##### 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 June 30, 2008
 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)
 (Registrants Telephone Number, Including Area Code)
 (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
  þ o
  Large Accelerated Filer o
    
    Accelerated Filer o
    
    Non-Accelerated Filer o
    
    Smaller reporting company þ
  o þ




---



##### 



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)
    
    
    5NOTES TO FINANCIAL STATEMENTS (unaudited)
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    16Item 4T. Controls and Procedures
    
    
    26Part II. Other Information
    
    
    27Item 1A. Risk Factors
    
    
    27Item 4. Submission of Matters to a Vote of Security Holders
    
    
    28Item 6. Exhibits
    
    
    28SIGNATURES
    
    
    29Exhibit 3.1Exhibit 31.1Exhibit 31.2Exhibit 32.1
   2




---



##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 MEMORY PHARMACEUTICALS CORP.
 
 BALANCE SHEETS
 (unaudited)
 (in thousands, except for share and per share amounts)
 June 30,
    
    
    December 31,2008
    
    
    2007ASSETSCurrent assets:Cash and cash equivalents
    
    $
    22,106
    
    
    $
    38,167Marketable securities
    
    
    
    
    
    
    34Prepaid and other current assets
    
    
    1,959
    
    
    
    1,417Total current assets
    
    
    24,065
    
    
    
    39,618Property and equipment, net
    
    
    5,108
    
    
    
    5,868Restricted cash
    
    
    505
    
    
    
    505Deferred financing costs, net
    
    
    368
    
    
    
    519Total assets
    
    $
    30,046
    
    
    $
    46,510LIABILITIES AND STOCKHOLDERS (DEFICIT) EQUITYCurrent liabilities:Accounts payable
    
    $
    1,735
    
    
    $
    1,670Accrued research and development costs
    
    
    2,688
    
    
    
    1,303Accrued expenses  other
    
    
    2,073
    
    
    
    2,551Current portion of equipment notes payable
    
    
    178
    
    
    
    279Current portion of long-term debt
    
    
    5,288
    
    
    
    2,986Deferred revenue  current
    
    
    4,253
    
    
    
    3,232Total current liabilities
    
    
    16,215
    
    
    
    12,021Long-term debt, less current portion
    
    
    8,446
    
    
    
    10,831Other non-current liabilities
    
    
    579
    
    
    
    506Equipment notes payable, less current portion
    
    
    19
    
    
    
    66Deferred revenue  long-term
    
    
    18,927
    
    
    
    14,819Total liabilities
    
    
    44,186
    
    
    
    38,243Stockholders (Deficit) Equity:Common stock, $0.001 par value per share; 175,000,000 shares authorized; and 77,421,051
and 72,650,481 issued and outstanding at June 30, 2008, and December 31, 2007, respectively
    
    
    77
    
    
    
    72Additional paid-in capital
    
    
    228,258
    
    
    
    224,819Accumulated deficit
    
    
    (242,475
    )
    
    
    (216,624
    )Total stockholders (deficit) equity
    
    
    (14,140
    )
    
    
    8,267Total liabilities and stockholders (deficit) equity
    
    $
    30,046
    
    
    $
    46,510
   3




---



##### Table of Contents



MEMORY PHARMACEUTICALS CORP.
 
 STATEMENTS OF OPERATIONS
 (unaudited)
 (in thousands, except per share amounts)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Revenue
    
    $
    947
    
    
    $
    2,728
    
    
    $
    1,699
    
    
    $
    5,418Operating expenses:Research and development
    
    
    10,252
    
    
    
    11,258
    
    
    
    21,234
    
    
    
    21,108General and administrative
    
    
    2,579
    
    
    
    2,593
    
    
    
    5,453
    
    
    
    4,846Total operating expenses
    
    
    12,831
    
    
    
    13,851
    
    
    
    26,687
    
    
    
    25,954Loss from operations
    
    
    (11,884
    )
    
    
    (11,123
    )
    
    
    (24,988
    )
    
    
    (20,536
    )Other income
    
    
    4
    
    
    
    
    
    
    
    28
    
    
    
    Interest:Income
    
    
    155
    
    
    
    649
    
    
    
    477
    
    
    
    1,279Expense
    
    
    (681
    )
    
    
    (209
    )
    
    
    (1,368
    )
    
    
    (287
    )Interest (expense) income, net
    
    
    (526
    )
    
    
    440
    
    
    
    (891
    )
    
    
    992Loss before income taxes
    
    
    (12,406
    )
    
    
    (10,683
    )
    
    
    (25,851
    )
    
    
    (19,544
    )Income taxes
    
    
    
    
    
    
    6
    
    
    
    
    
    
    
    6Net loss
    
    $
    (12,406
    )
    
    $
    (10,689
    )
    
    $
    (25,851
    )
    
    $
    (19,550
    )Basic and diluted net loss per
share of common stock
    
    $
    (0.17
    )
    
    $
    (0.15
    )
    
    $
    (0.35
    )
    
    $
    (0.27
    )Basic and diluted weighted
average number of shares of
common stock outstanding
    
    
    73,139
    
    
    
    72,098
    
    
    
    72,917
    
    
    
    71,122
   4




---



##### Table of Contents



MEMORY PHARMACEUTICALS CORP.
 
 STATEMENTS OF CASH FLOWS
 (unaudited)
 (in thousands)
 Six Months EndedJune 30,2008
    
    
    2007Cash flows used in operating activities:Net loss
    
    $
    (25,851
    )
    
    $
    (19,550
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization
    
    
    798
    
    
    
    1,155Stock-based compensation
    
    
    1,409
    
    
    
    1,656Loss on sale of marketable securities
    
    
    11
    
    
    
    Amortization of deferred financing costs and discount on loans
    
    
    499
    
    
    
    Unrealized gain related to valuation of put option
    
    
    (22
    )
    
    
    Changes in assets and liabilities:Prepaid and other current assets
    
    
    (542
    )
    
    
    65Other assets
    
    
    
    
    
    
    4Accounts payable
    
    
    65
    
    
    
    2,598Accrued expenses
    
    
    907
    
    
    
    (1,229
    )Deferred revenue
    
    
    5,129
    
    
    
    (2,003
    )Other non current liabilities
    
    
    95
    
    
    
    Net cash used in operating activities
    
    
    (17,502
    )
    
    
    (17,304
    )Cash flows from investing activities:Sales of marketable securities
    
    
    23
    
    
    
    410Additions to property and equipment
    
    
    (38
    )
    
    
    (236
    )Net cash (used in) / provided by investing activities
    
    
    (15
    )
    
    
    174Cash flows provided by financing activities:Proceeds from issuance of common stock
    
    
    2,035
    
    
    
    7,248Proceeds from issuance of loan payable and warrants
    
    
    
    
    
    
    11,000Deferred financing costs
    
    
    
    
    
    
    (261
    )Principal repayment of equipment notes payable
    
    
    (148
    )
    
    
    (421
    )Principal repayment of long-term debt
    
    
    (432
    )
    
    
    Net cash provided by financing activities
    
    
    1,455
    
    
    
    17,566Net (decrease) / increase in cash and cash equivalents
    
    
    (16,061
    )
    
    
    436Cash and cash equivalents, beginning of period
    
    
    38,167
    
    
    
    50,849Cash and cash equivalents, end of period
    
    
    22,106
    
    
    
    51,285Supplemental cash flow information:Cash paid for interest
    
    
    878
    
    
    
    265Cash paid for taxes
    
    
    
    
    
    
    
   5




---



##### Table of Contents



MEMORY PHARMACEUTICALS CORP.
 
 NOTES TO FINANCIAL STATEMENTS (unaudited)
 1)
    
    Basis of Presentation, Business Overview and Liquidity
          6




---



##### Table of Contents



(2)
    
    Stock-Based Compensation
    7




---



##### Table of Contents



Six Months Ended
    
    Six Months EndedJune 30, 2008
    
    June 30, 2007Expected life
    
    5 to 10 years
    
    5.56 to 10 yearsExpected volatility
    
    91.9% to 93.9%
    
    87.8% to 89.5%Risk-free interest rate
    
    2.67% to 3.73%
    
    4.52% to 5.03%Dividend yield
    
    0%
    
    0%
 Share-Based Payment
  Exercise Price
    
    Weighted-AverageShares
    
    
    Per Share
    
    Exercise PriceOutstanding at December 31,
2007
    
    
    6,327,624
    
    
    $0.30 - $9.82
    
    $
    3.16Granted
    
    
    2,275,530
    
    
    $0.41 -  $0.74
    
    
    0.58Exercised
    
    
    (166
    )
    
    $0.54
    
    
    0.54Cancelled / Forfeited
    
    
    (488,817
    )
    
    $0.54 - $9.82
    
    
    3.47Outstanding at June 30, 2008
    
    
    8,114,171
    
    
    $0.30 - $9.82
    
    $
    2.42
   , 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
   8




---



##### Table of Contents



Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Stock options
    
    
    8,114,171
    
    
    
    6,135,598
    
    
    
    7,886,225
    
    
    
    6,181,858Warrants
    
    
    6,744,769
    
    
    
    6,527,755
    
    
    
    6,744,769
    
    
    
    7,085,383Total
    
    
    14,858,940
    
    
    
    12,663,353
    
    
    
    14,630,994
    
    
    
    13,267,241
 (4)
    
    Marketable Securities
  June 30,
    
    
    December 31,2008
    
    
    2007Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedValue
    
    
    Loss
    
    
    Value
    
    
    Loss(in thousands)Mortgage-backed and asset-backed securities
due over 90 days
    
    $
    
    
    
    $
    
    
    
    $
    34
    
    
    $
    Total marketable securities
    
    $
    
    
    
    $
    
    
    
    $
    34
    
    
    $
    
 (5)
    
    Comprehensive Income/Loss
 Reporting Comprehensive Income
 (6)
    
    License Agreements and Collaborations
 Hoffmann-La Roche (PDE4 Inhibitor Program)
   9




---



##### Table of Contents



Hoffmann-La Roche (Nicotinic Alpha-7 Agonist Program)
       10




---



##### Table of Contents



Amgen Inc. (PDE10 Inhibitor Program)
   The Stanley Medical Research Institute (SMRI ) (MEM 1003 in Bipolar Disorder)
  (7)
    
    2005 Private Placement
    11




---



##### Table of Contents



Accounting for
Registration Payment Arrangements
 (8)
    
    2006 Private Placement
    (9)
    
    2007 Private Placement
    12




---



##### Table of Contents



(10)
    
    Long Term Debt
    13




---



##### Table of Contents



(11)
    
    Restructuring
 Accounting for Costs Associated with Exit or Disposal
Activities
 (In Thousands)Balance at
    
    
    
    
    
    
    
    
    
    
    Balance atDecember 31, 2007
    
    
    Charges
    
    
    Payments
    
    
    June 30, 2008Severance costs
    
    $
    
    
    
    $
    327
    
    
    $
    253
    
    
    $
    74Other restructuring costs
    
    
    
    
    
    
    31
    
    
    
    18
    
    
    
    13Total restructuring costs
    
    $
    
    
    
    $
    358
    
    
    $
    271
    
    
    $
    87
 (12)
    
    Fair Value Measurement
 Fair Value Measurement Effective
Date of FASB Statement No. 157,
  14




---



##### Table of Contents



Level 1:
    
    Quoted prices (unadjusted) in active markets that are accessible at the
measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.
 Level 2:
    
    Observable prices that are based on inputs not quoted on active markets, but
corroborated by market data.
 Level 3:
    
    Unobservable inputs are used when little or no market data is available. The
fair value hierarchy gives the lowest priority to Level 3 inputs.
  June 30, 2008
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Assets:Cash equivalents
    
    $
    18,173
    
    
    $
    18,173
    
    
    
    
    
    
    
    Total
    
    $
    18,173
    
    
    $
    18,173
    
    
    
    
    
    
    
    Liabilities:Put option
    
    $
    34
    
    
    
    
    
    
    
    
    
    
    $
    34Total
    
    $
    34
    
    
    
    
    
    
    
    
    
    
    $
    34
 Fair Value Measurements Using Significant Unobservable Inputs(Level 3) (in thousands)DerivativesBeginning balance at December 31, 2007
    
    $
    56Unrealized gains included in operations
    
    
    (22
    )Balance at June 30, 2008
    
    $
    34The amount of total gains or losses for
the six-month period included in
operations (or changes in net assets)
attributable to the change in unrealized
gains or losses relating to assets still
held at the reporting date
    
    $
    (22
    )
 (13)
    
    Sublease
  (14)
    
    Subsequent Event
   15




---



##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
   OVERVIEW
  6
  Nicotinic Alpha-7 Agonist Program
   16




---



##### Table of Contents



17




---



##### Table of Contents



 PDE4 Inhibitor Program
   PDE10 Inhibitor Program
   5-HT 6 Antagonist Program
 6 6 6 6
  L-Type Calcium Channel Modulator
    18




---



##### Table of Contents



CRITICAL ACCOUNTING POLICIES
   19




---



##### Table of Contents



Use of estimates
  Revenue recognition
 Revenue Recognition, Accounting for Revenue Arrangements with Multiple Deliverables ,
     Accrued expenses
  
    
    professional service fees, such as attorneys and accountants fees;
    
    preclinical and clinical contract research organization fees;
  20




---



##### Table of Contents




    
    fees to be paid to data management organizations and investigators in conjunction with clinical trials; and
    
    fees to be paid to contract manufacturers in conjunction with the production of the
supply of our drug candidates for preclinical and clinical trials.
  Research and development expense
  Stock-based payment arrangements
 Accounting for Stock Issued to Employees
 , Accounting for Equity Instruments that are
Issued to Other than Employees for Acquiring, or in Conjunction with Selling, Goods or Services
    21




---



##### Table of Contents



Valuation of Hercules put option
  Classification of Hercules debt
  NEW ACCOUNTING PRONOUNCEMENTS
 Accounting for Nonrefundable Advance Payments for Goods or Services Received for Use in Future
Research and Development Activities
 Fair Value Measurements
 The Fair Value Option for Financial Assets and
Financial Liabilities
 Disclosures about Derivative Instruments and Hedging
Activities
 RESULTS OF OPERATIONS
 Three Months Ended June 30, 2008 compared to Three Months Ended June 30, 2007
 Revenue
   22




---



##### Table of Contents



Research and development expense
 6
 General and administrative expense
  Interest income and interest expense
  Six Months Ended June 30, 2008 compared to Six Months Ended June 30, 2007
 Revenue
   Research and development expense
 6
  23




---



##### Table of Contents



General and administrative expense
  Interest income and interest expense
  Liquidity and capital resources
        24




---



##### Table of Contents



.
   25




---



##### Table of Contents




    
    the number of compounds and drug candidates that we advance into or through the development process;
    
    the funding we receive from our collaborations;
    
    the scope and results of our and our collaborators clinical trials;
    
    potential in-licensing or acquisition of other compounds or technologies;
    
    the costs involved in utilizing third party contract research organizations for preclinical studies and clinical trials;
    
    the timing of, and the costs involved in, obtaining regulatory approvals;
    
    the availability of third parties, and the cost, to manufacture our drug candidates
for preclinical and clinical trial supply;
    
    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; and
    
    the cost of commercialization activities, including product marketing, sales and
distribution.
  
 Item 4T. Controls and Procedures
 Evaluation of disclosure controls and procedures
  Change in internal control over financial reporting
  Limitations on the effectiveness of controls
   26




---



##### Table of Contents



PART II. OTHER INFORMATION.
 
 Item 1A. Risk Factors
  We are currently not in compliance with Nasdaq rules for continued listing on the NASDAQ Global
Market and are at risk of being delisted, which may subject us to the SECs penny stock rules and
decrease the liquidity of our common stock.
      27




---



##### Table of Contents



Item 4. Submission of Matters to a Vote of Security Holders.
  Proposal One.
 Name of Nominee
    
    Total Votes For
    
    
    Total Votes WithheldRobert I. Kriebel
    
    
    55,839,510
    
    
    
    887,509Michael Meyers MPH
    
    
    55,839,469
    
    
    
    887,550James R. Sulat
    
    
    55,593,546
    
    
    
    1,133,473
  Proposal Two.
 Total Votes For
    
    
    Total Votes Against
    
    
    Total Votes AbstainedTotal Shares Voted
    
    
    52,348,643
    
    
    
    4,341,365
    
    
    
    37,010
   Proposal Three.
 Total Votes For
    
    
    Total Votes Against
    
    
    Total Votes AbstainedTotal Shares Voted
    
    
    42,845,206
    
    
    
    810,557
    
    
    
    173,856
   Proposal Four.
 Total Votes For
    
    
    Total Votes Against
    
    
    Total Votes AbstainedTotal Shares Voted
    
    
    56,341,992
    
    
    
    213,918
    
    
    
    171,109
   
 Item 6. Exhibits
 3.1
    
    
    Amended and Restated Certificate of Incorporation (as amended)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 Chief 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
  28




---



##### Table of Contents



SIGNATURES
  MEMORY PHARMACEUTICALS CORP.By:
    /s/  Vaughn M. KailianVaughn M. KailianPresident and Chief Executive Officer
(Principal Executive Officer and Duly Authorized Officer)   29




---



##### Table of Contents



Exhibit Index
 3.1
    
    
    Amended and Restated Certificate of Incorporation (as amended)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 Chief 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
  30