PINX:RPBC Redpoint Bio Corp Quarterly Report 10-Q Filing - 3/31/2012

Effective Date 3/31/2012

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United States

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended March 31, 2012

 

Or

 

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

 

For the transition period from               to         

 

Commission File Number: 000-51708

 

Redpoint Bio Corporation

(Exact name of Registrant as specified in its charter)

 

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

 

5501 Old York Road, Philadelphia, Pennsylvania 19141

(Address of principal executive offices) (Zip Code)

 

(215) 456-2312

(Registrant’s Telephone Number, Including Area Code)

 

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

 

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

 

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

 

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

 

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

 

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

 

The number of shares of the registrant’s common stock outstanding as of May 17, 2012 was 79,914,879.

 

 

 
 

 

REDPOINT BIO CORPORATION

 

      Page
       
PART I: FINANCIAL INFORMATION   1
       
ITEM 1. FINANCIAL STATEMENTS (unaudited):   1
       
  Balance Sheets   1
       
  Statements of Operations   2
       
  Statements of Cash Flows   3
       
  Notes to Financial Statements   4
       
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS   14
       
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK   20
       
ITEM 4T. CONTROLS AND PROCEDURES   20
       
PART II: OTHER INFORMATION   20
       
ITEM 1. LEGAL PROCEEDINGS   20
       
ITEM 1A. RISK FACTORS   20
       
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS   20
       
ITEM 3. DEFAULTS UPON SENIOR SECURITIES   20
       
ITEM 4. MINE SAFETY DISCLOSURES   20
       
ITEM 5. OTHER INFORMATION   21
       
ITEM 6. EXHIBITS   21
       
SIGNATURES   22

 

i
 

 

PART I.  FINANCIAL INFORMATION.

 

ITEM 1.  FINANCIAL STATEMENTS.

 

REDPOINT BIO CORPORATION

(A DEVELOPMENT-STAGE ENTERPRISE)

BALANCE SHEETS

(UNAUDITED)

 

   December 31,  March 31,
   2011  2012
Assets          
Current assets:          
Cash  $126,724   $68,267 
Prepaid expenses and other current assets   10,432    25,954 
Total current assets   137,156    94,221 
Total assets  $137,156   $94,221 
Liabilities and Stockholders’ Equity          
Current liabilities:          
Accounts payable  $372,904   $384,479 
Accrued expenses   43,500    61,810 
Accrued compensation   52,859    52,859 
Total current liabilities   469,263    499,148 
Total liabilities   469,263    499,148 
           
Stockholders’ equity (deficit):          
Preferred stock; 10,000,000 shares authorized, $0.0001 par value, none issued        
Common stock; authorized 150,000,000 shares; $0.0001 par value, issued and outstanding 79,914,879 shares at December 31, 2011 and issued and outstanding 79,914,879 shares at March 31, 2012   7,991    7,991 
Additional paid-in-capital   56,903,268    56,913,038 
Deficit accumulated during development stage   (57,243,366)   (57,325,956)
Total stockholders’ equity (deficit)   (332,107)   (404,927)
Total liabilities and stockholders’ equity (deficit)  $137,156   $94,221 

 

See accompanying notes to the unaudited financial statements.

 

1
 

 

REDPOINT BIO CORPORATION

(A DEVELOPMENT-STAGE ENTERPRISE)

STATEMENTS OF OPERATIONS

(UNAUDITED)

 

   Three Months Ended
March 31,
   August 16,
1995 (Inception) to
 
   2011   2012   March 31, 2012 
Research, grant and license revenue  $   $   $14,099,481 
Operating expenses:               
                
Research and development   625,930        38,130,920 
General and administrative   646,480    86,952    30,831,069 
Total operating expenses   1,272,410    86,952    68,961,989 
Operating loss   (1,272,410)   (86,952)   (54,862,508)
Interest income   11        1,671,665 
Other income       4,362    1,621,422 
Interest expense   (25,495)       (3,841,656)
Loss before income taxes   (1,297,894)   (82,590)   (55,411,077)
Income tax benefit   410,726        1,498,010 
Net loss   (887,168)   (82,590)  $(53,913,067)
Basic and diluted net loss per common share  $(0.01)  $      
Weighted average of shares outstanding   79,878,976    79,914,879      

 

See accompanying notes to the unaudited financial statements.

 

2
 

 

REDPOINT BIO CORPORATION

(A DEVELOPMENT-STAGE ENTERPRISE)

STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

   Three Months Ended
March 31,
   August 16, 1995
(Inception) to
March 31,
 
   2011   2012   2012 
Cash flows from operating activities:               
Net loss  $(887,168)  $(82,590)  $(53,913,067)
Adjustments to reconcile net loss to net cash used in operating activities:               
Depreciation and amortization   90,078        3,178,176 
Amortization of discounts and premiums on marketable securities           (473,654)
Options, warrants and stock issued for services and dilution provisions   118,344    9,770    4,944,280 
Beneficial conversion feature           1,228,565 
Amortization of discount on convertible notes           899,935 
Amortization of deferred financing costs   3,279        179,147 
Debt inducement charge           361,598 
Interest expense on convertible notes           136,075 
Gain on sale of property and equipment           (174,687)
Gain on debt extinguishment           (577,740)
Gain on settlement of accounts payable       (4,362)   (799,995)
Changes in assets and liabilities:               
Prepaid expenses and other assets   38,511    (15,522)   (330,814)
Accounts payable   147,707    15,937    1,492,930 
Accrued expenses and accrued compensation   19,806    18,310    258,668 
Net cash used in operating activities   (469,443)   (58,457)   (43,590,583)
Cash flows from investing activities:               
Maturity and sale of marketable securities           46,986,994 
Purchases of marketable securities           (46,513,341)
Proceeds from sale of property and equipment           376,713 
Purchases of property and equipment           (3,380,219)
Net cash provided by (used in) investing activities           (2,529,853)
Cash flows from financing activities:               
Proceeds from issuance of long-term debt           3,614,710 
Net proceeds from convertible notes           5,253,811 
Repayment of debt   (66,860)       (3,087,407)
Net proceeds from issuance of preferred stock           11,883,447 
Net proceeds from issuance of common stock and warrants           28,624,603 
Proceeds from exercise of common stock options and warrants   6,583        182,660 
Common stock reacquired           (283,121)
Net cash provided by (used in) financing activities   (60,277)       46,188,703 
Net increase (decrease) in cash and cash equivalents   (529,720)   (58,457)   68,267 
Cash and cash equivalents, beginning of period   1,082,999    126,724     
Cash and cash equivalents, end of period  $553,279   $68,267   $68,267 
Supplemental cash flow disclosures:               
Noncash investing and financing activities:               
Conversion of notes payable and accrued interest to preferred stock  $   $   $1,446,395 
Conversion of notes payable and accrued interest to common stock           3,896,001 
Conversion of preferred and junior preferred stock to common stock           16,940,297 
Accretion of preferred stock           3,248,857 
Warrants issued in connection with notes payable           1,258,642 
Cash paid for interest  $15,308   $   $820,288 

 

See accompanying notes to the unaudited financial statements. 

 

3
 

 

REDPOINT BIO CORPORATION

(A DEVELOPMENT-STAGE ENTERPRISE)

NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)

 

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

 

Description of the Business and Liquidity

 

Redpoint Bio Corporation (“Redpoint” or “the Company”) is a development stage company following a strategy focused on preserving the value of the License and Commercialization Agreement it entered into with International Flavors and Fragrances Inc., or IFF, a global leader in the food and beverage industry.  As part of this strategy, the Company continues its efforts to reduce its liabilities and sell its remaining assets. These remaining assets are primarily comprised of intellectual property, compounds and other research tools associated with the TRPm5 discovery program for pharmaceutical products which the Company terminated in March of 2011 due to scientific reasons and financial constraints. The Company had previously terminated its program for TRPm5 taste modulators. Given its lack of resources, the Company is not currently performing any research and development activities.

 

In June 2009, the Company announced that it had identified an all-natural sweetness enhancer, RP44. RP44 is Reb-C (rebaudioside C) a component of the stevia plant. Extracts of the leaves of the stevia plant have been extensively used as sweeteners for decades.  Although certain components of the stevia leaf can be used as sweeteners, RP44 is not sweet and contributes no taste or calories of its own when used in small quantities in combination with caloric sweeteners like sucrose (table sugar) fructose and high-fructose corn syrup.  Instead, it works as a sweetness enhancer amplifying the existing sugary sweetness in a food or beverage so that less sweetener is required, while retaining the “clean sweet taste” that is associated with sugar.  Taste tests demonstrate that RP44 enables the reduction of up to 25% of the caloric sweetener content in various product prototypes, while still maintaining the taste quality of the fully sweetened product. These results have been demonstrated by using RP44 in combination with several common sweeteners including sucrose (sugar), fructose, glucose and high-fructose corn syrup (HFCS).

 

In June 2010, the Company entered into a License and Commercialization Agreement with IFF for the development, manufacture, use and commercialization of RP44. IFF has exclusive rights, through June 2015, to develop, manufacture and commercialize RP44 in virtually all food and beverage product categories. In return, the Company received an upfront payment of $0.5 million and became eligible to receive two milestone payments of $0.5 million each based upon certain criteria regarding regulatory approval and supply. In addition to these milestone payments, the Company is eligible to receive royalties based on the amount of RP44 purchased by IFF for use in products. Regardless of the amount of RP44 purchased by IFF for use in products, in order to maintain their exclusive rights, IFF shall be required to pay the Company minimum royalties in the low six figure range for each twelve month period following the first commercial purchase of RP44 by IFF for use in products. IFF will continue to be responsible for the regulatory process and for costs associated with prosecuting and maintaining the Company’s intellectual property covering the sweetness enhancer. Unless terminated earlier pursuant to the agreement, the agreement continues in effect until the end of the Royalty Term.  The Royalty Term commences on the first commercial purchase by IFF (or any of its affiliates) of RP44 from a supplier under a supply agreement and ends on the fifth (5th) anniversary of the first purchase under the supply agreement, or, if a patent covering RP44 or Products (as defined in the agreement) has issued, such later date on which RP44 or such Product is no longer covered by a Valid Claim (as defined in the agreement) in any country in the Territory (as defined in the agreement).  In addition to standard termination rights provided to each party, after the third (3rd) anniversary of this agreement, IFF may terminate the agreement at any time upon ninety (90) days prior written notice to the Company.

 

In October 2010, IFF received notification by the Flavor and Extract Manufacturers Association (FEMA) that RP44 had been determined to be Generally Recognized As Safe (GRAS), triggering the $0.5 million regulatory approval milestone payment which was received in 2010. This GRAS determination allows RP44 to be incorporated into specified products in the United States and potentially aids regulatory acceptance in numerous other countries.

 

In March 2011, IFF entered into an agreement with GLG Life Tech Corporation, or GLG, a global leader in the supply of high purity stevia extracts, to develop the extraction capability for high grade Reb C extract for use by IFF as a sweetness enhancer.  If the development proved successful, IFF and GLG also negotiated preliminary terms for a supply agreement, including exclusive supply to IFF for high-purity Reb C for use as a sweetness enhancer.  In December 2011, IFF notified the Company that the supply milestone was achieved, triggering the remaining $0.5 million payment which was received in December 2011. Although Reb C is currently derived from material found in the side stream of the Reb A production process there can be no assurance that it can be produced in large scale on an economically viable basis.

 

4
 

 

Since its inception in 1995, the Company has incurred losses and negative cash flows from operations, and such losses have continued subsequent to March 31, 2012. As of March 31, 2012, the Company had an accumulated deficit of $57.3 million and anticipates incurring additional losses for the foreseeable future. Through March 31, 2012, substantially all of the Company’s cash-flow has been derived from corporate collaborations, license agreements, government grants and equity financings. The Company expects that substantially all of its cash-flow for the foreseeable future will come from its license and commercialization agreement with IFF. However, there can be no assurance that the Company will receive any cash-flow from IFF or enter into any future corporate collaborations, equity financings or license agreements. Redpoint had approximately $68,000 of cash at March 31, 2012.

 

In connection with its strategy of reducing liabilities and selling its remaining assets, in April 2011, the Company sold a portion of its property and equipment through an auction process and received net cash proceeds of approximately $0.3 million.  Certain of the property and equipment that was sold were used for collateral for the Company’s Loan and Security Agreement with a finance company.  Of the total net proceeds received from the auction sale, approximately $85,000 was remitted directly to the finance company to reduce the outstanding indebtedness plus accrued interest under the Loan and Security Agreement to approximately $635,000 as of May 10, 2011.  On May 11, 2011, the Company entered into a Discounted Payoff Agreement with the finance company, whereby the finance company agreed to accept approximately $43,000 in full satisfaction of the total outstanding indebtedness plus accrued interest.  This amount was paid by the Company in May 2011.

 

On November 28, 2005, the Company entered into a Lease (the “Lease”) with BMR-7 Graphics Drive LLC (the “Landlord”), which was amended by the First Amendment to the Lease, dated as of October 25, 2006, and that certain Acknowledgement of Term Commencement Date and Term Expiration Date, dated as of May 7, 2007.  On April 30, 2011, the Company moved out of its leased facility in New Jersey and no longer occupied the facility as of that date.  The Company ceased to make rent payments under the Lease as of April 30, 2011.  As a result, the Company was in default on the Lease.  Additionally, on May 10, 2011, the Company received notice from the Landlord that the Company was in violation of the Lease for failure to pay rent as required under the Lease.  On September 13, 2011, the Company entered into a Forbearance and Settlement Agreement with the Landlord (the “Settlement Agreement”), whereby the Landlord agreed to forbear temporarily from enforcing its rights to collect all payments currently due under the Lease and future payments due for the remainder of the Term (as defined in the Lease) (approximately $5,156,000 in the aggregate) during the period commencing on the Execution Date (as defined in the Settlement Agreement) and continuing through February 15, 2012 (the “Forbearance Period”) in consideration of the commitment to pay an aggregate of $425,000 (the “Payoff Amount”) prior to February 15, 2012.  In September 2011, the Company paid $25,000 of the Payoff Amount in connection with the terms of the Settlement Agreement. Further, as discussed below, in October 2011 the Company paid an additional $27,500 of the Payoff Amount which was received in connection with an Asset Purchase Agreement entered into with Opertech Bio, Inc.  In December 2011, the Company paid the remaining $372,500 of the Payoff Amount which was received in connection with the achievement of the supply milestone in accordance with the License and Commercialization Agreement entered into with IFF. As a result, the Company has no further obligations to the Landlord under the Lease or the Settlement Agreement.

 

On September 30, 2011, the Company entered into an Asset Purchase Agreement (the “Agreement”) with Opertech Bio, Inc. (the “Purchaser”).  Pursuant to the Agreement, and subject to the terms and conditions contained therein, the Company sold certain operating assets and transferred certain liabilities and obligations to the Purchaser which relate to the Company’s taste modulator technology, including its Microtiter Operant Gustometer (“MOG”) technology.  As consideration for the sale of the assets under the Agreement, the Company received at closing a cash payment in the amount of $27,500 (the “Closing Payment”).  Pursuant to the Company’s obligations under the Settlement Agreement, in October 2011, the Company paid the entirety of the Closing Payment to the Landlord.  In addition, if, during the one year period following the effective date of the Agreement, the Purchaser is sold or the Purchaser sells all or substantially all of the Technology (as defined in the Agreement) to an independent third party for proceeds greater than the sum of (i) the Closing Payment, and (ii) all capital invested in the Purchaser by its stockholders as of the date of such sale, then the Purchaser shall pay the Company an amount equal to 10% of the net proceeds from such sale transaction.  In connection with the Agreement, the Company terminated each of its employees that remained on the Company’s scientific staff and certain of such employees have become employees of the Purchaser, including the Company’s current Interim President and Chief Executive Officer and Chief Financial Officer, Scott Horvitz, who also serves, on a part-time basis, as the President and Chief Executive Officer of Opertech Bio, Inc. As of the date of this filing, Mr. Horvitz is the only remaining employee of the Company.

 

As of the date of this filing, the Company had approximately $38,000 of cash. The Company believes that its current capital resources are only sufficient to meet its operating and capital requirements through June 2012, which raises substantial doubt about its ability to continue as a going concern.  The accompanying unaudited financial statements do not include any adjustments that might result from the outcome of this uncertainty. The Company is continuing its efforts to reduce its liabilities and sell its remaining assets and is seeking debt or equity financings to enhance the Company’s liquidity position. The Company’s remaining assets are primarily comprised of intellectual property, compounds and other research tools associated with the TRPm5 discovery program for pharmaceutical products which the Company terminated in March of 2011 due to scientific reasons and financial constraints. The Company had previously terminated its program for TRPm5 taste modulators.

 

5
 

 

For the Company to fund its operations, the Company must receive significant royalties from its license and commercialization agreement with IFF or additional equity and/or debt financing will be required before June 2012. There is no assurance that significant royalties will be received or such financing will be available to the Company as needed, and as a result, it will need to pursue other strategic alternatives.  Failure to successfully address ongoing liquidity requirements will have a material adverse effect on the Company’s business.  If the Company is unable to obtain additional capital on acceptable terms when needed, it will be unable to satisfy its existing obligations and may be required to take actions that harm its business and its ability to achieve positive operating cash flow in the future, including the surrender of its rights to the IFF license and commercialization agreement.

 

Effective March 1, 2011 through June 30, 2011, each of the Company’s executive officers agreed to indefinitely defer one-third of the cash portions of their salaries, at least until the Company has raised additional capital or the compensation committee of the board of directors determines otherwise.  Effective July 1, 2011 through August 31, 2011, this salary deferral was increased to 90% of the salaries of those executive officers. On September 27, 2011, the Company reduced the outstanding amounts owed to the Company’s executive officers in connection with the deferral of their salaries to 10% of the balance owed to them as of August 31, 2011, or $15,730.  As a result, the Company reduced the amounts that would have otherwise been owed to each executive officer by $141,000. In addition, on September 27, 2011, the Company mutually agreed with F. Raymond Salemme, PhD. (“Dr. Salemme”), the Company’s President and Chief Executive Officer, that Dr. Salemme shall resign as the Company’s President and Chief Executive Officer effective as of that date. Beginning on September 1, 2011, the Company is paying its Chief Financial Officer, working 50% of the time for the Company, at a revised annual salary of $125,903. As of March 31, 2012, the Company had one remaining employee, its Interim President and Chief Executive Officer and Chief Financial Officer, now employed on a part-time basis.

 

Basis of Presentation

 

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

 

In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included (See Note 2 for discussion of the impact of the Reverse Merger (as defined below)).  Operating results for the three months ended March 31, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012.

 

For further information, refer to the 2011 financial statements and footnotes thereto of Redpoint included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

 

2. Reverse Triangular Merger, Financing and Reincorporation Merger

 

Completion of Merger

 

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

 

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

 

6
 

 

Private Placement

 

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

 

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

 

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

 

Reincorporation Merger

 

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

 

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

 

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

 

3. Summary of Significant Accounting Policies

 

(a) Use of Estimates

 

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

 

(b) Cash and Cash Equivalents

 

The Company considers all highly liquid investments that have original maturities of three months or less when acquired to be cash equivalents.  The Company did not have any cash equivalents at December 31, 2011 and March 31, 2012.

 

(c) Concentrations of Credit Risk

 

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

 

(d) Revenue Recognition

 

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

 

7
 

 

License Fees and Multiple Element Arrangements

 

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

 

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

 

Substantive Milestone Payments

 

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

 

· the milestone payments are non-refundable;

 

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

 

· substantive effort is involved in achieving the milestone;

 

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

 

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

 

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

 

Reimbursement of Research and Development Costs

 

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

 

(e) Property and Equipment

 

Property and equipment are recorded at cost and depreciated on a straight-line basis over their estimated useful lives. The Company uses a life of four to five years for laboratory equipment, three to seven years for office equipment and furniture, and the lesser of the useful life or the remaining life of the underlying facility lease for leasehold improvements. Expenditures for repairs and maintenance are charged to expense as incurred, while major renewals and betterments are capitalized. Upon disposition of assets, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the Statements of Operations. During the year ended December 31, 2011, the Company sold its remaining property and equipment in connection with the Asset Purchase Agreement entered into with Opertech Bio, Inc. As a result, the Company did not have any property and equipment on its Balance Sheets at December 31, 2011 and March 31, 2012.

  

(f) Research and Development

 

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

 

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(g) Impairment of Long-Lived Assets

 

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

 

(h) Income Taxes

 

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

 

(i) Stock-Based Compensation

 

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

 

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

 

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

 

(j) Net Loss per Common Share

 

Basic net loss per common share is computed by dividing the net loss allocable to common stockholders by the weighted average number of shares of common stock outstanding for the period. Diluted net loss per common share is computed by dividing net loss allocable to common stockholders by the sum of the weighted-average number of common shares outstanding for the period and the number of additional shares that would have been outstanding if dilutive potential common shares had been issued.  Stock options and warrants to purchase an aggregate of 10,376,504 and 13,308,397 common shares were excluded from our computation of diluted net loss per common share for the three months ended March 31, 2012 and 2011, respectively.  In all periods presented, Redpoint’s diluted net loss per common share is equal to basic net loss per common share because giving effect in the computation of diluted net loss per common share to the exercise of outstanding options and warrants would have been antidilutive.

 

(k) Fair Value of Financial Instruments

 

The fair value of the Company’s financial instruments is the amount for which the instrument could be exchanged in a current transaction between willing parties. As of December 31, 2011 and March 31, 2012, the carrying values of cash, prepaid expenses and other current assets, accounts payable, accrued expenses, and accrued compensation equaled or approximated their respective fair values because of the short duration of these instruments.

 

4. Accrued Expenses and Accrued Compensation

 

Accrued expenses consisted of the following:

 

   December 31,
2011
   March 31,
2012
 
Professional fees  $43,500   $61,810 
   $43,500   $61,810 

 

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Accrued Compensation

 

Effective March 1, 2011 through June 30, 2011, each of the Company’s executive officers agreed to indefinitely defer one-third of the cash portions of their salaries, at least until the Company has raised additional capital or the compensation committee of the board of directors determines otherwise.  Effective July 1, 2011 through August 31, 2011, this salary deferral was increased to 90% of the salaries of those executive officers. On September 27, 2011, the Company reduced the outstanding amounts owed to the Company’s executive officers in connection with the deferral of their salaries to 10% of the balance owed to them as of August 31, 2011, or $15,730.  As a result, the Company reduced the amounts that would have otherwise been owed to each executive officer by $141,000.  Beginning on September 1, 2011, the Company is paying its Chief Financial Officer, working 50% of the time for the Company, at a revised annual salary of $125,903.  In addition, on September 27, 2011, the Company reduced by 90% the amounts that would otherwise be owed to each of the Company’s executive officers pursuant to any severance arrangements included in their employment agreements or as otherwise agreed to by such executive officer and the Company.  As such, in connection with the resignation of the Company’s President and CEO on September 27, 2011, based on the above, the Company recorded accrued severance of $37,129 as of December 31, 2011 and March 31, 2012.  This amount was included in general and administrative expenses during the year ended December 31, 2011.  Accrued compensation of $52,859 is included in “Accrued Compensation” on the Company’s Balance Sheets at December 31, 2011 and March 31, 2012 which consists of the cash amounts due to the Company’s current and former executive officers as a result of the deferral of salaries and accrued severance.

 

5. Debt — Loan and Security Agreement

 

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

 

During the year ended December 31, 2011, certain scheduled repayments of amounts outstanding under the Loan and Security Agreement were not made.  Based on the terms of the Loan and Security Agreement, this was considered an Event of Default (as defined in the Loan and Security Agreement) and the finance company had the option to declare all amounts outstanding immediately due and payable.  During the year ended December 31, 2011, the Company sold a portion of its property and equipment through an auction process.  Certain of the items sold were used for collateral for the Loan and Security Agreement.  Accordingly, $84,583 of the net proceeds from the auction was remitted directly to the finance company to reduce the outstanding indebtedness plus accrued interest under the Loan and Security Agreement to $634,788 as of May 10, 2011.  On May 11, 2011, the Company entered into a Discounted Payoff Agreement with the finance company, whereby the finance company agreed to accept $42,639 in full satisfaction of the total outstanding indebtedness plus accrued interest under the Loan and Security Agreement.  Upon receipt of such amount by the finance company, the Loan and Security Agreement automatically terminated, and all liabilities, obligations and indebtedness of the Company to the finance company were deemed satisfied in full and all liens and security interests of the finance company in any of the Company’s property and equipment were deemed released and terminated.  In addition, there was a balance of $14,409 of deferred financing costs related to the Loan and Security Agreement at May 11, 2011, which was written off in connection with the Discounted Payoff Agreement.  As a result of the above transaction, the Company recorded a gain on debt extinguishment of $577,740 which is included in Other income in the Company’s Statements of Operations for the year ended December 31, 2011.

 

Interest expense on notes payable for the three months ended March 31, 2011 was $22,216. There was no interest expense for the three months ended March 31, 2012.

 

6. Stockholders’ Equity (Deficit)

 

(a) Common Stock

 

The Company was party to a number of agreements that provided for dilution protection to certain investors.  In connection with the Reverse Merger and closing of the Private Placement, the Company issued approximately 2.0 million shares of common stock to a founder and shareholder of the Company as a result of such anti-dilution protection.  During 2007, the Company recorded a charge of $1.6 million to research and development expenses related to the issuance of such shares of common stock, which represents the fair value of these shares.  As of March 31, 2012, none of the Company’s existing agreements contain dilution protection provisions.

 

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(b) Warrants

 

As of March 31, 2012, the Company had the following warrants to purchase Common Stock outstanding:

 

Number of
shares
   Exercise
price
   Expiration 
 25,817   $0.75    September – December 2012 
 3,574,906   $0.97    April 2012 
 3,600,723           

 

During the three months ended March 31, 2012, warrants to purchase 27,222 shares of Common Stock at an exercise price of $0.75 per share expired and were not exercised. Subsequent to March 31, 2012, warrants to purchase 3,574,906 shares of Common Stock at an exercise price of $0.97 per share expired and were not exercised.

 

(c) Stock Option Plans

 

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

 

On March 12, 2007, the Company adopted the Redpoint Bio Corporation 2007 Omnibus Equity Compensation Plan (“2007 Plan”), which provided for the issuance of up to 13,511,562 shares of common stock, subject to adjustment in certain circumstances. In connection with the adoption of the 2007 Plan, the 2003 Plan merged with and into the 2007 Plan and no additional grants were to be made thereafter under the 2003 Plan.  Outstanding grants under the 2003 Plan continued in effect in accordance with their terms as in effect before March 12, 2007 and the shares with respect to outstanding grants under the 2003 Plan have been or will be issued or transferred under the 2007 Plan.  The 2007 Plan is now the Company’s only plan in effect.

 

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

 

The following is a summary of stock option activity under the Plan during the three months ended March 31, 2012:

 

           Weighted-     
       Weighted-   average     
   Number of   average   contractual   Intrinsic 
   shares   exercise price   term   Value 
Outstanding at December 31, 2011   6,969,531   $0.46           
Granted                  
Exercised                  
Forfeited/Cancelled   (193,750)   0.11           
Outstanding March 31, 2012   6,775,781   $0.46    4.41 years   $ 

 

All options granted to date have exercise prices equal to the fair value of the underlying common stock on the date of grant. Prior to the effectiveness of the registration statement on Form S-1, which occurred on July 20, 2007, all options were granted with an exercise price equal to the estimated fair value of the underlying common stock as determined by the board of directors. Subsequent to that date, all options have been granted with an exercise price equal to the most recent trading price of the Company’s common stock on the date of grant. The Company received proceeds of $6,583 for option exercises during the three months ended March 31, 2011. There were no option exercises during the three months ended March 31, 2012. As of March 31, 2012, there were 9,725,482 shares of common stock available for grant under the 2007 Plan.

 

The Company recognized $118,344 and $9,770 of stock-based compensation expense related to stock options for the three months ended March 31, 2011 and 2012, respectively. As of March 31, 2012, there was $8,844 of unrecognized compensation expense related to unvested stock options granted to employees and directors, which is expected to be recognized over a weighted average period of 2.4 years.

 

Subsequent to March 31, 2012, options to purchase 4,759,548 shares of Common Stock at a weighted average exercise price of $0.54 per share expired and were not exercised.

 

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(d) Registration Rights

 

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

 

7. License and Commercialization Agreement

 

In June 2010, the Company entered into a License and Commercialization Agreement with IFF for the development, manufacture, use and commercialization of RP44, the Company’s all-natural sweetness enhancer. IFF has exclusive rights, through June 2015, to develop, manufacture and commercialize RP44 in virtually all food and beverage product categories. In return, the Company received an upfront payment of $0.5 million and became eligible to receive two milestone payments of $0.5 million each based upon certain criteria regarding regulatory approval and supply. In addition to these milestone payments, the Company is eligible to receive royalties based on the amount of RP44 purchased by IFF for use in products. Regardless of the amount of RP44 purchased by IFF for use in products, in order to maintain their exclusive rights, IFF shall be required to pay the Company minimum royalties in the low six figure range for each twelve month period following the first commercial purchase of RP44 by IFF for use in products. IFF will continue to be responsible for the regulatory process and for costs associated with prosecuting and maintaining the Company’s intellectual property covering the sweetness enhancer. Unless terminated earlier pursuant to the agreement, the agreement continues in effect until the end of the Royalty Term.  The Royalty Term commences on the first commercial purchase by IFF (or any of its affiliates) of RP44 from a supplier under a supply agreement and ends on the fifth (5th) anniversary of the first purchase under the supply agreement, or, if a patent covering RP44 or Products (as defined in the agreement) has issued, such later date on which RP44 or such Product is no longer covered by a Valid Claim (as defined in the agreement) in any country in the Territory (as defined in the agreement).  In addition to standard termination rights provided to each party, after the third (3rd) anniversary of this agreement, IFF may terminate the agreement at any time upon ninety (90) days prior written notice to the Company.

 

In October 2010, IFF received notification by the Flavor and Extract Manufacturers Association (FEMA) that RP44 had been determined to be Generally Recognized As Safe (GRAS), triggering the $0.5 million regulatory approval milestone payment which was received in 2010. This GRAS determination allows RP44 to be incorporated into specified products in the United States and potentially aids regulatory acceptance in numerous other countries.

 

In March 2011, IFF entered into an agreement with GLG Life Tech Corporation, or GLG, a global leader in the supply of high purity stevia extracts, to develop the extraction capability for high grade Reb C extract for use by IFF as a sweetness enhancer.  If the development proved successful, IFF and GLG also negotiated preliminary terms for a supply agreement, including exclusive supply to IFF for high-purity Reb C for use as a sweetness enhancer.  In December 2011, IFF notified the Company that the supply milestone was achieved, triggering the remaining $0.5 million payment which was received in December 2011.

 

8. Income Taxes

 

During the three months ended March 31, 2011, and the Company sold $5,268,454 of its New Jersey State net operating losses resulting in the recognition of an income tax benefit of $410,726 recorded in the Company’s Statement of Operations.

 

The Company applies the provisions of FASB Accounting Standards Codification 740-10 “Accounting for Uncertainty in Income Taxes” (ASC 740-10), which clarifies the accounting and disclosure for uncertainties in income taxes recognized in an enterprise’s financial statements. ASC 740-10 prescribes a recognition threshold and measurement attribute for financial statement recognition and measurement of a tax position reported or expected to be reported on a tax return. ASC 740-10 also provides guidance on the recognition and classification of interest and penalties in an entity’s financial statements. The Company’s policy is to recognize potential accrued interest and penalties related to income tax matters in income tax expense. As of March 31, 2012, the Company determined that it had no liability for uncertain income tax matters as prescribed by ASC 740-10. Net operating loss and credit carryforwards since inception remain open to examination by taxing authorities, and will continue to remain open for a period of time post utilization.

 

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9. Lease Settlement Charge

 

On November 28, 2005, the Company entered into a lease agreement (the “Lease”) with BMR-7 Graphics Drive LLC (the “Landlord”), which was amended by the First Amendment to the Lease, dated as of October 25, 2006, and that certain Acknowledgement of Term Commencement Date and Term Expiration Date, dated as of May 7, 2007.  On April 30, 2011, the Company moved out of its leased facility in New Jersey and no longer occupied the facility as of that date.  The Company ceased to make rent payments under the Lease as of April 30, 2011.  As a result, the Company was in default on the Lease.  Additionally, on May 10, 2011, the Company received notice from the Landlord that the Company was in violation of the Lease for failure to pay rent as required under the Lease.  On September 13, 2011, the Company entered into a Forbearance and Settlement Agreement with the Landlord (the “Settlement Agreement”), whereby the Landlord agreed to forbear temporarily from enforcing its rights to collect all payments currently due under the Lease and future payments due for the remainder of the Term (as defined in the Lease) (approximately $5,156,000 in the aggregate) during the period commencing on the Execution Date (as defined in the Settlement Agreement) and continuing through February 15, 2012 (the “Forbearance Period”) in consideration of the commitment to pay an aggregate of $425,000 (the “Payoff Amount”) prior to February 15, 2012.  As a result, the Company recorded a lease settlement charge of $425,000 which was included in general and administrative expenses on the Company’s Statements of Operations during the year ended December 31, 2011. Additionally, the Company had recorded a security deposit of $250,000 and a deferred rent liability of $76,000 that was recorded in other assets and accrued expenses, respectively, at the time that the Company no longer occupied the leased facility. Due to management’s estimate of the recoverability of those amounts, the amounts were written off during the year ended December 31, 2011, and the difference of $174,000 was included in general and administrative expenses on the Company’s Statements of Operations during the year ended December 31, 2011. In September 2011, the Company paid $25,000 of the Payoff Amount in connection with the terms of the Settlement Agreement. Further, as discussed below, in October 2011 the Company paid an additional $27,500 of the Payoff Amount which was received in connection with an Asset Purchase Agreement entered into with Opertech Bio, Inc.  In December 2011, the Company paid the remaining $372,500 of the Payoff Amount which was received in connection with the achievement of the supply milestone in accordance with the License and Commercialization Agreement entered into with IFF. As a result, the Company has no further obligations to the Landlord under the Lease or the Settlement Agreement.

 

10. Other Income

 

The following items are included in Other income on the Company’s Statements of Operations for the three months ended March 31, 2012:

 

Gain on settlement of accounts payable  $4,362 
   $4,362 

 

During the year ended December 31, 2011, the Company sold a portion of its property and equipment through an auction process and received net cash proceeds of $347,575.  As a result of this transaction, the Company recorded a gain on sale of property and equipment of $174,581 which was included in Other income in the Company’s Statements of Operations for the year ended December 31, 2011. In addition, during the year ended December 31, 2011, the Company sold certain property and equipment to an unrelated third party and received cash proceeds of $1,638. As a result of this transaction, the Company recorded a loss on sale of property and equipment of $4,366, which was included in Other income in the Company’s Statements of Operations for the year ended December 31, 2011.

 

During 2011, the Company entered into an Asset Purchase Agreement (the “Agreement”) with Opertech Bio, Inc. (the “Purchaser”).  Pursuant to the Agreement, and subject to the terms and conditions contained therein, the Company sold certain operating assets (including certain property and equipment) and transferred certain liabilities and obligations to the Purchaser which related to the Company’s taste modulator technology, including its Microtiter Operant Gustometer (“MOG”) technology.  As consideration for the sale of the assets under the Agreement, the Company received cash proceeds of $27,500.  As a result of this transaction, the Company recorded a gain on sale of property and equipment of $4,472 which was included in Other income in the Company’s Statements of Operations for the year ended December 31, 2011.  In addition, during 2011, the Company received a payment of $50,000 in connection with a research and development agreement relating to the Company’s taste modulator technology.  Based on the terms of the Agreement, the corresponding research and development agreement and all related rights and work in process associated with the research and development agreement was transferred to the Purchaser, with the exception of the $50,000 payment received by the Company.  As the Company had no future continuing involvement with the research program and did not perform any research activities in connection with the research and development agreement, the $50,000 payment was included in Other income in the Company’s Statements of Operations for the year ended December 31, 2011.

 

As noted above, during 2011, the Company sold a portion of its property and equipment through an auction process.  Certain of the items sold were used for collateral for the Loan and Security Agreement entered into between Redpoint and a finance company (see Note 5).  Accordingly, $84,583 of the net proceeds from the auction was remitted directly to the finance company to reduce the outstanding indebtedness plus accrued interest under the Loan and Security Agreement to $634,788 as of May 10, 2011.  On May 11, 2011, the Company entered into a Discounted Payoff Agreement with the finance company, whereby the finance company agreed to accept $42,639 in full satisfaction of the total outstanding indebtedness plus accrued interest under the Loan and Security Agreement.  Upon receipt of such amount by the finance company, the Loan and Security Agreement automatically terminated, and all liabilities, obligations and indebtedness of the Company to the finance company were deemed satisfied in full and all liens and security interests of the finance company in any of the Company’s property and equipment were deemed released and terminated.  In addition, there was a balance of $14,409 of deferred financing costs related to the Loan and Security Agreement at May 11, 2011, which was written off in connection with the Discounted Payoff Agreement.  As a result of the above transaction, the Company recorded a gain on debt extinguishment of $577,740 which was included in Other income in the Company’s Statements of Operations year ended December 31, 2011.

 

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During 2011, the Company entered into a series of agreements with several of the Company’s largest creditors.  The creditors agreed to accept an aggregate amount of $94,242 in full and complete satisfaction of $889,875 of outstanding balances owed to such creditors.  As a result of these agreements, the Company recorded a gain of $795,633 which was included in Other income in the Company’s Statements of Operations for the year ended December 31, 2011.  During the three months ended March 31, 2012, the Company entered into an agreement with a creditor. The creditor agreed to accept $1,090 in full and complete satisfaction of the outstanding balance of $5,452 owed to such creditor. As a result of this agreement, the Company recorded a gain of $4,362, which was included in Other income in the Company’s Statements of Operations for the three months ended March 31, 2012.

 

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

 

Cautionary Note Regarding Forward-Looking Statements

 

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

 

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

 

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

 

· our ability to enter into and maintain collaborations;

 

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

 

· our ability to protect our proprietary technologies, including RP44;

 

· challenges that IFF may face relating to the introduction of RP44;

 

· patent-infringement claims;

 

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

 

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

 

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

 

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

 

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Overview

 

Redpoint is a development stage company following a strategy focused on preserving the value of the License and Commercialization Agreement it entered into with International Flavors and Fragrances, Inc., or IFF, a global leader in the food and beverage industry.  As part of this strategy, the Company continues its efforts to reduce its liabilities and sell its remaining assets. These remaining assets are primarily comprised of intellectual property, compounds and other research tools associated with the TRPm5 discovery program for pharmaceutical products which the Company terminated in March of 2011 due to scientific reasons and financial constraints. The Company had previously terminated its program for TRPm5 taste modulators. Given its lack of resources, the Company is not currently performing any research and development activities.

 

In June 2009, we announced that we had identified an all-natural sweetness enhancer, RP44. RP44 is Reb-C (rebaudioside C) a component of the stevia plant. Extracts of the leaves of the stevia plant have been extensively used as sweeteners for decades.  Although certain components of the stevia leaf can be used as sweeteners, RP44 is not sweet and contributes no taste or calories of its own when used in small quantities in combination with caloric sweeteners like sucrose (table sugar) fructose and high-fructose corn syrup.  Instead, it works as a sweetness enhancer amplifying the existing sugary sweetness in a food or beverage so that less sweetener is required, while retaining the “clean sweet taste” that is associated with sugar.  Taste tests demonstrate that RP44 enables the reduction of up to 25% of the caloric sweetener content in various product prototypes, while still maintaining the taste quality of the fully sweetened product. These results have been demonstrated by using RP44 in combination with several common sweeteners including sucrose (sugar), fructose, glucose and high-fructose corn syrup (HFCS).

 

In June 2010, we entered into a License and Commercialization Agreement with IFF for the development, manufacture, use and commercialization of RP44. IFF has exclusive rights, through June 2015, to develop, manufacture and commercialize RP44 in virtually all food and beverage product categories. In return, we received an upfront payment of $0.5 million and we became eligible to receive two milestone payments of $0.5 million each based upon certain criteria regarding regulatory approval and supply. In addition to these milestone payments, we are eligible to receive royalties based on the amount of RP44 purchased by IFF for use in products. Regardless of the amount of RP44 purchased by IFF for use in products, in order to maintain their exclusive rights, IFF shall be required to pay us minimum royalties in the low six figure range for each twelve month period following the first commercial purchase of RP44 by IFF for use in products. IFF will continue to be responsible for the regulatory process and for costs associated with prosecuting and maintaining our intellectual property covering the sweetness enhancer. Unless terminated earlier pursuant to the agreement, the agreement continues in effect until the end of the Royalty Term.  The Royalty Term commences on the first commercial purchase by IFF (or any of its affiliates) of RP44 from a supplier under a supply agreement and ends on the fifth (5th) anniversary of the first purchase under the supply agreement, or, if a patent covering RP44 or Products (as defined in the agreement) has issued, such later date on which RP44 or such Product is no longer covered by a Valid Claim (as defined in the agreement) in any country in the Territory (as defined in the agreement).  In addition to standard termination rights provided to each party, after the third (3rd) anniversary of this agreement, IFF may terminate the agreement at any time upon ninety (90) days prior written notice to the Company.

 

In October 2010, IFF received notification by the Flavor and Extract Manufacturers Association (FEMA) that RP44 had been determined to be Generally Recognized As Safe (GRAS), triggering the $0.5 million regulatory approval milestone payment which was received in 2010. This GRAS determination allows RP44 to be incorporated into specified products in the United States and potentially aids regulatory acceptance in numerous other countries.

 

In March 2011, IFF entered into an agreement with GLG Life Tech Corporation, or GLG, a global leader in the supply of high purity stevia extracts, to develop the extraction capability for high grade Reb C extract for use by IFF as a sweetness enhancer.  If the development proved successful, IFF and GLG also negotiated preliminary terms for a supply agreement, including exclusive supply to IFF for high-purity Reb C for use as a sweetness enhancer.  In December 2011, IFF notified us that the supply milestone was achieved, triggering the remaining $0.5 million payment which was received in December 2011. Although Reb C is currently derived from material found in the side stream of the Reb A production process there can be no assurance that it can be produced in large scale on an economically viable basis.

 

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

 

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The worldwide sweetener market is estimated to be in excess of $50 billion with sugar (including sucrose, HFCS, and fructose) being the second most common ingredient used in food and beverages after water. Numerous scientific studies suggest a compelling link between the high levels of refined sugar found in common food and beverage products and the worsening epidemic of obesity and diabetes worldwide. Health and wellness trends continue to be major market drivers for the food and beverage industry, creating consumer demand for natural solutions that can preserve the clean sweet taste of sugar while reducing calories. We believe RP44 can provide an all-natural solution to reducing the amount of calories in sweetened foods and beverages while retaining the taste that consumers desire.

 

Since its inception in 1995, the Company has incurred losses and negative cash flows from operations, and such losses have continued subsequent to March 31, 2012. As of March 31, 2012, the Company had an accumulated deficit of $57.3 million and anticipates incurring additional losses for the foreseeable future. Through March 31, 2012, substantially all of the Company’s cash-flow has been derived from corporate collaborations, license agreements, government grants and equity financings. The Company expects that substantially all of its cash-flow for the foreseeable future will come from its license and commercialization agreement with IFF. However, there can be no assurance that the Company will receive any cash-flow from IFF or enter into any future corporate collaborations, equity financings or license agreements. Redpoint had approximately $68,000 of cash at March 31, 2012.

 

In connection with its strategy of reducing liabilities and selling its remaining assets, in April 2011, the Company sold a portion of its property and equipment through an auction process and received net cash proceeds of approximately $0.3 million.  Certain of the property and equipment that was sold were used for collateral for the Company’s Loan and Security Agreement with a finance company.  Of the total net proceeds received from the auction sale, approximately $85,000 was remitted directly to the finance company to reduce the outstanding indebtedness plus accrued interest under the Loan and Security Agreement to approximately $635,000 as of May 10, 2011.  On May 11, 2011, the Company entered into a Discounted Payoff Agreement with the finance company, whereby the finance company agreed to accept approximately $43,000 in full satisfaction of the total outstanding indebtedness plus accrued interest.  This amount was paid by the Company in May 2011.

 

On November 28, 2005, the Company entered into a Lease (the “Lease”) with BMR-7 Graphics Drive LLC (the “Landlord”), which was amended by the First Amendment to the Lease, dated as of October 25, 2006, and that certain Acknowledgement of Term Commencement Date and Term Expiration Date, dated as of May 7, 2007.  On April 30, 2011, the Company moved out of its leased facility in New Jersey and no longer occupied the facility as of that date.  The Company ceased to make rent payments under the Lease as of April 30, 2011.  As a result, the Company was in default on the Lease.  Additionally, on May 10, 2011, the Company received notice from the Landlord that the Company was in violation of the Lease for failure to pay rent as required under the Lease.  On September 13, 2011, the Company entered into a Forbearance and Settlement Agreement with the Landlord (the “Settlement Agreement”), whereby the Landlord agreed to forbear temporarily from enforcing its rights to collect all payments currently due under the Lease and future payments due for the remainder of the Term (as defined in the Lease) (approximately $5,156,000 in the aggregate) during the period commencing on the Execution Date (as defined in the Settlement Agreement) and continuing through February 15, 2012 (the “Forbearance Period”) in consideration of the commitment to pay an aggregate of $425,000 (the “Payoff Amount”) prior to February 15, 2012.  In September 2011, the Company paid $25,000 of the Payoff Amount in connection with the terms of the Settlement Agreement. Further, as discussed below, in October 2011 the Company paid an additional $27,500 of the Payoff Amount which was received in connection with an Asset Purchase Agreement entered into with Opertech Bio, Inc.  In December 2011, we paid the remaining $372,500 of the Payoff Amount which was received in connection with the achievement of the supply milestone in accordance with the License and Commercialization Agreement entered into with IFF. As a result, we have no further obligations to the Landlord under the Lease of the Settlement Agreement. 

 

On September 30, 2011, the Company entered into an Asset Purchase Agreement (the “Agreement”) with Opertech Bio, Inc. (the “Purchaser”).  Pursuant to the Agreement, and subject to the terms and conditions contained therein, the Company sold certain operating assets and transferred certain liabilities and obligations to the Purchaser which relate to the Company’s taste modulator technology, including its Microtiter Operant Gustometer (“MOG”) technology.  As consideration for the sale of the assets under the Agreement, the Company received at closing a cash payment in the amount of $27,500 (the “Closing Payment”).  Pursuant to the Company’s obligations under the Settlement Agreement, in October 2011, the Company paid the entirety of the Closing Payment to the Landlord.  In addition, if, during the one year period following the effective date of the Agreement, the Purchaser is sold or the Purchaser sells all or substantially all of the Technology (as defined in the Agreement) to an independent third party for proceeds greater than the sum of (i) the Closing Payment, and (ii) all capital invested in the Purchaser by its stockholders as of the date of such sale, then the Purchaser shall pay the Company an amount equal to 10% of the net proceeds from such sale transaction.  In connection with the Agreement, the Company terminated each of its employees that remained on the Company’s scientific staff and certain of such employees have become employees of the Purchaser, including the Company’s current Interim President and Chief Executive Officer and Chief Financial Officer, Scott Horvitz, who also serves, on a part-time basis, as the President and Chief Executive Officer of Opertech Bio, Inc. As of the date of this filing, Mr. Horvitz is the only remaining employee of the Company.

 

As of the date of this filing, the Company had approximately $38,000 of cash. The Company believes that its current capital resources are only sufficient to meet its operating and capital requirements through June 2012, which raises substantial doubt about its ability to continue as a going concern.  The Company is continuing its efforts to reduce its liabilities and sell its remaining assets and is seeking debt or equity financings to enhance the Company’s liquidity position. The Company’s remaining assets are primarily comprised of intellectual property, compounds and other research tools associated with the TRPm5 discovery program for pharmaceutical products which the Company terminated in March of 2011 due to scientific reasons and financial constraints. The Company had previously terminated its program for TRPm5 taste modulators.

 

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For the Company to fund its operations, we must receive significant royalties from our license and commercialization agreement with IFF or additional equity and/or debt financing will be required before June 2012. There is no assurance that significant royalties will be received or such financing will be available to the Company as needed, and as a result, it will need to pursue other strategic alternatives.  Failure to successfully address ongoing liquidity requirements will have a material adverse effect on the Company’s business.  If the Company is unable to obtain additional capital on acceptable terms when needed, it will be unable to satisfy its existing obligations and may be required to take actions that harm its business and its ability to achieve positive operating cash flow in the future, including the surrender of its rights to the IFF license and commercialization agreement.

 

Effective March 1, 2011 through June 30, 2011, each of the Company’s executive officers agreed to indefinitely defer one-third of the cash portions of their salaries, at least until the Company has raised additional capital or the compensation committee of the board of directors determines otherwise.  Effective July 1, 2011 through August 31, 2011, this salary deferral was increased to 90% of the salaries of those executive officers. On September 27, 2011, the Company reduced the outstanding amounts owed to the Company’s executive officers in connection with the deferral of their salaries to 10% of the balance owed to them as of August 31, 2011, or $15,730.  As a result, the Company reduced the amounts that would have otherwise been owed to each executive officer by $141,000. In addition, on September 27, 2011, the Company mutually agreed with F. Raymond Salemme, PhD. (“Dr. Salemme”), the Company’s President and Chief Executive Officer, that Dr. Salemme shall resign as the Company’s President and Chief Executive Officer effective as of that date. Beginning September 1, 2011, the Company is paying its Chief Financial Officer, working 50% of the time for the Company, at a revised annual salary of $125,903. As of March 31, 2012, the Company had one remaining employee, its Interim President and Chief Executive Officer and Chief Financial Officer, now employed on a part-time basis.

 

Revenue

 

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

 

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

 

In June 2010, we entered into a License and Commercialization Agreement with IFF, or the IFF Agreement, for the development, manufacture, use and commercialization of RP44. IFF has exclusive rights, for five years, to develop, manufacture and commercialize RP44 in virtually all food and beverage product categories.

 

Research and Development

 

Given its lack of resources, the Company is not currently performing any research and development activities. Previously, our research and development expenses consisted primarily of internal costs associated with our taste modulator and diabetes research programs as well as amounts paid to third parties to conduct research on our behalf. Our internal research and development costs are comprised of salaries and related benefits, facilities and depreciation on laboratory equipment, compound acquisition costs and research supplies. We charge research and development costs to operations as incurred.

 

General and Administrative

 

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

 

17
 

 

Results of Operations

 

Three months ended March 31, 2012 compared to three months ended March 31, 2011

 

Research and Grant Revenue.  For the three months ended March 31, 2012 and 2011 we did not record any revenue. As of March 31, 2012, the Company does not have any current sources of revenue other than the potential cash-flow from its license and commercialization agreement with IFF.

 

Research and Development Expenses.  Our research and development expenses were $0.6 million for the three months ended March 31, 2011. These costs were primarily attributable to laboratory supplies and services provided by contract research organizations, as well as internal costs comprised of salaries and related benefits, facilities, depreciation on laboratory equipment and research supplies. As of March 31, 2012, the Company is no longer performing any research activities.

 

General and Administrative Expenses.  Our general and administrative expenses were $0.1 million for the three months March 31, 2012 compared to $0.6 million for the three months ended March 31, 2011.   The decrease in expense was primarily attributable to reductions in salary expense and related benefits and reductions in professional fees.

 

Interest Expense.  Interest expense for the three months ended March 31, 2011 was less than $0.1 million.  On May 11, 2011, the Company entered into a Discounted Payoff Agreement with a finance company which terminated the Company’s Loan and Security Agreement.  As such, there was no interest expense during the three months ended March 31, 2012.

 

Income Tax Benefit.  During the three months ended March 31, 2011, the Company sold $5,268,454 of its New Jersey State net operating losses resulting in the recognition of an income tax benefit of $410,726 recorded in the Company’s Statement of Operations. 

 

Liquidity and Capital Resources

 

Since inception in 1995, we have incurred losses and negative cash flows from operations, and such losses have continued subsequent to March 31, 2012. As of March 31, 2012, we had an accumulated deficit of $57.3 million and we anticipate incurring additional losses for the foreseeable future. Through March 31, 2012, substantially all of our cash-flow has been derived from corporate collaborations, license agreements, government grants and equity financings. We expect that substantially all of our cash-flow for the foreseeable future will come from our license and commercialization agreement with IFF. However, there can be no assurance that we will receive any cash-flow from IFF or enter into any future corporate collaborations, equity financings or license agreements. We had approximately $68,000 of cash at March 31, 2012.

 

Since inception, we have used $43.6 million of cash to fund our operating activities and $3.4 million for capital expenditures. Through March 31, 2012, we have funded substantially all of our operations and capital expenditures through private placements of equity and convertible debt securities totaling $45.8 million, cash received from corporate collaborations totaling $11.4 million, government grants totaling $2.0 million, and capital equipment and working capital financing totaling $3.6 million.

 

We believe that our current capital resources are only sufficient to meet our operating and capital requirements through June 2012, which raises substantial doubt about our ability to continue as a going concern. We are continuing our efforts to reduce our liabilities and sell our remaining assets and are seeking debt or equity financings to enhance our liquidity position.  For the Company to fund its operations, significant royalties from our license and commercialization agreement with IFF or additional equity and/or debt financing will be required before June 2012. There is no assurance that significant royalties will be received or such financing will be available to the Company as needed, and as a result, we will need to pursue other strategic alternatives.  Failure to successfully address ongoing liquidity requirements will have a material adverse effect on our business.  If we are unable to obtain additional capital on acceptable terms when needed, we will be unable to satisfy our existing obligations and may be required to take actions that harm our business including possibly the surrender of our rights to the IFF license and commercialization agreement.

 

In connection with our strategy of reducing liabilities and selling our remaining assets, in April 2011, we sold a portion of our property and equipment through an auction process and received cash proceeds of approximately $0.3 million.  In order to conserve cash, effective March 1, 2011 through June 30, 2011, each of the Company’s executive officers agreed to indefinitely defer one-third of the cash portions of their salaries, at least until the Company has raised additional capital or the compensation committee of the board of directors determines otherwise.  Effective July 1, 2011 through August 31, 2011, this salary deferral was increased to 90% of the salaries of those executive officers. On September 27, 2011, the Company reduced the outstanding amounts owed to the Company’s executive officers in connection with the deferral of their salaries to 10% of the balance owed to them as of August 31, 2011, or $15,730.  As a result, the Company reduced the amounts that would have otherwise been owed to each executive officer by $141,000. In addition, on September 27, 2011, the Company mutually agreed with its President and Chief Executive Officer that this individual shall resign as the Company’s President and Chief Executive Officer effective as of that date. Beginning September 1, 2011, the Company is paying its Chief Financial Officer, working 50% of the time for the Company, at a revised annual salary of $125,903. As of March 31, 2012, we had one remaining employee, our Interim President and Chief Executive Officer and Chief Financial Officer, now employed on a part-time basis.

 

18
 

 

In September 2008, we entered into a Loan and Security Agreement with CIT Healthcare LLC that provided for borrowings of up to $2.0 million for the purchase of certain equipment, a portion of the proceeds which could have been used for general corporate working capital purposes. During 2008, we borrowed approximately $1.6 million pursuant to the Loan and Security Agreement, of which approximately $1.0 million was for equipment previously purchased and approximately $0.6 million was for general working capital.  During the year ended December 31, 2011, certain scheduled repayments of amounts outstanding under the Loan and Security Agreement were not made.  Based on the terms of the Loan and Security Agreement, this was considered an Event of Default (as defined in the Loan and Security Agreement) and the finance company had the option to declare all amounts outstanding immediately due and payable.  In April 2011, the Company sold a portion of its property and equipment through an auction process.  Certain of the items sold were used for collateral for the Loan and Security Agreement.  Accordingly, approximately $85,000 of the net proceeds from the auction was remitted directly to the finance company to reduce the outstanding indebtedness plus accrued interest under the Loan and Security Agreement to approximately $635,000 as of May 10, 2011.  Further, on May 11, 2011, the Company entered into a Discounted Payoff Agreement with the finance company, whereby the finance company agreed to accept approximately $43,000 in full satisfaction of the total outstanding indebtedness plus accrued interest under the Loan and Security Agreement.  Upon receipt of such amount by the finance company, the Loan and Security Agreement automatically terminated, and all liabilities, obligations and indebtedness of the Company to the finance company were deemed satisfied in full and all liens and security interests of the finance company in any of the Company’s property and equipment were deemed released and terminated.  In addition, there was a balance of $14,000 of deferred financing costs related to the Loan and Security Agreement at May 11, 2011, which was written off in connection with the Discounted Payoff Agreement.  As a result of the above transaction, the Company recorded a gain on debt extinguishment of approximately $578,000 which was included in Other income in the Company’s Statements of Operations for year ended December 31, 2011.

 

On April 30, 2011, the Company moved out of its leased facility in New Jersey and no longer occupied the facility as of that date.  The Company ceased to make rent payments under the lease agreement as of April 30, 2011.  As a result, the Company was in default on its facility lease agreement.  Additionally, on May 10, 2011, the Company received notice from BMR-7 Graphics Drive LLC (the “Landlord”) that the Company was in violation of its facility lease for failure to pay rent as required under the lease.  On June 30, 2011, the Landlord filed suit in the Superior Court of New Jersey, Special Civil Part, Landlord Tenant section against the Company, alleging breach of a lease and seeking damages pursuant to that alleged breach.  The case has been marked as settled with a Consent Order dismissing the case to be submitted as part of the settlement.  On September 13, 2011, the Company entered into a Forbearance and Settlement Agreement with the Landlord (the “Settlement Agreement”), whereby the Landlord agreed to forbear temporarily from enforcing its rights to collect all payments currently due under the lease agreement and future payments due for the remainder of the Term (as defined in the lease agreement) (approximately $5,156,000 in the aggregate) during the period commencing on the Execution Date (as defined in the Settlement Agreement) and continuing through February 15, 2012 (the “Forbearance Period”) in consideration of the commitment to pay an aggregate of $425,000 (the “Payoff Amount”) prior to February 15, 2012.  As a result, the Company recorded a lease settlement charge of $425,000 which was included in general and administrative expenses on the Company’s Statements of Operations during the year ended December 31, 2011.  Additionally, the Company had recorded a security deposit of $250,000 and a deferred rent liability of $76,000 that was recorded in other assets and accrued expenses, respectively, at the time that the Company no longer occupied the leased facility.  Due to management’s estimate of the recoverability of those amounts, the amounts were written off during the year ended December 31, 2011, and the difference of $174,000 was included in general and administrative expenses on the Company’s Statements of Operations during the year December 31, 2011.  In September 2011, the Company paid $25,000 of the Payoff Amount in connection with the terms of the Settlement Agreement.  Further, in October 2011, the Company paid an additional $27,500 of the Payoff Amount which was received in connection with an Asset Purchase Agreement entered into with Opertech Bio, Inc.  In December 2011, the Company paid the remaining $372,500 of the Payoff Amount which was received in connection with the achievement of the supply milestone in accordance with the License and Commercialization Agreement entered into with IFF. As a result, the Company has no further obligations to the Landlord under the lease agreement or the Settlement Agreement. 

 

Critical Accounting Policies

 

Our discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and reported amount of revenue and expenses during the reporting period. On an ongoing basis, we evaluate our judgments and estimates, including those related to revenue recognition, long-lived assets, accrued liabilities, share-based payments and income taxes. We base our judgment and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions.  A more detailed review of our critical accounting policies is contained in our Annual Report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2011.  During the three months ended March 31, 2012, there have been no material changes in our critical accounting policies.

 

19
 

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

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

 

We have not entered into and do not expect to enter into, financial instruments for trading or hedging purposes.  We do not currently anticipate entering into interest rate swaps and/or similar instruments.  We have no material currency exchange risk exposure as of March 31, 2012.  Our primary market risk exposure with regard to financial instruments is to changes in interest rates, which would impact interest income earned on such instruments. A one percent change (100 basis points) in interest rates on our investments would have impacted interest income by a nominal amount for the three months ended March 31, 2012.

 

ITEM 4T. CONTROLS AND PROCEDURES

 

Our management, with the participation of our interim chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of March 31, 2012. Based on this evaluation, our interim chief executive officer and chief financial officer concluded that, as of March 31, 2012, our disclosure controls and procedures were (1) effective in that they were designed to ensure that material information relating to us, is made known to our interim chief executive officer and chief financial officer by others as appropriate, to allow timely decisions regarding required disclosures, and (2) effective in that they provide reasonable assurance that information required to be disclosed by us in our reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

 

No changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended March 31, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. As of the date of this filing, we had one remaining employee, our Interim Chief Executive Officer and Chief Financial Officer, now employed on a part-time basis. Our limited resources could potentially impact our disclosure controls and procedures in the future which could have a material effect on our internal control over financial reporting.

 

PART II.  OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

From time to time, the Company may become involved in various investigations, claims and legal proceedings that arise in the ordinary course of the Company’s business. These matters may relate to intellectual property, employment, tax, regulation, contract or other matters. The resolution of these matters as they arise will be subject to various uncertainties. As of the date of this Quarterly Report on Form 10-Q, Redpoint is not a party to any material pending legal proceeding.

 

 

ITEM 1A.  RISK FACTORS

 

In addition to the information set forth in this report, you should carefully consider the factors discussed under the heading “Risk Factors” in our Form 10-K for the year ended December 31, 2011. The risks described in our Annual Report on Form 10-K for the year ended December 31, 2011 are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

 

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

 

None.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

Not applicable.

 

ITEM 4.  MINE SAFETY DISCLOSURES

 

Not applicable.

 

20
 

 

ITEM 5.  OTHER INFORMATION

 

None.

 

ITEM 6. EXHIBITS

 

Exhibit No.    
     
31.1   Certification Pursuant to Rule 13a-14(a) and 15d-14(a) of Exchange Act, as Adopted Pursuant to Section 302 of Sarbanes-Oxley Act of 2002 (Chief Executive Officer and Chief Financial Officer).*
32.1   Certification Pursuant to 18 U.S.C. Section 1350 (Chief Executive Officer and Chief Financial Officer).*

 

 

* Filed herewith.

 

21
 

 

SIGNATURES

 

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

 

  REDPOINT BIO CORPORATION
   
May 21, 2012 By: /s/ Scott M. Horvitz
    Scott M. Horvitz
    Interim President and Chief Executive Officer, Chief Financial Officer, Treasurer and Secretary
    (Principal Executive, Principal Financial and Principal Accounting Officer)

 

22
 

 

EXHIBIT INDEX

 

Exhibit No.    
     
31.1   Certification Pursuant to Rule 13a-14(a) and 15d-14(a) of Exchange Act, as Adopted Pursuant to Section 302 of Sarbanes-Oxley Act of 2002 (Chief Executive officer and Chief Financial Officer).*
     
32.1   Certification Pursuant to 18 U.S.C. Section 1350 (Chief Executive Officer and Chief Financial Officer).*
     

  

 

 

* Filed herewith.

 

23

 

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PINX:RPBC Redpoint Bio Corp Quarterly Report 10-Q Filing - 3/31/2012
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