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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 March 31, 2007
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number: 000-50642
 Memory Pharmaceuticals Corp.
  Delaware
    
    04-3363475(State or Other Jurisdiction of Incorporation or 
Organization)
    
    (I.R.S. Employer Identification No.)100 Philips Parkway, Montvale, New Jersey
    
    07645(Address of Principal Executive Offices)
    
    (Zip Code)
  
   
   þ o
  o o þ
  o þ




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MEMORY PHARMACEUTICALS CORP.
 Table of Contents
 Part I. Financial Information
    
    
    3Item 1. Financial Statements
    
    
    3BALANCE SHEETS (UNAUDITED)
    
    
    3STATEMENTS OF OPERATIONS (UNAUDITED)
    
    
    4STATEMENTS OF CASH FLOWS (UNAUDITED)
    
    
    5Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    12Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    18Item 4. Controls and Procedures
    
    
    19Part II. Other Information.
    
    
    20Item 1A. Risk Factors
    
    
    20Item 6. Exhibits
    
    
    20SIGNATURES
    
    
    21EX-10.1: FIRST AMENDMENT TO AMENDED AND RESTATED STRATEGIC ALLIANCE AGREEMENTEX-10.2: : FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENTEX-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32.1: CERTIFICATION
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PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 MEMORY PHARMACEUTICALS CORP.
 
 BALANCE SHEETS
 (unaudited)
 (in thousands, except for share and per share amounts)
 March 31,
    
    
    December 31,2007
    
    
    2006ASSETSCurrent assets:Cash and cash equivalents
    
    $
    53,709
    
    
    $
    50,849Marketable securities
    
    
    54
    
    
    
    474Receivables
    
    
    975
    
    
    
    Prepaid and other current assets
    
    
    2,319
    
    
    
    1,397Total current assets
    
    
    57,057
    
    
    
    52,720Deferred financing costs, net
    
    
    437
    
    
    
    Property and equipment, net
    
    
    7,040
    
    
    
    7,413Restricted cash
    
    
    505
    
    
    
    509Total assets
    
    $
    65,039
    
    
    $
    60,642LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    3,976
    
    
    $
    741Accrued expenses
    
    
    5,508
    
    
    
    6,179Current portion of equipment notes payable
    
    
    586
    
    
    
    744Deferred revenue  current
    
    
    6,316
    
    
    
    6,801Total current liabilities
    
    
    16,386
    
    
    
    14,465Warrant liability
    
    
    
    
    
    
    8,724Loan payable
    
    
    5,074
    
    
    
    Equipment notes payable, less current portion
    
    
    268
    
    
    
    345Deferred revenue  long-term
    
    
    13,316
    
    
    
    13,906Total liabilities
    
    
    35,044
    
    
    
    37,440Stockholders equity:Common stock, $0.001 par value per share;
100,000,000 shares authorized and 71,763,034
and 67,655,132 issued and outstanding at
March 31, 2007, and December 31, 2006
respectively
    
    
    71
    
    
    
    68Additional paid-in capital
    
    
    220,129
    
    
    
    206,372Accumulated deficit
    
    
    (190,202
    )
    
    
    (183,227
    )Accumulated other comprehensive loss
    
    
    (3
    )
    
    
    (11
    )Total stockholders equity
    
    
    29,995
    
    
    
    23,202Total liabilities and stockholders equity
    
    $
    65,039
    
    
    $
    60,642
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MEMORY PHARMACEUTICALS CORP.
 
 STATEMENTS OF OPERATIONS
 (unaudited)
 (in thousands, except for share and per share amounts)
 Three Months EndedMarch 31,2007
    
    
    2006Revenue
    
    $
    2,690
    
    
    $
    2,780Operating expenses:Research and development
    
    
    9,851
    
    
    
    6,843General and administrative
    
    
    2,253
    
    
    
    2,238Total operating expenses
    
    
    12,104
    
    
    
    9,081Loss from operations
    
    
    (9,414
    )
    
    
    (6,301
    )Change in fair value of warrants (Note 7)
    
    
    
    
    
    
    (2,260
    )Interest:Income
    
    
    630
    
    
    
    441Expense
    
    
    (79
    )
    
    
    (59
    )Interest income (expense), net
    
    
    551
    
    
    
    382Loss before income taxes
    
    
    (8,863
    )
    
    
    (8,179
    )Income taxes
    
    
    
    
    
    
    2Net loss
    
    $
    (8,863
    )
    
    $
    (8,181
    )Basic and diluted net loss per share of common stock
    
    $
    (0.13
    )
    
    $
    (0.22
    )Basic and diluted weighted average number of shares
of common stock outstanding
    
    
    70,145,592
    
    
    
    37,745,394
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MEMORY PHARMACEUTICALS CORP.
 
 STATEMENTS OF CASH FLOWS
 (unaudited)
 (in thousands)
 Three Months EndedMarch 31,2007
    
    
    2006Cash flows used in operating activities:Net loss
    
    $
    (8,863
    )
    
    $
    (8,181
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization
    
    
    534
    
    
    
    516Non-cash stock based compensation
    
    
    849
    
    
    
    716Change in fair value of warrants
    
    
    
    
    
    
    2,260Changes in operating accounts:Receivables
    
    
    (975
    )
    
    
    737Prepaid and other current assets
    
    
    (918
    )
    
    
    (36
    )Accounts payable
    
    
    3,235
    
    
    
    (158
    )Accrued expenses
    
    
    (671
    )
    
    
    (1,073
    )Deferred revenue
    
    
    (1,075
    )
    
    
    (1,955
    )Net cash used in operating activities
    
    
    (7,884
    )
    
    
    (7,174
    )Cash flows from investing activities:Sales of marketable securities
    
    
    428
    
    
    
    2,072Additions to property and equipment
    
    
    (144
    )
    
    
    (121
    )Net cash provided by investing activities
    
    
    284
    
    
    
    1,951Cash flows provided by financing activities:Proceeds from issuance of common stock
    
    
    5,135
    
    
    
    80Proceeds from issuance of loan payable and warrants
    
    
    6,000
    
    
    
    Deferred financing costs
    
    
    (440
    )
    
    
    Principal repayment of equipment notes payable
    
    
    (235
    )
    
    
    (366
    )Net cash (used in) / provided by financing activities
    
    
    10,460
    
    
    
    (286
    )Net increase (decrease) in cash and cash equivalents
    
    
    2,860
    
    
    
    (5,509
    )Cash and cash equivalents, beginning of period
    
    
    50,849
    
    
    
    39,533Cash and cash equivalents, end of period
    
    $
    53,709
    
    
    $
    34,024Supplemental cash flow information:Cash paid for interest
    
    $
    27
    
    
    $
    59Cash paid for taxes
    
    
    
    
    
    
    2
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MEMORY PHARMACEUTICALS CORP.
 NOTES TO FINANCIAL STATEMENTS
 (1) Basis of Presentation
    (2) Stock-Based Compensation
   Three Months
    
    Three MonthsEnded
    
    EndedMarch 31, 2007
    
    March 31, 2006Expected life
    
    5.56 to 6.06 years
    
    6.25 yearsExpected volatility
    
    87.8%
    
    81.5%Risk-free interest rate
    
    4.74% to 4.81%
    
    4.39% to 4.75%Dividend yield
    
    0%
    
    0%
 Share-Based
Payment
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Exercise Price
    
    
    Weighted AverageShares
    
    
    Per Share
    
    
    Exercise PriceOutstanding at December 31,
2006
    
    
    5,276,852
    
    
    $
    0.30$9.82
    
    
    $
    3.03Granted
    
    
    1,015,250
    
    
    
    3.57   3.81
    
    
    
    3.57Exercised
    
    
    (110,622
    )
    
    
    0.75  2.57
    
    
    
    0.83Cancelled / Forfeited
    
    
    (16,336
    )
    
    
    0.75   9.82
    
    
    
    3.86Outstanding at March 31, 2007
    
    
    6,165,144
    
    
    $
    0.30$9.82
    
    
    $
    3.16
  Accounting for Equity Instruments that are
Issued to Other than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services
 (3) Net Loss Per Share
  Three Months EndedMarch 31,2007
    
    2006Common stock options
    
    
    6,228,118
    
    
    
    4,294,428Warrants
    
    
    7,643,011
    
    
    
    5,913,267Total
    
    
    13,871,129
    
    
    
    10,207,695
  (4) Marketable Securities
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Accounting for
Certain Investments in Debt and Equity Securities
  March 31, 2007
    
    
    December 31, 2006Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedValue
    
    
    Loss
    
    
    Value
    
    
    Loss(in thousands)Mortgage-backed and asset-backed securities
    
    $
    54
    
    
    
    
    
    
    $
    474
    
    
    
    Marketable securities due over 90 days
    
    $
    54
    
    
    $
    
    
    
    $
    474
    
    
    $
    Commercial paper
    
    
    8,944
    
    
    
    3
    
    
    
    21,885
    
    
    
    Obligations of US government agencies
    
    
    
    
    
    
    
    
    
    
    804
    
    
    
    11Marketable securities due in 90 days or less *
    
    $
    8,944
    
    
    $
    3
    
    
    $
    22,689
    
    
    $
    11Total marketable securities
    
    $
    8,998
    
    
    $
    3
    
    
    $
    23,163
    
    
    $
    11
 
 *
    
    Classified as cash and cash equivalents on the balance sheets since they mature within 90
days of the purchase date.  Cost
    
    
    Fair value(in thousands)Due in 90 days or less *
    
    $
    8,947
    
    
    $
    8,944Due after two years
    
    
    54
    
    
    
    54$
    9,001
    
    
    $
    8,998
 
 *
    
    Classified as cash and cash equivalents on the balance sheets since they mature within 90
days of the purchase date.  (5) Comprehensive Income/Loss
  (6) License Agreements and Collaborations
 Bayer AG In-License
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Hoffmann-La Roche (2002 Roche Agreement)
    Hoffmann-La Roche (Amended and Restated 2003 Roche Agreement)
   Amgen Inc. (2005 Amgen Agreement)
  9




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The Stanley Medical Research Institute (SMRI Development Agreement)
  (7) 2005 Private Placement
    Accounting for Registration Payment
Arrangements
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(8) 2006 Private Placement
   (9) Hercules Financing
    (10) Income Taxes
 Accounting for Uncertainty in Income Taxes
- an Interpretation of FASB Statement No. 109 Accounting for Income Taxes
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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  OVERVIEW
    12




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13




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CRITICAL ACCOUNTING POLICIES
   Use of estimates
  Revenue recognition
 Revenue Recognition Accounting
for Revenue Arrangements with Multiple Deliverables
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Accrued expenses
  Ø
    
    professional service fees, such as attorneys and accountants fees;Ø
    
    preclinical and clinical contract research organization fees;Ø
    
    fees to be paid to data management organizations and investigators in conjunction with clinical trials; andØ
    
    fees to be paid to contract manufacturers in conjunction with the production of the
supply of our drug candidates for preclinical and clinical trials.
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Research and development expense
  Share-Based Payment Arrangements
    RESULTS OF OPERATIONS
 Three Months Ended March 31, 2007 Compared to Three Months Ended March 31, 2006
 Revenue
   Research and development expense
  General and administrative expense
  Change in fair value of warrants
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Interest income and interest expense
  Income taxes
  LIQUIDITY AND CAPITAL RESOURCES
      Ø
    the number of compounds and drug candidates that we advance through the development process;
 17




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Ø
    
    the funding we receive from our currently existing or any new collaborations;Ø
    
    the scope and results of our and our collaborators clinical trials;Ø
    
    the 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 our drug candidates
for preclinical and 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.
  Contractual Obligations
  New Accounting Pronouncements
 The Fair
Value for Financial Assets and Financial Liabilities
 Fair Value
Measurements
 
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
  18




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Item 4. Controls and Procedures
 Evaluation of disclosure controls and procedures
  Change in internal control over financial reporting
  Limitations on the effectiveness of controls
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PART II. OTHER INFORMATION.
 
 Item 1A. Risk Factors
  
 Item 6. Exhibits
 10.1*
    
    First Amendment to Amended and Restated Strategic
Alliance Agreement (Nicotinic Alpha-7 Program) dated
March 30, 2007, between F. Hoffmann-La Roche Ltd,
Hoffmann-La Roche Inc. and the Registrant.10.2
    
    
    First Amendment to Loan and Security Agreement dated
April 4, 2007, between Hercules Technology Growth
Capital, Inc. and the Registrant.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
 
 *
    
    Confidential treatment requested as to certain portions, which portions are omitted and filed
separately with the SEC. 20




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SIGNATURES
  MEMORY PHARMACEUTICALS CORP.By:
    /s/ Joseph M. DonabauerJoseph M. DonabauerVice President & Controller
(Principal Financial and Accounting Officer and Duly
Authorized Officer)  21




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Exhibit Index
 10.1*
    
    First Amendment to Amended and Restated Strategic
Alliance Agreement (Nicotinic Alpha-7 Program) dated
March 30, 2007, between F. Hoffmann-La Roche Ltd,
Hoffmann-La Roche Inc. and the Registrant.10.2
    
    
    First Amendment to Loan and Security Agreement dated
April 4, 2007, between Hercules Technology Growth
Capital, Inc. and the Registrant.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
 
 *
    
    Confidential treatment requested as to certain portions, which portions are omitted and filed
separately with the SEC. 22