Table of Contents

** **

 

** **

**UnitedStates**

**SECURITIESAND 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 thequarterly period ended September 30, 2010**

 

**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**

 

**RedpointBio Corporation**

(Exact name of Registrant asspecified in its charter)

 

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

 

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

(Address of principalexecutive offices) (Zip Code)

 

**(609)637-9700**

(Registrant’s TelephoneNumber, Including Area Code)

 

 

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

 

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

 

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

 

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

 

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

 

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

 

The number of shares of the registrant’s common stockoutstanding as of November 11, 2010 was 79,846,893.

 

 

 

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**REDPOINTBIO CORPORATION**

 
| ** **        | ** **                                                                                  | **Page** |
|-------------------|---------------------------------------------------------------------------------------------|----------|
| **PART I:**  | **FINANCIAL INFORMATION**                                                                   | 1        |
|              |                                                                                        |     |
| ITEM 1.           | FINANCIAL STATEMENTS (unaudited):                                                           | 1        |
|              |                                                                                        |     |
|              | Balance Sheets                                                                              | 1        |
|              |                                                                                        |     |
|              | Statements of Operations                                                                    | 2        |
|              |                                                                                        |     |
|              | Statements of Cash Flows                                                                    | 3        |
|              |                                                                                        |     |
|              | Notes to Financial Statements                                                               | 4        |
|              |                                                                                        |     |
| ITEM  2.          | MANAGEMENT’S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 15       |
|              |                                                                                        |     |
| ITEM  3.          | QUANTITATIVE  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                 | 22       |
|              |                                                                                        |     |
| ITEM  4.          | CONTROLS AND  PROCEDURES                                                                    | 23       |
|              |                                                                                        |     |
| **PART II:** | **OTHER INFORMATION**                                                                       | 24       |
|              |                                                                                        |     |
| ITEM 1.           | LEGAL PROCEEDINGS                                                                           | 24       |
|              |                                                                                        |     |
| ITEM 1A.          | RISK FACTORS                                                                                | 24       |
|              |                                                                                        |     |
| ITEM  2.          | UNREGISTERED  SALES OF EQUITY SECURITIES AND USE OF PROCEEDS                                | 41       |
|              |                                                                                        |     |
| ITEM  3.          | DEFAULTS  UPON SENIOR SECURITIES                                                            | 41       |
|              |                                                                                        |     |
| ITEM 6.           | EXHIBITS                                                                                    | 41       |
|              |                                                                                        |     |
| ** **        | **SIGNATURES**                                                                              | 42       |

 

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**PART I.  FINANCIALINFORMATION.**

 

**ITEM 1.  FINANCIALSTATEMENTS.**

 

**REDPOINT BIO CORPORATION**

**(A DEVELOPMENT-STAGE ENTERPRISE)**

**BALANCE SHEETS**

**(UNAUDITED)**

 
| ** **                                                                                                                                                                                                    | ** ** | **December 31,** | ** ** | **September 30,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|------------------------|------------|
| ** **                                                                                                                                                                                                    | ** ** | **2009**              | ** ** | **2010**               | ** ** |
| **Assets**                                                                                                                                                                                                    |       |                  |       |                   |       |
| Current assets:                                                                                                                                                                                               |       |                  |       |                   |       |
| Cash and cash equivalents                                                                                                                                                                                     |       | $                     | 5,557,367  |                   | $          | 1,636,771 |   |
| Prepaid expenses and other current assets                                                                                                                                                                     |       | 176,464               |       | 85,379                 |       |
| Total current assets                                                                                                                                                                                          |       | 5,733,831             |       | 1,722,150              |       |
| Property and equipment, net                                                                                                                                                                                   |       | 726,730               |       | 430,006                |       |
| Other assets                                                                                                                                                                                                  |       | 314,014               |       | 304,178                |       |
| Total assets                                                                                                                                                                                                  |       | $                     | 6,774,575  |                   | $          | 2,456,334 |   |
| **Liabilities  and Stockholders’ Equity**                                                                                                                                                                |       |                  |       |                   |       |
| Current liabilities:                                                                                                                                                                                          |       |                  |       |                   |       |
| Current portion of long-term debt                                                                                                                                                                             |       | $                     | 374,110    |                   | $          | 409,554 |   |
| Accounts payable                                                                                                                                                                                              |       | 658,561               |       | 827,461                |       |
| Accrued expenses                                                                                                                                                                                              |       | 151,893               |       | 172,348                |       |
| Accrued compensation                                                                                                                                                                                          |       | 37,702                |       | 243,815                |       |
| Total current liabilities                                                                                                                                                                                     |       | 1,222,266             |       | 1,653,178              |       |
| Long-term debt                                                                                                                                                                                                |       | 773,843               |       | 462,090                |       |
| Total liabilities                                                                                                                                                                                             |       | 1,996,109             |       | 2,115,268              |       |
| Commitments (Note 9)                                                                                                                                                                                          |       |                  |       |                   |       |
| Stockholders’ equity:                                                                                                                                                                                    |       |                  |       |                   |       |
| Preferred stock; 10,000,000 shares authorized,  $0.0001 par value, none issued                                                                                                                                |       | —                |       | —                 |       |
| Common stock; authorized 150,000,000 shares;  $0.0001 par value, issued and outstanding 79,838,693 shares at  December 31, 2009 and issued and outstanding 79,846,893 shares at  September 30, 2010 |       | 7,984                 |       | 7,985                  |       |
| Additional paid-in-capital                                                                                                                                                                                    |       | 56,103,784            |       | 56,541,057             |       |
| Deficit accumulated during development stage                                                                                                                                                                  |       | (51,333,302           | )          | (56,207,976            | )          |
| Total stockholders’ equity                                                                                                                                                                               |       | 4,778,466             |       | 341,066                |       |
| Total liabilities and stockholders’ equity                                                                                                                                                               |       | $                     | 6,774,575  |                   | $          | 2,456,334 |   |

 

See accompanying notes to the unaudited financial statements.

 

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**REDPOINT BIO CORPORATION**

**(A DEVELOPMENT-STAGE ENTERPRISE)**

**STATEMENTS OF OPERATIONS**

**(UNAUDITED)**

 
| ** **                                  | ** ** | **Three Months Ended******** September, 30** | ** ** | **Nine Months Ended********September 30,** | ** ** | **August 16,  1995 (Inception) to** | ** ** |
|---------------------------------------------|------------|------------------------------------------------------------------|------------|-----------------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                  | ** ** | **2009**                                                         | ** ** | **2010**                                                  | ** ** | **2009**                                           | ** ** | **2010** | ** ** | **September 30, 2010** | ** ** |
| Research, grant and license revenue         |       | $                                                                | —     |                                                      | $          | —                                             |       | $ | 1,868,428 |   | $ | 500,000 |   | $ | 12,830,002 |   |
| Operating expenses:                         |       |                                                             |       |                                                      |       |                                               |       |   |   |   |   |
| Research and development                    |       | 1,192,348                                                        |       | 847,188                                                   |       | 4,599,425                                          |       | 2,467,451 |   | 36,535,514 |   |
| General and administrative                  |       | 1,176,584                                                        |       | 894,254                                                   |       | 4,202,706                                          |       | 2,907,262 |   | 28,070,086 |   |
| Total operating expenses                    |       | 2,368,932                                                        |       | 1,741,442                                                 |       | 8,802,131                                          |       | 5,374,713 |   | 64,605,600 |   |
| Operating loss                              |       | (2,368,932                                                       | )          | (1,741,442                                                | )          | (6,933,703                                         | )          | (4,874,713 | ) | (51,775,598 | ) |
| Interest income                             |       | 23,534                                                           |       | 360                                                       |       | 125,726                                            |       | 10,920 |   | 1,671,538 |   |
| Interest expense                            |       | (61,246                                                          | )          | (31,476                                                   | )          | (179,793                                           | )          | (112,187 | ) | (3,778,311 | ) |
| Loss before income taxes                    |       | (2,406,644                                                       | )          | (1,772,558                                                | )          | (6,987,770                                         | )          | (4,975,980 | ) | (53,882,371 | ) |
| Income tax benefit                          |       | —                                                           |       | —                                                    |       | —                                             |       | 101,306 |   | 1,087,284 |   |
| Net loss                                    |       | (2,406,644                                                       | )          | (1,772,558                                                | )          | (6,987,770                                         | )          | (4,874,674 | ) | $ | (52,795,087 | ) |
| Basic and diluted net loss per common share |       | $                                                                | (0.03      | )                                                         | $          | (0.02                                              | )          | $ | (0.09 | ) | $ | (0.06 | ) |   |   |
| Weighted average of shares outstanding      |       | 79,768,912                                                       |       | 79,842,436                                                |       | 79,587,884                                         |       | 79,839,955 |   |   |   |

 

See accompanying notes to the unaudited financial statements.

 

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**REDPOINTBIO CORPORATION**

**(ADEVELOPMENT-STAGE ENTERPRISE)**

**STATEMENTSOF CASH FLOWS**

**(UNAUDITED)**

 
| ** **                                                                   | ** ** | **Nine Months Ended  September 30,** | ** ** | **August 16, 1995  (Inception) to  September 30,** | ** ** |
|------------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|------------------------------------------------------------------------|------------|
| ** **                                                                   | ** ** | **2009**                                            | ** ** | **2010**                                                               | ** ** | **2010** | ** ** |
| Cash flows from operating activities:                                        |       |                                                |       |                                                                   |       |   |   |
| Net loss                                                                     |       | $                                                   | (6,987,770 | )                                                                      | $          | (4,874,674 | ) | $ | (52,795,087 | ) |
| Adjustments to reconcile net loss to net cash used  in operating activities: |       |                                                |       |                                                                   |       |   |   |
| Depreciation                                                                 |       | 410,435                                             |       | 296,724                                                                |       | 2,950,196 |   |
| Amortization of discounts and premiums on  marketable securities             |       | 11,619                                              |       | —                                                                 |       | (473,654 | ) |
| Options, warrants and stock issued for services  and dilution provisions     |       | 533,472                                             |       | 436,700                                                                |       | 4,578,877 |   |
| Beneficial conversion feature                                                |       | —                                              |       | —                                                                 |       | 1,228,565 |   |
| Amortization of discount on convertible notes                                |       | —                                              |       | —                                                                 |       | 899,935 |   |
| Amortization of deferred financing costs                                     |       | 12,965                                              |       | 9,836                                                                  |       | 171,080 |   |
| Debt inducement charge                                                       |       | —                                              |       | —                                                                 |       | 361,598 |   |
| Interest expense on convertible notes                                        |       | —                                              |       | —                                                                 |       | 136,075 |   |
| Changes in assets and liabilities:                                           |       |                                                |       |                                                                   |       |   |   |
| Accounts receivable                                                          |       | 139,095                                             |       | —                                                                 |       | — |   |
| Prepaid expenses and other assets                                            |       | (8,023                                              | )          | 91,085                                                                 |       | (671,941 | ) |
| Accounts payable                                                             |       | (218,291                                            | )          | 168,900                                                                |       | 1,135,917 |   |
| Accrued expenses and accrued compensation                                    |       | 232,733                                             |       | 226,568                                                                |       | 547,773 |   |
| Deferred revenue                                                             |       | (649,902                                            | )          | —                                                                 |       | — |   |
| Net cash (used in) operating activities                                      |       | (6,523,667                                          | )          | (3,644,861                                                             | )          | (41,930,666 | ) |
| Cash flows from investing activities:                                        |       |                                                |       |                                                                   |       |   |   |
| Maturity and sale of marketable securities                                   |       | 13,740,000                                          |       | —                                                                 |       | 46,986,994 |   |
| Purchases of marketable securities                                           |       | (3,019,048                                          | )          | —                                                                 |       | (46,513,341 | ) |
| Purchases of property and equipment                                          |       | (13,939                                             | )          | —                                                                 |       | (3,380,219 | ) |
| Net cash provided by (used in) investing  activities                         |       | 10,707,013                                          |       | —                                                                 |       | (2,906,566 | ) |
| Cash flows from financing activities:                                        |       |                                                |       |                                                                   |       |   |   |
| Proceeds from issuance of long-term debt                                     |       | —                                              |       | —                                                                 |       | 3,614,710 |   |
| Net proceeds from convertible notes                                          |       | —                                              |       | —                                                                 |       | 5,253,811 |   |
| Repayment of debt                                                            |       | (408,561                                            | )          | (276,309                                                               | )          | (2,795,523 | ) |
| Net proceeds from issuance of preferred stock                                |       | —                                              |       | —                                                                 |       | 11,883,447 |   |
| Net proceeds from issuance of common stock and  warrants                     |       | —                                              |       | —                                                                 |       | 28,624,603 |   |
| Proceeds from exercise of common stock options and  warrants                 |       | 51,424                                              |       | 574                                                                    |       | 176,076 |   |
| Common stock reacquired                                                      |       | —                                              |       | —                                                                 |       | (283,121 | ) |
| Net cash provided by (used in) financing  activities                         |       | (357,137                                            | )          | (275,735                                                               | )          | 46,474,003 |   |
| Net increase (decrease) in cash and cash  equivalents                        |       | 3,826,209                                           |       | (3,920,596                                                             | )          | 1,636,771 |   |
| Cash and cash equivalents, beginning of period                               |       | 3,130,561                                           |       | 5,557,367                                                              |       | — |   |
| Cash and cash equivalents, end of period                                     |       | $                                                   | 6,956,770  |                                                                   | $          | 1,636,771 |   | $ | 1,636,771 |   |
| Supplemental cash flow disclosures:                                          |       |                                                |       |                                                                   |       |   |   |
| Noncash investing and financing activities:                                  |       |                                                |       |                                                                   |       |   |   |
| Conversion of notes payable and accrued interest  to preferred stock         |       | —                                              |       | —                                                                 |       | 1,446,395 |   |
| Conversion of notes payable and accrued interest  to common stock            |       | —                                              |       | —                                                                 |       | 3,896,001 |   |
| Conversion of preferred and junior preferred stock  to common stock          |       | —                                              |       | —                                                                 |       | 16,940,297 |   |
| Accretion of preferred stock                                                 |       | —                                              |       | —                                                                 |       | 3,248,857 |   |
| Warrants issued in connection with notes payable                             |       | —                                              |       | —                                                                 |       | 1,258,642 |   |
| Cash paid for interest                                                       |       | 132,880                                             |       | 93,450                                                                 |       | 763,443 |   |

 

See accompanying notes to the unaudited financial statements.

 

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**REDPOINTBIO CORPORATION**

**(ADEVELOPMENT-STAGE ENTERPRISE)**

**NOTES TOFINANCIAL STATEMENTS**

**(UNAUDITED)**

 

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

 

*Descriptionof the Business and Liquidity*

 

RedpointBio (“Redpoint” or the “Company”) is a development stage biotechnology companyfocused on the development of healthier foods and beverages and new approachesto the treatment of diabetes and obesity.

 

TheCompany is leveraging recent discoveries in the molecular biology of taste todiscover and develop novel taste modulators for the food and beverageindustries. The Company’s food and beverage program has been focused onidentifying novel flavor modifiers that improve the taste of existingingredients, enabling the development of better-tasting and more healthfulfoods and beverages. In June 2009, the Company announced that it hadidentified an all-natural sweetness enhancer, RP44. In June 2010, theCompany entered into a license and commercialization agreement withInternational Flavors & Fragrances Inc. (“IFF”), a global leaderin the food and beverage industry, covering the commercialization of RP44.

 

TheCompany is also pursuing a pharmaceutical discovery program for the treatmentof diabetes and obesity. Redpoint’s research in diabetes and obesity stems fromthe observation that taste signaling circuits responsible for sensing sweet,savory, and bitter compounds on the tongue are also found in the pancreas andgastrointestinal tract, suggesting a potential role in the regulation ofmetabolism and satiety. The Company is actively seeking a research anddevelopment collaboration with major pharmaceutical companies for the furtherdevelopment of this discovery program.

 

Sinceits inception in 1995, the Company has incurred losses and negative cash flowsfrom operations, and such losses have continued subsequent toSeptember 30, 2010. As of September 30, 2010, the Company had anaccumulated deficit of $56.2 million and anticipates incurring additionallosses for the foreseeable future. The Company will need to spend significantresources over the next several years to enhance its technologies and to fundresearch and development of its pipeline of potential products. ThroughSeptember 30, 2010, substantially all of the Company’s revenue has beenderived from corporate collaborations, license agreements, and governmentgrants. The Company expects that substantially all of its cash-flow for theforeseeable future will come from corporate collaborations, license agreementsand government grants. There can be no assurance that the Company will enterinto any future corporate collaborations or license agreements. In order toachieve profitability, the Company must continue to develop products andtechnologies that can be commercialized by the Company or through futurecollaborations.

 

Recognizingthe difficult financing environment that has significantly impacted thebiotechnology sector and seeking ways to conserve cash, during the year endedDecember 31, 2009, the Company announced two restructurings which reducedits workforce by approximately 60%.  Asof November 12, 2010, the Company has 11 full time employees. TheCompany may need to make further reductions in its expenses. Redpoint hadapproximately $1.6 million in cash and cash equivalents at September 30,2010. In addition, in October 2010, RP44, the Company’s all-naturalsweetness enhancer, was determined to be Generally Recognized As Safe (GRAS),triggering a $0.5 million milestone payment which is due to the Company inconnection with its June 2010 license agreement with IFF. Additionally,Redpoint is in the process of selling a portion of its New Jersey State netoperating loss carryforwards and in November, the Company received notificationthat its diabetes program had been approved for a grant in the amount ofapproximately $0.25 million in connection with the Qualifying TherapeuticDiscovery Project Program under section 48D of the Internal Revenue Code. TheCompany believes that its current capital resources, and the amounts expectedto be received from the aforementioned milestone payment and governmentprograms, are sufficient to meet its operating and capital requirements throughApril 2011, which raises substantial doubt about its ability to continueas a going concern. The accompanying financial statements do not include anyadjustments that might result from the outcome of this uncertainty.  In addition to the recently announcedagreement with IFF, the Company is actively seeking corporate collaborationsand license agreements from various strategic partners to enhance the Company’sliquidity position.

 

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TheCompany is subject to those risks associated with any biotechnology companythat has substantial 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, additionalcorporate collaborations, equity and/or debt financing will be required before April 2011.There is no assurance that such collaborations or financing will be availableto the Company as needed, and as a result, it may need to pursue otherstrategic alternatives.  Failure tosuccessfully address ongoing liquidity requirements will have a material adverseeffect on our business.  If we are unableto obtain additional capital on acceptable terms when needed, we may berequired to take actions that harm our business and our ability to achieve cashflow in the future, including possibly the surrender of our rights to sometechnologies or product opportunities, delaying our clinical trials orcurtailing or ceasing operations.

 

*Basisof Presentation*

 

Theaccompanying unaudited financial statements of the Company have been preparedin accordance with generally accepted accounting principles for interimfinancial information and pursuant to the rules and regulations of theSecurities and Exchange Commission, referred to herein as the SEC. Accordingly,they do not include all of the information and footnotes required by generallyaccepted accounting principles for complete financial statements.

 

Inthe opinion of management, all adjustments (consisting of normal recurringadjustments) considered necessary for a fair presentation have been included(See Note 2 for discussion of the impact of the Reverse Merger (as definedbelow)).  Operating results for the three and nine months endedSeptember 30, 2010 are not necessarily indicative of the results that maybe expected for the year ending December 31, 2010.

 

Forfurther information, refer to the 2009 financial statements and footnotesthereto of Redpoint included in the Company’s Annual Report on Form 10-Kfor the year ended December 31, 2009.

 

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

 

*Completionof Merger*

 

RobcorProperties, Inc., a Florida corporation (“Robcor”), and its newly-formedsubsidiary, Robcor Acquisition Corp., a Delaware corporation (“Merger Sub”)entered into an Agreement and Plan of Merger (the “Merger Agreement”), dated asof March 12, 2007, by and among, Redpoint, formerly a privately-heldDelaware corporation, on the one hand, and Robcor, Merger Sub, Robcor LLC, aKentucky limited liability company and wholly-owned subsidiary of Robcor (“RobcorLLC”) and Halter Financial Investments, L.P., a Texas limited partnership (“Halter”),and Michael Heitz (“Heitz”), as stockholders of Robcor, on the otherhand.  Pursuant to the Merger Agreement, Merger Sub, which Robcor hadincorporated in the state of Delaware for the purpose of completing thetransaction, merged into Redpoint (the “Reverse Merger”) on March 12, 2007(the “Closing” or the “Closing Date”) with Redpoint continuing as the survivingentity in the Reverse Merger.  As a result of the Reverse Merger, Redpointbecame a wholly-owned subsidiary of Robcor.  In connection with theReverse Merger, each share of capital stock of Redpoint was converted into2.7820 shares of common stock of Robcor and all of Redpoint’s convertiblepromissory notes were converted into shares of common stock of Robcor.

 

Redpointwas deemed 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 Reverse Merger, Redpoint issued 1,391,000shares of common stock to Robcor shareholders which have been treated asissuance costs in connection with the Private Placement.

 

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*PrivatePlacement*

 

Concurrentlywith the 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.

 

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

 

OnApril 6, 2007, Robcor sold an additional 16.1 million shares of commonstock and warrants to purchase 4.0 million shares of common stock whichresulted in net proceeds of approximately $11.3 million.  Inconnection with the April closing, warrants to purchase an additional 1.6million shares of common stock were issued to the placement agents.

 

*ReincorporationMerger*

 

OnJune 15, 2007, Robcor was merged with and into Redpoint, its wholly-ownedsubsidiary, with Redpoint being the surviving corporation pursuant to theAgreement and Plan of Merger dated May 3, 2007.  As a result of themerger, the Company’s state of incorporation changed from Florida to Delaware.

 

Inconnection with the reincorporation merger, the authorized number of shares ofcommon stock was decreased from 1,000,000,000 shares of common stock, no par valueper share, to 150,000,000 shares of common stock, $0.0001 par value per share,and the authorized number of shares of preferred stock was decreased from20,000,000 shares of preferred stock, no par value per share, to 10,000,000shares of preferred stock, $0.0001 par value per share.  The Company’sshare data and capital stock have been retrospectively adjusted for all periodspresented to reflect the reincorporation merger.

 

Inaddition, the maximum number of shares of common stock reserved for issuanceunder the Company’s 2007 Omnibus Equity Compensation Plan was increased from13,511,562 to 17,644,267 shares.

 

**3.  Summary of Significant Accounting Policies**

 

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

 

Thepreparation of financial statements in conformity with U.S. generally acceptedaccounting principles requires management to make estimates and assumptionsthat affect the reported amounts of assets and liabilities and disclosure ofcontingent assets and liabilities at the date of the financial statements andthe reported amounts of revenues and expenses during the reporting period.Actual results could differ from such estimates.  Illiquid credit markets,volatile equity, and declines in consumer spending have combined to increasethe uncertainty inherent in such estimates and assumptions.  As futureevents and their effects cannot be determined with precision, actual resultscould differ significantly from these estimates.  Changes in thoseestimates resulting from continuing changes in the economic environment will bereflected in the financial statements in those future periods.

 

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

 

TheCompany considers all highly liquid investments that have original maturitiesof three months or less when acquired to be cash equivalents.  As of December 31,2009 and September 30, 2010, cash and cash equivalents include amountsinvested in money market accounts and government sponsored enterprise debtsecurities.

 

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

 

Financialinstruments that potentially subject the Company to concentrations of creditrisk consist of cash equivalents.  TheCompany has established guidelines relating to diversification and maturitiesthat allows the Company to manage risk.

 

***(d) Revenue Recognition***

 

Revenuefrom corporate collaborations and licensing agreements consists of up-frontfees, 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.

 

Multipleelement arrangements are analyzed to determine whether the deliverables, whichoften include license and performance obligations, such as research anddevelopment services, can be separated or whether they must be accounted for asa single unit of accounting. If the fair value of the undelivered performanceobligations can be determined, such obligations would then be accounted forseparately as performed. However, if the elements are considered to either(i) not have stand-alone value, or (ii) have standalone value but thefair value of any of the undelivered performance obligations cannot bedetermined, the arrangement would then be accounted for as a single unit ofaccounting and all of the payments recognized as revenue over the estimatedperiod 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*

 

Ourcollaboration agreements may also contain substantive milestone payments thatare recognized upon achievement of the milestone only if all of the followingconditions are met:

 

·                  the milestone payments are non-refundable;

 

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

 

·                  substantive effort is involved in achievingthe milestone;

 

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

 

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

 

Determinationas to 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*

 

Reimbursementof research and development costs is recognized as revenue, provided theamounts are fixed and determinable, and collection of the related receivable isreasonably assured.

 

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

 

Propertyand equipment are recorded at cost and depreciated on a straight-line basisover their estimated useful lives. The Company uses a life of four to fiveyears for laboratory equipment, three to seven years for office equipment andfurniture, and the lesser of the useful life or the remaining life of theunderlying facility lease for leasehold improvements. Expenditures for repairsand maintenance 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.

 

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

 

Researchand development costs, including those incurred in relation to the Company’scollaborative agreements, are charged to expense as incurred. These expensesinclude internal research and development as well as amounts paid to thirdparties to conduct research on the Company’s behalf. Costs incurred inobtaining technology licenses are charged immediately to research anddevelopment expense if the technology licensed has not reached technologicalfeasibility and has no alternative future uses.

 

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

 

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

 

***(h) Income Taxes***

 

Incometaxes are accounted for under the asset-and-liability method. Deferred taxassets and liabilities are recognized for the future tax consequencesattributable to differences between the financial statement carrying amounts ofexisting assets and liabilities and their respective tax bases and operatingloss and tax credit carryforwards. Deferred tax assets and liabilities aremeasured using enacted tax rates expected to apply to taxable income in theyears in which those temporary differences are expected to be recovered orsettled. The effect on deferred tax assets and liabilities of a change in taxrates is recognized in income in the period that includes the enactment date.

 

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

 

TheCompany recognizes compensation cost for stock-based awards to employees andnonemployee board members based on the grant-date fair value of the awards overthe period during which an award holder is required to provide service inexchange for the award. No compensation cost is recognized for awards for whichthe award holder does not render the requisite service.

 

Thefair value of stock options is determined using the Black Scholesoption-pricing model and is recognized as expense over the requisite serviceperiod using the straight-line method.

 

Tosatisfy the exercise of options, the Company plans to issue new shares ratherthan purchase shares on the open market.

 

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

 

Basicnet loss per common share is computed by dividing the net loss allocable tocommon stockholders by the weighted average number of shares of common stockoutstanding for the period. Diluted net loss per common share is computed bydividing net loss allocable to common stockholders by the sum of theweighted-average 

 

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numberof common shares outstanding for the period and the number of additional sharesthat would have been outstanding if dilutive potential common shares had beenissued.  Stock options and warrants to purchase an aggregate of 13,255,073and 22,903,360 common shares were excluded from our computation of diluted netloss per common share for the three and nine months ended September 30,2010 and 2009, respectively.  In all periods presented, our diluted netloss per common share is equal to basic net loss per common share becausegiving effect in the computation of diluted net loss per common share to theexercise of outstanding options and warrants would have been antidilutive.

 

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

 

Thefair value of our financial instruments is the amount for which the instrumentcould be exchanged in a current transaction between willing parties. As ofDecember 31, 2009 and September 30, 2010, the carrying values of cashand cash equivalents, 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.

 

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

 

InJanuary 2010, the Financial Accounting Standards Board (“FASB”) issuedguidance that amends Accounting Standards Codification Topic 820, Fair ValueMeasurements and Disclosures, that requires reporting entities to make newdisclosures about recurring or nonrecurring fair-value measurements includingsignificant transfers into and out of Level 1 and Level 2 fair-valuemeasurements and information about purchases, sales, issuances, and settlementson a gross basis in the reconciliation of Level 3 fair-value measurements. Thisguidance also clarifies existing fair-value measurement disclosure guidanceabout the level of disaggregation, inputs, and valuation techniques. Except forthe detailed Level 3 roll forward disclosures, the guidance was effective forreporting periods beginning after December 15, 2009 and did not have animpact on our interim financial statements.

 

InOctober 2009, the FASB issued accounting guidance related to revenuerecognition for transactions with multiple deliverables, which impacts thedetermination of when the individual deliverables included in amultiple-element arrangement may be treated as separate units ofaccounting.  This guidance is effectivefor us beginning on January 1, 2011. We are currently evaluating the effect this guidance will have on ourfinancial statements.

 

***(m) Comprehensive Loss***

 

Weclassify items of other comprehensive income (loss) by their nature anddisclosure of the accumulated balance of other comprehensive income (loss)separately from accumulated deficit and additional paid-in capital in thestockholders’ equity section of our balance sheet.  Other comprehensiveincome (loss) consisted of unrealized gains and losses on marketable securitiesfor the three and nine months ended September 30, 2009.  For thethree and nine months ended September 30, 2009 and 2010, comprehensiveloss was:

 
| ** **                        | ** ** | **Three Months Ended September 30,** | ** ** | **Nine Months Ended September 30,** | ** ** |
|-----------------------------------|------------|----------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                        | ** ** | **2009**                                                 | ** ** | **2010**                                                | ** ** | **2009** | ** ** | **2010** | ** ** |
| Net Loss                          |       | $                                                        | (2,406,644 | )                                                       | $          | (1,772,558 | ) | $ | (6,987,770 | ) | $ | (4,874,674 | ) |
| Other comprehensive income (loss) |       | (2,450                                                   | )          | —                                                  |       | (64,381 | ) | — |   |
| Comprehensive income (loss)       |       | $                                                        | (2,409,094 | )                                                       | $          | (1,772,558 | ) | $ | (7,052,151 | ) | $ | (4,874,674 | ) |

 

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**4.Accrued Expenses**

 

Accruedexpenses consisted of the following:

 
| ** **        | ** ** | **December 31,********2009** | ** ** | **September 30,********2010** | ** ** |
|-------------------|------------|-----------------------------------|------------|------------------------------------|------------|
| Professional fees |       | $                                 | 71,000     |                               | $          | 69,950 |   |
| Deferred rent     |       | 60,976                            |       | 70,611                             |       |
| Other             |       | 19,917                            |       | 31,787                             |       |
|              |       | $                                 | 151,893    |                               | $          | 172,348 |   |

 

**5. Debt— Master Security Agreements**

 

InFebruary 2005, the Company entered into a Master Security Agreement with afinance company that provided for borrowings up to $3,200,000, subject tocertain conditions, through December 2005. During 2005, the Companyborrowed $2,001,810 under the Master Security Agreement in order to finance thepurchase of laboratory and office equipment. Amounts borrowed are evidencedwith promissory notes and are repayable in equal monthly payments, over 36 to48 months, and are collateralized by the purchased equipment. The notesbear interest at rates varying between 9.4% and 10.4%.   The note was repaid in full as of December 31,2009.

 

Inconnection with the borrowings under the Master Security Agreement, the Companyissued the finance company warrants to purchase 53,039 shares of the Company’scommon stock at an exercise price of $0.75 per share. The estimated fair valueof the warrants of $30,074, determined using the Black-Scholes option-pricingmodel, was accounted for as deferred financing costs and was amortized tointerest expense over the remaining term of the notes.

 

InSeptember 2008, the Company entered into a Loan and Security Agreementwith another finance company that provided for borrowings of up to $2,000,000to be used for the purchase of certain equipment and for working capitalpurposes.  During 2008, the Company borrowed $1,556,357 under theLoan and Security Agreement.  As of December 31, 2009 andSeptember 30, 2010, $1,147,953 and $871,644, respectively, was outstandingunder the Loan and Security Agreement. Amounts borrowed are evidenced with apromissory note, are repayable in equal monthly payments over 48 months, andare collateralized by the purchased equipment.  The note bears interest of12.1%.  The Loan and Security Agreement contains certain provisions,including a material adverse change clause (as defined in the Loan and SecurityAgreement) which restricts the Company’s ability to borrow additional money andalso enables the finance company to request full repayment of the loan if sucha change has occurred.  As of September 30, 2010, the Company was incompliance with these provisions.

 

Thescheduled maturities of long-term debt outstanding at September 30, 2010are as follows:

 
| 2010                 |   | 97,802   |    |
|----------------------|--------|----------|---------|
| 2011                 |   | 422,100  |    |
| 2012                 |   | 351,742  |    |
|                 |   | 871,644  |    |
| Less current portion |   | (409,554 | )       |
|                 |   | $        | 462,090 |   |
|                      |        |          |         |  |

 

Interestexpense on notes payable for the three months ended September 30, 2009 and2010 was $40,022 and $28,198, respectively. Interest expense on notes payable for the nine months endedSeptember 30, 2009 and 2010 was $130,597 and $92,598, respectively.

 

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**6.Stockholders’ Equity**

 

***(a) Common Stock***

 

TheCompany was party to a number of agreements that provided for dilutionprotection to certain investors.  In connection with the Reverse Mergerand closing of the Private Placement, the Company issued approximately 2.0million shares of common stock to a founder and shareholder of the Company as aresult of such anti-dilution protection.  During 2007, the Companyrecorded a charge of $1.6 million to research and development expenses relatedto the issuance of such shares of common stock, which represents the fair valueof these shares.  As of September 30, 2010, none of the Company’sexisting agreements contain dilution protection provisions.

 

***(b) Warrants***

 

Asof September 30, 2010, the Company had the following warrants to purchaseCommon Stock outstanding:

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

 

Duringthe nine months ended September 30, 2010, warrants to purchase 4,015,059shares of Common Stock at an exercise price of $1.35 per share expired and werenot exercised.

 

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

 

InNovember 2003, the Company adopted the 2003 Stock Incentive Plan, asamended (the “2003 Plan”), that authorized the Company to grant up to 6,523,790shares of Common Stock to eligible employees, directors, and consultants to theCompany in the form of restricted stock and stock options. The amount and termsof grants were determined by the board of directors. The term of the optionscould have been up to 10 years, and options were exercisable in cash or asotherwise determined by the board of directors. Generally, options vested 25%upon the first anniversary of the date of grant and ratably each month thereafterthrough the fourth anniversary of the date of grant.

 

OnMarch 12, 2007, the Company adopted the Redpoint Bio Corporation 2007Omnibus Equity Compensation Plan (“2007 Plan”), which provided for the issuanceof up to 13,511,562 shares of common stock, subject to adjustment in certaincircumstances. In connection with the adoption of the 2007 Plan, the 2003 Planmerged with and into the 2007 Plan and no additional grants were to be madethereafter under the 2003 Plan.  Outstanding grants under the 2003 Plancontinued in effect in accordance with their terms as in effect beforeMarch 12, 2007 and the shares with respect to outstanding grants under the2003 Plan have been or will be issued or transferred under the 2007 Plan. The 2007 Plan is now the Company’s only plan in effect.

 

OnApril 20, 2007, the Company approved an amendment to the 2007 Plan, whichincreased the maximum number of shares of common stock reserved for issuanceunder the 2007 Plan by an additional 4,132,705 shares from 13,511,562 to17,644,267 shares of common stock.

 

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Thefollowing is a summary of stock option activity under the Plan during the ninemonths ended September 30, 2010:

 
| ** **                             | ** ** | ** **         | ** ** | ** **              | ** ** | **Weighted-**   | ** ** | ** **    | ** ** |
|----------------------------------------|------------|--------------------|------------|-------------------------|------------|-----------------|------------|---------------|------------|
| ** **                             | ** ** | ** **         | ** ** | **Weighted-**           | ** ** | **average**     | ** ** | ** **    | ** ** |
| ** **                             | ** ** | **Number of** | ** ** | **average**             | ** ** | **contractual** | ** ** | **Intrinsic** | ** ** |
| ** **                             | ** ** | **shares**         | ** ** | **exercise price** | ** ** | **term**        | ** ** | **Value**     | ** ** |
| Outstanding at December 31, 2009  |       | 9,031,819          |       | $                       | 0.4806     |            |       |          |       |   |
| Granted                                |       | 800,000            |       | 0.1175                  |       |            |       |          |       |
| Exercised                              |       | (8,200             | )          | 0.0700                  |       |            |       |          |       |
| Forfeited/Cancelled                    |       | (196,491           | )          | 0.4481                  |       |            |       |          |       |
| Outstanding at September 30, 2010 |       | 9,627,128          |       | $                       | 0.4514     |            | 6.04       |          | $          | 43,490 |   |
|                                        |            |                    |            |                         |            |                 |            |               |            |  |  |

 

Duringthe nine months ended September 30, 2010, the Company granted options toemployees to purchase and aggregate of 700,000 shares of Common Stock andoptions to non-employee directors to purchase an aggregate of 100,000 shares ofCommon Stock.  During the nine mothsended September 30, 2009, the Company granted options to employees topurchase an aggregate of 1,105,628 shares of Common Stock and options tonon-employee directors to purchase and aggregate of 125,000 shares of CommonStock.

 

Alloptions granted to date have exercise prices equal to the fair value of theunderlying common 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 on thedate of grant. As of September 30, 2010, there were 6,942,121 shares ofcommon stock available for grant under the 2007 Plan.

 

Theper-share weighted average fair value of options granted during the nine monthsended September 30, 2009 and 2010 were estimated at $0.07 and $0.07,respectively, on the date of grant using the Black-Scholes option-pricingmodel.

 

TheCompany recognized $150,897 and $149,179 of stock-based compensation expenserelated to stock options for the three months ended September 30, 2009 and2010, respectively.  The Companyrecognized $533,472 and $436,700 of stock-based compensation expense related tostock options for the nine months ended September 30, 2009 and 2010,respectively.  As of September 30,2010, there was approximately $414,000 of unrecognized compensation expenserelated to unvested stock options granted to employees and directors, which isexpected to be recognized over a weighted average period of 1.0 years.

 

***(d) Registration Rights***

 

OnJune 5, 2007, the Company filed a “resale” registration statement with theSEC covering all shares of common stock issued in the Private Placement and inconnection with the Reverse Merger, including shares of common stock into whichcertain warrants are exercisable.  Such registration statement wasdeclared effective on July 20, 2007.  The Company will use its bestefforts to maintain its effectiveness until such time as all securities registeredunder the registration statement have been sold or are otherwise able to besold under Rule 144 of the Securities Act without regard to volumelimitations, whichever is earlier.

 

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

 

*Givaudan*.  In March 2007,the Company entered into a Joint Research and Development and License Agreement(the “Givaudan Agreement”) with Givaudan Schweiz AG, (“Givaudan”) for thedevelopment and commercialization of compounds that act primarily through themodulation of the TRPM5 channel and that enhance sweetness or savory sensation,as well as compounds that block or desensitize bitter taste for use in the foodand beverage industry.  In consideration of the Company’s agreement toconduct research and develop compounds and grant exclusive licenses and otherrights to Givaudan, Redpoint received an upfront payment of $1,300,000 and 

 

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Givaudanprovided research funding to the Company over the term of the Agreement. Givaudan terminated the Agreement, effective as of May 1, 2009, andGivaudan reserved its rights under the Agreement with respect to certaincollaboration compounds.  The upfront payment of $1,300,000 was beingrecognized as revenue on a straight-line basis over the initial term of theGivaudan Agreement.  As of May 1, 2009, the remaining unamortizedportion of the upfront payment was approximately $526,000 and, as a result ofthe termination, was recognized as revenue upon termination of the GivaudanAgreement.  During the three months endedSeptember 30, 2009, the Company did not recognize any revenue related tothe Givaudan Agreement.  During the ninemonths ended September 30, 2009, the Company recognized approximately$650,000 of revenue attributable to the amortization of the upfront fee andapproximately $1,065,000 of revenue from research funding.

 

*International Flavor & Fragrances*.  InJune 2010, the Company entered into a License and CommercializationAgreement (the “IFF Agreement”) with International Flavors &Fragrances Inc., (“IFF”), for the development, manufacture, use andcommercialization of RP44, the Company’s all-natural sweetness enhancer.  Under the terms of the IFFAgreement, IFF has exclusive rights, for five years, to develop,manufacture and commercialize RP44 in virtually all food and beverage productcategories. In return, Redpoint received an upfront payment of $500,000 and iseligible to receive two milestone payments of $500,000 each contingent uponcertain criteria regarding supply and regulatory approval. In addition,Redpoint will receive royalties based on the amount of RP44 purchased by IFFfor use in products. IFF will assume responsibility for the regulatory processand for costs associated with prosecuting and maintaining Redpoint’sintellectual property covering RP44.  Theupfront payment of $500,000 was recognized as revenue on the effective date(June 29, 2010) of the IFF Agreement as the Company has no futureperformance obligations under the IFF Agreement. The Company received theupfront payment in July 2010. During the three and nine months ended September 30,2010, the Company recognized no revenue and $500,000 of revenue, respectively,related to the IFF Agreement.  In October 2010,RP44 was determined to be Generally Recognized As Safe (GRAS), triggering a $500,000milestone payment due to the Company which will be recognized as revenue in thefourth quarter of 2010.  The Company willrecord the remaining milestone payment as revenue upon the achievement of suchevent.

 

**8.Restructuring**

 

During2009, the Company announced two restructurings which reduced its workforce byapproximately 60%.  As of November 12,2010, the Company has 11 full time employees.  In connection with therestructurings, the Company incurred severance costs of $526,553 which wereincluded in general and administrative expenses in 2009.  As of September 30, 2010, all amountsrelated to these restructurings have been paid.

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

 

**9.  Commitments**

 

*Leases*

 

Futureminimum lease payments as of September 30, 2010 are as follows:

 
| **Year Ending December 31,** | ** ** | **Amount** | ** ** |
|---------------------------------------------|------------|------------|------------|
| 2010                                        |       | $          | 208,912    |   |
| 2011                                        |       | 839,723    |       |
| 2012                                        |       | 845,915    |       |
| 2013                                        |       | 852,230    |       |
| 2014                                        |       | 858,672    |       |
| Thereafter                                  |       | 2,038,097  |       |
|                                        |       | $          | 5,643,549  |   |

 

InOctober 2006, the Company paid a $250,000 deposit for its new facilitywhich has been recorded in other assets on the accompanying balance sheet.

 

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**10.  Income Taxes**

 

Duringthe nine months ended September 30, 2010, the Company sold $112,562 of itsNew Jersey State Research and Development Tax Credits resulting in therecognition of an income tax benefit of $101,306 recorded in the Company’sStatement of Operations.

 

TheCompany applies the provisions of FASB Accounting Standards Codification 740-10“Accounting for Uncertainty in Income Taxes” (ASC 740-10), which clarifies theaccounting and disclosure for uncertainties in income taxes recognized in anenterprise’s financial statements. ASC 740-10 prescribes a recognitionthreshold and measurement attribute for financial statement recognition andmeasurement of a tax position reported or expected to be reported on a taxreturn. ASC 740-10 also provides guidance on the recognition and classificationof interest and penalties in an entity’s financial statements. The Company’spolicy is to recognize potential accrued interest and penalties related toincome tax matters in income tax expense. As of September 30, 2010, theCompany determined that it had no liability for uncertain income tax matters asprescribed by ASC 740-10.  Net operatingloss and credit carryforwards since inception remain open to examination bytaxing authorities, and will continue to remain open for a period of time postutilization.

 

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

 

**Cautionary Note RegardingForward-Looking Statements**

 

TheSecurities and Exchange Commission, referred to herein as the SEC, encouragescompanies to disclose forward-looking information so that investors can betterunderstand a company’s future prospects and make informed investmentdecisions.  Certain statements that we may make from time to time,including, without limitation, statements contained in this Quarterly Report onForm 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.”

 

Wordssuch as “may,” “anticipate,” “estimate,” “expects,” “projects,” “intends,” “plans,”“believes” and words and terms of similar substance used in connection with anydiscussion of future operating or financial performance, identifyforward-looking statements.  All forward-looking statements are management’spresent expectations 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:

 

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

 

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

 

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

 

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

 

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

 

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

 

·                  patent-infringement claims;

 

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

 

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

 

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

 

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

 

·                  the development of competing products;

 

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

 

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

 

Inlight of these assumptions, risks and uncertainties, the results and eventsdiscussed in the forward-looking statements contained in this Quarterly Reportor in any document incorporated by reference might not occur.  You arecautioned not to place undue reliance on forward-looking statements, whichspeak only as of the date of this Quarterly Report or the date of the documentincorporated by reference in this Quarterly Report.  We are not under anyobligation, and we expressly disclaim any obligation, to update or alter anyforward-looking statements, whether as a result of new information, futureevents or otherwise, except as may be required by applicable law.  Allsubsequent forward-looking statements attributable to Redpoint, or to anyperson authorized to act on our behalf are expressly qualified in theirentirety by the cautionary statements contained or referred to in this section.

 

**Overview**

 

RedpointBio is a development stage biotechnology company focused on the development ofhealthier foods and beverages and new approaches to the treatment of diabetesand obesity.

 

TheCompany is leveraging recent discoveries in the molecular biology of taste todiscover and develop novel taste modulators for the food and beverageindustries. Our food and beverage program has been focused on identifying novelflavor modifiers that improve the taste of existing ingredients, enabling thedevelopment of better-tasting and more healthful foods and beverages. InJune 2009, we announced that we had identified an all-natural sweetnessenhancer, RP44. In June 2010, we entered into a license andcommercialization agreement with IFF, a global leader in the food and beverageindustry, covering the commercialization of RP44. We believe that our uniquetechnology platform could lead to additional opportunities for discoveringnovel natural flavorings and flavor enhancers, to help meet increasing consumerdemand for more healthful foods and beverages.

 

Weare also pursuing a pharmaceutical discovery program for the treatment ofdiabetes and obesity. Our research in diabetes and obesity stems from theobservation that taste signaling circuits responsible for sensing sweet,savory, and bitter compounds on the tongue are also found in the pancreas andgastrointestinal tract, suggesting a potential role in the regulation ofmetabolism and satiety. We are actively seeking a research and developmentcollaboration with major pharmaceutical companies for the further developmentof this discovery program.  However,there can be no assurance that we will enter into any collaboration or licenseagreement.

 

Sinceits inception in 1995, Redpoint has incurred losses and negative cash flowsfrom operations, and such losses have continued subsequent toSeptember 30, 2010. As of September 30, 2010, Redpoint had anaccumulated deficit of $56.2 million and anticipates incurring additionallosses for the foreseeable future. We will need to spend significant resourcesover the next several years to enhance our technologies and to fund researchand development of our pipeline of potential products. We have not yetdeveloped any products that are commercially available. We had approximately$1.6 million in cash and cash equivalents at September 30, 2010.  In addition, in October 2010, RP44, ourall-natural sweetness enhancer, was determined to be Generally Recognized AsSafe (GRAS), triggering a $0.5 million milestone payment which is due to us inconnection with our June 2010 license agreement with IFF and will be recognizedas revenue in the fourth quarter of 2010. Additionally, we are in the processof selling a portion of our New Jersey State net operating loss carryforwardsand in November, we received notification that our diabetes program had beenapproved for a grant in the amount of approximately $0.25 million in connectionwith the Qualifying Therapeutic Discovery Project Program under section 48D ofthe Internal Revenue Code. We believe that our current capital resources, andthe amounts expected to be received from the aforementioned milestone payment andgovernment programs, are sufficient to meet our operating and capitalrequirements through April 2011, which raises substantial doubt about ourability to continue as a going concern.

 

ThroughSeptember 30, 2010, substantially all of our revenue has been derived fromcorporate collaborations, license agreements, and government grants. In orderto achieve profitability, we must continue to develop products and technologiesthat can be commercialized by us or through future collaborations.

 

OnMarch 12, 2007, we completed the first closing of our private placement ofshares of common stock and warrants to purchase shares of common stock raisingapproximately $17.2 million of net proceeds. On April 6, 2007, 

 

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wecompleted the final closing of the private placement raising an additional$11.4 million of net proceeds, bringing the total private placement netproceeds to $28.6 million.

 

InMarch 2007, we entered into a Joint Research and Development and LicenseAgreement with Givaudan Schweiz AG, a Swiss company, or Givaudan, for thedevelopment and commercialization of compounds that act primarily through themodulation of the TRPm5 ion channel and that enhance sweetness or savorysensation, as well as compounds that block or desensitize bitter taste for usein the food and beverage industry. In consideration of the Company’s agreementto conduct research and develop compounds and grant exclusive licenses andother rights to Givaudan, Redpoint received an upfront payment of$1.3 million and Givaudan provided research funding to the Company overthe term of the agreement. Givaudan terminated the agreement, effective as ofMay 1, 2009, and Givaudan reserved its rights under the agreement withrespect to certain collaboration compounds. Givaudan cited the fact thatcertain collaboration objectives had not been achieved as its reasoning forterminating the agreement. Through the termination date of the agreement,including the upfront fee, we received $6.9 million in research anddevelopment funding in connection with the agreement.

 

Recognizingthe difficult financing environment that has significantly impacted thebiotechnology sector and seeking ways to conserve cash, during the year endedDecember 31, 2009, we announced two restructurings which reduced ourworkforce by approximately 60%.  As of November 12,2010, we had 11 full time employees. We may need to make further reductionsin our expenses.

 

Wefirst announced that we had identified RP44, an all-natural sweetness enhancer,in June 2009. In January 2010, we disclosed that RP44 is Reb-C(rebaudioside C), a component of the stevia plant. Native to South America,extracts of the leaves of the stevia plant have been used as sweeteners aroundthe world for hundreds of years. More recently, a purified component of steviaknown as Reb A has received regulatory approval in the United States andelsewhere and Redpoint believes its popularity as an all-natural non-caloricsweetener is increasing.

 

InJune 2010, we entered into a License and Commercialization Agreement withIFF for the development, manufacture, use and commercialization of RP44. IFFhas exclusive rights, for five years, to develop, manufacture and commercializeRP44 in virtually all food and beverage product categories. In return, wereceived an upfront payment of $0.5 million and we became eligible to receivetwo milestone payments of $0.5 million each based upon certain criteria regardingregulatory approval and supply. In October 2010, the $0.5 millionmilestone resulting from regulatory approval of RP44 by IFF was triggered andcash receipt of this milestone payment is expected to be received in November 2010.In addition, we are eligible to receive royalties based on the amount of RP44purchased by IFF for use in products. IFF will continue to be responsible forthe regulatory process and for costs associated with prosecuting and maintainingour intellectual property covering the sweetness enhancer.

 

UnlikeReb A, RP44 has a very low intrinsic level of sweetness and therefore is notuseful as a sweetener. Instead, we discovered that RP44 acts as a potentsweetness enhancer. A sweetness enhancer imparts no sweet taste of its own whenused in a product. Instead, sweetness enhancers act by amplifying the existingsweet taste of caloric sweeteners such as sugar or high fructose corn syrup. Webelieve this will enable the development of food and beverage products thatrequire reduced amounts of caloric sweeteners while still retaining the “cleansweet taste” associated with a fully sugared product. Taste tests demonstratethat RP44 enables the reduction of up to 25% of the caloric sweetener contentin various product prototypes, while still maintaining the taste quality of thefully sweetened product. These results have been demonstrated by using RP44 incombination with several common sweeteners including sucrose (sugar), fructose,glucose and high-fructose corn syrup (HFCS). The worldwide sweetener market isestimated to be in excess of $50 billion with sugar (including sucrose,HFCS, and fructose) being the second most common ingredient used in food andbeverages after water.

 

InOctober 2010, IFF informed us that they had received notification bythe Flavor and Extract Manufacturers Association (FEMA) that RP44 had beendetermined to be Generally Recognized As Safe (GRAS) under the provisions ofthe Federal Food, Drug and Cosmetic Act, administered by the United States Foodand Drug Administration (FDA). This GRAS determination allows RP44 to beincorporated into specified products in the United States and potentially aidsregulatory acceptance in numerous other countries. Although RP44 is currentlyderived from material found in the side stream of the Reb A production processthere can be no assurance that it can be produced in large scale on aneconomically viable basis.

 

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Webelieve there is an important potential role for RP44 in all-naturalreduced-calorie products. Numerous scientific studies suggest a compelling linkbetween the high levels of refined sugar found in common food and beverageproducts and the worsening epidemic of obesity and diabetes worldwide. Healthand wellness trends continue to be major market drivers for the food andbeverage industry, creating consumer demand for natural solutions that canpreserve the clean sweet taste of sugar while reducing calories.

 

Wealso recently reported that we had advanced our discovery program forall-natural enhancers of salty taste. The objective of the salt enhancerprogram is to identify natural flavor ingredients that can provide asignificant reduction in the amount of sodium in food and beverage products,yet maintain the salty taste that consumers desire.

 

Weare using our proprietary MOG assay technology for the salt enhancer discoveryprogram. The MOG technology was developed specifically to deal with the complexsensory and experimental issues associated with the discovery of all-naturalcompounds, which are often derived from plant or fermentation sourcescontaining complex mixtures of taste ingredients. Historically, naturaltastants or enhancers have been discovered by trial and error using humantasters. The MOG is an enabling technology that facilitates high throughputscreens of tastant libraries and natural product extracts by rodents trained todiscriminate specific taste standards. MOG-trained rodents are “expert” tastetesters capable of rapidly identifying taste from small samples with a highlevel of accuracy, providing an effective means of evaluating the tasteproperties of complex natural product extracts.

 

Weoriginally developed our MOG technology to discover natural high-potencysweeteners and sweetener enhancers. More recently, Redpoint scientists havedeveloped and optimized a high-throughput salt-taste detection system, in whichMOG-trained rodents discriminate salt from other essential tastes (savory,sweet, sour, and bitter). The MOG approach will be used to evaluate thesalt-tasting and salt-enhancing potential of natural sources such asfermentation products and edible plant extracts, with a focus on isolatingactive components from ingredients already used in the food industry.

 

Ourinitial programs focused on the modulation of the TRPm5 ion channel, a keysignaling element in taste sensation, in order to discover novel compounds thatmodulate the taste of food and beverage products. The TRPm5 ion channel is amember of a larger class of related TRP (Transient Receptor Potential) ionchannels that are involved in the sensation of heat, cold, and spicy compounds.  The TRPm5 ion channel was originallyidentified as an important component of taste signaling circuits responsiblefor sensing sweet, savory, and bitter compounds on the tongue. Recently, anemerging body of scientific evidence has demonstrated that the TRPm5 channel isalso found in the pancreas and gastrointestinal tract, suggesting a potentialrole in the regulation of metabolism and satiety. Specifically, TRPm5 may beinvolved in the secretion of important hormones like GLP1 and insulin thatcontrol sugar uptake and metabolism. Consequently, modulators of TRPm5 couldpotentially find application as a new therapy for adult-onset diabetes andobesity. We initiated a program designed to leverage the research we havealready conducted on the discovery of modulators of the TRPm5 ion channel tofurther explore potential opportunities for the discovery of new diabetes orobesity therapeutics. In July 2010, we announced the issuance of a patentcovering methods of using a high-throughput screen to discover certain modulatorsof the TRPm5 ion channel. In November 2010, we received notification thatour diabetes program had been approved for a grant in the amount ofapproximately $0.25 million in connection with the Qualifying TherapeuticDiscovery Project Program under section 48D of the Internal Revenue Code.

 

Diabetesis a chronic disease afflicting over 24 million Americans and its poor controlis the principle cause of blindness and kidney failure. Consequently, there isa continuing need for new and improved diabetes therapies, especially in anaging and increasingly obese population, which both correlate with an increasedincidence of adult-onset diabetes.

 

TRPm5modulators discovered by Redpoint have been shown to elicit the secretion ofhormones known to play important roles in metabolism in relevant model systems.We believe this discovery may serve as the foundation for a new method ofaction in the treatment of obesity and diabetes. Our therapeutic objective isthe development of an orally acting incretin and insulin secretogogue for thetreatment of Type II diabetes. Through an ongoing discovery programinvolving the synthesis of approximately 1,000 novel small molecules, we haveidentified a lead series of orally acting hormone secretogogues that havedemonstrated positive results in a number 

 

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ofin vitro and in vivo experiments. We are seeking collaborations with major pharmaceuticalcompanies for the further development and optimization of our TRPm5 modulatorsfor therapeutic applications in diabetes and obesity.

** **

**Revenue**

 

Todate, our revenue has come solely from corporate collaborations, licensingagreements and government grants. Since our inception, we have undertakenresearch projects for which we were the recipient of several Small BusinessInnovative Research, or SBIR, Awards. The SBIR Awards were sponsored by theNational Institute of Health. The last SBIR related research project wascompleted in 2004.

 

InMarch 2007, we entered into the Givaudan Agreement where we werecollaborating exclusively with each other to discover and develop EnhancerCompounds and Bitter Blocker Compounds that act primarily through the modulationof the TRPm5 ion channel.  The agreement with Givaudan was terminated byGivaudan on May 1, 2009.

 

InJune 2010, we entered into a License and Commercialization Agreement withIFF for the development, manufacture, use and commercialization of RP44. IFFhas exclusive rights, for five years, to develop, manufacture and commercializeRP44 in virtually all food and beverage product categories.

 

Weare also seeking collaborations with major pharmaceutical companies for thefurther development and optimization of our compounds for therapeuticapplications in diabetes and obesity. Any failure to maintain or establishlicensing or collaboration arrangements on favorable terms could adverselyaffect our business prospects, financial condition or ability to develop andcommercialize our product candidates.

 

**Research and Development**

 

Ourresearch and development expenses consist primarily of internal costsassociated with our taste modulator and diabetes/obesity research programs aswell 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.

 

**General and Administrative**

 

Ourgeneral and administrative expenses consist primarily of salaries and relatedbenefit expenses for business development, financial, legal and otheradministrative functions. In addition, we incur external costs for professionalfees for legal, patent and accounting services.

 

**Results of Operations**

 

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

 

*Research, Grant and License Revenue*.  For thethree months ended September 30, 2010, we did not record any revenue. InJune 2010, we entered into a License and Commercialization Agreement withIFF for the development, manufacture, use and commercialization of RP44. IFFhas exclusive rights, for five years, to develop, manufacture and commercializeRP44 in virtually all food and beverage product categories. The Company has nofuture performance obligations under the IFF Agreement. In October 2010, IFFinformed us that they had received notification by the Flavor and ExtractManufacturers Association (FEMA) that RP44 had been determined to be GenerallyRecognized As Safe (GRAS), triggering a $0.5 million milestone payment which isdue to us. This milestone payment will be recognized as revenue in the fourthquarter of 2010. For the three months ended September 30, 2009, we did notrecord any revenue.

 

*Research and Development Expenses*.  Ourresearch and development expenses were $0.8 million for the three monthsended September 30, 2010 compared to $1.2 million for the threemonths ended September 30, 2009.  The decrease in expenses wasprimarily attributable to reductions in laboratory supplies and contractresearch organizations. Our research and development expenses consist primarilyof internal costs associated with our taste 

 

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modulatorand diabetes research programs. Our internal research and development costs arecomprised of salaries and related benefits, facilities and depreciation onlaboratory equipment, compound acquisition costs and research supplies.

 

*General and Administrative**Expenses*.  Ourgeneral and administrative expenses were $0.9 million for the three monthsended September 30, 2010 compared to $1.2 million for the threemonths ended September 30, 2009.  The decrease in expenses wasprimarily attributable to reduced expenditures associated with professionalfees.

 

*Interest Income*.  Interest income wasa nominal amount for the three months ended September 30, 2010 and thethree months ended September 30, 2009.

 

*Interest Expense*.  Interest expensedecreased slightly for the three months ended September 30, 2010 comparedto the three months ended September 30, 2009. In September 2008, weentered into a Loan and Security Agreement in which we are authorized to borrowup to $2.0 million for the purchase of certain equipment, a portion of theproceeds which may be used for general corporate working capital purposes. Asof September 30, 2010, we have an outstanding balance of $0.9million pursuant to the Loan and Security Agreement.

 

***Nine months ended September 30, 2010compared to the nine months ended September 30, 2009***

 

*Research, Grant and License Revenue*.  For thenine months ended September 30, 2010, we recorded revenue of $0.5 millionfrom the upfront payment we received in connection with the IFF Agreement thatwe signed in June 2010 for the development, manufacture, use andcommercialization of RP44.  IFF hasexclusive rights, for five years, to develop, manufacture and commercializeRP44 in virtually all food and beverage product categories. The Company has nofuture performance obligations under the IFF Agreement. In October 2010, IFFinformed us that they had received notification by the Flavor and ExtractManufacturers Association (FEMA) that RP44 had been determined to be GenerallyRecognized As Safe (GRAS), triggering a $0.5 million milestone payment which isdue to us. This milestone payment will be recognized as revenue in the fourthquarter of 2010.   For the nine monthsended September 30, 2009, we recorded revenue of $1.9 million, whichincluded $1.7 million related to our Givaudan Agreement, which began onMarch 27, 2007 for the development and commercialization of compounds thatact primarily through the modulation of the TRPM5 channel and enhance sweetnessor savory sensation as well as compounds that block or desensitize bitter tastefor use in the food and beverage industry.  The revenues from Givaudaninclude $0.7 million attributable to the upfront fee which was originallybeing recognized as revenue over the initial 3.5 year term of theagreement and $1.0 million of research funding.  Givaudan terminatedthe Givaudan Agreement, effective as of May 1, 2009.  As ofMay 1, 2009, the remaining unamortized portion of the upfront payment wasapproximately $0.6 million and was recognized as revenue upon termination.The remaining $0.2 million of revenue was from other agreements includinga feasibility research program we conducted with Schering-Plough Corporation inthe area of taste science research for pharmaceutical applications.

 

*Research and Development Expenses*.  Ourresearch and development expenses were $2.5 million for the nine months endedSeptember 30, 2010 compared to $4.6 million for the nine months endedSeptember 30, 2009.  The decrease in expenses was primarilyattributable to reductions in workforce as a result of the corporaterestructurings the Company undertook in February and May of2009.  As a result of the restructurings, we are currently not pursuingour research program aimed at suppressing the bitterness of oral medicines. Ourresearch and development expenses consist primarily of internal costsassociated with our taste modulator and diabetes research programs as well asamounts paid to third parties to conduct research on our behalf.  Ourinternal research and development costs are comprised of salaries and relatedbenefits, facilities, and depreciation of laboratory equipment, compoundacquisition costs and research supplies.

 

*General and Administrative Expenses*.  Ourgeneral and administrative expenses were $2.9 million for the nine months endedSeptember 30, 2010 compared to $4.2 million for the nine months endedSeptember 30, 2009. The decrease in expenses was primarily attributable toreduced expenditures associated with professional fees and reductions inworkforce as a result of the corporate restructurings the Company undertook inFebruary and May 2009.

 

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*Interest Income*.  Interest income wasa nominal amount for the nine months ended September 30, 2010 compared to$0.1 million during the nine months ended September 30, 2009. Thedecrease was primarily the result of decreasing cash and investment balances.

 

*Interest Expense*.  Interest expense was$0.1 million for the nine months ended September 30, 2010 compared to$0.2 million for the nine months ended September 30, 2009.

 

*Income Tax Benefit.*For the nine months endedSeptember 30, 2010, we sold $0.1 million of our New Jersey StateResearch and Development Tax Credits resulting in the recognition of an incometax benefit of $0.1 million. For the nine months ended September 30,2009, we did not have any income tax benefit.

 

**Liquidity and Capital Resources**

 

AtSeptember 30, 2010, we had cash and cash equivalents of $1.6 millionand working capital of $0.1 million. Since inception, we have used$41.9 million of cash to fund our operating activities and$3.4 million for capital expenditures. Through September 30, 2010, wehave funded substantially all of our operations and capital expendituresthrough private placements of equity and convertible debt securities totaling $45.8 million,cash received from corporate collaborations totaling $10.9 million,government grants totaling $1.8 million, and capital equipment and workingcapital financing totaling $3.6 million.

 

InOctober 2010, RP44, our all-natural sweetness enhancer, was determined tobe Generally Recognized As Safe (GRAS), triggering a $0.5 million milestonepayment which is due to us in connection with our June 2010 licenseagreement with IFF. Additionally, we are in the process of selling a portion ofour New Jersey State net operating loss carryforwards and in November, wereceived notification that our diabetes program had been approved for a grantin the amount of approximately $0.25 million in connection with the QualifyingTherapeutic Discovery Project Program under section 48D of the Internal RevenueCode. We believe that our current capital resources, and the amounts expectedto be received from the aforementioned milestone payment and governmentprograms, are sufficient to meet our operating and capital requirements throughApril 2011, which raises substantial doubt about our ability to continueas a going concern. We are actively seeking additional corporate collaborationsand license agreements from various strategic partners to enhance our liquidityposition.  However, there can be noassurance that we will enter into any future corporate collaborations orlicense agreements.

 

InSeptember 2008, we entered into a Loan and Security Agreement with CITHealthcare LLC in which we are authorized to borrow up to$2.0 million for the purchase of certain equipment, a portion of theproceeds which may be used for general corporate working capital purposes.During 2008, we borrowed approximately $1.6 million pursuant to the Loanand Security Agreement, of which approximately $1.0 million was forequipment previously purchased and approximately $0.6 million was forgeneral working capital. As of September 30, 2010, we had approximately$0.9 million outstanding under such facility. The Loan and Security Agreementcontains certain provisions, including a material adverse change clause (asdefined in the Loan and Security Agreement) which restricts the Company’sability to borrow additional money and also enables the finance company torequest full repayment of the loan if such a change has occurred.  As of September 30, 2010, the Companywas in compliance with these provisions. As of September 30, 2010, there is no amount available to theCompany for borrowing.

 

OnMarch 12, 2007, we completed the first closing of our Private Placement ofshares of common stock and warrants to purchase shares of common stock raisingapproximately $17.2 million of net proceeds. On April 6, 2007, wecompleted the final closing of our Private Placement raising an additional$11.4 million of net proceeds, bringing the total private placement netproceeds to $28.6 million.

 

Recognizingthe difficult financing environment that has significantly impacted thebiotechnology sector and seeking ways to conserve cash, during the year endedDecember 31, 2009, we announced two restructurings which reduced ourworkforce by approximately 60%.  As of November 12,2010, we had 11 full time employees. We may need to make furtherreductions in our expenses.

 

Weexpect that substantially all of our cash-flow for the foreseeable future willcome from future corporate collaborations and license agreements. There can beno assurance that we will enter into any future corporate 

 

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collaborationsor license agreements. 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. Thestock market in general has recently experienced large price and volumefluctuations and the market price of our common stock has experienced significantvolatility. For us to fund our operations and to commercially develop ourproducts, additional corporate collaborations and/or equity and/or debtfinancing will be required before April 2011. There is no assurance thatsuch financing will be available to us as needed, and as a result, we may needto pursue other strategic alternatives, including the possible cessation ofoperations.

 

**Summary of Contractual Obligations**

 

Thefollowing table summarizes our obligations to make future payments under ourcurrent contractual obligations as of September 30, 2010:

 
| ** **       | ** ** | **Payments Due by Period** | ** ** |
|------------------|------------|-------------------------------------------|------------|
| ** **       | ** ** | **Total**                                 | ** ** | **2010** | ** ** | **2011-2012** | ** ** | **2013-2014** | ** ** | **Thereafter** | ** ** |
| Operating leases |       | $                                         | 5,644,000  |   | $ | 209,000 |   | $ | 1,686,000 |   | $ | 1,711,000 |   | $ | 2,038,000 |   |
| Long-term debt   |       | 872,000                                   |       | 98,000 |   | 774,000 |   | — |   | — |   |
| License payments |       | 225,000                                   |       | — |   | 50,000 |   | 50,000 |   | 125,000 |   |
|             |       | $                                         | 6,741,000  |   | $ | 307,000 |   | $ | 2,510,000 |   | $ | 1,761,000 |   | $ | 2,163,000 |   |

 

**Critical Accounting Policies**

 

Ourdiscussion and analysis of our financial condition and results of operationsare based on our financial statements, which have been prepared in accordancewith U.S. generally accepted accounting principles, or GAAP. The preparation ofthese financial statements requires us to make estimates and judgments thataffect the reported amounts of assets, liabilities, the disclosure ofcontingent assets and liabilities at the date of the financial statements, andreported amount of revenue and expenses during the reporting period. On anongoing basis, we evaluate our judgments and estimates, including those relatedto revenue recognition, long-lived assets, accrued liabilities, share-basedpayments and income taxes. We base our judgment and estimates on historicalexperience and various other factors that we believe to be reasonable under thecircumstances, the results of which form the basis for making judgments aboutthe carrying values of assets and liabilities. Actual results may differ fromthese estimates under different assumptions or conditions.  A moredetailed review of our critical accounting policies is contained in our AnnualReport on Form 10-K filed with the Securities and Exchange Commission forthe year ended December 31, 2009.  During the quarter endedSeptember 30, 2010, there have been no material changes in our criticalaccounting policies.

 

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

 

Ourcarrying values of cash and cash equivalents, marketable securities, accountsreceivable, accounts payable, accrued expenses and debt are a reasonableapproximation of their fair value. The estimated fair values of financialinstruments have been determined by us using available market information andappropriate valuation methodologies.

 

Wehave not entered into and do not expect to enter into, financial instrumentsfor trading or hedging purposes.  We do not currently anticipate enteringinto interest rate swaps and/or similar instruments.  We have no materialcurrency exchange risk exposure as of September 30, 2010.  Ourprimary market risk exposure with regard to financial instruments is to changesin interest rates, which would impact interest income earned on suchinstruments. A one percent change (100 basis points) in interest rates on ourinvestments would have impacted interest income by a nominal amount for thethree months ended September 30, 2010.

 

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**ITEM 4.CONTROLS AND PROCEDURES**

 

Ourmanagement, with the participation of our chief executive officer and chieffinancial officer, evaluated the effectiveness of our disclosure controls andprocedures (as defined in Rules 13a-15(e) and 15d-15(e) underthe Exchange Act) as of September 30, 2010. Based on this evaluation, ourchief executive officer and chief financial officer concluded that, as ofSeptember 30, 2010, our disclosure controls and procedures were(1) effective in that they were designed to ensure that materialinformation relating to us, including our consolidated subsidiaries, is madeknown to our chief executive officer and chief financial officer by otherswithin those entities, as appropriate, to allow timely decisions regardingrequired disclosures, and (2) effective in that they provide reasonableassurance that information required to be disclosed by us in our reports thatwe file or submit under the Exchange Act is recorded, processed, summarized andreported within the time periods specified in the SEC’s rules and forms.

 

Nochanges in our internal control over financial reporting (as defined inRules 13a-15(f) and 15d-15(f) under the Exchange Act) occurredduring the fiscal quarter ended September 30, 2010 that have materiallyaffected, or are reasonably likely to materially affect, our internal controlover financial reporting.

 

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**PART II. OTHER INFORMATION**

 

**ITEM 1.LEGAL PROCEEDINGS**

 

TheCompany’s management knows of no material existing or pending legal proceedingsor claims against the Company, nor is the Company involved as a plaintiff inany material proceeding or pending litigation.  To the Company’sknowledge, no director, officer or affiliate of the Company, and no owner ofrecord or beneficial owner of more than five percent (5%) of the Company’ssecurities, or any associate of any such director, officer or security holderis a party adverse to the Company or has a material interest adverse to theCompany in reference to pending litigation.

 

**ITEM 1A.RISK FACTORS**

 

*You should carefully consider the following risks and all ofthe other information set forth in this Quarterly Report before deciding toinvest in shares of our common stock. The risks described below are not theonly ones facing us. Additional risks not presently known to us or that wecurrently deem immaterial may also impair our business operations.*

 

*If any of the following risks actually occurs, our business,financial condition or results of operations would likely suffer.  In suchcase, the market price of our common stock would likely decline due to theoccurrence of any of these risks, and you may lose all or part of yourinvestment.*

 

**RisksRelated To Our Business and Our Industry**

 

***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 in the near term, we may be required todelay, scale back or eliminate our product development or may be unable tocontinue our business.***

 

Thedevelopment of our product candidates will require a commitment of substantialfunds to conduct the costly and time-consuming research, which may includepre-clinical and clinical testing, necessary to obtain regulatory approvals andbring our products to market. We believe that our current capital resourcesalong with certain milestones achieved in October 2010 and governmentprograms awarded in November 2010 should be sufficient to meet ouroperating and capital requirements through April 2011. Our futurerequirements will depend on many factors, including:

 

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

 

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

 

·                  our ability todiscover and develop new diabetes or obesity therapeutic compounds;

 

·                  the cost ofprosecuting, defending and enforcing patent claims and other intellectualproperty rights;

 

·                  the progress,scope and results of our pre-clinical and clinical testing of any futurepharmaceutical products;

 

·                  the time andcost involved in obtaining regulatory approvals;

 

·                  the cost ofmanufacturing our product candidates;

 

·                  competingtechnological and market developments;

 

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

 

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

 

***We will need to raise substantial additionalcapital before April 2011 to fund our future operations. We cannot becertain that additional financing will be available on acceptable terms, or atall. In recent years, it has been difficult for companies to raise capital dueto a variety of factors, which may or may not continue. To the extent we raiseadditional capital through the sale of equity securities, the ownershipposition of our existing stockholders could be substantially diluted. Ifadditional funds are raised through the issuance of preferred stock or debtsecurities, these securities are likely to have rights, preferences andprivileges senior to our common stock. Fluctuating interest rates could alsoincrease the costs of any debt financing we may obtain.***

 

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

 

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

 

Sinceour inception we have incurred significant losses and negative cash flows fromoperations. As of September 30, 2010, we had an accumulated deficit of$56.2 million, and anticipate incurring additional losses for the foreseeablefuture. We will need to spend significant resources over the next several yearsto enhance our technologies and to fund research and development of ourpipeline of potential products. In order to advance our programs, we will needto raise additional capital or fund operations through collaborations withthird parties. We have not generated significant revenues in any particularyear since our inception. To date, substantially all of our revenue has beenderived from corporate collaborations, license agreements, and governmentgrants. In order to achieve profitability, we must develop products andtechnologies that can be commercialized by us or through future collaborations.Our ability to generate revenues and become profitable will depend on ourability, alone or with potential collaborators, to timely, efficiently andsuccessfully complete the development of our product candidates, which mayinclude conducting pre-clinical and clinical tests, obtaining necessaryregulatory approvals, and manufacturing and marketing our product candidates.There can be no assurance that any such events will occur or that we will everbecome profitable. Even if we do achieve profitability, we cannot predict thelevel of such profitability. If we sustain losses over an extended period oftime, we may be unable to continue our business.

 

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

 

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

 

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

 

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

 

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·                  experts may not agree thatour food product candidates are generally recognized as safe;

 

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

 

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

 

·                  physicians, patients,third-party payers or the medical community in general may not accept or useour contemplated pharmaceutical products;

 

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

 

·                  others may developequivalent or superior products.

 

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

 

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

 

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

 

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

 

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

 

Inaddition, our success depends on the performance of our collaborators of theirresponsibilities under these arrangements. Some potential collaborators may notperform their obligations in a timely fashion or in a manner satisfactory tous. Because such agreements may be exclusive, we may not be able to enter intoa collaboration agreement with any other company covering the same productfield during the applicable collaborative period. In addition, ourcollaborators’ competitors may not wish to do business with us at all due toour relationship 

 

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withour collaborators. If we are unable to enter into additional product discoveryand development collaborations or maintain our existing arrangements, ourability to sustain or expand our business will be significantly diminished.

 

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

 

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

 

Dependingon the amount or intended use of a particular taste modulator added to aproduct and the number of product categories in which the flavor or flavorenhancer will be incorporated, specific testing, safety assessment protocols,and regulatory processes must be satisfied before we or our collaborators can commerciallymarket and sell products containing any taste modulators that we may discover.A key element of our strategy is to develop flavors and flavor enhancers thatwill be evaluated by the FEMA (Flavor and Extracts Manufacturers Association)GRAS Panel, which we expect will take 18 to 24 months and which is lessexpensive than the alternative of filing a food additive petition with the FDA,which can take eight years or more. The FEMA GRAS review process may takelonger than 24 months and cost more than we currently anticipate ifadditional safety studies are requested by the FEMA GRAS Panel or are necessaryto explain unexpected safety study findings. There is a risk that one or moreof our product candidates may not qualify for a FEMA GRAS determination or thatRP44 may not maintain FEMA GRAS status. This may occur for a variety ofreasons, including the taste modulator’s intended use, the amount of the tastemodulator intended to be added to packaged foods and beverages, the number ofproduct categories in which the taste modulator will be incorporated, whetherthe taste enhancer imparts sweetness, the safety profile of the taste enhancersand the FEMA GRAS Panel’s interpretation of the safety data. Even if we obtaina GRAS determination with respect to a taste enhancer, the FDA has the abilityto challenge such determination, which could materially adversely affect ourability to market products on schedule or at all. In the event that aparticular taste modulator does not qualify for a FEMA GRAS determination, wemay be required to pursue a lengthy FDA approval process to reach the U.S.market, or dedicate our development efforts to alternative compounds, whichwould further delay commercialization. In addition, laws, regulations or FDApractice governing the regulatory approval process, the availability of theGRAS determination process or the manufacture or labeling of such products, maychange in a manner that could adversely affect our ability to commercializeproducts on schedule or at all.

 

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

 

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

 

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

 

Evenif we discover and develop modulators, including RP44, that obtain thenecessary GRAS determination or regulatory approval, our success depends to asignificant degree upon the commercial success of packaged food and beverageproducts incorporating those modulators. If these products fail to achieve orsubsequently maintain market acceptance or commercial viability, our businesswould be significantly harmed 

 

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becauseour royalty revenue is dependent upon consumer sales of these products. Inaddition we could be unable to maintain our existing collaborations or attractnew product discovery and development collaborators. Many factors may affectthe market acceptance and commercial success of any potential productsincorporating taste modulators that we may discover, including:

 

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

 

·                  the timing of market entry as compared tocompetitive products;

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

·                  the size of the patientpopulation;

 

·                  the proximity of patients to clinical sites;

 

·                  the eligibility criteria for the trial;

 

·                  the perceptions ofinvestigators and patients regarding safety; and

 

·                  the availability of other treatment options.

 

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

 

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

 

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

 

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

 

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

 

Ourbusiness strategy relies on third parties to manufacture and produce our tastemodulators, including RP44, and pharmaceutical product candidates in accordancewith good manufacturing practices established by the FDA, or similarregulations in other countries. Our taste modulators, including RP44, andpharmaceutical product 

 

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candidatesmay be in competition with other products for access to these facilities andmay be subject to delays in manufacture if third parties give other productsgreater priority than our product candidates. These third parties also may notdeliver sufficient quantities of our taste modulators, including RP44, andpharmaceutical product candidates, manufacture our taste modulators, includingRP44, and pharmaceutical product candidates in accordance with specifications,or comply with applicable government regulations. Additionally, if themanufactured products fail to perform as specified, our business and reputationcould be severely impacted.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

Weface substantial competition from companies pursuing the commercialization ofproducts and services relevant to taste using various methods for the discoveryof taste modulators. These competitors include leading 

 

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flavorcompanies, such as International Flavors & Fragrances Inc.,Givaudan SA, Symrise and Firmenich. Senomyx is principally focused in thearea of taste enhancement for food products and uses a high throughputscreening technology and synthetic chemistry to discover novel flavorenhancers, which it licenses to end users in the food industry. Nutrinova, aGerman ingredients company, is also developing a biotechnology approach tofinding novel taste enhancers in collaboration with the German BiotechnologyResearch and Information Network. In certain instances we may also compete withcompanies who are commercializing Reb A. These companies includePureCircle Ltd and GLG Life Tech Corporation. We currently compete andwill continue to compete in the future with these companies in collaboratingwith and selling flavor products and technologies to manufacturers of packagedfood and beverage products.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

Ourproducts and processes will involve the controlled storage, use and disposal ofcertain hazardous and biological materials and waste products. We and oursuppliers and other collaborators are subject to federal, state and localregulations governing the use, manufacture, storage, handling and disposal ofmaterials and waste products. Even if we and these suppliers and collaboratorscomply with the standards prescribed by law and regulation, the risk ofaccidental contamination or injury from hazardous materials cannot becompletely eliminated. In the event of an accident, we could be held liable forany damages that result, and any liability could exceed the limits or falloutside the coverage of any insurance we may obtain and exceed our financialresources. We may not be able to maintain insurance on acceptable terms, or atall. We may incur significant costs to comply with current or futureenvironmental laws and regulations.

 

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

 

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

 

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

 

**Risks Related To Intellectual Property**

 

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

 

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

 

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

 

·                  obtain patent protection for our diabetes andobesity therapeutic compounds;

 

·                  maintain patents once obtained;

 

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

 

·                  obtain appropriate licenses upon reasonable termsto patents or proprietary rights held by others that are necessary or useful tous in commercializing our technology, both in the United States and in othercountries with substantial markets.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

·                  any of our patent applications will result inissued patents;

 

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

 

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

 

·                  we will develop additional proprietarytechnologies that are patentable;

 

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

 

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

 

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

 

Technologieslicensed to us by others, or in-licensed technologies, are important to ourbusiness. In particular, we depend on certain technologies relating to tastebiology licensed from the Mount Sinai School of Medicine. In addition, we mayin the future acquire rights to additional technologies by licensing suchrights from existing licensors or from third parties. Such in-licenses may becostly. Also, we do not always control the patent prosecution, maintenance orenforcement of in-licensed technologies. Accordingly, we are unable to exercisethe same degree of control over this intellectual property as we do over our internallydeveloped technologies. Moreover, some of our academic institution licensors,collaborators and scientific advisors have rights to publish data andinformation to which we have rights. If we cannot maintain the confidentialityof our technologies 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 patent applications weand our licensors have filed have not yet been substantively examined and maynot result in patents being issued.***

 

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

 

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

 

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

 

Weare aware of other companies and academic institutions that have beenperforming research in the areas of taste modulation. In particular, othercompanies and academic institutions have announced that they have conductedtaste-receptor research and have published data on taste receptor sequence informationand taste receptors or filed patent applications or obtained patent protectionon taste modulation or taste receptors and their uses. To the extent any ofthese companies or academic institutions currently have, or obtain in thefuture, broad patent claims, 

 

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suchpatents could block our ability to use various aspects of our discovery anddevelopment process and might prevent us from developing or commercializingnewly discovered taste enhancers and aversive taste blockers or otherwiseconducting our business. In addition, it is possible that some of the tasteenhancers or aversive taste blockers that are discovered using our technologymay not be patentable or may be covered by intellectual property of thirdparties. Additionally, we may be subject to disputes with our collaborativepartners relating to the scope of our research, our related agreements and theresulting rights or ownership of any discoveries.

 

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

 

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

 

Shouldany person have filed patent applications or obtained patents in the UnitedStates that claim inventions also claimed by us, we may have to participate inan interference proceeding declared by U.S. Patent and Trademark Office todetermine priority of invention and, thus, the right to a patent for 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,interference proceedings or other proceedings could divert management’s timeand efforts. Even unsuccessful claims could result in significant legal feesand other expenses, diversion of management’s time and disruption in ourbusiness. Uncertainties resulting from initiation and continuation of anypatent proceeding or related litigation could harm our ability to compete andcould have a significant adverse effect on our business, financial conditionand results of operations.

 

Anadverse ruling arising out of any intellectual property dispute, including anadverse decision as to the priority of our inventions, could undercut orinvalidate our intellectual property position. An adverse ruling could alsosubject us to significant liability for damages, including possible trebledamages, prevent us from using technologies or developing products, or requireus to negotiate licenses to disputed rights from third parties. Although patentand intellectual property disputes in the technology area are often settledthrough licensing or similar arrangements, costs associated with thesearrangements may be 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.

 

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

 

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

 

Ouroperating results have fluctuated in the past and are likely to varysignificantly in the future based upon a number of factors, many of which wehave little or no control over. We operate in a highly dynamic industry andfuture results could be subject to significant fluctuations. These fluctuationscould cause us to fail to meet or exceed financial expectations of securitiesanalysts or investors, which could cause our stock price to decline rapidly andsignificantly. Revenue and expenses in future periods may be greater or lessthan revenue and expenses in the immediately preceding period or in 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 tastemodulators;

 

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

 

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

 

·                  our receipt of milestone payments in anyparticular period;

 

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

 

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

 

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

 

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

 

·                  general and industry specific economicconditions, which may affect our collaborators’ research and developmentexpenditures.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

·                  acquisitions may require significant capital infusionsand the acquired businesses, products or technologies may not generatesufficient revenue to offset acquisition costs;

 

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

 

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

 

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

 

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

 

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

 

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

 

·                  changes and limits in import and exportcontrols;

 

·                  increases in custom duties and tariffs;

 

·                  changes in currency exchange rates;

 

·                  economic and political instability;

 

·                  changes in government regulations and laws;

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

Themarket price of our common stock, and the market prices for securities ofbiotechnology companies in general, have been, and are expected to be, highlyvolatile. The following factors, in addition to other risk factors described inthis Quarterly Report on Form 10-Q, and the potentially low volume oftrades in our common stock, may have a significant impact on the market priceof our common stock, some of which are beyond our control:

 

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

 

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

 

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

 

·                  actual or anticipated variations in operatingresults;

 

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

 

·                  changes in financial estimates by securitiesanalysts;

 

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

 

·                  regulatory developments in the United Statesand other countries;

 

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

 

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

 

·                  additions or departures of key personnel;

 

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

 

·                  sales or other transactions involving commonstock.

 

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

 

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

 

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

 

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

 

Asa result of the Reverse Merger and Reincorporation Merger, Redpoint became apublicly-traded company and, accordingly, will be subject to the informationand reporting requirements of the United States securities laws. The costs topublic companies of preparing and filing annual and quarterly reports, proxystatements and other information with the SEC and furnishing audited reports tostockholders have caused the Company’s expenses to be higher than they would beif it were a privately-held company. In addition, the Company incurred substantialexpenses in connection with the preparation of the registration statement andrelated documents with respect to the registration of the common stock issuedin the Private Placement and the Reverse Merger. Security analysts of majorbrokerage firms may not provide coverage of the Company. No assurance can begiven that brokerage firms will want to conduct any secondary offerings onbehalf of the Company in the future.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

Basedon the aggregate number of shares of our common stock that are outstanding asof September 30, 2010, our officers and directors beneficially ownapproximately 12.33% of our outstanding common stock and our 

 

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5%stockholders beneficially own approximately 37.17% of our outstanding commonstock. Such a high level of ownership by such persons may have a significanteffect in delaying, deferring or preventing any potential change in control ofthe Company. Additionally, as a result of their high level of ownership, ourofficers and directors might be able to strongly influence the actions of theCompany’s board of directors, and the outcome of actions brought to ourstockholders for approval. Such a high level of ownership may adversely affectthe voting and other rights of our stockholders.

 

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

 

None.

 

**ITEM 3.DEFAULTS UPON SENIOR SECURITIES**

 

Notapplicable.

 

**ITEM 6.EXHIBITS**

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

 

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

 
|                    | REDPOINT  BIO CORPORATION |
|-------------------------|---------------------------|
|                    |                      |   |
| November 12,  2010 | By:                       | /s/  F. Raymond Salemme |
|                    |                      | F.  Raymond Salemme |
|                    |                      | President  and Chief Executive Officer |
|                    |                      | (Principal  Executive Officer) |
|                    |                      |   |
| November 12,  2010 | By:                       | /s/  Scott M. Horvitz |
|                    |                      | Scott  M. Horvitz |
|                    |                      | Chief  Financial Officer, Treasurer and Secretary |
|                    |                      | (Principal  Financial and Accounting Officer) |

 

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**EXHIBIT INDEX**

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