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**UnitedStates**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

**FORM 10-Q**

 

**(Mark One)**

 

**x****      QUARTERLY REPORT PURSUANT TO SECTION 13 OR15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For thequarterly period ended June 30, 2010**

 

**Or**

 

**o****         TRANSITION REPORT PURSUANT TO SECTION 13OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For thetransition period from             to**

 

**CommissionFile Number:  000-51708**

 

**RedpointBio Corporation**

(Exact name of Registrant asspecified in its charter)

 

| **Delaware**                     | ** ** | **22-3393959**                        |
|----------------------------------|------------|---------------------------------------|
| (State or other  jurisdiction of |       | (I.R.S. Employer  Identification No.) |
| incorporation or  organization)  |       |                                  |

 

**7 GraphicsDrive, Ewing, New Jersey 08628**

(Address of principalexecutive offices) (Zip Code)

 

**(609)637-9700**

(Registrant’s TelephoneNumber, Including Area Code)

 

 

(Former name, former addressand former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant(1) has filed all reports required to be filed by Section 13 or15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days.  Yes x No o

 

Indicate by check mark whether the registrant hassubmitted electronically and posted on its corporate Web site, if any, everyInteractive Data File required to be submitted and posted pursuant toRule 405 of Regulation S-T (§232.405 of this chapter) during the preceding12 months (or for such shorter period that the registrant was required tosubmit and post such files).  Yes o No o

 

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, a non-accelerated filer, or a smaller reporting company. Seedefinitions of “large accelerated filer,” “accelerated filer,” and “smallerreporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

| Large accelerated  filer o                |   | Accelerated filer o          |
|------------------------------------------------|--------|-----------------------------------|
|                                           |   |                              |
| Non-accelerated  filer o                  |   | Smaller reporting  company x |
| (Do not check if a smaller  reporting company) |   |                              |

 

Indicate by check mark whether the registrant is ashell company (as defined in Rule 12b-2 of the ExchangeAct).  Yes o No x

 

The number of shares of the registrant’s common stockoutstanding as of August 11, 2010 was 79,838,693.

 

 

 

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**REDPOINTBIO CORPORATION**

 
| ** **        | ** **                                                                                  | **Page** |
|-------------------|---------------------------------------------------------------------------------------------|----------|
| **PART I:**  | **FINANCIAL  INFORMATION**                                                                  | 1        |
|              |                                                                                        |     |
| ITEM 1.           | FINANCIAL STATEMENTS  (unaudited):                                                          | 1        |
|              |                                                                                        |     |
|              | Balance Sheets                                                                              | 1        |
|              |                                                                                        |     |
|              | Statements of  Operations                                                                   | 2        |
|              |                                                                                        |     |
|              | Statements of Cash Flows                                                                    | 3        |
|              |                                                                                        |     |
|              | Notes to Financial Statements                                                               | 4        |
|              |                                                                                        |     |
| ITEM  2.          | MANAGEMENT’S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 14       |
|              |                                                                                        |     |
| ITEM  3.          | QUANTITATIVE  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                 | 21       |
|              |                                                                                        |     |
| ITEM  4T.         | CONTROLS  AND PROCEDURES                                                                    | 21       |
|              |                                                                                        |     |
| **PART II:** | **OTHER INFORMATION**                                                                       | 22       |
|              |                                                                                        |     |
| ITEM 1.           | LEGAL  PROCEEDINGS                                                                          | 22       |
|              |                                                                                        |     |
| ITEM 1A.          | RISK FACTORS                                                                                | 22       |
|              |                                                                                        |     |
| ITEM  2.          | UNREGISTERED  SALES OF EQUITY SECURITIES AND USE OF PROCEEDS                                | 39       |
|              |                                                                                        |     |
| ITEM  3.          | DEFAULTS  UPON SENIOR SECURITIES                                                            | 39       |
|              |                                                                                        |     |
| ITEM 6.           | EXHIBITS                                                                                    | 39       |
|              |                                                                                        |     |
| ** **        | **SIGNATURES**                                                                              | 40       |

 

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**PART I.  FINANCIALINFORMATION.**

 

**ITEM 1.  FINANCIALSTATEMENTS.**

 

**REDPOINT BIO CORPORATION(A DEVELOPMENT-STAGE ENTERPRISE)BALANCE SHEETS(UNAUDITED)**

 
| ** **                                                                                                                                                  | ** ** | **December 31,** | ** ** | **June 30,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|-------------------|------------|
| ** **                                                                                                                                                  | ** ** | **2009**              | ** ** | **2010**          | ** ** |
| **Assets**                                                                                                                                                  |       |                  |       |              |       |
| Current assets:                                                                                                                                             |       |                  |       |              |       |
| Cash and cash equivalents                                                                                                                                   |       | $                     | 5,557,367  |              | $          | 2,528,994 |   |
| Accounts receivable                                                                                                                                         |       | —                |       | 500,000           |       |
| Prepaid expenses and other current assets                                                                                                                   |       | 176,464               |       | 104,017           |       |
| Total current assets                                                                                                                                        |       | 5,733,831             |       | 3,133,011         |       |
| Property and equipment, net                                                                                                                                 |       | 726,730               |       | 526,390           |       |
| Other assets                                                                                                                                                |       | 314,014               |       | 307,456           |       |
| Total assets                                                                                                                                                |       | $                     | 6,774,575  |              | $          | 3,966,857 |   |
| **Liabilities  and Stockholders’ Equity**                                                                                                              |       |                  |       |              |       |
| Current liabilities:                                                                                                                                        |       |                  |       |              |       |
| Current portion of long-term debt                                                                                                                           |       | $                     | 374,110    |              | $          | 397,381 |   |
| Accounts payable                                                                                                                                            |       | 658,561               |       | 688,320           |       |
| Accrued expenses                                                                                                                                            |       | 151,893               |       | 163,174           |       |
| Accrued compensation                                                                                                                                        |       | 37,702                |       | 184,952           |       |
| Total current liabilities                                                                                                                                   |       | 1,222,266             |       | 1,433,827         |       |
| Long-term debt                                                                                                                                              |       | 773,843               |       | 569,159           |       |
| Total liabilities                                                                                                                                           |       | 1,996,109             |       | 2,002,986         |       |
| Commitments (Note 9)                                                                                                                                        |       |                  |       |              |       |
| Stockholders’ equity:                                                                                                                                  |       |                  |       |              |       |
| Preferred stock; 10,000,000 shares authorized,  $0.0001 par value, none issued                                                                              |       | —                |       | —            |       |
| Common stock; authorized 150,000,000 shares;  $0.0001 par value, issued and outstanding 79,838,693 shares at  December 31, 2009 and June 30, 2010 |       | 7,984                 |       | 7,984             |       |
| Additional paid-in-capital                                                                                                                                  |       | 56,103,784            |       | 56,391,305        |       |
| Deficit accumulated during development stage                                                                                                                |       | (51,333,302           | )          | (54,435,418       | )          |
| Total stockholders’ equity                                                                                                                             |       | 4,778,466             |       | 1,963,871         |       |
| Total liabilities and stockholders’ equity                                                                                                             |       | $                     | 6,774,575  |              | $          | 3,966,857 |   |

 

See accompanying notes to the unaudited financial statements.

 

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**REDPOINT BIO CORPORATION(A DEVELOPMENT-STAGE ENTERPRISE)STATEMENTS OF OPERATIONS(UNAUDITED)**

 
| ** **                                  | ** ** | **Three Months Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** | **August 16,  1995 (Inception) to** | ** ** |
|---------------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                  | ** ** | **2009**                                            | ** ** | **2010**                                          | ** ** | **2009**                                           | ** ** | **2010** | ** ** | **June 30, 2010** | ** ** |
| Research, grant and license revenue         |       | $                                                   | 809,687    |                                              | $          | 500,000                                            |       | $ | 1,868,428 |   | $ | 500,000 |   | $ | 12,830,002 |   |
| Operating expenses:                         |       |                                                |       |                                              |       |                                               |       |   |   |   |   |
| Research and development                    |       | 1,485,586                                           |       | 770,959                                           |       | 3,407,077                                          |       | 1,620,263 |   | 35,688,326 |   |
| General and administrative                  |       | 1,366,857                                           |       | 1,084,161                                         |       | 3,026,122                                          |       | 2,013,008 |   | 27,175,832 |   |
| Total operating expenses                    |       | 2,852,443                                           |       | 1,855,120                                         |       | 6,433,199                                          |       | 3,633,271 |   | 62,864,158 |   |
| Operating loss                              |       | (2,042,756                                          | )          | (1,355,120                                        | )          | (4,564,771                                         | )          | (3,133,271 | ) | (50,034,156 | ) |
| Interest income                             |       | 46,531                                              |       | 291                                               |       | 102,192                                            |       | 10,560 |   | 1,671,178 |   |
| Interest expense                            |       | (66,498                                             | )          | (33,945                                           | )          | (118,547                                           | )          | (80,711 | ) | (3,746,835 | ) |
| Loss before income taxes                    |       | (2,062,723                                          | )          | (1,388,774                                        | )          | (4,581,126                                         | )          | (3,203,422 | ) | (52,109,813 | ) |
| Income tax benefit                          |       | —                                              |       | —                                            |       | —                                             |       | 101,306 |   | 1,087,284 |   |
| Net loss                                    |       | (2,062,723                                          | )          | (1,388,774                                        | )          | (4,581,126                                         | )          | (3,102,116 | ) | $ | (51,022,529 | ) |
| Basic and diluted net loss per common share |       | $                                                   | (0.03      | )                                                 | $          | (0.02                                              | )          | $ | (0.06 | ) | $ | (0.04 | ) |   |   |
| Weighted average of shares outstanding      |       | 79,495,870                                          |       | 79,838,693                                        |       | 79,495,870                                         |       | 79,838,693 |   |   |   |

 

See accompanying notes to the unaudited financial statements.

 

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**REDPOINTBIO CORPORATION(A DEVELOPMENT-STAGE ENTERPRISE)STATEMENTS OF CASH FLOWS**

**(UNAUDITED)**

 
| ** **                                                                   | ** ** | **Six Months Ended  June 30,** | ** ** | **August 16, 1995  (Inception) to  June 30,** | ** ** |
|------------------------------------------------------------------------------|------------|-----------------------------------------------|------------|-------------------------------------------------------------------|------------|
| ** **                                                                   | ** ** | **2009**                                      | ** ** | **2010**                                                          | ** ** | **2010** | ** ** |
| Cash flows from operating activities:                                        |       |                                          |       |                                                              |       |   |   |
| Net loss                                                                     |       | $                                             | (4,581,126 | )                                                                 | $          | (3,102,116 | ) | $ | (51,022,529 | ) |
| Adjustments to reconcile net loss to net cash used  in operating activities: |       |                                          |       |                                                              |       |   |   |
| Depreciation                                                                 |       | 285,296                                       |       | 200,340                                                           |       | 2,853,812 |   |
| Amortization of discounts and premiums on  marketable securities             |       | 1,979                                         |       | —                                                            |       | (473,654 | ) |
| Options, warrants and stock issued for services  and dilution provisions     |       | 382,575                                       |       | 287,521                                                           |       | 4,429,698 |   |
| Beneficial conversion feature                                                |       | —                                        |       | —                                                            |       | 1,228,565 |   |
| Amortization of discount on convertible notes                                |       | —                                        |       | —                                                            |       | 899,935 |   |
| Amortization of deferred financing costs                                     |       | 8,893                                         |       | 6,558                                                             |       | 167,802 |   |
| Debt inducement charge                                                       |       | —                                        |       | —                                                            |       | 361,598 |   |
| Interest expense on convertible notes                                        |       | —                                        |       | —                                                            |       | 136,075 |   |
| Changes in assets and liabilities:                                           |       |                                          |       |                                                              |       |   |   |
| Accounts receivable                                                          |       | 139,095                                       |       | (500,000                                                          | )          | (500,000 | ) |
| Prepaid expenses and other assets                                            |       | 80,039                                        |       | 72,447                                                            |       | (690,579 | ) |
| Accounts payable                                                             |       | (142,006                                      | )          | 29,759                                                            |       | 996,776 |   |
| Accrued expenses and accrued compensation                                    |       | 425,231                                       |       | 158,531                                                           |       | 479,736 |   |
| Deferred revenue                                                             |       | (649,902                                      | )          | —                                                            |       | — |   |
| Net cash (used in) operating activities                                      |       | (4,049,926                                    | )          | (2,846,960                                                        | )          | (41,132,765 | ) |
| Cash flows from investing activities:                                        |       |                                          |       |                                                              |       |   |   |
| Maturity and sale of marketable securities                                   |       | 10,490,000                                    |       | —                                                            |       | (46,513,341 | ) |
| Purchases of marketable securities                                           |       | (3,019,048                                    | )          | —                                                            |       | 46,986,994 |   |
| Purchases of property and equipment                                          |       | (5,852                                        | )          | —                                                            |       | (3,380,219 | ) |
| Net cash provided by (used in) investing  activities                         |       | 7,465,100                                     |       | —                                                            |       | (2,906,566 | ) |
| Cash flows from financing activities:                                        |       |                                          |       |                                                              |       |   |   |
| Proceeds from issuance of long-term debt                                     |       | —                                        |       | —                                                            |       | 3,614,710 |   |
| Net proceeds from convertible notes                                          |       | —                                        |       | —                                                            |       | 5,253,811 |   |
| Repayment of debt                                                            |       | (278,054                                      | )          | (181,413                                                          | )          | (2,700,627 | ) |
| Net proceeds from issuance of preferred stock                                |       | —                                        |       | —                                                            |       | 11,883,447 |   |
| Net proceeds from issuance of common stock and  warrants                     |       | —                                        |       | —                                                            |       | 28,624,603 |   |
| Proceeds from exercise of common stock options and  warrants                 |       | —                                        |       | —                                                            |       | 175,502 |   |
| Common stock reacquired                                                      |       | —                                        |       | —                                                            |       | (283,121 | ) |
| Net cash provided by (used in) financing  activities                         |       | (278,054                                      | )          | (181,413                                                          | )          | 46,568,325 |   |
| Net increase (decrease) in cash and cash  equivalents                        |       | 3,137,120                                     |       | (3,028,373                                                        | )          | 2,528,994 |   |
| Cash and cash equivalents, beginning of period                               |       | 3,130,561                                     |       | 5,557,367                                                         |       | — |   |
| Cash and cash equivalents, end of period                                     |       | $                                             | 6,267,681  |                                                              | $          | 2,528,994 |   | $ | 2,528,994 |   |
| Supplemental cash flow disclosures:                                          |       |                                          |       |                                                              |       |   |   |
| Noncash investing and financing activities:                                  |       |                                          |       |                                                              |       |   |   |
| Conversion of notes payable and accrued interest  to preferred stock         |       | —                                        |       | —                                                            |       | 1,446,395 |   |
| Conversion of notes payable and accrued interest  to common stock            |       | —                                        |       | —                                                            |       | 3,896,001 |   |
| Conversion of preferred and junior preferred stock  to common stock          |       | —                                        |       | —                                                            |       | 16,940,297 |   |
| Accretion of preferred stock                                                 |       | —                                        |       | —                                                            |       | 3,248,857 |   |
| Warrants issued in connection with notes payable                             |       | —                                        |       | —                                                            |       | 1,258,642 |   |
| Cash paid for interest                                                       |       | 91,104                                        |       | 65,093                                                            |       | 735,086 |   |

 

See accompanying notes to the unaudited financial statements.

 

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**REDPOINTBIO CORPORATION(A DEVELOPMENT-STAGE ENTERPRISE)********NOTES TO FINANCIAL STATEMENTS**

**(UNAUDITED)**

 

**1.****                                     ****Descriptionof the Business, Liquidity and Basis of Presentation**

 

*Description of the Business and Liquidity*

 

Redpoint Bio (“Redpoint” or the “Company”) is adevelopment stage biotechnology company focused on the development of healthierfoods and beverages and new approaches to the treatment of diabetes and obesity.

 

The Company is leveraging recent discoveries in themolecular biology of taste to discover and develop novel taste modulators forthe food and beverage industries. The Company’s food and beverage program hasbeen focused on identifying novel flavor modifiers that improve the taste ofexisting ingredients, enabling the development of better-tasting and morehealthful foods and beverages. In June 2009, the Company announced that ithad identified an all-natural sweetness enhancer, RP44. In June 2010, theCompany entered into a license and commercialization agreement withInternational Flavors & Fragrances Inc. (“IFF”), a global leader inthe food and beverage industry, covering the commercialization of RP44.

 

The Company is also pursuing a pharmaceutical discoveryprogram for the treatment of diabetes and obesity. Redpoint’s research indiabetes and obesity stems from the observation that taste signaling circuitsresponsible for sensing sweet, savory, and bitter compounds on the tongue arealso found in the pancreas and gastrointestinal tract, suggesting a potentialrole in the regulation of metabolism and satiety. The Company is activelyseeking a research and development collaboration with major pharmaceuticalcompanies for the further development of this discovery program.

 

Since its inception in 1995, the Company hasincurred losses and negative cash flows from operations, and such losses havecontinued subsequent to June 30, 2010. As of June 30, 2010, theCompany had an accumulated deficit of $54.4 million and anticipatesincurring additional losses for the foreseeable future. The Company will needto spend significant resources over the next several years to enhance itstechnologies and to fund research and development of its pipeline of potentialproducts. Through June 30, 2010, substantially all of the Company’srevenue has been derived from corporate collaborations, license agreements, andgovernment grants. The Company expects that substantially all of its cash-flowfor the foreseeable future will come from corporate collaborations and licenseagreements. There can be no assurance that the Company will enter into anyfuture corporate collaborations or license agreements. In order to achieveprofitability, the Company must continue to develop products and technologiesthat can be commercialized by the Company or through future collaborations.

 

Recognizing the difficult financing environment thathas significantly impacted the biotechnology sector and seeking ways toconserve cash, during the year ended December 31, 2009, the Companyannounced two restructurings which reduced its workforce by approximately60%.  As of August 13, 2010, theCompany has 11 full time employees. The Company may need to make furtherreductions in its expenses. Redpoint believes that its current capitalresources should be sufficient to meet its operating and capital requirementsthrough December 2010, which raises substantial doubt about its ability tocontinue as a going concern. The accompanying financial statements do not includeany adjustments that might result from the outcome of this uncertainty.  In addition to the recently announcedagreement with IFF, the Company is actively seeking corporate collaborationsand license agreements from various strategic partners to enhance the Company’sliquidity position. The Company is also pursuing government sponsored programsaimed to support its research programs.

 

The Company is subject to those risks associatedwith any biotechnology company that has substantial expenditures for researchand development. There can be no assurance that the Company’s research anddevelopment projects will be successful, that products developed will obtainnecessary regulatory approval, or that any approved product will becommercially viable. In addition, the Company operates in an environment ofrapid technological change and is largely dependent on the services of itsemployees and consultants. For the Company to fund its operations and tocommercially develop its products, additional corporate collaborations, equityand/or debt financing will be required before December 2010. There is noassurance that such collaborations or financing will be 

 

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availableto the Company as needed, and as a result, it may need to pursue otherstrategic alternatives.  Failure tosuccessfully address ongoing liquidity requirements will have a materialadverse effect on our business.  If weare unable to obtain additional capital on acceptable terms when needed, we maybe required to take actions that harm our business and our ability to achievecash flow in the future, including possibly the surrender of our rights to sometechnologies or product opportunities, delaying our clinical trials orcurtailing or ceasing operations.

 

*Basis of Presentation*

 

The accompanying unaudited financial statements ofthe Company have been prepared in accordance with generally accepted accountingprinciples for interim financial information and pursuant to the rules andregulations of the Securities and Exchange Commission, referred to herein asthe SEC. Accordingly, they do not include all of the information and footnotesrequired by generally accepted accounting principles for complete financialstatements.

 

In the opinion of management, all adjustments(consisting of normal recurring adjustments) considered necessary for a fairpresentation have been included (See Note 2 for discussion of the impact of theReverse Merger (as defined below)).  Operating results for the three andsix months ended June 30, 2010 are not necessarily indicative of theresults that may be expected for the year ending December 31, 2010.

 

For further information, refer to the 2009 financialstatements and footnotes thereto of Redpoint included in the Company’s AnnualReport on Form 10-K for the year ended December 31, 2009.

 

**2.****                                     ****ReverseTriangular Merger, Financing and Reincorporation Merger**

 

*Completion of Merger*

 

Robcor Properties, Inc., a Florida corporation(“Robcor”), and its newly-formed subsidiary, Robcor Acquisition Corp., aDelaware corporation (“Merger Sub”) entered into an Agreement and Plan ofMerger (the “Merger Agreement”), dated as of March 12, 2007, by and among,Redpoint, formerly a privately-held Delaware corporation, on the one hand, andRobcor, Merger Sub, Robcor LLC, a Kentucky limited liability company andwholly-owned subsidiary of Robcor (“Robcor LLC”) and Halter FinancialInvestments, L.P., a Texas limited partnership (“Halter”), and Michael Heitz (“Heitz”),as stockholders of Robcor, on the other hand.  Pursuant to the MergerAgreement, Merger Sub, which Robcor had incorporated in the state of Delawarefor the purpose of completing the transaction, merged into Redpoint (the “ReverseMerger”) on March 12, 2007 (the “Closing” or the “Closing Date”) withRedpoint continuing as the surviving entity in the Reverse Merger.  As aresult of the Reverse Merger, Redpoint became a wholly-owned subsidiary ofRobcor.  In connection with the Reverse Merger, each share of capitalstock of Redpoint was converted into 2.7820 shares of common stock of Robcorand all of Redpoint’s convertible promissory notes were converted into sharesof common stock of Robcor.

 

Redpoint was deemed to have been the accountingacquirer in the Reverse Merger.  Accordingly, the financial statements ofthe Company presented reflect the historical results of Redpoint prior to theReverse Merger, and of the combined entities following the Reverse Merger, anddo not include the historical financial results of Robcor prior to theconsummation of the Reverse Merger.  In connection with the ReverseMerger, Redpoint issued 1,391,000 shares of common stock to Robcor shareholderswhich have been treated as issuance costs in connection with the PrivatePlacement.

 

*Private Placement*

 

Concurrently with the completion of the ReverseMerger, Robcor received $17.2 million in net proceeds from the initial closingof a private placement of approximately 24.7 million shares of common stock ata price of $0.81 per share, and warrants to purchase approximately 6.2 millionshares of Robcor common stock at an exercise price of $1.35 per share (the “PrivatePlacement”).  The initial closing of the Private Placement occurredon March 12, 2007, concurrently with the completion of the Reverse Merger.

 

In connection with the Private Placement, Redpointengaged two placement agents which were issued five-year warrants to buyapproximately 2.0 million shares of Robcor common stock equal to 10% of thenumber of 

 

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sharesof common stock sold in the Private Placement at an exercise price of $0.97 pershare; provided, however, no warrants were issued to the placement agents withrespect to shares and warrants sold to existing Redpoint stockholders.

 

On April 6, 2007, Robcor sold an additional16.1 million shares of common stock and warrants to purchase 4.0 millionshares of common stock which resulted in net proceeds of approximately$11.3 million.  In connection with the April closing, warrantsto purchase an additional 1.6 million shares of common stock were issued to theplacement agents.

 

*Reincorporation Merger*

 

On June 15, 2007, Robcor was merged with andinto Redpoint, its wholly-owned subsidiary, with Redpoint being the survivingcorporation pursuant to the Agreement and Plan of Merger dated May 3,2007.  As a result of the merger, the Company’s state of incorporationchanged from Florida to Delaware.

 

In connection with the reincorporation merger, theauthorized number of shares of common stock was decreased from 1,000,000,000shares of common stock, no par value per share, to 150,000,000 shares of commonstock, $0.0001 par value per share, and the authorized number of shares ofpreferred stock was decreased from 20,000,000 shares of preferred stock, no parvalue per share, to 10,000,000 shares of preferred stock, $0.0001 par value pershare.  The Company’s share data and capital stock have beenretrospectively adjusted for all periods presented to reflect thereincorporation merger.

 

In addition, the maximum number of shares of commonstock reserved for issuance under the Company’s 2007 Omnibus EquityCompensation Plan was increased from 13,511,562 to 17,644,267 shares.

 

**3.  Summary of SignificantAccounting Policies**

 

***(a) Use of Estimates***

 

The preparation of financial statements inconformity with U.S. generally accepted accounting principles requiresmanagement to make estimates and assumptions that affect the reported amountsof assets and liabilities and disclosure of contingent assets and liabilitiesat the date of the financial statements and the reported amounts of revenuesand expenses during the reporting period. Actual results could differ from suchestimates.  Illiquid credit markets, volatile equity, and declines inconsumer spending have combined to increase the uncertainty inherent in suchestimates and assumptions.  As future events and their effects cannot bedetermined with precision, actual results could differ significantly from theseestimates.  Changes in those estimates resulting from continuing changesin the economic environment will be reflected in the financial statements inthose future periods.

 

***(b) Cash and CashEquivalents***

 

The Company considers all highly liquid investmentsthat have original maturities of three months or less when acquired to be cashequivalents.  As of June 30, 2010, cash and cash equivalents includeamounts invested in money market accounts.

 

***(c) Concentrations of CreditRisk***

 

Financial instruments that potentially subject theCompany to concentrations of credit risk consist of cash equivalents.  The Company has established guidelinesrelating to diversification and maturities that allows the Company to managerisk.

 

***(d) Revenue Recognition***

 

Revenue from corporate collaborations and licensingagreements consists of up-front fees, research and development funding, andmilestone payments.

 

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*License Fees and Multiple Element Arrangements*

 

Non-refundable upfront fees are recognized asrevenue when (i) we have a contractual right to receive such payment,(ii) the contract price is fixed or determinable, (iii) thecollection of the resulting receivable is reasonably assured, and (iv) wehave no further performance obligations under the license agreement.

 

Multiple element arrangements are analyzed todetermine whether the deliverables, which often include license and performanceobligations, such as research and development services, can be separated orwhether they must be accounted for as a single unit of accounting. If the fairvalue of the undelivered performance obligations can be determined, suchobligations would then be accounted for separately as performed. However, ifthe elements are considered to either (i) not have stand-alone value, or(ii) have standalone value but the fair value of any of the undeliveredperformance obligations cannot be determined, the arrangement would then beaccounted for as a single unit of accounting and all of the payments recognizedas revenue over the estimated period of when the performance obligations areperformed.  Whenever we determine that an arrangement should be accountedfor as a single unit of accounting, we must determine the period over which theperformance obligations will be performed and revenue will be recognized.Significant management judgment is required in determining the period overwhich we are expected to complete our performance obligations under anarrangement.

 

*Substantive Milestone Payments*

 

Our collaboration agreements may also containsubstantive milestone payments that are recognized upon achievement of themilestone only if all of the following conditions are met:

 

·                  the milestone payments are non-refundable;

 

·                  achievement of the milestone involves adegree of risk and was not reasonably assured at the inception of thearrangement;

 

·                  substantive effort is involved in achievingthe milestone;

 

·                  a reasonable amount of time passes betweenthe up-front license payment and the first milestone payment as well as betweeneach subsequent milestone payment; and

 

·                  the amount of the milestone payment isreasonable in relation to the effort expended or the risk associated withachievement of the milestone.

 

Determination as to whether a payment meets theaforementioned conditions involves management’s judgment. If any of theseconditions are not met, the resulting payment would not be considered asubstantive milestone, and therefore the resulting payment would be consideredpart of the consideration for the single unit of accounting and be recognizedas revenue as such performance obligations are performed.

 

*Reimbursement of Research and Development Costs*

 

Reimbursement of research and development costs isrecognized as revenue, provided the amounts are fixed and determinable, andcollection of the related receivable is reasonably assured.

 

***(e) Property and Equipment***

 

Property and equipment are recorded at cost anddepreciated on a straight-line basis over their estimated useful lives. TheCompany uses a life of four to five years for laboratory equipment, three toseven years for office equipment and furniture, and the lesser of the usefullife or the remaining life of the underlying facility lease for leaseholdimprovements. Expenditures for repairs and maintenance are charged to expenseas incurred, while major renewals and betterments are capitalized. Upondisposition of assets, the cost and related accumulated depreciation areremoved from the accounts and any resulting gain or loss is included in theStatements of Operations.

 

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***(f) Research and Development***

 

Research and development costs, including thoseincurred in relation to the Company’s collaborative agreements, are charged toexpense as incurred. These expenses include internal research and developmentas well as amounts paid to third parties to conduct research on the Company’sbehalf. Costs incurred in obtaining technology licenses are charged immediatelyto research and development expense if the technology licensed has not reachedtechnological feasibility and has no alternative future uses.

 

***(g) Impairment of Long-LivedAssets***

 

We review long-lived assets, such as property andequipment, for impairment whenever events or changes in circumstances indicatethat the carrying amount of an asset may not be recoverable. Recoverability ofassets to be held and used is measured by a comparison of the carrying amountof an asset to the estimated undiscounted future cash flows expected to begenerated by the asset. If the carrying amount of an asset exceeds itsestimated future cash flows, then an impairment charge is recognized in theamount by which the carrying amount of the asset exceeds the fair value of theasset.  The Company has not recorded any impairment charges pursuant toour review of long-lived assets.

 

***(h) Income Taxes***

 

Income taxes are accounted for under theasset-and-liability method. Deferred tax assets and liabilities are recognizedfor the future tax consequences attributable to differences between thefinancial statement carrying amounts of existing assets and liabilities andtheir respective tax bases and operating loss and tax credit carryforwards.Deferred tax assets and liabilities are measured using enacted tax ratesexpected to apply to taxable income in the years in which those temporarydifferences are expected to be recovered or settled. The effect on deferred taxassets and liabilities of a change in tax rates is recognized in income in theperiod that includes the enactment date.

 

***(i) Stock-Based Compensation***

 

The Company recognizes compensation cost for stock-basedawards to employees and nonemployee board members based on the grant-date fairvalue of the awards over the period during which an award holder is required toprovide service in exchange for the award. No compensation cost is recognizedfor awards for which the award holder does not render the requisite service.

 

The fair value of stock options is determined usingthe Black Scholes option-pricing model and is recognized as expense over therequisite service period using the straight-line method.

 

To satisfy the exercise of options, the Companyplans to issue new shares rather than purchase shares on the open market.

 

***(j) Net Loss per CommonShare***

 

Basic net loss per common share is computed bydividing the net loss allocable to common stockholders by the weighted averagenumber of shares of common stock outstanding for the period. Diluted net lossper common share is computed by dividing net loss allocable to commonstockholders by the sum of the weighted-average number of common sharesoutstanding for the period and the number of additional shares that would havebeen outstanding if dilutive potential common shares had been issued. Stock options and warrants to purchase an aggregate of 12,597,047 and24,013,373 common shares were excluded from our computation of diluted net lossper common share for the six months ended June 30, 2010 and 2009,respectively.  In all periods presented, our diluted net loss per commonshare is equal to basic net loss per common share because giving effect in thecomputation of diluted net loss per common share to the exercise of outstandingoptions and warrants would have been antidilutive.

 

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***(k) Fair Value of FinancialInstruments***

 

The fair value of our financial instruments is theamount for which the instrument could be exchanged in a current transactionbetween willing parties. As of December 31, 2009 and June 30, 2010,the carrying values of cash and cash equivalents, prepaid expenses and othercurrent assets, accounts payable, accrued expenses, and accrued compensationequaled or approximated their respective fair values because of the shortduration of these instruments. In addition, we believe the carrying value ofour debt instruments, which do not have readily ascertainable market values,approximate their fair values, given that the interest rates on outstandingborrowings approximate market rates.

 

***(l) Recent Accounting Pronouncements***

 

In January 2010, the Financial AccountingStandards Board (“FASB”) issued guidance that amends Accounting StandardsCodification Topic 820, Fair Value Measurements and Disclosures, that requiresreporting entities to make new disclosures about recurring or nonrecurringfair-value measurements including significant transfers into and out of Level 1and Level 2 fair-value measurements and information about purchases, sales,issuances, and settlements on a gross basis in the reconciliation of Level 3fair-value measurements. This guidance also clarifies existing fair-valuemeasurement disclosure guidance about the level of disaggregation, inputs, andvaluation techniques. Except for the detailed Level 3 roll forward disclosures,the guidance was effective for reporting periods beginning afterDecember 15, 2009 and did not have an impact on our interim financialstatements.

 

In October 2009, the FASB issued accountingguidance related to revenue recognition for transactions with multipledeliverables, which impacts the determination of when the individualdeliverables included in a multiple-element arrangement may be treated asseparate units of accounting.  Thisguidance is effective for us beginning on January 1, 2011.  We are currently evaluating the effect thisguidance will have on our financial statements.

 

***(m) Comprehensive Loss***

 

We classify items of other comprehensive income(loss) by their nature and disclosure of the accumulated balance of othercomprehensive income (loss) separately from accumulated deficit and additionalpaid-in capital in the stockholders’ equity section of our balance sheet. Other comprehensive income (loss) consisted of unrealized gains and losses onmarketable securities for the three and six months ended June 30, 2009. For the three and six months ended June 30, 2009 and 2010, comprehensiveloss was:

 
| ** **                         | ** ** | **Three Months Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                         | ** ** | **2009**                                            | ** ** | **2010**                                          | ** ** | **2009** | ** ** | **2010** | ** ** |
| Net Loss                           |       | $                                                   | (2,062,723 | )                                                 | $          | (1,388,774 | ) | $ | (4,581,126 | ) | $ | (3,102,116 | ) |
| Other comprehensive income  (loss) |       | (16,574                                             | )          | —                                            |       | (61,931 | ) | — |   |
| Comprehensive income  (loss)       |       | $                                                   | (2,079,297 | )                                                 | $          | (1,388,774 | ) | $ | (4,643,057 | ) | $ | (3,102,116 | ) |

 

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**4.****                                     ****AccruedExpenses**

 

Accrued expenses consisted of the following:

 
| ** **        | ** ** | **June 30,********2010** | ** ** | **December 31,********2009** | ** ** |
|-------------------|------------|-------------------------------|------------|-----------------------------------|------------|
| Professional fees |       | $                             | 79,137     |                              | $          | 71,000 |   |
| Deferred rent     |       | 68,085                        |       | 60,976                            |       |
| Other             |       | 15,952                        |       | 19,917                            |       |
|              |       | $                             | 163,174    |                              | $          | 151,893 |   |

 

**5.****                                     ****Debt —Master Security Agreements**

 

In February 2005, the Company entered into aMaster Security Agreement with a finance company that provided for borrowingsup to $3,200,000, subject to certain conditions, through December 2005.During 2005, the Company borrowed $2,001,810 under the Master SecurityAgreement in order to finance the purchase of laboratory and office equipment.Amounts borrowed are evidenced with promissory notes and are repayable in equalmonthly payments, over 36 to 48 months, and are collateralized by thepurchased equipment. The notes bear interest at rates varying between 9.4% and10.4%.   The note was repaid in fullas of December 31, 2009.

 

In connection with the borrowings under the MasterSecurity Agreement, the Company issued the finance company warrants to purchase53,039 shares of the Company’s common stock at an exercise price of $0.75 pershare. The estimated fair value of the warrants of $30,074, determined usingthe Black-Scholes option-pricing model, was accounted for as deferred financingcosts and was amortized to interest expense over the remaining term of thenotes.

 

In September 2008, the Company entered into aLoan and Security Agreement with another finance company that provided forborrowings of up to $2,000,000 to be used for the purchase of certain equipmentand for working capital purposes.  During 2008, the Company borrowed$1,556,357 under the Loan and Security Agreement.  As ofDecember 31, 2009 and June 30, 2010, $1,147,953 and $966,540,respectively, was outstanding under the Loan and Security Agreement. Amountsborrowed are evidenced with a promissory note, are repayable in equal monthlypayments over 48 months, and are collateralized by the purchasedequipment.  The note bears interest of 12.1%.  The Loan and SecurityAgreement contains certain provisions, including a material adverse changeclause (as defined in the Loan and Security Agreement) which restricts theCompany’s ability to borrow additional money and also enables the financecompany to request full repayment of the loan if such a change hasoccurred.  As of June 30, 2010, the Company was in compliance withthese provisions.

 

The scheduled maturities of long-term debtoutstanding at June 30, 2010 are as follows:

 
| 2010                 |   | 192,698  |    |
|----------------------|--------|----------|---------|
| 2011                 |   | 422,100  |    |
| 2012                 |   | 351,742  |    |
|                 |   | 966,540  |    |
| Less current portion |   | (397,381 | )       |
|                 |   | $        | 569,159 |   |
|                      |        |          |         |  |

 

Interest expense on notes payable for the threemonths ended June 30, 2009 and 2010 was $43,224 and $30,666,respectively.  Interest expense on notespayable for the six months ended June 30, 2009 and 2010 was $90,574 and$64,400, respectively.

 

**6.****                                     ****Stockholders’Equity**

 

***(a) Common Stock***

 

The Company was party to a number of agreements thatprovided for dilution protection to certain investors.  In connection withthe Reverse Merger and closing of the Private Placement, the Company issued 

 

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approximately2.0 million shares of common stock to a founder and shareholder of the Companyas a result of such anti-dilution protection.  During 2007, the Companyrecorded a charge of $1.6 million to research and development expensesrelated to the issuance of such shares of common stock, which represents thefair value of these shares.  As of June 30, 2010, none of the Company’sexisting agreements contain dilution protection provisions.

 

***(b) Warrants***

 

As of June 30, 2010, the Company had thefollowing warrants to purchase Common Stock outstanding:

 
| **Number of shares** | ** ** | **Exercise price** | ** ** | **Expiration** | ** **                  |
|--------------------------------|------------|-------------------------|------------|----------------|-----------------------------|
|                           |       |                    |       |           |                        |
| 53,039                         |       | $                       | 0.75       |           | February-December 2012 |   |
|                           |       |                    |       |           |                        |
| 3,574,906                      |       | $                       | 0.97       |           | April 2012             |   |

 

In April 2010, warrants to purchase 4,015,059shares of Common Stock at an exercise price of $1.35 per share expired and werenot exercised.

 

***(c) Stock OptionPlans***

 

In November 2003, the Company adopted the 2003Stock Incentive Plan, as amended (the “2003 Plan”), that authorized the Companyto grant up to 6,523,790 shares of Common Stock to eligible employees,directors, and consultants to the Company in the form of restricted stock andstock options. The amount and terms of grants were determined by the board ofdirectors. The term of the options could have been up to 10 years, andoptions were exercisable in cash or as otherwise determined by the board ofdirectors. Generally, options vested 25% upon the first anniversary of the dateof grant and ratably each month thereafter through the fourth anniversary ofthe date of grant.

 

On March 12, 2007, the Company adopted theRedpoint Bio Corporation 2007 Omnibus Equity Compensation Plan (“2007 Plan”),which provided for the issuance of up to 13,511,562 shares of common stock,subject to adjustment in certain circumstances. In connection with the adoptionof the 2007 Plan, the 2003 Plan merged with and into the 2007 Plan and noadditional grants were to be made thereafter under the 2003 Plan. Outstanding grants under the 2003 Plan continued in effect in accordance withtheir terms as in effect before March 12, 2007 and the shares with respectto outstanding grants under the 2003 Plan have been or will be issued ortransferred under the 2007 Plan.  The 2007 Plan is now the Company’s onlyplan in effect.

 

On April 20, 2007, the Company approved anamendment to the 2007 Plan, which increased the maximum number of shares ofcommon stock reserved for issuance under the 2007 Plan by an additional4,132,705 shares from 13,511,562 to 17,644,267 shares of common stock.

 

The following is a summary of stock option activityunder the Plan during the six months ended June 30, 2010:

 
| ** **                             | ** ** | ** **         | ** ** | ** **              | ** ** | **Weighted-**   | ** ** | ** **    | ** ** |
|----------------------------------------|------------|--------------------|------------|-------------------------|------------|-----------------|------------|---------------|------------|
| ** **                             | ** ** | ** **         | ** ** | **Weighted-**           | ** ** | **average**     | ** ** | ** **    | ** ** |
| ** **                             | ** ** | **Number of** | ** ** | **average**             | ** ** | **contractual** | ** ** | **Intrinsic** | ** ** |
| ** **                             | ** ** | **shares**         | ** ** | **exercise price** | ** ** | **term**        | ** ** | **Value**     | ** ** |
| Outstanding at  December 31, 2009 |       | 9,031,819          |       | $                       | 0.4806     |            |       |          |       |   |
| Granted                                |       | 100,000            |       | 0.1700                  |       |            |       |          |       |
| Exercised                              |       | —             |       | —                  |       |            |       |          |       |
| Forfeited/Cancelled                    |       | (162,717           | )          | 0.4397                  |       |            |       |          |       |
| Outstanding at  June 30, 2010     |       | 8,969,102          |       | $                       | 0.4779     |            | 5.96       |          | $          | 222,246 |   |
|                                        |            |                    |            |                         |            |                 |            |               |            |  |  |

 

During the six months ended June 30, 2010, theCompany granted options to directors to purchase an aggregate of 100,000 sharesof Common Stock.

 

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All options granted to date have exercise pricesequal to the fair value of the underlying common stock on the date of grant.Prior to the effectiveness of the registration statement on Form S-1,which occurred on July 20, 2007, all options were granted with an exerciseprice equal to the estimated fair value of the underlying common stock asdetermined by the board of directors. Subsequent to that date, all options havebeen granted with an exercise price equal to the most recent trading price ofthe Company’s common stock on the date of grant. As of June 30, 2010,there were 7,608,347 shares of common stock available for grant under the 2007Plan.

 

The per-share weighted average fair value of optionsgranted during the six months ended June 30, 2009 and 2010 were estimatedat $0.04 and $0.10, respectively, on the date of grant using the Black-Scholesoption-pricing model.

 

The Company recognized $154,641 and $144,423 ofstock-based compensation expense related to stock options for the three monthsended June 30, 2009 and 2010, respectively.  The Company recognized $382,575 and $287,521of stock-based compensation expense related to stock options for the six monthsended June 30, 2009 and 2010, respectively.  As of June 30, 2010, there wasapproximately $516,000 of unrecognized compensation expense related to unvestedstock options granted to employees and directors, which is expected to berecognized over a weighted average period of 0.9 years.

 

***(d) Registration Rights***

 

On June 5, 2007, the Company filed a “resale”registration statement with the SEC covering all shares of common stock issuedin the Private Placement and in connection with the Reverse Merger, includingshares of common stock into which certain warrants are exercisable.  Suchregistration statement was declared effective on July 20, 2007.  TheCompany will use its best efforts to maintain its effectiveness until such timeas all securities registered under the registration statement have been sold orare otherwise able to be sold under Rule 144 of the Securities Act withoutregard to volume limitations, whichever is earlier.

 

**7.  Research and DevelopmentCollaboration/License Agreement**

 

*Givaudan*.  InMarch 2007, the Company entered into a Joint Research and Development andLicense Agreement (the “Givaudan Agreement”) with Givaudan Schweiz AG, (“Givaudan”)for the development and commercialization of compounds that act primarilythrough the modulation of the TRPM5 channel and that enhance sweetness orsavory sensation, as well as compounds that block or desensitize bitter tastefor use in the food and beverage industry.  In consideration of theCompany’s agreement to conduct research and develop compounds and grantexclusive licenses and other rights to Givaudan, Redpoint received an upfrontpayment of $1,300,000 and Givaudan provided research funding to the Companyover the term of the Agreement.  Givaudan terminated the Agreement,effective as of May 1, 2009, and Givaudan reserved its rights under theAgreement with respect to certain collaboration compounds.  The upfrontpayment of $1,300,000 was being recognized as revenue on a straight-line basisover the initial term of the Givaudan Agreement.  As of May 1, 2009,the remaining unamortized portion of the upfront payment was approximately$526,000 and, as a result of the termination, was recognized as revenue upontermination of the Givaudan Agreement. During the three months ended June 30, 2009, the Company recognizedapproximately $557,000 of revenue attributable to the amortization of theupfront fee and approximately $253,000 of revenue from research funding.  During the six months ended June 30,2009, the Company recognized approximately $650,000 of revenue attributable tothe amortization of the upfront fee and approximately $1,065,000 of revenuefrom research funding.

 

*International Flavor &Fragrances*.  In June 2010, the Company entered intoa License and Commercialization Agreement (the “IFF Agreement”) withInternational Flavors & Fragrances Inc., (“IFF”), for the development,manufacture, use and commercialization of RP44, the Company’s all-naturalsweetness enhancer.  Under the terms ofthe IFF Agreement, IFF has exclusive rights, for five years, to develop,manufacture and commercialize RP44 in virtually all food and beverage productcategories. In return, Redpoint received an upfront payment of $500,000 and iseligible to receive two milestone payments of $500,000 each contingent uponcertain criteria regarding supply and regulatory approval. In addition,Redpoint will receive royalties based on the amount of RP44 purchased by IFFfor use in products. IFF will assume responsibility for the regulatory processand for costs associated with prosecuting and maintaining Redpoint’sintellectual property covering RP44.  Theupfront payment of $500,000 was recognized as revenue on the effective date (June 29,2010) of the IFF Agreement as the Company

 

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hasno future performance obligations under the IFF Agreement. The Company receivedthe $500,000 in July 2010. During the three and six months ended June 30,2010, the Company recognized $500,000 of revenue from the IFF Agreement.  The Company will record the additional twomilestone payments upon the achievement of each such event.

 

**8.****                                     ****Restructuring**

 

During 2009, the Company announced tworestructurings which reduced its workforce by approximately 60%.  As of June 30, 2010, the Company has11 full time employees.  In connection with the restructurings, theCompany incurred severance costs of $526,553 which were included in general andadministrative expenses in 2009.  As ofJune 30, 2010 all payments related to these restructurings have been paid.

 
| ** **             | ** ** | **December 31,  2009** | ** ** | **2010  Expense** | ** ** | **2010  Payments** | ** ** | **June 30,  2010** | ** ** |
|------------------------|------------|-----------------------------|------------|-------------------|------------|--------------------|------------|-------------------------|------------|
| Severance and benefits |       | $                           | 37,148     |              | $          | —             |       | $                       | (37,148    | ) | $ | — |   |
|                   |       | $                           | 37,148     |              | $          | —             |       | $                       | (37,148    | ) | $ | — |   |

 

**9.  Commitments**

 

*Leases*

 

Future minimum lease payments as of June 30,2010 are as follows:

 
| **Year Ending December 31,** | ** ** | **Amount** | ** ** |
|-----------------------------------|------------|------------|------------|
| 2010                              |       | $          | 417,825    |   |
| 2011                              |       | 839,723    |       |
| 2012                              |       | 845,915    |       |
| 2013                              |       | 852,230    |       |
| 2014                              |       | 858,672    |       |
| Thereafter                        |       | 2,038,097  |       |
|                              |       | $          | 5,852,462  |   |

 

In October 2006, the Company paid a $250,000deposit for its new facility which has been recorded in other assets on theaccompanying balance sheet.

 

**10.  Income Taxes**

 

During the six months ended June 30, 2010, theCompany sold $112,562 of its New Jersey State Research and Development TaxCredits resulting in the recognition of an income tax benefit of $101,306recorded in the Company’s Statement of Operations.

 

The Company applies the provisions of FASBAccounting Standards Codification 740-10 “Accounting for Uncertainty in IncomeTaxes” (ASC 740-10), which clarifies the accounting and disclosure foruncertainties in income taxes recognized in an enterprise’s financialstatements. ASC 740-10 prescribes a recognition threshold and measurementattribute for financial statement recognition and measurement of a tax positionreported or expected to be reported on a tax return. ASC 740-10 also providesguidance on the recognition and classification of interest and penalties in anentity’s financial statements. The Company’s policy is to recognize potentialaccrued interest and penalties related to income tax matters in income taxexpense. As of June 30, 2010, the Company determined that it had noliability for uncertain income tax matters as prescribed by ASC 740-10.  Net operating loss and credit carryforwardssince inception remain open to examination by taxing authorities, and willcontinue to remain open for a period of time post utilization.

 

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**ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OFOPERATIONS**

 

**CautionaryNote Regarding Forward-Looking Statements**

 

The Securities and Exchange Commission, referred toherein as the SEC, encourages companies to disclose forward-looking informationso that investors can better understand a company’s future prospects and makeinformed investment decisions.  Certain statements that we may make fromtime to time, including, without limitation, statements contained in thisQuarterly Report on Form 10-Q, referred to herein as the Quarterly Report,constitute “forward-looking statements” within the meaning of the PrivateSecurities Litigation Reform Act of 1995.  These statements may be madedirectly in this Quarterly Report, and they may also be made a part of thisQuarterly Report by reference to other documents filed with the SEC, which isknown as “incorporation by reference.”

 

Words such as “may,” “anticipate,” “estimate,” “expects,”“projects,” “intends,” “plans,” “believes” and words and terms of similarsubstance used in connection with any discussion of future operating orfinancial performance, identify forward-looking statements.  Allforward-looking statements are management’s present expectations of futureevents and are subject to a number of risks and uncertainties that could causeactual results to differ materially from those described in the forward-lookingstatements.  These risks and uncertainties include, among other things:

 

·                  our need for additional capital to fund thecurrent level of our research and development programs and continue as a goingconcern;

 

·                  our ability to enter into and maintain food,ingredient and pharmaceutical and biotechnology collaborations;

 

·                  our inability to further identify, developand achieve commercial success for new products and technologies;

 

·                  ability to protect our proprietarytechnologies, including our newly discovered sweetener enhancer and TRPm5modulators;

 

·                  the possibility of delays in the research anddevelopment necessary to select drug development candidates and delays inclinical trials;

 

·                  challenges that we may face relating to theintroduction of compounds that we may discover as food ingredients orpharmaceuticals;

 

·                  patent-infringement claims;

 

·                  the risk that clinical trials may not resultin marketable products;

 

·                  the risk that we may be unable tosuccessfully finance and secure regulatory approval of and market our drugcandidates;

 

·                  the levels and timing of payments undercurrent and future collaborative agreements;

 

·                  uncertainties about our ability to obtain newcorporate collaborations and acquire new technologies on satisfactory terms, ifat all;

 

·                  the development of competing products;

 

·                  risks of new, changing and competitivetechnologies and regulations in the United States and internationally; and

 

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·                  other factors discussed under the headingItem 1A “Risk Factors” in this Quarterly Report.

 

In light of these assumptions, risks anduncertainties, the results and events discussed in the forward-lookingstatements contained in this Quarterly Report or in any document incorporatedby reference might not occur.  You are cautioned not to place unduereliance on forward-looking statements, which speak only as of the date of thisQuarterly Report or the date of the document incorporated by reference in thisQuarterly Report.  We are not under any obligation, and we expresslydisclaim any obligation, to update or alter any forward-looking statements,whether as a result of new information, future events or otherwise, except asmay be required by applicable law.  All subsequent forward-lookingstatements attributable to Redpoint, or to any person authorized to act on ourbehalf are expressly qualified in their entirety by the cautionary statementscontained or referred to in this section.

 

**Overview**

 

Redpoint Bio is a development stage biotechnologycompany focused on the development of healthier foods and beverages and newapproaches to the treatment of diabetes and obesity.

 

The Company is leveraging recent discoveries in themolecular biology of taste to discover and develop novel taste modulators forthe food and beverage industries. Our food and beverage program has beenfocused on identifying novel flavor modifiers that improve the taste ofexisting ingredients, enabling the development of better-tasting and morehealthful foods and beverages. In June 2009, we announced that we hadidentified an all-natural sweetness enhancer, RP44. In June 2010, weentered into a license and commercialization agreement with IFF, a globalleader in the food and beverage industry, covering the commercialization ofRP44. We believe that our unique technology platform could lead to additionalopportunities for discovering novel natural flavorings and flavor enhancers, tohelp meet increasing consumer demand for more healthful foods and beverages.

 

We are also pursuing a pharmaceutical discoveryprogram for the treatment of diabetes and obesity. Our research in diabetes andobesity stems from the observation that taste signaling circuits responsiblefor sensing sweet, savory, and bitter compounds on the tongue are also found inthe pancreas and gastrointestinal tract, suggesting a potential role in theregulation of metabolism and satiety. We are actively seeking a research anddevelopment collaboration with major pharmaceutical companies for the further developmentof this discovery program.

 

Since its inception in 1995, Redpoint has incurredlosses and negative cash flows from operations, and such losses have continuedsubsequent to June 30, 2010. As of June 30, 2010, Redpoint had anaccumulated deficit of $54.4 million and anticipates incurring additionallosses for the foreseeable future. We will need to spend significant resourcesover the next several years to enhance our technologies and to fund researchand development of our pipeline of potential products. We have not yetdeveloped any products that are commercially available. We believe that ourcurrent capital resources should be sufficient to meet our operating andcapital requirements through December 2010, which raises substantial doubtabout our ability to continue as a going concern.

 

Through June 30, 2010, substantially all of ourrevenue has been derived from corporate collaborations, license agreements, andgovernment grants. In order to achieve profitability, we must continue todevelop products and technologies that can be commercialized by us or throughfuture collaborations.

 

On March 12, 2007, we completed the firstclosing of our private placement of shares of common stock and warrants topurchase shares of common stock raising approximately $17.2 million of netproceeds. On April 6, 2007, we completed the final closing of the privateplacement raising an additional $11.4 million of net proceeds, bringingthe total private placement net proceeds to $28.6 million.

 

In March 2007, we entered into a Joint Researchand Development and License Agreement with Givaudan Schweiz AG, a Swisscompany, or Givaudan, for the development and commercialization of compoundsthat act primarily through the modulation of the TRPm5 ion channel and thatenhance sweetness or savory sensation, as well as compounds that block ordesensitize bitter taste for use in the food and beverage industry. Inconsideration of the Company’s agreement to conduct research and developcompounds and grant exclusive licenses and other rights to Givaudan, Redpointreceived an upfront payment of $1.3 million and Givaudan provided researchfunding to the 

 

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Companyover the term of the agreement. Givaudan terminated the agreement, effective asof May 1, 2009, and Givaudan reserved its rights under the agreement withrespect to certain collaboration compounds. Givaudan cited the fact thatcertain collaboration objectives had not been achieved as its reasoning forterminating the agreement. Through the termination date of the agreement,including the upfront fee, we received $6.9 million in research anddevelopment funding in connection with the agreement.

 

Recognizing the difficult financing environment thathas significantly impacted the biotechnology sector and seeking ways toconserve cash, during the year ended December 31, 2009, we announced tworestructurings which reduced our workforce by approximately 60%.  As of August 13, 2010, we had11 full time employees. We may need to make further reductions in ourexpenses.

 

We first announced that we had identified RP44, anall-natural sweetness enhancer, in June 2009. In January 2010, wedisclosed that RP44 is Reb-C (rebaudioside C), a component of the stevia plant.Native to South America, extracts of the leaves of the stevia plant have beenused as sweeteners around the world for hundreds of years. More recently, apurified component of stevia known as Reb A has received regulatory approval inthe United States and elsewhere and Redpoint believes its popularity as anall-natural non-caloric sweetener is increasing.

 

In June 2010, we entered into a License andCommercialization Agreement with IFF for the development, manufacture, use andcommercialization of RP44. IFF has exclusive rights, for five years, todevelop, manufacture and commercialize RP44 in virtually all food and beverageproduct categories. In return, we received an upfront payment of $0.5 millionand we are eligible to receive two milestone payments of $0.5 million eachbased upon certain criteria regarding supply and regulatory approval. Inaddition, we are eligible to receive royalties based on the amount of RP44purchased by IFF for use in products. IFF will assume responsibility for theregulatory process and for costs associated with prosecuting and maintainingour intellectual property covering the sweetness enhancer.

 

Unlike Reb A, RP44 has a very low intrinsic level ofsweetness and therefore is not useful as a sweetener. Instead, we discoveredthat RP44 acts as a potent sweetness enhancer. A sweetness enhancer imparts nosweet taste of its own when used in a product. Instead, sweetness enhancers actby amplifying the existing sweet taste of caloric sweeteners such as sugar orhigh fructose corn syrup. We believe this will enable the development of foodand beverage products that require reduced amounts of caloric sweeteners whilestill retaining the “clean sweet taste” associated with a fully sugaredproduct. Taste tests demonstrate that RP44 enables the reduction of up to 25%of the caloric sweetener content in various product prototypes, while stillmaintaining the taste quality of the fully sweetened product. These results havebeen demonstrated by using RP44 in combination with several common sweetenersincluding sucrose (sugar), fructose, glucose and high-fructose corn syrup(HFCS). The worldwide sweetener market is estimated to be in excess of$50 billion with sugar (including sucrose, HFCS, and fructose) being thesecond most common ingredient used in food and beverages after water.

 

We believe RP44 has excellent potential forachieving GRAS (Generally Recognized As Safe) status, due to its long historyof human exposure as a component of stevia and its similarity to Reb A, whichhas already undergone extensive safety studies. The GRASdetermination/notification process requires extensive testing to ensure safetyin use and usually takes 12-18 months to complete.  RP44 is currently derived from material foundin the side stream of the Reb A production process. However, there can be noassurance that RP44 can be produced in large scale on an economically viablebasis.

 

We believe there is an important potential role forRP44 in all-natural reduced-calorie products. Numerous scientific studiessuggest a compelling link between the high levels of refined sugar found incommon food and beverage products and the worsening epidemic of obesity anddiabetes worldwide. Health and wellness trends continue to be major marketdrivers for the food and beverage industry, creating consumer demand fornatural solutions that can preserve the clean sweet taste of sugar whilereducing calories.

 

Our initial programs focused on the modulation ofthe TRPm5 ion channel, a key signaling element in taste sensation, in order todiscover novel compounds that modulate the taste of food and beverage products.The TRPm5 ion channel is a member of a larger class of related TRP (TransientReceptor Potential) ion channels that are involved in the sensation of heat,cold, and spicy compounds.  The TRPm5 ionchannel was originally identified as an important component of taste signalingcircuits responsible for sensing sweet, savory, and bitter compounds on thetongue. Recently, an emerging body of scientific evidence has demonstrated thatthe TRPm5 channel is also 

 

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foundin the pancreas and gastrointestinal tract, suggesting a potential role in theregulation of metabolism and satiety. Specifically, TRPm5 may be involved inthe secretion of important hormones like GLP1 and insulin that control sugaruptake and metabolism. Consequently, modulators of TRPm5 could potentially findapplication as a new therapy for adult-onset diabetes and obesity. We initiateda program designed to leverage the research we have already conducted on thediscovery of modulators of the TRPm5 ion channel to further explore potentialopportunities for the discovery of new diabetes or obesity therapeutics.Diabetes is a chronic disease afflicting over 24 million Americans and its poorcontrol is the principle cause of blindness and kidney failure. Consequently,there is a continuing need for new and improved diabetes therapies, especiallyin an aging and increasingly obese population, which both correlate with anincreased incidence of adult-onset diabetes.

 

TRPm5 modulators discovered by Redpoint have beenshown to elicit the secretion of hormones known to play important roles inmetabolism in relevant model systems. We believe this discovery may serve asthe foundation for a new method of action in the treatment of obesity anddiabetes. Our therapeutic objective is the development of an orally actingincretin and insulin secretogogue for the treatment of Type II diabetes.Through an ongoing discovery program involving the synthesis of approximately1,000 novel small molecules, we have identified a lead series of orally actinghormone secretogogues that have demonstrated positive results in a number of invitro and in vivo experiments. We are seeking collaborations with majorpharmaceutical companies for the further development and optimization of our TRPm5modulators for therapeutic applications in diabetes and obesity.

 

**Revenue**

 

To date, our revenue has come solely from corporatecollaborations, licensing agreements and government grants. Since ourinception, we have undertaken research projects for which we were the recipientof several Small Business Innovative Research, or SBIR, Awards. The SBIR Awardswere sponsored by the National Institutes of Health. The last SBIR relatedresearch project was completed in 2004.

 

In March 2007, we entered into the GivaudanAgreement where we were collaborating exclusively with each other to discoverand develop Enhancer Compounds and Bitter Blocker Compounds that act primarilythrough the modulation of the TRPm5 ion channel.  The agreement withGivaudan was terminated by Givaudan on May 1, 2009.

 

In June 2010, we entered into a License andCommercialization Agreement with IFF for the development, manufacture, use andcommercialization of RP44. IFF has exclusive rights, for five years, todevelop, manufacture and commercialize RP44 in virtually all food and beverageproduct categories.

 

We are also seeking collaborations with majorpharmaceutical companies for the further development and optimization of ourcompounds for therapeutic applications in diabetes and obesity. Any failure tomaintain or establish licensing or collaboration arrangements on favorableterms could adversely affect our business prospects, financial condition orability to develop and commercialize our product candidates.

 

**Research and Development**

 

Our research and development expenses consistprimarily of internal costs associated with our taste modulator anddiabetes/obesity research programs as well as amounts paid to third parties toconduct research on our behalf. Our internal research and development costs arecomprised of salaries and related benefits, facilities and depreciation onlaboratory equipment, compound acquisition costs and research supplies. Wecharge research and development costs to operations as incurred.

 

**General and Administrative**

 

Our general and administrative expenses consistprimarily of salaries and related benefit expenses for business development,financial, legal and other administrative functions. In addition, we incurexternal costs for professional fees for legal, patent and accounting services.

 

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**Results of Operations**

 

***Three months ended June 30,2010 compared to the three months ended June 30, 2009***

 

*Research, Grant and LicenseRevenue*.  For the three months ended June 30, 2010, we recordedrevenue of $0.5 million from the upfront payment we received in connection withthe IFF Agreement that we signed in June 2010 for the development,manufacture, use and commercialization of RP44. IFF has exclusive rights, for five years, to develop, manufacture andcommercialize RP44 in virtually all food and beverage product categories.  As of June 30, 2010, the Company has nofuture performance obligations under the IFF Agreement.  For the three months ended June 30,2009, we recorded revenue of $0.8 million related to the GivaudanAgreement, which began in March 2007, for the development andcommercialization of compounds that act primarily through the modulation of theTRPm5 ion channel and that enhance sweetness or savory sensation as well ascompounds that block or desensitize bitter taste for use in the food andbeverage industry.  The revenues from Givaudan included $0.6 millionattributable to the upfront fee which was originally being recognized asrevenue over the initial 3.5 year term of the agreement and $0.2 millionof research funding. Givaudan terminated the Givaudan Agreement effective as ofMay 1, 2009.  As of May 1, 2009, the remaining unamortizedportion of the upfront payment was approximately $0.6 million and wasrecognized as revenue upon termination.

 

*Research and Development Expenses*.  Ourresearch and development expenses were $0.8 million for the three months endedJune 30, 2010 compared to $1.5 million for the three months endedJune 30, 2009.  The decrease in expenses was primarily attributableto reductions in workforce as a result of the corporate restructurings theCompany undertook in February and May of 2009.  Our research anddevelopment expenses consist primarily of internal costs associated with ourtaste modulator and diabetes research programs. Our internal research anddevelopment costs are comprised of salaries and related benefits, facilitiesand depreciation on laboratory equipment, compound acquisition costs andresearch supplies.

 

*General and Administrative*Expenses. Our general and administrative expenses were $1.1 million for the threemonths ended June 30, 2010 compared to $1.4 million for the three monthsended June 30, 2009.  The decrease in expenses was primarilyattributable to reduced expenditures associated with professional fees andreductions in workforce as a result of the corporate restructurings the Companyundertook in February and May 2009.

 

*Interest Income*. Interest income was a nominal amount for the three months ended June 30,2010 and the three months ended June 30, 2009.

 

*Interest Expense*. Interest expense decreased slightly for the three months ended June 30,2010 compared to the three months ended June 30, 2009. InSeptember 2008, we entered into a Loan and Security Agreement in which weare authorized to borrow up to $2.0 million for the purchase of certainequipment, a portion of the proceeds which may be used for general corporateworking capital purposes. As of June 30, 2010, we have an outstandingbalance of $1.0 million pursuant to the Loan and Security Agreement.

 

***Six months ended June 30, 2010compared to the six months ended June 30, 2009***

 

*Research, Grant and LicenseRevenue*.  For the six months ended June 30, 2010, we recordedrevenue of $0.5 million from the upfront payment we received in connection withthe IFF Agreement that we signed in June 2010 for the development,manufacture, use and commercialization of RP44. IFF has exclusive rights, for five years, to develop, manufacture andcommercialize RP44 in virtually all food and beverage product categories. As ofJune 30, 2010, the Company has no future performance obligations under theIFF Agreement. The Company will record the additional two milestone paymentsupon the achievement of each such event. For the six months ended June 30, 2009, we recorded revenue of$1.9 million, which included $1.7 million related to the GivaudanAgreement, which began in March 2007 for the development andcommercialization of compounds that act primarily through the modulation of theTRPm5 ion channel and that enhance sweetness or savory sensation as well ascompounds that block or desensitize bitter taste for use in the food andbeverage industry.  The revenues from Givaudan include $0.7 millionattributable to the upfront fee which was originally being recognized asrevenue over the initial 3.5 year term of the agreement and $1.0 millionof research funding.  Givaudan terminated the Givaudan Agreement effectiveas of May 1, 2009.  As of May 1, 2009, the remaining unamortizedportion of the upfront 

 

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paymentwas approximately $0.6 million and was recognized as revenue upontermination and is included in the $0.7 million previously mentioned. Theremaining $0.2 million of revenue was from other agreements including afeasibility research program we conducted with Schering-Plough Corporation inthe area of taste science research for pharmaceutical applications.

 

*Research and Development Expenses*.  Ourresearch and development expenses were $1.6 million for the six months endedJune 30, 2010 compared to $3.4 million for the six months endedJune 30, 2009.  The decrease in expenses was primarily attributableto reductions in workforce as a result of the corporate restructurings theCompany undertook in February and May of 2009.  As a result ofthe restructurings, we are currently not pursuing our research program aimed atsuppressing the bitterness of oral medicines. Our research and developmentexpenses consist primarily of internal costs associated with our tastemodulator and diabetes research programs as well as amounts paid to thirdparties to conduct research on our behalf.  Our internal research anddevelopment costs are comprised of salaries and related benefits, facilities,and depreciation of laboratory equipment, compound acquisition costs and researchsupplies.

 

*General and AdministrativeExpenses*.  Our general and administrative expenses were$2.0 million for the six months ended June 30, 2010 compared to$3.0 million for the six months ended June 30, 2009. The decrease inexpenses was primarily attributable to reduced expenditures associated withprofessional fees and reductions in workforce as a result of the corporaterestructurings the Company undertook in February and May 2009.

 

*Interest Income*. Interest income was a nominal amount for the six months ended June 30,2010 compared to $0.1 million during the six months ended June 30,2009. The decrease was primarily the result of decreasing cash and investmentbalances.

 

*Interest Expense*. Interest expense was $0.1 million for each of the six months endedJune 30, 2010 and 2009.

 

*Income Tax Benefit.*For the six months endedJune 30, 2010, we sold $0.1 million of our New Jersey State Researchand Development Tax Credits resulting in the recognition of an income taxbenefit of $0.1 million. For the six months ended June 30, 2009, wedid not have any income tax benefit.

 

**Liquidity and Capital Resources**

 

At June 30, 2010, we had cash and cashequivalents of $2.5 million and working capital of $1.7 million. Sinceinception, we have used $41.1 million of cash to fund our operatingactivities and $3.4 million for capital expenditures. ThroughJune 30, 2010, we have funded substantially all of our operations andcapital expenditures through private placements of equity and convertible debtsecurities totaling $45.8 million, cash received from corporatecollaborations totaling $10.4 million, government grants totaling $1.8 million,and capital equipment and working capital financing totaling$3.6 million.  We believe that ourcurrent capital resources should be sufficient to meet our operating andcapital requirements through December 2010, which raises substantial doubtabout our ability to continue as a going concern.

 

In September 2008, we entered into a Loan andSecurity Agreement with CIT Healthcare LLC in which we are authorized toborrow up to $2.0 million for the purchase of certain equipment, a portionof the proceeds which may be used for general corporate working capitalpurposes. During 2008, we borrowed approximately $1.6 million pursuant tothe Loan and Security Agreement, of which approximately $1.0 million wasfor equipment previously purchased and approximately $0.6 million was forgeneral working capital. As of June 30, 2010, we had approximately$1.0 million outstanding under such facility. The Loan and SecurityAgreement contains certain provisions, including a material adverse changeclause (as defined in the Loan and Security Agreement) which restricts theCompany’s ability to borrow additional money and also enables the financecompany to request full repayment of the loan if such a change hasoccurred.  As of June 30, 2010, theCompany was in compliance with these provisions.  As of June 30, 2010, there is no amountavailable to the Company for borrowing.

 

On March 12, 2007, we completed the firstclosing of our Private Placement of shares of common stock and warrants topurchase shares of common stock raising approximately $17.2 million of netproceeds. On April 6, 

 

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2007,we completed the final closing of our Private Placement raising an additional$11.4 million of net proceeds, bringing the total private placement netproceeds to $28.6 million.

 

Recognizing the difficult financing environment thathas significantly impacted the biotechnology sector and seeking ways toconserve cash, during the year ended December 31, 2009, we announced tworestructurings which reduced our workforce by approximately 60%.  As of August 13, 2010, we had11 full time employees. We may need to make further reductions in ourexpenses. We believe that our current capital resources should be sufficient tomeet our operating and capital requirements through December 2010, whichraises substantial doubt about our ability to continue as a going concern. Inaddition to the recently signed license and commercialization agreement withIFF, we are actively seeking corporate collaborations and license agreementsfrom various strategic partners to enhance our liquidity position. We are alsopursuing government sponsored programs aimed to support our research programs.

 

We expect that substantially all of our cash-flowfor the foreseeable future will come from future corporate collaborations andlicense agreements. There can be no assurance that we will enter into anyfuture corporate collaborations or license agreements. We are subject to thoserisks associated with any biotechnology company that has substantialexpenditures for research and development. There can be no assurance that ourresearch and development projects will be successful, that products developedwill obtain necessary regulatory approval, or that any approved product will becommercially viable. In addition, we operate in an environment of rapidtechnological change and we are largely dependent on the services of ouremployees and consultants. The stock market in general has recently experiencedlarge price and volume fluctuations and the market price of our common stockhas experienced significant volatility. For us to fund our operations and tocommercially develop our products, additional corporate collaborations and/orequity and/or debt financing will be required before December 2010. Thereis no assurance that such financing will be available to us as needed, and as aresult, we may need to pursue other strategic alternatives, including thepossible cessation of operations.

 

**Summary of Contractual Obligations**

 

The following table summarizes our obligations tomake future payments under our current contractual obligations as ofJune 30, 2010:

 
| ** **       | ** ** | **Payments  Due by Period** | ** ** |
|------------------|------------|-----------------------------|------------|
| ** **       | ** ** | **Total**                   | ** ** | **2010** | ** ** | **2011-2012** | ** ** | **2013-2014** | ** ** | **Thereafter** | ** ** |
| Operating leases |       | $                           | 5,853,000  |   | $ | 418,000 |   | $ | 1,686,000 |   | $ | 1,711,000 |   | $ | 2,038,000 |   |
| Long-term debt   |       | 967,000                     |       | 193,000 |   | 774,000 |   | — |   | — |   |
| License payments |       | 250,000                     |       | 25,000 |   | 50,000 |   | 50,000 |   | 125,000 |   |
|             |       | $                           | 7,070,000  |   | $ | 636,000 |   | $ | 2,510,000 |   | $ | 1,761,000 |   | $ | 2,163,000 |   |

 

**Critical Accounting Policies**

 

Our discussion and analysis of our financialcondition and results of operations are based on our financial statements,which have been prepared in accordance with U.S. generally accepted accountingprinciples, or GAAP. The preparation of these financial statements requires usto make estimates and judgments that affect the reported amounts of assets,liabilities, the disclosure of contingent assets and liabilities at the date ofthe financial statements, and reported amount of revenue and expenses duringthe reporting period. On an ongoing basis, we evaluate our judgments andestimates, including those related to revenue recognition, long-lived assets,accrued liabilities, share-based payments and income taxes. We base ourjudgment and estimates on historical experience and various other factors thatwe believe to be reasonable under the circumstances, the results of which formthe basis for making judgments about the carrying values of assets andliabilities. Actual results may differ from these estimates under differentassumptions or conditions.  A more detailed review of our criticalaccounting policies is contained in our Annual Report on Form 10-K filedwith the Securities and Exchange Commission for the year endedDecember 31, 2009.  During the quarter ended June 30, 2010,there have been no material changes in our critical accounting policies.

 

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**ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKETRISK**

 

Our carrying values of cash and cash equivalents,marketable securities, accounts receivable, accounts payable, accrued expensesand debt are a reasonable approximation of their fair value. The estimated fairvalues of financial instruments have been determined by us using availablemarket information and appropriate valuation methodologies.

 

We have not entered into and do not expect to enterinto, financial instruments for trading or hedging purposes.  We do notcurrently anticipate entering into interest rate swaps and/or similarinstruments.  We have no material currency exchange risk exposure as ofJune 30, 2010.  Our primary market risk exposure with regard tofinancial instruments is to changes in interest rates, which would impactinterest income earned on such instruments. A one percent change (100 basispoints) in interest rates on our investments would have impacted interestincome by a nominal amount for the three months ended June 30, 2010.

 

**ITEM 4T. CONTROLS AND PROCEDURES**

 

Our management, with the participation of our chiefexecutive officer and chief financial officer, evaluated the effectiveness ofour disclosure controls and procedures (as defined inRules 13a-15(e) and 15d-15(e) under the Exchange Act) as ofJune 30, 2010. Based on this evaluation, our chief executive officer andchief financial officer concluded that, as of June 30, 2010, ourdisclosure controls and procedures were (1) effective in that they weredesigned to ensure that material information relating to us, including our consolidatedsubsidiaries, is made known to our chief executive officer and chief financialofficer by others within those entities, as appropriate, to allow timelydecisions regarding required disclosures, and (2) effective in that theyprovide reasonable assurance that information required to be disclosed by us inour reports that we file or submit under the Exchange Act is recorded,processed, summarized and reported within the time periods specified in the SEC’srules and forms.

 

No changes in our internal control over financialreporting (as defined in Rules 13a-15(f) and 15d-15(f) under theExchange Act) occurred during the fiscal quarter ended June 30, 2010 thathave materially affected, or are reasonably likely to materially affect, ourinternal control over financial reporting.

 

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**PART II. OTHER INFORMATION**

 

**ITEM 1. LEGAL PROCEEDINGS**

 

The Company’s management knows of no materialexisting or pending legal proceedings or claims against the Company, nor is theCompany involved as a plaintiff in any material proceeding or pendinglitigation.  To the Company’s knowledge, no director, officer or affiliateof the Company, and no owner of record or beneficial owner of more than fivepercent (5%) of the Company’s securities, or any associate of any suchdirector, officer or security holder is a party adverse to the Company or has amaterial interest adverse to the Company in reference to pending litigation.

 

**ITEM 1A. RISK FACTORS**

 

*You should carefully consider thefollowing risks and all of the other information set forth in this QuarterlyReport before deciding to invest in shares of our common stock. The risksdescribed below are not the only ones facing us. Additional risks not presentlyknown to us or that we currently deem immaterial may also impair our businessoperations.*

 

*If any of the following risksactually occurs, our business, financial condition or results of operations wouldlikely suffer.  In such case, the market price of our common stock wouldlikely decline due to the occurrence of any of these risks, and you may loseall or part of your investment.*

 

**Risks Related To Our Business and Our Industry**

 

***We will needsubstantial additional funding to develop our products and for our futureoperations. If we are unable to obtain the funds necessary to do so in the nearterm, we may be required to delay, scale back or eliminate our productdevelopment or may be unable to continue our business.***

 

The development of our product candidates willrequire a commitment of substantial funds to conduct the costly and time-consumingresearch, which may include pre-clinical and clinical testing, necessary toobtain regulatory approvals and bring our products to market. We believe thatour current capital resources should be sufficient to meet our operating andcapital requirements through December 2010. Our future requirements willdepend on many factors, including:

 

·                  the progress of our research and developmentprograms, including our ability to discover and develop new taste modifiers;

 

·                  our ability, or our partners’ ability andwillingness, to formulate these taste modifiers, including RP44, into food andbeverage products;

 

·                  our ability to discover and develop newdiabetes or obesity therapeutic compounds;

 

·                  the cost of prosecuting, defending andenforcing patent claims and other intellectual property rights;

 

·                  the progress, scope and results of ourpre-clinical and clinical testing of any future pharmaceutical products;

 

·                  the time and cost involved in obtainingregulatory approvals;

 

·                  the cost of manufacturing our productcandidates;

 

·                  competing technological and marketdevelopments;

 

·                  our ability to establish and maintaincollaborative and other arrangements with third parties to assist in bringingour products to market and the cost of such arrangements.

 

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Therecan be no assurance that we will not need additional capital sooner thancurrently anticipated.

 

***We will need to raise substantialadditional capital before December 2010 to fund our future operations. Wecannot be certain that additional financing will be available on acceptableterms, or at all. In recent years, it has been difficult for companies to raisecapital due to a variety of factors, which may or may not continue. To theextent we raise additional capital through the sale of equity securities, theownership position of our existing stockholders could be substantially diluted.If additional funds are raised through the issuance of preferred stock or debtsecurities, these securities are likely to have rights, preferences andprivileges senior to our common stock. Fluctuating interest rates could alsoincrease the costs of any debt financing we may obtain.***

 

Failureto successfully address ongoing liquidity requirements will have a materialadverse effect on our business. If we are unable to obtain additional capitalon acceptable terms when needed, we may be required to take actions that harmour business and our ability to achieve cash flow in the future, includingpossibly the surrender of our rights to some technologies or productopportunities, delaying our clinical trials or curtailing or ceasingoperations.

 

***Redpoint is a development-stagecompany. We have incurred losses since inception and expect to incur additionalnet losses for at least the next several years.***

 

Sinceour inception we have incurred significant losses and negative cash flows fromoperations. As of June 30, 2010, we had an accumulated deficit of$54.4 million, and anticipate incurring additional losses for theforeseeable future. We will need to spend significant resources over the nextseveral years to enhance our technologies and to fund research and developmentof our pipeline of potential products. In order to advance our programs, wewill need to raise additional capital or fund operations through collaborationswith third parties. We have not generated significant revenues in anyparticular year since our inception. To date, substantially all of our revenuehas been derived from corporate collaborations, license agreements, andgovernment grants. In order to achieve profitability, we must develop productsand technologies that can be commercialized by us or through futurecollaborations. Our ability to generate revenues and become profitable willdepend on our ability, alone or with potential collaborators, to timely,efficiently and successfully complete the development of our productcandidates, which may include conducting pre-clinical and clinical tests,obtaining necessary regulatory approvals, and manufacturing and marketing ourproduct candidates. There can be no assurance that any such events will occuror that we will ever become profitable. Even if we do achieve profitability, wecannot predict the level of such profitability. If we sustain losses over anextended period of time, we may be unable to continue our business.

 

***We are an early stage company andcurrently have no products available for sale. Our product candidates requireadditional research, development, testing, expert reviews and/or regulatoryapprovals before marketing. We may be unable to develop, obtain regulatoryapproval or market any of our product candidates. If our product candidates aredelayed or fail, our financial condition will be negatively affected, and wemay have to curtail or cease our operations.***

 

Weare in the early stage of product development and we are dependent on newdiscoveries. We currently do not sell any products to third parties and do notexpect to have any products commercially available for several years, if atall. You must evaluate us in light of the uncertainties and complexitiesaffecting an early stage biotechnology company. Our product candidates requireadditional research and development, pre-clinical testing, clinical testing(for our pharmaceutical products) and regulatory review and/or approvalsclearances before marketing. There are many reasons that our product candidatesmay fail or not advance to commercialization, including the possibility that:

 

·                  our product candidates may be ineffective,unsafe or associated with unacceptable side effects;

 

·                  our product candidates may fail to receivethe necessary regulatory approvals or otherwise fail to meet applicableregulatory standards;

 

·                  experts may not agree that our food productcandidates, including RP44, are generally recognized as safe;

 

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·                  our product candidates, including RP44, maybe too expensive to develop, manufacture or market;

 

·                  other parties may hold or acquire proprietaryrights that could prevent us or our potential collaborators from developing ormarketing our product candidates;

 

·                  physicians, patients, third-party payers orthe medical community in general may not accept or use our contemplatedpharmaceutical products;

 

·                  our current and potential collaborators maywithdraw support for or otherwise impair the development and commercializationof our product candidates; or

 

·                  others may develop equivalent or superiorproducts.

 

Inaddition, we, or our collaborators, may not succeed in developing tastemodulators, including RP44, with the appropriate attributes required for use insuccessful commercial products. Successful taste modulators require, amongother things, appropriate biological activity, including the correct propertiesfor the product application, an acceptable safety profile, including lack oftoxicity or allergenicity, and appropriate physical or chemical properties,including relative levels of stability, volatility and resistance to heat.Successful taste enhancers must also be cost-efficient. We may not be able todevelop taste modulators that meet these criteria.

 

Ifour product candidates are delayed or we fail to successfully develop andcommercialize our product candidates, our financial condition may be negativelyaffected, and we may have to curtail or cease our operations.

 

***We may not successfully establishand maintain collaborative and licensing arrangements, which could adverselyaffect our ability to develop and commercialize our product candidates.***

 

Akey element of our food and beverage strategy is to commercialize tastemodulators through licensing arrangements with major ingredient suppliersand/or end users, such as the IFF Agreement. Our pharmaceutical strategydepends on establishing collaborations and licensing agreements with majorpharmaceutical companies. We may not be able to maintain or expand theselicenses and collaborations or establish additional licensing and collaborationarrangements necessary to develop and commercialize our product candidates. Forexample, we were unable to renew our one year research agreement with TheCoca-Cola Company in 2008 and our agreement with Givaudan ended on May 1,2009. Even if we are able to maintain or establish licensing or collaborationarrangements, these arrangements may not be on favorable terms and may containprovisions that will restrict our ability to develop, test and market ourproduct candidates. Any failure to maintain or establish licensing orcollaboration arrangements on favorable terms could adversely affect ourbusiness prospects, financial condition or ability to develop and commercializeour product candidates.

 

Weexpect to rely at least in part on third party collaborators to perform anumber of activities relating to the development and commercialization of ourproduct candidates, including the manufacturing of product materials, thedesign and conduct of clinical trials for our pharmaceutical candidates, andpotentially the obtaining of regulatory approvals and marketing anddistribution of any successfully developed products. Our collaborative partnersmay also have or acquire rights to control aspects of our product developmentand clinical programs. As a result, we may not be able to conduct theseprograms in the manner or on the time schedule we currently contemplate. Inaddition, if any of these collaborative partners withdraw support for ourprograms or product candidates or otherwise impair their development, ourbusiness could be negatively affected. To the extent we undertake any of theseactivities internally, our expenses may increase.

 

Inaddition, our success depends on the performance of our collaborators of theirresponsibilities under these arrangements. Some potential collaborators may notperform their obligations in a timely fashion or in a manner satisfactory tous. Because such agreements may be exclusive, we may not be able to enter intoa collaboration agreement with any other company covering the same productfield during the applicable collaborative period. In addition, ourcollaborators’ competitors may not wish to do business with us at all due toour relationship with our collaborators. If we are unable to enter intoadditional product discovery and development collaborations or maintain ourexisting arrangements, our ability to sustain or expand our business will besignificantly diminished.

 

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***If we or our collaborators areunable to obtain and maintain the GRAS determination or regulatory approvalrequired before any taste modulator, including RP44, can be incorporated intoproducts that are sold, we would be unable to commercialize our tastemodulators and our business would be adversely affected.***

 

Inthe United States, the development, sale and incorporation of our tastemodulators into products are subject to regulation by the FDA, and in someinstances, other government bodies. Obtaining and maintaining a GRASdetermination or regulatory approval is typically costly and can take manyyears.

 

Dependingon the amount or intended use of a particular taste modulator added to aproduct and the number of product categories in which the flavor or flavorenhancer will be incorporated, specific testing, safety assessment protocols,and regulatory processes must be satisfied before we or our collaborators cancommercially market and sell products containing any taste modulators,including RP44, that we may discover. A key element of our strategy is todevelop flavors and flavor enhancers that will be evaluated by the FEMA (Flavorand Extracts Manufacturers Association) GRAS Panel, which we expect will take18 to 24 months and which is less expensive than the alternative of filinga food additive petition with the FDA, which can take eight years or more. TheFEMA GRAS review process may take longer than 24 months and cost more thanwe currently anticipate if additional safety studies are requested by the FEMAGRAS Panel or are necessary to explain unexpected safety study findings. Thereis a risk that one or more of our product candidates, including RP44, may notqualify for a FEMA GRAS determination. This may occur for a variety of reasons,including the taste modulator’s intended use, the amount of the taste modulatorintended to be added to packaged foods and beverages, the number of productcategories in which the taste modulator will be incorporated, whether the tasteenhancer imparts sweetness, the safety profile of the taste enhancers and theFEMA GRAS Panel’s interpretation of the safety data. Even if we obtain a GRASdetermination with respect to a taste enhancer, the FDA has the ability tochallenge such determination, which could materially adversely affect ourability to market products on schedule or at all. In the event that aparticular taste modulator does not qualify for a FEMA GRAS determination, wemay be required to pursue a lengthy FDA approval process to reach the U.S.market, or dedicate our development efforts to alternative compounds, whichwould further delay commercialization. In addition, laws, regulations or FDApractice governing the regulatory approval process, the availability of theGRAS determination process or the manufacture or labeling of such products, maychange in a manner that could adversely affect our ability to commercializeproducts on schedule or at all.

 

Salesof our taste modulators, including RP44, outside of the United States will besubject to foreign regulatory requirements. In most cases, whether or not aGRAS determination or FDA approval has been obtained, approval of a product bythe comparable regulatory authorities of foreign countries must still beobtained prior to manufacturing or marketing the product in those countries. AGRAS determination or FDA approval in the United States or in any otherjurisdiction does not ensure approval in other jurisdictions because therequirements from jurisdiction to jurisdiction may vary widely. Obtainingforeign approvals could result in significant delays, difficulties and costsfor us and require additional safety studies and additional expenses. If wefail to comply with these regulatory requirements or to obtain and maintainrequired approvals, our ability to generate revenue will be diminished.

 

Weand our collaborators may not be successful in overcoming these regulatoryhurdles, which could result in product launch delays, unanticipated expenses,termination of collaborations, and flavors and flavor enhancers not beingapproved for incorporation into consumer products. These consequences wouldhave a material adverse effect on our business financial condition and resultsof operations.

 

***Even if we or our collaboratorsreceive a GRAS determination or regulatory approval and incorporate our tastemodulators, including RP44, into products, those products may never becommercially successful.***

 

Evenif we discover and develop modulators, including RP44, that obtain thenecessary GRAS determination or regulatory approval, our success depends to asignificant degree upon the commercial success of packaged food and beverageproducts incorporating those modulators. If these products fail to achieve orsubsequently maintain market acceptance or commercial viability, our businesswould be significantly harmed because our royalty revenue is dependent uponconsumer sales of these products. In addition we could be unable to maintain ourexisting collaborations or attract new product discovery and developmentcollaborators. Many factors 

 

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mayaffect the market acceptance and commercial success of any potential productsincorporating taste modulators that we may discover, including:

 

·                  health concerns, whether actual or perceived,or unfavorable publicity regarding our taste modulators, including RP44, orthose of our competitors;

 

·                  the timing of market entry as compared tocompetitive products;

 

·                  the rate of adoption of products by ourcollaborators and other companies in the flavor industry; and

 

·                  any product labeling that may be required bythe FDA or other United States or foreign regulatory agencies for productsincorporating our taste modulators, including RP44.

 

***We may experience delays in clinicaltrials and regulatory approval relating to our products that could adverselyaffect our financial results and our commercial prospects for ourpharmaceutical product candidates.***

 

Anyuses of our compounds that we develop as drugs acting to modulate incretinsecretion with potential utility as therapeutic agents for diabetes or obesity,will be subject to full FDA 505(b)(1) safety testing and clinical trialsdemonstrating therapeutic efficacy as required to develop an NDA. We will berequired to conduct clinical trials to demonstrate safety and efficacy of ourproduct candidates for each intended use. For product candidates that advanceto clinical testing, we cannot be certain that we or a collaborator willsuccessfully complete the clinical trials, and will obtain the resultsnecessary to receive regulatory approvals for the drug. These processes arelengthy, expensive and can have uncertain outcomes. Regulatory authorities maydisagree with our interpretations of the clinical trial results. There can beno assurance that clinical trials will be deemed by regulatory authorities asdemonstrating that our product candidates are safe and effective to obtainapproval for commercial distribution.

 

Wedo not know when clinical trials for our products will commence or whether wewill complete any of our clinical trials on schedule or at all. We may not beable to identify and successfully contract with an adequate number of clinicaltrial sites and clinical investigators. We may not be able to find a sufficientnumber of study subjects or may experience delays in enrolling patients for ourclinical trials. Trial sites may not be able to meet the targets for recruitingstudy subjects, because of limited patient pools, or strict criteria forenrolling in the trial.

 

Additionally,the FDA, the IRB or we may suspend our clinical trials at any time if there isreason to believe that we are exposing the subjects participating in the trialsto unacceptable health risks. The FDA or institutional review boards and/orinstitutional biosafety committees at the medical institutions and healthcarefacilities where we seek to sponsor clinical trials may not permit a trial toproceed or may suspend any trial indefinitely if they find deficiencies in theconduct of the trials or patients develop an unacceptable number or severity ofadverse events.

 

Productdevelopment costs to us and our potential collaborators will increase if wehave delays in testing or approvals or if we need to perform more or largerclinical trials than planned. We expect to continue to rely on third partyclinical investigators at medical institutions and healthcare facilities toconduct our clinical trials, and, as a result, we may face additional delayingfactors outside our control. Significant delays may adversely affect ourfinancial results and the commercial prospects for our product candidates anddelay our ability to become profitable.

 

***If our pharmaceutical productcandidates, including any product candidates we may develop under our earlystage diabetes program, do not successfully complete the clinical trialprocess, we will not be able to market them. Even successful clinical trialsmay not result in a marketable product and may not be entirely indicative of aproduct’s safety or efficacy.***

 

Manyfactors, known and unknown, can adversely affect clinical trials and theability to evaluate a product’s efficacy. During the course of treatment,patients can die or suffer other adverse events for reasons that may or may notbe related to the proposed product being tested. Even if unrelated to ourproduct, certain events can 

 

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neverthelessadversely impact our clinical trials. As a result, our ability to ultimatelydevelop and market the products and obtain revenues would suffer.

 

Evenpromising results in pre-clinical studies and initial clinical trials do notensure successful results in later clinical trials, which test broader humanuse of our products. Many companies in our industry have suffered significantsetbacks in advanced clinical trials, despite promising results in earliertrials. Even successful clinical trials may not result in a marketable productor be indicative of the efficacy or safety of a product. Many factors orvariables could affect the results of clinical trials and cause them to appearmore promising than they may otherwise be. Product candidates that successfullycomplete clinical trials could ultimately be found to be unsafe or ineffective.

 

Inaddition, our ability to complete clinical trials depends on many factors,including obtaining adequate clinical supplies and having a sufficient rate ofpatient recruitment. For example, patient recruitment is a function of manyfactors, including:

 

·                  the size of the patient population;

 

·                  the proximity of patients to clinical sites;

 

·                  the eligibility criteria for the trial;

 

·                  the perceptions of investigators and patientsregarding safety; and

 

·                  the availability of other treatment options.

 

Evenif patients are successfully recruited, we cannot be sure that they willcomplete the treatment process. Delays in patient enrollment or treatment inclinical trials may result in increased costs, program delays or both.

 

Withrespect to markets in other countries, we or a partner will also be subject toregulatory requirements governing clinical trials in those countries. Even ifwe complete clinical trials, we may not be able to submit a marketingapplication. If we submit an application, the regulatory authorities may notreview or approve it in a timely manner, if at all.

 

***Because we cannot predict whether orwhen we will obtain regulatory approval to commercialize our pharmaceuticalproduct candidates, we cannot predict the timing of any future revenue fromthese product candidates.***

 

Wecannot commercialize any of our pharmaceutical product candidates to generaterevenue until the appropriate regulatory authorities have reviewed and approvedthe applications for our product candidates. We cannot assure you that theregulatory agencies will complete their review processes in a timely manner orthat we will obtain regulatory approval for any product candidate we or ourpotential collaborators develop. Satisfaction of regulatory requirementstypically takes many years, is dependent upon the type, complexity and noveltyof the product and requires the expenditure of substantial resources.Regulatory approval processes outside the United States include all or many ofthe risks associated with the FDA approval process and potentially others aswell. In addition, we may experience delays or rejections based upon additionalgovernment regulation from future legislation or administrative action orchanges in FDA policy, or the policies of other relevant governmental ornongovernmental entities during the period of product development, pre-clinicaland clinical trials and FDA regulatory review.

 

***We will rely on third parties tomanufacture taste modulators, including RP44, and pharmaceutical productcandidates. There can be no guarantee that we can obtain sufficient andacceptable quantities of our taste modulators or pharmaceutical productcandidates on acceptable terms, which may delay or impair our ability todevelop, test and market such products.***

 

Ourbusiness strategy relies on third parties to manufacture and produce our tastemodulators, including RP44, and pharmaceutical product candidates in accordancewith good manufacturing practices established by the

 

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FDA,or similar regulations in other countries. Our taste modulators, includingRP44, and pharmaceutical product candidates may be in competition with otherproducts for access to these facilities and may be subject to delays inmanufacture if third parties give other products greater priority than ourproduct candidates. These third parties also may not deliver sufficientquantities of our taste modulators, including RP44, and pharmaceutical productcandidates, manufacture our taste modulators, including RP44, andpharmaceutical product candidates in accordance with specifications, or complywith applicable government regulations. Additionally, if the manufactured productsfail to perform as specified, our business and reputation could be severelyimpacted.

 

We,or our collaborators, may need to enter into manufacturing agreements for theproduction of product materials. If any manufacturing agreement is terminatedor any third party collaborator experiences a significant problem that couldresult in a delay or interruption in the supply of product materials to us,there are very few contract manufacturers who currently have the capability toproduce our taste modulators, including RP44, and pharmaceutical productcandidates on acceptable terms, or on a timely and cost-effective basis. Therecan be no assurance that manufacturers on whom we will depend will be able tosuccessfully produce our taste modulators and pharmaceutical product candidateson acceptable terms, or on a timely or cost-effective basis. There can also beno assurance that manufacturers will be able to manufacture our products inaccordance with our product specifications, or will meet FDA or other requirements.We must have sufficient and acceptable quantities of our product materials toconduct our clinical trials and to market our product candidates, if and whensuch products have been approved by the FDA for marketing. If we are unable toobtain sufficient and acceptable quantities of our product material, we may berequired to delay the clinical testing and marketing of our products.

 

***If we do not comply with applicableregulatory requirements in the manufacture and distribution of our productcandidates, we may incur penalties that may inhibit our ability tocommercialize our products and adversely affect our revenue.***

 

Ourfailure or the failure of our potential collaborators or third partymanufacturers to comply with applicable FDA or other regulatory requirementsincluding manufacturing, quality control, labeling, safety surveillance,promoting and reporting may result in criminal prosecution, civil penalties,recall or seizure of our products, total or partial suspension of production oran injunction, as well as other regulatory action against our productcandidates or us. Discovery of previously unknown problems with a product,supplier, manufacturer or facility may result in restrictions on the sale ofour products, including a withdrawal of such products from the market. Theoccurrence of any of these events would negatively impact our business andresults of operations.

 

***If we are unable to create andmaintain sales, marketing and distribution capabilities or enter intoagreements with third parties to perform those functions, we will not be ableto commercialize our product candidates.***

 

Wecurrently have no sales, marketing or distribution capabilities. Therefore, tocommercialize our product candidates, if and when such products have beenapproved and are ready for marketing, we expect to collaborate with thirdparties to perform these functions. We have no experience in developing,training or managing a sales force and will incur substantial additionalexpenses if we decide to market any of our future products directly. Developinga marketing and sales force is also time consuming and could delay launch ofour future products. In addition, we will compete with many companies thatcurrently have extensive and well-funded marketing and sales operations. Ourmarketing and sales efforts may be unable to compete successfully against thesecompanies.

 

***Many potential competitors,including those who have greater resources and experience than we do, maydevelop products or technologies that make ours obsolete or noncompetitive.***

 

Webelieve our taste technology approach is applicable to a wide range of food andbeverage products representing many and diverse competitive companies andapproaches. The life sciences and other technology industries are characterizedby rapid technological change, and the area of sensory or taste research is arapidly evolving field. Our future success will depend on our ability tomaintain a competitive position with respect to technological advances.Technological developments by others may result in our taste modulators andtechnologies, as well as our pharmaceutical products, becoming obsolete.

 

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Weface substantial competition from companies pursuing the commercialization ofproducts and services relevant to taste using various methods for the discoveryof taste modulators. These competitors include leading flavor companies, suchas International Flavors & Fragrances Inc., Givaudan SA,Symrise and Firmenich. Senomyx is principally focused in the area of tasteenhancement for food products and uses a high throughput screening technologyand synthetic chemistry to discover novel flavor enhancers, which it licensesto end users in the food industry. Nutrinova, a German ingredients company, isalso developing a biotechnology approach to finding novel taste enhancers incollaboration with the German Biotechnology Research and Information Network.In certain instances we may also compete with companies who are commercializingReb A. These companies include PureCircle Ltd and GLG Life TechCorporation. We currently compete and will continue to compete in the futurewith these companies in collaborating with and selling flavor products andtechnologies to manufacturers of packaged food and beverage products.

 

Wealso face substantial competition with respect to our diabetes program.Type 2 diabetes is a disease characterized by persistent hyperglycemia dueto the body’s inability to produce enough or respond to insulin, a hormoneregulating the absorption of sugar. Most treatments, outside of insulinreplacement, focus on correcting high blood sugar by either stimulating thepancreas to produce more insulin, enhancing tissue sensitivity to insulin, orby inhibiting the production and release of glucose from the liver. There aremany drugs currently available for treating diabetes and metabolic disease,either alone or in combination with other drugs. However, many patients arestill inadequately treated with poorly controlled blood sugar levels, and theunmet medical need remains a concern.

 

Thereare several classes of anti-diabetic treatments, either orally available orinjectable, including insulin, GLP-1 receptor agonists, sulfonylureas, DPP-IVinhibitors, PPAR agonists, and biguanides. Many of these drugs exhibit not onlylimited efficacy, but are also associated with less than desired tolerabilityand significant mechanism-based side effects. Several new classes ofanti-diabetic treatments have recently been developed, including incretinmimetics such as Exendin-4 (Byetta®), a GLP-1 mimetic, which enhanceglucose-dependent insulin secretion by the pancreatic beta-cell and slowsgastric emptying, and DPP-IV inhibitors which work by preventing theinactivation of endogenous GLP-1. Additionally, new mechanisms suchas GPR119 receptor agonists are being developed as glucose-dependentinsulin and GLP-1 secretagogues expected to lower postprandial glucose andreduce weight gain.

 

Ifsuccessful, our core diabetes program will face competition. The majorcompetitors to TPRM5 modulators would likely include several new classes ofanti-diabetic treatments, including the incretin mimetic Byetta® (marketed by EliLilly and Company and Amylin Pharmaceuticals), DPP-IV inhibitors (includingJanuviaTM marketed by Merck & Co., Inc.), and GPR119receptor agonists, currently in development by Metabolex, Inc., OSIPharmaceuticals, GlaxoSmithKline, and Arena Pharmaceuticals, Inc./Johnson &Johnson.

 

Manyof the abovementioned companies have substantially greater capital resources,research and development resources and experience, manufacturing capabilities,regulatory expertise, sales and marketing resources, established relationshipswith consumer products companies and production facilities than us.

 

Wemay in the future face competition from life sciences and other technologycompanies and other commercial enterprises. These entities engage as we do inbiotechnology, biology or chemistry and could apply this technology to thediscovery and development of taste modulators and new pharmaceutical products.We cannot guarantee that products developed as a result of our competitors’existing or future collaborations will not compete with our taste modifiers andnew pharmaceutical products.

 

Universitiesand public and private research institutions are also potential competitors.While these organizations primarily have educational objectives, they maydevelop proprietary technologies related to the sense of taste or secure patentprotection that we may need for the development of our technologies andproducts. We may attempt to license these proprietary technologies, but theselicenses may not be available to us on acceptable terms, if at all.

 

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***If we are unable to attract andretain key personnel and advisors, it may adversely affect our ability toobtain financing, pursue collaborations or develop our product candidates.***

 

Weare highly dependent on F. Raymond Salemme, Ph.D., our Chief Executive Officerand President, as well as Scott Horvitz, our Chief Financial Officer.

 

Ourfuture success depends on our ability to attract, retain and motivate highlyqualified management and scientific, development and commercial personnel andadvisors. To pursue our business strategy, we may need to hire or otherwiseengage qualified personnel and managers, including personnel with expertise indiscovery, development, clinical trials, government regulation, manufacturing,marketing and sales. Competition for qualified personnel is intense amongcompanies, academic institutions and other organizations. If we are unable toattract and retain key personnel and advisors, it may negatively affect ourability to successfully develop, test and commercialize our product candidates.

 

***We use hazardous and biologicalmaterials in our business. Any claims relating to improper handling, storage ordisposal of these materials could be time consuming and costly.***

 

Ourproducts and processes will involve the controlled storage, use and disposal ofcertain hazardous and biological materials and waste products. We and our suppliersand other collaborators are subject to federal, state and local regulationsgoverning the use, manufacture, storage, handling and disposal of materials andwaste products. Even if we and these suppliers and collaborators comply withthe standards prescribed by law and regulation, the risk of accidentalcontamination or injury from hazardous materials cannot be completelyeliminated. In the event of an accident, we could be held liable for anydamages that result, and any liability could exceed the limits or fall outsidethe coverage of any insurance we may obtain and exceed our financial resources.We may not be able to maintain insurance on acceptable terms, or at all. We mayincur significant costs to comply with current or future environmental laws andregulations.

 

***We may be sued for productliability, which could adversely affect our business.***

 

Becauseour business strategy involves the development and sale by either us or ourcollaborators of commercial products incorporating our taste modulators,including RP44, and our pharmaceutical products, we may be sued for productliability. We may be held liable if any product we develop and commercialize,or any product our collaborators commercialize that incorporates any of ourtaste modulators or pharmaceutical products, causes injury or is foundotherwise unsuitable during product testing, manufacturing, marketing, sale orconsumer use. In addition, the safety studies we must perform and the FEMA GRASdetermination we must obtain prior to incorporating our taste modulators,including RP44, into a commercial product, and the regulatory approvalsrequired to commercialize our pharmaceutical products, will not protect us fromany such liability.

 

Ifwe and our collaborators commence sale of commercial products we will need toobtain product liability insurance, and this insurance may be prohibitivelyexpensive, or may not fully cover our potential liabilities. Inability toobtain sufficient insurance coverage at an acceptable cost or otherwise to protectagainst potential product liability claims could prevent or inhibit thecommercialization of products developed by us or our product discovery anddevelopment collaborators. We may be obligated to indemnify our productdiscovery and development collaborators for product liability or other lossesthey incur as a result of our modulators. Any indemnification we receive fromsuch collaborators for product liability that does not arise from our tastemodulators or pharmaceutical products may not be sufficient to satisfy ourliability to injured parties. If we are sued for any injury caused by ourmodulators or products incorporating our taste modulators or any other productswe develop, our liability could exceed our total assets.

 

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**Risks Related To Intellectual Property**

 

***If our product candidates are noteffectively protected by valid, issued patents or if we are not otherwise ableto protect our proprietary information and technologies, it could harm ourbusiness.***

 

Thesuccess of our operations will depend in part on our ability and that of ourlicensors to:

 

·                  obtain patent protection for our tastescreening technology and our taste enhancers and aversive taste blockers bothin the United States and in other countries with substantial markets;

 

·                  obtain patent protection for our diabetes andobesity therapeutic compounds;

 

·                  maintain patents once obtained;

 

·                  maintain trade secrets and operate withoutinfringing upon the intellectual property rights of others; and

 

·                  obtain appropriate licenses upon reasonableterms to patents or proprietary rights held by others that are necessary oruseful to us in commercializing our technology, both in the United States andin other countries with substantial markets.

 

Inthe event we are not adequately able to protect our intellectual property andproprietary information, our business will be materially harmed.

 

***We may not have adequate protectionfor our unpatented proprietary information, which could adversely affect ourcompetitive position.***

 

Inaddition to patents, we will substantially rely on trade secrets, know-how, continuingtechnological innovations and licensing opportunities to develop and maintainour competitive position. However, it is conceivable that others mayindependently develop substantially equivalent proprietary information andtechniques or otherwise gain access to our trade secrets or disclose ourtechnology. To protect our trade secrets, we may enter into confidentialityagreements with employees, consultants and potential collaborators. However,these agreements may not provide meaningful protection of our trade secrets oradequate remedies in the event of unauthorized use or disclosure of suchinformation. Likewise, our trade secrets or know-how may become known throughother means or be independently discovered by our competitors. Any of these eventscould hinder us from developing or commercializing our product candidates.

 

***Our ability to compete in theingredient, food and beverage market and the pharmaceutical market may declineif we do not adequately protect our proprietary technologies, including RP44.***

 

Becauseof the substantial length of time and expense associated with the developmentof new products, we, along with the rest of the ingredient, food and beverageindustry and pharmaceutical industry, place considerable importance onobtaining and maintaining patent protection for new technologies, products andprocesses. Our success depends in part on our ability to obtain and maintainintellectual property that protects our technologies, taste enhancers oraversive taste blockers and our pharmaceutical products. Patent positions maybe highly uncertain and may involve complex legal and factual questions,including the ability to establish patentability of sequences and or structuresrelating to taste receptors, proteins, chemical synthesis techniques, compoundsand methods for using them to modulate taste for which we seek patentprotection. No consistent pattern regarding the allowability or scope of claimsin many of our pending patent applications has emerged to date. As a result, wecannot predict the breadth of claims that will ultimately be allowed in ourpatent applications, if any, including those we have in-licensed or the extentto which we may enforce these claims against our competitors. The degree offuture protection for our proprietary rights is therefore highly uncertain andwe cannot assure you that:

 

·                  we, or our licensors, were the first to filepatent applications or to invent the subject matter claimed in patentapplications relating to the technologies upon which we rely;

 

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·                  others will not independently develop similaror alternative technologies or duplicate any of our technologies;

 

·                  others did not publicly disclose our claimedtechnology before we conceived the subject matter included in any of our patentapplications;

 

·                  any of our patent applications will result inissued patents;

 

·                  any of our patent applications will notresult in interferences or disputes with third parties regarding priority of invention;

 

·                  any patents that may be issued to us, ourcollaborators or our licensors will provide a basis for commercially viableproducts or will provide us with any competitive advantages or will not bechallenged by third parties;

 

·                  we will develop additional proprietarytechnologies that are patentable;

 

·                  the patents of others will not have anadverse effect on our ability to do business; or

 

·                  new proprietary technologies from thirdparties, including existing licensors, will be available for licensing to us onreasonable commercial terms, if at all.

 

Inaddition, the legal standards for patents outside the United States varygreatly and in many countries intellectual property laws are undergoing reviewand revision. The laws of some countries do not protect intellectual propertyrights to the same extent as domestic laws. It may be necessary or useful forus to participate in opposition proceedings to determine the validity of ourcompetitors’ patents or to defend the validity of any of our or our licensor’sfuture patents, which could result in substantial costs and would divert ourefforts and attention from other aspects of our business.

 

Technologieslicensed to us by others, or in-licensed technologies, are important to ourbusiness. In particular, we depend on certain technologies relating to tastebiology licensed from the Mount Sinai School of Medicine. In addition, we mayin the future acquire rights to additional technologies by licensing suchrights from existing licensors or from third parties. Such in-licenses may becostly. Also, we do not always control the patent prosecution, maintenance orenforcement of in-licensed technologies. Accordingly, we are unable to exercisethe same degree of control over this intellectual property as we do over ourinternally developed technologies. Moreover, some of our academic institutionlicensors, collaborators and scientific advisors have rights to publish dataand information to which we have rights. If we cannot maintain theconfidentiality of our technologies and other confidential information inconnection with our collaborations, our ability to protect our proprietaryinformation or obtain patent protection in the future may be impaired, whichcould have a significant adverse effect on our business, financial conditionand results of operations.

 

***Many of the patent applications weand our licensors have filed have not yet been substantively examined and maynot result in patents being issued.***

 

Manyof the patent applications filed by us and our licensors were filed recentlywith the United States Patent and Trademark Office and many have not beensubstantively examined and may not result in patents being issued. It isdifficult to predict whether any of our or our licensors’ applications willultimately be found to be patentable or, if so, to predict the scope of anyallowed claims. In addition, the disclosure in our or our licensors’ patentapplications, particularly in respect of the utility of our claimed inventions,may not be sufficient to meet the statutory requirements for patentability inall cases. As a result, it is difficult to predict whether any of our or ourlicensors’ applications will be allowed, or, if so, to predict the scope of anyallowed claims or the enforceability of the patents. Even if enforceable,others may be able to design around any patents or develop similar technologiesthat are not within the scope of such patents. Our and our licensors’ patentapplications may not issue as patents that will provide us with any protectionor competitive advantage.

 

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***Disputes concerning the infringementor misappropriation of our proprietary rights or the proprietary rights ofothers could be time consuming and extremely costly and could delay ourresearch and development efforts.***

 

Ourcommercial success, if any, will be significantly harmed if we infringe thepatent rights of third parties or if we breach any license or other agreementsthat we have entered into with regard to our technology or business.

 

Weare aware of other companies and academic institutions that have beenperforming research in the areas of taste modulation. In particular, othercompanies and academic institutions have announced that they have conducted taste-receptorresearch and have published data on taste receptor sequence information andtaste receptors or filed patent applications or obtained patent protection ontaste modulation or taste receptors and their uses. To the extent any of thesecompanies or academic institutions currently have, or obtain in the future,broad patent claims, such patents could block our ability to use variousaspects of our discovery and development process and might prevent us fromdeveloping or commercializing newly discovered taste enhancers and aversivetaste blockers or otherwise conducting our business. In addition, it ispossible that some of the taste enhancers or aversive taste blockers that arediscovered using our technology may not be patentable or may be covered byintellectual property of third parties. Additionally, we may be subject todisputes with our collaborative partners relating to the scope of our research,our related agreements and the resulting rights or ownership of anydiscoveries.

 

Withrespect to third-party patent rights in the area of the TRPm5 receptorspecifically, we are aware of pending U.S. and foreign patent applications bycompetitors and others that have claims directed to the TRPm5 receptor and/ormethods of using the TRPm5 receptor to identify novel taste modulatingcompounds. Although these patent applications are currently undergoingexamination by the U.S. Patent and Trademark Office, and it is possible thatthey will not be granted or will not be granted with the current claims, it isalso possible that patents will be granted on these applications with claimsthat are relevant to our current or future commercialization plans. To theextent we determine that we need a license to these or other patents relatingto the TRPm5 receptor and are unable to obtain such licenses on commerciallyreasonable terms or at all, we may be restricted in our ability tocommercialize our own TRPm5 technologies.

 

Weare not currently a party to any litigation, interference, opposition, protest,reexamination or any other potentially adverse governmental, ex parte orinter-party proceeding with regard to our patent or trademark positions.However, the life sciences and other technology industries are characterized byextensive litigation regarding patents and other intellectual property rights.Many life sciences and other technology companies have employed intellectualproperty litigation as a way to gain a competitive advantage. If we becomeinvolved in litigation, interference proceedings, oppositions, reexaminations,protests or other potentially adverse intellectual property proceedings as aresult, for example, of alleged infringement by us of the rights of others oras a result of priority of invention disputes with third parties, we might haveto spend significant amounts of money, time and effort defending our positionand we may not be successful. In addition, any claims relating to theinfringement of third-party proprietary rights or proprietary determinations,even if not meritorious, could result in costly litigation, lengthygovernmental proceedings, diversion of management’s attention and resources, orrequire us to enter into royalty or license agreements that are notadvantageous to us.

 

Shouldany person have filed patent applications or obtained patents in the UnitedStates that claim inventions also claimed by us, we may have to participate inan interference proceeding declared by U.S. Patent and Trademark Office todetermine priority of invention and, thus, the right to a patent for these inventionsin the United States. Such a proceeding could result in substantial cost to useven if the outcome is favorable. Even if successful on priority grounds, aninterference action may result in loss of claims based on patentability groundsraised in the interference action. Litigation, interference proceedings orother proceedings could divert management’s time and efforts. Even unsuccessfulclaims could result in significant legal fees and other expenses, diversion ofmanagement’s time and disruption in our business. Uncertainties resulting frominitiation and continuation of any patent proceeding or related litigationcould harm our ability to compete and could have a significant adverse effecton our business, financial condition and results of operations.

 

Anadverse ruling arising out of any intellectual property dispute, including anadverse decision as to the priority of our inventions, could undercut orinvalidate our intellectual property position. An adverse ruling could alsosubject us to significant liability for damages, including possible trebledamages, prevent us from using 

 

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technologiesor developing products, or require us to negotiate licenses to disputed rightsfrom third parties. Although patent and intellectual property disputes in thetechnology area are often settled through licensing or similar arrangements,costs associated with these arrangements may be substantial and could includelicense fees and ongoing royalties. Furthermore, necessary licenses may not beavailable to us on satisfactory terms, if at all. Failure to obtain a licensein such a case could have a significant adverse effect on our business,financial condition and results of operations.

 

**Risks Related to Our Fluctuating Operating Results, PossibleAcquisitions and Management of Growth**

 

***We expect that our results ofoperations will fluctuate from period to period, and this fluctuation couldcause our stock price to decline, causing investor losses.***

 

Ouroperating results have fluctuated in the past and are likely to varysignificantly in the future based upon a number of factors, many of which wehave little or no control over. We operate in a highly dynamic industry andfuture results could be subject to significant fluctuations. These fluctuationscould cause us to fail to meet or exceed financial expectations of securitiesanalysts or investors, which could cause our stock price to decline rapidly andsignificantly. Revenue and expenses in future periods may be greater or lessthan revenue and expenses in the immediately preceding period or in thecomparable period of the prior year. Therefore, period-to-period comparisons ofour operating results are not necessarily a good indication of our futureperformance. Some of the factors that could cause our operating results tofluctuate include:

 

·                  our ability to discover and develop tastemodulators;

 

·                  our ability to discover and develop newdiabetes or obesity therapeutic compounds;

 

·                  our ability or the ability of our productdiscovery and development collaborators, to incorporate our taste modulators,including RP44, into packaged food and beverage products;

 

·                  our receipt of milestone payments in anyparticular period;

 

·                  the ability and willingness of collaboratorsto commercialize products incorporating our taste modulators, including RP44,on expected timelines, or at all;

 

·                  our ability to tenter into product discoveryand development collaborations and technology collaborations, or to extend theterms of any existing collaboration agreements, and our payment obligations,expected revenue and other terms of any other agreements of this type;

 

·                  our ability, or our collaborators’ ability,to successfully satisfy all pertinent regulatory requirements;

 

·                  the demand for our future products and ourcollaborators’ products containing our taste modulators, including RP44; and

 

·                  general and industry specific economic conditions,which may affect our collaborators’ research and development expenditures.

 

***If we acquire products, technologiesor other businesses, we will incur a variety of costs, may have integrationdifficulties and may experience numerous other risks that could adverselyaffect our business.***

 

Toremain competitive, we may decide to acquire additional businesses, productsand technologies. We currently have no commitments or agreements with respectto, and are not actively seeking, any material acquisitions. We have limitedexperience in identifying acquisition targets, successfully acquiring them andintegrating them into our current infrastructure. We may not be able tosuccessfully integrate any businesses, products, technologies or personnel thatwe might acquire in the future without a significant expenditure of 

 

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operating,financial and management resources, if at all. In addition, future acquisitionscould require significant capital infusions and could involve many risks,including, but not limited to, the following:

 

·                  we may have to issue convertible debt orequity securities to complete an acquisition, which would dilute ourstockholders and could adversely affect the market price of our common stock;

 

·                  an acquisition may negatively impact ourresults of operations because it may require us to incur large one-time chargesto earnings, amortize or write down amounts related to goodwill and

 

·                  other intangible assets, or incur or assumesubstantial debt or liabilities, or it may cause adverse tax consequences,substantial depreciation or deferred compensation charges;

 

·                  we may encounter difficulties in assimilatingand integrating the business, technologies, products, personnel or operationsof companies that we acquire;

 

·                  certain acquisitions may disrupt ourrelationship with existing collaborators who are competitive to the acquiredbusiness;

 

·                  acquisitions may require significant capitalinfusions and the acquired businesses, products or technologies may notgenerate sufficient revenue to offset acquisition costs;

 

·                  an acquisition may disrupt our ongoingbusiness, divert resources, increase our expenses and distract our management;

 

·                  acquisitions may involve the entry into ageographic or business market in which we have little or no prior experience;and

 

·                  key personnel of an acquired company maydecide not to work for us.

 

Anyof the foregoing risks could have a significant adverse effect on our business,financial condition and results of operations.

 

***To the extent we enter marketsoutside of the United States, our business will be subject to political,economic, legal and social risks in those markets, which could adversely affectour business.***

 

Thereare significant regulatory and legal barriers in markets outside the UnitedStates that we must overcome to the extent we enter or attempt to enter marketsin countries other than the United States. We will be subject to the burden ofcomplying with a wide variety of national and local laws, including multipleand possibly overlapping and conflicting laws. We also may experiencedifficulties adapting to new cultures, business customs and legal systems. Anysales and operations outside the United States would be subject to political,economic and social uncertainties including, among others:

 

·                  changes and limits in import and exportcontrols;

 

·                  increases in custom duties and tariffs;

 

·                  changes in currency exchange rates;

 

·                  economic and political instability;

 

·                  changes in government regulations and laws;

 

·                  absence in some jurisdictions of effectivelaws to protect our intellectual property rights; and

 

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·                  currency transfer and other restrictions andregulations that may limit our ability to sell certain products or repatriateprofits to the United States.

 

Anychanges related to these and other factors could adversely affect our businessto the extent we enter markets outside the United States.

 

***We may encounter difficultiesmanaging our growth, which could adversely affect our business.***

 

Ourstrategy includes entering into and working on simultaneous discovery anddevelopment programs across multiple markets that include both the food andbeverage industry and the pharmaceutical industry. We expect to grow to meetour strategic objectives. If we grow, it will place a strain on us, ourmanagement and our resources. Our ability to effectively manage our operations,growth and various projects requires us to continue to improve our operational,financial and management controls, reporting systems and procedures and toattract and retain sufficient numbers of talented employees. We may not be ableto successfully implement these tasks on a larger scale and, accordingly, wemay not achieve our research, development and commercialization goals. If wefail to improve our operational, financial and management information systems,or fail to effectively monitor or manage our new and future employees or ourgrowth, our business would suffer significantly. In addition, no assurance canbe made that we will be able to secure adequate facilities to house our staff,conduct our research or achieve our business objectives.

 

***An economic downturn and adverseeconomic conditions may harm our business.***

 

Therecent economic downturn and adverse conditions in the national and globalmarkets may negatively affect our operations in the future. Our revenues arecontingent upon the expenditures of the pharmaceutical, biotech, and food andbeverage industries, and as these industries continue to cut costs in responseto the economic downturn, our revenues may be similarly decreased. Furthermore,while our revenues may decrease, our costs may remain fixed, resulting indecreased earnings.

 

**Risks Related to our Common Stock; Liquidity Risks**

 

***The sale of a significant number ofour shares of common stock in the public market, as well as substantial futureissuances of our common stock, could depress the market price of common stock.***

 

Thesale of a significant number of shares of our common stock in the public marketcould harm the market price of our common stock. The number of shares that maybe sold into the marketplace pursuant to the registration statement issignificant. We believe that such sales may severely depress the market priceof our common stock. In addition, some or all of the shares of common stock maybe offered from time to time in the open market pursuant to Rule 144 (orpursuant to an additional registration statement, if one is effective), andthese sales may also have a depressive effect on the market for the shares ofcommon stock. In general, a person who is deemed to be an affiliate who hasheld shares for a period of six months may, upon filing of a notification onForm 144 with the SEC, sell into the market common stock in an amount upto the greater of 1% of the outstanding shares or the average weekly number ofshares sold in the last four weeks before such sale. Such sales may be repeatedonce each three months. A non-affiliate holding restricted shares may sell suchshares without restrictions after they have been held six months, subject onlyto the current public information requirement. After an additional six monthshave lapsed, a non-affiliate may sell such shares without any restrictions.

 

Themarket price for our common stock could also decline, perhaps significantly, asa result of issuances of a large number of shares of our common stock in thepublic market or even the perception that such issuances could occur. Under ourRegistration Rights Agreement, certain holders of our outstanding shares of ourcommon stock and other securities have demand and Form S-3 registrationrights. The existence of such registration rights could also make it more difficultfor us to raise funds through future offerings of our equity securities.

 

***The price of our common stock isexpected to continue to be volatile.***

 

Themarket price of our common stock, and the market prices for securities ofbiotechnology companies in general, have been, and are expected to be, highlyvolatile. The following factors, in addition to other risk factors 

 

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describedin this Quarterly Report on Form 10-Q, and the potentially low volume oftrades in our common stock, may have a significant impact on the market priceof our common stock, some of which are beyond our control:

 

·                  announcements of technological innovationsand discoveries by the Company or its competitors;

 

·                  developments concerning any research anddevelopment, clinical trials, manufacturing, and marketing collaborations;

 

·                  new products or services that the Company orits competitors offer;

 

·                  actual or anticipated variations in operatingresults;

 

·                  the initiation, conduct and/or outcome ofintellectual property and/or litigation matters;

 

·                  changes in financial estimates by securitiesanalysts;

 

·                  conditions or trends in bio-pharmaceutical orother healthcare industries;

 

·                  regulatory developments in the United Statesand other countries;

 

·                  changes in the economic performance and/ormarket valuations of other biotechnology and flavor companies;

 

·                  the Company’s announcement of significant acquisitions,strategic partnerships, joint ventures or capital commitments;

 

·                  additions or departures of key personnel;

 

·                  global unrest, terrorist activities, andeconomic and other external factors; and

 

·                  sales or other transactions involving commonstock.

 

Thestock market in general has recently experienced relatively large price andvolume fluctuations. In particular, market prices of securities ofbiotechnology companies have experienced fluctuations that often have beenunrelated or disproportionate to the operating results of these companies.Continued market fluctuations could result in extreme volatility in the priceof our common stock, which could cause a decline in the value of our commonstock. Investors should also be aware that price volatility may be worse if thetrading volume of our common stock is low.

 

***We do not expect to pay cashdividends in the foreseeable future.***

 

Wecurrently intend to retain any future earnings to finance the growth anddevelopment of our business; therefore, we do not expect to pay any cashdividends in the foreseeable future. Any future dividends will depend on ourearnings, if any, and our financial requirements.

 

***Because Redpoint became a publiccompany as a result of the Reverse Merger and Reincorporation Merger and notthrough a traditional underwritten initial public offering of securities, theCompany may not attract the attention of major brokerage firms. Additionally,as a public company, we incur substantial expenses.***

 

Asa result of the Reverse Merger and Reincorporation Merger, Redpoint became apublicly-traded company and, accordingly, will be subject to the informationand reporting requirements of the United States securities laws. The costs topublic companies of preparing and filing annual and quarterly reports, proxystatements and other information with the SEC and furnishing audited reports tostockholders have caused the Company’s expenses to be higher than they would beif it were a privately-held company. In addition, the Company incurred substantialexpenses in connection with the preparation of the registration statement andrelated documents with 

 

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respectto the registration of the common stock issued in the Private Placement and theReverse Merger. Security analysts of major brokerage firms may not providecoverage of the Company. No assurance can be given that brokerage firms willwant to conduct any secondary offerings on behalf of the Company in the future.

 

***We have discretion on how we use anyproceeds we receive from the exercise of warrants and options.***

 

Ourmanagement has broad discretion on how to use and spend any proceeds we receiveas a result of our security holders exercising their warrants and options. Ourstockholders may not agree with our decision on how to use such proceeds. If wefail to spend the proceeds effectively, our business and financial conditioncould be harmed and we may need to seek additional financing sooner thanexpected.

 

***It is not anticipated that therewill be an active public market for shares of our common stock in the near termand stockholders may have to hold their shares of common stock for anindefinite period of time. Stockholders may be unable to resell a large numberof their shares of common stock within a short time frame or at or above theirpurchase price.***

 

Tohave purchased shares of our common stock and warrants to purchase common stockin the Private Placement, an investor must have represented that it wasacquiring such shares and warrants for investment and not with a view todistribution or resale, that the investor understood that neither the commonstock nor the warrants are readily transferable and, in any event, that it mustbear the economic risk of an investment in the common stock for an indefiniteperiod of time.

 

***If we do not comply withregistration rights granted to certain holders of our restricted securities, wemay be required to pay damages to such holders.***

 

Wefiled a “resale” registration statement with the SEC covering all shares ofcommon stock issued in connection with the Private Placement, including sharesof common stock into which any warrants are exercisable, within 60 days afterthe final closing of the Private Placement. Such registration statement hasbeen declared effective by the SEC. We will use our best efforts to have such “resale”registration statement maintain its effectiveness until such time as allsecurities registered under the registration statement have been sold or areotherwise able to be sold under Rule 144 of the Securities Act withoutregard to volume limitations, whichever is earlier. We cannot assure you thatwe will be able to obtain or maintain such effective registration statement.

 

***Our common stock may be considered “apenny stock” and may be difficult to sell.***

 

TheSEC has adopted regulations that generally define “penny stock” to be an equitysecurity that has a market or exercise price of less than $5 per share, subjectto specific exemptions. The market price of our common stock has been and maycontinue to be less than $5 per share and therefore may be designated a “pennystock” under SEC rules. This designation requires any broker or dealer sellingour common stock to disclose certain information about the transaction, obtaina written agreement from the investor and determine that the investment in ourcommon stock by the investor is a reasonably suitable investment for suchinvestor. These rules may restrict the ability of brokers or dealers tosell our common stock and, as a result, may affect the ability of investors tosell their shares. In addition, unless and until our common stock is listed fortrading on the American Stock Exchange or NASDAQ Capital Market or similarmarket, investors may experience a lack of buyers to purchase such stock or alack of market makers to support the stock price. Resale restrictions ontransferring “penny stocks” are sometimes imposed by some states, which may maketransactions in our stock more difficult and may reduce the value of yourinvestment.

 

***Our stockholders may experienceadditional dilution upon the exercise of warrants or options.***

 

Asof June 30, 2010, there were 16.6 million shares of common stockunderlying options that have been or may be granted pursuant to the RedpointBio Corporation 2007 Omnibus Equity Compensation Plan. As of June 30,2010, there were 3.6 million warrants outstanding to purchase shares ofcommon stock. If the remaining warrants are exercised or converted, or if theoptions are exercised, you may experience dilution in the net tangible bookvalue of our common stock.

 

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***Directors and officers of theCompany have a high concentration of our common stock ownership.***

 

Basedon the aggregate number of shares of our common stock that are outstanding asof June 30, 2010, our officers and directors beneficially ownapproximately 12.16% of our outstanding common stock and our 5% stockholdersbeneficially own approximately 36.95% of our outstanding common stock. Such ahigh level of ownership by such persons may have a significant effect indelaying, deferring or preventing any potential change in control of theCompany. Additionally, as a result of their high level of ownership, ourofficers and directors might be able to strongly influence the actions of theCompany’s board of directors, and the outcome of actions brought to ourstockholders for approval. Such a high level of ownership may adversely affectthe voting and other rights of our stockholders.

 

**ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS**

 

None.

 

**ITEM 3.DEFAULTS UPON SENIOR SECURITIES**

 

Notapplicable.

 

**ITEM 6.EXHIBITS**

 
| **Exhibit No.** |   |                                                                                                                                                                                |
|----------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                 |   |                                                                                                                                                                                |
| 10.1                 |   | License  and Commercialization Agreement, by and between the Company and International  Flavors & Fragrances Inc., dated June 29, 2010 (filed  herewith). † |
|                 |   |                                                                                                                                                                                |
| 31.1                 |   | Certification  of principal executive officer pursuant to Section 302(a) of the  Sarbanes-Oxley Act of 2002 (filed herewith).                                             |
|                 |   |                                                                                                                                                                                |
| 31.2                 |   | Certification  of principal accounting and financial officer pursuant to Section 302(a) of  the Sarbanes-Oxley Act of 2002 (filed herewith).                              |
|                 |   |                                                                                                                                                                                |
| 32.1                 |   | Certification  of principal executive officer pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002 (furnished herewith).                                                 |
|                 |   |                                                                                                                                                                                |
| 32.2                 |   | Certification  of principal accounting and financial officer pursuant to Section 906 of  the Sarbanes-Oxley Act of 2002 (furnished herewith).                                  |

 

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| † |   | Portions  of the exhibit have been omitted and have been filed separately pursuant to  an application requesting confidential treatment. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------|

 

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**SIGNATURES**

 

Pursuantto the requirements of the Securities Exchange Act of 1934, the Registrant hasduly caused this report to be signed on its behalf by the undersigned,thereunto duly authorized.

 

 
|                  | REDPOINT  BIO CORPORATION |
|-----------------------|---------------------------|
|                  |                      |   |
| August 13,  2010 | By:                       | /s/  F. Raymond Salemme |
|                  |                      | F.  Raymond Salemme |
|                  |                      | President  and Chief Executive Officer |
|                  |                      | (Principal  Executive Officer) |
|                  |                      |   |
| August 13,  2010 | By:                       | /s/  Scott M. Horvitz |
|                  |                      | Scott  M. Horvitz |
|                  |                      | Chief  Financial Officer, Treasurer and Secretary |
|                  |                      | (Principal  Financial and Accounting Officer) |

 

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Table Of Contents

 

**EXHIBIT INDEX**

 
| **Exhibit No.** |   |                                                                                                                                                                                |
|----------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                 |   |                                                                                                                                                                                |
| 10.1                 |   | License  and Commercialization Agreement, by and between the Company and International  Flavors & Fragrances Inc., dated June 29, 2010 (filed  herewith). † |
|                 |   |                                                                                                                                                                                |
| 31.1                 |   | Certification  of principal executive officer pursuant to Section 302(a) of the  Sarbanes-Oxley Act of 2002 (filed herewith).                                             |
|                 |   |                                                                                                                                                                                |
| 31.2                 |   | Certification  of principal accounting and financial officer pursuant to  Section 302(a) of the Sarbanes-Oxley Act of 2002 (filed herewith).                              |
|                 |   |                                                                                                                                                                                |
| 32.1                 |   | Certification  of principal executive officer pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002 (furnished herewith).                                                 |
|                 |   |                                                                                                                                                                                |
| 32.2                 |   | Certification  of principal accounting and financial officer pursuant to Section 906 of  the Sarbanes-Oxley Act of 2002 (furnished herewith).                                  |

 

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| † |   | Portions  of the exhibit have been omitted and have been filed separately pursuant to  an application requesting confidential treatment. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------|

 

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