    
    disputes may arise between us and our collaborators delaying or
terminating the research, development or commercialization of our
drug candidates, resulting in significant litigation or
arbitration that could be time-consuming and expensive, or causing
collaborators to act in their own self-interest and not in the
interest of our stockholders.
  In addition to our collaborations, we are dependent on certain license relationships.
  23




---



##### Table of Contents



Our preclinical and clinical testing results may not be predictive of future trial results and may
not be sufficient to support regulatory approval of future clinical trials. If subsequent study or
trial results are unfavorable or insufficient, we may be forced to stop developing drug candidates
that we currently believe are important to our future.
 in
vitro
  If our clinical trials or those of our collaborators are unsuccessful, or if we experience
significant delays in these trials, our ability to commercialize our products will be impaired.
    24




---



##### Table of Contents



Ø
    
    any preclinical test or clinical trial may fail to produce safety and efficacy results satisfactory to the FDA or foreign
regulatory authorities;Ø
    
    preclinical and clinical data could be interpreted in different ways, which could delay, limit or prevent regulatory approval;Ø
    
    negative or inconclusive results from a preclinical test or clinical study or adverse medical events during a clinical trial
could cause delays in the completion of the preclinical test or clinical study, or could cause a preclinical study or clinical
trial to be repeated, additional tests to be conducted or a program to be terminated, even if other studies or trials
relating to the program are successful;Ø
    
    the FDA or foreign regulatory authority could impose conditions on the scope or design of a clinical trial;Ø
    
    the FDA or foreign regulatory authority could place a clinical hold on a trial if, among other reasons, it requires further
information regarding certain results or events during preclinical tests or clinical trials, or it finds that patients
enrolled in the trial are or would be exposed to an unreasonable and significant risk of illness or injury;Ø
    
    the FDA or foreign regulatory authority might not approve the manufacturing processes or facilities that we utilize, or the
processes or facilities of our collaborators;Ø
    
    we may encounter delays in obtaining IRB approval to conduct a clinical trial at a prospective study site or to revise a
clinical trial protocol after the clinical trial has commenced;Ø
    
    any regulatory approval we ultimately obtain may be limited or subject to restrictions or post-approval commitments that
render the product not commercially viable;Ø
    
    we or our collaborators may encounter delays based on changes in regulatory agency policies during the period in which we
develop a drug or the period required for review of any application for regulatory agency approval;Ø
    
    our clinical trials may not demonstrate the safety and efficacy of our compounds or result in marketable products; andØ
    
    we or our collaborators may encounter delays in obtaining a sufficient supply of a drug candidate for use in our clinical
trials as a result of manufacturing or quality assurance issues.
   25




---



##### Table of Contents



We will need additional financing, which may be difficult to obtain. Our failure to obtain
necessary financing would adversely affect our development programs and other operations.
    Ø
    
    the number of compounds and drug candidates that we advance through the development process;Ø
    
    the funding from our collaborations with Roche and Amgen;Ø
    
    whether we are able to enter into a collaboration with regard to MEM 1003 and the terms of any such collaboration;Ø
    
    whether we choose to proceed with the clinical development of MEM 1414 and/or MEM 1917, alone or with a collaborator;Ø
    
    the scope and results of our and our collaborators clinical trials;Ø
    
    potential in-licensing or acquisition of other compounds or technologies;Ø
    
    the costs involved in utilizing third party contract research organizations for preclinical studies and clinical trials;Ø
    
    the timing of, and the costs involved in, obtaining regulatory approvals;Ø
    
    the availability of third parties, and the cost, to manufacture compounds for clinical trial supply;Ø
    
    the costs involved in preparing, filing, prosecuting, maintaining and enforcing patent claims and other patent-related
costs, including litigation costs and the results of such litigation; andØ
    
    the cost of commercialization activities, including product marketing, sales and distribution.
   We face intense competition in the development and commercialization of our drug candidates.
 26




---



##### Table of Contents



We depend on our key scientific and other key personnel and have recently experienced turnover in
our key senior management. If we are not able to retain our key scientific and other key personnel
or recruit additional scientific and technical personnel, our business will suffer.
    If third-party contract research organizations do not perform in an acceptable and timely manner,
our preclinical testing or clinical trials could be delayed or unsuccessful.
   27




---



##### Table of Contents



If we or our collaborators fail to obtain regulatory clearance for our current or future drug
candidates, we will be unable to market and sell any products and therefore may never be able to
generate product revenue or be profitable.
   Failure to obtain regulatory approval in foreign jurisdictions would prevent us from marketing our
products abroad.
  Our potential products may not be commercially viable if we or our collaborators fail to obtain an
adequate level of reimbursement for these products by Medicare and other third-party payors or if
the pricing for these products is set at unsatisfactory levels by foreign countries.
   28




---



##### Table of Contents



If physicians and patients do not accept our product candidates, we may be unable to generate
significant revenue.
  We have no manufacturing capacity and depend on third parties to supply us with the compounds under
development, to develop effective formulations and to manufacture our products.
  Manufacturing of our products must meet applicable regulatory standards.
  We face the risk of product liability claims and may not be able to obtain insurance.
  29




---



##### Table of Contents



Our or our collaborators products could be subject to restrictions or withdrawal from the market.
We or they may be subject to penalties if we or they fail to comply with post-approval regulatory
requirements or experience unanticipated problems with any approved products.
  Ø
    
    product recalls;Ø
    
    revocation of previously granted approvals;Ø
    
    the need to conduct additional clinical trials; andØ
    
    fines and other censures.
  Our business activities require compliance with environmental laws. If we violate these laws, we
could be subject to significant fines, liabilities or other adverse consequences.
  Risks Relating to Intellectual Property
 If we are unable to obtain intellectual property protection for our chemical compounds and research
tools, the value of our technology and products will be adversely affected.
   30




---



##### Table of Contents



We rely on trade secrets and other confidential information to maintain our proprietary position.
 
  We may be involved in lawsuits to protect or enforce our patents or the patents of our
collaborators or licensors, which could be expensive and time consuming.
     Third parties may own or control patents or proprietary rights that are infringed by our
technologies or drug candidates.
 31




---



##### Table of Contents



Risks Related to our Common Stock
 Our executive officers, directors and their affiliates have the ability to significantly influence
all matters submitted to stockholders for approval.
  Our stock price is subject to fluctuation, which may cause an investment in our stock to suffer a
decline in value.
  Ø
    
    announcements regarding the results of preclinical tests or clinical studies involving our product candidates;Ø
    
    disputes, modifications, terminations or other developments regarding our collaborations;Ø
    
    announcements regarding new collaborations or changes to current collaborations;Ø
    
    announcements regarding technological innovations or new products by us, our collaboration partners or our competitors;Ø
    
    changes in the market valuations of similar companies;Ø
    
    conditions or trends in the biotechnology and pharmaceutical industries;Ø
    
    developments relating to patents and other intellectual property rights, including disputes with licensors or other
third parties, litigation matters and our ability to obtain patent protection for our chemical compounds or
technologies;
 32




---



##### Table of Contents



Ø
    
    FDA or international regulatory actions;Ø
    
    additions to or departures of our key personnel;Ø
    
    actual or anticipated variations in quarterly operating results;Ø
    
    changes in financial estimates by, or expectations of securities analysts; andØ
    
    sales of our common stock.
  Antitakeover provisions that we have in place could entrench our management team and delay or
prevent an acquisition. These provisions could adversely affect the price of our common stock
because purchasers cannot acquire a controlling interest.
  Ø
    
    a classified Board of Directors;Ø
    
    limitations on the removal of directors;Ø
    
    limitations on stockholder proposals at meetings of stockholders;Ø
    
    the inability of stockholders to act by written consent or to call special meetings; andØ
    
    the ability of our Board of Directors to designate the terms of and issue new series of
preferred stock without stockholder approval.
   An active trading market for our common stock may not develop and if there are substantial sales of
our common stock, our stock price could decline.
  33




---



##### Table of Contents



Because we do not intend to pay dividends, you will benefit from an investment in our common stock
only if it appreciates in value.
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4. Controls and Procedures
 Evaluation of disclosure controls and procedures
  Change in internal control over financial reporting
  Limitations on the effectiveness of controls
  34




---



##### Table of Contents



Part II. Other Information
 
 Item 6. Exhibits
 31.1
    
    Certification by the Chief Executive Officer pursuant to Rule
13a-14(a) under the Securities Exchange Act of 193431.2
    
    Certification by the Principal Financial Officer pursuant to Rule
13a-14(a) under the Securities Exchange Act of 193432.1
    
    Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
 35




---



##### Table of Contents



SIGNATURES
  MEMORY PHARMACEUTICALS CORP.By:
    
    /s/ Joseph M. DonabauerJoseph M. DonabauerVice President & Controller(Principal Financial and Accounting Officer andDuly Authorized Officer)
  36




---



##### Table of Contents



Exhibit Index
 Exhibit Number
    
    Description31.1
    
    Certification by the Chief Executive Officer pursuant
to Rule 13a-14(a) under the Securities Exchange Act of
193431.2
    
    Certification by the Principal Financial Officer
pursuant to Rule 13a-14(a) under the Securities
Exchange Act of 193432.1
    
    Certification Pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
 37