** **

**UnitedStates**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM10-Q**

 
| **(Mark One)** |                                                                                           |
|----------------|------------------------------------------------------------------------------------------------|
|           |
| **x**          | **QUARTERLY REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**   |
| ** **     | ** **                                                                                     |
|           | **For the quarterly period ended September 30, 2007**                                          |
| ** **     | ** **                                                                                     |
|           | **or**                                                                                         |
| ** **     | ** **                                                                                     |
| **o**          | **TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934** |

 

**For the transition period from             to             **

 

**Commission File Number:  000-51708**

 

**RedpointBio Corporation**

(Exactname of Registrant as specified in its charter)

 

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

 

**Redpoint Bio Corporation, 7 Graphics Drive, Ewing, New Jersey08628**

(Addressof principal executive offices) (Zip Code)

 

**(609) 637-9700**

(Registrant’sTelephone Number, Including Area Code)

 

 

(FormerName, Former Address and Former Fiscal Year, If Changed Since Last Report)

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days. Yes  x  No  o

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer. See definition of “accelerated filer and largeaccelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

 
| Large  Accelerated Filer o |   | Accelerated  Filer o |   | Non-Accelerated  Filer x |
|----------------------------|--------|----------------------|--------|--------------------------|

 

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

 

The number of shares of theregistrant’s common stock outstanding as of November 14, 2007 was 79,127,995.

 

 

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**REDPOINT BIO CORPORATION**

 

**TABLE OF CONTENTS**

 

 
| ** **   | ** **                                                                                                                                                       | **Page** |
|--------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------|
| **PART I:**  | **FINANCIAL INFORMATION**                                                                                                                                        |     |
|         |                                                                                                                                                             |     |
| ITEM 1.      | FINANCIAL STATEMENTS (unaudited):                                                                                                                                | 3        |
|         |                                                                                                                                                             |     |
|         | Balance Sheets as of December 31, 2006  and September 30, 2007                                                                                                   | 3        |
|         |                                                                                                                                                             |     |
|         | Statements of Operations for the  Three and Nine Months Ended September 30, 2006 and 2007 and the period from  August 16, 1995 (inception) to September 30, 2007 | 4        |
|         |                                                                                                                                                             |     |
|         | Statements of Cash Flows for the Nine Months Ended  September 30, 2006 and 2007 and the period from August 16, 1995 (inception)  to September 30, 2007           | 5        |
|         |                                                                                                                                                             |     |
|         | Notes to Financial Statements                                                                                                                                    | 7        |
|         |                                                                                                                                                             |     |
| ITEM 2.      | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL  CONDITION AND RESULTS OF OPERATIONS                                                                      | 11       |
|         |                                                                                                                                                             |     |
| ITEM 3.      | QUANTITATIVE AND QUALITATIVE  DISCLOSURES ABOUT MARKET RISK                                                                                                      | 17       |
|         |                                                                                                                                                             |     |
| ITEM 4T.     | CONTROLS AND PROCEDURES                                                                                                                                          | 17       |
|         |                                                                                                                                                             |     |
| **PART II:** | **OTHER INFORMATION**                                                                                                                                            |     |
|         |                                                                                                                                                             |     |
| ITEM 1.      | LEGAL PROCEEDINGS                                                                                                                                                | 19       |
|         |                                                                                                                                                             |     |
| ITEM 1A.     | RISK FACTORS                                                                                                                                                     | 19       |
|         |                                                                                                                                                             |     |
| ITEM 2.      | UNREGISTERED SALES OF EQUITY  SECURITIES AND USE OF PROCEEDS                                                                                                     | 32       |
|         |                                                                                                                                                             |     |
| ITEM 3.      | DEFAULTS UPON SENIOR SECURITIES                                                                                                                                  | 32       |
|         |                                                                                                                                                             |     |
| ITEM 4.      | SUBMISSION OF MATTERS TO A VOTE OF  SECURITY HOLDERS                                                                                                             | 32       |
|         |                                                                                                                                                             |     |
| ITEM 6.      | EXHIBITS                                                                                                                                                         | 32       |
|         |                                                                                                                                                             |     |
| SIGNATURES   |                                                                                                                                                             | 34       |

 

----

 

**PART I. FINANCIAL INFORMATION.**

 

**ITEM1.  FINANCIAL STATEMENTS.**

 

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

**(UNAUDITED)**

 
| ** **                                                                                                                                                                                 | ** ** | **December 31,** | ** ** | **September 30,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|------------------------|------------|
| ** **                                                                                                                                                                                 | ** ** | **2006**              | ** ** | **2007**               | ** ** |
| **Assets**                                                                                                                                                                                 |       |                  |       |                   |       |
| Current assets:                                                                                                                                                                            |       |                  |       |                   |       |
| Cash and cash equivalents                                                                                                                                                                  |       | $                     | 974,378    |                   | $          | 9,347,609 |   |
| Marketable securities                                                                                                                                                                      |       | —                |       | 16,418,825             |       |
| Accounts receivable                                                                                                                                                                        |       | —                |       | 600,000                |       |
| Prepaid expenses and other current assets                                                                                                                                                  |       | 72,697                |       | 242,906                |       |
| Total current assets                                                                                                                                                                       |       | 1,047,075             |       | 26,609,340             |       |
| Property and equipment, net                                                                                                                                                                |       | 840,435               |       | 1,283,594              |       |
| Deferred financing costs                                                                                                                                                                   |       | 308,456               |       | —                 |       |
| Other assets                                                                                                                                                                               |       | 355,816               |       | 290,156                |       |
| Total assets                                                                                                                                                                               |       | $                     | 2,551,782  |                   | $          | 28,183,090 |   |
| **Liabilities  and Stockholders’ Equity (Deficit)**                                                                                                                                   |       |                  |       |                   |       |
| Current liabilities:                                                                                                                                                                       |       |                  |       |                   |       |
| Convertible notes payable                                                                                                                                                                  |       | $                     | 3,462,359  |                   | $          | — |   |
| Current portion of long-term debt                                                                                                                                                          |       | 574,132               |       | 512,510                |       |
| Accounts payable                                                                                                                                                                           |       | 833,739               |       | 1,602,154              |       |
| Accrued expenses                                                                                                                                                                           |       | 351,650               |       | 393,348                |       |
| Accrued compensation                                                                                                                                                                       |       | 704,964               |       | 356,412                |       |
| Deferred revenue                                                                                                                                                                           |       | —                |       | 1,031,424              |       |
| Total current liabilities                                                                                                                                                                  |       | 5,926,844             |       | 3,895,848              |       |
| Long-term debt                                                                                                                                                                             |       | 635,344               |       | 271,634                |       |
| Deferred revenue                                                                                                                                                                           |       | —                |       | 742,864                |       |
| Total liabilities                                                                                                                                                                          |       | 6,562,188             |       | 4,910,346              |       |
|                                                                                                                                                                                       |       |                  |       |                   |       |
| Redeemable convertible preferred stock,  $0.0001 par value;                                                                                                                                |       |                  |       |                   |       |
| Series A convertible preferred stock;  issued and outstanding 6,444,835 shares (liquidation value of $16,350,586 at  December 31, 2006)                                                    |       | 16,217,778            |       | —                 |       |
| Junior preferred stock; issued and  outstanding 236,987 shares (liquidation value of $622,787 at December 31,  2006)                                                                       |       | 497,673               |       | —                 |       |
|                                                                                                                                                                                       |       |                  |       |                   |       |
| Stockholders’ equity (deficit):                                                                                                                                                       |       |                  |       |                   |       |
| Preferred stock; 10,000,000 shares  authorized, $0.0001 par value, none issued                                                                                                             |       | —                |       | —                 |       |
| Common stock; authorized 150,000,000  shares; $0.0001 par value, issued and outstanding 4,439,345 at December 31,  2006 and issued and outstanding 78,916,157 shares at September 30, 2007 |       | 444                   |       | 7,891                  |       |
| Additional paid-in capital                                                                                                                                                                 |       | 1,568,697             |       | 54,291,768             |       |
| Deficit accumulated during development  stage                                                                                                                                              |       | (22,294,998           | )          | (31,064,962            | )          |
| Accumulated other comprehensive income                                                                                                                                                     |       | —                |       | 38,047                 |       |
| Total stockholders’ equity (deficit)                                                                                                                                                  |       | (20,725,857           | )          | 23,272,744             |       |
| Total liabilities and stockholders’ equity                                                                                                                                            |       | $                     | 2,551,782  |                   | $          | 28,183,090 |   |

 

Seeaccompanying notes to unaudited financial statements.

 

3

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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** | ** ** |
|------------------------------------------------------|------------|----------------------------------------------------------|------------|---------------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                           | ** ** | **2006**                                                 | ** ** | **2007**                                                | ** ** | **2006**                                           | ** ** | **2007** | ** ** | **September 30, 2007** | ** ** |
|                                                 |       |                                                     |       |                                                    |       |                                               |       |   |   |   |   |
| Research and grant revenue                           |       | $                                                        | —     |                                                    | $          | 710,123                                            |       | $ | — |   | $ | 1,426,516 |   | $ | 5,659,377 |   |
|                                                 |       |                                                     |       |                                                    |       |                                               |       |   |   |   |   |
| Operating expenses:                                  |       |                                                     |       |                                                    |       |                                               |       |   |   |   |   |
| Research and development                             |       | 883,934                                                  |       | 1,709,961                                               |       | 2,718,228                                          |       | 5,520,302 |   | 18,044,055 |   |
| General and administrative                           |       | 669,460                                                  |       | 1,162,759                                               |       | 2,079,054                                          |       | 3,225,424 |   | 13,309,318 |   |
| Total operating expenses                             |       | 1,553,394                                                |       | 2,872,720                                               |       | 4,797,282                                          |       | 8,745,726 |   | 31,353,373 |   |
| Operating loss                                       |       | (1,553,394                                               | )          | (2,162,597                                              | )          | (4,797,282                                         | )          | (7,319,210 | ) | (25,693,996 | ) |
| Interest income                                      |       | 13,121                                                   |       | 275,904                                                 |       | 41,648                                             |       | 452,040 |   | 637,237 |   |
| Interest expense                                     |       | (273,455                                                 | )          | (22,451                                                 | )          | (435,301                                           | )          | (1,677,948 | ) | (3,314,520 | ) |
|                                                 |       |                                                     |       |                                                    |       |                                               |       |   |   |   |   |
| Loss before income taxes                             |       | (1,813,728                                               | )          | (1,909,144                                              | )          | (5,190,935                                         | )          | (8,545,118 | ) | (28,371,279 | ) |
|                                                 |       |                                                     |       |                                                    |       |                                               |       |   |   |   |   |
| Income tax benefit                                   |       | —                                                   |       | —                                                  |       | —                                             |       | — |   | 719,206 |   |
|                                                 |       |                                                     |       |                                                    |       |                                               |       |   |   |   |   |
| Net loss                                             |       | (1,813,728                                               | )          | (1,909,144                                              | )          | (5,190,935                                         | )          | (8,545,118 | ) | $ | (27,652,073 | ) |
|                                                 |       |                                                     |       |                                                    |       |                                               |       |   |   |   |   |
| Accretion of redeemable convertible  preferred stock |       | (289,725                                                 | )          | —                                                  |       | (860,276                                           | )          | (224,846 | ) |   |   |
| Net loss applicable to common stockholders           |       | $                                                        | (2,103,453 | )                                                       | $          | (1,909,144                                         | )          | $ | (6,051,211 | ) | $ | (8,769,964 | ) |   |   |
|                                                 |       |                                                     |       |                                                    |       |                                               |       |   |   |   |   |
| Basic and diluted net loss per common share          |       | $                                                        | (0.47      | )                                                       | $          | (0.02                                              | )          | $ | (1.37 | ) | $ | (0.15 | ) |   |   |
|                                                 |       |                                                     |       |                                                    |       |                                               |       |   |   |   |   |
| Weighted average of shares outstanding               |       | 4,435,396                                                |       | 78,916,157                                              |       | 4,425,663                                          |       | 57,990,405 |   |   |   |

 

Seeaccompanying notes to the unaudited financial statements.

 

4

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**REDPOINT BIO CORPORATION**

**(A DEVELOPMENT-STAGE ENTERPRISE)**

**STATEMENTS OF CASH FLOWS**

**(UNAUDITED)**

 

 
| ** **                                                                   | ** ** | **Nine Months Ended September 30,** | ** ** | **August 16,  1995  (Inception)  to** | ** ** |
|------------------------------------------------------------------------------|------------|---------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                   | ** ** | **2006**                                                | ** ** | **2007**                                   | ** ** | **September 30, 2007** | ** ** |
| Cash flows from operating activities:                                        |       |                                                    |       |                                       |       |   |   |
| Net loss                                                                     |       | $                                                       | (5,190,935 | )                                          | $          | (8,545,118 | ) | $ | (27,652,073 | ) |
| Adjustments to reconcile net loss to net  cash used in operating activities: |       |                                                    |       |                                       |       |   |   |
| Depreciation                                                                 |       | 305,300                                                 |       | 351,645                                    |       | 1,367,967 |   |
| Accretion of discount on marketable  securities                              |       | —                                                  |       | (54,338                                    | )          | (54,338 | ) |
| Options, warrants and stock issued for  services and dilution provisions     |       | 34,322                                                  |       | 2,036,593                                  |       | 2,428,726 |   |
| Beneficial conversion feature                                                |       | —                                                  |       | 1,228,565                                  |       | 1,228,565 |   |
| Amortization of discount on convertible  notes                               |       | 224,407                                                 |       | 302,032                                    |       | 899,935 |   |
| Amortization of deferred financing costs                                     |       | 57,895                                                  |       | 32,892                                     |       | 130,050 |   |
| Debt inducement charge                                                       |       | —                                                  |       | —                                     |       | 361,598 |   |
| Interest expense on convertible notes                                        |       | —                                                  |       | —                                     |       | 136,075 |   |
| Changes in assets and liabilities:                                           |       |                                                    |       |                                       |       |   |   |
| Accounts receivable                                                          |       | —                                                  |       | (600,000                                   | )          | (600,000 | ) |
| Prepaid expenses and other assets                                            |       | (115,860                                                | )          | (168,202                                   | )          | (826,885 | ) |
| Accounts payable                                                             |       | 333,525                                                 |       | 810,366                                    |       | 1,644,105 |   |
| Accrued expenses and accrued compensation                                    |       | 320,576                                                 |       | (175,244                                   | )          | 881,370 |   |
| Deferred revenue                                                             |       | —                                                  |       | 1,774,288                                  |       | 1,774,288 |   |
| Net cash used in operating activities                                        |       | (4,030,770                                              | )          | (3,006,521                                 | )          | (18,280,617 | ) |
| Cash flows from investing activities:                                        |       |                                                    |       |                                       |       |   |   |
| Purchases of marketable securities                                           |       | —                                                  |       | (16,326,440                                | )          | (16,326,440 | ) |
| Purchases of property and equipment                                          |       | (52,984                                                 | )          | (528,299                                   | )          | (2,385,056 | ) |
| Net cash used in investing activities                                        |       | (52,984                                                 | )          | (16,854,739                                | )          | (18,711,496 | ) |
| Cash flows from financing activities:                                        |       |                                                    |       |                                       |       |   |   |
| Proceeds from issuance of long-term debt                                     |       | —                                                  |       | —                                     |       | 2,085,810 |   |
| Net proceeds from convertible notes                                          |       | 2,308,179                                               |       | —                                     |       | 5,253,811 |   |
| Repayment of debt                                                            |       | (380,619                                                | )          | (425,332                                   | )          | (1,301,666 | ) |
| Net proceeds from issuance of preferred  stock                               |       | —                                                  |       | —                                     |       | 11,883,447 |   |
| Net proceeds from issuance of common stock  and warrants                     |       | 12,352                                                  |       | 28,622,701                                 |       | 28,664,319 |   |
| Proceeds from exercise of common stock  options                              |       | —                                                  |       | 37,122                                     |       | 37,122 |   |
| Common stock reacquired                                                      |       | —                                                  |       | —                                     |       | (283,121 | ) |
| Net cash provided by financing activities                                    |       | 1,939,912                                               |       | 28,234,491                                 |       | 46,339,722 |   |
| Net (decrease) increase in cash and cash  equivalents                        |       | (2,143,842                                              | )          | 8,373,231                                  |       | 9,347,609 |   |
| Cash and cash equivalents, beginning of  period                              |       | 2,557,680                                               |       | 974,378                                    |       | — |   |
| Cash and cash equivalents, end of period                                     |       | $                                                       | 413,838    |                                       | $          | 9,347,609 |   | $ | 9,347,609 |   |

 

5

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| ** **                                                           | ** ** | **Nine Months Ended September 30,** | ** ** | **August 16,  1995  (Inception)  to** | ** ** |
|----------------------------------------------------------------------|------------|---------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                           | ** ** | **2006**                                                | ** ** | **2007**                                   | ** ** | **September 30, 2007** | ** ** |
| Supplemental cash flow disclosures:                                  |       |                                                    |       |                                       |       |   |   |
| Noncash investing and financing activities:                          |       |                                                    |       |                                       |       |   |   |
| Increase in property and equipment included  in accounts payable     |       | $                                                       | —     |                                       | $          | 266,505 |   | $ | 266,505 |   |
| 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                                  |       | 3,896,001 |   |
| Conversion of preferred and junior  preferred stock to common stock  |       | —                                                  |       | 16,940,297                                 |       | 16,940,297 |   |
| Accretion of preferred stock                                         |       | 860,276                                                 |       | 224,846                                    |       | 3,248,857 |   |
| Warrants issued in connection with notes  payable                    |       | 679,267                                                 |       | —                                     |       | 1,258,642 |   |
| Cash paid for interest                                               |       | 111,838                                                 |       | 65,702                                     |       | 384,776 |   |
|                                                                      |            |                                                         |            |                                            |            |  |  |  |  |  |

 

Seeaccompanying notes to the unaudited financial statements.

 

6

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**REDPOINT BIO CORPORATION**

**(A DEVELOPMENT-STAGE ENTERPRISE)**

**NOTES TO FINANCIAL STATEMENTS**

**(UNAUDITED)**

 

**1****                                                                ****Basis of Presentation**

 

The accompanying unauditedfinancial statements of Redpoint Bio Corporation (“Redpoint” or the “Company”)have been prepared in accordance with generally accepted accounting principlesfor interim financial information and pursuant to the rules and regulations ofthe Securities and Exchange Commission, referred to herein as the SEC.Accordingly, they do not include all of the information and footnotes requiredby generally accepted accounting principles for complete financial statements.

 

In the opinion ofmanagement, all adjustments (consisting of normal recurring adjustments)considered necessary for a fair presentation have been included (See Note 2 fordiscussion of the impact of the Reverse Merger (as defined below)). Operating results for the three and nine months ended September 30, 2007 arenot necessarily indicative of the results that may be expected for the year endingDecember 31, 2007.

 

For further information,refer to the 2006 financial statements and footnotes thereto of Redpointincluded in the Company’s Prospectus filed with the SEC pursuant to Rule424(b)(3) on July 20, 2007.

 

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

 

*Completionof Merger*

 

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

 

Redpoint was deemed to havebeen the accounting acquirer in the Reverse Merger.  Accordingly, thefinancial statements of the Company presented reflect the historical results ofRedpoint prior to the Reverse Merger, and of the combined entities followingthe Reverse Merger, and do not include the historical financial results ofRobcor prior to the consummation of the Reverse Merger.

 

*PrivatePlacement*

 

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

 

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

 

On April 6, 2007,Robcor sold an additional 16.1 million shares of common stock and warrants topurchase 4.0 million shares of common stock which resulted in net proceeds ofapproximately $11.4 million.  In connection with the April closing,warrants to purchase an additional 1.6 million shares of common stock wereissued to the placement agents.

 

*Reincorporation Merger*

 

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

 

7

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

 

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

 

**3**                                                                 **Summary of SignificantAccounting Policies**

 

***(a)******                                ******Use ofEstimates***

 

The preparation of financialstatements in conformity with U.S. generally accepted accounting principlesrequires management to make estimates and assumptions that affect the reportedamounts of assets and liabilities and disclosure of contingent assets andliabilities at the date of the financial statements and the reported amounts ofrevenues and expenses during the reporting period. Actual results could differfrom such estimates.

 

***(b)******                                ******Cash andCash Equivalents***

 

The Company considers allhighly liquid investments that have maturities of three months or less whenacquired to be cash equivalents.

 

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

 

Marketable securitiesinclude investments in corporate commercial paper and debt securities havingoriginal maturities of greater than three months and a remaining maturity ofless than 24 months. These marketable securities are treated for financialreporting purposes as available-for-sale and as such are reported at their fairmarket values. Unrealized gains and losses have been recorded as a separatecomponent of stockholders’ equity. All realized gains and losses are recordedin the results of operations.

 

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

 

Financial instruments thatpotentially subject the Company to concentrations of credit risk consist ofcash equivalents and marketable securities. The Company has establishedguidelines relating to diversification and maturities that allows the Companyto manage risk.

 

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

 

Revenue from corporatecollaborations and licensing agreements consists of up-front fees, research anddevelopment funding, and milestone payments. Nonrefundable up-front fees aredeferred and recognized as revenue in the period the earnings process iscomplete based on the terms of the specific agreements. Revenue from researchand development agreements and government grants is recognized pursuant to therelated agreements as work is performed and related costs are incurred. Revenueresulting from the achievement of milestone events as defined in the agreementsis recognized when the milestone is achieved.

 

***(f)******                                   ******Researchand Development***

 

Research and developmentcosts, including those incurred in relation to the Company’s collaborativeagreements, are charged to expense as incurred. These expenses include internalresearch and development as well as amounts paid to third party’s to conductresearch on the Company’s behalf. Costs incurred in obtaining technologylicenses are charged immediately to research and development expense if thetechnology licensed has not reached technological feasibility and has noalternative future uses.

 

***(g)***                                 ***Stock-BasedCompensation***

 

The Company followsStatement of Financial Accounting Standards (SFAS) No. 123 (revised 2004),*Share-Based Payment*(SFAS 123R) under which the Company recognizes compensation cost forawards to employees and nonemployee board members based on the grant-date fairvalue of stock-based awards over the period during which an award holder isrequired to provide service in exchange for the award. No compensation cost isrecognized for awards for which the award holder does not render the requisiteservice.

 

***(h)***                                 ***Net Lossper Share***

 

Net loss per share iscomputed in accordance with SFAS No. 128, *Earningsper Share*, by dividing the net loss allocable to common stockholdersby the weighted average number of shares of Common Stock outstanding.

 

8

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As of September 30, 2007 theCompany has outstanding certain options and warrants, which have not been usedin the calculation of diluted net loss per share because, to do so would beanti-dilutive. As such, the numerator and the denominator used in computingboth basic and diluted net loss per share allocable to common stockholders areequal.

 

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

 

In July 2006, the FinancialAccounting Standards Board issued FASB Interpretation No. 48, *Accounting for Uncertainty in Income Taxes (FIN 48)*,which is applicable for fiscal years beginning after December 15, 2006. FIN 48 clarifies the accounting for uncertainty in income taxes recognized inan enterprise’s financial statements in accordance with SFAS No. 109, *Accounting for Income Taxes*.  FIN 48prescribes a recognition threshold and measurement attribute for financialstatement recognition and measurement of a tax position reported or expected tobe reported on a tax return. FIN 48 also provides guidance on the recognition,classification, interest and penalties, accounting in interim periods,disclosure, and transition. We adopted the provisions of FIN 48 on January 1,2007.  Upon adoption of FIN 48 and through September 30, 2007, we determinedthat we had no liability for uncertain income taxes as prescribed by FIN48.  Our policy is to recognize potential accrued interest and penaltiesrelated to the liability for uncertain tax benefits, if applicable, in incometax expense.  Net operating loss and credit carryforwards since inceptionremain open to examination by taxing authorities, and will continue to remainopen for a period of time post utilization.  We do not anticipate anyevents during 2007 that would require the Company to record a liability relatedto any uncertain income taxes.

 

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

 

In May, June andOctober 2006, the Company entered into a convertible debt financingagreement with certain of its existing investors which provided for $4,116,774in funding. The Company issued 5% secured promissory notes (the “PromissoryNotes”) with principal amounts totaling $4,093,024 and warrants to purchaseshares of a new series of preferred stock that may be designated in the futurein a Qualified Financing, as defined in such Promissory Notes.  ThePromissory Notes were due on the earliest to occur of: (i) demand byholders of a majority of the outstanding principal at any time after the oneyear anniversary of the initial May closing; (ii) a Liquidation Event, asdefined in such Promissory Notes; and (iii) the two-year anniversary ofthe initial May closing.  In connection with the Reverse Merger, thePromissory Notes and accrued interest were converted into 5,223,522 shares ofcommon stock and warrants were exercised resulting in the issuance of 2,033,175shares of common stock.

 

In accordance with APBOpinion No. 14, *Accounting forConvertible Debt and Debt Issued with Stock Purchase Warrants*, theCompany allocated the proceeds from the financing between the Promissory Notes andwarrants based on their relative estimated fair values.  The relative fairvalue of the warrants of $1,228,565 was recorded against the carrying value ofthe Promissory Notes as an original issue discount (OID) which was beingamortized as interest expense over the one year anniversary of the initial Mayissuance date of the Promissory Notes until the closing of Reverse Merger.During the nine months ended September 30, 2007, the Company recognized anoncash charge to interest expense of $302,032 for the amortization of theremaining OID.

 

In accordance with EmergingIssues Task Force (EITF) No. 00-27, *Applicationof Issue No. 98-5 to Certain Convertible Instruments* , and EITFNo. 98-5, *Accounting for ConvertibleSecurities with Beneficial Conversion Features or Contingently AdjustableRatios* , after considering the allocation of the proceeds to thePromissory Notes, the Company determined that the Promissory Notes contained acontingent beneficial conversion feature (Contingent BCF). The Contingent BCF existedat the date of the issuance of the Promissory Notes due to the fact that theoriginal carrying value of Promissory Notes, after allocation of the proceeds,would be less than the purchase price of the new series of preferred stock paidby investors in the new series. In accordance with EITF No. 98-5, theContingent BCF of $1,228,565 was recognized as additional interest expenseduring the nine months ended September 30, 2007 when the Promissory Notes wereconverted into shares of the common stock.

 

**5**                                         **Stockholders’ Equity**

 

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

 

The Company was party to anumber of agreements that provided for dilution protection to certaininvestors.  In connection with the Reverse Merger and closing of thePrivate Placement, the Company issued approximately 2.0 million shares ofcommon stock to a founder and shareholder of the Company pursuant to certainantidilution protection.  During the nine months ended September 30, 2007,the Company recorded a charge of $1.6 million to research and development expensesrelated to the issuance of such shares of common stock, which represents thefair value of these shares.

 

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

 

As of September 30, 2007,the Company had the following warrants to purchase Common Stock outstanding:

 
| **Number of shares** | ** ** | **Exercise price** | ** ** | **Expiration** | ** **    |
|--------------------------------|------------|-------------------------|------------|----------------|---------------|
|                           |       |                    |       |           |          |
| 138,446                        |       | $                       | 0.15       |           | December 2007 |   |
|                           |       |                    |       |           |          |
| 53,039                         |       | $                       | 0.75       |           | December 2012 |   |
|                           |       |                    |       |           |          |
| 6,182,287                      |       | $                       | 1.35       |           | March 2010    |   |
|                           |       |                    |       |           |          |
| 4,015,059                      |       | $                       | 1.35       |           | April 2010    |   |
|                           |       |                    |       |           |          |
| 3,574,906                      |       | $                       | 0.97       |           | April 2012    |   |

 

***(c)******                                 ******StockOption Plans***

 

In November 2003, theCompany adopted the 2003 Stock Incentive Plan, as amended (the “2003 Plan”),that authorized the Company to grant up to 6,523,790 shares of Common Stock toeligible employees, directors, and consultants to the Company in the form ofrestricted stock and stock options. The amount and terms of grants weredetermined by the board of directors. The term of the options could have beenup to 10 years, and options were exercisable in cash or as otherwisedetermined by the board of directors. Generally, options vested 25% upon thefirst anniversary of the date of grant and ratably each month thereafterthrough the fourth anniversary of the date of grant.

 

On March 12, 2007, theCompany adopted the Redpoint Bio Corporation 2007 Omnibus Equity CompensationPlan (“2007 Plan”), which provided for the issuance of up to 13,511,562 sharesof common stock, subject to adjustment in certain circumstances.  Inconnection with the adoption of the 2007 Plan, the 2003 Plan merged with andinto the 2007 Plan and no additional grants may be made thereafter under the2003 Plan.  Outstanding grants under the 2003 Plan will continue in effectin accordance with their terms as in effect before March 12, 2007 and theshares with respect to outstanding grants under the 2003 Plan will be issued ortransferred under the 2007 Plan.  The 2007 Plan is now the Company’s onlyplan in effect.

 

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

 

The following is a summaryof stock option activity under the Plan during the nine months ended September30, 2007:

 
| ** **                        | ** ** | **Number of** | ** ** | **average**             | ** ** | **contractual** | ** ** |
|-----------------------------------|------------|--------------------|------------|-------------------------|------------|-----------------|------------|
| ** **                        | ** ** | **shares**         | ** ** | **exercise price** | ** ** | **term**        | ** ** |
| Outstanding at December 31, 2006  |       | 5,426,049          |       | $                       | 0.16       |            |       |   |
| Granted                           |       | 5,127,016          |       | 0.81                    |       |            |       |
| Exercised                         |       | (247,482           | )          | 0.15                    |       |            |       |
| Forfeited                         |       | (1,115,253         | )          | 0.60                    |       |            |       |
| Outstanding at September 30, 2007 |       | 9,190,330          |       | 0.47                    |       | 8.1 years       |       |
|                                   |            |                    |            |                         |            |                 |            |  |

 

All options granted to datehave exercise prices equal to the fair value of the underlying common stock onthe date of grant. Prior to the effectiveness of the registration statement onForm S-1, which occurred on July 20, 2007, all options were granted with anexercise price equal to the estimated fair value of the underlying common stockas determined by the board of directors. Subsequent to that date, all optionshave been granted with an exercise price equal to the most recent trading priceof the Company’s common stock. As of September 30, 2007, there were8,171,215 shares of common stock available for grant under the 2007 Plan.

 

The per-share weightedaverage fair value of options granted during the nine months ended September30, 2007 and 2006 was estimated at $0.53 and $0.10, respectively, on the dateof grant using the Black-Scholes option-pricing model.

 

The Company recognized$140,161, $404,885, $5,031 and $21,390 of compensation expense pursuant toSFAS 123R for the three and nine months ended September 30, 2007 and 2006,respectively. As of September 30, 2007, there was $2.0 million of unrecognizedcompensation expense related to unvested stock options, which is expected to berecognized over a weighted average period of 3.4 years.

 

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*** ***

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

 

On June 5, 2007, the Companyfiled a “resale” registration statement with the SEC covering all shares ofcommon stock issued in the Private Placement and in connection with the ReverseMerger, including shares of common stock into which certain warrants areexercisable.  Such registration statement was declared effective on July20, 2007.  The Company will use its best efforts to maintain itseffectiveness until such time as all securities registered under theregistration statement have been sold or are otherwise able to be sold underRule 144 of the Securities Act without regard to volume limitations, whichever isearlier.

 

**6**                                         **Research and DevelopmentCollaboration**

 

On March 27, 2007, Redpointentered into a Joint Research and Development and License Agreement (the “GivaudanAgreement”) with Givaudan Schweiz AG, a Swiss company (“Givaudan”), for thedevelopment and commercialization of compounds that enhance sweetness or savorysensation, as well as compounds that block or desensitize bitter taste for usein the food and beverage industry.  Under the terms of the GivaudanAgreement, Redpoint received an upfront payment of $1.3 million in March 2007and will receive research funding over the initial 3.5 year term of theGivaudan Agreement, of up to $11.6 million.  Redpoint will also beeligible to receive milestone payments of up to $2.5 million as well as royaltypayments based on global sales of Givaudan products that contain flavor systemsincorporating compounds developed under the collaboration.  The upfrontpayment of $1.3 million will be recognized as revenue on a straight-line basisover the initial term of the Givaudan Agreement.

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

 

**CautionaryNote Regarding Forward-Looking Statements**

 

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

 

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

 

•        our need for additional capital to fund thecurrent level of our research and development programs, our inability tofurther identify, develop and achieve commercial success for new products andtechnologies;

 

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

 

•        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;

 

•        our dependence upon food, ingredient andpharmaceutical and biotechnology collaborations;

 

•        the levels and timing of payments under ourcollaborative agreement;

 

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

 

•        the development of competing diagnostic andtherapeutic products; our ability to protect our proprietary technologies;

 

•        patent-infringement claims;

 

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

 

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

 

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

 

**Introduction**

 

*Reverse Triangular Merger and Private Placement*

 

On March 12, 2007, weentered into the Agreement and Plan of Merger, dated as of March 12, 2007,by and among Redpoint, on the one hand, and Robcor, Robcor Acquisition Corp., aDelaware corporation and wholly-owned subsidiary of Robcor, referred to hereinas Merger Sub, Robcor, LLC, a Kentucky limited liability company andwholly-owned subsidiary of Robcor, referred to herein as Robcor, LLC, andHalter Financial Investments, L.P., a Texas limited partnership, and MichaelHeitz, as stockholders of Robcor, on the other hand, referred to herein as theReverse Merger Agreement. The transactions contemplated by the Reverse MergerAgreement were consummated on March 12, 2007, which is referred to hereinas the Closing or Closing Date.

 

Pursuant to the ReverseMerger Agreement, on the Closing Date, Merger Sub merged with and intoRedpoint, which will be referred to herein as the Reverse Merger, with Redpointbeing the surviving corporation. Redpoint became a wholly-owned subsidiary ofRobcor and the outstanding shares of capital stock, convertible notes andcertain warrants to purchase capital stock of Redpoint were converted into anaggregate of 35,073,259 shares of Robcor common stock in accordance with theDelaware General Corporation Law, also known as the DGCL, on the terms andconditions as set forth in the Reverse Merger Agreement.

 

Additionally, on the ClosingDate, Robcor cancelled and extinguished 1,150,000 shares of Robcor common stockheld by our former stockholder Michael Heitz in exchange for the transfer toMr. Heitz, simultaneous with the Closing, of Robcor’s membership interestin Robcor, LLC held prior to the Closing Date.

 

Contemporaneously with theReverse Merger, Redpoint and Robcor completed the first closing of a privateplacement, referred to herein as the Private Placement, of an aggregate of24,729,060 shares of Robcor common stock at a price of $0.81 per share,together with three-year warrants to buy 25% of the number of shares of Robcorcommon stock purchased at a cash exercise price of $1.35 per share, referred toherein as the Investor Warrants. On April 6, 2007, Redpoint and Robcorcompleted the second and final closing of the Private Placement of an aggregateof 16,060,203 shares of Robcor common stock at a price of $0.81 per share,together with the Investor Warrants.

 

*Reincorporation Merger*

 

On May 3, 2007,Redpoint and Robcor entered into an Agreement and Plan of Merger in whichRobcor, the former parent company of Redpoint, merged with and intoRedpoint.  Such merger, referred to herein as the Reincorporation Merger,was approved by the holders of a majority of Robcor common stock outstanding asof May 3, 2007 via the execution of a written consent.  TheReincorporation Merger was deemed effective on June 15, 2007 and resultedin:

 

•        the change in our state of incorporation fromFlorida to Delaware via the merger of Robcor into Redpoint, pursuant to theAgreement and Plan of Merger, dated May 3, 2007, between Redpoint andRobcor, which means that we, as the surviving corporation in theReincorporation Merger, are now governed by the laws of the State of Delaware;

 

•        the change of Robcor’s duly registered namefrom “Robcor Properties, Inc.” to “Redpoint Bio Corporation”;

 

•        Redpoint’s Third Amended and RestatedCertificate of Incorporation becoming the certificate of incorporation of thesurviving corporation, under which the authorized number of shares of commonstock was decreased from 1,000,000,000 shares of common stock, no par value pershare, as authorized under Robcor’s articles of incorporation, to 150,000,000shares of common stock, $0.0001 par value per share, and the authorized numberof shares of preferred stock was decreased from 20,000,000 shares of preferredstock, no par value per share, as authorized under Robcor’s articles ofincorporation, to 10,000,000 shares of preferred stock, $0.0001 par value pershare;

 

•        Redpoint’s Amended and Restated By-lawsbecame our by-laws as the surviving corporation; and

 

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•        a 4,132,705 share increase to the maximumnumber of shares of common stock reserved for issuance under our 2007 OmnibusEquity Compensation Plan, from 13,511,562 to 17,644,267 shares.

 

***Outstanding Securities***

 

As of September 30, 2007,there were 78,916,157 shares of our common stock outstanding, outstandingoptions to purchase 9,190,330 shares of our common stock, and outstandingwarrants to purchase 13,963,737 shares of our common stock.

 

This discussion and analysisshould be read in conjunction with the financial statements and notes, andother financial information included in this report and the financialstatements of Redpoint included in our Prospectus filed pursuant to Rule424(b)(3) on July 20, 2007.

 

**Overview**

 

Redpoint is a developmentstage biotechnology company focused on discovering, developing, andcommercializing ingredients that improve the taste of medicines and consumerhealth care products and enhance the nutritional value of foods andbeverages.  We use our technology to discover and develop products forpartners and for our own pipeline.

 

Since its inception in 1995,Redpoint has incurred losses and negative cash flows from operations, and suchlosses have continued subsequent to September 30, 2007.  As of September30, 2007, Redpoint had an accumulated deficit of $31.1 million and anticipatesincurring additional losses for at least the next several years.  Weexpect to spend significant resources over the next several years to enhanceour technologies and to fund research and development of our pipeline ofpotential products.

 

Through September 30, 2007,our revenue has come solely from corporate collaborations, license agreements,and government grants.  In order to achieve profitability, we mustcontinue to develop products and technologies that can be commercialized by usor through existing and future collaborations.

 

On March 12, 2007, wecompleted the first closing of our private placement of shares of common stockand warrants to purchase shares of common stock raising approximately $17.2million of net proceeds.  On April 6, 2007, we completed the final closingof the private placement raising an additional $11.4 million of net proceeds,bringing the total private placement net proceeds to $28.6 million.

 

On March 27, 2007, weentered into a Joint Research and Development and License Agreement, which werefer to as the Givaudan Agreement, with Givaudan Schweiz AG, a Swiss company,referred to herein as Givaudan, for the development and commercialization ofcompounds that enhance sweetness or savory sensation (Enhancer Compounds), aswell as compounds that block or desensitize bitter taste (Bitter BlockerCompounds) for use in the food and beverage industry, which we refer to as theField.  Under the Givaudan Agreement, Redpoint and Givaudan willcollaborate exclusively with each other to discover and develop EnhancerCompounds and Bitter Blocker Compounds that act primarily through themodulation of the TRPM5 channel (Collaboration Compounds) pursuant to theresearch plan and the development plan, respectively.  In consideration ofour agreement to conduct research and develop Collaboration Compounds and grantexclusive licenses and other rights to Givaudan pursuant to the terms andconditions of the Givaudan Agreement, Givaudan paid us an upfront technologyfee in the amount of $1.3 million and agreed to provide research funding to usover the initial 3.5 year term of the Givaudan Agreement of up to $11.6million.  Givaudan will also reimburse us for costs incurred by Redpointin connection with obtaining certain regulatory approvals.  In addition,Givaudan also agreed to pay us milestone payments of up to $2.5 million uponthe achievement of specified development and commercialization events set forthin the Givaudan Agreement.  Givaudan will make royalty payments to us,including an annual minimum royalty and royalty payments based on net sales ofGivaudan products that contain the Collaboration Compounds for use in theField.  We will make certain limited payments to Givaudan relating to theuse of the Collaboration Compounds outside the Field.

 

Our discovery programscapitalize on advances in taste science and our know-how to create newproducts.  We believe these products may have the potential to makeprocessed foods and beverages healthier and enhance the acceptability, safetyand efficacy of many types of pharmaceutical products.  We have developedan integrated discovery platform and identified prototype compounds for bothenhancement of sweet and savory taste and blocking bitter taste.  Toleverage our technology in the food and beverage markets, in addition to ourexisting agreement with Givaudan, we intend to partner with other majoringredient suppliers, or food and beverage companies, to develop and commercializetaste enhancers through strategic collaborations and licensingagreements.  In addition, we plan to use our technology to discoveraversive taste blockers, principally to develop a pipeline of proprietarytaste-modified pharmaceutical products.  We may develop such productsourselves or partner with pharmaceutical companies who are seeking to extendthe patent life or enhance the performance of their products.  We haveidentified several categories of products where patient acceptability, or thepotential for novel formulation options, are currently limited due to theintense bitter or other aversive taste of the active pharmaceutical ingredient(API).  We plan to incorporate the proprietary bitter taste or aversivetaste blockers found through our discovery programs with drugs of proven safetyand efficacy to create novel, valued-added formulations.  We have not yetdeveloped any products that are commercially available.

 

Our research and developmentefforts are currently focused upon the identification of two novel compoundsfor taste modification.  We are working to identify a compound that can beused to enhance the taste of both sweet and savory flavors in a wide variety offood and beverage applications.  Additionally, we are working to identifya compound that could act as a universal bitter taste blocker for use both inour pharmaceutical product pipeline and for collaborative formulationdevelopment programs with major pharmaceutical companies.  We intend to

 

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design our compounds to besafe and effective in minute quantities, and to be able to incorporate theminto food and pharmaceutical products through the GRAS (Generally Recognized asSafe) determination/notification process.  Although the GRAS processinvolves extensive testing to insure safety in use, the overall time required(estimated to be 18-24 months) and development costs incurred (estimated to be$1-2 million per compound) are modest compared to the size of the accessiblemarkets.  Moreover, a single GRAS-determined taste enhancer canpotentially be used in a wide range of food applications.  In addition, aGRAS determination is heavily relied upon by the Food and Drug Administration(FDA) to evaluate the safety and inclusion of flavor modifiers intopharmaceutical products.  A single aversive taste blocker can potentiallybe used to create a multitude of new drug formulations that in many cases maybe patentable in their own right.  New drug product or product variationswill require FDA approval through the new drug approval, or NDA, process. We believe there may be additional potential applications for our technologyfor the modification of aversive taste sensations in food products, as well aspotential for discovering novel compounds for other pharmaceuticalapplications.

 

**Revenue**

 

To date, our revenue hascome solely from corporate collaborations, licensing agreements and governmentgrants.  Since our inception, we have undertaken research projects forwhich we were the recipient of several Small Business Innovative Research, orSBIR, Awards. The SBIR Awards were sponsored by the National Institutes ofHealth. The last SBIR related research project was completed in 2004.

 

To leverage our technologyin the food and beverage markets, in March 2007, we entered into the GivaudanAgreement where we are collaborating exclusively with each other to discoverand develop Enhancer Compounds and Bitter Blocker Compounds that act primarilythrough the modulation of the TRPM5 channel.  We also intend to partnerwith other major ingredient suppliers, or food and beverage companies, todevelop and commercialize taste enhancers that act through a variety of othernewly discovered mechanisms of taste sensation in exchange for technologyaccess fees, research funding, product development milestones, and productroyalties.

 

In addition to developingour own pharmaceutical formulations, we plan to form agreements withpharmaceutical companies to develop and market liquid and innovativepharmaceutical formulations in exchange for technology access fees, researchfunding, product development milestones and product royalties. We haveidentified a broad selection of potential products for development, includingboth liquid formulations and innovative formulations that we believe would beattractive licensing candidates.  In general, our strategy involves thedevelopment of a prototype formulation demonstrating the effectiveness of ourtechnology by combining the target API with our GRAS-approved bitter or otheraversive taste blocker.  Some products could incorporate third-party APIsthat could constitute line extensions to be marketed to the API patentholder.  Additional prototype products could be developed with eithersoon-to-be or patent-expired APIs.  These products could either belicensed to the original patent holder to create a line extension, or to agenerics company wishing to market a differentiated or branded generic product.

 

Any failure to maintain orestablish licensing or collaboration arrangements on favorable terms couldadversely affect our business prospects, financial condition or ability todevelop and commercialize our product candidates.

 

**Researchand Development**

 

Our research and developmentexpenses consist primarily of internal costs associated with our bitter blockerand taste enhancer research programs as well as amounts paid to third partiesto conduct research on our behalf.  Our internal research and developmentcosts are comprised of salaries and related benefits, facilities and depreciationon laboratory equipment, compound acquisition costs and researchsupplies.  We charge research and development costs to operations asincurred.

 

**General andAdministrative**

 

Our general andadministrative expenses consist primarily of salaries and related benefitexpenses for business development, financial, legal and other administrativefunctions.  In addition, we incur external costs for professional fees forlegal, patent and accounting services.  We expect that our general andadministrative expenses, both internal and external, will increase as we arenow a public company.

 

**Results ofOperations**

 

**Threemonths ended September 30, 2007 compared to September 30, 2006**

 

*Researchand Grant Revenue*. We recorded revenue of $0.7 million, including $0.1 million attributable to theupfront fee which is being recognized as revenue over the initial term of theagreement and $0.6 million of research funding, during the three months endedSeptember 30, 2007 as a result of the commencement of the Givaudan Agreement,which began on March 27, 2007, for the development and commercialization ofcompounds that enhance sweetness or savory sensation as well as compounds thatblock or desensitize bitter taste for use in the food and beverageindustry.  During the three months ended September 30, 2006, we did notgenerate any research and grant revenue, as we focused our efforts on advancingour technologies and did not enter into any discovery collaborations.

 

*Researchand Development Expenses.*   Our research and development expenses were $1.7 million for thethree months ended September 30, 2007 compared to $0.9 million for the threemonths ended September 30, 2006.  The increase was primarily attributableto

 

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increased costs associatedwith investment in our bitter blocker and taste enhancer research programs aswell as amounts paid to third parties to conduct research on our behalf. In particular, our facilities costs increased as a result of our move to our newlocation in Ewing, New Jersey effective in May 2007.  Our new,state-of-the-art facility in Ewing, New Jersey will enable us to move aheadwith the planned build-out of our research and development operations.  Inaddition, salaries and related benefits, research supplies, acquisition ofchemical libraries and depreciation on laboratory equipment increased.  We anticipate that research and development expenses will increase as weadvance our research and development programs covering our bitter blocker andtaste enhancer programs.

 

*Generaland Administrative Expenses.*Our general and administrative expenses were $1.2 million for the threemonths ended September 30, 2007 compared to $0.7 million for the three monthsended September 30, 2006.  The increase of $0.5 million was primarilyrelated to costs associated with Redpoint becoming a public company, such asincreases in accounting, legal and investor relations fees, as well as expensesassociated with patent filings and our move to our new facility.  Inaddition, during the three months ended September 30, 2007 we recognizednon-cash compensation expense of approximately $0.1 million pursuant to SFAS123R.    We anticipate that general and administrative expenses willcontinue to increase as we incur costs relating to our operations as a publiccompany and increase our investment in business development required to supportour research and development efforts.

 

*InterestExpense. *Interest expense was $22,000 for the three months ended September 30, 2007compared to $273,000 for the three months ended September 30, 2006.  InMay, June and October 2006, we entered into a convertible debt financingagreement with certain of our investors, which provided for $4.1 million infunding.  In addition to the issuance of 5% secured promissory notes, ourinvestors received warrants to purchase additional shares of our stock. We allocated the proceeds from the financing between the notes and the warrantsbased on their relative fair values.  The fair value of the warrants wererecorded against the carrying value of the notes as an original issue discount(OID) which was being amortized as interest expense over a one-year period fromthe original issuance date of the notes.  During the three months endedSeptember 30, 2006, we recognized a non-cash charge to interest expense of$188,000 for the amortization of the OID, which was fully expensed upon thecompletion of the first closing of our private placement when the promissorynotes were converted to common stock.

 

During 2005, we borrowed$2.0 million to finance the purchase of laboratory and office equipment atinterest rates ranging between 9.4% and 10.4%.  Interest expense on theseborrowings was $22,000 and $34,000 for the three months ended September 30,2007 and 2006, respectively.

 

**Nine monthsended September 30, 2007 compared to September 30, 2006**

 

*Researchand Grant Revenue*. We recorded revenue of $1.4 million, including $0.2 million attributable to theupfront fee which is being recognized as revenue over the initial term of theagreement and $1.2 million of research funding, during the nine months endedSeptember 30, 2007 from the commencement of the Givaudan Agreement, which beganon March 27, 2007, for the development and commercialization of compounds thatenhance sweetness or savory sensation as well as compounds that block ordesensitize bitter taste for use in the food and beverage industry. During the nine months ended September 30, 2006 we did not generate anyresearch and grant revenue, as we focused our efforts on advancing ourtechnologies and did not enter into any discovery collaborations.

 

*Researchand Development Expenses.*   Our research and development expenses were $5.5 million for thenine months ended September 30, 2007 compared to $2.7 million for the ninemonths ended September 30, 2006.  The increase was primarily attributableto a $1.6 million non-cash charge in connection with the issuance ofapproximately 2.0 million shares of our common stock related to anti-dilutionprotection for Dr. Margolskee, the Company’s founder.  Dr. Margolskee’santi-dilution protection terminated upon completion of the final closing of thePrivate Placement on April 6, 2007.  In addition, we experienced increasedcosts associated with our investment in our bitter blocker and taste enhancerresearch programs as well as amounts paid to third parties to conduct researchon our behalf.  In particular, our facilities costs increased as a resultof our move to our new location in Ewing, New Jersey effective in May 2007. Our new, state-of-the-art facility in Ewing, New Jersey will enable us to moveahead with the planned build-out of our research and developmentoperations.  In addition, salaries and related benefits, depreciation onlaboratory equipment and R&D supplies costs increased.

 

*Generaland Administrative Expenses.*Our general and administrative expenses were $3.2 million for the ninemonths ended September 30, 2007 compared to $2.1 million for the nine monthsended September 30, 2006.  The increase of $1.1 million was related tocosts associated with Redpoint becoming a public company, such as increases inaccounting, legal and investor relations fees, as well as expenses associatedwith patent filings and our move to our new facility.  During the ninemonths ended September 30, 2007 we also incurred an expense of approximately$0.1 million as a result of the write-off of the remaining lease obligation onour prior facility which we no longer occupy. Approximately $0.2 million of theincrease was related to executive severance in connection with a separationagreement that we entered into with a former officer during the nine monthsended September 30, 2007.  In addition, during the nine months endedSeptember 30, 2007 we recognized non-cash compensation expense of approximately$0.1 million pursuant to SFAS 123R.

 

*InterestExpense. *Interest expense was $1.7 million for the nine months ended September 30, 2007compared to $0.4 million for the nine months ended September 30, 2006.  InMay, June and October 2006, we entered into a convertible debt financingagreement with certain of our investors, which provided for $4.1 million infunding.  In addition to the issuance of 5% secured promissory notes, ourinvestors received warrants to purchase additional shares of our stock. We allocated the proceeds from the financing between the notes and the warrantsbased on their relative fair values.  The fair value of the warrants wererecorded against the carrying value of the notes as an original issue

 

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discount (OID) which wasbeing amortized as interest expense over a one-year period from the originalissuance date of the notes.  During the nine months ended September 30,2007 and September 30, 2006, we recognized a non-cash charge to interestexpense of $0.3 million and $0.2 million, respectively, for the amortization ofthe OID, which was fully expensed upon the completion of the first closing ofour private placement when the promissory notes were converted to common stock. Furthermore, in accordance with Emerging Issues Task Force (EITF)No. 00-27, *Application of IssueNo. 98-5 to Certain Convertible Instruments* , and EITFNo. 98-5, *Accounting for ConvertibleSecurities with Beneficial Conversion Features or Contingently AdjustableRatios* , after considering the allocation of the proceeds to thepromissory notes, the Company determined that the promissory notes contained acontingent beneficial conversion feature (Contingent BCF). The Contingent BCFexisted at the date of the issuance of the promissory notes due to the factthat the original carrying value of promissory notes, after allocation of theproceeds, would be less than the purchase price of the new series of stock paidby investors in the new series.  In accordance with EITF No. 98-5,the Contingent BCF of $1.2 million was recognized as additional non-cashinterest expense when the promissory notes were converted into shares of commonstock.

 

During 2005, we borrowed$2.0 million to finance the purchase of laboratory and office equipment atinterest rates ranging between 9.4% and 10.4%.  Interest expense on theseborrowings was $0.1 million and $0.1 million for the nine months endedSeptember 30, 2007 and 2006, respectively.

 

**Liquidityand Capital Resources**

 

At September 30, 2007, wehad cash, cash equivalents and marketable securities of $25.8 million andworking capital of $22.7 million.  Since inception, we have used $18.3million of cash to fund our operating activities and $2.4 million for capitalexpenditures.  Through September 30, 2007, we have funded substantiallyall of our operations and capital expenditures through private placements ofequity and convertible debt securities totaling $45.8 million, cash receivedfrom corporate collaborations totaling $5.0 million, government grants totaling$1.8 million, and capital equipment financing totaling $2.1 million.

 

On March 12, 2007, wecompleted the first closing of our Private Placement of shares of common stockand warrants to purchase shares of common stock raising approximately $17.2million of net proceeds.  On April 6, 2007 we completed the final closingof our Private Placement raising an additional $11.4 million of net proceeds,bringing the total private placement net proceeds to $28.6 million.  OnMarch 27, 2007, we entered into the Givaudan Agreement for the development andcommercialization of compounds that enhance sweetness or savory sensation aswell as compounds that block or desensitize bitter taste for use in the foodand beverage industry.  Pursuant to the Givaudan Agreement, Givaudanagreed to pay us an upfront technology fee in the amount of $1.3 million andprovide research funding to us over the initial 3.5 year term of the GivaudanAgreement of up to $11.6 million.  We believe that the net proceeds ofapproximately $28.6 million received from the private placement, and thefunding we are receiving from Givaudan, should be sufficient to meet ouroperating and capital requirements at least through September 2009.

 

We expect that substantiallyall of our revenue for the foreseeable future will come from corporatecollaborations, license agreements and interest earned on the proceeds from oursales of securities.  During the fourth quarter of 2007 we expect torecognize $0.7 million as revenue from the Givaudan Agreement, which includes$0.1 million of the upfront technology fee which is being recognized as revenueover the related performance period and $0.6 million pursuant to researchfunding.  We are subject to those risks associated with any biotechnologycompany that has substantial expenditures for research and development. There can be no assurance that our 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, weoperate in an environment of rapid technological change and we are largelydependent on the services of our employees and consultants.  For us tofund our operations and to commercially develop our products, additional equityand/or debt financing will be required.  There is no assurance that suchfinancing will be available to us as needed.

 

**Summary ofContractual Obligations**

 

The following tablesummarizes our obligations to make future payments under our currentcontractual obligations as of September 30, 2007:

 
| ** **       | ** ** | **Payments Due by Period** | ** ** |
|------------------|------------|-------------------------------------------|------------|
| ** **       | ** ** | **Total**                                 | ** ** | **Less than 1  year** | ** ** | **1-3 years** | ** ** | **4-5 years** | ** ** | **After 5 years** | ** ** |
| Operating leases |       | $                                         | 8,160,000  |   | $ | 868,000 |   | $ | 2,496,000 |   | $ | 1,695,000 |   | $ | 3,101,000 |   |
| Long-term debt   |       | 784,000                                   |       | 512,000 |   | 272,000 |   | — |   | — |   |
| License payments |       | 300,000                                   |       | 25,000 |   | 75,000 |   | 50,000 |   | 150,000 |   |
|             |       | $                                         | 9,244,000  |   | $ | 1,405,000 |   | $ | 2,843,000 |   | $ | 1,745,000 |   | $ | 3,251,000 |   |

 

**CriticalAccounting Policies**

 

Our discussion and analysisof our financial condition and results of operations are based on our financialstatements, which have been prepared in accordance with U.S. generally acceptedaccounting principles, or GAAP. The preparation of these financial statementsrequires us to make estimates and judgments that affect the reported amounts ofassets, liabilities, the disclosure of contingent assets and liabilities at the

 

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date of the financialstatements, and reported amount of revenue and expenses during the reportingperiod. On an ongoing basis, we evaluate our judgments and estimates, includingthose related to revenue recognition, long-lived assets, accrued liabilities,share-based payments and income taxes. We base our judgment and estimates onhistorical experience and various other factors that we believe to bereasonable under the circumstances, the results of which form the basisfor making judgments about the carrying values of assets and liabilities.Actual results may differ from these estimates under different assumptionsor conditions.

 

While our significantaccounting policies are described in more detail in Note 3 to our financialstatements, we believe the following accounting policies to be critical to thejudgments and estimates used in the preparation of our financial statements:

 

***Revenue Recognition***

 

Revenue from corporatecollaborations and licensing agreements consist of up-front fees, research anddevelopment funding, and milestone payments.  Nonrefundable up-front feesare deferred and recognized as revenue over the related performanceperiod.  We estimate the performance period based on the specific terms ofeach collaborative agreement, but the actual performance may vary.  Weadjust the performance periods based on available facts andcircumstances.  Revenue from research and development agreements andgovernment grants is recognized pursuant to the related agreements as work isperformed and related costs are incurred.  Revenue resulting from theachievement of substantive milestone events as defined in the agreements isrecognized when the milestone is achieved.

 

***Stock-Based Compensation***

 

We follow SFAS No. 123(revised 2004), Share-Based Payment (SFAS 123R) under which we recognizecompensation cost for awards to employees and non-employee board members basedon the grant-date fair value of stock-based awards over the period during whichan award holder is required to provide service in exchange for the award. No compensation is recognized for awards for which the award holder does nottender the requisite service.  At September 30, 2007, total unrecognizedcompensation expense related to non-vested stock options granted prior to thatdate was $2.0 million, which is expected to be recognized over a weightedaverage period of 3.4 years.

 

Prior to 2006, we appliedthe intrinsic-value-based method of accounting prescribed by AccountingPrinciples Board (APB) Opinion No. 25, Accounting for Stock Issued toEmployees, and related interpretations, to account for fixed-plan stock optionsgranted to employees and directors.  Under APB Opinion No. 25, we did notrecord compensation expense for stock options since the current fair value ofthe underlying stock equaled the exercise price of the options.

 

In estimating the fair valueof stock options, we use the Black-Scholes option-pricing model which requiresus to make estimates about certain inputs regarding the volatility of ourcommon stock and the expected term of our options.  Until there issignificant public trading activity in our common stock, we will use theaverage historical volatility of a group of pubic company peers.  Inaddition, we have used the “simplified” method as described in SEC StaffAccounting Bulletin No. 108 to determine the expected life of our options.

 

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

 

Our carrying values of cashand cash equivalents, marketable securities, accounts receivable, accountspayable, accrued expenses and debt are a reasonable approximation of their fairvalue.  The estimated fair values of financial instruments have beendetermined by us using available market information and appropriate valuationmethodologies.

 

We have not entered into anddo not expect to enter into, financial instruments for trading or hedgingpurposes.  We do not currently anticipate entering into interest rateswaps and/or similar instruments.  Our primary market risk exposure withregard to financial instruments is to changes in interest rates, which wouldimpact interest income earned on such instruments.  We have no materialcurrency exchange or interest rate risk exposure as of September 30,2007.  Therefore, there will be no ongoing exposure to a potentialmaterial adverse effect on our business, financial condition or results of operationfor sensitivity to changes in interest rates or to changes in currency exchangerates.

 

**ITEM4T.     CONTROLS AND PROCEDURES**

 

(a)           *Disclosure Controls andProcedures:*  We maintain controls and procedures designed toensure that (i) information required to be disclosed in an issuer’s reportsfiled under the Exchange Act is recorded, processed, summarized and disclosedwithin the time periods specified in the rules promulgated by the SEC, and (ii)information is accumulated and communicated to management, including the ChiefExecutive Officer and Chief Financial Officer, as appropriate, to allow timelydecisions regarding required disclosures.  Our Chief Executive Officer andChief Financial Officer are responsible for establishing and maintaining thesedisclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)under the Securities Exchange Act, referred to herein as the Exchange Act) and,as required by SEC rules, to evaluate their effectiveness.  Based on theirevaluation of our disclosure controls and procedures as of the end of theperiod covered by this Quarterly Report on Form 10-Q, our Chief ExecutiveOfficer and Chief Financial Officer believe that these procedures are effectiveto ensure that we are able to collect, process and disclose the information weare required to disclose in the reports we file with the SEC within therequired time periods.

 

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(b)           *Changes in InternalControls Over Financial Reporting.*   There were no significantchanges in our internal control over financial reporting (as defined in Rules13a-15(f) and 15d-15(f) under the Exchange Act), identified in connection withthe evaluation of such internal control that occurred during our last fiscalquarter, that have materially affected, or are reasonably likely to materiallyaffect, our internal control over financial reporting.

 

We are not currentlyrequired to comply with Section 404 (Management’s Annual Report on InternalControl Over Financial Reporting) of the Sarbanes-Oxley Act of 2002 because weare not an “accelerated filer,” as defined by Rule 12b-2 under the ExchangeAct.  We will be required to comply with Section 404 for the first time,and will be required to provide a management report and an independentregistered public accounting firm attestation report on internal control overfinancial reporting, in connection with our Annual Report on Form 10-K for theyear ending December 31, 2007.  While we are not yet required to complywith Section 404 for this reporting period, we are preparing for futurecompliance with Section 404 by strengthening, assessing and testing our systemof internal controls to provide the basis for our report.

 

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** **

**PART II.  OTHER INFORMATION**

 

**ITEM1.        LEGAL PROCEEDINGS**

 

The Company’s managementknows of no material existing or pending legal proceedings or claims againstthe Company, nor is the Company involved as a plaintiff in any materialproceeding or pending litigation.  To the Company’s knowledge, nodirector, officer or affiliate of the Company, and no owner of record orbeneficial owner of more than five percent (5%) of the Company’s securities, orany associate of any such director, officer or security holder is a partyadverse to the Company or has a material interest adverse to the Company inreference to pending litigation.

 

**ITEM1A.     RISK FACTOR****S**

 

*You shouldcarefully consider the following risks and all of the other information setforth in this Quarterly Report before deciding to invest in shares of ourcommon stock. The risks described below are not the only ones facing us.Additional risks not presently known to us or that we currently deem immaterialmay also impair our business operations.*

 

*If any ofthe following risks actually occurs, our business, financial condition orresults of operations would likely suffer. In such case, the market price ofour common stock would likely decline due to the occurrence of any of theserisks, and you may lose all or part of your investment.*

 

**RisksRelated To Our Business and Our Industry**

 

***Redpoint is a development-stage company.  We have incurred lossessince inception and expect to incur significant net losses in the foreseeablefuture and may never become profitable.***

 

Since our inception we haveincurred significant losses and negative cash flows from operations.  Asof September 30, 2007, we had an accumulated deficit of $31.1 million, andanticipate incurring additional losses for at least the next severalyears.  We expect to spend significant resources over the next severalyears to enhance our technologies and to fund research and development of ourpipeline of potential products.  We have not generated significantrevenues in any particular year since our inception.  To date,substantially all of our revenue has been derived from corporatecollaborations, license agreements, and government grants.  In order toachieve profitability, we must develop products and technologies that can becommercialized by us or through future collaborations.  Our ability togenerate revenues and become profitable will depend on our ability, alone orwith potential collaborators, to timely, efficiently and successfully completethe development of our product candidates, which may include conductingpre-clinical and clinical tests, obtaining necessary regulatory approvals, andmanufacturing and marketing our product candidates.  There can be noassurance that any such events will occur or that we will ever become profitable. Even if we do achieve profitability, we cannot predict the level of suchprofitability.  If we sustain losses over an extended period of time, wemay be unable to continue our business.

 

***We will need substantial additional funding to develop our products andfor our future operations.  If we******are unable to obtain the funds necessary to do so, we may berequired to delay, scale back or eliminate our product development or may beunable to continue our business.***

 

The development of ourproduct candidates will require a commitment of substantial funds to conductthe costly and time-consuming research, which may include pre-clinical andclinical testing, necessary to obtain regulatory approvals and bring ourproducts to market.  We believe our current capital resources will satisfyour planned capital needs through September 2009.   Our future capital requirements will dependon many factors, including:

 

•        the progress of our research and developmentprograms, including our ability to discover and develop taste enhancers andaversive taste blockers;

 

•        our ability, or our partners’ ability andwillingness, to formulate these taste enhancers and aversive taste blockersinto food, beverage and pharmaceutical products;

 

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

 

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

 

•        the time and cost involved in obtaining regulatoryapprovals;

 

•        the cost of manufacturing our productcandidates;

 

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•        competing technological and marketdevelopments; and

 

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

 

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

 

We will need to raise substantialadditional capital to fund our future operations.  We cannot be certainthat additional financing will be available on acceptable terms, or atall.  In recent years, it has been difficult for companies to raisecapital due to a variety of factors, which may or may not continue.  Tothe extent we raise additional capital through the sale of equity securities,the ownership position of our existing stockholders could be substantiallydiluted.  If additional funds are raised through the issuance of preferredstock or debt securities, these securities are likely to have rights,preferences and privileges senior to our common stock.  Fluctuatinginterest rates could also increase the costs of any debt financing we mayobtain.

 

Failure to successfully addressongoing liquidity requirements will have a material adverse effect on ourbusiness.  If we are unable to obtain additional capital on acceptableterms when needed, we may be required to take actions that harm our businessand our ability to achieve cash flow in the future, including possibly thesurrender of our rights to some technologies or product opportunities, delayingour clinical trials or curtailing or ceasing operations.

 

***We are an early stage company and currently have no products availablefor sale, license or use.  Our product candidates require additionalresearch, development, testing, expert reviews and/or and regulatory approvalsbefore marketing.  We may be unable to develop, obtain regulatory approvalor 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.***

 

We are in the early stage ofproduct development and we are dependent on new discoveries.  We currentlydo not sell or license any products to third parties and do not expect to haveany products commercially available for several years, if at all.  Youmust evaluate us in light of the uncertainties and complexities affecting anearly stage biotechnology company. Our product candidates require additionalresearch and development, pre-clinical testing, clinical testing (for ourpharmaceutical products) and regulatory review and/or approvals clearancesbefore marketing. There are many reasons that our product candidates may failor not advance to commercialization, including the possibility that:

 

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

 

•        our product candidates may fail to receive thenecessary regulatory approvals or otherwise fail to meet applicable regulatorystandards;

 

•        experts may not agree that our food productcandidates are generally recognized as safe;

 

•        our product candidates may be too expensiveto develop, manufacture or market;

 

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

 

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

 

•        our potential collaborators may withdrawsupport for or otherwise impair the development and commercialization of ourproduct candidates; or

 

•        others may develop equivalent or superiorproducts.

 

In addition, we may notsucceed in developing taste enhancers and aversive taste blockers with theappropriate attributes required for use in successful commercial products.Successful taste enhancers and aversive taste blockers require, among otherthings, appropriate biological activity, including the correct taste enhancerand aversive taste blocker properties for the product application, anacceptable safety profile, including lack of toxicity or allergenicity, andappropriate physical or chemical properties, including relative levels ofstability, volatility and resistance to heat. Successful taste enhancers andaversive taste blockers must also be cost-efficient. We may not be able todevelop taste enhancers and aversive taste blockers that meet these criteria.

 

If our product candidatesare delayed or we fail to successfully develop and commercialize our productcandidates, our financial condition may be negatively affected, and we may haveto curtail or cease our operations.

 

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***We may not successfully establish and maintain collaborative andlicensing arrangements, which could adversely affect our ability to develop andcommercialize our product candidates.***

 

A key element of our foodand beverage strategy is to commercialize our taste enhancers through productdiscovery and development collaborations with major ingredient suppliers and/orend users.  Our pharmaceutical strategy includes developing our own taste-improveddrug formulations as well as establishing collaborations and licensingagreements with major pharmaceutical, over-the-counter and generic companies,such as the Givaudan Agreement.  We may not be able to maintain or expandthese licenses and collaborations or establish additional licensing andcollaboration arrangements necessary to develop and commercialize our productcandidates.  Even if we are able to maintain or establish licensing orcollaboration arrangements, these arrangements may not be on favorable termsand may contain provisions that will restrict our ability to develop, test andmarket our product candidates.  Any failure to maintain or establishlicensing or collaboration arrangements on favorable terms could adversely affectour business prospects, financial condition or ability to develop andcommercialize our product candidates.

 

We expect to rely at leastin part on third party collaborators to perform a number of activities relatingto the development and commercialization of our product candidates, includingthe manufacturing of product materials, the design and conduct of clinicaltrials for our pharmaceutical formulations, and potentially the obtaining ofregulatory approvals and marketing and distribution of any successfullydeveloped products.  Our collaborative partners may also have or acquirerights to control aspects of our product development and clinicalprograms.  As a result, we may not be able to conduct these programs inthe manner or on the time schedule we currently contemplate. In addition, ifany of these collaborative partners withdraw support for our programs orproduct candidates or otherwise impair their development, our business could benegatively affected.  To the extent we undertake any of these activitiesinternally, our expenses may increase.

 

In addition, our successdepends on the performance of our collaborators of their responsibilities underthese arrangements.  Some potential collaborators may not perform theirobligations in a timely fashion or in a manner satisfactory to us. ** ** Because such agreements may beexclusive, we may not be able to enter into a collaboration agreement with anyother company covering the same product field during the applicablecollaborative period.  In addition, our collaborators’ competitors may notwish to do business with us at all due to our relationship with ourcollaborators.  If we are unable to enter into additional productdiscovery and development collaborations, our ability to sustain or expand ourbusiness will be significantly diminished.

 

***If we or our collaborators are unable to obtain and maintain the GRASdetermination or regulatory approval required before any taste enhancers oraversive taste blockers can be incorporated into products that are sold, we wouldbe unable to commercialize our taste enhancers and aversive taste blockers andour business would be adversely affected.***

 

In the United States, thedevelopment, sale and incorporation of our taste enhancers and aversive tasteblockers 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.

 

Depending on the amount orintended use of a particular taste enhancer or aversive taste blocker added toa product and the number of product categories in which the flavor or flavorenhancer will be incorporated, specific testing, safety assessment protocols,and regulatory processes must be satisfied before we or our collaborators cancommercially market and sell products containing any taste enhancers andaversive taste blockers that we may discover.  A key element of ourstrategy is to develop flavors and flavor enhancers that will be evaluated bythe FEMA (Flavor and Extracts Manufacturers Association) GRAS Panel, which weexpect will take 18 to 24 months and which is less expensive than thealternative of filing a food additive petition with the FDA, which can takeeight years or more.  The FEMA GRAS review process may take longer than 24months and cost more than we currently anticipate if additional safety studiesare requested by the FEMA GRAS Panel or are necessary to explain unexpectedsafety study findings.  There is a risk that one or more of our productcandidates may not qualify for a FEMA GRAS determination.  This may occurfor a variety of reasons, including the taste enhancer’s or aversive tasteblocker’s intended use, the amount of the taste enhancer or aversive tasteblocker intended to be added to packaged foods and beverages, the number ofproduct categories in which the taste enhancers or aversive taste blockers willbe incorporated, whether the taste enhancer imparts sweetness, the safetyprofile of the taste enhancers or aversive taste blockers and the FEMA GRASPanel’s interpretation of the safety data.  Even if we obtain a GRASdetermination with respect to a taste enhancer or aversive taste blocker, theFDA has the ability to challenge such determination, which could materiallyadversely affect our ability to market products on schedule or at all.  Inthe event that a particular taste enhancer or aversive taste blocker does notqualify for a FEMA GRAS determination, we may be required to pursue a lengthyFDA approval process to reach the U.S. market, or dedicate our developmentefforts to alternative compounds, which would further delaycommercialization.  In addition, laws, regulations or FDA practicegoverning the regulatory approval process, the availability of the GRASdetermination 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.

 

Sales of our taste enhancersand aversive taste blockers outside of the United States will be subject toforeign regulatory requirements.  In most cases, whether or not a GRASdetermination or FDA approval has been obtained, approval of a product by thecomparable regulatory authorities of foreign countries must still be obtainedprior 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

 

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costs for us and requireadditional safety studies and additional expenses. If we fail to comply withthese regulatory requirements or to obtain and maintain required approvals, ourability to generate revenue will be diminished.

 

We and our collaborators maynot be successful in overcoming these regulatory hurdles, which could result inproduct launch delays, unanticipated expenses, termination of collaborations,and flavors and flavor enhancers not being approved for incorporation intoconsumer products.  These consequences would have a material adverseeffect on our business financial condition and results of operations.

 

***Even if we or our collaborators receive a GRAS determination orregulatory approval and incorporate our taste enhancers or aversive tasteblockers into products, those products may never be commercially successful.***

 

Even if we discover anddevelop taste enhancers and aversive taste blockers that obtain the necessaryGRAS determination or regulatory approval, our success depends to a significantdegree upon the commercial success of packaged food and beverage products andpharmaceutical products incorporating those taste enhancers or aversive tasteblockers. If these products fail to achieve or subsequently maintain marketacceptance or commercial viability, our business would be significantly harmedbecause our royalty revenue is dependent upon consumer sales of these products.In addition we could be unable to maintain our existing collaborations orattract new product discovery and development collaborators. Many factors mayaffect the market acceptance and commercial success of any potential productsincorporating taste enhancers or aversive taste blockers that we may discover,including:

 

•        health concerns, whether actual or perceived,or unfavorable publicity regarding our taste enhancers and aversive tasteblockers or those 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 enhancers and aversive taste blockers.

 

***We may experience delays in clinical trials and regulatory approvalrelating to our products that could adversely affect our financial results andour commercial prospects for our pharmaceutical products.***

 

Our pharmaceutical strategyis to incorporate our taste enhancers and aversive taste blockers intoproprietary formulations of medicines that potentially offer improved acceptabilityand compliance, thus enhancing efficacy and possibly providing broaderindications or patient populations.  In addition to the regulatory orother requirements for our taste enhancers and aversive taste blockers, we willalso require regulatory approvals of our pharmaceutical formulations.  Insuch case, we may be required to conduct clinical trials to demonstrate safetyand efficacy of the new formulation.  For product candidates that advanceto clinical testing, we cannot be certain that we or a collaborator willsuccessfully complete the clinical trials necessary to receive regulatoryproduct approvals.  This process is lengthy and expensive.

 

We intend to seek approvalfor our pharmaceutical formulations through the FDA 505(b)(2) approval process. If we are unable to approve our pharmaceutical formulations through the505(b)(2) process, we may be required to pursue the more expensive and timeconsuming 505(b)(1) approval process.  Section 505(b) of the Federal Food,Drug, and Cosmetic Act describes two types of NDA applications that anapplicant may submit for approval of innovator medicines.  The first typeof NDA, described under section 505(b)(1), consists of a full report ofinvestigations of safety and effectiveness conducted by or for the applicant orfor which the applicant has the right of reference for the information. The second type of NDA, described under section 505(b)(2), consists of a fullreport of investigations of safety and effectiveness where at least someportion of the information submitted for approval comes from sources other thanstudies performed or sponsored by the applicant.  Drugs that may beapproved via the 505(b)(2) process include drugs that have the same activeingredients as previously approved products, but now are formulated in adifferent delivery mechanism or other new dosage forms or with differentindications.  The basis for the 505(b)(2) application is that therealready is a certain amount of information that is known about the activeingredient. As such, repeating all the clinical studies required for a505(b)(1) application would be significantly more expensive and time consumingthan the 505(b)(2) process.

 

To obtain regulatoryapprovals, we must, among other requirements, complete clinical trials showingthat our products are safe and effective for a particular indication. Under the 505(b)(2) approval process, although we may not have performed someof the studies ourselves, we must submit clinical and non-clinical data todemonstrate the medication is safe and effective.  We also must be able toprovide data and information, including bioavailability or comparativebioavailability studies, to establish sufficiently the appropriateness ofrelying on material without the right of reference.

 

We do not know when clinicaltrials for our products will commence or whether we will complete any of ourclinical trials on schedule or at all.  There can be no assurance thatclinical trials will in fact demonstrate that our products are safe oreffective.

 

Additionally, we may not beable to find acceptable patients or may experience delays in enrolling patientsfor our clinical trials.  The FDA or we may suspend our clinical trials atany time if either believes that we are exposing the subjects participating inthe trials to unacceptable health risks.  The FDA or institutional reviewboards and/or institutional biosafety committees at the medical institutionsand

 

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healthcare facilities wherewe seek to sponsor clinical trials may not permit a trial to proceed or maysuspend any trial indefinitely if they find deficiencies in the conduct of thetrials.

 

Product development costs tous and our potential collaborators will increase if we have delays in testingor approvals or if we need to perform more or larger clinical trials thanplanned.  We expect to continue to rely on third party clinicalinvestigators at medical institutions and healthcare facilities to conduct ourclinical trials, and, as a result, we may face additional delaying factorsoutside our control.  Significant delays may adversely affect ourfinancial results and the commercial prospects for our product candidates anddelay our ability to become profitable.

 

***If our pharmaceutical product candidates do not successfully completethe clinical trial process, we will not be able to market them. Even successfulclinical trials may not result in a marketable product and may not be entirelyindicative of a product’s safety or efficacy.***

 

Many factors, known and unknown,can adversely affect clinical trials and the ability to evaluate a product’sefficacy.  During the course of treatment, patients can die or sufferother adverse events for reasons that may or may not be related to the proposedproduct being tested.  Even if unrelated to our product, certain eventscan nevertheless adversely impact our clinical trials.  As a result, ourability to ultimately develop and market the products and obtain revenues wouldsuffer.

 

Even promising results inpre-clinical studies and initial clinical trials do not ensure successfulresults in later clinical trials, which test broader human use of ourproducts.  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 marketableproduct or be indicative of the efficacy or safety of a product. Many factorsor variables could affect the results of clinical trials and cause them toappear more promising than they may otherwise be.  Product candidates thatsuccessfully complete clinical trials could ultimately be found to be unsafe orineffective.

 

In addition, our ability tocomplete clinical trials depends on many factors, including obtaining adequateclinical supplies and having a sufficient rate of patient recruitment. For example, patient recruitment is a function of many factors, including:

 

•        the size of the patient population;

 

•        the proximity of patients to clinical sites;

 

•        the eligibility criteria for the trial;

 

•        the perceptions of investigators and patientsregarding safety; and

 

•        the availability of other treatment options.

 

Even if patients aresuccessfully recruited, we cannot be sure that they will complete the treatmentprocess.  Delays in patient enrollment or treatment in clinical trials mayresult in increased costs, program delays or both.

 

With respect to markets inother countries, we or a partner will also be subject to regulatory requirementsgoverning clinical trials in those countries.  Even if we completeclinical trials, we may not be able to submit a marketing application.  Ifwe submit an application, the regulatory authorities may not review or approveit in a timely manner, if at all.

 

***Because we cannot predict whether or when we will obtain regulatoryapproval to commercialize our pharmaceutical product candidates, we cannotpredict the timing of any future revenue from these product candidates.***

 

We cannot commercialize anyof our pharmaceutical product candidates to generate revenue until theappropriate regulatory authorities have reviewed and approved the applicationsfor our product candidates.  We cannot assure you that the regulatoryagencies will complete their review processes in a timely manner or that wewill obtain regulatory approval for any product candidate we or our potentialcollaborators develop.  Satisfaction of regulatory requirements typicallytakes many years, is dependent upon the type, complexity and novelty of theproduct and requires the expenditure of substantial resources.  Regulatoryapproval processes outside the United States include all or many of the risksassociated with the FDA approval process and potentially others as well. 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 to manufacture taste enhancers, aversivetaste blockers and pharmaceutical product candidates. There can be no guaranteethat we can obtain sufficient and acceptable quantities of our taste enhancersor aversive taste blockers or pharmaceutical product candidates on acceptableterms, which may delay or impair our ability to develop, test and market suchproducts.***

 

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Our business strategy relieson third parties to manufacture and produce our taste enhancers and aversivetaste blockers and pharmaceutical product candidates in accordance with goodmanufacturing practices established by the FDA, or similar regulations in othercountries.  Our taste enhancers and aversive taste blockers andpharmaceutical product candidates may be in competition with other products foraccess to these facilities and may be subject to delays in manufacture if thirdparties give other products greater priority than our product candidates. Thesethird parties also may not deliver sufficient quantities of our taste enhancersand aversive taste blockers and pharmaceutical product candidates, manufactureour taste enhancers and aversive taste blockers and pharmaceutical productcandidates in accordance with specifications, or comply with applicablegovernment regulations. Additionally, if the manufactured products fail toperform as specified, our business and reputation could be severely impacted.

 

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

 

***If we do not comply with applicable regulatory requirements in themanufacture and distribution of our product candidates, we may incur penaltiesthat may inhibit our ability to commercialize our products and adversely affectour revenue.***

 

Our failure or the failureof our potential collaborators or third party manufacturers to comply withapplicable FDA or other regulatory requirements including manufacturing,quality control, labeling, safety surveillance, promoting and reporting mayresult in criminal prosecution, civil penalties, recall or seizure of ourproducts, total or partial suspension of production or an injunction, as wellas other regulatory action against our product candidates or us. Discovery of previously unknown problems with a product, supplier, manufactureror facility may result in restrictions on the sale of our products, including awithdrawal of such products from the market.  The occurrence of any of theseevents would negatively impact our business and results of operations.

 

***If we are unable to create and maintain sales, marketing anddistribution capabilities or enter into agreements with third parties toperform those functions, we will not be able to commercialize our productcandidates.***

 

We currently have no sales,marketing or distribution capabilities.  Therefore, to commercialize ourproduct candidates, if and when such products have been approved and are readyfor marketing, we expect to collaborate with third parties to perform thesefunctions.  We have no experience in developing, training or managing asales force and will incur substantial additional expenses if we decide tomarket any of our future products directly.  Developing a marketing andsales force is also time consuming and could delay launch of our futureproducts.  In addition, we will compete with many companies that currentlyhave 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 resourcesand experience than we do, may develop products or technologies that make oursobsolete or noncompetitive.***

 

We believe our tastetechnology approach is applicable to a wide range of food and pharmaceuticalproducts representing many and diverse competitive companies andapproaches.  The life sciences and other technology industries arecharacterized by rapid technological change, and the area of sensory or tasteresearch is a rapidly evolving field.  Our future success will depend onour ability to maintain a competitive position with respect to technologicaladvances. Technological developments by others may result in our tasteenhancers or aversive taste blockers and technologies, as well as ourpharmaceutical formulations, becoming obsolete.

 

We face substantialcompetition from companies pursuing the commercialization of products andservices relevant to taste using various methods for the discovery of tasteenhancers and aversive taste blockers.  These competitors include leadingflavor companies, such as International Flavors & Fragrances Inc., GivaudanSA, Symrise and Firmenich.  Among food manufacturers, at least Nestlé has anactive program cloning and expressing receptors for in vitro screeningassays.  In addition, Senomyx, Inc. is a public biotechnology companytaking a biochemical approach to taste modulation, both in foods andpharmaceutical products.  Senomyx is principally focused in the area oftaste enhancement for food products and uses high throughput screeningtechnology and synthetic and natural products chemistry to discover novelflavor enhancers, which it licenses to end users in the food industry. Senomyx was initially focused on sweetness, savory and salty flavor enhancers,but is now also developing programs to discover bitter blockers for food andpharmaceutical products.  Chemcom is another company that is developing abiotechnology approach to finding novel taste enhancers.  We currentlycompete and will continue to compete in the future with these companies incollaborating with and selling flavor products and technologies tomanufacturers of packaged food and beverage products.

 

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We also face substantialcompetition from a number of companies in the pharmaceutical formulationsindustry. Taste masking has a long history in the pharmaceuticalindustry.  A traditional method of taste masking for pharmaceuticalproducts is to mix the active pharmaceutical ingredient with flavorings andsugar syrup to mask unpleasant taste.  This approach is most commonly usedfor pediatric liquid formulations as well as many over-the-counter cough-coldremedies.  FlavorRx supplies flavors at drug store pharmacies that can becompounded by the pharmacist to make certain liquid formulations morepalatable.  In the pharmaceutical sector there are a number of drugdelivery companies that have developed proprietary taste masking technologies. These competing technologies and companies include OraSolv and DuraSolv fromCIMA Labs (recently acquired by Cephalon), MicroCaps and Liquitard from Eurand,FlavorTech and MicroMask from KV Pharmaceuticals, EnVel from Cardinal Healthand WOWTab from Yamanouchi.  Virtually all of these approaches includingOralSolv, DuraSolv, MicroCap, Liquitard, EnVel and the technology used in Zydisproducts utilize a physical approach to sequester the active drug substanceaway from the taste receptors on the tongue. These include coating the drug,microencapsulation, immobilization, use of cyclodextran carriers, orstabilization of the drug in a micellar or insoluble phase, as the principlemeans of taste masking.

 

Many of these companies havesubstantially greater capital resources, research and development resources andexperience, manufacturing capabilities, regulatory expertise, sales andmarketing resources, established relationships with consumer products companiesand production facilities.

 

We may in the future face competitionfrom life sciences and other technology companies and other commercialenterprises.  These entities engage as we do in biotechnology, biology orchemistry and could apply this technology to the discovery and development oftaste enhancers and aversive taste blockers and new formulations ofpharmaceutical products. We cannot guarantee that products developed as aresult of our competitors’ existing or future collaborations will not competewith our taste enhancers and aversive taste blockers and new pharmaceuticalformulations.

 

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

 

Our competitors, eitheralone or with their collaborative partners, may succeed in developingtechnologies or discovering taste enhancers and aversive taste blockers thatare more effective, safer, more affordable or more easily commercialized thanours, and our competitors may obtain intellectual property protection orcommercialize products sooner than we do.  Developments by others mayrender our product candidates or our technologies obsolete.  In addition,our current product discovery and development collaborators are not prohibitedfrom entering into research and development collaboration agreements with thirdparties in any product field.  Our failure to compete effectively wouldhave a significant adverse effect on our business, financial condition and resultsof operations.

 

***If we are unable to attract and retain key personnel and advisors, itmay adversely affect our ability to obtain financing, pursue collaborations ordevelop our product candidates.***

 

We are highly dependent onF. Raymond Salemme, Ph.D., our Chief Executive Officer and President, as wellas other executive and scientific officers, including Scott Horvitz, ChiefFinancial Officer, Scott Siegel, Vice President, Corporate Development andRobert Bryant, Ph.D., Vice President, Discovery Research.

 

Our future success dependson our ability to attract, retain and motivate highly qualified management andscientific, development and commercial personnel and advisors.  To pursueour business strategy, we will need to hire or otherwise engage qualified personneland managers, including personnel with expertise in discovery, development,clinical trials, government regulation, manufacturing, marketing andsales.  Competition for qualified personnel is intense among companies,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 biological materials in our business.  Any claimsrelating to improper handling, storage or disposal of these materials could betime consuming and costly.***

 

Our products and processeswill involve the controlled storage, use and disposal of certain hazardous andbiological materials and waste products.  We and our suppliers and othercollaborators are subject to federal, state and local regulations governing theuse, manufacture, storage, handling and disposal of materials and wasteproducts.  Even if we and these suppliers and collaborators comply withthe standards prescribed by law and regulation, the risk of accidentalcontamination or injury from hazardous materials cannot be completelyeliminated. In the event of an accident, we could be held liable for anydamages that result, and any liability could exceed the limits or fall outsidethe coverage of any insurance we may obtain and exceed our financialresources.  We may not be able to maintain insurance on acceptable terms,or at all.  We may incur significant costs to comply with current or futureenvironmental laws and regulations.

 

***We may be sued for product liability, which could adversely affect ourbusiness.***

 

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Because our businessstrategy involves the development and sale by either us or our collaborators ofcommercial products incorporating our taste enhancers or aversive tasteblockers, we may be sued for product liability. We may be held liable if anyproduct we develop and commercialize, or any product our collaboratorscommercialize that incorporates any of our taste enhancers or aversive tasteblockers, causes injury or is found otherwise unsuitable during producttesting, manufacturing, marketing, sale or consumer use. In addition, thesafety studies we must perform and the FEMA GRAS determination we must obtainprior to incorporating our taste enhancers and aversive taste blockers into acommercial product, and the regulatory approvals required to commercialize ourpharmaceutical products, will not protect us from any such liability.

 

If we and our collaboratorscommence sale of commercial products we will need to obtain product liabilityinsurance, and this insurance may be prohibitively expensive, or may not fullycover our potential liabilities.  Inability to obtain sufficient insurancecoverage at an acceptable cost or otherwise to protect against potentialproduct liability claims could prevent or inhibit the commercialization ofproducts 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 taste enhancers and aversive taste blockers.  Anyindemnification we receive from such collaborators for product liability thatdoes not arise from our taste enhancers or aversive taste blockers may not besufficient to satisfy our liability to injured parties. If we are sued for anyinjury caused by our taste enhancers or aversive taste blockers or productsincorporating our taste enhancers or aversive taste blockers or any otherproducts we develop, our liability could exceed our total assets.

 

**RisksRelated To Intellectual Property**

 

***If our product candidates are not effectively protected by valid,issued patents or if we are not otherwise able to protect our proprietaryinformation, it could harm our business.***

 

The success of ouroperations will depend in part on our ability and that of our licensors 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 ourpharmaceutical formulations including those created using our taste enhancers;

 

•        defend patents once obtained;

 

•        maintain trade secrets and operate withoutinfringing upon the patents and proprietary rights of others; and

 

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

 

In the event we are not ableto protect our intellectual property and proprietary information, our business willbe materially harmed.

 

***We may not have adequate protection for our unpatented proprietaryinformation, which could adversely affect our competitive position.***

 

In addition to patents, wewill substantially rely on trade secrets, know-how, continuing technologicalinnovations and licensing opportunities to develop and maintain our competitiveposition.  However, others may independently develop substantiallyequivalent proprietary information and techniques or otherwise gain access toour trade secrets or disclose our technology.  To protect our tradesecrets, we may enter into confidentiality agreements with employees,consultants and potential collaborators.  However, these agreements maynot provide meaningful protection of our trade secrets or adequate remedies inthe event of unauthorized use or disclosure of such information. Likewise, our trade secrets or know-how may become known through other means orbe independently discovered by our competitors.  Any of these events couldprevent us from developing or commercializing our product candidates.

 

***Our ability to compete in the ingredient, food and beverage market andthe pharmaceutical market may decline if we do not adequately protect ourproprietary technologies.***

 

Because of the substantiallength of time and expense associated with the development of new products, we,along with the rest of the ingredient, food and beverage industry andpharmaceutical industry, place considerable importance on obtaining andmaintaining patent protection for new technologies, products andprocesses.  Our success depends in part on our ability to obtain andmaintain intellectual property that protects our technologies, taste enhancersor aversive taste blockers and our pharmaceutical products.  Patent positionsmay be highly uncertain and may involve complex legal and factual questions,including the ability to establish patentability of sequences relating to tastereceptors, proteins, chemical synthesis techniques, compounds and methods forusing them to modulate taste for which we seek patent protection.  Noconsistent standard regarding the allowance or enforceability of claims in manyof 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

 

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we have in-licensed or theextent to which we may enforce these claims against our competitors. The degreeof future protection for our proprietary rights is therefore highly uncertainand we cannot assure you that:

 

•        we were the first to file patent applicationsor to invent the subject matter claimed in patent applications relating to thetechnologies 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;

 

•        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.

 

In addition, patent lawoutside the United States is uncertain and in many countries intellectualproperty laws are undergoing review and revision. The laws of some countries donot protect intellectual property rights to the same extent as domestic laws.It may be necessary or useful for us to participate in opposition proceedingsto determine the validity of our competitors’ patents or to defend the validityof any of our or our licensor’s future patents, which could result in substantialcosts and would divert our efforts and attention from other aspects of ourbusiness.

 

Technologies licensed to usby others, or in-licensed technologies, are important to our business. Inparticular, we depend on certain technologies relating to taste biologylicensed from the Mount Sinai School of Medicine.  In addition, we may inthe future acquire rights to additional technologies by licensing such rightsfrom existing licensors or from third parties.  Such in-licenses may becostly.  Also, we generally do not control the patent prosecution,maintenance or enforcement of in-licensed technologies.  Accordingly, weare unable to exercise the same degree of control over this intellectualproperty as we do over our internally developed technologies. Moreover, some ofour academic institution licensors, collaborators and scientific advisors haverights to publish data and information to which we have rights.  If wecannot maintain the confidentiality of our technologies and other confidential informationin connection with our collaborations, our ability to protect our proprietaryinformation or obtain patent protection in the future may be impaired, whichcould have a significant adverse effect on our business, financial conditionand results of operations.

 

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

 

Many of the patentapplications filed by us and our licensors were filed recently with the UnitedStates Patent and Trademark Office and most have not been substantivelyexamined and may not result in patents being issued.  It is difficult topredict whether any of our or our licensors’ applications will ultimately befound to be patentable or, if so, to predict the scope of any allowedclaims.  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 orour licensors’ applications will be allowed, or, if so, to predict the scope ofany allowed claims or the enforceability of the patents.  Even ifenforceable, others may be able to design around any patents or develop similartechnologies that are not within the scope of such patents.  Our and ourlicensors’ patent applications may not issue as patents that will provide uswith any protection or competitive advantage.

 

***Disputes concerning the infringement or misappropriation of ourproprietary rights or the proprietary rights of others could be time consumingand extremely costly and could delay our research and development efforts.***

 

Our commercial success, ifany, will be significantly harmed if we infringe the patent rights of thirdparties or if we breach any license or other agreements that we have enteredinto with regard to our technology or business.

 

We are aware of othercompanies and academic institutions that have been performing research in theareas of taste modulation and taste enhancers and aversive tasteblockers.  In particular, other companies and academic institutions haveannounced that they have conducted

 

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taste-receptor research andhave published data on taste receptor sequence information and taste receptorsor filed patent applications or obtained patent protection on taste modulationor taste receptors and their uses.  To the extent any of these companiesor academic institutions currently have, or obtain in the future, broad patentclaims, such patents could block our ability to use various aspects of ourdiscovery and development process and might prevent us from developing orcommercializing newly discovered taste enhancers and aversive taste blockers orotherwise conducting our business.  In addition, it is possible that someof the taste enhancers or aversive taste blockers that are discovered using ourtechnology may not be patentable or may be covered by intellectual property ofthird parties.

 

We are not currently a partyto any litigation, interference, opposition, protest, reexamination or anyother potentially adverse governmental, ex parte or inter-party proceeding withregard to our patent or trademark positions.  However, the life sciencesand other technology industries are characterized by extensive litigationregarding patents and other intellectual property rights.  Many lifesciences and other technology companies have employed intellectual propertylitigation as a way to gain a competitive advantage.  If we becomeinvolved in litigation, interference proceedings, oppositions, reexamination,protest or other potentially adverse intellectual property proceedings as aresult of alleged infringement by us of the rights of others or as a result ofpriority of invention disputes with third parties, we might have to spendsignificant amounts of money, time and effort defending our position and we maynot be successful.  In addition, any claims relating to the infringementof third-party proprietary rights or proprietary determinations, even if notmeritorious, could result in costly litigation, lengthy governmentalproceedings, divert management’s attention and resources, or require us toenter into royalty or license agreements that are not advantageous to us.

 

Should any person have filedpatent applications or obtained patents that claim inventions also claimed byus, we may have to participate in an interference proceeding declared by therelevant patent regulatory agency to determine priority of invention and, thus,the right to a patent for these inventions in the United States.  Such aproceeding could result in substantial cost to us even if the outcome isfavorable.  Even if successful on priority grounds, an interference actionmay result in loss of claims based on patentability grounds raised in theinterference action.  Litigation, interference proceedings or otherproceedings could divert management’s time and efforts.  Even unsuccessfulclaims could result in significant legal fees and other expenses, diversion ofmanagement’s time and disruption in our business.  Uncertainties resultingfrom initiation and continuation of any patent proceeding or related litigationcould harm our ability to compete and could have a significant adverse effecton our business, financial condition and results of operations.

 

An adverse ruling arisingout of any intellectual property dispute, including an adverse decision as tothe priority of our inventions, could undercut or invalidate our intellectualproperty position.  An adverse ruling could also subject us to significantliability for damages, including possible treble damages, prevent us from usingtechnologies or developing products, or require us to negotiate licenses todisputed rights from third parties.  Although patent and intellectualproperty disputes in the technology area are often settled through licensing orsimilar arrangements, costs associated with these arrangements may be substantialand could include license fees and ongoing royalties.  Furthermore,necessary licenses may not be available to us on satisfactory terms, if atall.  Failure to obtain a license in such a case could have a significantadverse effect on our business, financial condition and results of operations.

 

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

 

***We expect that our results of operations will fluctuate from period toperiod, and this fluctuation could cause our stock price to decline, causinginvestor losses.***

 

Our operating results havefluctuated in the past and are likely to vary significantly in the future basedupon a number of factors, many of which we have little or no controlover.  We operate in a highly dynamic industry and future results could besubject to significant fluctuations.  These fluctuations could cause us tofail to meet or exceed financial expectations of securities analysts orinvestors, which could cause our stock price to decline rapidly andsignificantly.  Revenue and expenses in future periods may be greater orless than revenue and expenses in the immediately preceding period or in thecomparable period of the prior year.  Therefore, period-to-periodcomparisons of our operating results are not necessarily a good indication ofour future performance.  Some of the factors that could cause ouroperating results to fluctuate include:

 

•        our ability to discover and develop tasteenhancers and aversive taste blockers;

 

•        our ability or the ability of our productdiscovery and development collaborators to incorporate our taste enhancers andaversive taste blockers into packaged food and beverage products andpharmaceutical products;

 

•        our receipt of milestone payments in anyparticular period;

 

•        the ability and willingness of collaboratorsto commercialize products incorporating our taste enhancers and aversive tasteblockers on expected timelines, or at all;

 

•        our ability to enter 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;

 

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•        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 enhancers or aversive tasteblockers; and

 

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

 

***If we acquire products, technologies or other businesses, we will incura variety of costs, may have integration difficulties and may experiencenumerous other risks that could adversely affect our business.***

 

To remain competitive, wemay decide to acquire additional businesses, products and technologies. We currently have no commitments or agreements with respect to, and are notactively seeking, any material acquisitions.  We have limited experiencein identifying acquisition targets, successfully acquiring them and integratingthem into our current infrastructure.  We may not be able to successfully integrateany businesses, products, technologies or personnel that we might acquire inthe future without a significant expenditure of operating, financial andmanagement resources, if at all.  In addition, future acquisitions couldrequire 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 otherintangible assets, or incur or assume substantial debt or liabilities, or itmay cause adverse tax consequences, substantial depreciation or deferredcompensation charges;

 

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

 

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

 

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

 

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

 

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

 

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

 

Any of the foregoing riskscould have a significant adverse effect on our business, financial conditionand results of operations.

 

***To the extent we enter markets outside of the United States, ourbusiness will be subject to political, economic, legal and social risks inthose markets, which could adversely affect our business.***

 

There are significantregulatory and legal barriers in markets outside the United States that we mustovercome to the extent we enter or attempt to enter markets in countries otherthan the United States.  We will be subject to the burden of complyingwith a wide variety of national and local laws, including multiple and possiblyoverlapping and conflicting laws.  We also may experience difficultiesadapting to new cultures, business customs and legal systems.  Any salesand operations outside the United States would be subject to political,economic and social uncertainties including, among others:

 

•        changes and limits in import and exportcontrols;

 

•        increases in custom duties and tariffs;

 

•        changes in currency exchange rates;

 

•        economic and political instability;

 

•        changes in government regulations and laws;

 

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

 

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

 

Any changes related to theseand other factors could adversely affect our business to the extent we entermarkets outside the United States.

 

***We may encounter difficulties managing our growth, which couldadversely affect our business.***

 

Our strategy includesentering into and working on simultaneous taste enhancer and aversive tasteblocker discovery and development programs across multiple markets that includeboth the food and beverage industry and the pharmaceutical industry.  Weexpect to continue to grow to meet our strategic objectives. If our growthcontinues, it will continue to place a strain on us, our management and ourresources. Our ability to effectively manage our operations, growth and variousprojects requires us to continue to improve our operational, financial andmanagement controls, reporting systems and procedures and to attract and retainsufficient numbers of talented employees.  We may not be able tosuccessfully implement these tasks on a larger scale and, accordingly, we maynot 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.

 

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

 

***The sale of a significant number of our shares of common stock in thepublic market could depress the market price of common stock.***

 

The sale of a significantnumber of shares of our common stock in the public market could harm the marketprice of our common stock.  As additional shares of common stock havebecome available for resale in the public market pursuant to the registrationstatement and releases of lock-up agreements, the market supply of shares ofcommon stock has increased, which could decrease its market price.  Thenumber of shares that may be sold into the marketplace pursuant to theregistration statement is significant.  We believe that such sales mayseverely depress the market price of our common stock.  In addition, someor all of the shares of common stock may be offered from time to time in theopen market pursuant to Rule 144 (or pursuant to an additionalregistration statement, if one is effective), and these sales may also have adepressive effect on the market for the shares of common stock.  Ingeneral, a person who has held restricted shares for a period of one year may,upon filing of a notification on Form 144 with the SEC, sell into themarket common stock in an amount up to the greater of 1% of the outstandingshares or the average weekly number of shares sold in the last four weeksbefore such sale.  Such sales may be repeated once each three months, andany of the restricted shares may be sold by a non-affiliate after they havebeen held two years.  The Company’s officers, directors, employees andmost stockholders currently owning greater than 4% of our issued andoutstanding common stock are subject to lock-up provisions relating to sharesof our common stock that they owned prior to the Reverse Merger that preventthe sale or transfer of common stock from the date of the initial closing ofthe Private Placement until 180 days after the effective date of the resaleregistration statement.

 

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

 

The market price of ourcommon stock, and the market prices for securities of biotechnology companiesin general, are expected to be highly volatile.  The following factors, inaddition to other risk factors described in this Quarterly Report on Form 10-Q,and the potentially low volume of trades in our common stock, may have asignificant impact on the market price of our common stock, some of which arebeyond our control:

 

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

 

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

 

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

 

•        actual or anticipated variations in operatingresults;

 

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

 

•        changes in financial estimates by securitiesanalysts;

 

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

 

•        regulatory developments in the United Statesand other countries;

 

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

 

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•        the Company’s announcement of significantacquisitions, 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.

 

The stock market in generalhas recently experienced relatively large price and volume fluctuations. In particular, market prices of securities of biotechnology companies haveexperienced fluctuations that often have been unrelated or disproportionate tothe operating results of these companies.  Continued market fluctuationscould result in extreme volatility in the price of our common stock, whichcould cause a decline in the value of our common stock.  Investors shouldalso be aware that price volatility may be worse if the trading volume of ourcommon stock is low.

 

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

 

We currently intend toretain any future earnings to finance the growth and development of ourbusiness; therefore, we do not expect to pay any cash dividends in theforeseeable future. Any future dividends will depend on our earnings, if any,and our financial requirements.

 

***Because Redpoint became a public company as a result of the ReverseMerger and Reincorporation Merger and not through a traditional underwritteninitial public offering of securities, the Company may not attract theattention of major brokerage firms.  Additionally, as a public company, wewill incur substantial expenses.***

 

As a result of the ReverseMerger and Reincorporation Merger, Redpoint became a publicly-traded companyand, accordingly, will be subject to the information and reporting requirementsof the United States securities laws.  The costs to public companies ofpreparing and filing annual and quarterly reports, proxy statements and otherinformation with the SEC and furnishing audited reports to stockholders willcause the Company’s expenses to be higher than they would be if it were aprivately-held company.  In addition, the Company will incur 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 ofmajor brokerage firms may not provide coverage of the Company.  Noassurance can be given that brokerage firms will want to conduct any secondaryofferings on behalf of the Company in the future.

 

***We have discretion on how we use any proceeds we receive from theexercise of warrants.***

 

Our management has broaddiscretion on how to use and spend any proceeds we receive as a result ofselling security holders exercising their warrants. Our stockholders may notagree with our decision on how to use such proceeds. If we fail to spend theproceeds effectively, our business and financial condition could be harmed andwe may need to seek additional financing sooner than expected.

 

***It is not anticipated that there will be an active public market forshares of our common stock in the near term and stockholders may have to holdtheir shares of common stock for an indefinite period of time. Stockholders may be unable to resell a large number of their shares of commonstock within a short time frame or at or above their purchase price.***

 

To have purchased shares ofour common stock and warrants to purchase common stock in the PrivatePlacement, an investor must have represented that it was acquiring such sharesand warrants for investment and not with a view to distribution or resale, thatthe investor understood that neither the common stock nor the warrants arereadily transferable and, in any event, that it must bear the economic risk ofan investment in the common stock for an indefinite period of time becauseneither the common stock nor the warrants have been registered under theSecurities Act of 1933, as amended (the Securities Act), or applicable state “BlueSky” or securities laws, and that neither the common stock nor the warrants canbe sold unless they are subsequently registered or an exemption from suchregistration is available.  Because our common stock is thinly traded, aninvestor cannot expect to be able to liquidate its investment in case of anemergency or if it otherwise desires to do so.  Large transactions incommon stock may be difficult to conduct in a short period of time. Further, the sale of shares of common stock may have adverse federal income taxconsequences.

 

***If we do not comply with registration rights granted to certain holdersof our restricted securities, we may be required to pay damages to suchholders.***

 

We filed a “resale”registration statement with the SEC covering all shares of common stock issuedin connection with the Private Placement, including shares of common stock intowhich any warrants are exercisable, within 60 days after the final closing ofthe Private Placement. Such registration statement has been declared effectiveby the SEC. We will use our best efforts to have such “resale” registrationstatement maintain its effectiveness until such time as all securitiesregistered under the registration statement have been sold or are otherwiseable to be sold under Rule 144 of the Securities Act without regard tovolume limitations, whichever is earlier. We cannot assure you that we will beable to obtain or maintain such effective registration statement.

 

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***Our common stock may be considered “a penny stock” and may be difficultto sell.***

 

The SEC has adoptedregulations that generally define “penny stock” to be an equity security thathas a market or exercise price of less than $5 per share, subject to specificexemptions. Initially, the market price of our common stock is likely to beless than $5 per share and therefore may be designated a “penny stock” underSEC rules.  This designation requires any broker or dealer selling ourcommon stock to disclose certain information about the transaction, obtain awritten 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.

 

***Substantial future issuances of******our******common stock could depress our stock price.***

 

The market price for ourcommon stock could decline, perhaps significantly, as a result of issuances ofa large number of shares of our common stock in the public market or even theperception that such issuances could occur.  Under our Registration RightsAgreement, certain holders of our outstanding shares of our common stock andother securities have demand and Form S-3 registration rights.  Sales of asubstantial number of these shares of common stock, or the perception thatholders of a large number of shares intend to sell their shares, could depressthe market price of our common stock.  The existence of such registrationrights could also make it more difficult for us to raise funds through futureofferings of our equity securities.

 

***Our stockholders may experience additional dilution upon the exerciseof warrants or options.***

 

As of the final closing ofthe Private Placement, we issued warrants to investors to acquire approximately10.2 million shares of common stock and warrants to the placement agents toacquire approximately 3.6 million shares of common stock in the PrivatePlacement,  There are also additional warrants to purchase approximately0.2 million shares of common stock which in addition to the warrants issued toinvestors and the placement agents in connection with the Private Placement, isan aggregate of 14.0 million shares of common stock underlying such warrantsthat, if exercised or converted, could decrease the net tangible book value ofour common stock.  In addition, there are 17.6 million shares of commonstock underlying options that have been or may be granted pursuant to theRedpoint Bio Corporation 2007 Omnibus Equity Compensation Plan.  If theholders of those options exercise those options, you may experience dilution inthe net tangible book value of our common stock.

 

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

 

Based on the aggregatenumber of shares of our common stock that are outstanding as of June 22, 2007,our officers and directors beneficially own approximately 36.26% of ouroutstanding common stock.  Such a high level of ownership by such personsmay have a significant effect in delaying, deferring or preventing anypotential change in control of the Company.  Additionally, as a result oftheir high level of ownership, our officers and directors might be able tostrongly influence the actions of the Company’s board of directors, and theoutcome of actions brought to our stockholders for approval. Such a high levelof ownership may adversely affect the voting and other rights of ourstockholders.

 

**ITEM2.     UNREGISTERED SALES OF EQUITY SECURITIES AND USE OFPROCEEDS**

 

None.

 

**ITEM3.     DEFAULTS UPON SENIOR SECURITIES**

 

Not applicable.

 

**ITEM4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**

 

None.

 

**ITEM6.     EXHIBITS**

 
| **Exhibit No****.** |   |                                                                                                                                                                                                                                     |
|---------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.1                |   | Employment Agreement dated  September 10, 2007, by and between Redpoint Bio Corporation and Scott Siegel,  Ph.D. (Incorporated by reference to Exhibit 10.1 of the Company’s Current  Report on Form 8-K filed on October 1, 2007). |
|                |   |                                                                                                                                                                                                                                     |
| 31.1                |   | Certification of Chief  Executive Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of  2002 (filed herewith).                                                                                                                |

 

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| 31.2   |   | Certification of Chief  Financial Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of  2002 (filed herewith).                               |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                    |
| 32.1   |   | Certifications of Chief  Executive Officer and Chief Financial Officer pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002 (furnished herewith). |

 

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**SIGNATURES**

 

Pursuant to the requirementsof the Securities Exchange Act of 1934, the Registrant has duly caused thisreport to be signed on its behalf by the undersigned, thereunto dulyauthorized.

 

 
|                   | REDPOINT BIO CORPORATION                          |
|-------------------|---------------------------------------------------|
|              |                                              |
| November 14, 2007 | By:                                               | /s/ F. Raymond Salemme |
|              | F. Raymond Salemme                                |
|              | President and Chief  Executive Officer            |
|              | (Principal Executive  Officer)                    |
|              |                                              |
|              |                                              |
| November 14, 2007 | By:                                               | /s/ Scott M. Horvitz |
|              | Scott M. Horvitz                                  |
|              | Chief Financial Officer,  Treasurer and Secretary |
|              | (Principal Financial and  Accounting Officer)     |
|              |                                              |

 

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**EXHIBIT INDEX**

 
| **Exhibit No.** |   |                                                                                                                                                                                                                                     |
|-----------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|            |   |                                                                                                                                                                                                                                     |
| 10.1            |   | Employment Agreement dated  September 10, 2007, by and between Redpoint Bio Corporation and Scott Siegel,  Ph.D. (Incorporated by reference to Exhibit 10.1 of the Company’s Current  Report on Form 8-K filed on October 1, 2007). |
|            |   |                                                                                                                                                                                                                                     |
| 31.1            |   | Certification of Chief  Executive Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of  2002 (filed herewith).                                                                                                                |
|            |   |                                                                                                                                                                                                                                     |
| 31.2            |   | Certification of Chief  Financial Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of  2002 (filed herewith).                                                                                                                |
|            |   |                                                                                                                                                                                                                                     |
| 32.1            |   | Certifications of Chief  Executive Officer and Chief Financial Officer pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002 (furnished herewith).                                                                                  |

 

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