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** **

 

** **

**United States**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-Q**

 

**(Mark One)**

 

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

 

**For the quarterly period ended June 30, 2011**

 

**Or**

 

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

 

**For the transition period from               to              **

 

**Commission File Number: 000-51708**

 

**Redpoint Bio Corporation**

(Exact name of Registrant as specified in its charter)

 

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

 

**7 Graphics Drive, Ewing, New Jersey 08628**

(Address of principal executive offices) (Zip Code)

 

**(609) 637-9700**

(Registrant’s Telephone Number, Including Area Code)

 

 

(Former name, former address and 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 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes o No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting 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 a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o No x

 

The number of shares of the registrant’s common stock outstanding as of August 19, 2011 was 79,914,789.

 

 

 

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**REDPOINT BIO 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 |       | 12       |
|              |                                                                                         |       |     |
| ITEM 3.           | QUANTITATIVE   AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                 |       | 19       |
|              |                                                                                         |       |     |
| ITEM 4T.          | CONTROLS AND   PROCEDURES                                                                    |       | 20       |
|              |                                                                                         |       |     |
| **PART II:** | **OTHER   INFORMATION**                                                                      |       | 20       |
|              |                                                                                         |       |     |
| ITEM 1.           | LEGAL PROCEEDINGS                                                                            |       | 20       |
|              |                                                                                         |       |     |
| ITEM 1A.          | RISK FACTORS                                                                                 |       | 20       |
|              |                                                                                         |       |     |
| ITEM 2.           | UNREGISTERED   SALES OF EQUITY SECURITIES AND USE OF PROCEEDS                                |       | 22       |
|              |                                                                                         |       |     |
| ITEM 3.           | DEFAULTS   UPON SENIOR SECURITIES                                                            |       | 22       |
|              |                                                                                         |       |     |
| ITEM 6.           | EXHIBITS                                                                                     |       | 22       |
|              |                                                                                         |       |     |
| SIGNATURES        |                                                                                         | 24         |

 

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**PART I.  FINANCIAL INFORMATION.**

 

**ITEM 1.  FINANCIAL STATEMENTS.**

 

**REDPOINT BIO CORPORATION**

**(A DEVELOPMENT-STAGE ENTERPRISE)**

**BALANCE SHEETS**

**(UNAUDITED)**

 
| ** **                                                                                                                                                                                                       | ** ** | **December 31,** | ** ** | **June 30,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|-------------------|------------|
| ** **                                                                                                                                                                                                       | ** ** | **2010**              | ** ** | **2011**          | ** ** |
| **Assets**                                                                                                                                                                                                       |       |                  |       |              |       |
| Current assets:                                                                                                                                                                                                  |       |                  |       |              |       |
| Cash and cash equivalents                                                                                                                                                                                        |       | $                     | 1,082,999  |              | $          | 253,830 |   |
| Prepaid expenses and other current assets                                                                                                                                                                        |       | 72,200                |       | 5,259             |       |
| Total current assets                                                                                                                                                                                             |       | 1,115,199             |       | 259,089           |       |
| Property and equipment, net                                                                                                                                                                                      |       | 337,297               |       | 42,036            |       |
| Other assets                                                                                                                                                                                                     |       | 299,498               |       | 25,233            |       |
| Total assets                                                                                                                                                                                                     |       | $                     | 1,791,994  |              | $          | 326,358 |   |
| **Liabilities   and Stockholders’ Equity**                                                                                                                                                                  |       |                  |       |              |       |
| Current liabilities:                                                                                                                                                                                             |       |                  |       |              |       |
| Current portion of long-term debt                                                                                                                                                                                |       | $                     | 422,100    |              | $          | — |   |
| Accounts payable                                                                                                                                                                                                 |       | 954,275               |       | 344,981           |       |
| Accrued expenses                                                                                                                                                                                                 |       | 171,124               |       | 88,970            |       |
| Unused lease space accrual                                                                                                                                                                                       |       | —                |       | 425,000           |       |
| Accrued compensation                                                                                                                                                                                             |       | —                |       | 72,659            |       |
| Total current liabilities                                                                                                                                                                                        |       | 1,547,499             |       | 931,610           |       |
| Long-term debt                                                                                                                                                                                                   |       | 351,742               |       | —            |       |
| Total liabilities                                                                                                                                                                                                |       | 1,899,241             |       | 931,610           |       |
|                                                                                                                                                                                                             |       |                  |       |              |       |
| Stockholders’ equity (deficit):                                                                                                                                                                             |       |                  |       |              |       |
| 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 79,846,893 shares at   December 31, 2010 and issued and outstanding 79,914,789 shares at   June 30, 2011 |       | 7,985                 |       | 7,991             |       |
| Additional paid-in-capital                                                                                                                                                                                       |       | 56,687,893            |       | 56,844,032        |       |
| Deficit accumulated during development stage                                                                                                                                                                     |       | (56,803,125           | )          | (57,457,275       | )          |
| Total stockholders’ equity (deficit)                                                                                                                                                                        |       | (107,247              | )          | (605,252          | )          |
| Total liabilities and stockholders’ equity   (deficit)                                                                                                                                                      |       | $                     | 1,791,994  |              | 326,358    |   |

 

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** | ** ** |
|--------------------------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                             | ** ** | **2010**                                            | ** ** | **2011**                                          | ** ** | **2010**                                            | ** ** | **2011** | ** ** | **June 30, 2011** | ** ** |
| Research, grant and license revenue                    |       | $                                                   | 500,000    |                                              | $          | —                                              |       | $ | 500,000 |   | $ | — |   | $ | 13,574,481 |   |
| Operating expenses:                                    |       |                                                |       |                                              |       |                                                |       |   |   |   |   |
|                                                   |       |                                                |       |                                              |       |                                                |       |   |   |   |   |
| Research and development                               |       | 770,959                                             |       | 266,399                                           |       | 1,620,263                                           |       | 892,329 |   | 38,002,076 |   |
| General and administrative                             |       | 1,084,161                                           |       | 1,002,642                                         |       | 2,013,008                                           |       | 1,649,122 |   | 30,456,152 |   |
| Total operating expenses                               |       | 1,855,120                                           |       | 1,269,041                                         |       | 3,633,271                                           |       | 2,541,451 |   | 68,458,228 |   |
| Operating loss                                         |       | (1,355,120                                          | )          | (1,269,041                                        | )          | (3,133,271                                          | )          | (2,541,451 | ) | (54,883,747 | ) |
| Interest income                                        |       | 291                                                 |       | 3                                                 |       | 10,560                                              |       | 14 |   | 1,671,665 |   |
| Other income                                           |       | —                                              |       | 1,511,342                                         |       | —                                              |       | 1,511,342 |   | 1,511,342 |   |
| Interest expense                                       |       | (33,945                                             | )          | (9,286                                            | )          | (80,711                                             | )          | (34,781 | ) | (3,841,656 | ) |
| Income (Loss) before income taxes                      |       | (1,388,774                                          | )          | 233,018                                           |       | (3,203,422                                          | )          | (1,064,876 | ) | (55,542,396 | ) |
| Income tax benefit                                     |       | —                                              |       | —                                            |       | 101,306                                             |       | 410,726 |   | 1,498,010 |   |
| Net income (loss)                                      |       | (1,388,774                                          | )          | 233,018                                           |       | (3,102,116                                          | )          | (654,150 | ) | $ | (54,044,386 | ) |
| Basic and diluted net income (loss) per common   share |       | $                                                   | (0.02      | )                                                 | $          | —                                              |       | $ | (0.04 | ) | $ | (0.01 | ) |   |   |
| Weighted average of shares outstanding                 |       | 79,838,693                                          |       | 79,914,789                                        |       | 79,838,693                                          |       | 79,869,882 |   |   |   |

 

See accompanying notes to the unaudited financial statements.

 

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**REDPOINT BIO CORPORATION**

**(A DEVELOPMENT-STAGE ENTERPRISE)**

**STATEMENTS OF CASH FLOWS**

**(UNAUDITED)**

 
| ** **                                                                    | ** ** | **Six Months Ended   June 30,** | ** ** | **August 16, 1995   (Inception) to   June 30,** | ** ** |
|-------------------------------------------------------------------------------|------------|------------------------------------------------|------------|---------------------------------------------------------------------|------------|
| ** **                                                                    | ** ** | **2010**                                       | ** ** | **2011**                                                            | ** ** | **2011** | ** ** |
| Cash flows from operating activities:                                         |       |                                           |       |                                                                |       |   |   |
| Net loss                                                                      |       | $                                              | (3,102,116 | )                                                                   | (654,150   | ) | (54,044,386 | ) |
| Adjustments to reconcile net loss to net cash used   in operating activities: |       |                                           |       |                                                                |       |   |   |
| Depreciation                                                                  |       | 200,340                                        |       | 122,479                                                             |       | 3,165,384 |   |
| Amortization of discounts and premiums on   marketable securities             |       | —                                         |       | —                                                              |       | (473,654 | ) |
| Options, warrants and stock issued for services   and dilution provisions     |       | 287,521                                        |       | 149,562                                                             |       | 4,875,275 |   |
| Beneficial conversion feature                                                 |       | —                                         |       | —                                                              |       | 1,228,565 |   |
| Amortization of discount on convertible notes                                 |       | —                                         |       | —                                                              |       | 899,935 |   |
| Amortization of deferred financing costs                                      |       | 6,558                                          |       | 3,387                                                               |       | 179,147 |   |
| Debt inducement charge                                                        |       | —                                         |       | —                                                              |       | 361,598 |   |
| Interest expense on convertible notes                                         |       | —                                         |       | —                                                              |       | 136,075 |   |
| Gain on sale of property and equipment                                        |       | —                                         |       | (174,351                                                            | )          | (174,351 | ) |
| Gain on debt extinguishment                                                   |       | —                                         |       | (577,740                                                            | )          | (577,740 | ) |
| Gain on settlement of accounts payable                                        |       | —                                         |       | (759,251                                                            | )          | (759,251 | ) |
| Changes in assets and liabilities:                                            |       |                                           |       |                                                                |       |   |   |
| Accounts receivable                                                           |       | (500,000                                       | )          | —                                                              |       | — |   |
| Prepaid expenses and other assets                                             |       | 72,447                                         |       | 323,410                                                             |       | (335,352 | ) |
| Accounts payable                                                              |       | 29,759                                         |       | 574,957                                                             |       | 1,837,688 |   |
| Accrued expenses and accrued compensation                                     |       | 158,531                                        |       | 2,894                                                               |       | 305,628 |   |
| Net cash used in operating activities                                         |       | (2,846,960                                     | )          | (988,803                                                            | )          | (43,375,439 | ) |
| Cash flows from investing activities:                                         |       |                                           |       |                                                                |       |   |   |
| Maturity and sale of marketable securities                                    |       | —                                         |       | —                                                              |       | (46,513,341 | ) |
| Purchases of marketable securities                                            |       | —                                         |       | —                                                              |       | 46,986,994 |   |
| Proceeds from sale of property and equipment                                  |       | —                                         |       | 347,133                                                             |       | 347,133 |   |
| Purchases of property and equipment                                           |       | —                                         |       | —                                                              |       | (3,380,219 | ) |
| Net cash provided by (used in) investing   activities                         |       |                                           |       | 347,133                                                             |       | (2,559,433 | ) |
| 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                                                             |       | (181,413                                       | )          | (194,082                                                            | )          | (3,087,407 | ) |
| 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                 |       | —                                         |       | 6,583                                                               |       | 182,659 |   |
| Common stock reacquired                                                       |       | —                                         |       | —                                                              |       | (283,121 | ) |
| Net cash provided by (used in) financing   activities                         |       | (181,413                                       | )          | (187,499                                                            | )          | 46,188,702 |   |
| Net increase (decrease) in cash and cash   equivalents                        |       | (3,028,373                                     | )          | (829,169                                                            | )          | 253,830 |   |
| Cash and cash equivalents, beginning of period                                |       | 5,557,367                                      |       | 1,082,999                                                           |       |   |   |
| Cash and cash equivalents, end of period                                      |       | 2,528,994                                      |       | 253,830                                                             |       | 253,830 |   |
| 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                                                        |       | 65,093                                         |       | 31,394                                                              |       | 820,288 |   |
|                                                                               |            |                                                |            |                                                                     |            |  |  |  |

 

See accompanying notes to the unaudited financial statements.

 

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**REDPOINT BIO CORPORATION**

**(A DEVELOPMENT-STAGE ENTERPRISE)**

**NOTES TO FINANCIAL STATEMENTS**

**(UNAUDITED)**

 

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

 

*Description of the Business and Liquidity*

 

Redpoint Bio (the “Company”) is a development stage biotechnology company leveraging recent discoveries in the molecular biology of taste to discover and develop novel taste modulators for the food and beverage industries. We are focused on identifying novel flavor modifiers that improve the taste of existing ingredients, enabling the development of better-tasting and more healthful foods and beverages. Enhancing sweet and salty flavors in food and beverage products can lead to reduction in added sugar and salt.  We believe that the development of healthier and more tasteful foods and beverages presents an important opportunity to improve the overall health of the world’s population since many modern diseases are related to excess dietary sugar and salt.

 

In June 2009, we announced that we had identified an all-natural sweetness enhancer, RP44. RP44 is Reb-C (rebaudioside C) a component of the stevia plant. Extracts of the leaves of the stevia plant have been extensively used as sweeteners for decades.  Although certain components of the stevia leaf can be used as sweeteners, RP44 is not sweet and contributes no taste or calories of its own when used in small quantities in combination with caloric sweeteners like sucrose (table sugar) fructose and high-fructose corn syrup.  Instead, it works as a sweetness enhancer amplifying the existing sugary sweetness in a food or beverage so that less sweetener is required, while retaining the “clean sweet taste” that is associated with sugar.  We believe RP44 can provide an all-natural solution to reducing the amount of calories in sweetened foods and beverages while retaining the taste that consumers desire.

 

In June 2010, we entered into a license and commercialization agreement with International Flavors and Fragrances, Inc., or IFF, a global leader in the food and beverage industry, covering the commercialization of RP44. In October 2010, IFF received notification by the Flavor and Extract Manufacturers Association (FEMA) that RP44 had been determined to be Generally Recognized As Safe (GRAS).

 

Since its inception in 1995, the Company has incurred losses and negative cash flows from operations, and such losses have continued subsequent to June 30, 2011. As of June 30, 2011, the Company had an accumulated deficit of $57.5 million and anticipates incurring additional losses for the foreseeable future. The Company will need to spend significant resources over the next several years to enhance its technologies and to fund research and development of its pipeline of potential products. Through June 30, 2011, substantially all of the Company’s revenue has been derived from corporate collaborations, license agreements, and government grants. The Company expects that substantially all of its cash-flow for the foreseeable future will come from future corporate collaborations, equity financings and license agreements. However, there can be no assurance that the Company will enter into any future corporate collaborations, equity financings or license agreements. In order to achieve profitability, the Company must continue to develop products and technologies that can be commercialized by the Company or through future collaborations. Redpoint had approximately $0.3 million of cash and cash equivalents at June 30, 2011.  In April 2011, the Company sold a portion of its property and equipment through an auction process and received net cash proceeds of approximately $0.3 million.  Certain of the property and equipment that was sold were used for collateral for the Company’s Loan and Security Agreement with a finance company (see note 5).  Of the total net proceeds received from the auction sale, approximately $85,000 was remitted directly to the finance company to reduce the outstanding indebtedness plus accrued interest under the Loan and Security Agreement to approximately $635,000 as of May 10, 2011.  On May 11, 2011, the Company entered into a Discounted Payoff Agreement with the finance company, whereby the finance company agreed to accept approximately $43,000 in full satisfaction of the total outstanding indebtedness plus accrued interest.   Additionally, on May 10, 2011, the Company received notice from its landlord that the Company was in violation of its facility lease for failure to pay rent as required under the lease.  As of the date of this filing, the Company had approximately $0.2 million of cash and cash equivalents.  The Company believes that its current capital resources are only sufficient to meet its operating and capital requirements through September 2011, which raises substantial doubt that its ability to continue as a going concern.  The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty. The Company is actively seeking corporate collaborations and licensing agreements from various strategic partners as well as debt or equity financings to enhance the Company’s liquidity position.

 

The Company is subject to those risks associated with any biotechnology company that has substantial expenditures for research and development. There can be no assurance that the Company’s research and development projects will be successful, that products developed will obtain necessary regulatory approval, or that any approved product will be commercially viable. In addition, the Company operates in an environment of rapid technological change and is largely dependent on the services of its employees and consultants. For the Company to fund its operations and to commercially develop its products, additional corporate collaborations, 

 

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equity and/or debt financing will be required before September 2011. There is no assurance that such collaborations or financing will be available to the Company as needed, and as a result, it may need to pursue other strategic alternatives, including the divestiture of its MOG technology and associated costs.  Failure to successfully address ongoing liquidity requirements will have a material adverse effect on the Company’s business.  If the Company is unable to obtain additional capital on acceptable terms when needed, it will be unable to satisfy its existing obligations and may be required to take actions that harm its business and its ability to achieve positive operating cash flow in the future, including possibly the surrender of its rights to some technologies or product opportunities, or curtailing or ceasing operations.

 

*Basis of Presentation*

 

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

 

In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included (See Note 2 for discussion of the impact of the Reverse Merger (as defined below)).  Operating results for the three and six months ended June 30, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011.

 

For further information, refer to the 2010 financial statements and footnotes thereto of Redpoint included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.

 

**2. Reverse Triangular Merger, Financing and Reincorporation Merger**

 

*Completion of Merger*

 

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

 

Redpoint was deemed to have been the accounting acquirer in the Reverse Merger.  Accordingly, the financial statements of the Company presented reflect the historical results of Redpoint prior to the Reverse Merger, and of the combined entities following the Reverse Merger, and do not include the historical financial results of Robcor prior to the consummation of the Reverse Merger.  In connection with the Reverse Merger, Redpoint issued 1,391,000 shares of common stock to Robcor shareholders which have been treated as issuance costs in connection with the Private Placement.

 

*Private Placement*

 

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

 

In connection with the Private Placement, Redpoint engaged two placement agents which were issued five-year warrants to buy approximately 2.0 million shares of Robcor common stock equal to 10% of the number of shares of common stock sold in the Private Placement at an exercise price of $0.97 per share; provided, however, no warrants were issued to the placement agents with respect to shares and warrants sold to existing Redpoint stockholders.

 

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On April 6, 2007, Robcor sold an additional 16.1 million shares of common stock and warrants to purchase 4.0 million shares of common stock which resulted in net proceeds of approximately $11.3 million.  In connection with the April closing, warrants to purchase an additional 1.6 million shares of common stock were issued to the placement agents.

 

*Reincorporation Merger*

 

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

 

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

 

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

 

**3. Summary of Significant Accounting Policies**

 

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

 

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from such estimates.  The Company’s current financial difficulties, illiquid credit markets, volatile equity, and declines in consumer spending have combined to increase the uncertainty inherent in such estimates and assumptions.  As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates.  Changes in those estimates resulting from continuing changes in the economic environment will be reflected in the financial statements in those future periods.

 

***(b) Cash and Cash Equivalents***

 

The Company considers all highly liquid investments that have original maturities of three months or less when acquired to be cash equivalents.  As of December 31, 2010 and June 30, 2011, cash and cash equivalents include amounts invested in money market accounts.

 

***(c) Concentrations of Credit Risk***

 

Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash equivalents.  The Company has established guidelines relating to diversification and maturities that allows the Company to manage risk.

 

***(d) Revenue Recognition***

 

Revenue from corporate collaborations and licensing agreements consists of up-front fees, research and development funding, and milestone payments.

 

*License Fees and Multiple Element Arrangements*

 

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

 

Multiple element arrangements are analyzed to determine whether the deliverables, which often include license and performance obligations, such as research and development services, can be separated or whether they must be accounted for as a single unit of accounting. If the fair value of the undelivered performance obligations can be determined, such obligations would then be accounted for separately as performed. However, if the elements are considered to either (i) not have stand-alone value, or (ii) have stand-alone value but the fair value of any of the undelivered performance obligations cannot be determined, the arrangement would 

 

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then be accounted for as a single unit of accounting and all of the payments recognized as revenue over the estimated period of when the performance obligations are performed.  Whenever we determine that an arrangement should be accounted for as a single unit of accounting, we must determine the period over which the performance obligations will be performed and revenue will be recognized. Significant management judgment is required in determining the period over which we are expected to complete our performance obligations under an arrangement.

 

*Substantive Milestone Payments*

 

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

 

·the milestone payments are non-refundable;

 

·achievement of the milestone involves a degree of risk and was not reasonably assured at the inception of the arrangement;

 

·substantive effort is involved in achieving the milestone;

 

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

 

·the amount of the milestone payment is reasonable in relation to the effort expended or the risk associated with achievement of the milestone.

 

Determination as to whether a payment meets the aforementioned conditions involves management’s judgment. If any of these conditions are not met, the resulting payment would not be considered a substantive milestone, and therefore the resulting payment would be considered part of the consideration for the single unit of accounting and be recognized as revenue as such performance obligations are performed.

 

*Reimbursement of Research and Development Costs*

 

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

 

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

 

Property and equipment are recorded at cost and depreciated on a straight-line basis over their estimated useful lives. The Company uses a life of four to five years for laboratory equipment, three to seven years for office equipment and furniture, and the lesser of the useful life or the remaining life of the underlying facility lease for leasehold improvements. Expenditures for repairs and maintenance are charged to expense as incurred, while major renewals and betterments are capitalized. Upon disposition of assets, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the Statements of Operations.

 

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

 

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

 

***(g) Impairment of Long-Lived Assets***

 

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

 

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***(h) Income Taxes***

 

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

 

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

 

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

 

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

 

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

 

***(j) Net Income (Loss) per Common Share***

 

Basic net income (loss) per common share is computed by dividing the net income (loss) allocable to common stockholders by the weighted average number of shares of common stock outstanding for the period. Diluted net income (loss) per common share is computed by dividing net income (loss) allocable to common stockholders by the sum of the weighted-average number of common shares outstanding for the period and the number of additional shares that would have been outstanding if dilutive potential common shares had been issued.  Stock options and warrants to purchase an aggregate of 13,237,824 and 12,597,047 common shares were excluded from our computation of diluted net income (loss) per common share for the six months ended June 30, 2011 and 2010, respectively.  In all periods presented (other than the three months ended June 30, 2011), our diluted net income (loss) per common share is equal to basic net income (loss) per common share because giving effect in the computation of diluted net income (loss) per common share to the exercise of outstanding options and warrants would have been antidilutive.

 

***(k) Fair Value of Financial Instruments***

 

The fair value of our financial instruments is the amount for which the instrument could be exchanged in a current transaction between willing parties. As of December 31, 2010 and June 30, 2011, the carrying values of cash and cash equivalents, prepaid expenses and other current assets, accounts payable, accrued expenses, and accrued compensation equaled or approximated their respective fair values because of the short duration of these instruments. In addition, we believe the carrying value of our debt instruments, which do not have readily ascertainable market values, approximate their fair values, given that the interest rates on outstanding borrowings approximate market rates.

 

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

 

In October 2009, the FASB issued accounting guidance related to revenue recognition for transactions with multiple deliverables, which impacts the determination of when the individual deliverables included in a multiple-element arrangement may be treated as separate units of accounting.  This guidance became effective for us beginning on January 1, 2011 and did not have any impact on the Company’s interim financial statements.

 

***(m) Comprehensive Income (Loss)***

 

We classify items of other comprehensive income (loss) by their nature and disclose the accumulated balance of other comprehensive income (loss) separately from accumulated deficit and additional paid-in capital in the stockholders’ equity section of our balance sheet.  There was no other comprehensive income (loss) recorded during the three and six months ended June 30, 2011 and 2010.

 

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** **

**4. Accrued Expenses and Accrued Compensation**

 

Accrued expenses consisted of the following:

 
| ** **        | ** ** | **December 31,********2010** | ** ** | **June 30,********2011** | ** ** |
|-------------------|------------|-----------------------------------|------------|-------------------------------|------------|
| Professional fees |       | $                                 | 85,324     |                          | $          | 88,970 |   |
| Deferred rent     |       | 73,138                            |       | —                        |       |
| Other             |       | 12,662                            |       | —                        |       |
|              |       | $                                 | 171,124    |                          | $          | 88,970 |   |

 

*Accrued Compensation*

 

Effective March 1, 2011 through June 30, 2011, each of the Company’s executive officers agreed to indefinitely defer one-third of the cash portions of their salaries, at least until the Company has raised additional capital or the compensation committee of the board of directors determines otherwise.  Effective July 1, 2011, this salary deferral was increased to 90% of the salaries of the Company’s executive officers.  Accrued compensation of $66,937 is included in “Accrued Compensation” on the Company’s balance sheet at June 30, 2011 which consists of the cash amounts due to the Company’s executive officers as a result of the deferral of salaries.

 

**5. Debt — Master Security Agreements**

 

In September 2008, the Company entered into a Loan and Security Agreement with a finance company that provided for borrowings of up to $2,000,000 to be used for the purchase of certain equipment and for working capital purposes.  During 2008, the Company borrowed $1,556,357 under the Loan and Security Agreement.  As of December 31, 2010, $773,842 was outstanding under the Loan and Security Agreement. Amounts borrowed were evidenced with a promissory note, were repayable in equal monthly payments over 48 months, and were collateralized by the purchased equipment.  The note bore interest of 12.1%.  The Loan and Security Agreement contained certain provisions, including a material adverse change clause (as defined in the Loan and Security Agreement) which restricted the Company’s ability to borrow additional money and also enabled the finance company to request full repayment of the loan if such a change had occurred.

 

Interest expense on notes payable for the six months ended June 30, 2010 and 2011 was $64,400 and $31,394, respectively.

 

During the six months ended June 30, 2011, certain scheduled repayments of amounts outstanding under the Loan and Security Agreement were not made.  Based on the terms of the Loan and Security Agreement, this was considered an Event of Default (as defined in the Loan and Security Agreement) and the finance company had the option to declare all amounts outstanding immediately due and payable.  During the three months ended June 30, 2011, the Company sold a portion of its property and equipment through an auction process.  Certain of the items sold were used for collateral for the Loan and Security Agreement.  Accordingly, $84,583 of the net proceeds from the auction was remitted directly to the finance company to reduce the outstanding indebtedness plus accrued interest under the Loan and Security Agreement to $634,788 as of May 10, 2011.  On May 11, 2011, the Company entered into a Discounted Payoff Agreement with the finance company, whereby the finance company agreed to accept $42,639 in full satisfaction of the total outstanding indebtedness plus accrued interest under the Loan and Security Agreement.  Upon receipt of such amount by the finance company, the Loan and Security Agreement automatically terminated, and all liabilities, obligations and indebtedness of the Company to the finance company are deemed satisfied in full and all liens and security interests of the finance company in any of the Company’s property and equipment shall be deemed released and terminated.  In addition, there was a balance of $14,409 of deferred financing costs related to the Loan and Security Agreement at May 11, 2011, which was written off in connection with the Discounted Payoff Agreement.  As a result of the above transaction, the Company recorded a gain on debt extinguishment of $577,740 which is included in Other income in the Company’s Statements of Operations for the three and six months ended June 30, 2011.

 

**6. Stockholders’ Equity**

 

***(a) Common Stock***

 

The Company was party to a number of agreements that provided for dilution protection to certain investors.  In connection with the Reverse Merger and closing of the Private Placement, the Company issued approximately 2.0 million shares of common stock to a founder and shareholder of the Company as a result of such anti-dilution protection.  During 2007, the Company recorded a charge of $1.6 million to research and development expenses related to the issuance of such shares of common stock, which represents the fair value of these shares.  As of June 30, 2011, none of the Company’s existing agreements contain dilution protection provisions.

 

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***(b) Warrants***

 

As of June 30, 2011, the Company had the following warrants to purchase Common Stock outstanding:

 
| **Number of   shares** | ** ** | **Exercise   price** | ** ** | **Expiration** | ** **                              |
|-----------------------------|------------|----------------------|------------|----------------|-----------------------------------------|
| 53,039                      |       | $                    | 0.75       |           | February – December 2012 |   |
| 300,000                     |       | $                    | 0.13       |           | November 2015                      |   |
| 3,574,906                   |       | $                    | 0.97       |           | April 2012                         |   |
| 3,927,945                   |       |                 |       |           |                                    |

 

***(c) Stock Option Plans***

 

In November 2003, the Company adopted the 2003 Stock Incentive Plan, as amended (the “2003 Plan”), that authorized the Company to 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 and stock options. The amount and terms of grants were determined by the board of directors. The term of the options could have been up to 10 years, and options were exercisable in cash or as otherwise determined by the board of directors. Generally, options vested 25% upon the first anniversary of the date of grant and ratably each month thereafter through the fourth anniversary of the date of grant.

 

On March 12, 2007, the Company adopted the Redpoint 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 adoption of the 2007 Plan, the 2003 Plan merged with and into the 2007 Plan and no additional grants were to be made thereafter under the 2003 Plan.  Outstanding grants under the 2003 Plan continued in effect in accordance with their terms as in effect before March 12, 2007 and the shares with respect to outstanding grants under the 2003 Plan have been or will be issued or transferred under the 2007 Plan.  The 2007 Plan is now the Company’s only plan in effect.

 

On April 20, 2007, the Company approved an amendment to the 2007 Plan, which increased the maximum number of shares of common stock reserved for issuance under the 2007 Plan by an additional 4,132,705 shares from 13,511,562 to 17,644,267 shares of common stock.

 

The following is a summary of stock option activity under the Plan during the six months ended June 30, 2011:

 
| ** **                            | ** ** | ** **         | ** ** | ** **              | ** ** | **Weighted-**   | ** ** | ** **    | ** ** |
|---------------------------------------|------------|--------------------|------------|-------------------------|------------|-----------------|------------|---------------|------------|
| ** **                            | ** ** | ** **         | ** ** | **Weighted-**           | ** ** | **average**     | ** ** | ** **    | ** ** |
| ** **                            | ** ** | **Number of** | ** ** | **average**             | ** ** | **contractual** | ** ** | **Intrinsic** | ** ** |
| ** **                            | ** ** | **shares**         | ** ** | **exercise price** | ** ** | **term**        | ** ** | **Value**     | ** ** |
| Outstanding at December 31, 2010 |       | 9,569,260          |       | $                       | 0.45       |            |       |          |       |   |
| Granted                               |       | —             |       | —                  |       |            |       |          |       |
| Exercised                             |       | (67,896            | )          | 0.10                    |       |            |       |          |       |
| Forfeited/Cancelled                   |       | (191,485           | )          | 0.58                    |       |            |       |          |       |
| Outstanding at June 30, 2011     |       | 9,309,879          |       | $                       | 0.45       |            | 5.07       |          | $          | — |   |
|                                       |            |                    |            |                         |            |                 |            |               |            |  |  |

 

All options granted to date have exercise prices equal 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 exercise price equal to the estimated fair value of the underlying common stock as determined by the board of directors. Subsequent to that date, all options have been granted with an exercise price equal to the most recent trading price of the Company’s common stock on the date of grant. As of June 30, 2011, there were 7,191,474 shares of common stock available for grant under the 2007 Plan.

 

The Company recognized $144,423 and $31,218 of stock-based compensation expense related to stock options for the three months ended June 30, 2010 and 2011, respectively.  The Company recognized $287,521 and $149,562 of stock-based compensation expense related to stock options for the six months ended June 30, 2010 and 2011, respectively.  As of June 30, 2011, there was approximately $96,861 of unrecognized compensation expense related to unvested stock options granted to employees and directors, which is expected to be recognized over a weighted average period of 1.5 years.

 

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*** ***

***(d) Registration Rights***

 

On June 5, 2007, the Company filed a “resale” registration statement with the SEC covering all shares of common stock issued in the Private Placement and in connection with the Reverse Merger, including shares of common stock into which certain warrants are exercisable.  Such registration statement was declared effective on July 20, 2007.  The Company will use its best efforts to maintain its effectiveness until such time as all securities registered under the registration statement have been sold or are otherwise able to be sold under Rule 144 of the Securities Act without regard to volume limitations, whichever is earlier.

 

**7.  Research and Development Collaboration**

 

*International Flavor & Fragrances*.  In June 2010, the Company entered into a License and Commercialization Agreement (the “IFF Agreement”) with International Flavors & Fragrances Inc., (“IFF”), for the development, manufacture, use and commercialization of RP44, the Company’s all-natural sweetness enhancer.  Under the terms of the IFF Agreement, IFF has exclusive rights, for five years, to develop, manufacture and commercialize RP44 in virtually all food and beverage product categories. In return, Redpoint received an upfront payment of $0.5 million and became eligible to receive two milestone payments of $0.5 million each contingent upon certain criteria regarding supply and regulatory approval. In addition, Redpoint will receive royalties based on the amount of RP44 purchased by IFF for use in products. IFF will assume responsibility for the regulatory process and for costs associated with prosecuting and maintaining Redpoint’s intellectual property covering RP44.  The upfront payment of $0.5 million was recognized as revenue on the effective date (June 29, 2010) of the IFF Agreement as the Company has no future performance obligations under the IFF Agreement. The Company received the upfront payment in July 2010.  In October 2010, RP44 was determined to be Generally Recognized As Safe (GRAS), triggering the $0.5 million regulatory approval milestone payment which was recognized as revenue in the fourth quarter of 2010.  The Company will record the remaining supply milestone payment as revenue when and if such event is achieved.

 

**8.****                                     ****Income Taxes**

 

During the six months ended June 30, 2011, and the Company sold $5,268,454 of its New Jersey State net operating losses resulting in the recognition of an income tax benefit of $410,726 recorded in the Company’s Statement of Operations.

 

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

 

The Company applies the provisions of FASB Accounting Standards Codification 740-10 “Accounting for Uncertainty in Income Taxes” (ASC 740-10), which clarifies the accounting and disclosure for uncertainties in income taxes recognized in an enterprise’s financial statements. ASC 740-10 prescribes a recognition threshold and measurement attribute for financial statement recognition and measurement of a tax position reported or expected to be reported on a tax return. ASC 740-10 also provides guidance on the recognition and classification of interest and penalties in an entity’s financial statements. The Company’s policy is to recognize potential accrued interest and penalties related to income tax matters in income tax expense. As of June 30, 2011, the Company determined that it had no liability for uncertain income tax matters as prescribed by ASC 740-10.  Net operating loss and credit carryforwards since inception remain open to examination by taxing authorities, and will continue to remain open for a period of time post utilization.

 

**9.****                                     ****Unused Lease Space Charge**

 

On April 30, 2011, the Company moved out of its leased facility and no longer occupied the facility as of that date.  The Company made rent payments through April 30, 2011 in connection with the lease agreement.  As a result, the Company is in default on its facility lease agreement.  Additionally, on May 10, 2011, the Company received notice from its landlord that the Company was in violation of its facility lease for failure to pay rent as required under the lease.  On June 30, 2011, BMR-7 Graphics Drive LLC filed suit in the Superior Court of New Jersey, Special Civil Part, Landlord Tenant section against the Company, alleging breach of a lease and seeking damages pursuant to that alleged breach. The case has been marked as settled with a Consent Order dismissing the case to be submitted as part of the settlement.  Management is currently in discussions with the landlord of the leased facility in order to enter into a settlement agreement to terminate the lease.  Based on current discussions with the landlord, management’s best estimate of the liability that will be required to terminate the lease is $425,000.   As a result, the Company has recorded an expense of $425,000 during the three and six months ended June 30, 2011, which is included in general and administrative expenses on the Company’s Statements of Operations, and is also recorded as an unused lease space accrual on the Company’s Balance Sheets at June 30, 2011.  Additionally, the Company had recorded a security deposit of $250,000 and a deferred rent liability of $76,000 that was recorded in other assets and accrued expenses, respectively, at the time that the Company no longer occupied the leased facility.  Due to management’s estimate of the recoverability of those amounts, the amounts were written off 

 

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during the three months ended June 30, 2011, and the difference of $174,000 was included in general and administrative expenses on the Company’s Statements of Operations during the three and six months ended June 30, 2011.

 

**10.****                              ****Other Income**

 

The following items are included in Other income on the Company’s Statements of Operations for the three and six months ended June 30, 2011:

 
| Gain on sale of property and equipment |   | $       | 174,351   |   |
|----------------------------------------|--------|---------|-----------|--------|
| Gain on debt extinguishment            |   | 577,740 |      |
| Gain on settlement of accounts payable |   | 759,251 |      |
|                                   |   | $       | 1,511,342 |   |

 

During the three months ended June 30, 2011, the Company sold a portion of its property and equipment through an auction process and received net cash proceeds of $347,133.  As a result of this transaction, the Company recorded a gain on sale of these assets of $174,351 which is included in Other income in the Company’s Statements of Operations for the three and six months ended June 30, 2011.

 

As noted above, during the three months ended June 30, 2011, the Company sold a portion of its property and equipment through an auction process.  Certain of the items sold were used for collateral for the Loan and Security Agreement entered into between Redpoint and a finance company (see Note 5).  Accordingly, $84,583 of the net proceeds from the auction was remitted directly to the finance company to reduce the outstanding indebtedness plus accrued interest under the Loan and Security Agreement to $634,788 as of May 10, 2011.  On May 11, 2011, the Company entered into a Discounted Payoff Agreement with the finance company, whereby the finance company agreed to accept $42,639 in full satisfaction of the total outstanding indebtedness plus accrued interest under the Loan and Security Agreement.  Upon receipt of such amount by the finance company, the Loan and Security Agreement automatically terminated, and all liabilities, obligations and indebtedness of the Company to the finance company are deemed satisfied in full and all liens and security interests of the finance company in any of the Company’s property and equipment shall be deemed released and terminated.  In addition, there was a balance of $14,409 of deferred financing costs related to the Loan and Security Agreement at May 11, 2011, which was written off in connection with the Discounted Payoff Agreement.  As a result of the above transaction, the Company recorded a gain on debt extinguishment of $577,740 which is included in Other income in the Company’s Statements of Operations for the three and six months ended June 30, 2011.

 

During the three months ended June 30, 2011, the Company entered into a series of agreements with 13 of the Company’s largest creditors.  The creditors agreed to accept an aggregate amount of $75,702 in full and complete satisfaction of $834,953 of outstanding balances owed to such creditors.  As a result of these agreements, the Company recorded a gain of $759,251 which is included in Other income in the Company’s Statements of Operations for the three and six months ended June 30, 2011.

 

**ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

**Cautionary Note Regarding Forward-Looking Statements**

 

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

 

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

 

·our need for additional capital to fund the current level of our research and development programs and continue as a going concern;

 

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·our ability to enter into and maintain collaborations;

 

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

 

·our ability to protect our proprietary technologies, including our newly discovered sweetener enhancers;

 

·challenges that we may face relating to the introduction of compounds that we may discover as food ingredients;

 

·patent-infringement claims;

 

·the risk that we may be unable to successfully finance and secure regulatory approval of and market our drug candidates;

 

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

 

·uncertainties about our ability to obtain new corporate collaborations and acquire new technologies on satisfactory terms, if at all;

 

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

 

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

 

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

 

**Overview**

 

Redpoint Bio is a development stage biotechnology company leveraging recent discoveries in the molecular biology of taste to discover and develop novel taste modulators for the food and beverage industries. We are focused on identifying novel flavor modifiers that improve the taste of existing ingredients, enabling the development of better-tasting and more healthful foods and beverages. Enhancing sweet and salty flavors in food and beverage products can lead to reduction in added sugar and salt.  We believe that the development of healthier and more tasteful foods and beverages presents an important opportunity to improve the overall health of the world’s population since many modern diseases are related to excess dietary sugar and salt.

 

In June 2009, we announced that we had identified an all-natural sweetness enhancer, RP44. RP44 is Reb-C (rebaudioside C) a component of the stevia plant. Extracts of the leaves of the stevia plant have been extensively used as sweeteners for decades.  Although certain components of the stevia leaf can be used as sweeteners, RP44 is not sweet and contributes no taste or calories of its own when used in small quantities in combination with caloric sweeteners like sucrose (table sugar) fructose and high-fructose corn syrup.  Instead, it works as a sweetness enhancer amplifying the existing sugary sweetness in a food or beverage so that less sweetener is required, while retaining the “clean sweet taste” that is associated with sugar.  We believe RP44 can provide an all-natural solution to reducing the amount of calories in sweetened foods and beverages while retaining the taste that consumers desire.

 

Recognizing the attractiveness of “natural” compounds for food applications, we have developed a novel strategy to identify natural substances that may be effective as taste enhancers. This strategy led to our discovery of the sweetness enhancement properties of RP44. The basic strategy involves sourcing both natural compounds and natural product compound libraries, and then screening these compounds using our proprietary, computer controlled, operant animal model system termed the Microtiter Operant Gustometer, or MOG. We believe that our unique technology platform could lead to additional opportunities for discovering novel natural flavorings and flavor enhancers, to help meet increasing consumer demand for more healthful foods and beverages.

 

Since its inception in 1995, the Company has incurred losses and negative cash flows from operations, and such losses have continued subsequent to June 30, 2011. As of June 30, 2011, the Company had an accumulated deficit of $57.5 million and anticipates incurring additional losses for the foreseeable future. The Company will need to spend significant resources over the next several years to enhance its technologies and to fund research and development of its pipeline of potential products. Through June 30, 2011,

 

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substantially all of the Company’s revenue has been derived from corporate collaborations, license agreements, and government grants. The Company expects that substantially all of its cash-flow for the foreseeable future will come from future corporate collaborations, equity financings and license agreements. However, there can be no assurance that the Company will enter into any future corporate collaborations, equity financings or license agreements. In order to achieve profitability, the Company must continue to develop products and technologies that can be commercialized by the Company or through future collaborations. Redpoint had approximately $0.3 million of cash and cash equivalents at June 30, 2011.  In April 2011, the Company sold a portion of its property and equipment through an auction process and received net cash proceeds of approximately $0.3 million.  Certain of the property and equipment that was sold were used for collateral for the Company’s Loan and Security Agreement with a finance company.  Of the total net proceeds received from the auction sale, approximately $85,000 was remitted directly to the finance company to reduce the outstanding indebtedness plus accrued interest under the Loan and Security Agreement to approximately $635,000 as of May 10, 2011.  On May 11, 2011, the Company entered into a Discounted Payoff Agreement with the finance company, whereby the finance company agreed to accept approximately $43,000 in full satisfaction of the total outstanding indebtedness plus accrued interest.   Additionally, on May 10, 2011, the Company received notice from its landlord that the Company was in violation of its facility lease for failure to pay rent as required under the lease.  As of the date of filing, the Company had approximately $0.2 million of cash and cash equivalents.  The Company believes that its current capital resources are only sufficient to meet its operating and capital requirements through September 2011, which raises substantial doubt that its ability to continue as a going concern.  The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty. The Company is actively seeking corporate collaborations and licensing agreements from various strategic partners as well as debt or equity financings to enhance the Company’s liquidity position.

 

Since inception, we have used $42.7 million of cash to fund our operating activities and $3.2 million for capital expenditures. Through June 30, 2011, we have funded substantially all of our operations and capital expenditures through private placements of equity and convertible debt securities totaling $45.8 million, cash received from corporate collaborations totaling $11.4 million, government grants totaling $2.0 million, and capital equipment and working capital financing totaling $3.6 million.

 

The Company is subject to those risks associated with any biotechnology company that has substantial expenditures for research and development. There can be no assurance that the Company’s research and development projects will be successful, that products developed will obtain necessary regulatory approval, or that any approved product will be commercially viable. In addition, the Company operates in an environment of rapid technological change and is largely dependent on the services of its employees and consultants. For the Company to fund its operations and to commercially develop its products, additional corporate collaborations, equity and/or debt financing will be required before September 2011. There is no assurance that such collaborations or financing will be available to the Company as needed, and as a result, it may need to pursue other strategic alternatives, including the divestiture of its MOG technology and associated costs.  Failure to successfully address ongoing liquidity requirements will have a material adverse effect on the Company’s business.  If the Company is unable to obtain additional capital on acceptable terms when needed, it will be unable to satisfy its existing obligations and may be required to take actions that harm its business and its ability to achieve positive operating cash flow in the future, including possibly the surrender of its rights to some technologies or product opportunities, or curtailing or ceasing operations.

 

Through June 30, 2011, substantially all of our revenue has been derived from corporate collaborations, license agreements, and government grants. In order to achieve profitability, we must continue to develop products and technologies that can be commercialized by us or through future collaborations.

 

Recognizing the difficult financing environment that has significantly impacted the biotechnology sector and seeking ways to conserve cash, during the year ended December 31, 2009, we announced two restructurings which reduced our workforce by approximately 60%. As of June 30, 2011, we had 5 full time employees.  Effective March 1, 2011 through June 30, 2011, each of the Company’s executive officers agreed to indefinitely defer one-third of the cash portions of their salaries, at least until the Company has raised additional capital or the compensation committee of the board of directors determines otherwise.  Effective July 1, 2011, this salary deferral was increased to 90% of the salaries of the Company’s executive officers.  We may need to make further reductions in our expenses.

 

In June 2010, we entered into a License and Commercialization Agreement with IFF for the development, manufacture, use and commercialization of RP44. IFF has exclusive rights, for five years, to develop, manufacture and commercialize RP44 in virtually all food and beverage product categories. In return, we received an upfront payment of $0.5 million and we became eligible to receive two milestone payments of $0.5 million each based upon certain criteria regarding regulatory approval and supply. In October 2010, IFF received notification by the Flavor and Extract Manufacturers Association (FEMA) that RP44 had been determined to be Generally Recognized As Safe (GRAS), triggering the $0.5 million regulatory approval milestone payment which was received in 2010. We have not yet achieved the supply milestone. In addition, we are eligible to receive royalties based on the amount of RP44 purchased by IFF for use in products. IFF will continue to be responsible for the regulatory process and for costs associated with prosecuting and maintaining our intellectual property covering the sweetness enhancer.

 

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Unlike Reb A, RP44 has a very low intrinsic level of sweetness and therefore is not useful as a sweetener. Instead, we discovered that RP44 acts as a potent sweetness enhancer. A sweetness enhancer imparts no sweet taste of its own when used in a product. Instead, sweetness enhancers act by amplifying the existing sweet taste of caloric sweeteners such as sugar or high fructose corn syrup. We believe this will enable the development of food and beverage products that require reduced amounts of caloric sweeteners while still retaining the “clean sweet taste” associated with a fully sugared product. Taste tests demonstrate that RP44 enables the reduction of up to 25% of the caloric sweetener content in various product prototypes, while still maintaining the taste quality of the fully sweetened product. These results have been demonstrated by using RP44 in combination with several common sweeteners including 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 the second most common ingredient used in food and beverages after water.

 

In October 2010, IFF informed us that they had received notification by the Flavor and Extract Manufacturers Association (FEMA) that RP44 had been determined to be Generally Recognized As Safe (GRAS) under the provisions of the Federal Food, Drug and Cosmetic Act, administered by the United States Food and Drug Administration (FDA). This GRAS determination allows RP44 to be incorporated into specified products in the United State and potentially aids regulatory acceptance in numerous other countries.

 

In March 2011, IFF entered into an agreement with GLG Life Tech Corporation, or GLG, a global leader in the supply of high purity stevia extracts, to develop the extraction capability for high grade Reb C extract for use by IFF as a sweetness enhancer.  If the development is successful, IFF and GLG have negotiated preliminary terms for a supply agreement, including exclusive supply to IFF for high-purity Reb C for use as a sweetness enhancer.  Although Reb C is currently derived from material found in the side stream of the Reb A production process there can be no assurance that it can be produced in large scale on an economically viable basis.

 

We believe there is an important potential role for RP44 in all-natural reduced-calorie products. Numerous scientific studies suggest a compelling link between the high levels of refined sugar found in common food and beverage products and the worsening epidemic of obesity and diabetes worldwide. Health and wellness trends continue to be major market drivers for the food and beverage industry, creating consumer demand for natural solutions that can preserve the clean sweet taste of sugar while reducing calories.

 

We also recently reported that we had advanced our discovery program for all-natural enhancers of salty taste. The objective of the salt enhancer program is to identify natural flavor ingredients that can provide a significant reduction in the amount of sodium in food and beverage products, yet maintain the salty taste that consumers desire.

 

We are using our proprietary MOG assay technology for the salt enhancer discovery program. The MOG technology was developed specifically to deal with the complex sensory and experimental issues associated with the discovery of all-natural compounds, which are often derived from plant or fermentation sources containing complex mixtures of taste ingredients. Historically, natural tastants or enhancers have been discovered by trial and error using human tasters. The MOG is an enabling technology that facilitates high throughput screens of tastant libraries and natural product extracts by rodents trained to discriminate specific taste standards. MOG-trained rodents are “expert” taste testers capable of rapidly identifying taste from small samples with a high level of accuracy, providing an effective means of evaluating the taste properties of complex natural product extracts.

 

We originally developed our MOG technology to discover natural high-potency sweeteners and sweetener enhancers. More recently, Redpoint scientists have developed and optimized a high-throughput salt-taste detection system, in which MOG-trained rodents discriminate salt from other essential tastes (savory, sweet, sour, and bitter). The MOG approach will be used to evaluate the salt-tasting and salt-enhancing potential of natural sources such as fermentation products and edible plant extracts, with a focus on isolating active components from ingredients already used in the food industry.

 

Previously our programs focused on the modulation of the TRPm5 ion channel, a key signaling element in taste sensation, in order to discover 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 (Transient Receptor Potential) ion channels that are involved in the sensation of heat, cold, and spicy compounds. The TRPm5 ion channel was originally identified as an important component of taste signaling circuits responsible for sensing sweet, savory, and bitter compounds on the tongue. Recently, an emerging body of scientific evidence has suggested that the TRPm5 channel is also found in the pancreas and gastrointestinal tract, suggesting a potential role in the regulation of metabolism and satiety. We had initiated a program to leverage the research we had conducted on the discovery of modulators of the TRPm5 ion channel to explore opportunities for the discovery of new diabetes therapeutics.  However, in order to focus our limited resources on the further development of our MOG technology we are no longer pursuing our TRPm5 discovery program for either taste modulators or pharmaceutical products.

 

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**Revenue**

 

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

 

In March 2007, we entered into an agreement with Givaudan where we were collaborating exclusively with each other to discover and develop Enhancer Compounds and Bitter Blocker Compounds that act primarily through the modulation of the TRPm5 channel. The agreement with Givaudan was terminated by Givaudan on May 1, 2009. Also, in December 2007, we entered into a one year research agreement with Coca-Cola for the development of certain technology for use in soft drinks and other non-alcoholic beverages. The agreement with Coca-Cola expired by its terms in December 2008.

 

In June 2010, we entered into a License and Commercialization Agreement with IFF, or the IFF Agreement, for the development, manufacture, use and commercialization of RP44. IFF has exclusive rights, for five years, to develop, manufacture and commercialize RP44 in virtually all food and beverage product categories. Our strategy also includes partnering with other major ingredient suppliers, or food and beverage companies, to utilize our technology to discover new all-natural sweetness enhancers, sweeteners and salt enhancers.

 

**Research and Development**

 

Our research and development expenses consist primarily of internal costs associated with our taste modulator and diabetes research programs as well as amounts paid to third parties to conduct research on our behalf. However, in order to focus our limited resources on the further development of our taste modulator technology we are no longer pursuing our diabetes research program. Our internal research and development costs are comprised of salaries and related benefits, facilities and depreciation on laboratory equipment, compound acquisition costs and research supplies. We charge research and development costs to operations as incurred.

 

**General and Administrative**

 

Our general and administrative expenses consist primarily of salaries and related benefit expenses for business development, financial, legal and other administrative functions. In addition, we incur external costs for professional fees for legal, patent, accounting and investor relations services.

 

**Results of Operations**

 

***Three months ended June 30, 2011 compared to three months ended June 30, 2010***

 

*Research and Grant Revenue*.  For the three months ended June 30, 2011 we did not record any revenue.  For the three months ended June 30, 2010, we recorded revenue of $0.5 million from the upfront payment we received in connection with the IFF Agreement that we signed in June 2010 for the development, manufacture, use and commercialization of RP44.  IFF will have exclusive rights, for five years, to develop, manufacture and commercialize RP44 in virtually all food and beverage product categories.  As of June 30, 2011, the Company has no future performance obligations under the IFF Agreement.  As of June 30, 2011, the Company does not have any current sources of revenue.

 

*Research and Development Expenses*.  Our research and development expenses were $0.3 million for the three months ended June 30, 2011 compared to $0.8 million for the three months ended June 30, 2010.  The decrease in expenses was primarily attributable to reductions in payroll expense, laboratory supplies and services provided by contract research organizations. Our internal research and development costs are comprised of salaries and related benefits, facilities and depreciation on laboratory equipment and research supplies.

 

*General and Administrative Expenses*.  Our general and administrative expenses were $1.0 million for the three months ended June 30, 2011 compared to $1.1 million for the three months ended June 30, 2010.  A reduction in professional fees was offset by $0.4 million of expense related to management’s best estimate of the potential liability to terminate the lease of the Company’s leased facility, as well as approximately $0.2 million of expense for the write off of the security deposit related to this leased facility.

 

*Interest Expense*.  Interest expense decreased for the three months ended June 30, 2011 compared to the three months ended June 30, 2010.  On May 11, 2011, the Company entered into a Discounted Payoff Agreement with a finance company which terminated the Company’s Loan and Security Agreement.  As such, there was lower interest expense during the three months ended June 30, 2011 as compared to the three months ended June 30, 2010.

 

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*Other Income*.  During the three months ended June 30, 2011, the Company recorded Other income of $1.5 million.  During the three months ended June 30, 2011, the Company sold a portion of its property and equipment through an auction process and received net cash proceeds of $0.3 million.  As a result of this transaction, the Company recorded a gain on sale of these assets of $0.2 million which is included in Other income in the Company’s Statements of Operations for the three months ended June 30, 2011.

 

As noted above, during the three months ended June 30, 2011, the Company sold a portion of its property and equipment through an auction process.  Certain of the items sold were used for collateral for the Loan and Security Agreement entered into between Redpoint and a finance company.  Accordingly, $0.1 million of the net proceeds from the auction was remitted directly to the finance company to reduce the outstanding indebtedness plus accrued interest under the Loan and Security Agreement to $0.6 million as of May 10, 2011.  On May 11, 2011, the Company entered into a Discounted Payoff Agreement with the finance company, whereby the finance company agreed to accept approximately $43,000 in full satisfaction of the total outstanding indebtedness plus accrued interest under the Loan and Security Agreement.  Upon receipt of such amount by the finance company, the Loan and Security Agreement automatically terminated, and all liabilities, obligations and indebtedness of the Company to the finance company are deemed satisfied in full and all liens and security interests of the finance company in any of the Company’s property and equipment shall be deemed released and terminated.  In addition, there was a nominal balance of deferred financing costs related to the Loan and Security Agreement at May 11, 2011, which was written off in connection with the Discounted Payoff Agreement.  As a result of the above transaction, the Company recorded a gain on debt extinguishment of $0.6 million which is included in Other income in the Company’s Statements of Operations for the three months ended June 30, 2011.

 

During the three months ended June 30, 2011, the Company entered into a series of agreements with 13 of the Company’s largest creditors.  The creditors agreed to accept an aggregate amount of $0.1 million in full and complete satisfaction of $0.8 million of outstanding balances owed to such creditors.  As a result of these agreements, the Company recorded a gain of $0.7 million which is included in Other income in the Company’s Statements of Operations for the three months ended June 30, 2011.

 

***Six months ended June 30, 2011 compared to the six months ended June 30, 2010***

 

*Research, Grant and License Revenue*.  For the six months ended June 30, 2011 we did not record any revenue. For the six months ended June 30, 2010, we recorded revenue of $0.5 million from the upfront payment we received in connection with the IFF Agreement that we signed in June 2010 for the development, manufacture, use and commercialization of RP44.  IFF will have exclusive rights, for five years, to develop, manufacture and commercialize RP44 in virtually all food and beverage product categories. As of June 30, 2011, the Company has no future performance obligations under the IFF Agreement.  As of June 30, 2011, the Company does have any current sources of revenue.

 

*Research and Development Expenses*.   Our research and development expenses were $0.9 million for the six months ended June 30, 2011 compared to $1.6 million for the six months ended June 30, 2010.  The decrease in expenses was primarily attributable to reductions in payroll, laboratory supplies and services provided by contract research organizations. Our internal research and development costs are comprised of salaries and related benefits, facilities and depreciation on laboratory equipment and research supplies.

 

*General and Administrative Expenses*.  Our general and administrative expenses were $1.6 million for the six months ended June 30, 2011 compared to $2.0 million for the six months ended June 30, 2010.  A reduction in professional fees and payroll expense was offset by $0.4 million of expense related to management’s best estimate of the potential liability to terminate the lease of the Company’s leased facility, as well as approximately $0.2 million of expense for the write off of the security deposit related to this leased facility.

 

*Interest Expense*.  Interest expense decreased for the six months ended June 30, 2011 compared to the six months ended June 30, 2010. On May 11, 2011, the Company entered into a Discounted Payoff Agreement with a finance company which terminated the Company’s Loan and Security Agreement.  As such, there was lower interest expense during the six months ended June 30, 2011 as compared to the six months ended June 30, 2010.

 

*Income Tax Benefit**.***During the six months ended June 30, 2011, the Company sold $5.3 million of its New Jersey State net operating losses resulting in the recognition of an income tax benefit of $0.4 million recorded in the Company’s Statements of Operations.  During the six months ended June 30, 2010, the Company sold $0.1 million of its New Jersey State Research and Development Tax Credits resulting in the recognition of an income tax benefit of $0.1 million recorded in the Company’s Statements of Operations.

 

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*Other Income*.  During the six months ended June 30, 2011, the Company sold a portion of its property and equipment through an auction process and received net cash proceeds of $0.3 million.  As a result of this transaction, the Company recorded a gain on sale of these assets of $0.2 million which is included in Other income in the Company’s Statements of Operations for the six months ended June 30, 2011.

 

As noted above, during the three months ended June 30, 2011, the Company sold a portion of its property and equipment through an auction process.  Certain of the items sold were used for collateral for the Loan and Security Agreement entered into between Redpoint and a finance company.  Accordingly, $0.1 million of the net proceeds from the auction was remitted directly to the finance company to reduce the outstanding indebtedness plus accrued interest under the Loan and Security Agreement to $0.6 million as of May 10, 2011.  On May 11, 2011, the Company entered into a Discounted Payoff Agreement with the finance company, whereby the finance company agreed to accept approximately $43,000 in full satisfaction of the total outstanding indebtedness plus accrued interest under the Loan and Security Agreement.  Upon receipt of such amount by the finance company, the Loan and Security Agreement automatically terminated, and all liabilities, obligations and indebtedness of the Company to the finance company are deemed satisfied in full and all liens and security interests of the finance company in any of the Company’s property and equipment shall be deemed released and terminated.  In addition, there was a nominal balance of deferred financing costs related to the Loan and Security Agreement at May 11, 2011, which was written off in connection with the Discounted Payoff Agreement.  As a result of the above transaction, the Company recorded a gain on debt extinguishment of $0.6 million which is included in Other income in the Company’s Statements of Operations for the six months ended June 30, 2011.

 

During the three months ended June 30, 2011, the Company entered into a series of agreements with 13 of the Company’s largest creditors.  The creditors agreed to accept an aggregate amount of $0.1 million in full and complete satisfaction of $0.8 million of outstanding balances owed to such creditors.  As a result of these agreements, the Company recorded a gain of $0.7 million which is included in Other income in the Company’s Statements of Operations for the six months ended June 30, 2011.

 

**Liquidity and Capital Resources**

 

We believe that our current capital resources are only sufficient to meet our operating and capital requirements through September 2011, which raises substantial doubt about our ability to continue as a going concern. We are actively seeking additional corporate collaborations, equity investments from third parties and license agreements from various strategic partners to enhance our liquidity position.  However, there can be no assurance that we will enter into any future corporate collaborations, equity investments or license agreements.  Without additional funding, we will cease operations.

 

At June 30, 2011, we had cash and cash equivalents of $0.3 million. In April 2011, we sold a portion of our property and equipment through an auction process and received cash proceeds of approximately $0.3 million.  In order to conserve cash, on March 1, 2011, each of our executive officers agreed to indefinitely defer one-third of the cash portions of their salaries, at least until the Company has raised additional capital or the compensation committee of the board of directors determines otherwise.  Effective July 1, 2011, this salary deferral was increased to 90% of the salaries of the Company’s executive officers.  The cash amounts due to the executive officers are being accrued for by the Company.

 

Since inception, we have used $42.6 million of cash to fund our operating activities and $3.2 million for capital expenditures. Through June 30, 2011, we have funded substantially all of our operations and capital expenditures through private placements of equity and convertible debt securities totaling $45.8 million, cash received from corporate collaborations totaling $11.4 million, government grants totaling $2.0 million, and capital equipment and working capital financing totaling $3.6 million.

 

In September 2008, we entered into a Loan and Security Agreement with CIT Healthcare LLC that provided for borrowings of up to $2.0 million for the purchase of certain equipment, a portion of the proceeds which could have been used for general corporate working capital purposes. During 2008, we borrowed approximately $1.6 million pursuant to the Loan and Security Agreement, of which approximately $1.0 million was for equipment previously purchased and approximately $0.6 million was for general working capital.  During the three months ended June 30, 2011, certain scheduled repayments of amounts outstanding under the Loan and Security Agreement were not made.  Based on the terms of the Loan and Security Agreement, this was considered an Event of Default (as defined in the Loan and Security Agreement) and the finance company had the option to declare all amounts outstanding immediately due and payable.  In April 2011, the Company sold a portion of its property and equipment through an auction process.  Certain of the items sold were used for collateral for the Loan and Security Agreement.  Accordingly, approximately $85,000 of the net proceeds from the auction was remitted directly to the finance company to reduce the outstanding indebtedness plus accrued interest under the Loan and Security Agreement to approximately $635,000 as of May 10, 2011.  Further, on May 11, 2011, the Company entered into a Discounted Payoff Agreement with the finance company, whereby the finance company agreed to accept approximately $43,000 in full satisfaction of the total outstanding indebtedness plus accrued interest under the Loan and Security 

 

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Agreement.  Upon receipt of such amount by the finance company, the Loan and Security Agreement automatically terminated, and all liabilities, obligations and indebtedness of the Company to the finance company are deemed satisfied in full and all liens and security interests of the finance company in any of the Company’s property and equipment shall be deemed released and terminated.  In addition, there was a balance of $14,000 of deferred financing costs related to the Loan and Security Agreement at May 11, 2011, which was written off in connection with the Discounted Payoff Agreement.  As a result of the above transaction, the Company recorded a gain on debt extinguishment of $578,000 which is included in Other income in the Company’s Statements of Operations for the three and six months ended June 30, 2011.

 

On April 30, 2011, the Company moved out of its leased facility and no longer occupied the facility as of that date.  The Company made rent payments through April 30, 2011 in connection with the lease agreement.  As a result, the Company is in default on its facility lease agreement.  Additionally, on May 10, 2011, the Company received notice from its landlord that the Company was in violation of its facility lease for failure to pay rent as required under the lease.  On June 30, 2011, BMR-7 Graphics Drive LLC filed suit in the Superior Court of New Jersey, Special Civil Part, Landlord Tenant section against the Company, alleging breach of a lease and seeking damages pursuant to that alleged breach. The case has been marked as settled with a Consent Order dismissing the case to be submitted as part of the settlement.  Management is currently in discussions with the landlord of the leased facility in order to enter into a settlement agreement to terminate the lease.  Based on current discussions with the landlord, management’s best estimate of the liability that will be required to terminate the lease is $425,000.   As a result, the Company has recorded an expense of $425,000 during the three and six months ended June 30, 2011, which is included in general and administrative expenses on the Company’s Statements of Operations, and is also recorded as an unused lease space accrual on the Company’s Balance Sheets at June 30, 2011.  Additionally, the Company had recorded a security deposit of $250,000 and a deferred rent liability of $76,000 that was recorded in other assets and accrued expenses, respectively, at the time that the Company no longer occupied the leased facility.  Due to management’s estimate of the recoverability of those amounts, the amounts were written off during the three months ended June 30, 2011, and the difference of $174,000 was included in general and administrative expenses on the Company’s Statements of Operations during the three and six months ended June 30, 2011.

 

We expect that substantially all of our cash-flow for the foreseeable future will come from future corporate collaborations, equity financings or license agreements. However, there can be no assurance that we will enter into any future corporate collaborations, equity financings or license agreements. We are subject to those risks associated with any biotechnology company that has substantial expenditures for research and development. There can be no assurance that our research and development projects will be successful, that products developed will obtain necessary regulatory approval, or that any approved product will be commercially viable. In addition, we operate in an environment of rapid technological change and we are largely dependent on the services of our employees and consultants. The stock market in general has recently experienced large price and volume fluctuations and the market price of our common stock has experienced significant volatility. For us to fund our operations and to commercially develop our products, additional corporate collaborations and/or equity and/or debt financing will be required before September 2011. There is no assurance that such financing will be available to us as needed, and as a result, we may need to pursue other strategic alternatives, including the divestiture of its MOG technology and associated costs and the possible cessation of operations.

 

**Critical Accounting Policies**

 

Our discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and reported amount of revenue and expenses during the reporting period. On an ongoing basis, we evaluate our judgments and estimates, including those related to revenue recognition, long-lived assets, accrued liabilities, share-based payments and income taxes. We base our judgment and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions.  A more detailed review of our critical accounting policies is contained in our Annual Report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2010.  During the three and six months ended June 30, 2011, there have been no material changes in our critical accounting policies.

 

**ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

 

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

 

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We have not entered into and do not expect to enter into, financial instruments for trading or hedging purposes.  We do not currently anticipate entering into interest rate swaps and/or similar instruments.  We have no material currency exchange risk exposure as of June 30, 2011.  Our primary market risk exposure with regard to financial instruments is to changes in interest rates, which would impact interest income earned on such instruments. A one percent change (100 basis points) in interest rates on our investments would have impacted interest income by a nominal amount for the three and six months ended June 30, 2011.

 

**ITEM 4T. CONTROLS AND PROCEDURES**

 

Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of June 30, 2011. Based on this evaluation, our chief executive officer and chief financial officer concluded that, as of June 30, 2011, our disclosure controls and procedures were (1) effective in that they were designed to ensure that material information relating to us, including our consolidated subsidiaries, is made known to our chief executive officer and chief financial officer by others within those entities, as appropriate, to allow timely decisions regarding required disclosures, and (2) effective in that they provide reasonable assurance that information required to be disclosed by us in our reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

 

No changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended June 30, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

**PART II.  OTHER INFORMATION**

 

**ITEM 1. LEGAL PROCEEDINGS**

 

On April 30, 2011, the Company moved out of its leased facility and no longer occupied the facility as of that date.  The Company made rent payments through April 30, 2011 in connection with the lease agreement.  As a result, the Company is in default on its facility lease agreement.  On June 30, 2011, BMR-7 Graphics Drive LLC filed suit in the Superior Court of New Jersey, Special Civil Part, Landlord Tenant section against the Company, alleging breach of a lease and seeking damages pursuant to that alleged breach. The case has been marked as settled with a Consent Order dismissing the case to be submitted as part of the settlement. Management is currently in discussions with the landlord of the leased facility in order to enter into a settlement agreement to terminate the lease.

 

Other than as set forth above, the Company’s management knows of no other material existing or pending legal proceedings or claims against the Company, nor is the Company involved as a plaintiff in any material proceeding or pending litigation.  To the Company’s knowledge, no director, officer or affiliate of the Company, and no owner of record or beneficial owner of more than five percent (5%) of the Company’s securities, or any associate of any such director, officer or security holder is a party adverse to the Company or has a material interest adverse to the Company in reference to pending litigation.

 

**ITEM 1A. RISK FACTORS**

 

*We are providing the following information regarding changes that have occurred to previously disclosed risk factors from our Annual Report on Form 10-K for the year ended December 31, 2010. In addition to the other information set forth below and elsewhere in this report, you should carefully consider the factors discussed under the heading “Risk Factors” in our Form 10-K for the year ended December 31, 2010 and our quarterly report on Form 10-Q for the quarter ended March 31, 2011. The risks described in our Quarterly Report on Form 10-Q are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.*

 

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

 

***As of June 30, 2011, we had approximately $0.3 million of cash and cash equivalents. As of the date of filing this quarterly report on Form 10-Q, we have approximately $0.2 million of cash and cash equivalents. We are in default on our facility lease agreement.  We will need to raise substantial additional capital before September 2011 to fund our future operations or we will be unable to satisfy our obligations and continue our business.***

 

We cannot be certain that additional financing will be available on acceptable terms, or at all. In recent years, it has been difficult for companies to raise capital due to a variety of factors, which may or may not continue. To the extent we raise additional capital through the sale of equity securities, the ownership position of our existing stockholders could be substantially diluted. If 

 

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additional funds are raised through the issuance of preferred stock or debt securities, these securities are likely to have rights, preferences and privileges senior to our common stock. Fluctuating interest rates could also increase the costs of any debt financing we may obtain. Failure to successfully address ongoing liquidity requirements will have a material adverse effect on our business. If we are unable to obtain additional capital on acceptable terms when needed, we may be required to take actions that harm our business and our ability to achieve cash flow in the future, including possibly the surrender of our rights to some technologies or product opportunities or curtailing or ceasing operations.

 

***We will need substantial additional funding to develop our products and for our future operations. If we are unable to obtain the funds necessary to do so in the near term, we may be required to delay, scale back or eliminate our product development or may be unable to continue our business.***

 

The development of our product candidates will require a commitment of substantial funds to conduct the costly and time-consuming research necessary to obtain regulatory approvals and bring our products to market. We believe that our current capital resources are only sufficient to meet our operating and capital requirements through September 2011. Our future requirements will depend on many factors, including:

 

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

· our ability, or our partners’ ability and willingness, to formulate these taste modifiers, including RP44, into food and beverage products;

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

· the time and cost involved in obtaining regulatory approvals;

· the cost of manufacturing our product candidates;

· competing technological and market developments; and

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

 

There can be no assurance that we will not need additional capital sooner than currently anticipated.

 

***Redpoint is a development-stage company. We have incurred losses since inception and expect to incur additional net losses for at least the next several years, even if we are able to raise additional funds necessary to continue our business.***

 

Since our inception we have incurred significant losses and negative cash flows from operations. As of June 30, 2011, we had an accumulated deficit of $57.5 million, and anticipate incurring additional losses for the foreseeable future. We will need to spend significant resources over the next several years to enhance our technologies and to fund research and development of our pipeline of potential products. In order to advance our programs, we will need to raise additional capital or fund operations through collaborations with third parties. We have not generated significant revenues in any particular year since our inception. To date, substantially all of our revenue has been derived from corporate collaborations, license agreements, and government grants. In order to achieve profitability, we must develop products and technologies that can be commercialized by us or through future collaborations. Our ability to generate revenues and become profitable will depend on our ability, alone or with potential collaborators, to timely, efficiently and successfully complete the development of our product candidates, obtaining necessary regulatory approvals, and manufacturing and marketing our product candidates. There can be no assurance that any such events will occur or that we will ever become profitable. Even if we do achieve profitability, we cannot predict the level of such profitability. If we sustain losses over an extended period of time, we may be unable to continue our business.

 

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

 

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

 

The sale of a significant number of shares of our common stock in the public market could harm the market price of our common stock. The number of shares that may be sold into the marketplace pursuant to the registration statement is significant. We believe that such sales may severely depress the market price of our common stock. In addition, some or all of the shares of common stock may be offered from time to time in the open market pursuant to Rule 144 (or pursuant to an additional registration statement, if one is effective), and these sales may also have a depressive effect on the market for the shares of common stock. In general, a person who is deemed to be an affiliate who has held shares for a period of six months may, upon filing of a notification on Form 144 with the SEC, sell into the market common stock in an amount up to the greater of 1% of the outstanding shares or the average weekly number of shares sold in the last four weeks before such sale. Such sales may be repeated once each three months. A non-affiliate holding restricted shares may sell such shares without restrictions after they have been held six months, subject only to the current 

 

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public information requirement. After an additional six months have lapsed, a non-affiliate may sell such shares without any restrictions.

 

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

 

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

 

The market price of our common stock, and the market prices for securities of biotechnology companies in general, have been, and are expected to be, highly volatile. The following factors, in addition to other risk factors described in this quarterly report on Form 10-Q, and the potentially low volume of trades in our common stock, may have a significant impact on the market price of our common stock, some of which are beyond our control:

 

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

· developments concerning any research and development, manufacturing, and marketing collaborations;

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

· actual or anticipated variations in operating results;

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

· changes in financial estimates by securities analysts;

· regulatory developments in the United States and other countries;

· changes in the economic performance and/or market 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, and economic and other external factors; and

· sales or other transactions involving common stock.

 

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

 

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

 

None.

 

**ITEM 3. DEFAULTS UPON SENIOR SECURITIES**

 

Not applicable.

 

**ITEM 6. EXHIBITS**

 
| **Exhibit No.** | ** ** | ** **                                                                                                                                                                                                                                                                   |
|----------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                 |       |                                                                                                                                                                                                                                                                         |
| 10.1                 |       | Discounted Payoff Agreement, by and between Redpoint   Bio Corporation and CIT Healthcare LLC, dated May 11, 2011 (Incorporated   by reference to Exhibit 10.1 to the Current Report on Form 8-K,   dated May 11, 2011, and filed on May 12, 2011). |
|                 |       |                                                                                                                                                                                                                                                                         |
| 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                                                                                                                                                   |

 

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|   |   | 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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** **

**SIGNATURES**

 

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

 
|                   | REDPOINT   BIO CORPORATION |
|------------------------|----------------------------|
|                   |                       |
| August 22,   2011 | By:                        | /s/   F. Raymond Salemme |
|                   |                       | F.   Raymond Salemme |
|                   |                       | President   and Chief Executive Officer |
|                   |                       | (Principal   Executive Officer) |
|                   |                       |   |
| August 22,   2011 | By:                        | /s/   Scott M. Horvitz |
|                   |                       | Scott   M. Horvitz |
|                   |                       | Chief   Financial Officer, Treasurer and Secretary |
|                   |                       | (Principal   Financial and Accounting Officer) |

 

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** **

**EXHIBIT INDEX**

 
| **Exhibit No.** | ** ** | ** **                                                                                                                                                                                                                                                                   |
|----------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                 |       |                                                                                                                                                                                                                                                                         |
| 10.1                 |       | Discounted Payoff Agreement, by and between Redpoint   Bio Corporation and CIT Healthcare LLC, dated May 11, 2011 (Incorporated   by reference to Exhibit 10.1 to the Current Report on Form 8-K,   dated May 11, 2011, and filed on May 12, 2011). |
|                 |       |                                                                                                                                                                                                                                                                         |
| 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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