**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 March 31, 2008** |
| ** **                                              | ** ** | ** **                                                                                               |
| **or**                                                  |
| ** **                                              |
| **o**                                                   | ** ** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15  (d) OF THE SECURITIES EXCHANGE ACT OF 1934** |

 

**For thetransition period from             to            **

 

**CommissionFile Number:  000-51708**

 

**Redpoint Bio Corporation**

(Exact name of Registrant asspecified in its charter)

 

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

 

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

(Address of principalexecutive offices) (Zip Code)

 

**(609)637-9700**

(Registrant’s TelephoneNumber, Including Area Code)

 

 

(Former Name, Former Addressand Former Fiscal Year, If Changed Since Last Report)

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days. Yes  x  No o

 

Indicate bycheck mark whether the registrant is a large accelerated filer, an acceleratedfiler, a non-accelerated filer, or a smaller reporting company. See definitionsof “large accelerated filer,” “accelerated filer,” and “smaller reportingcompany” in Rule 12b-2 of the Exchange Act. (Check one):

 

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

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).Yes  o   No  x

 

The number of shares of theregistrant’s common stock outstanding as of May 5, 2008 was 79,440,870.

 

 

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**REDPOINTBIO CORPORATION**

 

**TABLE OFCONTENTS**

 
| ** **        |                                                                                        |   | **Page** |
|-------------------|---------------------------------------------------------------------------------------------|--------|----------|
| **PART I:**  | **FINANCIAL  INFORMATION**                                                                  |   |     |
|              |                                                                                        |   |     |
| ITEM 1.           | FINANCIAL  STATEMENTS (unaudited):                                                          |   | 1        |
|              |                                                                                        |   |     |
|              | Balance  Sheets                                                                             |   | 1        |
|              |                                                                                        |   |     |
|              | Statements  of Operations                                                                   |   | 2        |
|              |                                                                                        |   |     |
|              | Statements  of Cash Flows                                                                   |   | 3        |
|              |                                                                                        |   |     |
|              | Notes to Financial Statements                                                               |   | 5        |
|              |                                                                                        |   |     |
| ITEM 2.           | MANAGEMENT’S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |   | 13       |
|              |                                                                                        |   |     |
| ITEM 3.           | QUANTITATIVE  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                 |   | 19       |
|              |                                                                                        |   |     |
| ITEM 4.           | CONTROLS AND  PROCEDURES                                                                    |   | 19       |
|              |                                                                                        |   |     |
| **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                                |   | 37       |
|              |                                                                                        |   |     |
| ITEM 3.           | DEFAULTS  UPON SENIOR SECURITIES                                                            |   | 37       |
|              |                                                                                        |   |     |
| ITEM 4.           | SUBMISSION  OF MATTERS TO A VOTE OF SECURITY HOLDERS                                        |   | 37       |
|              |                                                                                        |   |     |
| ITEM 6.           | EXHIBITS                                                                                    |   | 37       |
|              |                                                                                        |   |     |
| SIGNATURES        |                                                                                        | 38     |

 

i

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**PART I. FINANCIAL INFORMATION.**

 

**ITEM1.  FINANCIAL STATEMENTS.**

 

**REDPOINTBIO CORPORATION(A DEVELOPMENT-STAGE ENTERPRISE)**

**BALANCE SHEETS**

**(UNAUDITED)**

 
| ** **                                                                                                                                                                                         | ** ** | **December 31,** | ** ** | **March 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|--------------------|------------|
| ** **                                                                                                                                                                                         | ** ** | **2007**              | ** ** | **2008**           | ** ** |
| **Assets**                                                                                                                                                                                         | ** ** | ** **            | ** ** | ** **         | ** ** |
| Current assets:                                                                                                                                                                                    |       |                  |       |               |       |
| Cash and cash equivalents                                                                                                                                                                          |       | $                     | 5,789,997  |               | $          | 5,557,611 |   |
| Marketable securities                                                                                                                                                                              |       | 16,911,413            |       | 15,453,048         |       |
| Accounts receivable                                                                                                                                                                                |       | 50,114                |       | —             |       |
| Prepaid expenses and other current assets                                                                                                                                                          |       | 505,994               |       | 366,400            |       |
| Total current assets                                                                                                                                                                               |       | 23,257,518            |       | 21,377,059         |       |
| Property and equipment, net                                                                                                                                                                        |       | 1,295,943             |       | 1,370,241          |       |
| Other assets                                                                                                                                                                                       |       | 269,850               |       | 293,043            |       |
| Total assets                                                                                                                                                                                       |       | $                     | 24,823,311 |               | $          | 23,040,343 |   |
| **Liabilities  and Stockholders’ Equity**                                                                                                                                                     |       |                  |       |               |       |
| Current liabilities:                                                                                                                                                                               |       |                  |       |               |       |
| Current portion of long-term debt                                                                                                                                                                  |       | $                     | 447,767    |               | $          | 381,983 |   |
| Accounts payable                                                                                                                                                                                   |       | 710,880               |       | 920,493            |       |
| Accrued expenses                                                                                                                                                                                   |       | 514,019               |       | 319,100            |       |
| Accrued compensation                                                                                                                                                                               |       | 402,863               |       | 193,330            |       |
| Deferred revenue                                                                                                                                                                                   |       | 371,424               |       | 1,212,870          |       |
| Total current liabilities                                                                                                                                                                          |       | 2,446,953             |       | 3,027,776          |       |
| Long-term debt                                                                                                                                                                                     |       | 187,576               |       | 115,553            |       |
| Deferred revenue                                                                                                                                                                                   |       | 650,007               |       | 557,150            |       |
| Total liabilities                                                                                                                                                                                  |       | 3,284,536             |       | 3,700,479          |       |
| Stockholders’ equity:                                                                                                                                                                         |       |                  |       |               |       |
| Preferred stock; 10,000,000 shares  authorized, $0.0001 par value, none issued                                                                                                                     |       | —                |       | —             |       |
| Common stock; authorized 150,000,000  shares; $0.0001 par value, issued and outstanding 79,223,987 at  December 31, 2007 and issued and outstanding 79,440,870 shares at  March 31, 2008 |       | 7,922                 |       | 7,944              |       |
| Additional paid-in-capital                                                                                                                                                                         |       | 54,485,373            |       | 54,713,033         |       |
| Deficit accumulated during development  stage                                                                                                                                                      |       | (32,996,231           | )          | (35,488,100        | )          |
| Accumulated other comprehensive income                                                                                                                                                             |       | 41,711                |       | 106,987            |       |
| Total stockholders’ equity                                                                                                                                                                    |       | 21,538,775            |       | 19,339,864         |       |
| Total liabilities and stockholders’ equity                                                                                                                                                    |       | $                     | 24,823,311 |               | $          | 23,040,343 |   |

 

See accompanying notes to the unaudited financial statements.

 

1

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**REDPOINTBIO CORPORATION(A DEVELOPMENT-STAGE ENTERPRISE)**

**STATEMENTS OF OPERATIONS**

**(UNAUDITED** )

 
| ** **                                           | ** ** | **Three Months Ended March 31,** | ** ** | **August 16,  1995 (Inception) to** | ** ** |
|------------------------------------------------------|------------|------------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                           | ** ** | **2007**                                             | ** ** | **2008**                                           | ** ** | **March 31, 2008** | ** ** |
| Research and grant revenue                           |       | $                                                    | 40,851     |                                               | $          | 908,605 |   | $ | 7,370,927 |   |
| Operating expenses:                                  |       |                                                 |       |                                               |       |   |   |
| Research and development                             |       | 2,568,500                                            |       | 1,985,713                                          |       | 21,776,008 |   |
| General and administrative                           |       | 911,259                                              |       | 1,632,203                                          |       | 16,226,805 |   |
| Total operating expenses                             |       | 3,479,759                                            |       | 3,617,916                                          |       | 38,002,813 |   |
| Operating loss                                       |       | (3,438,908                                           | )          | (2,709,311                                         | )          | (30,631,886 | ) |
| Interest income                                      |       | 20,974                                               |       | 232,725                                            |       | 1,186,126 |   |
| Interest expense                                     |       | (1,629,535                                           | )          | (15,283                                            | )          | (3,348,657 | ) |
| Loss before income taxes                             |       | (5,047,469                                           | )          | (2,491,869                                         | )          | (32,794,417 | ) |
| Income tax benefit                                   |       | —                                               |       | —                                             |       | 719,206 |   |
| Net loss                                             |       | (5,047,469                                           | )          | (2,491,869                                         | )          | $ | (32,075,211 | ) |
| Accretion of redeemable convertible  preferred stock |       | (224,846                                             | )          | —                                             |       |   |   |
| Net loss applicable to common stockholders           |       | $                                                    | (5,272,315 | )                                                  | $          | (2,491,869 | ) |   |   |
| Basic and diluted net loss per common share          |       | $                                                    | (0.30      | )                                                  | $          | (0.03 | ) |   |   |
| Weighted average of shares outstanding               |       | 17,360,452                                           |       | 79,319,299                                         |       |   |   |

 

See accompanying notes to the unaudited financial statements.

 

2

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**REDPOINTBIO CORPORATION**

**(ADEVELOPMENT-STAGE ENTERPRISE)**

**STATEMENTS OF CASH FLOWS**

**(UNAUDITED)**

 
| ** **                                                                   | ** ** | **Three Months Ended March 31,** | ** ** | **August 16 1995  (Inception) to** | ** ** |
|------------------------------------------------------------------------------|------------|------------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                                   | ** ** | **2007**                                             | ** ** | **2008**                                          | ** ** | **March 31, 2008** | ** ** |
| Cash flows from operating activities:                                        |       |                                                 |       |                                              |       |   |   |
| Net loss                                                                     |       | $                                                    | (5,047,469 | )                                                 | $          | (2,491,869 | ) | $ | (32,075,211 | ) |
| Adjustments to reconcile net loss to net  cash used in operating activities: |       |                                                 |       |                                              |       |   |   |
| Depreciation                                                                 |       | 104,416                                              |       | 153,256                                           |       | 1,662,257 |   |
| Amortization of discounts and premiums on  marketable securities             |       | —                                               |       | (112,613                                          | )          | (307,342 | ) |
| Options, warrants and stock issued for  services and dilution provisions     |       | 1,721,160                                            |       | 195,149                                           |       | 2,811,059 |   |
| Beneficial conversion feature                                                |       | 1,228,565                                            |       | —                                            |       | 1,228,565 |   |
| Amortization of discount on convertible  notes                               |       | 302,032                                              |       | —                                            |       | 899,935 |   |
| Amortization of deferred financing costs                                     |       | 31,012                                               |       | 7,519                                             |       | 141,341 |   |
| Debt inducement charge                                                       |       | —                                               |       | —                                            |       | 361,598 |   |
| Interest expense on convertible notes                                        |       | —                                               |       | —                                            |       | 136,075 |   |
| Changes in assets and liabilities:                                           |       |                                                 |       |                                              |       |   |   |
| Accounts receivable                                                          |       | (1,940,851                                           | )          | 50,114                                            |       | — |   |
| Prepaid expenses and other assets                                            |       | (99,833                                              | )          | 108,882                                           |       | (964,545 | ) |
| Accounts payable                                                             |       | 219,786                                              |       | 190,833                                           |       | 1,100,504 |   |
| Accrued expenses and accrued compensation                                    |       | 85,020                                               |       | (404,452                                          | )          | 644,040 |   |
| Deferred revenue                                                             |       | 1,930,000                                            |       | 748,589                                           |       | 1,770,020 |   |
| Net cash used in operating activities                                        |       | (1,466,162                                           | )          | (1,554,592                                        | )          | (22,591,704 | ) |
| Cash flows from investing activities:                                        |       |                                                 |       |                                              |       |   |   |
| Maturity and sale of marketable securities                                   |       | —                                               |       | 10,496,993                                        |       | 16,246,993 |   |
| Purchases of marketable securities                                           |       | —                                               |       | (8,860,739                                        | )          | (31,285,712 | ) |
| Purchases of property and equipment                                          |       | —                                               |       | (208,774                                          | )          | (2,904,071 | ) |
| Net cash provided by (used in) investing  activities                         |       | —                                               |       | 1,427,480                                         |       | (17,942,790 | ) |
| Cash flows from financing activities:                                        |       |                                                 |       |                                              |       |   |   |
| Proceeds from issuance of long-term debt                                     |       | —                                               |       | —                                            |       | 2,110,810 |   |
| Net proceeds from convertible notes                                          |       | —                                               |       | —                                            |       | 5,253,811 |   |
| Repayment of debt                                                            |       | (138,351                                             | )          | (137,807                                          | )          | (1,613,274 | ) |
| Net proceeds from issuance of preferred  stock                               |       | —                                               |       | —                                            |       | 11,883,447 |   |
| Net proceeds from issuance of common stock  and warrants                     |       | 17,352,569                                           |       | —                                            |       | 28,624,603 |   |
| Proceeds from exercise of common stock  options and warrants                 |       | —                                               |       | 32,533                                            |       | 115,829 |   |
| Common stock reacquired                                                      |       | —                                               |       | —                                            |       | (283,121 | ) |
| Net cash provided by (used in) financing  activities                         |       | 17,214,218                                           |       | (105,274                                          | )          | 46,092,105 |   |
| Net increase (decrease) in cash and cash  equivalents                        |       | 15,748,056                                           |       | (232,386                                          | )          | 5,557,611 |   |
| Cash and cash equivalents, beginning of  period                              |       | 974,378                                              |       | 5,789,997                                         |       | — |   |
| Cash and cash equivalents, end of period                                     |       | $                                                    | 16,722,434 |                                              | $          | 5,557,611 |   | $ | 5,557,611 |   |
| Supplemental cash flow disclosures:                                          |       |                                                 |       |                                              |       |   |   |
| Noncash investing and financing activities:                                  |       |                                                 |       |                                              |       |   |   |
| Property and equipment included in accounts  payable                         |       | $                                                    | —     |                                              | $          | 18,780 |   | $ | 18,780 |   |
| Conversion of notes payable and accrued  interest to preferred stock         |       | —                                               |       | —                                            |       | 1,446,395 |   |

 

3

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| ** **                                                          | ** ** | **Three Months Ended March 31,** | ** ** | **August 16 1995  (Inception) to** | ** ** |
|---------------------------------------------------------------------|------------|------------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                          | ** ** | **2007**                                             | ** ** | **2008**                                          | ** ** | **March 31, 2008** | ** ** |
| Conversion of notes payable and accrued  interest to common stock   |       | 3,896,001                                            |       | —                                            |       | 3,896,001 |   |
| Conversion of preferred and junior  preferred stock to common stock |       | 16,940,297                                           |       | —                                            |       | 16,940,297 |   |
| Accretion of preferred stock                                        |       | 224,846                                              |       | —                                            |       | 3,248,857 |   |
| Warrants issued in connection with notes  payable                   |       | —                                               |       | —                                            |       | 1,258,642 |   |
| Cash paid for interest                                              |       | 27,510                                               |       | 14,526                                            |       | 427,403 |   |

 

See accompanying notes to the unaudited financial statements.

 

4

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**REDPOINT BIO CORPORATION**

**(A DEVELOPMENT-STAGE ENTERPRISE)**

**NOTES TOFINANCIAL STATEMENTS**

**(UNAUDITED)**

 

**1.****            ****Description of theBusiness and Basis of Presentation**

 

Redpoint BioCorporation (“Redpoint” or the “Company”) is leveraging recent discoveries inthe molecular biology of taste to discover and develop novel taste modulatorsfor the food, beverage and pharmaceutical industries. The Company’s food andbeverage program is focused on identifying novel flavors that improve the tasteof existing ingredients and enable the development of better-tasting and morehealthful foods and beverages. The pharmaceutical program uses a biochemicalapproach aimed at suppressing the bitterness of medicines, which has thepotential to expand the range of formulation options and increase patientcompliance. The Company uses its technology to discover and develop productsfor partners and for its own pipeline.

 

The Company issubject to those risks associated with any biotechnology company that hassubstantial expenditures for research and development. There can be noassurance that the Company’s research and development projects will besuccessful, that products developed will obtain necessary regulatory approval,or that any approved product will be commercially viable. In addition, theCompany operates in an environment of rapid technological change and is largelydependent on the services of its employees and consultants. For the Company tofund its operations and to commercially develop its products, additional equityand/or debt financing will be required. There is no assurance that suchfinancing will be available to the Company as needed.

 

The accompanyingunaudited financial statements of the Company have been prepared in accordancewith generally accepted accounting principles for interim financial informationand pursuant to the rules and regulations of the Securities and ExchangeCommission, referred to herein as the SEC. Accordingly, they do not include allof the information and footnotes required by generally accepted accountingprinciples for complete financial statements.

 

In the opinion ofmanagement, all adjustments (consisting of normal recurring adjustments)considered necessary for a fair presentation have been included (See Note 2 fordiscussion of the impact of the Reverse Merger (as defined below)). Operating results for the three months ended March 31, 2008 are notnecessarily indicative of the results that may be expected for the year ending December 31,2008.

 

For furtherinformation, refer to the 2007 financial statements and footnotes thereto ofRedpoint included in the Company’s financial statements included in the Company’sAnnual Report on Form 10-K for the year ended December 31, 2007.

 

**2.****        ****Reverse Triangular Merger, Financingand Reincorporation Merger**

 

*Completion of Merger*

 

Robcor Properties, Inc.,a Florida corporation (“Robcor”), and its newly-formed subsidiary, RobcorAcquisition Corp., a Delaware corporation (“Merger Sub”) entered into anAgreement 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 limitedliability company and wholly-owned subsidiary of Robcor (“Robcor LLC”) andHalter Financial Investments, L.P., a Texas limited partnership (“Halter”), andMichael Heitz (“Heitz”), as stockholders of Robcor, on the other hand. Pursuant to the Merger Agreement, Merger Sub, which Robcor had incorporated inthe state of Delaware for the purpose of completing the transaction, mergedinto Redpoint (the “Reverse Merger”) on March 12, 2007 (the “Closing” orthe “Closing Date”) with Redpoint continuing as the surviving entity in theReverse Merger.  As a result of the Reverse Merger, Redpoint became awholly-owned subsidiary of Robcor.  In connection with the Reverse Merger,each share of capital stock of Redpoint was converted into 2.7820 shares ofcommon stock of Robcor and all of Redpoint’s convertible promissory notes wereconverted into shares of common stock of Robcor.

 

5

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Redpoint wasdeemed to have been the accounting acquirer in the Reverse Merger. Accordingly, the financial statements of the Company presented reflect thehistorical results of Redpoint prior to the Reverse Merger, and of the combinedentities following the Reverse Merger, and do not include the historicalfinancial results of Robcor prior to the consummation of the ReverseMerger.  In connection with the ReverseMerger, Redpoint issued 1,391,000 shares of common stock to Robcor shareholderswhich have been treated as issuance costs in connection with Private Placement.

 

*Private Placement*

 

Concurrently withthe completion of the Reverse Merger, Robcor received $17.2 million in netproceeds from the initial closing of a private placement of approximately 24.7million shares of common stock at a price of $0.81 per share, and warrants topurchase approximately 6.2 million shares of Robcor common stock at an exerciseprice of $1.35 per share (the “Private Placement”).  The initialclosing of the Private Placement occurred on March 12, 2007, concurrentlywith the completion of the Reverse Merger.

 

In connection withthe Private Placement, Redpoint engaged two placement agents which were issuedfive-year warrants to buy approximately 2.0 million shares of Robcor commonstock equal to 10% of the number of shares of common stock sold in the PrivatePlacement at an exercise price of $0.97 per share; provided, however, nowarrants were issued to the placement agents with respect to shares andwarrants sold to existing Redpoint stockholders.

 

On April 6,2007, Robcor sold an additional 16.1 million shares of common stock andwarrants to purchase 4.0 million shares of common stock which resulted innet proceeds of approximately $11.4 million.  In connection with the April closing,warrants to purchase an additional 1.6 million shares of common stock wereissued 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 andPlan of Merger dated May 3, 2007. As a result of the merger, the Company’sstate of incorporation changed from Florida to Delaware.

 

In connection withthe reincorporation merger, the authorized number of shares of common stock wasdecreased from 1,000,000,000 shares of common stock, no par value per share, to150,000,000 shares of common stock, $0.0001 par value per share, and theauthorized number of shares of preferred stock was decreased from 20,000,000shares of preferred stock, no par value per share, to 10,000,000 shares ofpreferred stock, $0.0001 par value per share. The Company’s share data andcapital stock have been retrospectively adjusted for all periods presented toreflect the reincorporation merger.

 

In addition, themaximum number of shares of common stock reserved for issuance under theCompany’s 2007 Omnibus Equity Compensation Plan was increased from 13,511,562 to17,644,267 shares.

 

**3.****        ****Summary of Significant AccountingPolicies**

 

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

 

The preparation offinancial statements in conformity with U.S. generally accepted accountingprinciples requires management to make estimates and assumptions that affectthe reported amounts of assets and liabilities and disclosure of contingentassets and liabilities at the date of the financial statements and the reportedamounts of revenues and expenses during the reporting period. Actual resultscould differ from such estimates.

 

***(b)******  ******Cashand Cash Equivalents***

 

The Companyconsiders all highly liquid investments that have maturities of three months orless when acquired to be cash equivalents.

 

6

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***(c)******  ******MarketableSecurities***

 

Marketablesecurities include investments in corporate commercial paper and debtsecurities having original maturities of greater than three months. Thesemarketable securities are treated for financial reporting purposes asavailable-for-sale and as such are reported at their fair market values.Unrealized gains and losses have been recorded as a separate component ofstockholders’ equity. All realized gains and losses are recorded in the resultsof operations.

 

***(d)******  ******Concentrationsof Credit Risk***

 

Financialinstruments that potentially subject the Company to concentrations of creditrisk consist of cash equivalents and marketable securities. The Company hasestablished guidelines relating to diversification and maturities that allowsthe Company to manage risk.

 

***(e)******  ******RevenueRecognition***

 

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

 

*License Fees and Multiple Element Arrangements*

 

Non-refundableupfront fees are recognized as revenue when (i) we have a contractualright to receive such payment, (ii) the contract price is fixed ordeterminable, (iii) the collection of the resulting receivable isreasonably assured, and (iv) we have no further performance obligationsunder the license agreement.

 

Multiple elementarrangements are analyzed to determine whether the deliverables, which ofteninclude license and performance obligations, such as research and developmentservices, can be separated or whether they must be accounted for as a singleunit of accounting in accordance with Emerging Issues Task Force (EITF) Issue No. 00-21,Accounting for Revenue Arrangements with Multiple Deliverables . If the fairvalue of the undelivered performance obligations can be determined, suchobligations would then be accounted for separately as performed. However, ifthe elements are considered to either (i) not have stand-alone value, or (ii) havestandalone value but the fair value of any of the undelivered performance obligationscannot be determined, the arrangement would then be accounted for as a singleunit of accounting and all of the payments recognized as revenue over theestimated period of when the performance obligations are performed. Whenever wedetermine that an arrangement should be accounted for as a single unit ofaccounting, we must determine the period over which the performance obligationswill be performed and revenue will be recognized. Significant managementjudgment is required in determining the period over which we are expected tocomplete our performance obligations under an arrangement.

 

*Substantive Milestone Payments*

 

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

 

·      themilestone payments are non-refundable;

 

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

 

·      substantiveeffort is involved in achieving the milestone;

 

·      areasonable amount of time passes between the up-front license payment and thefirst milestone payment as well as between each subsequent milestone payment;and

 

·      theamount of the milestone payment is reasonable in relation to the effortexpended or the risk associated with achievement of the milestone.

 

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Determination asto whether a payment meets the aforementioned conditions involves management’sjudgment. If any of these conditions are not met, the resulting payment wouldnot be considered a substantive milestone, and therefore the resulting paymentwould be considered part of the consideration for the single unit of accountingand be recognized as revenue as such performance obligations are performed.

 

*Reimbursement of Research and Development Costs*

 

Reimbursement ofresearch and development costs is recognized as revenue, provided theprovisions of EITF Issue No. 99-19, Reporting Revenue Gross as a PrincipalVersus Net as an Agent, are met, the amounts are fixed and determinable, andcollection of the related receivable is reasonably assured.

 

***(f)******   ******Propertyand Equipment***

 

Property andequipment are recorded at cost and depreciated on a straight-line basis overtheir estimated useful lives. The Company uses a life of four to five years forlaboratory equipment, three to seven years for office equipment and furniture,and the lesser of the useful life or the remaining life of the underlyingfacility lease for leasehold improvements. Expenditures for repairs andmaintenance are charged to expense as incurred, while major renewals andbetterments are capitalized. Upon disposition of assets, the cost and relatedaccumulated depreciation are removed from the accounts and any resulting gainor loss is included in the Statements of Operations.

 

***(g)******  ******Researchand Development***

 

Research anddevelopment costs, including those incurred in relation to the Company’scollaborative agreements, are charged to expense as incurred. These expenses includeinternal research and development as well as amounts paid to third parties toconduct research on the Company’s behalf. Costs incurred in obtainingtechnology licenses are charged immediately to research and development expenseif the technology licensed has not reached technological feasibility and has noalternative future uses.

 

***(h)******  ******Impairmentof Long-Lived Assets***

 

In accordance withStatement of Financial Accounting Standards (SFAS) No. 144, Accounting forthe Impairment or Disposal of Long-Lived Assets, long-lived assets, such asproperty and equipment, are reviewed for impairment whenever events or changesin circumstances indicate that the carrying amount of an asset may not berecoverable. Recoverability of assets to be held and used is measured by acomparison of the carrying amount of an asset to the estimated undiscountedfuture cash flows expected to be generated by the asset. If the carrying amountof an asset exceeds its estimated future cash flows, then an impairment chargeis recognized in the amount by which the carrying amount of the asset exceedsthe fair value of the asset. The Company has not recorded any impairmentcharges pursuant to SFAS No. 144.

 

***(i)******   ******IncomeTaxes***

 

Income taxes areaccounted for under the asset-and-liability method. Deferred tax assets andliabilities are recognized for the future tax consequences attributable todifferences between the financial statement carrying amounts of existing assetsand liabilities and their respective tax bases and operating loss and taxcredit carryforwards. Deferred tax assets and liabilities are measured usingenacted tax rates expected to apply to taxable income in the years in whichthose temporary differences are expected to be recovered or settled. The effecton deferred tax assets and liabilities of a change in tax rates is recognizedin income in the period that includes the enactment date.

 

***(j)******   ******Stock-BasedCompensation***

 

Effective January 1,2006, the Company adopted SFAS No. 123 (revised 2004), Share-Based Payment(SFAS 123R) using the prospective method of adoption. UnderSFAS 123R, the Company recognizes compensation cost for awards toemployees and nonemployee board members based on the grant-date fair value ofstock-based 

 

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awards over the periodduring which an award holder is required to provide service in exchange for theaward. No compensation cost is recognized for awards for which the award holderdoes not render the requisite service.

 

The fair value ofstock options is determined using the Black Scholes option-pricing model and isrecognized as expense over the requisite service period using the straight-linemethod.

 

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

 

***(k)******  ******NetLoss per Common Share***

 

Basic net loss percommon share is computed in accordance with SFAS No. 128, Earnings perShare , by dividing the net loss allocable to common stockholders by theweighted average number of shares of common stock outstanding for the period.Diluted net loss per common share is computed by dividing net loss allocable tocommon stockholders by the sum of the weighted-average number of common sharesoutstanding for the period and the number of additional shares that would havebeen outstanding if dilutive potential common shares had been issued. Potentialcommon shares are excluded from the calculation of diluted net loss per commonshare if the effect on net loss per share is antidilutive. In all periods presented,our diluted net loss per common share is equal to basic net loss per commonshare because giving effect in the computation of diluted net loss per commonshare to the exercise of outstanding options and warrants and the conversion ofconvertible preferred stock would have been antidilutive.

 

***(l)******   ******FairValue of Financial Instruments***

 

The fair value ofour financial instruments is the amount for which the instrument could beexchanged in a current transaction between willing parties. As of December 31,2007 and March 31, 2008, the carrying values of cash and cash equivalents,accounts receivable, prepaid expenses and other current assets, accountspayable, accrued expenses, and accrued compensation equaled or approximatedtheir respective fair values because of the short duration of theseinstruments. In addition, we believe the carrying value of our debtinstruments, which do not have readily ascertainable market values, approximatetheir fair values, given that the interest rates on outstanding borrowingsapproximate market rates.

 

***(m)****** ******RecentAccounting Pronouncements***

 

In February 2007,the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assetsand Financial Liabilities — Including an amendment of FASB Statement No. 115”(“SFAS No. 159”).   Under this Standard, the Company mayelect to report marketable securities and certain other items at fair value ona contract-by-contract basis with changes in value reported in earnings. Thiselection is irrevocable.   SFAS No. 159is effective for the Company for the fiscal year beginning January 1,2008.  The Company has elected not toapply the fair value option to any of its currently eligible financial assetsand liabilities.

 

In September 2006,the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”).  SFAS No. 157 clarifies the definition offair value, establishes a framework for measuring fair value and expandsdisclosures on fair value measurements. In February 2008, the FASB issued two final staff positions (“FSP”)amending SFAS No. 157.  FSP SFAS 157-1 amends SFAS No. 157 toexclude SFAS No. 13, “Accounting for Leases” and its related interpretiveaccounting pronouncements that address leasing transactions.   FSPSFAS 157-2 delays the effective date of SFAS No. 157 until fiscal yearsbeginning after November 15, 2008 for nonfinancial assets and nonfinancialliabilities that are recognized or disclosed at fair value in the financialstatements on a nonrecurring basis.  TheCompany adopted SFAS No. 157 on January 1, 2008, except for the itemscovered by FSP SFAS 157-2.

 

SFAS No. 157 establishes a three-tier fair valuehierarchy, which prioritize the inputs used in measuring fair value as follows:

 

·      Level 1: Observable inputs such as quotedprices in active markets;

 

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·      Level 2: Inputs, other than the quotedprices in active markets, that are observable either directly or indirectly;and

 

·      Level 3: Unobservable inputs in whichthere is little or no market data, which require the reporting entity todevelop its own assumptions.

 

The Company’smarketable securities are reported at fair value on the balance sheet based onquoted prices in active markets for identical assets (Level 1).

 

***(n)******  ******ComprehensiveLoss***

 

We apply SFAS No. 130,“*Reporting Comprehensive Income*.”  This statement requires the classification ofitems of other comprehensive income (loss) by their nature and disclosure ofthe accumulated balance of other comprehensive income (loss) separately fromaccumulated deficit and additional paid-in capital, in the stockholders’ equitysection of our balance sheet.  For thethree months ended March 31, 2008 and 2007, comprehensive loss was:

 
| ** **                       | ** ** | **Three Months Ended March 31,** | ** ** |
|----------------------------------|------------|------------------------------------------------------|------------|
| ** **                       | ** ** | **2007**                                             | ** ** | **2008** | ** ** |
| Net Loss                         |       | $                                                    | (5,272,315 | ) | $ | (2,491,869 | ) |
| Total other comprehensive income |       | —                                               |       | 65,276 |   |
| Comprehensive income (loss)      |       | $                                                    | (5,272,315 | ) | $ | (2,426,593 | ) |

 

**4.****        ****Convertible Notes Payable**

 

In May, June andOctober 2006, the Company entered into a convertible debt financingagreement with certain of its existing investors which provided for $4,116,774in funding. The Company issued 5% secured promissory notes (the “PromissoryNotes”) with principal amounts totaling $4,093,024 and warrants to purchaseshares of a new series of preferred stock that may be designated in the futurein a Qualified Financing, as defined in such Promissory Notes.  ThePromissory Notes were due on the earliest to occur of: (i) demand byholders of a majority of the outstanding principal at any time after the oneyear anniversary of the initial May closing; (ii) a LiquidationEvent, as defined in such Promissory Notes; and (iii) the two-yearanniversary of the initial May closing.  In connection with the ReverseMerger, the Promissory Notes and accrued interest were converted into 5,223,522shares of common stock and warrants were exercised resulting in the issuance of2,033,175 shares of common stock.

 

In accordance withAPB Opinion No. 14, *Accounting for ConvertibleDebt and Debt Issued with Stock Purchase Warrants*, the Companyallocated the proceeds from the financing between the Promissory Notes andwarrants based on their relative estimated fair values.  The relative fairvalue of the warrants of $1,228,565 was recorded against the carrying value ofthe Promissory Notes as an original issue discount (OID) which was beingamortized as interest expense over the one year anniversary of the initial May issuancedate of the Promissory Notes until the closing of Reverse Merger. During thethree months ended March 31, 2007 the Company recognized a noncash chargeto interest expense of $302,032 for the amortization of the remaining OID.

 

In accordance withEITF No. 00-27, *Application of Issue No. 98-5to Certain Convertible Instruments*, and EITF No. 98-5, *Accounting for Convertible Securities with Beneficial ConversionFeatures or Contingently Adjustable Ratios*, after considering theallocation of the proceeds to the Promissory Notes, the Company determined thatthe Promissory Notes contained a contingent beneficial conversion feature(Contingent BCF). The Contingent BCF existed at the date of the issuance of thePromissory Notes due to the fact that the original carrying value of thePromissory Notes, after allocation of the proceeds, would be less than thepurchase price of the new series of preferred stock paid by investors in thenew series. In accordance with EITF No. 98-5, the Contingent BCF of$1,228,565 was recognized as additional interest expense during the threemonths ended March 31, 2007 when the Promissory Notes were converted intoshares of the common stock.

 

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**5.****        ****Marketable Securities**

 

The following is a summary of available-for-salesecurities as of March 31, 2008 and December 31, 2007:

 
| **As of March 31, 2008**  | ** ** | **Amortized Cost** | ** ** | **Unrealized Gain** | ** ** | **Fair Value** | ** ** |
|-----------------------------------------------|------------|-------------------------|------------|--------------------------|------------|---------------------|------------|
| Corporate debt securities                     |       | $                       | 11,095,012 |                     | $          | 102,076             |       | $ | 11,197,088 |   |
| Debt securities issued by the U.S. government |       | 2,254,074               |       | 886                      |       | 2,254,960           |       |
| Asset-backed securities                       |       | 1,996,975               |       | 4,025                    |       | 2,001,000           |       |
|                                          |       |                    |       |                     |       |                |       |
| Total                                         |       | $                       | 15,346,061 |                     | $          | 106,987             |       | $ | 15,453,048 |   |

 
| **As of December 31, 2007** | ** ** | **Amortized Cost** | ** ** | **Unrealized Gain** | ** ** | **Fair Value** | ** ** |
|-------------------------------------------------|------------|-------------------------|------------|--------------------------|------------|---------------------|------------|
| Corporate debt securities                       |       | $                       | 13,885,003 |                     | $          | 38,655              |       | $ | 13,923,658 |   |
| Asset-backed securities                         |       | 2,984,699               |       | 3,056                    |       | 2,987,755           |       |
|                                            |       |                    |       |                     |       |                |       |
| Total                                           |       | $                       | 16,869,702 |                     | $          | 41,711              |       | $ | 16,911,413 |   |

 

As of March 31,2008, all available-for-sale securities mature within one year. During thethree months ended March 31, 2008 and 2007, amortization of discounts andpremiums related to marketable securities resulted in income of $112,613 and$0, respectively.

 

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

 

***(a)******  ******CommonStock***

 

The Company wasparty to a number of agreements that provided for dilution protection tocertain investors.  In connection with the Reverse Merger and closing ofthe Private Placement, the Company issued approximately 2.0 million shares ofcommon stock to a founder and shareholder of the Company as a result of suchanti-dilution protection.  During the three months ended March 31,2007, the Company recorded a charge of $1.6 million to research anddevelopment expenses related to the issuance of such shares of common stock,which represents the fair value of these shares.

 

***(b)******  ******Warrants***

 

As of March 31, 2008, the Company had thefollowing warrants to purchase Common Stock outstanding:

 
| **Number of shares** | ** ** | **Exercise price** | ** ** | **Expiration** | ** ** |
|--------------------------------|------------|-------------------------|------------|----------------|------------|
|                           |       |                    |       |           |       |   |
| 53,039                         |       |                    | $          | 0.75           |       | December 2012 |   |
|                           |       |                    |       |           |       |   |
| 6,182,287                      |       |                    | $          | 1.35           |       | March 2010 |   |
|                           |       |                    |       |           |       |   |
| 4,015,059                      |       |                    | $          | 1.35           |       | April 2010 |   |
|                           |       |                    |       |           |       |   |
| 3,574,906                      |       |                    | $          | 0.97           |       | April 2012 |   |

 

***(c)******  ******StockOption 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 toeligible employees, directors, and consultants to the Company in the form ofrestricted stock and stock options. The amount and terms of grants weredetermined by the board of directors. The term of the options could have beenup to 10 years, and options were exercisable in cash or as otherwisedetermined by the board of directors. Generally, options vested 25% upon the 

 

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first anniversary of thedate of grant and ratably each month thereafter through the fourth anniversaryof the date of grant.

 

On March 12,2007, the Company adopted the Redpoint Bio Corporation 2007 Omnibus EquityCompensation Plan (“2007 Plan”), which provided for the issuance of up to13,511,562 shares of common stock, subject to adjustment in certaincircumstances.  In connection with the adoption of the 2007 Plan, the 2003Plan merged with and into the 2007 Plan and no additional grants may be madethereafter under the 2003 Plan.  Outstanding grants under the 2003 Plan willcontinue 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 willbe issued or transferred under the 2007 Plan.  The 2007 Plan is now theCompany’s only plan in effect.

 

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

 

The following is a summary of stock option activityunder the Plan during the three months ended March 31, 2008:

 
| ** **                            | ** ** | ** **         | ** ** | ** **              | ** ** | **Weighted-**   | ** ** | ** **    | ** ** |
|---------------------------------------|------------|--------------------|------------|-------------------------|------------|-----------------|------------|---------------|------------|
| ** **                            | ** ** | ** **         | ** ** | **Weighted-**           | ** ** | **average**     | ** ** | ** **    | ** ** |
| ** **                            | ** ** | **Number of** | ** ** | **average**             | ** ** | **contractual** | ** ** | **Intrinsic** | ** ** |
| ** **                            | ** ** | **shares**         | ** ** | **exercise price** | ** ** | **term**        | ** ** | **Value**     | ** ** |
| Outstanding at December 31, 2007 |       | 9,603,961          |       | $                       | 0.49       |            |       |          |       |   |
| Granted                               |       | 1,469,938          |       | 0.65                    |       |            |       |          |       |
| Exercised                             |       | (216,883           | )          | 0.15                    |       |            |       |          |       |
| Forfeited                             |       | —             |       | —                  |       |            |       |          |       |
| Outstanding at March 31, 2008    |       | 10,857,016         |       | $                       | 0.52       |            | 8.16       |          | $          | 1,810,629 |   |
|                                       |            |                    |            |                         |            |                 |            |               |            |  |  |

 

All optionsgranted to date have exercise prices equal to the fair value of the underlyingcommon stock on the date of grant. Prior to the effectiveness of theregistration statement on Form S-1, which occurred on July 20, 2007,all options were granted with an exercise price equal to the estimated fairvalue of the underlying common stock as determined by the board of directors.Subsequent to that date, all options have been granted with an exercise priceequal to the most recent trading price of the Company’s common stock. As of March 31,2008, there were 6,118,262 shares of common stock available for grant under the2007 Plan.

 

The per-shareweighted average fair value of options granted during the three months ended March 31,2008 and 2007 was estimated at $0.42 and $0.53, respectively, on the date ofgrant using the Black-Scholes option-pricing model.

 

The Companyrecognized $195,149, and $109,009 of compensation expense pursuant toSFAS 123R for the three months ended March 31, 2008 and 2007,respectively. As of March 31, 2008, there was $2.5 million ofunrecognized compensation expense related to unvested stock options granted toemployees and non-employee directors, which is expected to be recognized over aweighted average period of 3.2 years.

 

***(d)******  ******RegistrationRights***

 

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

 

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**7.****        ****Research and DevelopmentCollaboration**

 

*Givaudan*.     In March 2007,the Company entered into a Joint Research and Development and License Agreement(the “Givaudan Agreement”) with Givaudan Schweiz AG, a Swiss company (“Givaudan”)for the development and commercialization of compounds that enhance sweetnessor savory sensation, as well as compounds that block or desensitize bittertaste for use in the food and beverage industry. Under the terms of theGivaudan Agreement, Redpoint received an upfront payment of $1,300,000 and willreceive research funding over the initial 3.5 year term of the GivaudanAgreement, of up to $11,600,000. Redpoint is also eligible to receivereimbursement for costs incurred in connection with obtaining certainregulatory approvals. Redpoint will also be eligible to receive milestonepayments of up to $2,500,000 upon the achievement of specified development andcommercialization events as well as royalty payments based on net sales ofGivaudan products that contain flavor systems incorporating compounds developedunder the collaboration. The upfront payment of $1,300,000 million isbeing recognized as revenue on a straight-line basis over the initial term ofthe Givaudan Agreement. During the three months ended March 31, 2008 and2007, the Company recognized $93,000 and $0, respectively of revenue attributableto the amortization of the upfront fee and $614,000 and $41,000 of revenue fromresearch funding, respectively.

 

*Coca-Cola*.     In December 2007,the Company entered into a research agreement (the “Coca-Cola Agreement”) withThe Coca-Cola Company (“Coca-Cola”) for the development of certain technologyfor use in non-alcoholic beverages. Under the terms of the Coca-Cola Agreement,Redpoint will receive up to $900,000 per year for research funding. In February 2008,Coca-Cola made a non-refundable payment of $450,000 for the initial six monthsof the agreement. Coca-Cola will also reimburse the Company for certain relatedclinical research organization (CRO) costs that the Company incurs. Redpoint isalso eligible to receive a milestone payment of $200,000 upon the achievementof specified development events set forth in the Coca-Cola Agreement.  The initial term of the Coca-Cola Agreementis for 12 months, subject to extension upon mutual agreement of the parties.  The Coca-Cola Agreement may be terminatedearly by the parties upon their mutual agreement or by Coca-Cola in itsindividual discretion after the initial six month period.  For the initial six month period, the Companygranted Coca-Cola an exclusive right to negotiate to extend and expand thecollaboration into a broader, multi-year research, development andcommercialization program.  During thethree months ended March 31, 2008, the Company recognized $202,000 ofrevenue from research funding.

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

 

**Cautionary Note RegardingForward-Looking Statements**

 

The Securities andExchange Commission, referred to herein as the SEC, encourages companies todisclose forward-looking information so that investors can better understand acompany’s future prospects and make informed investment decisions. Certain statements that we may make from time to time, including, withoutlimitation, statements contained in this Quarterly Report on Form 10-Q,referred to herein as the Quarterly Report, constitute “forward-lookingstatements” within the meaning of the Private Securities Litigation Reform Actof 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 otherdocuments 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 discussionof future operating or financial performance, identify forward-lookingstatements.  All forward-looking statements are management’s presentexpectations of future events and are subject to a number of risks anduncertainties that could cause actual results to differ materially from thosedescribed in the forward-looking statements.  These risks anduncertainties include, among other things:

 

·      ourneed for additional capital to fund the current level of our research anddevelopment programs, our inability to further identify, develop and achievecommercial success for new products and technologies;

 

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·      thepossibility of delays in the research and development necessary to select drugdevelopment candidates and delays in clinical trials;

 

·      challengesthat we may face relating to the introduction of compounds that we may discoveras food ingredients;

 

·      therisk that clinical trials may not result in marketable products;

 

·      therisk that we may be unable to successfully finance and secure regulatoryapproval of and market our drug candidates;

 

·      ourdependence upon food, ingredient and pharmaceutical and biotechnologycollaborations;

 

·      thelevels and timing of payments under our collaborative agreement;

 

·      uncertaintiesabout our ability to obtain new corporate collaborations and acquire newtechnologies on satisfactory terms, if at all;

 

·      the developmentof competing diagnostic and therapeutic products;

 

·      ourability to protect our proprietary technologies;

 

·      patent-infringementclaims;

 

·      risksof new, changing and competitive technologies and regulations in the UnitedStates and internationally; and

 

·      otherfactors discussed under the heading Item 1A “Risk Factors” in this QuarterlyReport.

 

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

 

**Overview**

 

Redpoint is adevelopment stage biotechnology company leveraging recent discoveries in themolecular biology of taste to discover and develop novel taste modulators forthe food, beverage and pharmaceutical industries. Our food and beverage programis focused on identifying novel flavors that improve the taste of existingingredients and enable the development of better-tasting and more healthfulfoods and beverages. Our pharmaceutical program uses a biochemical approachaimed at suppressing the bitterness of medicines, which has the potential toexpand the range of formulation options and increase patient compliance. We useour technology to discover and develop products for partners and for our ownpipeline.

 

Since itsinception in 1995, Redpoint has incurred losses and negative cash flows fromoperations, and such losses have continued subsequent to March 31, 2008.As of March 31, 2008, Redpoint had an accumulated deficit of$35.5 million and anticipates incurring additional losses for at least thenext several years. We expect to spend significant resources over the nextseveral years to enhance our technologies and to fund research and developmentof our pipeline of potential products.

 

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Through March 31, 2008, our revenue hascome solely from corporate collaborations, license agreements, and governmentgrants. In order to achieve profitability, we must continue to develop productsand technologies that can be commercialized by us or through existing andfuture collaborations.

 

On March 12, 2007, we completed the first closing of our privateplacement of shares of common stock and warrants to purchase shares of commonstock raising approximately $17.2 million of net proceeds. On April 6,2007, we completed the final closing of the private placement raising anadditional $11.4 million of net proceeds, bringing the total privateplacement net proceeds to $28.6 million.

 

In March 2007, we entered into a Joint Research and Developmentand License Agreement with Givaudan Schweiz AG for the development andcommercialization of compounds that enhance sweetness or savory sensation, aswell as compounds that block or desensitize bitter taste for use in the foodand beverage industry. Under the terms of the agreement, Redpoint and Givaudanare collaborating exclusively with each other to discover and develop compoundsthat act primarily through the modulation of the TRPM5 channel. Inconsideration of our agreement to conduct research and develop compounds andgrant exclusive licenses and other rights, Givaudan paid us an upfronttechnology fee of $1.3 million and agreed to provide research funding tous over the initial 3.5 year term of the agreement of up to$11.6 million. Givaudan will also reimburse us for costs we incur inconnection with obtaining certain regulatory approvals. Through March 31,2008, including the upfront fee, we have received $4.4 million in researchand development funding. We are also eligible to receive milestone payments ofup to $2.5 million upon the achievement of specified development andcommercialization events as well as royalty payments based on net sales ofGivaudan products that contain flavor systems incorporating compounds developedunder the collaboration.

 

In December 2007, we entered into a research agreement withCoca-Cola for the development of certain technology for use in non-alcoholicbeverages. In consideration of our agreement to conduct research for thedevelopment of certain technology and grant exclusive licenses and other rightsto Coca-Cola pursuant to the terms and conditions of the agreement, Coca-Colaagreed to pay us $900,000 per year. In connection therewith, in February 2008,Coca-Cola made a non-refundable payment in the amount of $450,000, which shallbe applied to the aforementioned costs for the initial six months of theagreement. Coca-Cola will also reimburse us for certain related CRO costs thatwe incur. In addition, Coca-Cola also agreed to pay us a milestone payment of$200,000 upon the achievement of specified development events set forth in theResearch Agreement. The initial term of the agreement is for 12 months,subject to extension upon mutual agreement of the parties. The agreement may beterminated early by the parties upon their mutual agreement or by Coca-Cola inits individual discretion after the initial six month period. For the initialsix month period, we granted Coca-Cola an exclusive right to negotiate toextend and expand the collaboration into a broader, multi-year research,development and commercialization program.

 

Our discovery programs capitalize on advances in taste science and ourknow-how to create new products. We believe these products may have thepotential to make processed foods and beverages healthier and enhance theacceptability, safety and efficacy of many types of pharmaceutical products. Wehave developed an integrated discovery platform and identified prototypecompounds for both enhancement of sweet and savory taste and blocking bittertaste. To leverage our technology in the food and beverage markets, we haveentered into research and development agreements with Givaudan, the world’sleading company in the flavors and fragrances industry, and Coca-Cola, theworld’s largest beverage company. In addition, we plan to use our technology todiscover aversive taste blockers, principally to develop a pipeline ofproprietary taste-modified pharmaceutical products. We may develop suchproducts ourselves or partner with pharmaceutical companies who are seeking to extendthe patent life or enhance the performance of their products. We haveidentified several categories of products where patient acceptability, or thepotential for novel formulation options, are currently limited due to theintense bitter or other aversive taste of the active pharmaceutical ingredient(API). We plan to incorporate the proprietary bitter taste or aversive tasteblockers found through our discovery programs with drugs of proven safety andefficacy to create novel, valued-added formulations. We have not yet developedany products that are commercially available.

 

Our research and development efforts, both partnered and unpartnered,involve both technology development and discovery programs aimed at theidentification of novel compounds for taste modification. We are working toidentify a compound(s) that can be used to enhance the taste of both sweetand savory flavors in a wide variety of food and beverage applications.Additionally, we are working to identify a compound(s) that could act as auniversal bitter taste blocker for use both in our pharmaceutical productpipeline and for collaborative formulation development programs with majorpharmaceutical companies. We intend to design our compounds to be safe and 

 

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effectivein minute quantities, and to be able to incorporate them into food andpharmaceutical products through the GRAS (Generally Recognized as Safe)determination/notification process. Although the GRAS process involves extensivetesting to insure safety in use, the overall time required (estimated to be12-18 months) and development costs incurred (estimated to be$1-2 million per compound) are modest compared to the size of theaccessible markets. Moreover, a single GRAS-determined taste enhancer canpotentially be used in a wide range of food applications. In addition, a GRASdetermination is heavily relied upon by the Food and Drug Administration (FDA)to evaluate the safety and inclusion of flavor modifiers into pharmaceuticalproducts. A single aversive taste blocker can potentially be used to create amultitude of new drug formulations that in many cases may be patentable intheir own right. New drug product or product variations will require FDAapproval through the new drug approval, or NDA, process. We believe there maybe additional potential applications for our technology for the modification ofaversive taste sensations in food products, as well as potential fordiscovering novel compounds for other pharmaceutical applications.

 

**Revenue**

 

To date, our revenue has come solely from corporate collaborations,licensing agreements and government grants. Since our inception, we haveundertaken research projects for which we were the recipient of several SmallBusiness Innovative Research, or SBIR, Awards. The SBIR Awards were sponsoredby the National Institutes of Health. The last SBIR related research projectwas completed in 2004.

 

To leverage our technology in the food and beverage markets, in March 2007,we entered into the Givaudan Agreement where we are collaborating exclusivelywith each other to discover and develop Enhancer Compounds and Bitter BlockerCompounds that act primarily through the modulation of the TRPM5 channel. Also,in December 2007, we entered into a research agreement with Coca-Cola forthe development of certain technology for use in non-alcoholic beverages. Wemay also partner with other major ingredient suppliers, or food and beveragecompanies, to develop and commercialize taste enhancers that act through avariety of other newly discovered mechanisms of taste sensation in exchange fortechnology access fees, research funding, product development milestones, andproduct royalties.

 

In addition to developing our own pharmaceutical formulations, we planto form agreements with pharmaceutical companies to develop and market liquidand innovative pharmaceutical formulations in exchange for technology accessfees, research funding, product development milestones and product royalties.We have identified a broad selection of potential products for development,including both liquid formulations and innovative formulations that we believewould be attractive licensing candidates. In general, our strategy involves thedevelopment of a prototype formulation demonstrating the effectiveness of ourtechnology by combining the target API with our GRAS-approved bitter or otheraversive taste blocker. Some products could incorporate third-party APIs thatcould constitute line extensions to be marketed to the API patent holder.Additional prototype products could be developed with either soon-to-be orpatent-expired APIs. These products could either be licensed to the originalpatent holder to create a line extension, or to a generics company wishing tomarket a differentiated or branded generic product.

 

Any failure to maintain or establish licensing or collaborationarrangements on favorable terms could adversely affect our business prospects,financial condition or ability to develop and commercialize our productcandidates.

 

**Research and Development**

 

Our research and development expenses consist primarily of internalcosts associated with our bitter blocker and taste enhancer research programsas well as amounts paid to third parties to conduct research on our behalf. Ourinternal research and development costs are comprised of salaries and relatedbenefits, facilities and depreciation on laboratory equipment, compoundacquisition costs and research supplies. We charge research and developmentcosts to operations as incurred. We anticipate that research and developmentexpenses will continue to increase as we advance our research and developmentprograms.

 

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**General and Administrative**

 

Our general and administrative expenses consist primarily of salariesand related benefit expenses for business development, financial, legal andother administrative functions. In addition, we incur external costs forprofessional fees for legal, patent and accounting services. We expect that ourgeneral and administrative expenses, both internal and external, will increaseas we are now a public company.

 

**Results of Operations**

 

**Threemonths ended March 31, 2008 compared to March 31, 2007**

 

*Research and Grant Revenue*.  For the three months ended March 31,2008, we recorded revenue of $0.9 million, which included$0.7 million from our Givaudan Agreement, which began on March 27,2007, for the development and commercialization of compounds that enhancesweetness or savory sensation as well as compounds that block or desensitizebitter taste for use in the food and beverage industry. The revenues fromGivaudan include $0.1 million attributable to the upfront fee which isbeing recognized as revenue over the initial 3.5 year term of the agreementand $0.6 million of research funding. The remaining $0.2 million ofrevenue was from the commencement of our Coca-Cola Agreement, which began on December 13,2007, for the development of certain technology for use in non-alcoholicbeverages. During the three months ended March 31, 2007, we recorded anominal amount of revenue from the commencement of the Givaudan Agreement.

 

*Research and Development Expenses*.  Ourresearch and development expenses were $2.0 million for the three monthsended March 31, 2008 compared to $2.6 million for the three monthsended March 31, 2007.  During thethree months ended March 31, 2007, the Company recorded a$1.6 million non-cash charge in connection with the issuance ofapproximately 2.0 million shares of our common stock related toanti-dilution protection for Dr. Margolskee, the Company’s founder. Dr. Margolskee’santi-dilution protection terminated upon completion of the final closing of thePrivate Placement on April 6, 2007. During the three months ended March 31,2008, we experienced increased costs associated with our investment in ourbitter blocker and taste enhancer research programs as well as amounts paid tothird parties to conduct research on our behalf. In particular, our facilitiescosts increased as a result of our move to our new location in Ewing, NewJersey, effective in May 2007. Our new, state-of-the-art facility inEwing, New Jersey is enabling us to move ahead with the continued expansion ofour research and development operations. In addition, salaries and relatedbenefits and R&D supplies costs increased. Also, during the three months ended March 31, 2008, we recognizednon-cash compensation expense of approximately $0.1 million pursuant to SFAS123R and a nominal amount during the three months ended March 31, 2007.

 

*General and Administrative Expenses*.  Ourgeneral and administrative expenses were $1.6 million for the three monthsended March 31, 2008 compared to $0.9 million for the three monthsended March 31, 2007. The increase of $0.7 million was related tocosts associated with Redpoint becoming a public company, such as increases inaccounting, legal and investor relations fees, as well as expenses associatedwith patent filings and our move to our new facility. In addition, during thethree months ended March 31, 2008, we recognized non-cash compensationexpense of approximately $0.1 million pursuant to SFAS 123R and anominal amount during the three months ended March 31, 2007.

 

*Interest Income*.  Interest income was $0.2 million for thethree months ended March 31, 2008 compared to a nominal amount during thethree months ended March 31, 2007. The increase was due to interest earnedon our cash, cash equivalents and marketable securities that resulted fromproceeds from our private placement in March 2007.

 

*Interest Expense*.  Interest expense was a nominal amount for thethree months ended March 31, 2008 compared to $1.6 million for thethree months ended March 31, 2007. In May, June and October 2006,we entered into a convertible debt financing agreement with certain of ourinvestors, which provided for $4.1 million in funding. In addition to theissuance of 5% secured promissory notes, our investors received warrants topurchase additional shares of our stock. We allocated the proceeds from thefinancing between the notes and the warrants based on their relative fairvalues. The fair value of the warrants was recorded against the carrying valueof the notes as an original issue discount (OID) which was being amortized asinterest expense over a one-year period from the original issuance date of thenotes. During the three months March 31, 2007, we recognized a non-cashcharge to 

 

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interestexpense of $0.3 million for the amortization of the OID, which was fullyexpensed upon the completion of the first closing of our private placement whenthe promissory notes were converted to common stock. Furthermore, in accordancewith EITF No. 00-27, *Application of Issue No. 98-5to Certain Convertible Instruments*, and EITF No. 98-5, *Accounting for Convertible Securities with Beneficial ConversionFeatures or Contingently Adjustable Ratios*, after considering theallocation of the proceeds to the promissory notes, the Company determined thatthe promissory notes contained a contingent beneficial conversion feature(Contingent BCF). The Contingent BCF existed at the date of the issuance of thepromissory notes due to the fact that the original carrying value of promissorynotes, after allocation of the proceeds, would be less than the purchase priceof the new series of stock paid by investors in the new series. In accordancewith EITF No. 98-5, during the three months ended March 31, 2007, theContingent BCF of $1.2 million was recognized as additional non-cashinterest expense when the promissory notes were converted into shares of commonstock.

 

**Liquidity and Capital Resources**

 

At March 31, 2008, we had cash, cash equivalents and marketablesecurities of $21.0 million and working capital of $18.3 million. Sinceinception, we have used $22.6 million of cash to fund our operatingactivities and $2.9 million for capital expenditures. Through March 31,2008, we have funded substantially all of our operations and capitalexpenditures through private placements of equity and convertible debtsecurities totaling $45.8 million, cash received from corporatecollaborations totaling $7.3 million, government grants totaling$1.8 million, and capital equipment financing totaling $2.1 million.

 

On March 12, 2007, we completed the first closing of our PrivatePlacement of shares of common stock and warrants to purchase shares of commonstock raising approximately $17.2 million of net proceeds. On April 6,2007 we completed the final closing of our Private Placement raising anadditional $11.4 million of net proceeds, bringing the total privateplacement net proceeds to $28.6 million. On March 27, 2007, weentered into the Givaudan Agreement for the development and commercializationof compounds that enhance sweetness or savory sensation as well as compoundsthat block or desensitize bitter taste for use in the food and beverageindustry. Pursuant to the Givaudan Agreement, Givaudan agreed to pay us anupfront technology fee of $1.3 million and provide research funding to usover the initial 3.5 year term of the Givaudan Agreement of up to$11.6 million. On December 13, 2007, we entered into a researchagreement with Coca-Cola for the development of certain technology for use innon-alcoholic beverages. Pursuant to the Coca-Cola Agreement, Coca-Cola agreedto provide research funding of $900,000 over the initial one year term. Webelieve that our current capital resources and the funding we are receivingfrom Givaudan and Coca-Cola, should be sufficient to meet our operating and capitalrequirements at least through December 2009.

 

We expect that substantially all of our revenue for the foreseeablefuture will come from corporate collaborations, license agreements and interestearned on the proceeds from our sales of marketable securities. During 2008, weexpect to recognize $3.7 million as revenue from the Givaudan andCoca-Cola Agreements, which will include $0.4 million of the upfronttechnology fee that we received from Givaudan and which is being recognized asrevenue over the related performance period and $3.3 million pursuant toresearch funding. We are subject to those risks associated with anybiotechnology company that has substantial expenditures for research anddevelopment. There can be no assurance that our research and developmentprojects will be successful, that products developed will obtain necessaryregulatory approval, or that any approved product will be commercially viable.In addition, we operate in an environment of rapid technological change and weare largely dependent on the services of our employees and consultants. For usto fund our operations and to commercially develop our products, additionalequity and/or debt financing will be required. There is no assurance that suchfinancing will be available to us as needed.

 

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**Summary of Contractual Obligations**

 

**               **A summary of ourobligations to make future payments under contacts existing at December 31,2007 is included in Item 7, Management’s Discussion and Analysis of FinancialCondition and Results of Operations, of our Annual Report on Form 10-K forthe  year ended December 31,2007.  As of March 31, 2008, therewere no significant changes to this information.

 

**Critical Accounting Policies**

 

Our discussion and analysis of our financial condition and results ofoperations are based on our financial statements, which have been prepared inaccordance with U.S. generally accepted accounting principles, or GAAP. Thepreparation of these financial statements requires us to make estimates andjudgments that affect the reported amounts of assets, liabilities, thedisclosure of contingent assets and liabilities at the date of the financialstatements, and reported amount of revenue and expenses during the reportingperiod. On an ongoing basis, we evaluate our judgments and estimates, includingthose related to revenue recognition, long-lived assets, accrued liabilities,share-based payments and income taxes. We base our judgment and estimates onhistorical experience and various other factors that we believe to bereasonable under the circumstances, the results of which form the basis formaking judgments about the carrying values of assets and liabilities. Actualresults may differ from these estimates under different assumptions orconditions.  A more detailed review ofour critical accounting policies is contained in our Annual Report on Form 10-Kfiled with the Securities and Exchange Commission.  During the first quarter of 2008, there havebeen no material changes in our critical accounting policies.

 

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

 

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

 

We have not entered into and do not expect to enter into, financialinstruments for trading or hedging purposes.  We do not currentlyanticipate entering into interest rate swaps and/or similar instruments. We have no material currency exchange risk exposure as of March 31,2008.  Our primary market risk exposurewith regard to financial instruments is to changes in interest rates, whichwould impact interest income earned on such instruments. A one percent change(100 basis points) in interest rates on our investments would have impactedinterest income by approximately $0.1 million for the quarter ended March 31,2008.

 

**ITEM 4.**** ****CONTROLS AND PROCEDURES**

 

Our management, with the participation of our chiefexecutive officer and chief financial officer, evaluated the effectiveness ofour disclosure controls and procedures (as defined in Rules 13a-15(e) and15d-15(e) under the Exchange Act) as of March 31, 2008. Based on thisevaluation, our chief executive officer and chief financial officer concludedthat, as of March 31, 2008, our disclosure controls and procedures were (1) effectivein that they were designed to ensure that material information relating to us,including our consolidated subsidiaries, is made known to our chief executiveofficer and chief financial officer by others within those entities, asappropriate, to allow timely decisions regarding required disclosures, and (2) effectivein that they provide reasonable assurance that information required to bedisclosed by us in our reports that we file or submit under the Exchange Act isrecorded, processed, summarized and reported within the time periods specifiedin the SEC’s rules and forms.

 

No changes in our internal control over financialreporting (as defined in Rules 13a-15(f) and 15d-15(f) under theExchange Act) occurred during the fiscal quarter ended March 31, 2008 thathave materially affected, or are reasonably likely to materially affect, ourinternal control over financial reporting.

 

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**PART II.  OTHER INFORMATION**

 

**ITEM 1.**** ****LEGAL PROCEEDINGS**

 

The Company’s management knows of no material existing or pending legalproceedings or claims against the Company, nor is the Company involved as aplaintiff in any material proceeding or pending litigation.  To theCompany’s knowledge, no director, officer or affiliate of the Company, and noowner of record or beneficial owner of more than five percent (5%) of theCompany’s securities, or any associate of any such director, officer orsecurity holder is a party adverse to the Company or has a material interestadverse to the Company in reference to pending litigation.

 

**ITEM 1A.****              ****RISK FACTORS**

 

*You should carefully consider the following risks and all of the otherinformation set forth in this Quarterly Report before deciding to invest inshares of our common stock. The risks described below are not the only onesfacing us. Additional risks not presently known to us or that we currently deemimmaterial may also impair our business operations.*

 

*If any of the following risks actually occurs, our business, financialcondition or results of operations would likely suffer. In such case, themarket price of our common stock would likely decline due to the occurrence ofany of these risks, and you may lose all or part of your investment.*

 

**Risks Related To Our Business andOur Industry**

 

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

 

Since our inception we have incurred significant losses and negativecash flows from operations. As of March 31, 2008, we had an accumulateddeficit of $35.5 million, and anticipate incurring additional losses forat least the next several years. We expect to spend significant resources overthe next several years to enhance our technologies and to fund research anddevelopment of our pipeline of potential products. We have not generatedsignificant 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 orthrough future collaborations. Our ability to generate revenues and becomeprofitable will depend on our ability, alone or with potential collaborators,to timely, efficiently and successfully complete the development of our productcandidates, which may include conducting pre-clinical and clinical tests,obtaining necessary regulatory approvals, and manufacturing and marketing ourproduct candidates. There can be no assurance that any such events will occuror that we will ever become profitable. Even if we do achieve profitability, wecannot predict the level of such profitability. If we sustain losses over anextended period of time, we may be unable to continue our business.

 

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

 

The development of our product candidates will require a commitment ofsubstantial funds to conduct the costly and time-consuming research, which mayinclude pre-clinical and clinical testing, necessary to obtain regulatoryapprovals and bring our products to market. We believe our current capitalresources will satisfy our operating plan through December 2009. Ourfuture requirements will depend on many factors, including:

 

·      the progress of our research and development programs, including ourability to discover and develop taste enhancers and aversive taste blockers;

 

·      our ability, or our partners’ ability and willingness, to formulatethese taste enhancers and aversive taste blockers into food, beverage andpharmaceutical products;

 

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

 

·      the progress, scope and results of our pre-clinical and clinicaltesting of any future pharmaceutical products;

 

·      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 otherarrangements with third parties to assist in bringing our products to marketand the cost of such arrangements.

 

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

 

We will need to raise substantial additional capital to fund our futureoperations. We cannot be certain that additional financing will be available onacceptable terms, or at all. In recent years, it has been difficult forcompanies to raise capital due to a variety of factors, which may or may notcontinue. To the extent we raise additional capital through the sale of equitysecurities, the ownership position of our existing stockholders could besubstantially diluted. If additional funds are raised through the issuance ofpreferred stock or debt securities, these securities are likely to have rights,preferences and privileges senior to our common stock. Fluctuating interestrates could also increase the costs of any debt financing we may obtain.

 

Failure to successfully address ongoing liquidity requirements willhave a material adverse effect on our business. If we are unable to obtainadditional capital on acceptable terms when needed, we may be required to takeactions that harm our business and our ability to achieve cash flow in thefuture, including possibly the surrender of our rights to some technologies orproduct opportunities, delaying our clinical trials or curtailing or ceasingoperations.

 

***We are an early stage company andcurrently have no products available for sale, license or use. Our productcandidates require additional research, development, testing, expert reviewsand/or and regulatory approvals before marketing. We may be unable to develop,obtain regulatory approval or market any of our product candidates. If ourproduct candidates are delayed or fail, our financial condition will benegatively affected, and we may have to curtail or cease our operations.***

 

We are in the early stage of product development and we are dependenton new discoveries. We currently do not sell or license any products to thirdparties and do not expect to have any products commercially available forseveral years, if at all. You must evaluate us in light of the uncertaintiesand complexities affecting an early stage biotechnology company. Our productcandidates require additional research and development, pre-clinical testing,clinical testing (for our pharmaceutical products) and regulatory review and/orapprovals clearances before marketing. There are many reasons that our productcandidates may fail or not advance to commercialization, including thepossibility that:

 

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

 

·      our product candidates may fail to receive the necessary regulatoryapprovals or otherwise fail to meet applicable regulatory standards;

 

·      experts may not agree that our food product candidates are generallyrecognized as safe;

 

·      our product candidates may be too expensive to develop, manufacture ormarket;

 

·      other parties may hold or acquire proprietary rights that could preventus or our potential collaborators from developing or marketing our productcandidates;

 

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·      physicians, patients, third-party payers or the medical community ingeneral may not accept or use our contemplated pharmaceutical products;

 

·      our potential collaborators may withdraw support for or otherwiseimpair the development and commercialization of our product candidates; or

 

·      others may develop equivalent or superior products.

 

In addition, we may not succeed in developing taste enhancers andaversive taste blockers with the appropriate attributes required for use insuccessful commercial products. Successful taste enhancers and aversive tasteblockers require, among other things, appropriate biological activity,including the correct taste enhancer and aversive taste blocker properties forthe product application, an acceptable safety profile, including lack oftoxicity or allergenicity, and appropriate physical or chemical properties,including relative levels of stability, volatility and resistance to heat.Successful taste enhancers and aversive taste blockers must also becost-efficient. We may not be able to develop taste enhancers and aversivetaste blockers that meet these criteria.

 

If our product candidates are delayed or we fail to successfullydevelop and commercialize our product candidates, our financial condition maybe negatively affected, and we may have to curtail or cease our operations.

 

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

 

A key element of our food and beverage strategy is to commercialize ourtaste enhancers through product discovery and development collaborations withmajor ingredient suppliers and/or end users, such as the Givaudan Agreement andthe Coca-Cola Agreement. Our pharmaceutical strategy includes developing ourown taste-improved drug formulations as well as establishing collaborations andlicensing agreements with major pharmaceutical, over-the-counter and genericcompanies. We may not be able to maintain or expand these licenses andcollaborations or establish additional licensing and collaboration arrangementsnecessary to develop and commercialize our product candidates. Each of ourcollaboration agreements, such as the Givaudan Agreement and the Coca-ColaAgreement, provide each of our collaborators with the ability to terminate itsagreement with us prior to the expiration of the term as set forth in theagreements. Even if we are able to maintain or establish licensing orcollaboration arrangements, these arrangements may not be on favorable termsand may contain provisions that will restrict our ability to develop, test andmarket our product candidates. Any failure to maintain or establish licensingor collaboration arrangements on favorable terms could adversely affect ourbusiness prospects, financial condition or ability to develop and commercializeour product candidates.

 

We expect to rely at least in part on third party collaborators toperform a number of activities relating to the development andcommercialization of our product candidates, including the manufacturing ofproduct materials, the design and conduct of clinical trials for ourpharmaceutical formulations, and potentially the obtaining of regulatoryapprovals and marketing and distribution of any successfully developedproducts. Our collaborative partners may also have or acquire rights to controlaspects of our product development and clinical programs. As a result, we maynot be able to conduct these programs in the manner or on the time schedule wecurrently contemplate. In addition, if any of these collaborative partnerswithdraw support for our programs or product candidates or otherwise impairtheir development, our business could be negatively affected. To the extent weundertake any of these activities internally, our expenses may increase.

 

In addition, our success depends on the performance of ourcollaborators of their responsibilities under these arrangements. Somepotential collaborators may not perform their obligations in a timely fashionor in a manner satisfactory to us. Because such agreements may be exclusive, wemay not be able to enter into a collaboration agreement with any other companycovering the same product field during the applicable collaborative period. Inaddition, our collaborators’ competitors may not wish to do business with us atall due to our relationship with our collaborators. If we are unable to enterinto additional product discovery and development collaborations, our abilityto sustain or expand our business will be significantly diminished.

 

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***If we or our collaborators areunable to obtain and maintain the GRAS determination or regulatory approvalrequired before any taste enhancers or aversive taste blockers can be incorporatedinto products that are sold, we would be unable to commercialize our tasteenhancers and aversive taste blockers and our business would be adverselyaffected.***

 

In the United States, the development, sale and incorporation of ourtaste enhancers and aversive taste blockers into products are subject toregulation by the FDA, and in some instances, other government bodies.Obtaining and maintaining a GRAS determination or regulatory approval istypically costly and can take many years.

 

Depending on the amount or intended use of a particular taste enhanceror aversive taste blocker added to a product and the number of productcategories in which the flavor or flavor enhancer will be incorporated,specific testing, safety assessment protocols, and regulatory processes must besatisfied before we or our collaborators can commercially market and sellproducts containing any taste enhancers and aversive taste blockers that we maydiscover. A key element of our strategy is to develop flavors and flavor enhancersthat will be evaluated by the FEMA (Flavor and Extracts ManufacturersAssociation) GRAS Panel, which we expect will take 18 to 24 months andwhich is less expensive than the alternative of filing a food additive petitionwith the FDA, which can take eight years or more. The FEMA GRAS review processmay take longer than 24 months and cost more than we currently anticipateif additional safety studies are requested by the FEMA GRAS Panel or arenecessary to explain unexpected safety study findings. There is a risk that oneor more of our product candidates may not qualify for a FEMA GRASdetermination. This may occur for a variety of reasons, including the tasteenhancer’s or aversive taste blocker’s intended use, the amount of the tasteenhancer or aversive taste blocker intended to be added to packaged foods andbeverages, the number of product categories in which the taste enhancers oraversive taste blockers will be incorporated, whether the taste enhancerimparts sweetness, the safety profile of the taste enhancers or aversive tasteblockers and the FEMA GRAS Panel’s interpretation of the safety data. Even ifwe obtain a GRAS determination with respect to a taste enhancer or aversivetaste blocker, the FDA has the ability to challenge such determination, whichcould materially adversely affect our ability to market products on schedule orat all. In the event that a particular taste enhancer or aversive taste blockerdoes not qualify for a FEMA GRAS determination, we may be required to pursue alengthy FDA approval process to reach the U.S. market, or dedicate ourdevelopment efforts to alternative compounds, which would further delaycommercialization. In addition, laws, regulations or FDA practice governing theregulatory approval process, the availability of the GRAS determination processor the manufacture or labeling of such products, may change in a manner thatcould adversely affect our ability to commercialize products on schedule or atall.

 

Sales of our taste enhancers and aversive taste blockers outside of theUnited States will be subject to foreign regulatory requirements. In mostcases, whether or not a GRAS determination or FDA approval has been obtained,approval of a product by the comparable regulatory authorities of foreigncountries must still be obtained prior to manufacturing or marketing theproduct in those countries. A GRAS determination or FDA approval in the UnitedStates or in any other jurisdiction does not ensure approval in otherjurisdictions because the requirements from jurisdiction to jurisdiction mayvary widely. Obtaining foreign approvals could result in significant delays,difficulties and costs for us and require additional safety studies andadditional expenses. If we fail to comply with these regulatory requirements orto obtain and maintain required approvals, our ability to generate revenue willbe diminished.

 

We and our collaborators may not be successful in overcoming theseregulatory hurdles, which could result in product launch delays, unanticipatedexpenses, termination of collaborations, and flavors and flavor enhancers notbeing approved for incorporation into consumer products. These consequenceswould have a material adverse effect on our business financial condition andresults of operations.

 

***Even if we or our collaboratorsreceive a GRAS determination or regulatory approval and incorporate our tasteenhancers or aversive taste blockers into products, those products may never becommercially successful.***

 

Even if we discover and develop taste enhancers and aversive tasteblockers that obtain the necessary GRAS determination or regulatory approval,our success depends to a significant degree upon the commercial success ofpackaged food and beverage products and pharmaceutical products incorporatingthose taste enhancers or 

 

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aversivetaste blockers. If these products fail to achieve or subsequently maintainmarket acceptance or commercial viability, our business would be significantlyharmed because our royalty revenue is dependent upon consumer sales of theseproducts. In addition we could be unable to maintain our existingcollaborations or attract new product discovery and development collaborators.Many factors may affect the market acceptance and commercial success of anypotential products incorporating taste enhancers or aversive taste blockersthat we may discover, including:

 

·      health concerns, whether actual or perceived, or unfavorable publicityregarding our taste enhancers and aversive taste blockers or those of ourcompetitors;

 

·      the timing of market entry as compared to competitive products;

 

·      the rate of adoption of products by our collaborators and othercompanies in the flavor industry; and

 

·      any product labeling that may be required by the FDA or other UnitedStates or foreign regulatory agencies for products incorporating our tasteenhancers and aversive taste blockers.

 

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

 

Our pharmaceutical strategy is to incorporate our taste enhancers andaversive taste blockers into proprietary formulations of medicines thatpotentially offer improved acceptability and compliance, thus enhancingefficacy and possibly providing broader indications or patient populations. Inaddition to the regulatory or other requirements for our taste enhancers andaversive taste blockers, we will also require regulatory approvals of ourpharmaceutical formulations. In such case, we may be required to conductclinical trials to demonstrate safety and efficacy of the new formulation. Forproduct candidates that advance to clinical testing, we cannot be certain thatwe or a collaborator will successfully complete the clinical trials necessaryto receive regulatory product approvals. This process is lengthy and expensive.

 

We intend to seek approval for our pharmaceutical formulations throughthe FDA 505(b)(2) approval process. If we are unable to approve ourpharmaceutical formulations through the 505(b)(2) process, we may berequired to pursue the more expensive and time consuming 505(b)(1) approvalprocess. Section 505(b) of the Federal Food, Drug, and Cosmetic Actdescribes two types of NDA applications that an applicant may submit forapproval of innovator medicines. The first type of NDA, described undersection 505(b)(1), consists of a full report of investigations of safetyand effectiveness conducted by or for the applicant or for which the applicanthas the right of reference for the information. The second type of NDA,described under section 505(b)(2), consists of a full report of investigationsof safety and effectiveness where at least some portion of the informationsubmitted for approval comes from sources other than studies performed orsponsored by the applicant. Drugs that may be approved via the 505(b)(2) processinclude drugs that have the same active ingredients as previously approvedproducts, but now are formulated in a different delivery mechanism or other newdosage forms or with different indications. The basis for the 505(b)(2) applicationis that there already is a certain amount of information that is known aboutthe active ingredient. As such, repeating all the clinical studies required fora 505(b)(1) application would be significantly more expensive and timeconsuming than the 505(b)(2) process.

 

To obtain regulatory approvals, we must, among other requirements,complete clinical trials showing that our products are safe and effective for aparticular indication. Under the 505(b)(2) approval process, although wemay not have performed some of the studies ourselves, we must submit clinicaland non-clinical data to demonstrate the medication is safe and effective. Wealso must be able to provide data and information, including bioavailability orcomparative bioavailability studies, to establish sufficiently the appropriatenessof relying on material without the right of reference.

 

We do not know when clinical trials for our products will commence orwhether we will complete any of our clinical trials on schedule or at all.There can be no assurance that clinical trials will in fact demonstrate thatour products are safe or effective.

 

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Additionally,we may not be able to find acceptable patients or may experience delays inenrolling patients for our clinical trials. The FDA or we may suspend ourclinical trials at any time if either believes that we are exposing thesubjects participating in the trials to unacceptable health risks. The FDA orinstitutional review boards and/or institutional biosafety committees at themedical institutions and healthcare facilities where we seek to sponsorclinical trials may not permit a trial to proceed or may suspend any trialindefinitely if they find deficiencies in the conduct of the trials.

 

Productdevelopment costs to us and our potential collaborators will increase if wehave delays in testing or approvals or if we need to perform more or larger clinicaltrials than planned. We expect to continue to rely on third party clinicalinvestigators at medical institutions and healthcare facilities to conduct ourclinical trials, and, as a result, we may face additional delaying factorsoutside our control. Significant delays may adversely affect our financialresults and the commercial prospects for our product candidates and delay ourability to become profitable.

 

***If ourpharmaceutical product candidates do not successfully complete the clinicaltrial process, we will not be able to market them. Even successful clinicaltrials may not result in a marketable product and may not be entirelyindicative of a product’s safety or efficacy.***

 

Many factors,known and unknown, can adversely affect clinical trials and the ability toevaluate a product’s efficacy. During the course of treatment, patients can dieor suffer other adverse events for reasons that may or may not be related tothe proposed product being tested. Even if unrelated to our product, certainevents can nevertheless adversely impact our clinical trials. As a result, ourability to ultimately develop and market the products and obtain revenues wouldsuffer.

 

Even promisingresults in pre-clinical studies and initial clinical trials do not ensure successfulresults in later clinical trials, which test broader human use of our products.Many companies in our industry have suffered significant setbacks in advancedclinical trials, despite promising results in earlier trials. Even successfulclinical trials may not result in a marketable product or be indicative of theefficacy or safety of a product. Many factors or variables could affect theresults of clinical trials and cause them to appear more promising than theymay otherwise be. Product candidates that successfully complete clinical trialscould ultimately be found to be unsafe or ineffective.

 

In addition, ourability to complete clinical trials depends on many factors, includingobtaining adequate clinical supplies and having a sufficient rate of patientrecruitment. For example, patient recruitment is a function of many factors,including:

 

·                  the size of the patient population;

 

·                  the proximity of patients to clinical sites;

 

·                  the eligibility criteria for the trial;

 

·                  the perceptions of investigators and patients regarding safety; and

 

·                  the availability of other treatment options.

 

Even if patientsare successfully recruited, we cannot be sure that they will complete thetreatment process. Delays in patient enrollment or treatment in clinical trialsmay result in increased costs, program delays or both.

 

With respect tomarkets in other countries, we or a partner will also be subject to regulatoryrequirements governing clinical trials in those countries. Even if we completeclinical trials, we may not be able to submit a marketing application. If wesubmit an application, the regulatory authorities may not review or approve itin a timely manner, if at all.

 

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***Because we cannotpredict whether or when we will obtain regulatory approval to commercialize ourpharmaceutical product candidates, we cannot predict the timing of any futurerevenue from these product candidates.***

 

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

 

***We will rely onthird parties to manufacture taste enhancers, aversive taste blockers andpharmaceutical product candidates. There can be no guarantee that we can obtainsufficient and acceptable quantities of our taste enhancers or aversive tasteblockers or pharmaceutical product candidates on acceptable terms, which may delayor impair our ability to develop, test and market such products.***

 

Our businessstrategy relies on third parties to manufacture and produce our taste enhancersand aversive taste blockers and pharmaceutical product candidates in accordancewith good manufacturing practices established by the FDA, or similarregulations in other countries. Our taste enhancers and aversive taste blockersand pharmaceutical product candidates may be in competition with other productsfor access to these facilities and may be subject to delays in manufacture ifthird parties give other products greater priority than our product candidates.These third parties also may not deliver sufficient quantities of our tasteenhancers and aversive taste blockers and pharmaceutical product candidates,manufacture our taste enhancers and aversive taste blockers and pharmaceuticalproduct candidates in accordance with specifications, or comply with applicablegovernment regulations. Additionally, if the manufactured products fail to performas specified, our business and reputation could be severely impacted.

 

We expect to enterinto manufacturing agreements for the production of product materials. If anymanufacturing agreement is terminated or any third party collaboratorexperiences a significant problem that could result in a delay or interruptionin the supply of product materials to us, there are very few contractmanufacturers who currently have the capability to produce our taste enhancersand aversive taste blockers and pharmaceutical product candidates on acceptableterms, or on a timely and cost-effective basis. There can be no assurance thatmanufacturers on whom we will depend will be able to successfully produce ourtaste enhancers and aversive taste blockers and pharmaceutical productcandidates on acceptable terms, or on a timely or cost-effective basis. Therecan also be no assurance that manufacturers will be able to manufacture ourproducts in accordance with our product specifications, or will meet FDA orother requirements. We must have sufficient and acceptable quantities of ourproduct materials to conduct our clinical trials and to market our productcandidates, if and when such products have been approved by the FDA formarketing. If we are unable to obtain sufficient and acceptable quantities ofour product material, we may be required to delay the clinical testing andmarketing of our products.

 

***If we do not complywith applicable regulatory requirements in the manufacture and distribution ofour product candidates, we may incur penalties that may inhibit our ability tocommercialize our products and adversely affect our revenue.***

 

Our failure or thefailure of our potential collaborators or third party manufacturers to complywith applicable FDA or other regulatory requirements including manufacturing,quality control, labeling, safety surveillance, promoting and reporting mayresult in criminal prosecution, civil penalties, recall or seizure of ourproducts, total or partial suspension of production or an injunction, as wellas other regulatory action against our product candidates or us. Discovery ofpreviously unknown problems with a product, supplier, manufacturer or facilitymay result in restrictions on the sale of our products, including a withdrawalof such products from the market. The occurrence of any of these events wouldnegatively impact our business and results of operations.

 

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***If we are unable tocreate and maintain sales, marketing and distribution capabilities or enterinto agreements with third parties to perform those functions, we will not beable to commercialize our product candidates.***

 

We currently haveno sales, marketing or distribution capabilities. Therefore, to commercializeour product candidates, if and when such products have been approved and areready for marketing, we expect to collaborate with third parties to performthese functions. We have no experience in developing, training or managing asales force and will incur substantial additional expenses if we decide tomarket any of our future products directly. Developing a marketing and salesforce is also time consuming and could delay launch of our future products. Inaddition, we will compete with many companies that currently have extensive andwell-funded marketing and sales operations. Our marketing and sales efforts maybe unable to compete successfully against these companies.

 

***Many potentialcompetitors, including those who have greater resources and experience than wedo, may develop products or technologies that make ours obsolete ornoncompetitive.***

 

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

 

We facesubstantial competition from companies pursuing the commercialization ofproducts and services relevant to taste using various methods for the discoveryof taste enhancers and aversive taste blockers. These competitors includeleading flavor companies, such as International Flavors & Fragrances Inc.,Givaudan SA, Symrise and Firmenich. Among food manufacturers, at leastNestlé has an active program cloning and expressing receptors for in vitroscreening assays. In addition, Senomyx, Inc. is a public biotechnologycompany taking a biochemical approach to taste modulation, both in foods andpharmaceutical products. Senomyx is principally focused in the area of tasteenhancement for food products and uses high throughput screening technology andsynthetic and natural products chemistry to discover novel flavor enhancers,which it licenses to end users in the food industry. Senomyx was initiallyfocused on sweetness, savory and salty flavor enhancers, but is now alsodeveloping programs to discover bitter blockers for food and pharmaceutical products.Chemcom is another company that is developing a biotechnology approach tofinding novel taste enhancers. We currently compete and will continue tocompete in the future with these companies in collaborating with and sellingflavor products and technologies to manufacturers of packaged food and beverageproducts.

 

We also facesubstantial competition from a number of companies in the pharmaceuticalformulations industry. Taste masking has a long history in the pharmaceuticalindustry. A traditional method of taste masking for pharmaceutical products isto mix the active pharmaceutical ingredient with flavorings and sugar syrup tomask unpleasant taste. This approach is most commonly used for pediatric liquidformulations as well as many over-the-counter cough-cold remedies. FlavorRxsupplies flavors at drug store pharmacies that can be compounded by thepharmacist to make certain liquid formulations more palatable. In thepharmaceutical sector there are a number of drug delivery companies that have developedproprietary taste masking technologies that include both traditional and novelpharmaceutical approaches. These competing technologies and companies includebut are not limited to OraSolv® and DuraSolv® from CIMALabs (a Cephalon company), MicroCaps® and Liquitard® fromEurand, FlavorTechTM, LiquetteTM and MicroMaskTM from KV Pharmaceuticals, EnVel®from Catalent, CEFORM from Biovail and WOWTab® from Astellas.Virtually all of these approaches including OralSolv, DuraSolv, MicroCap,Liquitard, CEFORM, EnVel and the technology used in Zydis products utilize aphysical approach to sequester the active drug substance away from the tastereceptors on the tongue. These include coating the drug, micro encapsulation,immobilization, use of cyclodextran carriers, or stabilization of the drug in amicellar or insoluble phase, as the principle means of taste masking.

 

Many of thesecompanies have substantially greater capital resources, research anddevelopment resources and experience, manufacturing capabilities, regulatoryexpertise, sales and marketing resources, established relationships withconsumer products companies and production facilities.

 

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We may in thefuture face competition from life sciences and other technology companies andother commercial enterprises. These entities engage as we do in biotechnology,biology or chemistry and could apply this technology to the discovery anddevelopment of taste enhancers and aversive taste blockers and new formulationsof pharmaceutical products. We cannot guarantee that products developed as aresult of our competitors’ existing or future collaborations will not competewith our taste enhancers and aversive taste blockers and new pharmaceuticalformulations.

 

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

 

Our competitors,either alone or with their collaborative partners, may succeed in developingtechnologies or discovering taste enhancers and aversive taste blockers thatare more effective, safer, more affordable or more easily commercialized thanours, and our competitors may obtain intellectual property protection or commercializeproducts sooner than we do. Developments by others may render our productcandidates or our technologies obsolete. In addition, our current productdiscovery and development collaborators are not prohibited from entering intoresearch and development collaboration agreements with third parties in anyproduct field. Our failure to compete effectively would have a significantadverse effect on our business, financial condition and results of operations.

 

***If we are unable toattract and retain key personnel and advisors, it may adversely affect ourability to obtain financing, pursue collaborations or develop our productcandidates.***

 

We are highlydependent on F. Raymond Salemme, Ph.D., our Chief Executive Officer andPresident, as well as other executive and scientific officers, including ScottHorvitz, Chief Financial Officer, Scott Siegel, Ph.D., Vice President,Corporate Development and Robert Bryant, Ph.D., Vice President, DiscoveryResearch.

 

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

 

***We use hazardousand biological materials in our business. Any claims relating to improperhandling, storage or disposal of these materials could be time consuming andcostly.***

 

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

 

***We may be sued forproduct liability, which could adversely affect our business.***

 

Because ourbusiness strategy involves the development and sale by either us or ourcollaborators of commercial products incorporating our taste enhancers oraversive taste blockers, we may be sued for product liability. We may be heldliable if any product we develop and commercialize, or any product ourcollaborators 

 

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commercialize thatincorporates any of our taste enhancers or aversive taste blockers, causesinjury or is found otherwise unsuitable during product testing, manufacturing,marketing, sale or consumer use. In addition, the safety studies we mustperform and the FEMA GRAS determination we must obtain prior to incorporatingour taste enhancers and aversive taste blockers into a commercial product, andthe regulatory approvals required to commercialize our pharmaceutical products,will not protect us from any such liability.

 

If we and ourcollaborators commence sale of commercial products we will need to obtainproduct liability insurance, and this insurance may be prohibitively expensive,or may not fully cover our potential liabilities. Inability to obtainsufficient insurance coverage at an acceptable cost or otherwise to protectagainst potential product liability claims could prevent or inhibit thecommercialization of products developed by us or our product discovery anddevelopment collaborators. We may be obligated to indemnify our productdiscovery and development collaborators for product liability or other lossesthey incur as a result of our taste enhancers and aversive taste blockers. Anyindemnification we receive from such collaborators for product liability thatdoes not arise from our taste enhancers or aversive taste blockers may not besufficient to satisfy our liability to injured parties. If we are sued for anyinjury caused by our taste enhancers or aversive taste blockers or productsincorporating our taste enhancers or aversive taste blockers or any other productswe develop, our liability could exceed our total assets.

 

**RisksRelated To Intellectual Property**

 

***If our productcandidates are not effectively protected by valid, issued patents or if we arenot otherwise able to protect our proprietary information and technologies, itcould harm our business.***

 

The success of our operations will depend in part onour ability and that of our licensors to:

 

·                  obtain patent protection for our taste screening technology and ourtaste enhancers and aversive taste blockers both in the United States and inother countries with substantial markets;

 

·                  obtain patent protection for our pharmaceutical formulations includingthose created using our taste enhancers;

 

·                  defend patents once obtained;

 

·                  maintain trade secrets and operate without infringing upon the patentsand proprietary rights of others; and

 

·                  obtain appropriate licenses upon reasonable terms to patents orproprietary rights held by others that are necessary or useful to us incommercializing our technology, both in the United States and in othercountries with substantial markets.

 

In the event weare not able to protect our intellectual property and proprietary information,our business will be materially harmed.

 

***We may not haveadequate protection for our unpatented proprietary information, which couldadversely affect our competitive position.***

 

In addition topatents, we will substantially rely on trade secrets, know-how, continuingtechnological innovations and licensing opportunities to develop and maintainour competitive position. However, others may independently developsubstantially equivalent proprietary information and techniques or otherwisegain access to our trade secrets or disclose our technology. To protect ourtrade secrets, we may enter into confidentiality agreements with employees,consultants and potential collaborators. However, these agreements may notprovide meaningful protection of our trade secrets or adequate remedies in theevent of unauthorized use or disclosure of such information. Likewise, ourtrade secrets or know-how may become known through other means or beindependently discovered by our competitors. Any of these events could hinderus from developing or commercializing our product candidates.

 

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***Our ability tocompete in the ingredient, food and beverage market and the pharmaceuticalmarket may decline if we do not adequately protect our proprietarytechnologies.***

 

Because of thesubstantial length of time and expense associated with the development of newproducts, we, along with the rest of the ingredient, food and beverage industryand pharmaceutical industry, place considerable importance on obtaining andmaintaining patent protection for new technologies, products and processes. Oursuccess depends in part on our ability to obtain and maintain intellectualproperty that protects our technologies, taste enhancers or aversive tasteblockers and our pharmaceutical products. Patent positions may be highlyuncertain and may involve complex legal and factual questions, including theability to establish patentability of sequences relating to taste receptors,proteins, chemical synthesis techniques, compounds and methods for using themto modulate taste for which we seek patent protection. No consistent standardregarding the allowance or enforceability of claims in many of our pendingpatent applications has emerged to date. As a result, we cannot predict thebreadth of claims that will ultimately be allowed in our patent applications, ifany, including those we have in-licensed or the extent to which we may enforcethese claims against our competitors. The degree of future protection for ourproprietary rights is therefore highly uncertain and we cannot assure you that:

 

·                  we, or our Licensors, were the first to file patent applications or toinvent the subject matter claimed in patent applications relating to thetechnologies upon which we rely;

 

·                  others will not independently develop similar or alternativetechnologies or duplicate any of our technologies;

 

·                  others did not publicly disclose our claimed technology before weconceived the subject matter included in any of our patent applications;

 

·                  any of our patent applications will result in issued patents;

 

·                  any of our patent applications will not result in interferences ordisputes with third parties regarding priority of invention;

 

·                  any patents that may be issued to us, our collaborators or ourlicensors will provide a basis for commercially viable products or will provideus with any competitive advantages or will not be challenged by third parties;

 

·                  we will develop additional proprietary technologies that arepatentable;

 

·                  the patents of others will not have an adverse effect on our ability todo business; or

 

·                  new proprietary technologies from third parties, including existinglicensors, will be available for licensing to us on reasonable commercialterms, if at all.

 

In addition,patent law outside the United States is uncertain and in many countriesintellectual property laws are undergoing review and revision. The laws of somecountries do not protect intellectual property rights to the same extent asdomestic laws. It may be necessary or useful for us to participate inopposition proceedings to determine the validity of our competitors’ patents orto defend the validity of any of our or our licensor’s future patents, whichcould result in substantial costs and would divert our efforts and attentionfrom other aspects of our business.

 

Technologieslicensed to us by others, or in-licensed technologies, are important to ourbusiness. In particular, we depend on certain technologies relating to tastebiology licensed from the Mount Sinai School of Medicine. In addition, we mayin the future acquire rights to additional technologies by licensing suchrights from existing licensors or from third parties. Such in-licenses may becostly. Also, we generally do not control the patent prosecution, maintenanceor enforcement of in-licensed technologies. Accordingly, we are unable to exercisethe same degree of control over this intellectual property as we do over ourinternally developed technologies. Moreover, some of our academic institutionlicensors, collaborators and scientific advisors have rights to publish 

 

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data and information towhich we have rights. If we cannot maintain the confidentiality of ourtechnologies and other confidential information in connection with ourcollaborations, our ability to protect our proprietary information or obtainpatent protection in the future may be impaired, which could have a significantadverse effect on our business, financial condition and results of operations.

 

***Many of the patentapplications we and our licensors have filed have not yet been substantivelyexamined and may not result in patents being issued.***

 

Many of the patentapplications filed by us and our licensors were filed recently with the UnitedStates Patent and Trademark Office and most have not been substantivelyexamined and may not result in patents being issued. It is difficult to predictwhether any of our or our licensors’ applications will ultimately be found tobe patentable or, if so, to predict the scope of any allowed claims. Inaddition, the disclosure in our or our licensors’ patent applications,particularly in respect of the utility of our claimed inventions, may not besufficient to meet the statutory requirements for patentability in all cases.As a result, it is difficult to predict whether any of our or our licensors’applications will be allowed, or, if so, to predict the scope of any allowedclaims or the enforceability of the patents. Even if enforceable, others may beable to design around any patents or develop similar technologies that are notwithin the scope of such patents. Our and our licensors’ patent applicationsmay not issue as patents that will provide us with any protection orcompetitive advantage.

 

***Disputes concerningthe infringement or misappropriation of our proprietary rights or the proprietaryrights of others could be time consuming and extremely costly and could delayour research and development efforts.***

 

Our commercialsuccess, if any, will be significantly harmed if we infringe the patent rightsof third parties or if we breach any license or other agreements that we haveentered into with regard to our technology or business.

 

We are aware ofother companies and academic institutions that have been performing research inthe areas of taste modulation and taste enhancers and aversive taste blockers.In particular, other companies and academic institutions have announced thatthey have conducted taste-receptor research and have published data on tastereceptor sequence information and taste receptors or filed patent applicationsor obtained patent protection on taste modulation or taste receptors and theiruses. To the extent any of these companies or academic institutions currentlyhave, or obtain in the future, broad patent claims, such patents could blockour ability to use various aspects of our discovery and development process andmight prevent us from developing or commercializing newly discovered tasteenhancers and aversive taste blockers or otherwise conducting our business. Inaddition, it is possible that some of the taste enhancers or aversive tasteblockers that are discovered using our technology may not be patentable or maybe covered by intellectual property of third parties.

 

With respect tothird-party patent rights in the area of the TRPM5 receptor specifically, weare aware of pending U.S. and foreign patent applications by competitors andothers that have claims directed to the TRPM5 receptor and/or methods of usingthe TRPM5 receptor to identify novel taste modulating compounds. Although thesepatent applications are currently undergoing examination by the U.S. Patent andTrademark Office, and it is possible that they will not be granted or will notbe granted with the current claims, it is also possible that patents will begranted on these applications with claims that are relevant to our current orfuture commercialization plans. To the extent we determine that we need alicense to these or other patents relating to the TRPM5 receptor and are unableto obtain such licenses on commercially reasonable terms or at all, we may berestricted in our ability to commercialize our own TRPM5 technologies.

 

We are notcurrently a party to any litigation, interference, opposition, protest,reexamination or any other potentially adverse governmental, ex parte orinter-party proceeding with regard to our patent or trademark positions.However, the life sciences and other technology industries are characterized byextensive litigation regarding patents and other intellectual property rights.Many life sciences and other technology companies have employed intellectualproperty litigation as a way to gain a competitive advantage. If we becomeinvolved in litigation, interference proceedings, oppositions, reexaminations,protests or other potentially adverse intellectual property proceedings as aresult of alleged infringement by us of the rights of others or as a result ofpriority of invention disputes with third parties, we might have to spendsignificant amounts of money, time and effort defending our position and we maynot be successful. In addition, any claims relating to the infringement of 

 

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third-party proprietaryrights or proprietary determinations, even if not meritorious, could result incostly litigation, lengthy governmental proceedings, divert management’sattention and resources, or require us to enter into royalty or licenseagreements that are not advantageous to us.

 

Should any personhave filed patent applications or obtained patents in the United States thatclaim inventions also claimed by us, we may have to participate in aninterference proceeding declared by the relevant patent regulatory agency todetermine priority of invention and, thus, the right to a patent for theseinventions in the United States. Such a proceeding could result in substantialcost to us even if the outcome is favorable. Even if successful on prioritygrounds, an interference action may result in loss of claims based onpatentability grounds raised in the interference action. Litigation, interferenceproceedings or other proceedings could divert management’s time and efforts.Even unsuccessful claims could result in significant legal fees and otherexpenses, diversion of management’s time and disruption in our business.Uncertainties resulting from initiation and continuation of any patentproceeding or related litigation could harm our ability to compete and couldhave a significant adverse effect on our business, financial condition andresults of operations.

 

An adverse rulingarising out of any intellectual property dispute, including an adverse decisionas to the priority of our inventions, could undercut or invalidate ourintellectual property position. An adverse ruling could also subject us tosignificant liability for damages, including possible treble damages, preventus from using technologies or developing products, or require us to negotiatelicenses to disputed rights from third parties. Although patent andintellectual property disputes in the technology area are often settled throughlicensing or similar arrangements, costs associated with these arrangements maybe substantial and could include license fees and ongoing royalties.Furthermore, necessary licenses may not be available to us on satisfactoryterms, if at all. Failure to obtain a license in such a case could have asignificant adverse effect on our business, financial condition and results ofoperations.

 

**RisksRelated to Our Fluctuating Operating Results, Possible Acquisitions andManagement of Growth**

 

***We expect that ourresults of operations will fluctuate from period to period, and thisfluctuation could cause our stock price to decline, causing investor losses.***

 

Our operatingresults have fluctuated in the past and are likely to vary significantly in thefuture based upon a number of factors, many of which we have little or nocontrol over. We operate in a highly dynamic industry and future results couldbe subject to significant fluctuations. These fluctuations could cause us tofail to meet or exceed financial expectations of securities analysts orinvestors, which could cause our stock price to decline rapidly andsignificantly. Revenue and expenses in future periods may be greater or lessthan revenue and expenses in the immediately preceding period or in the comparableperiod of the prior year. Therefore, period-to-period comparisons of ouroperating results are not necessarily a good indication of our futureperformance. Some of the factors that could cause our operating results tofluctuate include:

 

·                  our ability to discover and develop taste enhancers and aversive tasteblockers;

 

·                  our ability or the ability of our product discovery and developmentcollaborators to incorporate our taste enhancers and aversive taste blockersinto packaged food and beverage products and pharmaceutical products;

 

·                  our receipt of milestone payments in any particular period;

 

·                  the ability and willingness of collaborators to commercialize productsincorporating our taste enhancers and aversive taste blockers on expected timelines,or at all;

 

·                  our ability to enter into product discovery and developmentcollaborations and technology collaborations, or to extend the terms of anyexisting collaboration agreements, and our payment obligations, expectedrevenue and other terms of any other agreements of this type;

 

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

 

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·                  the demand for our future products and our collaborators’ productscontaining our taste enhancers or aversive taste blockers; and

 

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

 

***If we acquireproducts, technologies or other businesses, we will incur a variety of costs,may have integration difficulties and may experience numerous other risks thatcould adversely affect our business.***

 

To remaincompetitive, we may decide to acquire additional businesses, products andtechnologies. We currently have no commitments or agreements with respect to,and are not actively seeking, any material acquisitions. We have limitedexperience in identifying acquisition targets, successfully acquiring them andintegrating them into our current infrastructure. We may not be able tosuccessfully integrate any businesses, products, technologies or personnel thatwe might acquire in the future without a significant expenditure of operating,financial and management resources, if at all. In addition, future acquisitionscould require significant capital infusions and could involve many risks,including, but not limited to, the following:

 

·                  we may have to issue convertible debt or equity securities to completean acquisition, which would dilute our stockholders and could adversely affectthe market price of our common stock;

 

·                  an acquisition may negatively impact our results of operations becauseit may require us to incur large one-time charges to earnings, amortize orwrite down amounts related to goodwill and other intangible assets, or incur orassume substantial debt or liabilities, or it may cause adverse taxconsequences, substantial depreciation or deferred compensation charges;

 

·                  we may encounter difficulties in assimilating and integrating thebusiness, technologies, products, personnel or operations of companies that weacquire;

 

·                  certain acquisitions may disrupt our relationship with existingcollaborators who are competitive to the acquired business;

 

·                  acquisitions may require significant capital infusions and the acquiredbusinesses, products or technologies may not generate sufficient revenue tooffset acquisition costs;

 

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

 

·                  acquisitions may involve the entry into a geographic or business marketin which we have little or no prior experience; and

 

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

 

Any of theforegoing risks could have a significant adverse effect on our business,financial condition and results of operations.

 

***To the extent weenter markets outside of the United States, our business will be subject topolitical, economic, legal and social risks in those markets, which couldadversely affect our business.***

 

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

 

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·                  changes and limits in import and export controls;

 

·                  increases in custom duties and tariffs;

 

·                  changes in currency exchange rates;

 

·                  economic and political instability;

 

·                  changes in government regulations and laws;

 

·                  absence in some jurisdictions of effective laws to protect ourintellectual property rights; and

 

·                  currency transfer and other restrictions and regulations that may limitour ability to sell certain products or repatriate profits to the UnitedStates.

 

Any changesrelated to these and other factors could adversely affect our business to theextent we enter markets outside the United States.

 

***We may encounterdifficulties managing our growth, which could adversely affect our business.***

 

Our strategyincludes entering into and working on simultaneous taste enhancer and aversivetaste blocker discovery and development programs across multiple markets thatinclude both the food and beverage industry and the pharmaceutical industry. Weexpect to continue to grow to meet our strategic objectives. If our growthcontinues, it will continue to place a strain on us, our management and ourresources. Our ability to effectively manage our operations, growth and variousprojects requires us to continue to improve our operational, financial andmanagement controls, reporting systems and procedures and to attract and retainsufficient numbers of talented employees. We may not be able to successfullyimplement these tasks on a larger scale and, accordingly, we may not achieveour research, development and commercialization goals. If we fail to improveour operational, financial and management information systems, or fail toeffectively monitor or manage our new and future employees or our growth, ourbusiness would suffer significantly. In addition, no assurance can be made thatwe will be able to secure adequate facilities to house our staff, conduct ourresearch or achieve our business objectives.

 

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

 

***The sale of asignificant number of our shares of common stock in the public market coulddepress the market price of common stock.***

 

The sale of asignificant number of shares of our common stock in the public market couldharm the market price of our common stock. As additional shares of common stockhave become available for resale in the public market pursuant to theregistration statement and releases of lock-up agreements, the market supply ofshares of common stock has increased, which could decrease its market price.The number of shares that may be sold into the marketplace pursuant to theregistration statement is significant. We believe that such sales may severelydepress the market price of our common stock. In addition, some or all of theshares of common stock may be offered from time to time in the open marketpursuant to Rule 144 (or pursuant to an additional registration statement,if one is effective), and these sales may also have a depressive effect on themarket for the shares of common stock. In general, a person who is deemed to bean affiliate who has held shares for a period of six months may, upon filing ofa notification on Form 144 with the SEC, sell into the market common stockin an amount up to the greater of 1% of the outstanding shares or the averageweekly number of shares sold in the last four weeks before such sale. Suchsales may be repeated once each three months. A non-affiliate holdingrestricted shares may sell such shares without restrictions after they havebeen held six months, subject only to the current public information requirement.After an additional six months have lapsed, a non-affiliate may sell suchshares without any restrictions.

 

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***The price of ourcommon stock is expected to be volatile.***

 

The market priceof our common stock, and the market prices for securities of biotechnologycompanies in general, are expected to be highly volatile. The followingfactors, in addition to other risk factors described in this Quarterly Reporton Form 10-Q, and the potentially low volume of trades in our commonstock, 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 theCompany or its competitors;

 

·                  developments concerning any research and development, clinical trials,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/orlitigation matters;

 

·                  changes in financial estimates by securities analysts;

 

·                  conditions or trends in bio-pharmaceutical or other healthcareindustries;

 

·                  regulatory developments in the United States and other countries;

 

·                  changes in the economic performance and/or market valuations of otherbiotechnology and flavor companies;

 

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

 

·                  additions or departures of key personnel;

 

·                  global unrest, terrorist activities, and economic and other externalfactors; and

 

·                  sales or other transactions involving common stock.

 

The stock marketin general has recently experienced relatively large price and volumefluctuations. In particular, market prices of securities of biotechnologycompanies have experienced fluctuations that often have been unrelated ordisproportionate to the operating results of these companies. Continued marketfluctuations could result in extreme volatility in the price of our commonstock, which could cause a decline in the value of our common stock. Investorsshould also be aware that price volatility may be worse if the trading volumeof our common stock is low.

 

***We do not expect topay cash dividends in the foreseeable future.***

 

We currentlyintend to retain any future earnings to finance the growth and development ofour business; therefore, we do not expect to pay any cash dividends in theforeseeable future. Any future dividends will depend on our earnings, if any,and our financial requirements.

 

***Because Redpointbecame a public company as a result of the Reverse Merger and ReincorporationMerger and not through a traditional underwritten initial public offering ofsecurities, the Company may not attract the attention of major brokerage firms.Additionally, as a public company, we incur substantial expenses.***

 

As a result of theReverse Merger and Reincorporation Merger, Redpoint became a publicly-tradedcompany and, accordingly, will be subject to the information and reportingrequirements of the United States 

 

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securities laws. Thecosts to public companies of preparing and filing annual and quarterly reports,proxy statements and other information with the SEC and furnishing auditedreports to stockholders have caused the Company’s expenses to be higher thanthey would be if it were a privately-held company. In addition, the Companywill incur substantial expenses in connection with the preparation of theregistration statement and related documents with respect to the registrationof the common stock issued in the Private Placement and the Reverse Merger.Security analysts of major brokerage firms may not provide coverage of theCompany. No assurance can be given that brokerage firms will want to conductany secondary offerings on behalf of the Company in the future.

 

***We have discretionon how we use any proceeds we receive from the exercise of warrants andoptions.***

 

Our management hasbroad discretion on how to use and spend any proceeds we receive as a result ofour security holders exercising their warrants and options. Our stockholdersmay not agree with our decision on how to use such proceeds. If we fail tospend the proceeds effectively, our business and financial condition could beharmed and we may need to seek additional financing sooner than expected.

 

***It is notanticipated that there will be an active public market for shares of our commonstock in the near term and stockholders may have to hold their shares of commonstock for an indefinite period of time. Stockholders may be unable to resell alarge number of their shares of common stock within a short time frame or at orabove their purchase price.***

 

To have purchasedshares of our common stock and warrants to purchase common stock in the PrivatePlacement, an investor must have represented that it was acquiring such sharesand warrants for investment and not with a view to distribution or resale, thatthe investor understood that neither the common stock nor the warrants arereadily transferable and, in any event, that it must bear the economic risk ofan investment in the common stock for an indefinite period of time.

 

***If we do not complywith registration rights granted to certain holders of our restrictedsecurities, we may be required to pay damages to such holders.***

 

We filed a “resale”registration statement with the SEC covering all shares of common stock issuedin connection with the Private Placement, including shares of common stock intowhich any warrants are exercisable, within 60 days after the final closingof the Private Placement. Such registration statement has been declaredeffective by the SEC. We will use our best efforts to have such “resale”registration statement maintain its effectiveness until such time as allsecurities registered under the registration statement have been sold or areotherwise able to be sold under Rule 144 of the Securities Act withoutregard to volume limitations, whichever is earlier. We cannot assure you thatwe will be able to obtain or maintain such effective registration statement.

 

***Our common stockmay be considered “a penny stock” and may be difficult to sell.***

 

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

 

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***Substantial futureissuances of our common stock could depress our stock price.***

 

The market pricefor our common stock could decline, perhaps significantly, as a result ofissuances of a large number of shares of our common stock in the public marketor even the perception that such issuances could occur. Under our RegistrationRights Agreement, certain holders of our outstanding shares of our common stockand other securities have demand and Form S-3 registration rights. Salesof a substantial number of these shares of common stock, or the perception thatholders of a large number of shares intend to sell their shares, could depressthe market price of our common stock. The existence of such registration rightscould also make it more difficult for us to raise funds through futureofferings of our equity securities.

 

***Our stockholdersmay experience additional dilution upon the exercise of warrants or options.***

 

As of the finalclosing of the Private Placement, we issued warrants to investors to acquireapproximately 10.2 million shares of common stock and warrants to theplacement agents to acquire approximately 3.6 million shares of commonstock in the Private Placement. In addition, there are 17.2 million sharesof common stock underlying options that have been or may be granted pursuant tothe Redpoint Bio Corporation 2007 Omnibus Equity Compensation Plan. If thesewarrants are exercised or converted, or if the options are exercised, you mayexperience dilution in the net tangible book value of our common stock.

 

***Directors and officersof the Company have a high concentration of our common stock ownership.***

 

Based on theaggregate number of shares of our common stock that are outstanding as of March 31,2008, our officers and directors beneficially own approximately 36.10% of ouroutstanding common stock. Such a high level of ownership by such persons mayhave a significant effect in delaying, deferring or preventing any potentialchange in control of the Company. Additionally, as a result of their high levelof ownership, our officers and directors might be able to strongly influencethe actions of the Company’s board of directors, and the outcome of actionsbrought to our stockholders for approval. Such a high level of ownership mayadversely affect the voting and other rights of our stockholders.

 

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

 

None.

 

**ITEM 3.  DEFAULTS UPON SENIOR SECURITIES**

 

Not applicable.

 

**ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**

 

None.

 

**ITEM 6.  EXHIBITS**

 
| **Exhibit No****.** | ** ** | ** **                                                                                                                                             |
|--------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------|
| 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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**SIGNATURES**

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the Registrant has dulycaused this report to be signed on its behalf by the undersigned, thereuntoduly authorized.

 
|              | REDPOINT  BIO CORPORATION                         |
|-------------------|---------------------------------------------------|
|              |                                              |
| May 9,  2008 | By:                                               | /s/  F. Raymond Salemme |
|              | F.  Raymond Salemme                               |
|              | President  and Chief Executive Officer            |
|              | (Principal  Executive Officer)                    |
|              |                                              |
| May 9,  2008 | By:                                               | /s/  Scott M. Horvitz |
|              | Scott  M. Horvitz                                 |
|              | Chief  Financial Officer, Treasurer and Secretary |
|              | (Principal  Financial and Accounting Officer)     |
|                   |                                                   |  |  |

 

38

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**EXHIBIT INDEX**

 
| **Exhibit No.** | ** ** | ** **                                                                                                                                             |
|----------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------|
|                 |       |                                                                                                                                                   |
| 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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