Unassociated Document
Registration
Number
333-143755
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
AMENDMENT
No. 1
to
FORM SB-2
REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933
CLEVELAND
BIOLABS, INC.
(Name
of small business issuer in its charter)
Delaware
(State
or jurisdiction of
incorporation or organization)
|
8731
(Primary
Standard Industrial
Classification
Code Number)
|
20-0077155
(I.R.S.
Employer
Identification
No.)
|
73
High
Street
Buffalo,
New York 14203
(716)
849-6810
(Address,
including zip code, and telephone number, including area code, of Registrant’s
principal executive offices
and
principal place of business)
Dr.
Michael Fonstein
Chief
Executive Officer & President
Cleveland
BioLabs, Inc.
73
High
Street
Buffalo,
New York 14203
(716)
849-6810
(Name,
address, including zip code, and telephone number, including area code, of
agent
for service)
Copies
to:
Ram
Padmanabhan, Esq.
Katten
Muchin Rosenman LLP
525
West Monroe Street
Chicago,
Illinois 60661
(312)
902-5200 / (312) 902-1061 (Telecopy)
|
|
Approximate
date of commencement of proposed sale to the public:
From
time
to time after the effective date of this Registration Statement, as determined
by the selling stockholders.
If
any of
the securities being registered on this form are to be offered on a delayed
or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, check
the following box. x
If
this
form is filed to register additional securities for an offering pursuant to
Rule
462(b) under the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. o
If
this
form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. o
If
this
form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. o
If
delivery of the prospectus is expected to be made pursuant to Rule 434, please
check the following box. o
The
information contained in this prospectus is not complete and may be changed.
These securities may not be sold until the registration statement filed with
the
Securities and Exchange Commission is effective. This prospectus is not an
offer
to sell these securities and we are not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
PROSPECTUS
SUBJECT
TO COMPLETION, DATED AUGUST
10,
2007
9,375,095
Shares
CLEVELAND
BIOLABS, INC.
Common
Stock, $0.005 Par Value
This
prospectus relates to up to 9,375,095 shares of our common stock that may be
offered for sale from time to time by the selling stockholders named in this
prospectus. This number represents approximately 130% of the 7,211,612 shares
of
common stock issuable upon the conversion or exercise of the securities issued
in our private placement at the current conversion and exercise prices. Of
these
7,211,612 shares of common stock:
·
|
4,579,010
shares are issuable upon conversion of Series B Convertible Preferred
Stock, par value $0.005 per share (the “Series B
Preferred”);
|
·
|
2,365,528
shares are issuable upon exercise of the Series B Warrants;
and
|
·
|
267,074
shares of common stock are issuable upon exercise of the Series C
Warrants
(together with the Series B Warrants, the
“Warrants”).
|
All
of
these shares of common stock may be sold by the selling stockholders named
in
this prospectus, or their respective transferees, pledgees, donees or
successors-in-interest. The selling stockholders will receive all proceeds
from
the sale of the shares of our common stock being offered in this prospectus.
We
will receive the exercise price of the Warrants upon the exercise in cash of
the
Warrants by the selling stockholders. We are registering the offer and sale
of
the shares of common stock to satisfy registration rights that we have
granted.
The
shares of common stock to which this prospectus relates may be offered
and sold
from time to time directly by the selling stockholders or alternatively
through
ordinary brokerage transactions directly to market makers of our shares
or
through any other means described in “Plan of Distribution” beginning on page
81. The shares of common stock may be sold in one or more transactions,
at fixed
prices, at prevailing market prices at the time of sale or at negotiated
prices.
Our
common stock is quoted on the Nasdaq Capital Market and the Boston Stock
Exchange under the symbol “CBLI.” The last reported sales price of our common
stock on the Nasdaq Capital Market on August 7, 2007 was $10.23 per
share.
Investing
in our common stock involves a high degree of risk. See “Risk Factors” beginning
on page 8.
Neither
the Securities and Exchange Commission nor any state securities commission
has
approved or disapproved of these securities or determined if this prospectus
is
truthful or complete. Any representation to the contrary is a criminal
offense.
The
date
of this prospectus is ____________, 2007.
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Page
No.
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PROSPECTUS
SUMMARY
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1
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THE
OFFERING
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6
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SUMMARY
FINANCIAL DATA
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7
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RISK
FACTORS
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8
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SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
|
23
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USE
OF PROCEEDS
|
23
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DIVIDEND
POLICY
|
24
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PRICE
RANGE OF COMMON STOCK
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24
|
CAPITALIZATION
|
25
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SELECTED
FINANCIAL DATA
|
26
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MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
27
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BUSINESS
|
34
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MANAGEMENT
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53
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SECURITY
OWNERSHIP OF MANAGEMENT AND PRINCIPAL STOCKHOLDERS
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59
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SELLING
STOCKHOLDERS
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62
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CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
|
75
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DESCRIPTION
OF OUR COMMON STOCK
|
77
|
DESCRIPTION
OF OUR SERIES B CONVERTIBLE PREFERRED STOCK
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78
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PLAN
OF DISTRIBUTION
|
81
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LEGAL
MATTERS
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82
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EXPERTS
|
82
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ADDITIONAL
INFORMATION
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83
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FINANCIAL
STATEMENTS
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F-1
- F-37
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You
should only rely on the information contained in this prospectus. We have not
authorized anyone to provide you with information different from that contained
in this prospectus. If anyone provides you with different or inconsistent
information, you should not rely on it. The information contained in, or that
can be accessed through, our website is not a part of this prospectus. The
selling stockholders will only sell shares of our common stock and seek offers
to buy shares of our common stock in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as
of
the date of the prospectus, regardless of the time of delivery of this
prospectus or any sale of the common stock.
This
summary does not contain all of the information you should consider before
buying shares of our common stock. We urge you to read the entire prospectus
carefully, especially the risks of investing in our common stock discussed
under
“Risk Factors” and the financial statements and notes to those financial
statements included elsewhere in this prospectus, before deciding to invest
in
shares of our common stock. In this prospectus, unless the context otherwise
requires, the terms “CBL”, “company”, “we”, “us”, and “our” refer to Cleveland
BioLabs, Inc., a Delaware corporation, and, unless the context otherwise
requires, “common stock” refers to the common stock, par value $0.005 per share,
of Cleveland BioLabs, Inc.
Our
Company
Our
company is engaged in drug discovery. Our goal is to identify and develop new
types of drugs for protection of normal tissues from exposure to radiation
and
other stresses, such as toxic chemicals and for cancer treatment. Our initial
target, and most promising opportunity, is to develop a drug to protect humans
from the effects of exposure to radiation, whether as a result of military
or
terrorist acts or as a result of a nuclear accident. Recent acts of terrorism
and the proliferation of nuclear weapons programs in rogue states have created
a
more immediate demand for further research and development, or R&D, in this
area. Other potential applications of our drug candidates include reducing
the
side effects of cancer treatment, destroying tumor cells and generating adult
stem cells.
Our
development efforts are based on discoveries made in connection with the
investigation of the cell-level process known as apoptosis. Apoptosis is a
highly specific and tightly regulated form of cell death that can occur in
response to external events such as exposure to radiation or toxic chemicals
or
to internal stresses. Apoptosis is a major determinant of tissue damage caused
by a variety of medical conditions including cerebral stroke, heart attack
or
acute renal failure. Conversely, however, apoptosis also is an important
protective mechanism that allows the body to shed itself of defective cells,
which otherwise can cause cancerous growth.
Research
has demonstrated that apoptosis is sometimes suppressed naturally. For example,
most cancer cells develop resistance to apoptotic death caused by drugs or
natural defenses of the human body. Our research is geared towards identifying
the means by which apoptosis can be affected and manipulated depending on the
need.
If
the
need is to protect healthy tissues against an external event such as exposure
to
nuclear radiation, we attempt to suppress apoptosis in those healthy tissues,
thereby imitating the apoptotic-resistant tendencies displayed by cancer cells.
A drug with this effect would also be useful in ameliorating the often severe
side effects of anticancer drugs and radiation that cause collateral damage
to
healthy tissues during cancer treatment. Because the severe side effects of
anticancer drugs and radiation often limit their dosage in cancer patients,
an
apoptosis suppressant drug may enable a more aggressive treatment regimen using
anticancer drugs and radiation and thereby increase their
effectiveness.
On
the
other hand, if the need is to kill cancerous cells, we focus our research
efforts on restoring apoptotic mechanisms that are suppressed in tumors so
that
those cancerous cells will once again become vulnerable to apoptotic death.
In
this regard, we believe that our drug candidates could have significant
potential for improving and becoming vital to the treatment of cancer
patients.
Our
Products and Technology
Through
our R&D, and our strategic partnerships, we have established a technological
foundation for the development of new pharmaceuticals and their rapid
preclinical evaluation. We have acquired rights to develop and commercialize
the
following prospective drugs:
|
·
|
Protectans
are modified proteins of microbes and tumors that protect cells from
apoptosis, and which therefore have a broad spectrum of potential
applications. These potential applications include both non-medical
applications such as protection from exposure to radiation, whether
as a
result of military or terrorist action or as a result of a nuclear
accident, as well as medical applications such as reducing cancer
treatment side effects.
|
|
·
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Curaxins
are small molecules designed to kill tumor cells by simultaneously
targeting two regulators of apoptosis. Initial test results indicate
that
curaxins can be effective against a number of malignancies, including
renal cell carcinoma, or RCC (a highly fatal form of kidney cancer),
soft-tissue sarcoma and hormone refractory prostate
cancer.
|
In
the
area of radiation protection, we have achieved high levels of protection in
animal models. With respect to cancer treatment, the biology of cancer is such
that there is no single drug that can be successfully used to treat 100% or
even
50% of all cancer patients. This means that there likely will be a need for
additional anticancer drugs for each type of cancer.
These
drug candidates demonstrate the value of our scientific foundation. Based on
the
expedited approval process currently available for non-medical applications
such
as protection from exposure to radiation, our most advanced drug candidate,
Protectan CBLB502, may be approved for such applications within 24 months.
Another drug candidate, Curaxin CBLC102, entered Phase IIa clinical trials
earlier this year.
Our
Markets
Protectan
CBLB502 is being developed in part to address the unmet need of protection
against exposure to nuclear radiation. Recent acts and threats of terrorism
and
the proliferation of nuclear weapons programs in rogue states have magnified
the
need for radiation-protecting agents, or radioprotectants, in non-medical
applications. The Project BioShield Act, which President Bush signed into law
in
July 2004, allocated $5.6 billion over ten years to fund the research,
development and procurement of drugs, biological products or devices to treat
or
prevent injury from exposure to biological, chemical, radiological or nuclear
agents as a result of a military, terrorist or nuclear attack. The importance
and urgency of developing tissue-protecting agents for these kinds of emergency
applications are so great that the FDA approval process is scaled down to
preclinical and Phase I trials. Under new FDA rules, costly and time-consuming
Phase II and III studies are not required for these non-medical applications.
Because Phase II and Phase III testing, which each involve testing a drug
candidate on large numbers of participants who suffer from the targeted disease
and condition, can last for a total of anywhere from three to six or more years,
being permitted to bypass those phases represents a significant time and cost
savings towards obtaining FDA approval. Without Phase II and Phase III testing,
the FDA approval process is based on efficacy testing in primates and safety
testing in humans conducted during preclinical and Phase I trials.
The
Department of Defense, or DoD, through the U.S. Army Space and Missile Defense
Command, recently issued a Request for Proposal, or RFP, for the Advanced
Development of Medical Radiation Countermeasures, or MRC. According to the
RFP,
the objective of the MRC project is to develop a post-exposure MRC through
a
Phase I clinical trial and, pending successful completion of the Phase I
clinical trial, develop the MRC product through approval/licensure with the
FDA
and procure quantities of the MRC sufficient to achieve Initial Operational
Capability, or IOC. A range of 50,000 to 500,000 doses has been specified to
achieve IOC. The RFP stated that MRC must be safe, efficacious, quick acting,
free from performance-decrementing side effects, relatively non-invasive,
approved by the FDA, compatible with current military countermeasures, and
usable on the battle field. The MRC should not require refrigeration, nor have
other significant logistical burdens, and should have a relatively long shelf
life.
The
solicitation specifically seeks a drug/biologic intended for use after exposure
to ionized radiation, or IR, has occurred. It is anticipated that the
countermeasure, when administered following exposure to IR, will prolong
survival by treating the gastrointestinal syndrome of Acute Radiation Syndrome.
Specifically, when administered following exposure to IR, the countermeasure
should either prevent or reduce the extent of incipient radiation injury or
promote repair of manifest radiation injury to allow the preservation or
restoration of the anatomic integrity and normal physiologic functioning of
the
gastrointestinal tract. Our response to this RFP was submitted in April 2007.
Information regarding an anticipated contract award is expected later in the
year.
We
believe Protectan CBLB502's unique ability to protect against and mitigate
the
damaging effects of gamma irradiation on the gastrointestinal system, combined
with its safety, stability and method of administration, will make it a very
strong candidate for this contract. Moreover, we are actively engaged in the
process of completing current cGMP-compliant manufacturing, and we plan to
submit an IND application for human safety testing in late
2007.
The
protection of healthy tissues against side effects of radiation treatment and
anticancer drugs provides another application, and, therefore, another market
opportunity for Protectan CBLB502. Approximately 50 to 60% of cancer
patients are treated with radiation sometime during the progression of the
disease. To obtain optimal results, physicians attempt to strike a judicious
balance between the total dose of radiotherapy and the adverse effect on
surrounding healthy tissues. If there were a means by which these tissues could
be protected from radiotherapy, more aggressive treatment regimens could be
possible. In contrast to non-medical applications, use of Protectan CBLB502
to
ameliorate the side effects of radiation treatment and anticancer drugs is
subject to the full FDA approval process.
CBL’s
primary targets for curaxins are three treatment-resistant forms of cancer
—
hormone refractory prostate cancer, RCC, and soft-tissue sarcoma.
Other
than skin cancer, prostate cancer is the most common cancer in men in the United
States. According to the American Cancer Society, an estimated 234,460 cases
were projected to be diagnosed with prostate cancer in 2006. RCC is a niche
cancer that accounts for 3% of all cancer cases in the United States, but it
is
the most common type of kidney cancer in adults. In the United States,
approximately 35,000 to 40,000 patients are diagnosed with RCC annually.
Soft-tissue sarcomas are rare, representing only about 1% of all cancer cases.
According to the American Cancer Society, approximately 9,400 new cases of
soft-tissue sarcoma were projected to be diagnosed in the United States in
2006,
which were projected to be responsible for approximately 3,500 deaths.
Our
Industry
CBL
is a
biotechnology, or biotech, company focused on developing bio-defense and cancer
treatment products. Historically, biotech was defined by newly discovered
“genetic engineering” technology, which was first developed in universities and
new startup biotech companies in the mid-1970s. Later, other technologies (based
on a constant flow of discoveries in the field of biology) started playing
a
leading role in biotech development. Medicine, and specifically drug
development, is a lucrative field for use of these technologies. Large
pharmaceutical, or Pharma, companies joined the biotech arena through licensing,
sponsored research and corporate agreement relationships. Today biotech is
a
$300 billion industry (based on total market capitalization) and includes
large companies such as Amgen and Genentech.
The
traditional biotech business model is a derivative of the long drug development
process. Typical biotech companies go through the following stages:
·
|
During
the first stage, biotech companies fund their development through
equity
or debt financings while conducting R&D, which culminates in phased
drug trials.
|
·
|
During
the second stage, when their lead drug candidates enter the drug
trials,
biotech companies may start licensing their drug candidates to Pharma
companies in order to (1) generate revenues, (2) gain access to additional
expertise, and (3) establish relations with major players in the
market
who can eventually take a leading role in distributing successful
drugs.
|
·
|
At
the most advanced stage, biotech companies generate revenues by selling
drugs or other biotech products to consumers or through alliances
of
equals.
|
With
the
Project BioShield Act, biotech companies now have greater access to grants
and
contracts with the U.S. government. Several biotech companies have secured
grants and contracts from the U.S. government to develop drugs and vaccines
as a
medical counter-measure against potential terrorist attacks. For biotech
companies focused on these types of drugs and vaccines, this type of funding
together with the scaled down FDA approval process are major departures from
the
traditional biotech business model.
CBL
is
focusing its R&D efforts in the following areas:
·
|
protecting
against the effects of radiation;
|
·
|
reducing
cancer treatment side effects; and
|
·
|
developing
anticancer drugs against several specific forms of
cancer.
|
While
there are a number of biotech companies and Pharma companies that attempt to
develop new anti-radiation and anticancer drugs to treat these medical
conditions, these areas are nevertheless considered unmet medical needs, which
means that there are currently no existing methods to satisfactorily treat
these
medical conditions.
Our
primary objective is to become a leading developer of drugs for the protection
of human tissues against radiation and other stresses and for cancer treatment.
Key elements of our strategy include:
Aggressively
working towards the commercialization of Protectan CBLB502.
Our
most advanced drug candidate, Protectan CBLB502, offers the potential to protect
normal tissues against exposure to radiation. Because of the potential military
and defense implications of such a drug, the normally lengthy FDA approval
process for these non-medical applications is substantially abbreviated
resulting in a large cost savings to us, and we anticipate having a developed
drug available for these non-medical applications within 18-36
months.
Leveraging
our relationship with leading research and clinical development
institutions.
The
Cleveland Clinic Foundation, one of the top research medical facilities in
the
world, is one of our co-founders. In addition to providing us with drug leads
and technologies, the Cleveland Clinic will share valuable expertise with us
as clinical trials are performed on our drug candidates. Recently, we
entered into a strategic research partnership with Roswell Park Cancer
Institute, or RPCI, in Buffalo, New York. This partnership will enhance the
speed and efficiency of our clinical research and provide us with access to
the
state-of-the-art clinical development facilities of a globally recognized cancer
research center.
Utilizing
governmental initiatives to target our markets.
Our
focus on drug candidates like Protectan CBLB502, which has applications that
have been deemed useful for military and defense purposes, provides us with
a
built-in market for our drug candidates. This enables us to invest less in
costly retail and marketing resources. In an effort to improve our
responsiveness to military and defense needs, we have established a
collaborative relationship with the Armed Forces Radiobiology Research
Institute.
Utilizing
other strategic relationships.
We have
collaborative relationships with other leading organizations that enhance our
drug development and marketing efforts. For example, one of our founders, with
whom we maintain a strategic partnership, is ChemBridge Corporation. Known
for
its medicinal chemistry expertise and synthetic capabilities, ChemBridge
provides valuable resources to our drug development research.
Private
Placement
On
March
16, 2007, pursuant to a Securities Purchase Agreement of the same date,
we
consummated a transaction with various accredited investors in which we
agreed
to sell to the investors, in a private placement, Series B Preferred convertible
into an aggregate of approximately 4,288,712 shares of common stock, and
Series
B Warrants to purchase approximately 2,144,356 shares of our common stock
at an
exercise price of $10.36 per share. The aggregate purchase price paid by
the
investors for the Series B Preferred and Series B Warrants was approximately
$30,000,000. After related fees and expenses, we received net proceeds
of
approximately $29,000,000. We intend to use the proceeds for general corporate
and working capital purposes.
Sunrise
Securities Corp., or SSC, Reedland Capital Partners, an Institutional Division
of Financial West Group, and Basic Investors, Inc., served as placement agents
for the transaction. In consideration for their services, each agent (or its
designees) received compensation as follows: SSC received Series B Preferred
convertible into an aggregate of 290,298 shares of common stock, Series B
Warrants to purchase an aggregate of 145,149 shares of common stock, and Series
C Warrants, bearing an exercise price of $11.00 per share, to purchase 267,074
shares of common stock; Reedland received Series B Warrants to purchase an
aggregate of 63,543 shares of common stock and cash compensation (in lieu of
Series B Preferred and additional Series B Warrants) of $444,800; Basic
Investors received Series B Warrants to purchase an aggregate of 12,480 shares
of Common Stock and cash compensation (in lieu of Series B Preferred and
additional Series B Warrants) of $87,360.
In
the
aggregate, the Series B Preferred and the Series B Warrants issued in the
transaction are convertible for and exercisable into, as of the date hereof,
approximately 6,944,538 shares of common stock (subject to adjustments in
the
event of certain corporate events such as stock splits, or issuances of
securities at a price below the conversion price of the Series B Preferred
or
the exercise price of the Warrants, as the case may be). Based on the closing
price of our common stock on March 16, 2007 of $10.19, the Series B Preferred
sold to investors and issued to SSC had a market value of approximately
$46,660,112. Nasdaq Marketplace Rule 4350(i)(1)(D)(ii) requires that, for
the sale, issuance or potential issuance by us of common stock (or securities
convertible into or exercisable for common stock) equal to 20% or more of
the
common stock outstanding before the issuance, for less than the greater of
book
or market value of the common stock, we must obtain stockholder approval
for the
issuance. Accordingly, the conversion of the Series B Preferred and the exercise
of the Warrants into common stock by their respective holders was submitted
for
approval and was approved by our stockholders at our 2007 annual stockholders
meeting.
Notwithstanding
the conversion rights of the Series B Preferred holders and us, and the exercise
rights of the holders of Series B Warrants and us, we may not issue any shares
of common stock in conversion of the Series B Preferred or in exercise of any
Series B Warrant if the conversion or exercise would either (1) cause the
applicable holder to beneficially own a number of shares of common stock that
exceeds 9.99% of the number of shares of common stock outstanding after giving
effect to the conversion or exercise, or (2) cause us to issue a number of
shares of common stock that would exceed the number of shares of common stock
that we can issue under the rules and regulations of the exchange on which
those
shares are traded. The holders of Series C Warrants may exercise at any time
after September 16, 2007 until expiration.
In
connection with obtaining stockholder approval of the foregoing issuances,
on
March 16, 2007 we entered into a Voting Agreement with Michael Fonstein, Andrei
Gudkov, Yakov Kogan, the Cleveland Clinic, ChemBridge, Sunrise Equity Partners
L.P., or SEP, and SSC, each of whom agreed to vote in favor of authorizing
the
issuance of the shares of common stock underlying all of the Series B Preferred
and the Warrants. In the aggregate, these parties to the Voting Agreement,
together with holders of the Series B Preferred that were eligible to vote
at
the 2007 annual stockholders meeting, held approximately 63% of all votes
entitled to be cast as of the record date.
In
connection with the Securities Purchase Agreement, we also entered into a
Registration Rights Agreement with the Buyers, dated as of March 16, 2007.
Under
the Registration Rights Agreement, we granted the Buyers certain registration
rights with respect to common stock issuable upon conversion of the Series
B
Preferred or exercise of the Warrants. This registration statement is being
filed to satisfy the registration rights granted under that Registration Rights
Agreement.
SEP,
one
of the investors, together with its affiliates is a holder of more than 10%
of
our outstanding common stock. In the transaction, SEP purchased Series B
Preferred convertible into 600,000 shares of common stock and received Series
B
Warrants to purchase 300,000 shares of common stock. As mentioned above, we
also
issued Series B Preferred convertible into 290,298 shares of common stock,
Series B Warrants to purchase an aggregate of 145,149 shares of Common Stock,
and Series C Warrants to purchase 267,074 shares of common stock to SSC, an
affiliate of SEP, in consideration for its services as lead placement agent.
We
also engaged SSC as our exclusive management agent regarding all exercises
of
the Warrants, for which we will pay SSC a fee equal to 3.5% of the aggregate
exercise price of each Warrant, payable in cash if the exercise is in cash
or in
shares of common stock if the exercise is cashless.
Risk
Factors
Our
business is subject to numerous risks as discussed more fully in the section
entitled “Risk Factors” immediately following this prospectus summary. Principal
risks of our business include:
·
|
We
have a history of operating losses. We expect to continue to incur
losses
and may exhaust our financial resources before we are able to complete
the
development of our drug candidates.
|
·
|
Development
of our drug candidates will be an expensive and time-consuming process.
We
may therefore require substantial additional financing to meet our
business objectives.
|
·
|
Our
success depends in large part on the results as well as the cost
of our
R&D. Failures in our R&D efforts or substantial increases in our
R&D costs would adversely affect our results of
operations.
|
·
|
We
are subject to significant and complex government regulations, which
may
delay or prevent the commercialization of any drug
candidates.
|
·
|
Our
intellectual property is based primarily upon licensed patents and
license
agreements with our collaborators. If we lose any of the rights under
these agreements, our ability to commercialize our drug candidates
would
be materially harmed.
|
·
|
Before
obtaining required regulatory approvals for the commercial sale of
any of
our drug candidates, we must demonstrate through pre-clinical testing
and
clinical trials that our drug candidates are safe and effective for
use in
humans. We are subject to numerous risks inherent in conducting clinical
trials, any of which could delay or prevent us from developing or
commercializing our drug
candidates.
|
Our
Information
We
were
incorporated in Delaware in June 2003. On July 21, 2006, our stock began
trading on the Nasdaq Capital Market under the symbol “CBLI” and on the Boston
Stock Exchange under the symbol “CFB”. Our trading symbol on the Boston Stock
Exchange was later changed to “CBLI”. Our principal executive offices are
located at 73 High Street, Buffalo, New York 14203 and our telephone number
is
(716) 849-6810. Our website is located at http://www.cbiolabs.com. Information
contained on our website is not incorporated by reference into this prospectus
and you should not consider information on our website as part of this
prospectus.
Common
stock offered by the selling stockholders
|
|
Up
to 9,375,095 shares
|
|
|
|
Common
stock currently outstanding
|
|
12,139,943
shares
|
|
|
|
Use
of proceeds
|
|
We
will not receive any of the proceeds from the sale of the shares
of common
stock by the selling stockholders, although we will receive proceeds
from
the exercise of Warrants into common stock for cash
|
|
|
|
Nasdaq
Capital Market Symbol
|
|
CBLI
|
|
|
|
Boston
Stock Exchange Symbol
|
|
CBLI
|
The
number of shares of common stock currently outstanding is based on the number
of
shares outstanding as of Auguest 7, 2007 and excludes:
·
|
4,579,010
shares of common stock issuable upon conversion of outstanding shares
of
Series B Preferred at the current conversion rate;
|
|
|
·
|
2,365,528
shares of common stock issuable upon exercise of Series B Warrants
at the
current exercise price of $10.36;
|
|
|
·
|
267,074
shares of common stock issuable upon exercise of Series C Warrants
at the
current exercise price of $11.00;
|
·
|
957,490 shares
of common stock issuable upon exercise of outstanding options
with
exercise prices ranging from $0.66 to $10.84 per share;
|
|
|
·
|
824,166
shares of common stock issuable upon exercise of warrants with
exercise
prices ranging from $1.13 to $10.00 per share;
and
|
·
|
1,222,000
shares of common stock reserved for issuance under our 2006 Equity
Incentive Plan.
|
We
have
derived the following summary financial data for the years ended
December 31, 2006, December 31, 2005 and December 31, 2004 from
our audited financial statements and the summary financial data for the three
months ended March 31, 2007 and March 31, 2006 from our unaudited interim
financial statements. In the opinion of our management, this information
contains all adjustments necessary for a fair presentation of our results of
operations and financial condition for such periods. The information below
is
not necessarily indicative of the results of future operations and should be
read in conjunction with “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and our financial statements and related
notes included elsewhere in this prospectus.
Statement
of Operations Data
|
|
Three
Months Ended
March
31, 2007
|
|
Three
Months Ended
March
31, 2006
|
|
Fiscal
year Ended December 31, 2006
|
|
Fiscal
year Ended December 31, 2005
|
|
Fiscal
year Ended December 31, 2004
|
|
Total
Revenues
|
|
$
|
321,445
|
|
$
|
578,424
|
|
$
|
1,708,214
|
|
$
|
1,138,831
|
|
$
|
636,341
|
|
Operating
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and Development
|
|
$
|
3,528,600
|
|
$
|
1,502,364
|
|
$
|
6,989,804
|
|
$
|
2,640,240
|
|
$
|
2,892,967
|
|
General
and Administrative
|
|
$
|
994,319
|
|
$
|
352,898
|
|
$
|
2,136,511
|
|
$
|
986,424
|
|
$
|
262,817
|
|
Income
(Loss) from Operations
|
|
$
|
(4,201,474
|
)
|
$
|
(1,276,838
|
)
|
$
|
(7,418,101
|
)
|
$
|
(2,487,833
|
)
|
$
|
(2,519,443
|
)
|
Net
Income (Loss)
|
|
$
|
(4,106,133
|
)
|
$
|
(1,252,145
|
)
|
$
|
(7,222,644
|
)
|
$
|
(2,386,455
|
)
|
$
|
(2,523,142
|
)
|
Balance
Sheet Data
|
|
March
31,
2007
|
|
December
31, 2006
|
|
December
31, 2005
|
|
December
31, 2004
|
|
Cash
and Cash Equivalents
|
|
$
|
11,968,017
|
|
$
|
3,061,993
|
|
$
|
1,206,462
|
|
$
|
94,741
|
|
Total
Assets
|
|
$
|
32,497,045
|
|
$
|
6,416,529
|
|
$
|
4,253,333
|
|
$
|
382,219
|
|
Total
Liabilities
|
|
$
|
1,639,271
|
|
$
|
823,375
|
|
$
|
696,729
|
|
$
|
756,433
|
|
Total
Stockholders’ Equity
|
|
$
|
30,857,774
|
|
$
|
5,593,154
|
|
$
|
3,556,604
|
|
$
|
(374,214
|
)
|
An
investment in our common stock is highly speculative, involves a high degree
of
risk, and should be made only by investors who can afford a complete loss.
You
should carefully consider the following risk factors with all of the other
information included in this prospectus before you decide whether to buy our
common stock. Any of the following risks could materially adversely affect
our
business, financial condition or operating results and could result in a partial
or complete loss of your investment. The risks and uncertainties described
below
are not, however, the only ones that we may face. Additional risks and
uncertainties not currently known to us, or that we currently believe are not
material, could also materially adversely affect our business, financial
condition or operating results.
Risks
Specific to Us
We
have a history of operating losses. We expect to continue to incur losses and
may not continue as a going concern.
We
have a
history of losses and can provide no assurance as to future operating results.
As a result of losses that will continue throughout our development stage,
we
may exhaust our financial resources and be unable to complete the development
of
our drug candidates.
We
have
sustained losses from operations in each fiscal year since our inception in
June 2003. In 2006, we had operating losses of approximately $7,400,000,
and in 2005, we had operating losses of approximately $2,400,000. We had an
accumulated deficit of approximately $12,800,000 as of December 31, 2006 and,
approximately $5,200,000 as of December 31, 2005. To date, we have raised
approximately $44,000,000 in equity financing. We expect losses to continue
for
the next few years as we spend substantial additional sums on the continued
R&D of proprietary drugs and technologies, and there is no certainty that we
will ever become profitable as a result of these expenditures.
Our
ability to become profitable depends primarily on the following
factors:
·
|
our
ability to obtain approval for, and if approved, to successfully
commercialize, Protectan CBLB502;
|
·
|
our
ability to bring to market other proprietary drugs that are progressing
through our development process;
|
·
|
our
R&D efforts, including the timing and cost of clinical trials;
and
|
·
|
our
ability to enter into favorable alliances with third-parties who
can
provide substantial capabilities in clinical development, regulatory
affairs, sales, marketing and
distribution.
|
Even
if
we successfully develop and market our drug candidates, we may not generate
sufficient or sustainable revenue to achieve or sustain
profitability.
Development
of our drug candidates will be an expensive process and we
therefore may
require substantial additional financing in order to meet our business
objectives.
We
anticipate that our existing cash holdings will be sufficient to meet cash
requirements for at least the next 24 months. Upon expiration of this 24-month
period, or sooner if we experience unanticipated cash requirements, we may
be
required to issue equity or debt securities or enter into other financial
arrangements, including relationships with corporate and other partners, in
order to raise substantial additional capital during the period of drug
development and FDA testing. Depending upon market conditions, we may not be
successful in raising sufficient additional capital for our long-term
requirements. If we fail to raise sufficient additional financing, we will
not
be able to develop our drug candidates, and may be required to reduce staff,
reduce or eliminate R&D, slow the development of our drug candidates,
outsource or eliminate several business functions or shut down operations.
Even
if we are successful in raising such additional financing, we may not be able
to
successfully complete planned clinical trials, development, and marketing of
all, or of any, of our drug candidates. In such event, our business, prospects,
financial condition and results of operations could be materially adversely
affected.
We
were formed in 2003 and commenced operations in the latter half of 2003. As
a
result, we have a limited
operating history, which does not afford investors a sufficient history on
which
to base an investment decision.
We
were
formed in June 2003. Accordingly, we have a limited operating history.
Investors must consider the risks and difficulties frequently encountered by
early stage companies, particularly in the rapidly evolving biopharmaceutical
industry. Such risks include the following:
·
|
competition
from companies that have substantially greater assets and financial
resources than we have;
|
·
|
need
for regulatory approval and commercial acceptance of
drugs;
|
·
|
ability
to anticipate and adapt to a competitive market and rapid technological
developments;
|
·
|
amount
and timing of operating costs and capital expenditures relating to
expansion of our business, operations and
infrastructure;
|
·
|
need
to rely on multiple levels of outside funding due to the length of
drug
development cycles and government approved protocols associated with
the
biopharmaceutical industry; and
|
·
|
dependence
upon key personnel, including key independent consultants and
advisors.
|
We
cannot
be certain that our strategies will be successful or that we will successfully
address these risks. In the event that we do not successfully address these
risks, our business, prospects, financial condition and results of operations
could be materially and adversely affected.
Development
of pharmaceutical products is a time-consuming process, subject to a number
of
factors, many of which are outside of our control. Consequently,
we can
provide no assurance of the successful and timely development of new
drugs.
Our
drug
candidates are in their developmental stage. Further development and extensive
testing will be required to determine their technical feasibility and commercial
viability. Our success will depend on our ability to achieve scientific and
technological advances and to translate such advances into reliable,
commercially competitive drugs on a timely basis. Drugs that we may develop
are
not likely to be commercially available for a few years. The proposed
development schedules for our drug candidates may be affected by a variety
of
factors, including technological difficulties, proprietary technology of others,
and changes in government regulation, many of which will not be within our
control. Any delay in the development, introduction or marketing of our drug
candidates could result either in such drugs being marketed at a time when
their
cost and performance characteristics would not be competitive in the marketplace
or in the shortening of their commercial lives. In light of the long-term nature
of our projects, the unproven technology involved and the other factors
described elsewhere in “Risk Factors”, we may not be able to complete
successfully the development or marketing of any drugs.
We
may
fail to successfully develop and commercialize our drug candidates because
they:
·
|
are
found to be unsafe or ineffective in clinical
trials;
|
·
|
do
not receive necessary approval from the FDA or foreign regulatory
agencies;
|
·
|
fail
to conform to a changing standard of care for the diseases they seek
to
treat; or
|
·
|
are
less effective or more expensive than current or alternative treatment
methods.
|
Drug
development failure can occur at any stage of clinical trials and as a result
of
many factors and there can be no assurance that we or our collaborators will
reach our anticipated clinical targets. Even if we or our collaborators complete
our clinical trials, we do not know what the long-term effects of exposure
to
our drug candidates will be. Furthermore, our drug candidates may be used in
combination with other treatments and there can be no assurance that such use
will not lead to unique safety issues. Failure to complete clinical trials
or to
prove that our drug candidates are safe and effective would have a material
adverse effect on our ability to generate revenue and could require us to reduce
the scope of or discontinue our operations.
We
must comply with significant and
complex government regulations, compliance with which may delay or prevent
the
commercialization of our drug candidates.
The
R&D, manufacture and marketing of drug candidates are subject to regulation,
primarily by the FDA in the United States and by comparable authorities in
other
countries. These national agencies and other federal, state, local and foreign
entities regulate, among other things, R&D activities (including testing in
primates and in humans) and the testing, manufacturing, handling, labeling,
storage, record keeping, approval, advertising and promotion of the products
that we are developing. Noncompliance with applicable requirements can result
in
various adverse consequences, including approval delays or refusals to approve
drug licenses or other applications, suspension or termination of clinical
investigations, revocation of approvals previously granted, fines, criminal
prosecution, recalls or seizures of products, injunctions against shipping
drugs
and total or partial suspension of production and/or refusal to allow a company
to enter into governmental supply contracts.
The
process of obtaining FDA approval has historically been costly and time
consuming. Current FDA requirements for a new human drug or biological product
to be marketed in the United States include:
·
|
the
successful conclusion of pre-clinical laboratory and animal tests,
if
appropriate, to gain preliminary information on the product’s
safety;
|
·
|
filing
with the FDA of an IND application to conduct human clinical trials
for
drugs or biologics;
|
·
|
the
successful completion of adequate and well-controlled human clinical
investigations to establish the safety and efficacy of the product
for its
recommended use; and
|
·
|
filing
by a company and acceptance and approval by the FDA of a New Drug
Application, or NDA, for a drug product or a biological license
application, or BLA, for a biological product, to allow commercial
distribution of the drug or biologic.
|
A
delay
in one or more of the procedural steps outlined above could be harmful to us
in
advancing our drug candidates through clinical testing and to
market.
The
FDA
reviews the results of the clinical trials and may order the temporary or
permanent discontinuation of clinical trials at any time if it believes the
drug
candidate exposes clinical subjects to an unacceptable health risk.
Investigational drugs used in clinical studies must be produced in compliance
with current good manufacturing practice, or GMP, rules pursuant to FDA
regulations.
Sales
outside the United States of products that we develop will also be subject
to
regulatory requirements governing human clinical trials and marketing for drugs
and biological products and devices. The requirements vary widely from country
to country, but typically the registration and approval process takes several
years and requires significant resources. In most cases, even if the FDA has
not
approved a product for sale in the United States, the product may be exported
to
any country if it complies with the laws of that country and has valid marketing
authorization by the appropriate authority. There are specific FDA regulations
that govern this process.
We
also
are subject to the following regulatory risks and obligations, among
others:
·
|
The
FDA or foreign regulators may interpret data from pre-clinical testing
and
clinical trials differently than we interpret
them.
|
·
|
If
regulatory approval of a product is granted, the approval may be
limited
to specific indications or limited with respect to its distribution.
In
addition, many foreign countries control pricing and coverage under
their
respective national social security
systems.
|
·
|
The
FDA or foreign regulators may not approve our manufacturing processes
or
manufacturing facilities.
|
·
|
The
FDA or foreign regulators may change their approval policies or adopt
new
regulations.
|
·
|
Even
if regulatory approval for any product is obtained, the marketing
license
will be subject to continual review, and newly discovered or developed
safety or effectiveness data may result in suspension or revocation
of the
marketing license.
|
·
|
If
regulatory approval of the product candidate is granted, the marketing
of
that product would be subject to adverse event reporting requirements
and
a general prohibition against promoting products for unapproved or
“off-label” uses.
|
·
|
In
some foreign countries, we may be subject to official release requirements
that require each batch of the product we produce to be officially
released by regulatory authorities prior to its distribution by
us.
|
·
|
We
will be subject to continual regulatory review and periodic inspection
and
approval of manufacturing modifications, including compliance with
current
GMP regulations.
|
We
can provide no assurance that our drug
candidates will obtain regulatory approval or that the results of clinical
studies will be favorable.
The
testing, marketing and manufacturing of any product for use in the United States
will require approval from the FDA. We cannot predict with any certainty the
amount of time necessary to obtain such FDA approval and whether any such
approval will ultimately be granted. For example, the FDA raised concerns in
connection with the clinical study regimens for Curaxin CBLC102 because part
of
our demonstration with respect to safety relies on samples of a previously
marketed formulation of a related compound, which is no longer available.
Preclinical and clinical trials may reveal that one or more products are
ineffective or unsafe, in which event further development of such products
could
be seriously delayed or terminated. Moreover, obtaining approval for certain
products may require testing on human subjects of substances whose effects
on
humans are not fully understood or documented. Delays in obtaining FDA or any
other necessary regulatory approvals of any proposed drug and failure to receive
such approvals would have an adverse effect on the drug’s potential commercial
success and on our business, prospects, financial condition and results of
operations. In addition, it is possible that a proposed drug may be found to
be
ineffective or unsafe due to conditions or facts that arise after development
has been completed and regulatory approvals have been obtained. In this event,
we may be required to withdraw such proposed drug from the market. To the extent
that our success will depend on any regulatory approvals from government
authorities outside of the United States that perform roles similar to that
of
the FDA, uncertainties similar to those stated above will also
exist.
Even
if we obtain regulatory approvals, our marketed drug
candidates will be subject to ongoing regulatory review. If we fail to comply
with continuing U.S. and foreign regulations, we could lose our approvals to
market these drugs and our business would be seriously
harmed.
Following
any initial regulatory approval of any drugs we may develop, we will also be
subject to continuing regulatory review, including the review of adverse
experiences and clinical results that are reported after our drug candidates
are
made commercially available. This would include results from any post-marketing
tests or vigilance required as a condition of approval. The manufacturer and
manufacturing facilities we use to make any of our drug candidates will also
be
subject to periodic review and inspection by the FDA. The discovery of any
previously unknown problems with the drug, manufacturer or facility may result
in restrictions on the drug or manufacturer or facility, including withdrawal
of
the drug from the market. We do not have, and currently do not intend to
develop, the ability to manufacture material for our clinical trials or on
a
commercial scale. Reliance on third-party manufacturers entails risks to which
we would not be subject if we manufactured drugs ourselves, including reliance
on the third-party manufacturer for regulatory compliance. Our drug promotion
and advertising is also subject to regulatory requirements and continuing FDA
review.
Development
of our drug candidates requires a significant investment in R&D. Our R&D
expenses in turn, are subject to variation based on a number of factors, many
of
which are outside of our control. A sudden or significant increase in our
R&D expenses could materially and adversely impact our results of
operations.
Because
we expect to expend substantial resources on R&D, our success depends in
large part on the results as well as the costs of our R&D. A failure in our
R&D efforts or substantial increase in our R&D expenses would adversely
affect our results of operations. R&D expenditures are uncertain and subject
to much fluctuation. Factors affecting our R&D expenses include, but are not
limited to:
·
|
the
number and outcome of clinical studies we are planning to conduct;
for
example, our R&D expenses may increase based on the number of
late-stage clinical studies that we may be required to
conduct;
|
·
|
the
number of drugs entering into development from late-stage research;
for
example, there is no guarantee that internal research efforts will
succeed
in generating sufficient data for us to make a positive development
decision or that an external candidate will be available on terms
acceptable to us, and some promising candidates may not yield sufficiently
positive pre-clinical results to meet our stringent development
criteria;
|
·
|
licensing
activities, including the timing and amount of related development
funding
or milestone payments; for example, we may enter into agreements
requiring
us to pay a significant up-front fee for the purchase of in-process
R&D that we may record as R&D expense;
or
|
·
|
future
levels of revenue; R&D as a percentage of future potential revenues
can fluctuate with changes in future levels of revenue and lower
revenues
can lead to less spending on R&D
efforts.
|
If
we lose our funding from R&D grants, we may not be able to fund future
R&D and implement technological improvements, which would materially harm
our operating results.
We
received $1,503,214 or 88% of our revenues in 2006 from grant and contract
development work in connection with grants from the NIH, NASA and the Defense
Advanced Research Projects Agency or DARPA (Department of Defense), as well
as
from universities and commercial companies related to drug development efforts
for our radioprotectants and anticancer development work. We received $999,556
in grant revenue in 2005, which represented 87.8% of our total revenues in
2005.
From our inception through May 2007, we have received fundable scores for grants
totaling $5,545,000. We have also received $1 million in funding from the State
of New York and will receive an additional $2 million from the State of New
York
over the next 12 months. Also, we plan to submit new applications for grants
totaling $6,610,000.
In
addition, prior to our initial public offering, we historically received
approximately 30% of our grant revenues through the SBIR and Small Business
Technology Transfer grant programs. As a result of our growth, we have ceased
to
be eligible for SBIR grant programs, and therefore no longer qualify to receive
these grants. These
revenues have funded some of our personnel and other R&D costs and expenses.
If other new grants and contracts are not awarded in the future, our ability
to
fund future R&D and implement technological improvements would be
diminished, which would negatively impact our ability to compete in our
industry.
We
are subject to numerous risks inherent in conducting clinical trials, any of
which could delay or prevent us from developing or commercializing
our drug
candidates.
Before
obtaining required regulatory approvals for the commercial sale of any of our
drug candidates, we must demonstrate through pre-clinical testing and clinical
trials that our drug candidates are safe and effective for use in humans. We
must outsource our clinical trials to third parties. Delays in finalizing
agreements for the conduct of these trials could delay commencement or
completion of the trials.
Agreements
with clinical investigators and medical institutions for clinical testing and
with other third parties for data management services place substantial
responsibilities on these parties, which could result in delays in, or
termination of, our clinical trials if these parties fail to perform as
expected. For example, if any of our clinical trial sites fail to comply with
FDA-approved good clinical practices, we may be unable to use the data gathered
at those sites. If these clinical investigators, medical institutions or other
third parties do not carry out their contractual duties or obligations or fail
to meet expected deadlines, or if the quality or accuracy of the clinical data
they obtain is compromised due to their failure to adhere to our clinical
protocols or for other reasons, our clinical trials may be extended, delayed
or
terminated, and we may be unable to obtain regulatory approval for or
successfully commercialize Protectan CBLB502, Curaxin CBLC102 or other drug
candidates.
We
or
regulators may suspend or terminate our clinical trials for a number of reasons.
We may voluntarily suspend or terminate our clinical trials if at any time
we
believe that they present an unacceptable risk to the patients enrolled in
our
clinical trials. In addition, regulatory agencies may order the temporary or
permanent discontinuation of our clinical trials at any time if they believe
that the clinical trials are not being conducted in accordance with applicable
regulatory requirements or that they present an unacceptable safety risk to
the
patients enrolled in our clinical trials.
Our
clinical trial operations will be subject to regulatory inspections at any
time.
If regulatory inspectors conclude that we or our clinical trial sites are not
in
compliance with applicable regulatory requirements for conducting clinical
trials, we may receive reports of observations or warning letters detailing
deficiencies, and we will be required to implement corrective actions. If
regulatory agencies deem our responses to be inadequate, or are dissatisfied
with the corrective actions that we or our clinical trial sites have
implemented, our clinical trials may be temporarily or permanently discontinued,
we may be fined, we or our investigators may be precluded from conducting any
ongoing or any future clinical trials, the government may refuse to approve
our
marketing applications or allow us to manufacture or market our drug candidates,
or we may be criminally prosecuted.
Certain
of our drug
candidates may be subject to the orphan drug provisions of the Federal Food,
Drug, and Cosmetic Act, which, even if successfully marketed, may not yield
sufficient returns to make us profitable.
We
intend
to seek orphan drug status with respect to Curaxin CBLC102. The orphan drug
provisions of the Federal Food, Drug, and Cosmetic Act provide incentives to
drug and biologic manufacturers to develop and manufacture drugs for the
treatment of rare diseases, currently defined as diseases that exist in fewer
than 200,000 individuals in the U.S. or, for a disease that affects more than
200,000 individuals in the U.S., where the sponsor does not realistically
anticipate that its drug will become profitable. We believe that Curaxin CBLC102
may qualify as an orphan drug for purposes of treatment of hormone refractory
prostate cancer, RCC and soft-tissue sarcoma. Under these provisions, a
manufacturer of a designated orphan drug can seek tax benefits, and the holder
of the first designated orphan drug approved by the FDA will be granted a
seven-year period of marketing exclusivity for that drug. There is no assurance
that we will receive orphan drug status for Curaxin CBLC102. Even if we do
receive orphan drug status, while the marketing exclusivity of an orphan drug
would prevent other sponsors from obtaining approval of the same compound for
the same indication, it would not prevent other types of drugs from being
approved for the same indication and therefore may not provide sufficient
protection against competitive products.
Efforts
of government and third-party payors to contain or reduce the costs of health
care may adversely affect our revenues.
Our
ability to earn sufficient returns on our drug candidates may depend in part
on
the extent to which government health administration authorities, private health
coverage insurers and other organizations will provide reimbursement for the
costs of such drugs and related treatments. Significant uncertainty exists
as to
the reimbursement status of newly approved health care drugs, and we do not
know
whether adequate third-party coverage will be available for our drug candidates.
If our current and proposed drugs are not considered cost-effective,
reimbursement to the consumers may not be available or sufficient to allow
us to
sell drugs on a competitive basis. The failure of the government and third-party
payors to provide adequate coverage and reimbursement rates for our drug
candidates could adversely affect the market acceptance of our drug candidates,
our competitive position and our financial performance.
If
we
fail to comply with applicable continuing regulatory requirements, we may be
subject to fines, suspension or withdrawal of regulatory approval, product
recalls and seizures, operating restrictions and criminal prosecutions.
Confidentiality
agreements with employees and others may not adequately prevent disclosure
of
trade secrets and other proprietary information. Disclosure
of our trade secrets or proprietary information could compromise any competitive
advantage that we have.
We
depend
upon confidentiality agreements with our officers, employees, consultants,
and
subcontractors to maintain the proprietary nature of the technology. These
measures may not afford us sufficient or complete protection, and may not afford
an adequate remedy in the event of an unauthorized disclosure of confidential
information. In addition, others may independently develop technology similar
to
ours, otherwise avoiding the confidentiality agreements, or produce patents
that
would materially and adversely affect our business, prospects, financial
condition, and results of operations.
We
will rely upon licensed patents to protect our technology. We may be unable
to
obtain or protect such intellectual property rights, and we may be liable for
infringing upon the intellectual property rights of
others.
Our
ability to compete effectively will depend on our ability to maintain the
proprietary nature of our technologies and the proprietary technology of others
with which we have entered into licensing agreements. We have exclusively
licensed 13 patent applications from the Cleveland Clinic and have filed three
patent applications on our own. There can be no assurance that any of these
patent applications will ultimately result in the issuance of a patent with
respect to the technology owned by us or licensed to us. The patent position
of
pharmaceutical or biotechnology companies, including ours, is generally
uncertain and involves complex legal and factual considerations. The standards
that the United States Patent and Trademark Office use to grant patents are
not
always applied predictably or uniformly and can change. There is also no
uniform, worldwide policy regarding the subject matter and scope of claims
granted or allowable in pharmaceutical or biotechnology patents. Accordingly,
we
do not know the degree of future protection for our proprietary rights or the
breadth of claims that will be allowed in any patents issued to us or to others.
Further, we rely on a combination of trade secrets, know-how, technology and
nondisclosure, and other contractual agreements and technical measures to
protect our rights in the technology. If any trade secret, know-how or other
technology not protected by a patent were to be disclosed to or independently
developed by a competitor, our business and financial condition could be
materially adversely affected.
We
do not
believe that any of the drug candidates we are currently developing infringe
upon the rights of any third parties nor are they infringed upon by third
parties; however, there can be no assurance that our technology will not be
found in the future to infringe upon the rights of others or be infringed upon
by others. In such a case, others may assert infringement claims against us,
and
should we be found to infringe upon their patents, or otherwise impermissibly
utilize their intellectual property, we might be forced to pay damages,
potentially including treble damages, if we are found to have willfully
infringed on such parties’ patent rights. In addition to any damages we might
have to pay, we may be required to obtain licenses from the holders of this
intellectual property, enter into royalty agreements, or redesign our drug
candidates so as not to utilize this intellectual property, each of which may
prove to be uneconomical or otherwise impossible. Conversely, we may not always
be able to successfully pursue our claims against others that infringe upon
our
technology and the technology exclusively licensed from the Cleveland Clinic.
Thus, the proprietary nature of our technology or technology licensed by us
may
not provide adequate protection against competitors.
Moreover,
the cost to us of any litigation or other proceeding relating to our patents
and
other intellectual property rights, even if resolved in our favor, could be
substantial, and the litigation would divert our management’s efforts.
Uncertainties resulting from the initiation and continuation of any litigation
could limit our ability to continue our operations.
Other
companies or organizations may assert patent rights that prevent us from
developing and commercializing our drug
candidates.
We
are in
a relatively new scientific field that has generated many different patent
applications from organizations and individuals seeking to obtain important
patents in the field. Because the field is so new, very few of these patent
applications have been fully processed by government patent offices around
the
world, and there is a great deal of uncertainty about which patents will issue,
when, to whom, and with what claims. It is likely that there will be significant
litigation and other proceedings, such as interference proceedings in various
patent offices, relating to patent rights in the field. Others may attempt
to
invalidate our patents or other intellectual property rights. Even if our rights
are not directly challenged, disputes among third parties could lead to the
weakening or invalidation of those intellectual property rights.
Thus,
it
is possible that one or more organizations will hold patent rights to which
we
will need a license. Any license required under any patent may not be made
available on commercially acceptable terms, if at all. In addition, such
licenses are likely to be non-exclusive and, therefore, our competitors may
have
access to the same technology licensed to us. If we fail to obtain a required
license and are unable to design around a patent, we may be unable to
effectively market some of our technology and drug candidates, which could
limit
our ability to generate revenues or achieve profitability and possibly prevent
us from generating revenue sufficient to sustain our
operations.
We
are dependent upon our license agreement with the Cleveland Clinic, as well
as
proprietary technology of others. If
we lose the right to utilize any of the proprietary information that is the
subject of the Cleveland Clinic license agreement or any of the other
third-party proprietary technology on which we depend, we may incur substantial
delays and costs in development of our drug
candidates.
The
manufacture and sale of any products developed by us may involve the use of
processes, products or information, the rights to certain of which are owned
by
others. Although we have obtained licenses with regard to the use of the
Cleveland Clinic’s patent applications as described above and certain processes,
products and information of others, we cannot assure you that such licenses
will
not be terminated or expire during critical periods, that we will be able to
obtain licenses for other rights that may be important to us, or, if obtained,
that such licenses will be obtained on commercially reasonable terms. While
we
have no reason to believe that our licenses will be terminated and our material
licenses have no definitive expiration date, such licenses may be terminated
if
we breach certain material provisions and fail to cure the breach in a certain
period of time. If we are unable to maintain and/or obtain third-party licenses,
we may have to develop alternatives to avoid infringing upon the patents of
others, potentially causing increased costs and delays in drug development
and
introduction or preclude the development, manufacture, or sale of planned
products. Additionally, we can provide no assurance that the patents underlying
any licenses will be valid and enforceable. To the extent any drugs developed
by
us are based on licensed technology, royalty payments on the licenses will
reduce our gross profit from drug sales and may render the sales of such drugs
uneconomical.
If
we fail to comply with our obligations under our license agreement with the
Cleveland Clinic, we could lose our license rights that are necessary for
developing our drug
candidates.
Our
current exclusive license with the Cleveland Clinic imposes various development,
royalty, diligence, record keeping, insurance and other obligations on us.
If we
breach any of these obligations and do not cure such breaches within the 90
day
period provided, the licensor may have the right to terminate the license,
which
could result in us being unable to develop, manufacture and sell products that
are covered by the licensed technology or enable a competitor to gain access
to
the licensed technology. In addition, while we cannot currently determine the
dollar amount of the royalty obligations we will be required to pay on sales
of
future products, if any, the amounts may be significant. The dollar amount
of
our future royalty obligations will depend on the technology and intellectual
property we use in products that we successfully develop and commercialize,
if
any. Therefore, even if we successfully develop and commercialize products,
we
may be unable to achieve or maintain profitability.
We
will rely upon third-party manufacturers to manufacture
our drug
candidates. If these third-party manufacturers fail to produce our drug
candidates in the volumes that we require on a timely basis, or to comply with
stringent regulations applicable to pharmaceutical or drug manufacturers, we
may
face delays in the delivery of, or be unable to meet demand for, our drug
candidates.
We
do not
intend to establish or operate facilities to manufacture our drug candidates
and
therefore will be dependent upon third parties to do so. As we develop new
products or increase sales of any existing product, we must establish and
maintain relationships with manufacturers to produce and package sufficient
supplies of our finished pharmaceutical products. Reliance on third party
manufacturing presents the following risks:
·
|
delays
in the delivery of quantities needed for multiple clinical trials
or
failure to manufacture such quantities to our specifications, either
of
which could cause delays in clinical trials, regulatory submissions
or
commercialization of our drug
candidates;
|
·
|
inability
to fulfill our commercial needs in the event market demand for our
drug
candidates suddenly increases, which may require us to seek new
manufacturing arrangements, which, in turn, could be expensive and
time
consuming; or
|
·
|
ongoing
inspections by the FDA and other regulatory authorities for compliance
with rules, regulations and standards, the failure to comply with
may
subject us to, among other things, product seizures, recalls, fines,
injunctions, suspensions or revocations of marketing licenses, operating
restrictions and criminal
prosecution.
|
Our
collaborative relationships with third parties could cause us to expend
significant resources and incur substantial business risk with no assurance
of
financial return.
We
anticipate substantial reliance upon strategic collaborations for marketing
and
the commercialization of our drug candidates and we may rely even more on
strategic collaborations for R&D of our other drug candidates. Our business
depends on our ability to sell drugs to both government agencies and to the
general pharmaceutical market. Offering our drug candidates for non-medical
applications to government agencies does not require us to develop new sales,
marketing or distribution capabilities beyond those already existing in the
company. Selling anticancer drugs, however, does require such development.
We
plan to sell anticancer drugs through strategic partnerships with pharmaceutical
companies. If we are unable to establish or manage such strategic collaborations
on terms favorable to us in the future, our revenue and drug development may
be
limited. To date, we have not entered into any strategic collaborations with
third parties capable of providing these services. In addition, we have not
yet
marketed or sold any of our drug candidates or entered into successful
collaborations for these services in order to ultimately commercialize our
drug
candidates.
If
we
determine to enter into R&D collaborations during the early phases of drug
development, our success will in part depend on the performance of our research
collaborators. We will not directly control the amount or timing of resources
devoted by our research collaborators to activities related to our drug
candidates. Our research collaborators may not commit sufficient resources
to
our programs. If any research collaborator fails to commit sufficient resources,
our preclinical or clinical development programs related to this collaboration
could be delayed or terminated. Also, our collaborators may pursue existing
or
other development-stage products or alternative technologies in preference
to
those being developed in collaboration with us. Finally, if we fail to make
required milestone or royalty payments to our collaborators or to observe other
obligations in our agreements with them, our collaborators may have the right
to
terminate those agreements.
Manufacturers
producing our drug candidates must follow current GMP regulations enforced
by
the FDA and foreign equivalents. If a manufacturer of our drug candidates does
not conform to the current GMP regulations and cannot be brought up to such
a
standard, we will be required to find alternative manufacturers that do conform.
This may be a long and difficult process, and may delay our ability to receive
FDA or foreign regulatory approval of our drug candidates and cause us to fall
behind on our business objectives.
Establishing
strategic collaborations is difficult and time-consuming. Our discussion with
potential collaborators may not lead to the establishment of collaborations
on
favorable terms, if at all. Potential collaborators may reject collaborations
based upon their assessment of our financial, regulatory or intellectual
property position. Even if we successfully establish new collaborations, these
relationships may never result in the successful development or
commercialization of our drug candidates or the generation of sales revenue.
To
the extent that we enter into collaborative arrangements, our drug revenues
are
likely to be lower than if we directly marketed and sold any drugs that we
may
develop.
Management
of our relationships with our collaborators will require:
·
|
significant
time and effort from our management
team;
|
·
|
coordination
of our marketing and R&D programs with the marketing and R&D
priorities of our collaborators;
and
|
·
|
effective
allocation of our resources to multiple
projects.
|
As
a consequence of our business, we are inherently at risk for product liability
claims against us. If our
insurance coverage for those claims is inadequate, we may incur substantial
liabilities.
We
face
an inherent risk of product liability exposure related to the testing of our
drug candidates in human clinical trials and will face an even greater risk
if
the drug candidates are sold commercially or otherwise distributed. An
individual may bring a liability claim against us if one of the drug candidates
causes, or merely appears to have caused, an injury. With respect to non-medical
applications of Protectan CBLB502 pursuant to the Project BioShield Act of
2004,
we do not believe the absence of certain typical regulatory requirements such
as
Phase II or Phase III testing will limit or diminish our potential liability
exposure. If we cannot successfully defend ourselves against the product
liability claim, we will incur substantial liabilities. Regardless of merit
or
eventual outcome, liability claims may result in:
·
|
decreased
demand for our drug candidates;
|
·
|
injury
to our reputation;
|
·
|
withdrawal
of clinical trial participants;
|
·
|
costs
of related litigation;
|
·
|
diversion
of our management’s time and
attention;
|
·
|
substantial
monetary awards to patients or other
claimants;
|
·
|
the
inability to commercialize drug candidates;
and
|
·
|
increased
difficulty in raising required additional funds in the private and
public
capital markets.
|
We
currently have product liability insurance relating to our ongoing clinical
trials. We intend to expand such coverage to include the sale of commercial
drugs if marketing approval is obtained for any of our drug candidates. However,
insurance coverage is increasingly expensive. We may not be able to maintain
insurance coverage at a reasonable cost and we may not be able to obtain
insurance coverage that will be adequate to satisfy any liability that may
arise.
We
employ the use at our laboratories of certain chemical and biological agents
and
compounds that may be deemed hazardous and we are therefore subject to
various environmental
laws and regulations. Compliance with these laws and regulations may result
in
significant costs, which could materially reduce our ability to become
profitable.
We
use
hazardous materials, including chemicals and biological agents and compounds
that could be dangerous to human health and safety or the environment. As
appropriate, we safely store these materials and wastes resulting from their
use
at our laboratory facility pending their ultimate use or disposal. We contract
with a third party to properly dispose of these materials and wastes. We are
subject to a variety of federal, state and local laws and regulations governing
the use, generation, manufacture, storage, handling and disposal of these
materials and wastes. We may incur significant costs complying with
environmental laws and regulations adopted in the future.
If
we use biological and hazardous materials in a manner that causes injury, we
may
be liable for damages.
Our
R&D and manufacturing activities will involve the use of biological and
hazardous materials. Although we believe our safety procedures for handling
and
disposing of these materials comply with federal, state and local laws and
regulations, we cannot entirely eliminate the risk of accidental injury or
contamination from the use, storage, handling or disposal of these materials.
We
carry limited biological or hazardous waste insurance coverage, workers
compensation or property and casualty and general liability insurance policies,
which include coverage for damages and fines arising from biological or
hazardous waste exposure or contamination. Accordingly, in the event of
contamination or injury, we could be held liable for damages or penalized with
fines in an amount exceeding our resources and insurance coverages, and our
clinical trials or regulatory approvals could be suspended.
With
our limited resources, we may be unable to effectively manage
growth.
As
of
August 7, 2007, we have 38 employees and several consultants and independent
contractors. We intend to expand our operations and staff materially. Our
new
employees will include a number of key managerial, technical, financial,
R&D
and operations personnel who will not have been fully integrated into our
operations. We expect the expansion of our business to place a significant
strain on our limited managerial, operational and financial resources. We
will
be required to expand our operational and financial systems significantly
and to
expand, train and manage our work force in order to manage the expansion
of our
operations. Our failure to fully integrate our new employees into our operations
could have a material adverse effect on our business, prospects, financial
condition and results of operations.
We
may not be able to attract and retain highly skilled
personnel.
Our
ability to attract and retain highly skilled personnel is critical to our
operations and expansion. We face competition for these types of personnel
from
other pharmaceutical companies and more established organizations, many of
which
have significantly larger operations and greater financial, technical, human
and
other resources than us. We may not be successful in attracting and retaining
qualified personnel on a timely basis, on competitive terms, or at all. If
we
are not successful in attracting and retaining these personnel, our business,
prospects, financial condition and results of operations will be materially
and
adversely affected.
We
depend upon our senior management and key consultants and their loss or
unavailability could put us at a competitive
disadvantage.
We
currently depend upon the efforts and abilities of our management team, as
well
as the services of several key consultants. The loss or unavailability of the
services of any of these individuals for any significant period of time could
have a material adverse effect on our business, prospects, financial condition
and results of operations. We have not obtained, do not own, nor are we the
beneficiary of, key-person life insurance.
Political
or social factors may delay or impair our ability to market
our drug
candidates.
Drugs
developed to treat diseases caused by or to combat the threat of bio-terrorism
will be subject to changing political and social environments. The political
and
social responses to bio-terrorism have been highly charged and unpredictable.
Political or social pressures may delay or cause resistance to bringing our
drug
candidates to market or limit pricing of our drug candidates, which would harm
our business. Changes to favorable laws, such as the Project BioShield Act,
could have a material adverse effect on our ability to generate revenue and
could require us to reduce the scope of or discontinue our
operations.
There
may be conflicts of interest among our officers, directors and
stockholders.
Our
executive officers and directors and their affiliates may engage in other
activities and have interests in other entities on their own behalf or on behalf
of other persons. Neither we nor any of our stockholders will have any rights
in
these ventures or their income or profits. In particular:
·
|
Our
executive officers or directors or their affiliates may have an economic
interest in, or other business relationship with, partner companies
that
invest in us.
|
·
|
Our
executive officers or directors or their affiliates may have interests
in
entities that provide products or services to
us.
|
In
any of
these cases:
·
|
Our
executive officers or directors may have a conflict between our current
interests and their personal financial and other interests in another
business venture.
|
·
|
Our
executive officers or directors may have conflicting fiduciary duties
to
us and the other entity.
|
·
|
The
terms of transactions with the other entity may not be subject to
arm’s
length negotiations and therefore may be on terms less favorable
to us
than those that could be procured through arm’s length
negotiations.
|
We
expect to enter into contracts with various U.S. government
agencies. U.S.
government agencies have special contracting requirements that give the
government agency various rights or impose on the other party various
obligations that can make the contracts less favorable to the non-government
party. Consequently, if a large portion of our revenue is attributable to these
contracts, our business may be adversely affected should the governmental
parties exercise any of these additional rights or impose any of these
additional obligations.
We
intend
to enter into contracts with various U.S. government agencies. Substantially
all
of our revenue may be derived from government contracts and grants. In
contracting with government agencies, we will be subject to various federal
contract requirements. Future sales to U.S. government agencies will depend,
in
part, on our ability to meet these requirements, certain of which we may not
be
able to satisfy.
U.S.
government contracts typically contain unfavorable termination provisions and
are subject to audit and modification by the government at its sole discretion,
which subjects us to additional risks. These risks include the ability of the
U.S. government to unilaterally:
·
|
suspend
or prevent us for a set period of time from receiving new contracts
or
extending existing contracts based on violations or suspected violations
of laws or regulations;
|
·
|
terminate
our existing contracts;
|
·
|
reduce
the scope and value of our existing
contracts;
|
·
|
audit
and object to our contract-related costs and fees, including allocated
indirect costs;
|
·
|
control
and potentially prohibit the export of our drug candidates;
and
|
·
|
change
certain terms and conditions in our
contracts.
|
The
U.S.
government may terminate any of its contracts with us either for its convenience
or if we default by failing to perform in accordance with the contract schedule
and terms. Termination for convenience provisions generally enable us to recover
only our costs incurred or committed, and settlement expenses and profit on
the
work completed prior to termination. Termination for default provisions do
not
permit these recoveries and make us liable for excess costs incurred by the
U.S.
government in procuring undelivered items from another source.
As
a U.S.
government contractor, we may become subject to periodic audits and reviews.
Based on the results of these audits, the U.S. government may adjust our
contract-related costs and fees, including allocated indirect costs. As part
of
any such audit or review, the U.S. government may review the adequacy of, and
our compliance with, our internal control systems and policies, including those
relating to our purchasing, property, compensation and/or management information
systems. In addition, if an audit or review uncovers any improper or illegal
activity, we may be subject to civil and criminal penalties and administrative
sanctions, including termination of our contracts, forfeiture of profits,
suspension of payments, fines and suspension or prohibition from doing business
with the U.S. government. We could also suffer serious harm to our reputation
if
allegations of impropriety were made against us. In addition, under U.S.
government purchasing regulations, some of our costs, including most financing
costs, amortization of intangible assets, portions of our R&D costs and some
marketing expenses, may not be reimbursable or allowed under our contracts.
Further, as a U.S. government contractor, we may become subject to an increased
risk of investigations, criminal prosecution, civil fraud, whistleblower
lawsuits and other legal actions and liabilities to which purely private sector
companies are not.
We
may fail to obtain contracts to supply the U.S. government, and we may be unable
to commercialize our drug
candidates.
The
U.S.
government has undertaken commitments to help secure improved countermeasures
against bio-terrorism. The process of obtaining government contracts is lengthy
and uncertain, and we must compete for each contract. Moreover, the award of
one
government contract does not necessarily secure the award of future contracts
covering the same drug. If the U.S. government makes significant future contract
awards for the supply of its emergency stockpile to our competitors, our
business will be harmed and it is unlikely that we will be able to ultimately
commercialize our competitive drug candidate.
In
addition, the determination of when and whether a drug is ready for large scale
purchase and potential use will be made by the government through consultation
with a number of government agencies, including the FDA, the NIH, the Centers
for Disease Control, and the Department of Homeland Security. Congress has
approved measures to accelerate the development of bio-defense drugs through
NIH
funding, the review process by the FDA and the final government procurement
contracting authority. While this may help speed the approval of our drug
candidates, it may also encourage competitors to develop their own drug
candidates.
The
market for treating exposure to nuclear or radiological events is
uncertain.
We
do not
believe that any drug has been approved and commercialized for treatment of
large-scale radiation injury. Indeed, the incidence of large-scale exposure
has
been low. Accordingly, even if Protectan CBLB502 is approved by regulatory
authorities, we cannot predict with certainty the size of the market, if
any.
The
U.S. government’s commitment to funding the development of radioprotectant drugs
under the Project BioShield Act is uncertain, and if it decides to curtail
or
limit allocations to radioprotectant drugs, it would materially harm our results
of operations.
The
potential market for Protectan CBLB502 is largely dependent on the size of
procurement contracts, if any, from the U.S. government. While a number of
federal contracts have historically been made by the U.S. government under
the
Project BioShield Act of 2004 to procure drugs to treat indications such as
anthrax exposure and certain long-term effects of radiation exposure, we are
unaware of any significant contract for drugs to treat radiation injury due
to
exposure to radiation. Any decision by the U.S. government to enter into a
commitment to purchase Protectan CBLB502 prior to FDA approval could possibly
occur if there are serious threats or accidents, but this possibility is remote
and beyond our control. Our development plans and timelines may vary
substantially depending on whether we receive such a commitment and the size
of
such commitment prior to FDA approval. In addition, even if Protectan CBLB502
is
approved by regulatory authorities, we cannot guarantee that we will receive
any
procurement contracts or that any such contract would be profitable to us or
that Protectan CBLB502 will achieve market acceptance by the general
public.
If
the U.S. government fails to continue funding
bio-defense drug
candidate development efforts or fails to purchase sufficient quantities of
any
future bio-defense drug candidate, we may be unable to generate sufficient
revenues to continue operations.
We
hope
to receive funding from the U.S. government for the development of our
bio-defense drug candidates. Changes in government budgets and agendas, however,
may result in future funding being decreased and de-prioritized, and government
contracts typically contain provisions that permit cancellation in the event
that funds are unavailable to the government agency. Furthermore, we cannot
be
certain of the timing of any future funding, and substantial delays or
cancellations of funding could result from protests or challenges from third
parties. If the U.S. government fails to continue to adequately fund R&D
programs, we may be unable to generate sufficient revenues to continue
operations. Similarly, if we develop a drug candidate that is approved by the
FDA, but the U.S. government does not place sufficient orders for this drug,
our
future business may be harmed.
Risks
Related to the Biotechnology/Biopharmaceutical Industry
The
biotechnology and biopharmaceutical industries are characterized by rapid
technological developments and a high degree of competition. We may be unable
to
compete with enterprises equipped with more substantial resources than
us.
The
biotechnology and biopharmaceutical industries are characterized by rapid
technological developments and a high degree of competition based primarily
on
scientific and technological factors. These factors include the availability
of
patent and other protection for technology and products, the ability to
commercialize technological developments and the ability to obtain government
approval for testing, manufacturing and marketing. We compete with specialized
biopharmaceutical firms in the United States, Europe and elsewhere, as well
as a
growing number of large pharmaceutical companies that are applying biotechnology
to their operations. Many biopharmaceutical companies have focused their
development efforts in the human therapeutics area, including cancer. Many
major
pharmaceutical companies have developed or acquired internal biotechnology
capabilities or made commercial arrangements with other biopharmaceutical
companies. These companies, as well as academic institutions, government
agencies and private research organizations, also compete with us in recruiting
and retaining highly qualified scientific personnel and consultants. Our ability
to compete successfully with other companies in the pharmaceutical field will
also depend to a considerable degree on the continuing availability of capital
to us.
We
are
aware of numerous products under development or manufactured by competitors
that
are used for the prevention or treatment of certain diseases we have targeted
for drug development. Various companies, such as Hollis-Eden, are developing
biopharmaceutical products that potentially directly compete with our
non-medical application drug candidates even though their approach to such
treatment is different.
We
expect
that our drug candidates under development and in clinical trials will also
address major markets within the cancer sector. Our competition will be
determined in part by the potential indications for which drugs are developed
and ultimately approved by regulatory authorities. Additionally, the timing
of
the market introduction of some of our potential drugs or of competitors’
products may be an important competitive factor. Accordingly, the relative
speed
with which we can develop drugs, complete pre-clinical testing, clinical trials,
approval processes and supply commercial quantities to market are important
competitive factors. We expect that competition among drugs approved for sale
will be based on various factors, including product efficacy, safety,
reliability, availability, price and patent protection.
The
successful development of biopharmaceuticals is highly
uncertain. A
variety of factors including, pre-clinical study results or regulatory
approvals, could cause us to abandon development of our drug
candidates.
Successful
development of biopharmaceuticals is highly uncertain and is dependent on
numerous factors, many of which are beyond our control. Products that appear
promising in the early phases of development may fail to reach the market for
several reasons including:
·
|
pre-clinical
study results that may show the product to be less effective than
desired
(e.g., the study failed to meet its primary objectives) or to have
harmful
or problematic side effects;
|
·
|
failure
to receive the necessary regulatory approvals or a delay in receiving
such
approvals. Among other things, such delays may be caused by slow
enrollment in clinical studies, length of time to achieve study endpoints,
additional time requirements for data analysis or a BLA, preparation,
discussions with the FDA, an FDA request for additional pre-clinical
or
clinical data or unexpected safety or manufacturing
issues;
|
·
|
manufacturing
costs, pricing or reimbursement issues, or other factors that make
the
product not economical; and
|
·
|
the
proprietary rights of others and their competing products and technologies
that may prevent the product from being
commercialized.
|
Success
in pre-clinical and early clinical studies does not ensure that large-scale
clinical studies will be successful. Clinical results are frequently susceptible
to varying interpretations that may delay, limit or prevent regulatory
approvals. The length of time necessary to complete clinical studies and to
submit an application for marketing approval for a final decision by a
regulatory authority varies significantly from one product to the next, and
may
be difficult to predict.
Risks
Related to the Securities Markets and Investments in Our Common
Stock
The
price of our common stock may be subject
to extreme price fluctuations that could adversely affect your
investment.
The
trading price of our common stock may fluctuate substantially. The price of
the
common stock that will prevail in the market may be higher or lower than the
price you have paid, depending on many factors, some of which are beyond our
control and may not be related to our operating performance. These fluctuations
could cause you to lose part or all of your investment in our common stock.
Factors that could cause fluctuations include, but are not limited to, the
following:
·
|
price
and volume fluctuations in the overall stock market from time to
time;
|
·
|
fluctuations
in stock market prices and trading volumes of similar
companies;
|
·
|
actual
or anticipated changes in our earnings or fluctuations in our operating
results or in the expectations of securities
analysts;
|
·
|
general
economic conditions and trends;
|
·
|
major
catastrophic events;
|
·
|
sales
of large blocks of our stock;
|
·
|
departures
of key personnel;
|
·
|
changes
in the regulatory status of our drug candidates, including results
of our
clinical trials;
|
·
|
events
affecting the Cleveland Clinic, Roswell Park Cancer Institute, ChemBridge
Corporation or any other
collaborators;
|
·
|
announcements
of new products or technologies, commercial relationships or other
events
by us or our competitors;
|
·
|
regulatory
developments in the United States and other
countries;
|
·
|
failure
of our common stock to be listed or quoted on the Nasdaq Capital
Market,
other national market system or any national stock
exchange;
|
·
|
changes
in accounting principles; and
|
·
|
discussion
of us or our stock price by the financial and scientific press and
in
online investor communities.
|
In
the
past, following periods of volatility in the market price of a company’s
securities, securities class action litigation has often been brought against
that company. Due to the potential volatility of our stock price, we may
therefore be the target of securities litigation in the future. Regardless
of
its outcome, securities litigation could result in substantial costs and divert
management’s attention and resources from our business.
We
may incur increased costs as a result of recently enacted and proposed changes
in laws and regulations relating to corporate governance
matters.
Recently
enacted and proposed changes in the laws and regulations affecting public
companies, including the provisions of the Sarbanes-Oxley Act of 2002 and rules
adopted or proposed by the Securities and Exchange Commission, or SEC, and
by
the Nasdaq Capital Market, will result in increased costs to us as we evaluate
the implications of these laws and regulations and respond to their
requirements. These laws and regulations could make it more difficult or more
costly for us to obtain certain types of insurance, including director and
officer liability insurance, and we may be forced to accept reduced policy
limits and coverage or incur substantially higher costs to obtain the same
or
similar coverage. The impact of these events could also make it more difficult
for us to attract and retain qualified persons to serve on our board of
directors, our board committees or as executive officers. We are presently
evaluating and monitoring developments with respect to these laws and
regulations and cannot predict or estimate the amount or timing of additional
costs we may incur to respond to their requirements.
There
is no assurance of an established public trading
market for
our common stock.
A
regular
trading market for our common stock may not be established or sustained in
the
future. Market prices for our common stock will be influenced by a number of
factors, including:
·
|
the
issuance of new equity securities pursuant to a future
offering;
|
·
|
changes
in interest rates;
|
·
|
competitive
developments, including announcements by competitors of new products
or
services or significant contracts, acquisitions, strategic partnerships,
joint ventures or capital
commitments;
|
·
|
variations
in quarterly operating results;
|
·
|
change
in financial estimates by securities
analysts;
|
·
|
the
depth and liquidity of the market for our common
stock;
|
·
|
investor
perceptions of our company and the biopharmaceutical and biotech
industries in general; and
|
·
|
general
economic and other national
conditions.
|
A
limited public trading market may cause volatility in the price of our common
stock that
could adversely affect your investment.
Our
common stock has been approved for quotation on the Nasdaq Capital Market and
for listing on the Boston Stock Exchange. The quotation of our common stock
on
the Nasdaq Capital Market and its listing on the Boston Stock Exchange does
not
assure that a meaningful, consistent and liquid trading market will exist,
and
in recent years, the market has experienced extreme price and volume
fluctuations that have particularly affected the market prices of many smaller
companies like us. Our common stock is thus subject to this volatility. Sales
of
substantial amounts of common stock, or the perception that such sales might
occur, could adversely affect the prevailing market prices of our common stock.
Our stock price may decline substantially in a short time and our stockholders
could suffer losses or be unable to liquidate their holdings.
Our
executive officers and directors
control our business and may make decisions that are not in our stockholders’
best interests.
As
of August 7, 2007, our officers and directors, in the aggregate,
beneficially owned (calculated in accordance with Rule 13d-3 under the Exchange
Act) approximately 31.43% of the outstanding shares of our voting stock.
As a
result, such persons, acting together, have the ability to substantially
influence all matters submitted to our stockholders for approval, including
the
election and removal of directors and any merger, consolidation or sale of
all
or substantially all of our assets, and to control our management and affairs.
Accordingly, such concentration of ownership may have the effect of delaying,
deferring or preventing a change in discouraging a potential acquirer from
making a tender offer or otherwise attempting to obtain control of our business,
even if such a transaction would be beneficial to other stockholders. Our
founders and executive officers together with two of our stockholders, the
Cleveland Clinic Foundation and ChemBridge Corporation, have agreed that
in the
event of a liquidation, dissolution, bankruptcy or receivership of the Company
during the 24 months after July 20, 2006, the effective date of our initial
public offering, or upon our common stock becoming a “Covered Security” under
the National Securities Markets Improvement Act of 1996, they will subordinate
their right to receive any proceeds until each other holder of our common
stock
has received an amount equal to the number of shares held multiplied by the
public offering price. Such founders, officers and stockholders have also
agreed
during the same 24-month period not to sell, transfer or otherwise dispose
of
their shares in a tender offer, merger or other sale transaction unless such
transaction is approved by a majority of the other
stockholders.
Sales
of additional equity securities may adversely affect the market price of our
common stock and your rights in us may be reduced.
We
expect
to continue to incur drug development and selling, general and administrative
costs, and in order to satisfy our funding requirements, we may need to sell
additional equity securities, which may be subject to certain registration
rights. The sale or the proposed sale of substantial amounts of our common
stock
in the public markets may adversely affect the market price of our common stock
and our stock price may decline substantially. Our stockholders may experience
substantial dilution and a reduction in the price that they are able to obtain
upon sale of their shares. Also, any new securities issued may have greater
rights, preferences or privileges than our existing common
stock.
Additional
authorized shares of common stock available for issuance may adversely affect
the market.
We
are
authorized to issue 40,000,000 shares of our common stock and 10,000,000
shares
of our preferred stock. As of August 7, 2007, we had 12,139,943 shares of
our common stock issued and outstanding, excluding shares issuable upon the
exercise of our outstanding warrants and options, and 4,579,010 shares of
our
common stock issuable upon conversion of our Series B Preferred. As
of August 7, 2007, we had outstanding 957,490 options to purchase shares of
our common stock with exercise prices ranging from $0.66 to $10.48 per share
of
which 656,430 options have vested or will vest within 60 days of August 7,
2007,
and outstanding warrants to purchase 3,456,768
shares
of
our common stock with exercise prices ranging from $1.13 to $11.00 per share,
all of which are exercisable within 60 days of August 7, 2007. To the extent
the
shares of common stock are issued or options and warrants are exercised,
holders
of our common stock will experience dilution. In addition, in the event of
any
future financing of equity securities or securities convertible into or
exchangeable for, common stock, holders of our common stock may experience
dilution.
Shares
eligible for future sale may adversely affect the
market.
From
time
to time, certain of our stockholders may be eligible to sell all or some of
their shares of common stock by means of ordinary brokerage transactions in
the
open market pursuant to Rule 144 promulgated under the Securities Act of 1933,
as amended, or Securities Act, subject to certain limitations. In general,
pursuant to Rule 144, a stockholder (or stockholders whose shares are
aggregated) who has satisfied a one-year holding period may, under certain
circumstances, sell within any three-month period a number of securities which
does not exceed the greater of 1% of the then outstanding shares of common
stock
or the average weekly trading volume of the class during the four calendar
weeks
prior to such sale. Rule 144 also permits, under certain circumstances, the
sale
of securities, without any limitations, by a non-affiliate of our company who
has satisfied a two-year holding period. Any substantial sale of our common
stock pursuant to Rule 144 or pursuant to any resale prospectus may have an
adverse effect on the market price of our securities.
An
aggregate of 6,153,601 shares of common stock have been registered with the
SEC.
A total of up to an additional 9,375,095 shares of common stock are being
registered pursuant to the registration statement of which this prospectus
forms
a part. All of these shares would otherwise be eligible for future sale under
Rule 144 after passage of the minimum one-year holding period for holders who
are not officers, directors or affiliates of the company.
Because
we will not pay cash dividends on our common stock, stockholders may have to
sell shares in order to realize their investment.
We
have
not paid any cash dividends on our common stock and do not intend to pay cash
dividends on our common stock in the foreseeable future. We will pay dividends
on our Series B Preferred at the annual rate of 5% in two semi-annual
installments. We intend to retain future earnings, if any, for reinvestment
in
the development and expansion of our business. Any credit agreements, which
we
may enter into with institutional lenders, may restrict our ability to pay
dividends. Whether we pay cash dividends in the future will be at the discretion
of our board of directors and will be dependent upon our financial condition,
results of operations, capital requirements and any other factors that the
board
of directors decides is relevant.
We
are able to issue shares of preferred stock with rights superior to those of
holders of our common stock. Such issuances can dilute the tangible net book
value of shares of our common stock.
Our
Certificate of Incorporation provides for the authorization of 10,000,000 shares
of “blank check” preferred stock. Of such authorized shares, 3,750,000 of these
shares were previously designated as Series A Participating Convertible
Preferred Stock, or Series A Preferred Stock, and 4,579,010 of these shares
have
been designated as Series B Preferred. All of the outstanding Series A Preferred
Stock converted into common stock in connection with our initial public
offering. Pursuant to our Certificate of Incorporation, our board of directors
is authorized to issue such “blank check” preferred stock with rights that are
superior to the rights of stockholders of our common stock, at a purchase price
then approved by our board of directors, which purchase price may be
substantially lower than the market price of shares of our common stock, without
stockholder approval.
This
prospectus contains forward-looking statements. We have based these
forward-looking statements on our current expectations and projections about
future events. These statements include, but are not limited to:
·
|
statements
as to the anticipated timing of clinical tests and other business
developments;
|
·
|
statements
as to the development of new products and the commercialization of
products;
|
·
|
expectations
as to the adequacy of our cash balances to support our operations
for
specified periods of time and as to the nature and level of cash
expenditures; and
|
·
|
expectations
as to the market opportunities for our drug candidates as well as
our
ability to take advantage of those
opportunities.
|
These
statements may be found in the sections of this prospectus entitled “Prospectus
Summary,” “Risk Factors”, “Management’s Discussion and Analysis of Financial
Condition and Results of Operations”, and “Business,” as well as in this
prospectus generally. Actual results could differ materially from those
anticipated in these forward-looking statements as a result of various factors,
including all the risks discussed in “Risk Factors” and elsewhere in this
prospectus.
In
addition, statements that use the terms “can,” “continue,” “could,” “may,”
“potential,” “predicts,” “should,” “will,” “believe,” “expect,” “plan,”
“intend,” “estimate,” “anticipate,” “scheduled” and similar expressions are
intended to identify forward-looking statements. All forward-looking statements
in this prospectus reflect our current views about future events and are based
on assumptions and are subject to risks and uncertainties that could cause
our
actual results to differ materially from future results expressed or implied
by
the forward-looking statements. Many of these factors are beyond our ability
to
control or predict. Forward-looking statements do not guarantee future
performance and involve risks and uncertainties. Actual results will differ,
and
may differ materially, from projected results as a result of certain risks
and
uncertainties. The risks and uncertainties include, without limitation, those
described under “Risk Factors” and elsewhere in this prospectus, and include,
among others, the following:
·
|
our
limited operating history and ability to continue as a going
concern;
|
·
|
our
ability to successfully develop and commercialize
products;
|
·
|
a
lengthy approval process and the uncertainty of the FDA and other
government regulatory requirements;
|
·
|
clinical
trials that fail to demonstrate the safety and effectiveness of our
applications or therapies;
|
·
|
the
degree and nature of our
competition;
|
·
|
our
ability to employ and retain qualified employees;
and
|
·
|
the
other factors referenced in this prospectus, including, without
limitation, under the section entitled “Risk Factors,” “Management’s
Discussion and Analysis of Financial Condition and Results of Operations,”
and “Business.”
|
These
risks are not exhaustive. Other sections of this prospectus may include
additional factors that could adversely impact our business and financial
performance. Moreover, we operate in a very competitive and rapidly changing
environment. New risk factors emerge from time to time, and it is not possible
for our management to predict all risk factors, nor can we assess the impact
of
all factors on our business or to the extent to which any factor, or combination
of factors, may cause actual results to differ materially from those contained
in any forward-looking statements. Given these risks and uncertainties,
investors should not place undue reliance on forward-looking statements as
a
prediction of actual results. These forward-looking statements are made only
as
of the date of this prospectus. Except for our ongoing obligation to disclose
material information as required by federal securities laws, we do not intend
to
update you concerning any future revisions to any forward-looking statements
to
reflect events or circumstances occurring after the date of this
prospectus.
All
proceeds from the sale of the shares offered by this prospectus will be received
by the selling stockholders, although we will receive proceeds from the exercise
of the Warrants into common stock for cash. We intend to use the proceeds
from the exercise of the Warrants for general corporate and working capital
purposes.
We
have
neither declared nor paid any cash dividend on our common stock, and we
currently intend to retain future earnings, if any, to finance the expansion
of
our business, and therefore do not expect to pay any cash dividends in the
foreseeable future. The decision whether to pay cash dividends on our common
stock will be made by our board of directors, in their discretion, and will
depend on our financial condition, operating results, capital requirements
and
other factors that our board of directors considers significant.
Shares
of
our Series B Preferred entitle their holders to an annual dividend payment
at
the rate of 5% payable in semi-annual installments until the earlier of
conversion into shares of common stock or the maturity date.
Since
July 21, 2006, our common stock has been quoted on the Nasdaq Capital Market
under the symbol “CBLI” and listed on the Boston Stock Exchange under the
symbols “CFB” and currently “CBLI”. The following table sets forth, for the
period indicated, the high and low closing sale prices for our common stock
as
reported by the Nasdaq Capital Market.
|
|
High
|
|
Low
|
|
Third
Quarter (through August 7, 2007) |
|
$ |
10.94 |
|
$ |
9.30 |
|
Second Quarter
|
|
$
|
11.50
|
|
$
|
8.28
|
|
First
Quarter
|
|
$
|
13.38
|
|
$
|
4.56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fourth
Quarter
|
|
$
|
5.87
|
|
$
|
4.25
|
|
Third
Quarter (from July 21, 2006)
|
|
$
|
6.00
|
|
$
|
4.17
|
|
On August
7, 2007, the last reported sales price of our common stock as reported on
the
Nasdaq Capital Market was $10.23
per
share. As of August 7, 2007, we had 51 holders of record of our common
stock, and 80 holders of record of our Series B Preferred.
The
following table sets forth the actual capitalization of the company as of
December 31, 2006. This table should be read in conjunction with our Financial
Statements and the Notes thereto, “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” and the other financial
information included elsewhere in this prospectus.
|
|
Actual
|
|
Long-term
obligations, net of current portion
|
|
$
|
50,000
|
|
Convertible
notes payable
|
|
|
-
|
|
Accrued
interest notes payable
|
|
|
-
|
|
Series
A convertible preferred stock; 10,000,000 shares authorized, 0
shares
outstanding
|
|
|
-
|
|
Additional
paid-in capital preferred shares
|
|
|
-
|
|
Common
stock, $0.005 par value: 40,000,000 shares authorized, 11,826,389
shares
outstanding
|
|
|
59,132
|
|
Additional
paid-in capital
|
|
|
18,314,097
|
|
Accumulated
deficit
|
|
|
(12,775,910
|
)
|
Other
comprehensive loss
|
|
|
(4,165
|
)
|
Total
stockholders’ equity
|
|
|
5,593,154
|
|
Total
capitalization
|
|
$
|
5,643,154
|
|
The
above
table excludes as of December 31, 2006:
·
|
483,490
shares of common stock issuable upon exercise of outstanding options
with
exercise prices ranging from $0.66 to $6.00 per
share;
|
·
|
814,424
shares of common stock issuable upon exercise of warrants with exercise
prices ranging from $1.13 to $8.70 per share;
and
|
·
|
1,955,000
shares of common stock reserved for issuance under our 2006 Equity
Incentive Plan.
|
We
have
derived the following summary financial data for the years ended
December 31, 2006, December 31, 2005 and December 31, 2004 from
our audited financial statements and the summary financial data for the three
months ended March 31, 2007 and March 31, 2006 from our unaudited interim
financial statements. In the opinion of our management, this information
contains all adjustments necessary for a fair presentation of our results of
operations and financial condition for such periods. The information below
is
not necessarily indicative of the results of future operations and should be
read in conjunction with “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and our financial statements and related
notes included elsewhere in this prospectus.
Statement
of Operations Data
|
|
Three
Months Ended
March
31, 2007
|
|
Three
Months Ended
March
31, 2006
|
|
Fiscal
year Ended December 31, 2006
|
|
Fiscal
year Ended December 31, 2005
|
|
Fiscal
year Ended December 31, 2004
|
|
Total
Revenues
|
|
$
|
321,445
|
|
$
|
578,424
|
|
$
|
1,708,214
|
|
$
|
1,138,831
|
|
$
|
636,341
|
|
Operating
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and Development
|
|
$
|
3,528,600
|
|
$
|
1,502,364
|
|
$
|
6,989,804
|
|
$
|
2,640,240
|
|
$
|
2,892,967
|
|
General
and Administrative
|
|
$
|
994,319
|
|
$
|
352,898
|
|
$
|
2,136,511
|
|
$
|
986,424
|
|
$
|
262,817
|
|
Income
(Loss) from Operations
|
|
$
|
(4,201,474
|
)
|
$
|
(1,276,838
|
)
|
$
|
(7,418,101
|
)
|
$
|
(2,487,833
|
)
|
$
|
(2,519,443
|
)
|
Net
Income (Loss)
|
|
$
|
(4,106,133
|
)
|
$
|
(1,252,145
|
)
|
$
|
(7,222,644
|
)
|
$
|
(2,386,455
|
)
|
$
|
(2,523,142
|
)
|
Balance
Sheet Data
|
|
March
31,
2007
|
|
December
31, 2006
|
|
December
31, 2005
|
|
December
31, 2004
|
|
Cash
and Cash Equivalents
|
|
$
|
11,968,017
|
|
$
|
3,061,993
|
|
$
|
1,206,462
|
|
$
|
94,741
|
|
Total
Assets
|
|
$
|
32,497,045
|
|
$
|
6,416,529
|
|
$
|
4,253,333
|
|
$
|
382,219
|
|
Total
Liabilities
|
|
$
|
1,639,271
|
|
$
|
823,375
|
|
$
|
696,729
|
|
$
|
756,433
|
|
Total
Stockholders’ Equity
|
|
$
|
30,857,774
|
|
$
|
5,593,154
|
|
$
|
3,556,604
|
|
$
|
(374,214
|
)
|
CONDITION
AND RESULTS OF OPERATIONS
This
management's discussion and analysis of financial condition and results of
operations and other portions of this filing contain forward-looking information
that involves risks and uncertainties. Our actual results could differ
materially from those anticipated by the forward-looking information. Factors
that may cause such differences include, but are not limited to, availability
and cost of financial resources, results of our R&D efforts and clinical
trials, product demand, market acceptance and other factors discussed in the
Company's other SEC filings under the heading “Risk Factors”. This management's
discussion and analysis of financial condition and results of operations should
be read in conjunction with our financial statements and the related notes
included elsewhere in this filing and in our
Annual Report on Form 10-KSB for the year ended December 31,
2006.
Overview
General
Overview
We
commenced business operations in June 2003. We are a drug discovery and
development company leveraging our proprietary scientific research and
discoveries relating to programmed cell death to treat cancer and protect normal
tissues from exposure to radiation and other stresses.
Technology
Our
development efforts are based on discoveries made in connection with the
investigation of the cell-level process known as apoptosis. Apoptosis is a
highly specific and tightly regulated form of cell death that can occur in
response to external events such as exposure to radiation, toxic chemicals
or
internal stresses. Apoptosis is a major determinant of tissue damage caused
by a
variety of medical conditions including cerebral stroke, heart attack and acute
renal failure. Conversely, apoptosis is also an important protective mechanism
that allows the body to shed itself of defective cells, which otherwise can
cause cancerous growth.
Research
has demonstrated that apoptosis is sometimes suppressed naturally. For example,
most cancer cells develop resistance to apoptotic death caused by drugs or
natural defenses of the human body. Our research is geared towards identifying
the means by which apoptosis can be affected and manipulated depending on the
need.
If
the
need is to protect healthy tissues against an external event such as exposure
to
nuclear radiation, we focus our research efforts on attempting to temporarily
and reversibly suppress apoptosis in those healthy tissues, thereby imitating
the apoptotic-resistant tendencies displayed by cancer cells. A drug with this
effect would also be useful in ameliorating the often severe side effects of
anticancer drugs and radiation that cause collateral damage to healthy tissues
during cancer treatment. Because the severe side effects of anticancer drugs
and
radiation often limit their dosage in cancer patients, an apoptosis suppressant
drug may enable a more aggressive treatment regimen using anticancer drugs
and
radiation and thereby increase their effectiveness.
On
the
other hand, if the need is to destroy cancerous cells, we focus our research
efforts on restoring apoptotic mechanisms that are suppressed in tumors, so
that
those cancerous cells will once again become vulnerable to apoptotic death.
In
this regard, we believe that our drug candidates could have significant
potential for improving, and becoming vital to, the treatment of cancer
patients.
Products
In Development
Protectans
Protectans
are modified proteins of microbes that protect cells from apoptosis, and have
a
broad spectrum of potential applications. These potential applications include
non-medical applications such as protection from exposure to radiation, whether
as a result of military or terrorist action or as a result of a nuclear
accident, as well as medical applications such as reducing cancer treatment
side
effects.
Curaxins
Curaxins
are small molecules that destroy tumor cells by simultaneously targeting two
regulators of apoptosis. Our initial test results indicate that Curaxins can
be
effective against a number of malignancies, including hormone refractory
prostate cancer, renal cell carcinoma, or RCC, (a highly fatal form of kidney
cancer), and soft-tissue sarcoma.
Financial
Overview
We
secured a $6,000,000 investment via a private placement of Series A Preferred
Stock in March 2005. On July 20, 2006, we sold 1,700,000 shares of common
stock in our initial public offering at $6.00 per share. The net proceeds from
this offering were approximately $8,300,000. Beginning July 21, 2006, our common
stock was listed on the Nasdaq Capital Market and on the Boston Stock Exchange
under the symbols “CBLI” and “CFB” respectively. In connection with the initial
public offering, we issued warrants to purchase 170,000 shares of common stock
to the underwriters and their designees. The warrants have an exercise price
of
$8.70 per share.
On
July
20, 2006, the effective date of our initial public offering, we issued 92,407
shares of common stock as accumulated dividends to the Series A preferred
stockholders. On the same date, all of our Series A Preferred shares
automatically converted on a one-for-one basis into 3,351,219 shares of common
stock, and notes of ours in the principal amount of $283,500 plus accrued
interest of $29,503 automatically converted into 124,206 shares of common stock.
In connection with their appointment to the Board, we issued to each of our
three new independent directors options to purchase 15,000 shares of common
stock with an exercise price of $6.00 per share.
On
September 21, 2006, the SEC declared effective a registration statement of
ours
registering up to 4,453,601 shares of common stock for resale from time to
time
by the selling stockholders named in the prospectus contained in the
registration statement. We will not receive any proceeds from the sale of the
underlying shares of common stock, although to the extent the selling
stockholders exercise warrants for the underlying shares of common stock, we
will receive the exercise price of those warrants, unless exercised pursuant
to
the cashless exercise provisions. The registration statement was filed to
satisfy registration rights that we had previously granted in connection
with our Series A Preferred transaction.
On
March
16, 2007, the Company entered into a Securities Purchase Agreement with various
Buyers, pursuant to which the Company agreed to sell to the Buyers Series B
Preferred convertible, upon stockholder approval, into an aggregate of 4,288,712
shares of common stock and Series B Warrants that are exercisable, upon
stockholder approval, for an aggregate of 2,144,356 shares of common stock.
The
aggregate purchase price paid by the Buyers for the Series B Preferred and
Series B Warrants was approximately $30,000,000. After related fees and
expenses, the Company received net proceeds of approximately $29,000,000. The
Company intends to use the proceeds for general corporate and working capital
purposes.
The
Series B Preferred have an initial conversion price of $7.00 per share, and
in
the event of a conversion at such conversion price, one share of Series B
Preferred would convert into one share of common stock. The Series B Warrants
have an exercise price of $10.36 per share, the closing bid price on the day
prior to the private placement. To the extent, however, that the conversion
price of the Series B Preferred or the exercise price of the Series B Warrants
is reduced as a result of certain anti-dilution protections, the number of
shares of common stock into which the Series B Preferred are convertible and
for
which the Series B Warrants are exercisable may increase.
The
Company also issued to the Agents in the private placement, as compensation
for
their services, Series B Preferred, Series B Warrants, and Series C Warrants.
The Agents collectively received Series B Preferred that are convertible, upon
stockholder approval, into an aggregate of 290,298 shares of common stock,
Series B Warrants that are exercisable, upon stockholder approval, for an
aggregate of 221,172 shares of the Company’s common stock, and Series C Warrants
that are exercisable, upon stockholder approval, for 267,074 shares of the
Company’s common stock. The Series C Warrants have an exercise price of $11.00
per share, and are also subject to anti-dilution protections that could increase
the number of shares of common stock for which they are
exercisable.
In
total,
upon stockholder approval, the securities issued in the private placement will
be convertible into, or exercisable for, up to approximately 7,211,612 shares
of
common stock, which amount is subject to adjustment in the event of certain
corporate events such as stock splits or issuances of securities at a price
below the conversion price of the Series B Preferred or exercise price of the
Warrants, as the case may be.
Critical
Accounting Policies and the Use of Estimates
Our
management's discussion and analysis of our financial condition and results
of
operations is based upon our financial statements, which have been prepared
in
accordance with generally accepted accounting principles in the U.S., or GAAP.
The preparation of these financial statements requires us to make estimates
and
judgments that affect the reported amounts of our assets, liabilities, revenues,
expenses and other reported disclosures. We base our estimates on historical
experience and on various other assumptions that we believe are reasonable
under
the circumstances.
Note
2 to
our financial statements includes disclosure of our significant accounting
policies. While all decisions regarding accounting policies are important,
we
believe that our policies regarding revenue recognition, R&D expenses,
intellectual property related costs and stock-based compensation expense could
be considered critical.
Revenue
Recognition
We
recognize revenue in accordance with Staff Accounting Bulletin No. 104, “Revenue
Recognition.” Our revenue sources consist of government grants, government
contracts and a commercial development contract.
Grant
revenue is recognized using two different methods depending on the type of
grant. Cost reimbursement grants require us to submit proof of costs incurred
that are invoiced by us to the government agency, which then pays the invoice.
In this case, grant revenue is recognized at the time of submitting the invoice
to the government agency.
Fixed-cost
grants require no proof of costs and are paid as a request for payment is
submitted for expenses. The grant revenue under these fixed cost grants is
recognized using a percentage-of-completion method, which uses assumptions
and
estimates. These assumptions and estimates are developed in coordination with
the principal investigator performing the work under the government fixed-cost
grants to determine key milestones, expenses incurred, and deliverables to
perform a percentage-of-completion analysis to ensure that revenue is
appropriately recognized. Critical estimates involved in this process include
total costs incurred and anticipated to be incurred during the remaining life
of
the grant.
Government
contract revenue is recognized periodically upon delivery of an invoice for
allowable R&D expenses according to the terms of the contract. Commercial
development revenues are recognized when the service or development is
delivered.
R&D
Expenses
R&D
costs are expensed as incurred. These expenses consist primarily of our
proprietary R&D efforts, including salaries and related expenses for
personnel, costs of materials used in our R&D, costs of facilities and costs
incurred in connection with our third-party collaboration efforts. Pre-approved
milestone payments made by us to third parties under contracted R&D
arrangements are expensed when the specific milestone has been achieved. As
of
March 31, 2007, $300,000 has been accrued for milestone payments relating to
the
filing of an IND with the FDA for Curaxin CBLC102 ($50,000) and commencing
Phase
II clinical trials for Curaxin CBLC102 ($250,000). The $50,000 milestone payment
was made on May 3, 2007 and the $250,000 is scheduled to be paid in August
2007
per the licensing agreement with CCF. Once a drug receives regulatory approval,
we will record any subsequent milestone payments in identifiable intangible
assets, less accumulated amortization, and amortize them evenly over the
remaining agreement term or the expected drug life cycle, whichever is shorter.
We expect our R&D expenses to increase as we continue to develop our drug
candidates.
Intellectual
Property Related Costs
We
capitalize costs associated with the preparation, filing and maintenance of
our
intellectual property rights. Capitalized intellectual property is reviewed
annually for impairment. If a patent application is approved, costs paid by
us
associated with the preparation, filing and maintenance of the patent will
be
amortized on a straight line basis over the shorter of 17 years or the
anticipated useful life of the patent. If the patent application is not
approved, costs paid by us associated with the preparation, filing and
maintenance of the patent will be expensed as part of selling, general and
administrative expenses at that time.
Through
March 31, 2007, we have capitalized $252,978 in expenditures associated with
the
preparation, filing and maintenance of certain of our patents, which were
incurred through the year ended December 31, 2006. We capitalized an
additional $93,193 relating to these costs incurred for the three months ended
March 31, 2007, totaling $346,171.
Stock-based
Compensation
We
value
stock-based compensation pursuant to the provisions of SFAS 123(R). Accordingly,
effective January 1, 2005, all stock-based compensation, including grants
of employee stock options, are recognized in the statement of operations based
on their fair values. We used the Black-Scholes valuation model to estimate
the
fair value of all options on the grant date.
The
Financial Accounting Standards Board (FASB) issued SFAS No. 123(R) requiring
all
share-based payments to employees, including grants of employee stock options,
be recognized in the statement of operations based at their fair values. The
Company values employee stock based compensation under the provisions of SFAS
123(R) and related interpretations.
The
fair
value of each stock option granted is estimated on the grant date using the
Black-Scholes option valuation model. The assumptions used to calculate the
fair
value of options granted are evaluated and revised, as necessary, to reflect
our
experience. We use a risk-free rate based on published rates from the St. Louis
Federal Reserve at the time of the option grant; assume a forfeiture rate of
zero; assume an expected dividend yield rate of zero based on our intent not
to
issue a dividend in the foreseeable future; use an expected life based on the
safe harbor method; and compute an expected volatility based on similar
high-growth, publicly-traded, biotechnology companies. Compensation expense
is
recognized using the straight-line amortization method for all stock-based
awards.
During
the quarter ended March 31, 2007, the Company granted 119,500 options pursuant
to stock award agreements to certain employees and key consultants.
The
Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, the Black-Scholes valuations model requires the
input
of highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of our options.
We
recognized a total of $375,301 and $233,032 in expense for options for the
quarter ended March 31, 2007, and 2006 respectively.
The
weighted average, estimated fair values of stock options granted during the
quarters ended March 31, 2007 and 2006 were $9.09 and $4.50,
respectively.
Impact
of Recently Issued Accounting Pronouncements
In
May
2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Correction - a
Replacement of APB Opinion No. 20 and FASB Statement No. 3” (“SFAS 154”). SFAS
154 changes the requirements for the accounting for, and the reporting of,
a
change in accounting principle. SFAS 154 requires that a voluntary change in
accounting principle be applied retroactively with all prior period financial
statements presented under the new accounting principle. SFAS 154 is effective
for accounting changes and corrections of errors in fiscal years beginning
after
December 15, 2005. We have determined that the adoption of the requirements
required under SFAS 154 will not have a material impact on the financial
statements of the company.
On
July
15, 2006 the FASB issued FIN48, Accounting for Uncertainty in Income Taxes
- An
Interpretation of FASB Statement No. 109. We do not expect that the adoption
of
the recognition and measurement requirements required under FIN48 to have a
material impact on the financial statements of the company.
In
December 2004, SFAS No. 123(R), “Share-Based Payment,” which addresses
the accounting for employee stock options, was issued. SFAS 123(R) revises
the
disclosure provisions of SFAS 123 and supersedes APB Opinion No. 25. SFAS
123(R) requires that the cost of all employee stock options, as well as other
equity-based compensation arrangements, be reflected in the financial statements
based on the estimated fair value of the awards. This statement is effective
for
all public entities as of the beginning of the first interim or annual reporting
period that begins after December 15, 2005. We expect the adoption of SFAS
123R to increase our reported net loss per share.
In
December 2004, the FASB issued SFAS 153, Exchanges of Nonmonetary Assets,
an amendment of APB Opinion No. 29 (SFAS 153). The guidance in APB
Opinion No. 29, Accounting for Nonmonetary Transactions, is based on the
principle that exchanges of nonmonetary assets should be measured based on
the
fair value of the assets exchanged. The guidance in APB Opinion
No. 29, however, included certain exceptions to that principle. SFAS 153
amends APB Opinion No. 29 to eliminate the exception for nonmonetary
exchanges of similar productive assets and replaces it with a general exception
for exchanges of nonmonetary assets that do not have commercial substance.
A
nonmonetary exchange has commercial substance if the future cash flows of the
entity are expected to change significantly as a result of the
exchange. SFAS 153 is effective for nonmonetary asset exchanges in fiscal
periods beginning after June 15, 2005. We do not believe that the
adoption of SFAS 153 will have a material impact on our results of operations
or
financial position.
Results
of Operations
Our
operating results for the past three fiscal years have been nominal. The
following table sets forth our statement of operations data for the quarters
ended March 31, 2007 and March 31, 2006, and the years ended December 31, 2006
and December 31, 2005, and should be read in conjunction with our financial
statements and the related notes appearing elsewhere in this
filing.
|
|
Quarter
Ended
March
31,
2007
|
|
Quarter
Ended March 31,
2006
|
|
Year
Ended December 31,
2006
|
|
Year
Ended December 31, 2005
|
|
|
|
(unaudited)
|
|
(unaudited)
|
|
|
|
|
|
Revenues
|
|
$
|
321,445
|
|
$
|
578,424
|
|
$
|
1,708,214
|
|
$
|
1,138,831
|
|
Operating
expenses
|
|
|
4,522,919
|
|
|
1,855,262
|
|
|
9,126,315
|
|
|
3,626,664
|
|
Net
interest expense (income)
|
|
|
(95,341
|
)
|
|
(24,693
|
)
|
|
(195,457
|
)
|
|
(101,378
|
)
|
Net
income (loss)
|
|
$
|
(4,106,133
|
)
|
$
|
(1,252,145
|
)
|
$
|
(7,222,644
|
)
|
$
|
(2,386,455
|
)
|
Quarter
Ended March 31, 2007 Compared to Quarter Ended March 31,
2006
Revenue
Revenue
decreased from $578,424 for the quarter ended March 31, 2006 to $321,445 for
the
quarter ended March 31, 2007 representing a decrease of $256,979 or 44.4%
resulting primarily from a decrease in proceeds from the $1,500,000 BioShield
grant. As the term of the BioShield grant ended, the proceeds from the BioShield
grant were $0 for the quarter ended March 31, 2007 as compared to $386,894
for
the quarter ended March 31, 2006. Also, we realized $50,000 for the quarter
ended March 31, 2007 through a commercial contract with Peprotech Inc. to
develop chemical compounds compared to $125,000 for the same commercial contract
for the quarter ended March 31, 2006, a decrease of $75,000 or
60%.
See
the
table below for further details regarding the sources of our grant and
government contract revenue:
Agency
|
|
Program
|
|
Amount
|
|
Period
of
Performance
|
|
Revenue
2007
(through
March
31)
|
|
Revenue
2006
(through
March
31)
|
|
Revenue
2006
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
(unaudited)
|
|
|
|
NIH
|
|
|
Phase
I NIH SBIR program
|
|
$
|
100,000
|
|
|
08/2004-04/2005
|
|
|
|
|
|
|
|
|
|
|
NIH
|
|
|
NIH
SBIR Contract, Topic 186
|
|
$
|
100,000
|
|
|
09/2004-03/2005
|
|
|
|
|
|
|
|
|
|
|
NIH
|
|
|
Phase
I NIH STTR program
|
|
$
|
100,000
|
|
|
08/2004-04/2005
|
|
|
|
|
|
|
|
|
|
|
DARPA
|
|
|
DARPA,
program BAA04-12
|
|
$
|
475,000
|
|
|
11/2004-08/2005
|
|
|
|
|
|
|
|
|
|
|
NIH
|
|
|
Phase
I NIH SBIR program
|
|
$
|
100,000
|
|
|
06/2005-01/2006
|
|
|
|
|
|
|
|
|
|
|
NIH
|
|
|
BioShield
program (NIAID)
|
|
$
|
1,500,000
|
|
|
07/2005-01/2007
|
|
|
|
|
$
|
386,894
|
|
$
|
1,100,293
|
|
NIH
|
|
|
Phase
I NIH SBIR program
|
|
$
|
100,000
|
|
|
08/2005-01/2006
|
|
|
|
|
$
|
33,334
|
|
$
|
33,334
|
|
NIH
|
|
|
Phase
I NIH SBIR program
|
|
$
|
100,000
|
|
|
09/2005-02/2006
|
|
|
|
|
|
|
|
|
|
|
NASA
|
|
|
Phase
I NASA STTR program
|
|
$
|
100,000
|
|
|
01/2006-01/2007
|
|
|
|
|
$
|
33,196
|
|
$
|
66,393
|
|
NIH
|
|
|
Phase
II NIH SBIR program
|
|
$
|
750,000
|
|
|
07/2006-06/2008
|
|
$
|
140,593
|
|
|
|
|
$
|
212,713
|
|
NIH
|
|
|
NCI
Contract
|
|
$
|
750,000
|
|
|
09/2006-08/2008
|
|
$
|
130,852
|
|
|
|
|
$
|
90,481
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
271,445
|
|
$
|
453,424
|
|
$
|
1,503,214
|
|
We
anticipate our revenue over the next year to be derived mainly from federal
government grants and contracts and grants from Roswell Park Cancer Institute
and agencies of the State of New York as we move our corporate headquarters
to
Buffalo, NY in the summer of 2007. In addition, it is common in our industry
for
companies to enter into licensing agreements with large pharmaceutical
companies. To the extent we enter into such licensing arrangements, we will
receive additional revenue from licensing fees.
Operating
Expenses
Operating
expenses have historically consisted of costs relating to R&D and general
and administrative expenses, which include fees and expenses associated with
patent applications. R&D expenses have consisted mainly of supporting our
R&D teams, process development, sponsored research at the Cleveland Clinic,
clinical trials and consulting fees. General and administrative expenses include
all corporate and administrative functions that serve to support our current
and
future operations while also providing an infrastructure to support future
growth. Major items in this category include management and staff salaries,
rent/leases, professional services and travel-related expenses. We expect these
expenses to increase as a result of increased legal and accounting fees
anticipated in connection with our compliance with ongoing reporting and
accounting requirements of the SEC and the expansion of our
business.
Operating
expenses increased from $1,855,262 for the quarter ended March 31, 2006 to
$4,522,919 for the quarter ended March 31, 2007, an increase of $2,667,657
or
143.8%. This increase resulted primarily from an increase in R&D expenses
from $1,502,364 for the quarter ended March 31, 2006 to $3,528,600 for the
quarter ended March 31, 2007. This represents an increase of $2,026,236 or
134.9%. This increase was due to an increase in research activities and
development activities such as the number and size of clinical trials and the
manufacture of CBLB502. General and administrative costs increased from $352,898
for the quarter ended March 31, 2006 to $994,319 for the quarter ended March
31,
2007. This represents an increase of $641,421 or 181.8%. The higher general
and
administrative expenses were incurred as a result of operating as a public
company and creating and improving the infrastructure of the
Company.
Until
we
introduce a product to the market, we expect these expenses in the categories
mentioned above will be the largest categories in our income
statement.
Year
Ended December 31, 2006 Compared to Year Ended December 31,
2005
Revenue
Revenue
increased from $1,138,831 for the year ended December 31, 2005 to $1,708,214
for
the year ended December 31, 2006, representing an increase of $569,383 or 50%,
resulting primarily from an increase in proceeds from the $1,500,000 BioShield
grant. The proceeds from the BioShield grant were $1,100,293 for the year ended
December 31, 2006 as compared to $999,556 for all grant proceeds for the year
ended December 31, 2005. Also, we realized $205,000 for the year ended December
31, 2006 through a commercial contract with Peprotech Inc. to develop chemical
compounds compared to $139,275 for the year ended December 31,
2005.
Operating
Expenses
Operating
expenses increased from $3,626,664 for the year ended December 31, 2005 to
$9,126,315 for the year ended December 31, 2006. This represents an increase
of
$5,499,651 or 152%. This increase resulted primarily from an increase in R&D
expenses from $2,640,240 for the year ended December 31, 2005 to $6,989,804
for
the year ended December 31, 2006, an increase of $4,346,564 or 165%, as we
increased the number of research scientists and related projects and started
a
number of clinical trials. In addition, general and administrative expenses
increased from $986,424 for the year ended December 31, 2005 to $2,136,511,
for
the year ended December 31, 2006. This represents an increase of $1,150,087
or
117%. These higher general and administrative expenses were incurred as a result
of creating and improving the infrastructure of the company and the costs
associated with being a publicly traded company.
Liquidity
and Capital Resources
We
have
incurred annual operating losses since our inception, and, as of March 31,
2007,
we had an accumulated deficit of $16,882,043. Our principal sources of liquidity
have been cash provided by government grants and sales of our securities. Our
principal uses of cash have been R&D and working capital. We expect our
future sources of liquidity to be primarily government grants, licensing fees
and milestone payments in the event we enter into licensing agreements with
third parties, and research collaboration fees in the event we enter into
research collaborations with third parties.
Net
cash
used in operating activities totaled $3,405,767 for the quarter ended March
31,
2007, compared to $940,634 used in operating activities for the same period
in
2006. Net cash used in operating activities totaled $6,653,602 for the year
ended December 31, 2006, compared to $1,730,513 used in operating activities
for
the same period in. For all periods, the increase in cash used was primarily
attributable to increased R&D activities and creating and maintaining the
infrastructure necessary to support these R&D activities.
Net
cash
used in investing activities was $17,054,798 for the quarter ended March 31,
2007 and net cash provided by investing activities was $702,811 for the same
period in 2006. The increase in cash used for investing activities resulted
primarily from the investment of $17,999,965 in short-term commercial paper
of
the cash proceeds generated in the private offering. Net cash used in investing
activities was $14,281 for the year ended December 31, 2006 and $2,805,113
used
for the same period in 2005. The decrease in cash used for investing activities
resulted primarily from the maturing of short-term investments that converted
to
cash.
Net
cash
provided by financing activities totaled $29,366,589 for the quarter ended
March
31, 2007, compared to net cash used in financing activities of $164,800 for
the
same period in 2006. The increase in cash provided by financing activities
was
attributed to the proceeds from the issuance of preferred stock and Warrants
in
the private placement. Net cash provided by financing activities totaled
$8,523,414 for the year ended December 31, 2006, compared to $5,647,347 provided
by financing activities for the same period in 2005. The increase in cash
provided by financing activities was attributed to the proceeds from the
issuance of common stock as a consequence of the initial public
offering.
Under
our
exclusive license agreement with CCF, we may be responsible for making milestone
payments to CCF in amounts ranging from $50,000 to $4,000,000. The milestones
and corresponding payments for Protectan CBLB502 and Curaxin CBLC102 are set
forth below:
File
IND application for Protectan CBLB502
|
|
$
|
50,000
|
|
Complete
Phase I studies for Protectan CBLB502
|
|
$
|
100,000
|
|
File
NDA application for Protectan CBLB502
|
|
$
|
350,000
|
|
Receive
regulatory approval to sell Protectan CBLB502
|
|
$
|
1,000,000
|
|
File
IND application for Curaxin CBLC102 (completed May 2006)
|
|
$
|
50,000
|
|
Commence
Phase II clinical trials for Curaxin CBLC102 (completed January
2007)
|
|
$
|
250,000
|
|
Commence
Phase III clinical trials for Curaxin CBLC102
|
|
$
|
700,000
|
|
File
NDA application for Curaxin CBLC102
|
|
$
|
1,500,000
|
|
Receive
regulatory approval to sell Curaxin CBLC102
|
|
$
|
4,000,000
|
|
As
of
March 31, 2007, we have accrued $50,000 for the milestone payment relating
to
the filing of the IND application for Curaxin CBLC102 and $250,000 for
commencing Phase II clinical trials for Curaxin CBLC102. The $50,000 milestone
payment was made May 3, 2007 and the $250,000 milestone is scheduled to be
paid
in August 2007 as per the terms of the agreement.
Our
agreement with CCF also provides for payment by us to CCF of royalty payments
calculated as a percentage of the net sales of the drug candidates ranging
from
1-2%, and sublicense royalty payments calculated as a percentage of the
royalties received from the sublicenses ranging from 5-35%. However, any royalty
payments and sublicense royalty payments assume that we will be able to
commercialize our drug candidates, which are subject to numerous risks and
uncertainties, including those associated with the regulatory approval process,
our R&D process and other factors. Each of the above milestone payments,
royalty payments and sublicense royalty payments was accrued until CCF owns
less
than five percent of our common stock on a fully-diluted basis or we receive
more than $30,000,000 in funding and/or revenues from sources other than CCF,
which have recently occurred with the completion of the private offering.
To
more
effectively match short-term investment maturities with cash flow requirements,
we have obtained a working capital line of credit, which is fully secured by
our
short-term investments. This fully-secured, working capital line of credit
has
an interest rate of prime minus 1%, a borrowing limit of $500,000 and expires
on
July 1, 2007. At March 31, 2007, there were no outstanding borrowings under
this
credit facility.
Although
we believe that existing cash resources will be sufficient to finance our
currently planned operations for the near-term (12-24 months), such amounts
will
not be sufficient to meet our longer-term cash requirements, including our
cash
requirements for the commercialization of certain of our drug candidates
currently in development. We may be required to issue equity or debt securities
or enter into other financial arrangements, including relationships with
corporate and other partners, in order to raise additional capital. Depending
upon market conditions, we may not be successful in raising sufficient
additional capital for our long-term requirements. In such event, our business,
prospects, financial condition and results of operations could be materially
adversely affected.
The
following factors, among others, could cause actual results to differ from
those
indicated in the above forward-looking statements: the results of our R&D
efforts, the timing and success of preclinical testing, the timing and success
of any clinical trials we may commence in the future, the timing of and
responses to regulatory submissions, the amount of cash generated by our
operations, the amount of competition we face and how successful we are in
obtaining any required licenses and entering into collaboration
arrangements.
Impact
of Inflation
We
believe that our results of operations are not dependent upon moderate changes
in inflation rates.
Impact
of Exchange Rate Fluctuations
We
believe that our results of operations are somewhat dependent upon moderate
changes in foreign currency exchange rates. We have entered into a manufacturing
agreement with a foreign third party to produce one of its drug compounds and
are required to make payments in the foreign currency. We also expect to enter
into additional agreements with foreign third parties, increasing the risk.
As a
result, the Company's financial results could be affected by changes in foreign
currency exchange rates. Currently, our exposure primarily exists with the
Euro.
As of March 31, 2007, we are obligated to make payments under the agreement
of
1,020,000 Euros. We have established means to purchase forward contracts to
hedge against this risk. As of March 31, 2007, no hedging transactions have
been
consummated
Off-Balance
Sheet Arrangements
We
have
not entered into any off-balance sheet arrangements.
Our
Company
Our
company is engaged in drug discovery. Our goal is to identify and develop new
types of drugs for protection of normal tissues from exposure to radiation
and
other stresses, such as toxic chemicals and for cancer treatment. Our initial
target is to develop a drug to protect humans from the effects of exposure
to
radiation, whether as a result of military or terrorist acts or as a result
of a
nuclear accident. Recent acts of terrorism and the proliferation of nuclear
weapons programs in rogue states have created a more immediate demand for
further research and development in this area. Other potential applications
of
our drug candidates include reducing the side effects of cancer treatment as
well as killing tumor cells.
Our
development efforts are based on discoveries made in connection with the
investigation of the cell-level process know as apoptosis. Apoptosis is a highly
specific and tightly regulated form of cell death that can occur in response
to
external events such as exposure to radiation or toxic chemicals or to internal
stresses. Apoptosis is a major determinant of tissue damage caused by a variety
of medical conditions including cerebral stroke, heart attack or acute renal
failure. Conversely, however, apoptosis also is an important protective
mechanism that allows the body to shed itself of defective cells, which
otherwise can cause cancerous growth.
Research
has demonstrated that apoptosis is sometimes suppressed naturally. For example,
most cancer cells develop resistance to apoptotic death caused by drugs or
natural defenses of the human body. Our research is geared towards identifying
the means by which apoptosis can be affected and manipulated depending on the
need.
If
the
need is to protect healthy tissues against an external event such as exposure
to
nuclear radiation, we focus our research efforts on attempting to temporarily
and reversibly suppress apoptosis in those healthy tissues thereby imitating
the
apoptotic-resistant tendencies displayed by cancer cells. A drug with this
effect would also be useful in ameliorating the often severe side effects of
anticancer drugs and radiation that cause collateral damage to healthy tissues
during cancer treatment. Because the severe side effects of anticancer drugs
and
radiation often limit their dosage in cancer patients, an apoptosis suppressant
drug may enable a more aggressive treatment regimen using anticancer drugs
and
radiation and thereby increase their effectiveness.
On
the
other hand, if the need is to destroy cancerous cells, we focus our research
efforts on restoring apoptotic mechanisms that are suppressed in tumors so
that
those cancerous cells will once again become vulnerable to apoptotic death.
In
this regard, we believe that our drug candidates could have significant
potential for improving, and becoming vital to, the treatment of cancer
patients.
Our
initial drug development is based on drug prototypes discovered at the Cleveland
Clinic and exclusively licensed to us. Our core competency, which adds critical
value to these prototypes, is our ability to develop and enhance these
prototypes through preclinical and clinical development. Our strength in the
therapeutic areas of protection from radiation and cancer therapy is another
critical component of our core competency.
Product
Development
Process
In
general, the process for drug discovery and development includes:
·
|
target
discovery — finding what part of the cell is affected by the
drug;
|
·
|
validation
— confirmation that hitting the target does what we think and nothing
else;
|
·
|
isolation
of prototype drugs using high throughput screening — applying robotics to
large collections of chemicals to find the ones that hit the target
or
effect whole cells in a desirable
way;
|
·
|
hit-to-lead
optimization — improving properties of selected chemicals to make drug
prototypes by generating chemical derivatives of initial hit and
testing
properties in an array of assays;
|
·
|
formal
preclinical pharmacological and toxicological drug product
characterization — testing safety and efficiency of drugs in primates
using highly regulated standard approaches;
and
|
·
|
clinical
trials — testing drug safety and actions using
humans.
|
Scientific
Foundation
CBL
concentrates on the development of small molecule drugs and biologics focusing
on two major therapeutic directions:
·
|
Development
of drugs that protect normal tissues from the damaging effects of
ionizing
radiation and chemotherapy (protectans). This consists more specifically
of:
|
·
|
|
development
of radioprotectants for non-medical applications, e.g., protection
against
the military or terrorist use of nuclear weapons;
and
|
·
|
|
development
of cancer treatment supplements that decrease the side effects of
radiation treatment and anticancer drugs and allow for an increased
dose
of radiation and anticancer drugs to be safely received by a
patient.
|
·
|
Development
of anticancer drugs targeting a newly discovered way of regulating
cell
death (curaxins).
|
Our
drug
development strategy is based on several original concepts that view a cell’s
inherent ability to commit suicide as a target for pharmacological treatment.
Depending on the desired outcome, we develop both cell-death inhibiting (for
normal tissue protection) and cell-death inducing (for cancer treatment)
pharmaceuticals.
Pharmacological
modulation of programmed cell death for protection of normal
tissues
.
Apoptosis is considered a major determinant of tissue damage associated with
a
variety of stresses including cerebral stroke, heart attack or acute renal
failure. Consequently, pharmacological inhibition of apoptosis is considered
a
therapeutic strategy for treatment of these conditions. Cancer treatment side
effects, resulting from injuries caused by radiation and chemotherapy to normal
sensitive tissues, are also associated with apoptosis. This includes injuries
to
the hematopoietic and immune systems, the epithelium of the digestive tract
and
hair follicles. We are employing pharmacological inhibition of programmed cell
death to combat the side effects of cancer treatment. Indeed, whereas normal
sensitive tissues respond to traditional DNA-damaging (genotoxic) anticancer
treatment by apoptosis, those tumor cells, which have lost suicidal properties,
are killed by these drugs through alternative mechanisms. Therefore, temporary
and reversible inhibitors of apoptosis are expected to selectively protect
normal tissues having no effect on the tumor’s sensitivity to the anticancer
drugs. To further assure the selectivity of normal tissue protection, we will
embark upon the pharmacological imitation of survival mechanisms that are
already active in tumor cells — inhibition of p53 (pro-apoptotic) and/or
activation of NF-kB (anti-apoptotic). These concepts are in contrast with
conventional views on p53 and NF-kB as cancer treatment targets, which generally
hold that p53 should be stimulated and NF-kB should be suppressed.
As
the
basis for the development of NF-kB-inducing tissue protecting drugs, we will
explore a unique source of natural modulators of apoptosis — microbes inhabiting
the human body as well as tumors themselves. Both microbial parasites and tumors
depend on the viability of the host cells. Therefore, they secrete a variety
of
factors inhibiting apoptosis of host cells as part of their survival strategy.
These natural anti-apoptotic factors, when optimized, form the core of our
tissue protecting drugs known as protectans.
Pharmacological
modulation of programmed cell death for cancer treatment
.
Apoptosis is an important natural biological mechanism that removes defective
cells. Cancer cells, however, frequently acquire defects in their apoptotic
machinery as part of their progression strategy, which inhibits the death of
these cells. In many tumors, this happens due to the deregulation of two major
mechanisms controlling apoptosis — p53 and NF-kB pathways. Thus, in cancer
cells, p53 is usually physically or functionally lost, whereas NF-kB becomes
constitutively active. As a result, the natural therapeutic procedures that
cause death in normal sensitive tissues may not be effectively damaging to
cancer cells. Deciphering mechanisms of apoptosis deactivation in tumors allows
for the rational design of new, targeted therapeutic approaches aimed at their
restoration, and therefore at the increased killing of cancer cells. Our team
has discovered a novel mechanism of tumor resistance to apoptosis that involves
functional repression of p53 by constitutively active NF-kB thereby leading
to
the inhibition of apoptosis. We are developing small molecules, curaxins,
capable of killing tumor cells by reversing this mechanism, thereby restoring
the ability to undergo apoptosis. Since constitutively active NF-kB is present
only in tumor cells, curaxins are harmless to normal tissues.
Protectans
Protectans
are modified proteins of microbes that protect cells from apoptosis, and have
a
broad spectrum of potential applications. These potential applications include
non-medical applications such as protection from exposure to radiation, whether
as a result of military or terrorist action or as a result of a nuclear
accident, as well as medical applications such as reducing cancer treatment
side
effects.
Protectan
CBLB502
Protectan
CBLB502 is our leading radioprotectant molecule in the protectans series.
Protectan CBLB502 represents a rationally designed derivative of the microbial
protein, flagellin. Flagellin is secreted by Salmonella
typhimurium
and acts
as a natural activator of NF-kB. Protectan CBLB502 is administered through
intramuscular injection.
Non-Medical
Applications
In
collaboration with the Cleveland Clinic, our scientists have demonstrated that
injecting Protectan CBLB502 into mice protects them from lethal doses of total
body gamma radiation. An important advantage of Protectan CBLB502 above any
radioprotectant known to us is its ability to effectively protect not only
the
hematopoietic system but also the gastrointestinal tract, which are among the
most sensitive areas of the human body to radiation. High levels of radiation,
among other effects, induce moderate to severe bone marrow damage. The immune
and blood stem cells are also depleted and death is caused by anemia, infection,
bleeding and poor wound healing. Protectan CBLB502’s ability to effectively
protect the hematopoietic system and gastrointestinal tract may make Protectan
CBLB502 uniquely useful as a radioprotective antidote. In addition, Protectan
CBLB502 has proved to be a stable compound for storage purposes. It can be
stored at temperatures close to freezing and room temperature, and can tolerate
extreme heat for a short period of time. Manufacture of Protectan CBLB502 is
relatively inexpensive due to its high yield bacterial producing strain and
simple purification process.
Our
research has also demonstrated that a single injection of less than 1% of the
maximum tolerable dose of Protectan CBLB502 protected greater than 80% of NIH
Swiss mice from exposure to as high as 13 Gy of total body irradiation. No
other
known compounds in development show this degree of protective effect from this
level of radiation exposure.
Protectan
CBLB502 also showed strong radioprotective efficacy as a single therapy in
non-human primates, enabling the survival of 70% of the animals that received
whole-body radiation, versus the control group, in which 75% of the animals
died. Of the non-human primates in the control group that survived, none were
without significant abnormalities. In contrast, the surviving non-human primates
treated with CBLB502 possessed no significant structural abnormalities in their
bone marrow, immune system organs, or small intestines after 40 days. This
is
consistent with data previously obtained from trials on mice. Irradiated mice
treated with CBLB502 survived to their normal life span without developing
any
significant abnormalities and while preserving the normal formation of blood
cells (hematopoiesis). This data suggests that CBLB502 may offer true protection
from gamma-irradiation induced Acute Radiation Syndrome, including the lethal
effects on both the GI and hematopoietic systems.
Regulatory
Status
Extraordinary
radioprotective properties, an excellent toxicity profile, outstanding stability
and inexpensive production of Protectan CBLB502 make it a primary candidate
for
entering formal preclinical studies. Initially, Protectan CBLB502 will be
developed for non-medical purposes — as a radioprotectant antidote for the
protection of people from severe doses of ionizing radiation. This drug
development strategy complies with recently adopted FDA rules for
investigational drugs that address situations such as radiation injury, where
it
would be unethical to conduct efficacy studies in humans. While Phase II and
Phase III human clinical trials are normally required for the marketing approval
of an investigational new drug, under the new FDA rules Protectan CBLB502 would
be considered for approval for this indication based on Phase I safety studies
in humans and efficacy studies in two animal species (rodents and non-human
primates). Based upon this expedited approval process, Protectan CBLB502 could
be approved for non-medical applications within 24-36 months. Because Phase
II
and Phase III testing, which each involve testing a drug candidate on large
numbers of participants who suffer from the targeted disease and condition,
can
last for a total of anywhere from three to six or more years, bypassing these
phases represents a significant time and savings in getting FDA
approval.
As
part
of this expedited approval process, the FDA has indicated that it intends to
engage in a highly interactive review of IND and NDA applications and to provide
for accelerated review or approval of certain medical products for
counterterrorism applications, including granting eligible applications “Fast
Track” approval status.
In
order
for us to receive final FDA approval for Protectan CBLB502 for non-medical
applications we need to:
·
|
manufacture
our drug candidate according to current Good Manufacturing Practices,
or
cGMP guidelines;
|
·
|
repeat
our animal studies with the GMP manufactured drug
candidate;
|
·
|
file
an IND and receive a response from the
FDA;
|
·
|
perform
a Phase I Human Study (which does not require GMP-manufactured material
and can be done simultaneously with the rest of the steps); and
|
·
|
file
Biologic License Application, or BLA.
|
In
the
most optimistic business scenario, these steps could be accomplished by
mid-to-late 2008. In a more business conservative scenario, it could take up
to
30 months or more to complete the development and approval of Protectan CBLB502
for non-medical applications. We are currently in the process of completing
the
current GMP-compliant manufacturing, and we had a pre-IND meeting with the
FDA
in April 2007.
The
Project BioShield Act of 2004, which further expedites approval of drug
candidates for certain uses, is aimed to bolster the nation’s ability to provide
protections and countermeasures against biological, chemical, radiological
or
nuclear agents that may be used in a military, terrorist or nuclear attack.
The
principal provisions of this law are to:
·
|
facilitate
R&D of biomedical countermeasures by the National Institutes of
Health, or NIH;
|
·
|
provide
for the procurement of needed countermeasures through a special reserve
fund of $5.6 billion over ten years; and
|
·
|
authorize,
under limited circumstances, the emergency use of medical products
that
have not been approved by the FDA.
|
The
law
also allows the use of expedited peer review when assessing the merit of grants
and contracts of up to $1,500,000 for countermeasure research. We have been
awarded a $1,500,000 research grant pursuant to this law.
Market
Opportunities
Recent
acts of terrorism and the proliferation of nuclear weapons programs in rogue
states have magnified the importance of radioprotectants in military
applications. The potential threat of a terrorist attack using a conventional
explosive embedded with radioactive material, or “dirty bomb”, or a nuclear
device has caused the U.S. government to appropriate significant dollars in
the
area of Homeland Security and Emergency Preparedness. In a recent legislative
act, the Project BioShield Act of 2004, the U.S. government allocated an extra
$5.6 billion over ten years for countermeasures against these threats. As
of March 26, 2006, under the Project BioShield Act of 2004, there have only
been three contracts awarded for the treatment of radiation, which accounted
for
approximately $38 million of the over approximately $1 billion
awarded.
Should
either threat become a reality, emergency responders would have to enter the
impact area to rescue survivors, assess damage, make repairs and perform
containment, thereby potentially exposing themselves to lethal doses of
radiation. An emergency of any magnitude, combined with the limited window
after
radiation exposure in which a drug is effective, would require a stockpile
of
any drug used to treat the effects of radiation.
Currently,
the only drug that is considered appropriate for stockpiling for protection
against radiation injury is potassium iodide (KI). While KI is useful in
protecting the thyroid from the long-term risk of thyroid cancer, it is not
useful in protecting against the acute effects of radiation injury and ensuing
infections. In Europe, KI has been stockpiled for years in sufficient quantities
to treat all civilians living within a number of miles of any of the 300 nuclear
power plants in the event of a nuclear accident. Stockpiling of KI has also
recently begun for civilians living within 10-50 miles of the 103 active nuclear
power plants in the U.S. For example, California recently announced plans to
buy
880,000 doses of KI to protect people living close to either of the state’s two
nuclear plants. Procurement
by the U.S. Department of Defense is conducted on the basis of full and open
competition that cannot be limited, unless the DoD determines that the public
requesting policy would otherwise seriously jeopardize national
security. Prior
to
determining the best treatment, the DoD issues a Request for Information, or
RFI, for treatments available or in development for a specific condition
resulting from an identified threat. The RFI provides an incentive for companies
to research and develop countermeasures that are superior to those selected
for
stockpiling. Through the RFI, companies may compete for future contracts that
will revise and update stockpile content for emerging threats, advanced
technologies and new countermeasures. Following
its review of the responses it receives, the DoD issues a Request for Proposal,
or RFP. The RFP solicits proposals for the manufacturing of specified treatments
for a defined number of doses to be delivered within a specified timeframe
(a
maximum of eight years).
If
the
product or the use indicated in the RFP of an approved product is not approved,
licensed, or cleared for commercial distribution at completion of the review,
the DoD has the authority to procure the required amount if it has:
·
|
determined
that sufficient and satisfactory clinical experience or research
data
(including data, if available, from pre-clinical and clinical trials)
support a reasonable conclusion that the countermeasure will qualify
for
approval or licensing within eight years after the date of a
determination; and
|
|
|
·
|
determined
that the product is authorized for emergency
use.
|
The
DoD,
through the U.S. Army Space and Missile Defense Command, recently issued a
RFP
for the Advanced Development of Medical Radiation Countermeasures, or MRC.
According to the RFP, the objective of the MRC project is to develop a
post-exposure MRC through a Phase I clinical trial and, pending successful
completion of the Phase I clinical trial, develop the MRC product through
approval/licensure with the FDA and procure quantities of the MRC sufficient
to
achieve Initial Operational Capability, or IOC. A range of 50,000 to 500,000
doses has been specified to achieve IOC. The RFP stated that MRC must be safe,
efficacious, quick acting, free from performance-decrementing side effects,
relatively non-invasive, approved by the FDA, compatible with current military
countermeasures, and usable on the battle field. The MRC should not require
refrigeration, nor have other significant logistical burdens, and should have
a
relatively long shelf life.
The
solicitation specifically seeks a drug/biologic intended for use after exposure
to ionized radiation, or IR, has occurred. It is anticipated that the
countermeasure, when administered following exposure to IR, will prolong
survival by treating the GI syndrome of Acute Radiation Syndrome. Specifically,
when administered following exposure to IR, the countermeasure should either
prevent/reduce the extent of incipient radiation injury or promote the repair
of
manifest radiation injury to allow the preservation/restoration of the anatomic
integrity and normal physiologic functioning of the GI tract. Our response
to
this RFP was submitted in April 2007, with information regarding a contract
award anticipated later in the year.
We
believe Protectan CBLB502's unique ability to protect against and mitigate
the
damaging effects of gamma irradiation on the GI system, combined with its
safety, stability and method of administration, will make it a very strong
candidate for this contract. Moreover, we are actively engaged in the process
of
completing current cGMP-compliant manufacturing, and we plan to submit an IND
application for human safety testing in late 2007.
Congress
recently has enacted the Support Anti-Terrorism by Fostering Effective
Technologies (SAFETY) Act and the Public Readiness and Emergency Preparedness
(PREP) Act, each of which provide some level of liability protection to
companies involved in the production or distribution of anti-terrorism or
military and defense related goods. The SAFETY Act provides to certain sellers
of anti-terrorism technologies a qualified limitation of liability based on
an
amount of liability insurance coverage, a limitation on joint and several
liability for non-economic damages, and limitations on punitive damages. The
PREP Act offers liability protections to companies involved in the development,
manufacturing and deployment of pandemic and epidemic products, and security
countermeasures. In addition, as a result of the scaled down FDA approval
process and the Project BioShield Act, members of Congress have proposed the
Project BioShield II Act of 2005, which would provide for additional product
liability protection for companies that create vaccines or biological defense
drugs that could cause injury to patients. Each of these acts and proposed
acts
are of recent vintage and have not been subject to much clarification or been
subject to much litigation, and therefore, the scope and availability of these
protections, as interpreted by courts, have not been fully demonstrated. While
we anticipate that our drug candidates developed for these types of uses will
be
afforded some level of protection under these laws, we cannot predict with
any
certainty that the enactment of these laws will provide us with a defense to
any
potential litigation or claim of liability.
In
summary, we believe that Protectan CBLB502 represents a very promising solution
as both a radioprotectant and mitigator of radiation exposure. CBLB502 has
shown
very encouraging results in non-human primates and rodents for being effective
as a radioprotectant when administered as little as 15 minutes prior to
exposure, and as a mitigator, if administered up to eight hours after exposure.
In addition, CBLB502 is stable in solution and powder form, so it can be quickly
dissolved and injected using self-injectable devices, which are the preferred
delivery system. Moreover, the compound does not display toxicity at therapeutic
doses.
The
initial development of Protectan CBLB502 was supported by grants from the
Department of Health and Human Services through the Project BioShield Act of
2004 and NASA.
Medical
Applications
In
addition to military or other non-medical applications, we have found that
Protectan CBLB502, on a preliminary research basis, has been observed to
dramatically increase the efficacy of radiotherapy of experimental tumors in
mice. Protectan CBLB502 appears to increase the tolerance of mice to radiation
while having no effect on the radiosensitivity of tumors, thus opening the
possibility of combining radiotherapy with Protectan CBLB502 treatment to
improve overall anticancer efficacy of radiotherapy. Our animal efficacy studies
have demonstrated that up to 100% of mice treated with Protectan CBLB502 prior
to being exposed to radiation survived, without any associated signs of
toxicity. This compares to a 100% mortality rate in the animal group that
received the placebo drug.
A
pilot
study conducted from December 2005 to July 2006 by Frontier Biotechnologies,
Inc. at the National Chengdu Center for Safety Evaluation of Traditional Chinese
Medicine in China in which 20 non-human primates received lethal doses of
radiation demonstrated a 10-day delay of radiation-associated mortality and
a
significant reduction in death rates (from 75% to 25%) in the group of animals
treated with Protectan CBLB502 without any associated signs of toxicity. An
equal degree of protection was achieved in a subgroup of non-human primates
that
were previously exposed to Protectan CBLB502 demonstrating that Protectan
CBLB502 is effective despite multiple administrations, which is not always
the
case with most protein based drugs. In addition, in the Protectan CBLB502
treated group, half of the non-human primates that survived radiation showed
no
gross pathologies. In the rest of the survivors from this group,
radiation-induced damage to the lymphoid organs and gastrointestinal tract
was
significantly less pronounced than that suffered by survivors in the control
group, which received no radioprotectants. The observed radioprotective efficacy
of Protectan CBLB502 may be attributed to a rapid and substantial increase
in
the blood concentration of a number of tissue protecting growth factors and
cytokines following its injection. Although these results are preliminary in
nature and results discovered in animal trials are often not indicative of
results in humans, they are encouraging because they indicate that Protectan
CBLB502 has radioprotective properties.
The
use
of Protectan CBLB502 to ameliorate the side effects of radiation treatment
and
anticancer drugs is subject to the full FDA approval process.
Market
Opportunities
Radiotherapy
is the most common modality for treating human cancers. Approximately 50%-60%
of
cancer patients need radiotherapy at some stage of treatment, either for
curative or palliative purposes. To obtain optimal results, a judicious balance
between the total dose of radiotherapy delivered and the threshold of the
surrounding normal critical tissues is required. In order to obtain better
control with a higher dose, normal tissue must be protected against radiation
injury. Thus, the role of radioprotective compounds is very important in
clinical radiotherapy.
Currently,
the only available radioprotectant for cancer patients on the market is Ethyol®
(aminofostine), which is produced by MedImmune Inc. Aminofostine is considered
an inadequate radioprotectant because of its severe side effects and sub-optimal
efficacy. Consequently, its sales have been limited.
The
U.S.
market for anticancer therapeutics is large and growing. The American Cancer
Society estimates overall annual cancer costs in the United States at
$189.8 billion: $69.4 billion for direct medical costs,
$16.9 billion for morbidity costs, and $103.5 billion for mortality
costs. Treatment of breast, lung and prostate cancer accounts for over half
of
the direct medical costs. The market for anticancer drugs, valued at more than
$15 billion in 1998, was projected to nearly double by 2003, and,
ultimately, exceeded this projection.
Excessive
loss of normal, non-cancerous cells through the mechanism of apoptosis occurs
during both drug and radiation cancer treatments. The adverse effects of these
therapies include injuries to the hematopoietic and immune systems, the
epithelium of the digestive tract and hair follicles. Despite significant
efforts in the anticancer drug market, some cancer patients die from
complications from the drugs, and a significant number of patients cannot
tolerate chemotherapy drug regimens due to their toxic side effects. Some of
the
side effects are dose limiting in that they do not allow the patient to take
higher doses or longer treatment, ultimately reducing the potency of the
therapy. Two of the most common side effects, chemo-nausea and fatigue, are
likely to be reduced by drugs protecting the hematopoietic and gastrointestinal
systems similar to Protectan CBLB502. This creates an opportunity for us
to offer our drug candidate to a substantial number of patients in a
multibillion dollar anti-cancer drug market .
Protectan
CBLB612
Our
Protectans 600 series are modified factors of mycoplasmas. Much of our initial
research in this series has been in the area of radiation protection. Our lead
candidate in this series, Protectan CBLB612, has been shown to provide
protection in a mouse model from lethal hematopoietic-induced radiation sickness
when administered between 48 hours prior or up to eight hours after radiation
exposure. Protectan CBLB612 does not display any significant toxicity at its
therapeutic doses in rodents and non-human primates.
Moreover,
through our research in the area of radiation protection, we have discovered
a
unique property of the Protectans 600 series, which has led to a breakthrough
in
the stem cell arena.
A
single
administration of CBLB612 resulted in a three-fold increase in the number of
progenitor stem cells in mouse bone marrow within 24 hours after administration.
Furthermore, the number of these stem cells in peripheral blood was increased
ten-fold within four days of administration. Our research indicates that CBLB612
and the other compounds in the 600 series are not only potent stimulators of
bone marrow stem cells, but also cause their mobilization and proliferation
throughout the blood. This discovery opens a new and innovative way for us
to
address a broad spectrum of human diseases, some of which currently lack
effective treatment.
Although
it is still very early in our research efforts, we believe that we may have
discovered a novel method of producing adult stem cells, which can be used
without permanent immuno-suppression. The potential applications for this
technology are numerous.
A
report
published by the NIH division of the Department of Health and Human Services
entitled "Regenerative Medicine 2006," notes that hematopoietic stem cells
have
been used clinically since 1959 and are used routinely for transplantations,
albeit almost exclusively in a non-pure form. More than 40,000 transplants
were
performed annually worldwide by 1995. Currently, the main indications for bone
marrow transplantation are either hematopoietic cancers (leukemias and
lymphomas), or the use of high-dose chemotherapy for nonhematopoietic
malignancies (cancers in other organs). Other indications include diseases
that
involve genetic or acquired bone marrow failure, such as aplastic anemia,
thalassemia sickle cell anemia, and increasingly, autoimmune diseases. Producing
a ready supply of hematopoietic stem cells for an individual, without painful
procedures, risk of contamination, or side effects, would be tantamount to
enabling the body to repair itself from any damage to its blood-forming
system.
The
development of our Protectans 600 series has been supported by a grant from
the
Defense Advanced Research Projects Agency of the Department of
Defense.
Curaxins
Curaxins
are small molecules that destroy tumor cells by simultaneously targeting two
regulators of apoptosis. Our initial test results indicate that Curaxins can
be
effective against a number of malignancies, including hormone refractory
prostate cancer, RCC, and soft-tissue sarcoma.
The
original focus of our drug development program was to develop drugs to treat
one
of the most treatment-resistant types of cancer, RCC. Unlike many cancer types
that frequently mutate or delete p53, one of the major tumor suppressor genes,
RCC belongs to a rare category of cancers that typically maintain a wild type
form of this protein. Nevertheless, RCC cells are resistant to apoptosis,
suggesting that in spite of its normal structure, p53 is functionally disabled.
The work of our founders has shown that p53 function is indeed inhibited in
RCC
by an unknown dominant factor. We have established a drug discovery program
to
identify small molecules that selectively destroy tumor cells by restoring
the
normal function to functionally impaired p53 in RCC. This program yielded a
series of chemicals with the desirable properties named curaxins (CBLC100
series). We have isolated three chemical classes of curaxins. One of them
includes relatives of 9-aminoacridine, the compound that is the core structure
of many existing drugs. Pre-existing information about this compound has allowed
us to bypass the preclinical development and Phase I studies and bring one
of
our drug candidates into Phase IIa clinical trials, saving years of R&D
efforts and improving the probability of success.
One
of
the most important outcomes of this drug discovery program was the
identification of the mechanism by which curaxins deactivate NF-kB. This
mechanism of action makes curaxins potent inhibitors of the production and
the
activity of NF-kB not only in its stimulated form, but also in its basal form.
The level of active NF-kB is usually also increased in cancer cells. Moreover,
due to curaxin-dependent functional conversion of NF-kB DNA complexes, the
cells
with the highest basal or induced NF-kB activity are supposed to be the most
significantly affected by curaxins. Clearly, this paradoxical activity makes
deactivation of NF-kB by curaxins more advantageous compared to conventional
strategies targeting NF-kB activators.
The
discovery of the mechanism of action of curaxins allowed us to predict and
later
experimentally verify that curaxins could be used for treatment of multiple
forms of cancers, including hormone refractory prostate cancer, hepatocellular
carcinoma, multiple myeloma, acute lymphocytic leukemia, acute myeloid leukemia,
soft-tissue sarcomas and several others.
Curaxin
CBLC102
One
of
the curaxins from the 9-aminoacridine group is a long-known anti-infective
compound known as quinacrine which we refer to as Curaxin CBLC102. It has been
used for over 40 years to treat malaria, osteoarthritis and autoimmune
disorders. But we have discovered new mechanisms of action for quinacrine in
the
area of apoptosis. Through assay testing performed in Dr. Gudkov’s laboratories
beginning in 2002, which included testing in a variety of human tumor-derived
cell lines representing cancers of different tissue origin, including RCC,
sarcomas, prostate, breast and colon carcinomas, we have observed that Curaxin
CBLC102 behaves as a potent NF-kB suppressor and activator of p53 in these
types
of cancer cells. It has favorable pharmacological and toxicological profiles
and
demonstrates the anticancer effect in transplants of human cancer cells into
primates. These features make Curaxin CBLC102 our prime IND drug candidate
among
other curaxins. The drug candidate is currently in Phase II clinical trials
for
treatment of hormone refractory prostate cancer. We also intend to conduct
additional Phase II clinical trials with Curaxin CBLC102 for RCC and multiple
myeloma.
Clinical
trials with Curaxin CBLC102 began in January 2007 at the University of Chicago,
Cleveland Clinic and the Case Western Reserve University Hospital in advanced
hormone-refractory (androgen-independent) prostate cancer. We apply our therapy
to patients who have failed to respond satisfactorily after undergoing
established cancer treatments and will use the suppression of tumor growth
and
prolonged patient survival as major endpoints. An additional endpoint,
prostate-specific antigen, or PSA, level reduction, will be used in the prostate
trials. Elevated PSA levels are indicative of the progression of prostate
cancer.
We
intend
to seek orphan drug status with respect to Curaxin CBLC102. The orphan drug
provisions of the Federal Food, Drug, and Cosmetic Act provide incentives to
drug and biologic manufacturers to develop and manufacture drugs for the
treatment of rare diseases, currently defined as diseases that exist in fewer
than 200,000 individuals in the U.S. We believe that Curaxin CBLC102 may qualify
as an orphan drug for purposes of treatment of hormone refractory prostate
cancer, RCC, and multiple myeloma. Under these provisions, a manufacturer of
a
designated orphan drug can seek tax benefits, and the holder of the first
designated orphan drug approved by the FDA will be granted a seven-year period
of marketing exclusivity for that drug. There is no assurance that we will
receive orphan drug status for Curaxin CBLC102. Even if we do receive orphan
drug status, while the marketing exclusivity of an orphan drug would prevent
other sponsors from obtaining approval of the same compound for the same
indication, it would not prevent other types of drugs from being approved for
the same indication and therefore may not provide sufficient protection against
competitive products.
We
have
an agreement with Regis Technologies, Inc., a GMP manufacturer, that has
produced sufficient quantities of Curaxin CBLC102 according to the process
previously used for production of this drug when it was in common use. In
preparation for the IND clinical studies, a stability program for API will
be
conducted by the producers. For Phase IIb, Phase III and final production,
several other vendors will also be reviewed on a competitive basis to select
the
site for large-scale manufacturing. On May 26, 2006, we filed our IND
application with the FDA to begin clinical trials in patients with
androgen-independent prostate cancer. On June 26, 2006, the FDA advised us
that
we may initiate clinical Phase II studies after making additional minor
modifications to the protocol for such clinical studies.
We
have
applied for the patent covering use of Curaxin CBLC102 as an anticancer agent
based on a newly discovered unique mechanism of action.
Market
Opportunities
We
have
prioritized our primary disease targets for Curaxin CBLC102 as hormone
refractory prostate cancer, RCC and soft-tissue sarcoma based on several
factors, including the results of our preliminary research, readily identifiable
partnering opportunities, potential or orphan drug status and alternative
treatments in other cancer areas.
Prostate
cancer is the most common cancer in men in the United States other than skin
cancer. According to the American Cancer Society, an estimated 234,460 cases
were projected to be diagnosed with prostate cancer in 2006. The majority of
patients who are diagnosed with localized prostate cancer are treated and cured
with either radiation or surgery. Patients in whom treatment with curative
intent is unsuccessful and those who present with metastasis are candidates
for
androgen suppression. The majority of men who are deprived of androgens,
however, ultimately progress to an androgen-independent phase where the initial
androgen suppression regimen no longer controls the tumor. As a result,
treatment for the androgen-independent phase of prostate cancer is a clear
unmet
medical need.
RCC
is a
niche cancer that accounts for 3% of all cancer cases in the United States,
but
is the most common type of kidney cancer in adults. In the United States,
approximately 35,000 — 40,000 patients are diagnosed with RCC annually. For
early-stage cancer, the five-year survival rate is 60% to 70%. If the cancer
has
spread to the lymph nodes, the five-year survival rate is 5% to 15%. If it
has
spread to other organs, the five-year survival rate is less than 5%. Although
the market for RCC treatment is relatively small and large pharmaceutical
companies generally are unlikely to enter into the market with their own
products that compete directly with us, we may see competition in the RCC market
from Wyeth Research and Aeterna Laboratories which are in the late stage
development of second-line therapies to combat RCC. These products are aimed
at
achieving better toxicity profiles and greater survival benefits than
conventional treatments for stage IV RCC. Nevertheless, the high mortality
rate
and small market size may cause other large pharmaceutical companies to license
products from a company such as us instead of developing their own
products.
Soft-tissue
sarcomas are rare, representing only about 1% of all cancer cases. According
to
the American Cancer Society, approximately 9,400 new cases of soft-tissue
sarcoma were projected to be diagnosed in the United States in 2006, which
were
projected to be responsible for approximately 3,500 deaths per year. If detected
early, before it has had a chance to spread, the five-year survival rate is
approximately 90%. Treatment requires surgery and radiation therapy with
chemotherapy used as an additional means to deal with distant reoccurrences
and
metastases.
Other
Curaxins
As
mentioned above, screening of the chemical library for compounds capable of
restoring normal function to wild type p53 in the context of RCC yielded three
chemical classes of compounds. Generation of focused chemical libraries around
the hits from one of these classes and their structure-activity optimization
brought about a new generation of curaxins. These molecules have a chemical
structure different from 9-aminoacridine (Curaxin CBLC102) and are more active
and appear to be more selective of tumor cells than the representatives of
the
first generation of curaxins (e.g., Curaxin CBLC102).
Following
additional optimization we are planning to embark upon the formal development
of
two to three additional second generation curaxins.
Product
Development Schedule and Capital Requirements
Drug
development is a slow, expensive, risky and highly volatile process. A survey
conducted by the Tufts Center for the Study of Drug Development in 2001
estimated that from the commencement of R&D to FDA approval of a drug, a
drug company typically spends approximately $800 million dollars over a 10
to 15 year period.
We
intend
to continue R&D of our innovative drug candidates by utilizing technologies
and product prototypes licensed from research institutions (e.g., the Cleveland
Clinic), which advances our efforts at producing a final product, and adding
to
them new compounds discovered in-house. Specifically, our efforts are focused
on
Protectan CBLB502 with potential applications in both non-medical and medical
areas and on its newly discovered properties, which allow us to develop this
drug candidate as a supportive agent during radiotherapy. We will also continue
our work on Curaxin CBLC102 for anticancer therapy. This development will be
supplemented with discovery efforts preparing new generations of our drugs.
Our
development projects are prioritized based on our estimate of the distance
from
a final product or licensing end-point and the probability of success. Projects
will be implemented in parallel or sequential fashion, as resources
permit.
We
plan
to use our existing funds to achieve the following objectives:
·
|
Phase
I safety clinical trials for non-medical applications of Protectan
CBLB502;
|
·
|
pivotal
study of Protectan CBLB502 using primates for non-medical applications
(an
equivalent of Phase II/III clinical
study);
|
·
|
filing
an IND followed by an NDA to receive all necessary regulatory approvals
to
manufacture and sell Protectan CBLB502 for non-medical
applications;
|
·
|
preclinical
studies, IND filing and Phase I clinical studies for the medical
use of
Protectan CBLB502;
|
·
|
clinical
studies for Curaxin CBLC102 (Phase IIa in multiple cancers);
and
|
·
|
additional
discovery, lead optimization and preclinical studies aimed at developing
new generation of curaxins and
protectans.
|
Our
selected development projects are unified by a common therapeutic focus and
are
built upon a common scientific paradigm. We believe that our distinct projects
expand the potential value of a common technology. Our seasoned management
team
will constantly monitor the progress of our projects at the key objectives
and
compare them with pre-established developmental milestones. By supporting and
carefully managing several projects simultaneously, we will attempt to reduce
short-term risk and contribute to our long-term potential.
As
a
result of the outlined development, Protectan CBLB502 may be approved for
non-medical applications within 18-36 months. During the same period of time,
we
also expect to conduct Phase I trials of Protectan CBLB502 with a view to
demonstrating its utility for cancer treatment. Additionally, we will continue
with Phase II clinical trials of Curaxin CBLC102 for hormone refractory prostate
cancer and expect to commence Phase II clinical trials of Curaxin CBLC102 for
RCC and soft-tissue sarcoma.
In
addition to our existing funds, we will pursue other sources of capital to
fund
additional development of products.
·
|
Grants
—
Through December 31, 2006, we have received 12 government grant
commitments from NIH, DOD and NASA totaling $4,245,000 including
the
prestigious $1,500,000 R01 award from NIH and $750,000 R02 award
from NIH.
Each grant awarded is confined to the scope of work described in
the grant
application and the grant funds cannot be used for any other purpose.
The
grantee provides the grantor with a final report detailing the results
of
the work and, depending on the terms of the specific grant, may need
to
provide status reports on an ongoing basis. The table below lists
each of
the 12 government grants awarded to us to
date.
|
Agency
|
|
Title
|
|
Amount
|
|
Project
|
|
Status
|
NASA
|
|
New
class of biological radioprotectors
|
|
$
|
70,000
|
|
Protectans
|
|
Completed
|
NIH
|
|
N-myc
targeted therepeutics for childhood neuroblastoma
|
|
$
|
100,000
|
|
Curaxins
|
|
Completed
|
NIH
|
|
Radioprotectors
targeting p53
|
|
$
|
100,000
|
|
Protectans
|
|
Completed
|
NIH
|
|
Development
of new inhibitors of androgen receptors
|
|
$
|
100,000
|
|
Curaxins
|
|
Completed
|
DARPA
|
|
Tissue
protecting antidotes from anti-apoptotic factors of
Mycoplasma
|
|
$
|
475,000
|
|
Protectans
|
|
Completed
|
NIH
|
|
Bacterial
proteins as cancer drugs and radioprotectors
|
|
$
|
100,000
|
|
Protectans
|
|
Completed
|
NIH
|
|
Protecting
immune system by modulators of p53 and NF-kB
|
|
$
|
1,500,000
|
|
Protectans
|
|
Funded
|
NIH
|
|
New
approach to improve abdominopelvic radiotherapy by protecting small
intestine
|
|
$
|
100,000
|
|
Protectans
|
|
Completed
|
NIH
|
|
Effective
Radioprotectants Targeting Toll-like Receptor 5
|
|
$
|
100,000
|
|
Protectans
|
|
Completed
|
NASA
|
|
Use
of CBLB502 against biologically harmful effects of ionizing radiation
during space flight
|
|
$
|
100,000
|
|
Protectans
|
|
Funded
|
NIH
|
|
Radioprotectors
targeting p53
|
|
$
|
750,000
|
|
Protectans
|
|
Funded
|
NIH
|
|
N-myc
targeted therapeutics for childhood neuroblastoma
|
|
$
|
750,000
|
|
Curaxins
|
|
Funded
|
|
Besides
being a source of non-dilutive cash, grants play two very important
roles:
|
·
|
validating
our science by passing a rigorous review process;
and
|
·
|
creating
awareness by exposure to a professional bio-medical
community.
|
·
|
License
of Early-Stage Leads —
In addition to Protectan CBLC502 and Curaxin CBLC102, we possess
certain
compound prototypes which we are developing with a view to offering
them
to a pharmaceutical or biotechnology company for strategic alliance
or
licensing transactions.
|
We
cannot
be certain that we will be successful in attracting additional capital from
any
of the foregoing sources to fund our development of drugs. In the event that
we
do not successfully attract additional capital, our business, prospects,
financial condition and results of operations could be adversely
affected.
Research
and Development
Over
nearly two years of operations, we have been able to build an R&D team
headed by our founder and Chief Scientific Officer, Dr. Andrei Gudkov, a
distinguished scientist with numerous publications and patents. Our Vice
President of Drug Development, Dr. Farrel Fort, who spent 20 years at
Abbott Laboratories and TAP Pharmaceutical where he was the Director of Drug
Safety, supervises our drug development efforts. Over the last 10 years, the
labs of Drs. Gudkov and George Stark of the Cleveland Clinic have received
more
than $20 million of grant funding for the development of the basic science
forming our technological foundation. Our fully equipped 20,000 square foot
research facilities include a modern high-throughput screening, or HTS, core
and
versatile molecular biology and cell culture capabilities.
Besides
academic grants already received by the labs of our scientific founders, we
are
also eligible for government support. We have historically received
approximately 30% of our grant revenues through the SBIR and Small Business
Technology Transfer grant programs. As a result of our growth, however, we
have
ceased to be eligible for SBIR grant programs, and therefore no longer qualify
to receive these grants.
We
have
submitted 14 grant applications to NIH, DOD and NASA. As of December 31, 2006,
12 of the 14 grant applications have been awarded to us bringing $4,245,000
in
grant commitments to our R&D programs.
Licensing
Revenues
Licensing
and other payments from large pharmaceutical companies (and other institutions,
including the U.S. government) are a major revenue source for biotech companies
in the process of developing drugs. Licensing and acquisition transactions
with
large pharmaceutical companies are struck at all stages of drug development,
from early discovery to Phase III clinical trials. For example, large
pharmaceutical companies, such as Bristol-Myers Squibb Co., Johnson &
Johnson, Amgen Inc., AstraZeneca and Novartis AG, that dominate the anticancer
drug market, distribute major anticancer drugs that were initially developed
by
biotech companies. Over the last decade, there has been a substantial increase
in the number of collaborative deals between large pharmaceutical companies
and
biotech companies with the average deal amount increasing to $30 million in
2003. Such licensing deals can be an attractive way to realize the value of
a
potential product of a biotech company early in the R&D process — an
approach we intend to strategically employ. Historically, some of the larger
biopharmaceutical licensing deals have been in the field of cancer research.
In
addition to bringing in early revenues, such discussions can also serve as
an
invaluable opportunity to gauge the true market value of specific drug
candidates. However, as of the date of this prospectus, we have not realized
any
revenue from licensing arrangements.
Strategic
Partnerships
CBL’s
development is supported by its strategic partners and founders, the Cleveland
Clinic and ChemBridge. Besides being a source of critical intellectual property,
the Cleveland Clinic provides access on favorable economic terms to its multiple
research cores and animal care facilities, which allows us to avoid building
this type of infrastructure and focus instead on mission-critical research
and
drug development. Even more importantly, leading physicians of the Cleveland
Clinic are involved in the design of our clinical trials, which will take place
at the Cleveland Clinic among other locations, providing invaluable expertise
in
various cancer types and radiological treatment. Additionally, we may license
certain future intellectual property developed in a laboratory at the Cleveland
Clinic headed by one of our founders through our existing exclusive license
for
cancer applications and tissue protection with the Cleveland Clinic, which
we
believe will provide a good supply of new concepts and leads for future
development.
ChemBridge
provided us with access to 180,000 compounds of its compound library in exchange
for 357,600 shares of our common stock and warrants to purchase 264,624 shares
of our common stock. ChemBridge also expects to play a key role in hit-to-lead
optimization providing necessary chemical expertise and synthetic capabilities.
Our agreement with ChemBridge allows us to utilize these capabilities for a
50%
share in the ownership of two lead compounds selected by ChemBridge and all
derivative compounds thereof in lieu of cash reducing our development
exposure.
In
January 2007, we entered into a strategic research partnership with RPCI to
develop our cancer and radioprotectant drug candidates. RPCI,
founded in 1898, is a world-renowned cancer research hospital and the nation's
first cancer research, treatment and education center. RPCI is a member of
the
prestigious National Comprehensive Cancer Network, an alliance of the nation's
leading cancer centers, and is one of only ten free-standing cancer centers
in
the nation.
RPCI
and
various agencies of the state of New York will provide us with up to $5 million
of grant and other funding. We will establish a major research/clinical facility
at the RPCI campus in Buffalo, New York, which will become the foundation for
several of our advanced research and clinical trials. Andrei Gudkov, our Chief
Scientific Officer, has agreed to become Senior Vice President of Research
Programming and Development for RPCI effective April 2007.
Our
partnership with RPCI will enhance the speed and efficiency of our clinical
research, and will provide us with access to state-of-the-art clinical
development facilities in partnership with a globally recognized cancer research
center. We believe that our proprietary technology, combined with the assistance
of RPCI, and our continuing strong relationship with the Cleveland Clinic,
will
position us to become a leading oncology company. A key element of our long-term
business strategy is to partner with world-class institutions to aid us in
accelerating our drug development timeline. We believe that our firm alliances
with both RPCI and the Cleveland Clinic provide us with a significant
competitive advantage.
We
are
seeking new strategic partnerships to support the development of our drug
candidates. We have engaged in discussions with several leading pharmaceutical
and biotech entities as well as various government institutions. In
August 2004, we entered into five-year cooperative research and development
agreement, or CRADA, with the Uniformed Services University of the Health
Sciences which includes the Armed Forces Radiobiology Research Institute
(AFRRI), the Henry M. Jackson Foundation for the Advancement of Military
Medicine, Inc. (Henry Foundation) and the Cleveland Clinic to:
·
|
evaluate
radioprotectant candidates originating from the Cleveland Clinic;
|
·
|
obtain
information on the effects of the radioprotectant candidates originating
from AFRRI on intracellular and extracellular signaling pathways;
and
|
·
|
if
promising candidates emerge from the radioprotectant candidates supplied
by the Cleveland Clinic, develop a plan and initiate studies of these
compounds to the FDA to obtain IND status.
|
The
agreement may be unilaterally terminated by any party upon 30 days prior written
notice with or without cause. Under the terms of the agreement, all parties
are
financially responsible for their own expenses related to the agreement. We
also
discuss from time to time other collaborations with other potential partners.
However, there can be no assurance that any of these discussions will result
in
collaborations on favorable terms or at all.
Our
Intellectual Property
Our
intellectual property platform is based primarily on 13 patent applications
exclusively licensed to us by the Cleveland Clinic and three patent
applications, which we have filed and own, all in the field of regulating cell
death that cover new cancer treatment concepts, methods of drug discovery and
drug candidates isolated in the laboratory of Dr. Andrei Gudkov. Our
license with the Cleveland Clinic is for an indefinite term and we may license
additional intellectual property in the same licensed field from the Cleveland
Clinic in the future. The Cleveland Clinic may terminate the license upon a
material breach by us as specified in the agreement, however, we may avoid
such
termination if within 90 days of receipt of such termination notice we cure
the
breach. As consideration for this license, we issued the Cleveland Clinic
1,341,000 shares of common stock and agreed to make certain milestone, royalty
and sublicense royalty payments. We have paid $50,000 in connection with
milestone payments relating to the filing of an IND for Curaxin CBLC102 and
accrued an additional $250,000 in milestone payments that are payable before
August 31, 2007.
The
aforementioned 13 patent applications licensed from the Cleveland Clinic are
as
follows:
·
|
Methods
of Inhibiting Apoptosis Using Latent
TFGß;
|
·
|
Methods
of Identifying Modulators of Apoptosis From Parasites and Uses
Thereof;
|
·
|
Methods
of Inhibiting Apoptosis Using Inducers of
NF-kB;
|
·
|
Methods
of Protecting Against Radiation Using Inducers of
NF-kB;
|
·
|
Methods
of Protecting Against Radiation Using
Flagellin;
|
·
|
Small
Molecules Inhibitors of MRP1 and Other Multidrug
Transporters;
|
·
|
Flagellin
Related Polypeptides and Uses
Thereof;
|
·
|
Modulation
of Apoptosis Using Aminoacridenes;
|
·
|
Activation
of p 53 and Inhibition of NF-kB for Cancer
Treatment;
|
·
|
Modulation
of Immune Responses;
|
·
|
Methods
of Protecting Against Apoptosis Using
Lipopeptides;
|
·
|
Modulation
of Cell Growth; and
|
·
|
Mitochondrial
Cytochrome B
|
The
aforementioned three patent applications, which we filed and own, are as
follows:
·
|
Modulation
of Androgen Receptor for Treatment of Prostate Cancer;
and
|
·
|
Method
of Increasing Hematopoietic Stem Cells (filed in January
2007).
|
Non-Medical
Applications of Protectans
Recent
acts of terrorism and the proliferation of nuclear weapons programs in rogue
states have magnified the importance of radioprotectants in military
applications. The potential threat of a terrorist attack using a conventional
explosive embedded with radioactive material, or “dirty bomb”, or a nuclear
device has caused the U.S. government to appropriate significant dollars in
the
area of Homeland Security and Emergency Preparedness. In a recent legislative
act, the Project BioShield Act of 2004, the U.S. government allocated an extra
$5.6 billion over ten years for countermeasures against these threats. As
of March 26, 2006, under the Project BioShield Act of 2004, there have only
been three contracts awarded for the treatment of radiation, which accounted
for
approximately $38 million of the over approximately $1 billion
awarded.
Should
either threat become a reality, emergency responders would have to enter the
impact area to rescue survivors, assess damage, make repairs and perform
containment, thereby potentially exposing themselves to lethal doses of
radiation. An emergency of any magnitude, combined with the limited window
after
radiation exposure in which a drug is effective, would require a stockpile
of
any drug used to treat the effects of radiation.
The
core
meltdown, and resulting explosions, at the Chernobyl nuclear power plant in
the
Ukraine in April 1986 illustrates the impact such events could have on a
surrounding population and the need for stockpiling radioprotectants. Officials
estimate that at least 600,000 people were involved in some aspect of cleanup
and more than 15 million people were exposed to heightened radiation,
resulting in medical costs of more than $60 billion.
High-risk
areas include military installations and theater of operations, any urban or
metropolitan areas at risk of radiation attack, and a 10-50 mile radius around
nuclear power plants or spent fuel facilities. In the New York City metropolitan
area, for example, approximately 20 million people live within 50 miles of
the Indian Point nuclear power plant located just 35 miles north of New York
City thereby creating a large market for stockpiling radioprotectants. In
addition, similar market opportunities may exist in both Europe and Asia to
the
extent permitted by U.S. and foreign government authorities. Other products
in
the bio-defense area have been granted licenses to export into specific
countries by the U.S. State Department in accordance with export regulations,
including International Traffic in Arms Regulations.
Currently,
the only drug that is considered appropriate for stockpiling for protection
against radiation injury is potassium iodide (KI). While KI is useful in
protecting the thyroid from the long-term risk of thyroid cancer, it is not
useful in protecting against the acute effects of radiation injury and ensuing
infections. In Europe, KI has been stockpiled for years in sufficient quantities
to treat all civilians living within a number of miles of any of the 300 nuclear
power plants in the event of a nuclear accident. Stockpiling of KI has also
recently begun for civilians living within 10-50 miles of the 103 active nuclear
power plants in the U.S. For example, California recently announced plans to
buy
880,000 doses of KI to protect people living close to either of the state’s two
nuclear plants.
Medical
Applications of Protectans
Radiotherapy
is the most common modality for treating human cancers. Approximately 50%-60%
of
cancer patients need radiotherapy at some stage of treatment, either for
curative or palliative purposes. To obtain optimal results, a judicious balance
between the total dose of radiotherapy delivered and the threshold of the
surrounding normal critical tissues is required. In order to obtain better
control with a higher dose, normal tissue must be protected against radiation
injury. Thus, the role of radioprotective compounds is very important in
clinical radiotherapy.
Currently,
the only available radioprotectant for cancer patients on the market is Ethyol®
(aminofostine), which is produced by MedImmune Inc. Aminofostine is considered
an inadequate radioprotectant because of its severe side effects and sub-optimal
efficacy. Consequently, its sales have been limited.
The
U.S.
market for anticancer therapeutics is large and growing. The American Cancer
Society estimates overall annual cancer costs in the United States at
$189.8 billion: $69.4 billion for direct medical costs,
$16.9 billion for morbidity costs, and $103.5 billion for mortality
costs. Treatment of breast, lung and prostate cancer accounts for over half
of
the direct medical costs. The market for anticancer drugs, valued at more than
$15 billion in 1998, was projected to nearly double by 2003, and,
ultimately, exceeded this projection.
Excessive
loss of normal, non-cancerous cells through the mechanism of apoptosis occurs
during both drug and radiation cancer treatments. The adverse effects of these
therapies include injuries to the hematopoietic and immune systems, the
epithelium of the digestive tract and hair follicles. Despite significant
efforts in the anticancer drug market, some cancer patients die from
complications from the drugs, and a significant number of patients cannot
tolerate chemotherapy drug regimens due to their toxic side effects. Some of
the
side effects are dose limiting in that they do not allow the patient to take
higher doses or longer treatment, ultimately reducing the potency of the
therapy. Two of the most common side effects, chemo-nausea and fatigue, are
likely to be reduced by drugs protecting the hematopoietic and gastrointestinal
systems similar to Protectan CBLB502. This creates an opportunity for us
to offer our drug candidate to a substantial number of patients in a
multibillion dollar anti-cancer drug market .
New
therapies aimed at cancer (Curaxins)
We
have
prioritized our primary disease targets for Curaxin CBLC102 as hormone
refractory prostate cancer, RCC and soft-tissue sarcoma based on several
factors, including the results of our preliminary research, readily identifiable
partnering opportunities, potential or orphan drug status and alternative
treatments in other cancer areas.
Prostate
cancer is the most common cancer in men in the United States other than skin
cancer. According to the American Cancer Society, an estimated 234,460 cases
were projected to be diagnosed with prostate cancer in 2006. The majority of
patients who are diagnosed with localized prostate cancer are treated and cured
with either radiation or surgery. Patients in whom treatment with curative
intent is unsuccessful and those who present with metastasis are candidates
for
androgen suppression. The majority of men who are deprived of androgens,
however, ultimately progress to an androgen-independent phase where the initial
androgen suppression regimen no longer controls the tumor. As a result,
treatment for the androgen-independent phase of prostate cancer is a clear
unmet
medical need.
RCC
is a
niche cancer that accounts for 3% of all cancer cases in the United States,
but
is the most common type of kidney cancer in adults. In the United States,
approximately 35,000 — 40,000 patients are diagnosed with RCC annually. For
early-stage cancer, the five-year survival rate is 60% to 70%. If the cancer
has
spread to the lymph nodes, the five-year survival rate is 5% to 15%. If it
has
spread to other organs, the five-year survival rate is less than 5%. Although
the market for RCC treatment is relatively small and large pharmaceutical
companies generally are unlikely to enter into the market with their own
products that compete directly with us, we may see competition in the RCC market
from Wyeth Research and Aeterna Laboratories which are in the late stage
development of second-line therapies to combat RCC. These products are aimed
at
achieving better toxicity profiles and greater survival benefits than
conventional treatments for stage IV RCC. Nevertheless, the high mortality
rate
and small market size may cause other large pharmaceutical companies to license
products from a company such as us instead of developing their own
products.
Soft-tissue
sarcomas are rare, representing only about 1% of all cancer cases. According
to
the American Cancer Society, approximately 9,400 new cases of soft-tissue
sarcoma were projected to be diagnosed in the United States in 2006, which
were
projected to be responsible for approximately 3,500 deaths per year. If detected
early, before it has had a chance to spread, the five-year survival rate is
approximately 90%. Treatment requires surgery and radiation therapy with
chemotherapy used as an additional means to deal with distant reoccurrences
and
metastases.
Competition
Non-Medical
Applications
In
the
area of radiation-protective antidotes, the most visible market participant
is
Hollis-Eden Pharmaceuticals, Inc., a biopharmaceutical company that is working
on the development of a new class of investigational drugs known as Immune
Regulating Hormones (IRH). Hollis-Eden’s major developmental focus is on HE2100
(also known as NEUMUNE™ and 5-Adrostenediol), which is licensed from Virginia
Commonwealth University.
Medical
Applications
The
arsenal of medical radiation-protectors is limited to ETHYOL™ (amifostine), sold
by MedImmune. This radiation-protector is limited because of the serious side
effects of the drug. Other radiation-protectors may enter the
market.
Biomedical
research for anticancer therapies is a large industry, with many companies,
universities, research institutions and foreign government-sponsored companies
competing for market share. The top ten public U.S.-based companies involved
in
cancer therapy have a combined market capitalization exceeding $1 trillion.
In
addition, there are several hundred biotech companies who have as their mission
anticancer drug development. These companies account for the approximately
150
anticancer compounds currently in drug trials. However, despite the numerous
companies in this field, there is still a clear, unmet need in the anticancer
drug development market.
Each
of
the approximately 200 types of cancer recognized by the NCI has dozens of
subtypes, both etiological and on a treatment basis. Due to this market
segmentation, the paradigm of a one-size-fits-all, super-blockbuster approach
to
drug treatments does not work well in cancer therapy. Currently, even the most
advanced therapeutics on the market do not provide substantial health
benefits.
This
suggests that innovative anticancer therapies are driven by the modest success
of current therapeutics, the need for an improved understanding of the
underlying science, and a shift in the treatment paradigm towards more
personalized medicine. Our technology addresses this need for an improved
understanding of the underlying science and implements a fundamental shift
in
the approach to developing anticancer therapies.
Stem
Cell Mobilization
G-CSF
(filgrastim, Amgen) is the current standard against which all other mobilization
agents for stem cells are measured. This is because it has been shown to both
mobilize more CD34+ stem cells and have less toxicity than any other single
agent against which it has been tested to date. Use of G-CSF caused deaths
attributed to thrombosis (acute myocardial infarction and stroke) in sibling
donors. Other side effects include pain, nausea, vomiting, diarrhea, insomnia,
chills, fevers, and night sweats.
Sargramostim
(Berlex, Richmond, CA) as a single agent is used less often today for
mobilization than G-CSF, because it mobilizes somewhat less well than G-CSF
and
because of a relatively higher incidence of both mild and severe side effects.
Erythropoietin, now commonly used among cancer patients undergoing chemotherapy
to maintain hemoglobin in the near normal range, also has some ability to
mobilize CD34+ cells.
Other
Sources of Competition
In
addition to the direct competition outlined above, there is potential for
adverse market effects from other outside developments. For example, producing
a
new drug with fewer side effects reduces the need for anti-side effects
therapies. Because of this, we must monitor a broad area of anticancer R&D
and be ready to fine-tune our development as needed.
The
biotechnology and biopharmaceutical industries are characterized by rapid
technological developments and intense competition. This competition comes
both
from biotech firms and from major pharmaceutical and chemical companies. Many
of
these companies have substantially greater financial, marketing and human
resources than we do (including, in some cases, substantially greater experience
in clinical testing, manufacturing and marketing of pharmaceutical products).
Our drug candidates’ competitive position among other biotech and
biopharmaceutical companies may be based on, among other things, patent
position, product efficacy, safety, reliability, availability, patient
convenience/delivery devices and price, as well as the development and marketing
of new competitive products.
We
also
experience competition in the development of our drug candidates from
universities and other research institutions and compete with others in
acquiring technology from such universities and institutions. In addition,
certain of our drug candidates may be subject to competition from products
developed using other technologies, some of which have completed numerous
clinical trials. As a result, our actual or proposed drug candidates could
become obsolete before we recoup any portion of our related R&D and
commercialization expenses. However, we believe our competitive position is
enhanced by our commitment to research leading to the discovery and development
of new products and manufacturing methods.
Some
of
our competitors are actively engaged in R&D in areas where we also are
developing drug candidates. The competitive marketplace for our drug candidates
is significantly dependent upon the timing of entry into the market. Early
entrants may have important advantages in gaining product acceptance and market
share contributing to the product’s eventual success and profitability.
Accordingly, in some cases, the relative speed with which we can develop
products, complete the testing, receive regulatory approval from regulatory
agencies, and supply commercial quantities of the product to the market is
vital
towards establishing a strong competitive position.
Our
ability to sell to the government also can be influenced by indirect competition
from other providers of products and services. For instance, a major
breakthrough in an unrelated area of biodefense could cause a major reallocation
of government funds from radiation protection. Likewise, an outbreak or
threatened outbreak of some other form of disease or condition may also cause
a
reallocation of funds away from the condition that Protectan CBLB502 is intended
to address.
Governmental
Regulation
The
Drug Regulation Process
The
R&D, manufacturing and marketing of drug candidates are subject to
regulation, primarily by the FDA in the U.S. and by comparable authorities
in
other countries. These national agencies and other federal, state, local and
foreign entities regulate, among other things, R&D activities (including
testing in primates and in humans) and the testing, manufacturing, handling,
labeling, storage, record keeping, approval, advertising and promotion of the
products that we are developing. Noncompliance with applicable requirements
can
result in various adverse consequences, including approval delays or refusals
to
approve drug licenses or other applications, suspension or termination of
clinical investigations, revocation of regulatory approvals previously granted,
fines, criminal prosecution, recalls or seizures of products, injunctions
against shipping drugs, and total or partial suspension of production and/or
refusal to allow a company to enter into governmental supply
contracts.
The
process of obtaining FDA approval for a new drug may take many years and
generally involves the expenditure of substantial resources. The steps required
before a new drug can be produced and marketed for human use include clinical
trials and the approval of an NDA.
Clinical
testing, also known as clinical trials or clinical studies, is either conducted
internally by pharmaceutical or biotech companies or is conducted on behalf
of
these companies by contract research organizations. The process of conducting
clinical studies is highly regulated by the FDA, as well as by other government
and professional bodies. Below, we describe the principal framework in which
clinical studies are conducted, as well as describe a number of the parties
involved in these studies.
Preclinical
Testing
In
the
preclinical phase of development, the promising compound is subjected to
extensive laboratory and animal testing to determine if the compound is
biologically active and safe.
Protocols.
Before
commencing human clinical studies, the sponsor of a new drug must submit an
investigational new drug application, or IND, to the FDA. IND status allows
initiation of clinical investigation within 30 days of filing of the NDA if
the
FDA does not respond with questions during the 30-day period. The IND
application contains what is known in the industry as a protocol. A protocol
is
the blueprint for each drug study. The protocol sets forth, among other things,
the following:
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who
must be recruited as qualified
participants;
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how
often to administer the drug;
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what
tests to perform on the participants;
and
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what
dosage of the drug to give to the
participants.
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Institutional
Review Board.
An
institutional review board is an independent committee of professionals and
lay
persons that reviews clinical research studies involving human beings and is
required to adhere to guidelines issued by the FDA. The institutional review
board does not report to the FDA, but its records are audited by the FDA. Its
members are not appointed by the FDA. An institutional review board must approve
all clinical studies. The institutional review board’s role is to protect the
rights of the participants in the clinical studies. It approves the protocols
to
be used, the advertisements that the company or contract research organization
conducting the study proposes to use to recruit participants, and the form
of
consent that the participants will be required to sign prior to their
participation in the clinical studies.
Clinical
Trials.
Human
clinical studies or testing of a potential product are generally done in three
stages known as Phase I through Phase III testing. The names of the phases
are
derived from the regulations of the FDA. Generally, there are multiple studies
conducted in each phase.
Phase
I.
Phase I
studies involve testing a drug or product on a limited number of healthy
participants, typically 24 to 100 people at a time. Phase I studies determine
a
drug’s basic safety and how the drug is absorbed by, and eliminated from, the
body. This phase lasts an average of nine months to a year.
Phase
II.
Phase
II trials involve testing up to 200 participants at a time who may suffer from
the targeted disease or condition. Phase II testing typically lasts an average
of one to two years. In Phase II, the drug is tested to determine its safety
and
effectiveness for treating a specific illness or condition. Phase II testing
also involves determining acceptable dosage levels of the drug. If Phase II
studies show that a new drug has an acceptable range of safety risks and
probable effectiveness, a company will continue to study the substance in Phase
III studies.
Phase
II
trials are sometimes combined with Phase III trials. These Phase II/III trials
differ from Phase II trials in that the trials involved may include more
patients and, at the sole discretion of the FDA, be considered the “pivotal”
trials, or trials that will form the basis for FDA approval.
Phase
III.
Phase
III studies involve testing large numbers of participants who suffer from the
targeted disease or condition, typically several hundred to several thousand
people. The purpose is to verify the effectiveness and long-term safety on
a
large scale. These studies generally last two to three years and are conducted
at multiple locations or sites. Like the other phases, Phase III requires the
site to keep detailed records of data collected and procedures
performed.
As
described above, for several of the product opportunities we are pursuing,
we
may apply for approval based upon a rule adopted by the FDA in 2002, titled
“Approval of New Drugs When Human Efficacy Studies Are Not Ethical or Feasible”
(Part 314, Subpart I), which is also referred to as the two animal rule.
Pursuant to this new rule, in situations where it would be unethical to conduct
traditional Phase II and Phase III efficacy studies in humans, as is the case
with countermeasures to a number of weapons of mass destruction, the FDA will
review new drugs for approval on the basis of safety in humans and efficacy
in
relevant animal models.
New
Drug Approval.
The
results of the clinical trials are submitted to the FDA as part of a new drug
application, or NDA. Following the completion of Phase III studies, assuming
the
sponsor of a potential product in the United States believes it has sufficient
information to support the safety and effectiveness of its product, it submits
an NDA to the FDA requesting that the product be approved for marketing. The
application is a comprehensive, multi-volume filing that includes the results
of
all clinical studies, information about the drug’s composition, and the
sponsor’s plans for producing, packaging and labeling the product. The FDA’s
review of an application can take a few months to several years, with the
average review lasting 18 months. Once approved, drugs and other products may
be
marketed in the United States, subject to any conditions imposed by the
FDA.
Phase
IV.
The FDA
may require that the sponsor conduct additional clinical trials following new
drug approval. The purpose of these trials, known as Phase IV studies, is to
monitor long-term risks and benefits, study different dosage levels or evaluate
safety and effectiveness. In recent years, the FDA has increased its reliance
on
these trials. Phase IV studies usually involve thousands of participants. Phase
IV studies also may be initiated by the company sponsoring the new drug to
gain
broader market value for an approved drug. For example, large-scale trials
may
also be used to prove the effectiveness and safety of new forms of drug delivery
for approved drugs. Examples may be using an inhalation spray versus taking
tablets or a sustained-release form of medication versus capsules taken multiple
times per day.
The
testing and approval process is likely to require substantial time and effort,
and there can be no assurance that any FDA approval will be granted on a timely
basis, if at all. The approval process is affected by a number of factors,
primarily the side effects of the drug (safety) and its therapeutic benefits
(efficacy). Additional preclinical or clinical trials may be required during
the
FDA review period and may delay marketing approval. The FDA may also deny an
NDA
if applicable regulatory criteria are not met.
The
FDA
reviews the results of the clinical trials and may order the temporary or
permanent discontinuation of clinical trials at any time if it believes the
drug
candidate exposes clinical subjects to an unacceptable health
risk.
Fact
Track Approval.
On
November 21, 1997, former President Clinton signed into law the Food and
Drug Administration Modernization Act. That law codified the FDA’s policy of
granting “Fast Track” approval for cancer therapies and other therapies intended
to treat serious or life threatening diseases and that demonstrate the potential
to address unmet medical needs. The Fast Track program emphasizes close, early
communications between the FDA and the applicant to improve the efficiency
of
preclinical and clinical development, and to reach agreement on the design
of
the major clinical efficacy studies that will be needed to support approval.
Under the Fast Track program, a sponsor also has the option to submit and
receive review of parts of the NDA or BLA on a rolling schedule approved by
the
FDA, which expedites the review process.
The
FDA’s
Guidelines for Industry Fast Track Development Programs require that a clinical
development program must continue to meet the criteria for Fast Track
designation for an application to be reviewed under the Fast Track Program.
Previously, the FDA approved cancer therapies primarily based on patient
survival rates or data on improved quality of life. While the FDA could consider
evidence of partial tumor shrinkage, which is often part of the data relied
on
for approval, such information alone was usually insufficient to warrant
approval of a cancer therapy, except in limited situations. Under these
Guidelines, Fast Track designation ordinarily allows a product to be considered
for accelerated approval through the use of surrogate endpoints to demonstrate
effectiveness. As a result of these provisions, the FDA has broadened authority
to consider evidence of partial tumor shrinkage or other surrogate endpoints
of
clinical benefit for approval. This new policy is intended to facilitate the
study of cancer therapies and shorten the total time for marketing approvals.
Under accelerated approval, the manufacturer must continue with the clinical
testing of the product after marketing approval to validate that the surrogate
endpoint did predict meaningful clinical benefit. To the extent applicable,
we
intend to take advantage of the Fast Track programs to obtain accelerated
approval on our future drugs, however, it is too early to tell what effect,
if
any, these provisions may have on the approval of our drug
candidates.
Orphan
Drug Act.
The
Orphan Drug Act provides incentives to develop and market drugs for rare disease
conditions in the United States. A drug that receives orphan drug designation
and is the first product to receive FDA marketing approval for its product
claim
is entitled to a seven-year exclusive marketing period in the United States
for
that product claim. Although we may not obtain it, we plan to seek orphan drug
status for marketing protection from the FDA for the use of Curaxin CBLC102
in
the treatment of RCC, soft-tissue sarcoma and hormone refractory prostate
cancer. However, it should be noted that a drug that is considered by the FDA
to
be different than such FDA-approved orphan drug, is not barred from sale in
the
United States during this exclusive marketing period, even if it receives
approval for the same claim.
The
FDA
requires that any drug or formulation to be tested in humans be manufactured
in
accordance with its current GMP regulations. The current GMP regulations set
certain minimum requirements for procedures, record-keeping and the physical
characteristics of the laboratories used in the production of these
drugs.
Following
any initial regulatory approval of any drugs we may develop, we will also be
subject to continuing regulatory review, including the review of adverse
experiences and clinical results that are reported after our drug candidates
are
made commercially available. This will include results from any post-marketing
tests or vigilance required as a condition of approval. The manufacturer and
manufacturing facilities we use to make any of our drug candidates will also
be
subject to periodic review and inspection by the FDA. The discovery of any
previously unknown problems with the drug, manufacturer or facility may result
in restrictions on the drug, manufacturer or facility, including withdrawal
of
the drug from the market. We do not have, and currently do not intend to
develop, the ability to manufacture material for our clinical trials or on
a
commercial scale. Reliance on third-party manufacturers entails risks to which
we would not be subject if we manufactured drugs ourselves, including reliance
on the third-party manufacturer for regulatory compliance. Our drug promotion
and advertising is also subject to regulatory requirements and continuing FDA
review.
Sales
outside the U.S. of products that we develop will also be subject to regulatory
requirements governing human clinical trials and marketing for drugs and
biological products and devices. The requirements vary widely from country
to
country, but typically the registration and approval process takes several
years
and requires significant resources. In most cases, even if the FDA has not
approved a product for sale in the U.S., the product may be exported to any
country if it complies with the laws of that country and has valid marketing
authorization by the appropriate authority. There are specific FDA regulations
that govern this process.
We
also
are subject to the following risks and obligations, among others:
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The
FDA or foreign regulators may interpret data from pre-clinical testing
and
clinical trials differently than we interpret
them.
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If
regulatory approval of a product is granted, the approval may be
limited
to specific indications or limited with respect to its distribution. In
addition, many foreign countries control pricing and coverage under
their
respective national social security
systems.
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The
FDA or foreign regulators may not approve our manufacturing processes
or
manufacturing facilities.
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The
FDA or foreign regulators may change their approval policies or adopt
new
regulations.
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Even
if regulatory approval for any product is obtained, the marketing
license
will be subject to continual review, and newly discovered or developed
safety or effectiveness data may result in suspension or revocation
of the
marketing license.
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If
regulatory approval of the product candidate is granted, the marketing
of
that product would be subject to adverse event reporting requirements
and
a general prohibition against promoting products for unapproved or
“off-label” uses.
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In
some foreign countries, we may be subject to official release requirements
that require each batch of the product we produce to be officially
released by regulatory authorities prior to its distribution by
us.
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We
will be subject to continual regulatory review and periodic inspection
and
approval of manufacturing modifications, including compliance with
current
GMP regulations.
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The
manufacturing and marketing of our proposed products and our R&D activities
are and will continue to be subject to regulation by federal, state and local
governmental authorities in the U.S. and other countries. In the U.S.,
pharmaceuticals are subject to rigorous regulation by the FDA, which reviews
and
approves the marketing of drugs. The Federal Food, Drug and Cosmetic Act, the
regulations promulgated thereunder, and other federal and state statutes and
regulations govern, among other things, the testing, manufacturing, labeling,
storage, record keeping, advertising and promotion of our potential
products.
Other
Regulations
Various
federal and state laws, regulations, and recommendations relating to safe
working conditions, laboratory practices, the experimental use of primates,
and
the purchase, storage, movements, import, export, use and disposal of hazardous
or potentially hazardous substances, including radioactive compounds and
infectious disease agents, are applicable to our activities. They include,
among
others, the United States Atomic Energy Act, the Clean Air Act, the Clean Water
Act, the Occupational Safety and Health Act, the National Environmental Policy
Act, the Toxic Substances Control Act, the Resources Conservation and Recovery
Act, national restrictions on technology transfer, import, export, and customs
regulations and other present and possible future local, state, or federal
regulation. The extent of government regulation that might result from future
legislation or administrative action cannot be accurately
predicted.
Hazardous
Materials
Our
R&D processes involve the controlled use of hazardous materials, chemicals
and radioactive materials and produce waste products. We are subject to federal,
state and local laws and regulations governing the use, manufacture, storage,
handling and disposal of hazardous materials and waste products. We do not
expect the cost of complying with these laws and regulations to be material.
We
have no manufacturing capabilities. We plan to rely on third parties to
manufacture bulk compounds and finished investigational medicines for clinical
trials. Commercial quantities of any drugs that we may seek to develop will
have
to be manufactured in facilities and by processes that comply with FDA and
other
regulations. We plan to rely on third parties to manufacture commercial
quantities of any products that we successfully develop.
Manufacturing
We
do not
intend to establish or operate facilities to manufacture our drug candidates,
and therefore will be dependent upon third parties to do so. As we develop
new
products or increase sales of any existing product, we must establish and
maintain relationships with manufacturers to produce and package sufficient
supplies of our finished pharmaceutical products. We have established a
relationship with SynCo Bio Partners B.V., a leading biopharmaceutical
manufacturer, to produce Protectan CBLB502 under cGMP specifications, and have
signed an agreement to produce sufficient amounts for clinical trials and the
commercial market. For CBLC102, we have contracted Regis Technologies, Inc.
and
Aptuit, LLC to manufacture sufficient amounts for clinical trials.
Reliance
on third party manufacturing presents several risks, including the
following:
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delays
in the delivery of quantities needed for multiple clinical trials
or
failure to manufacture such quantities to our specifications, either
of
which could cause delays in clinical trials, regulatory submissions
or
commercialization of our drug
candidates;
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inability
to fulfill our commercial needs in the event market demand for our
drug
candidates suddenly increases, which may require us to seek new
manufacturing arrangements, which, in turn, could be expensive and
time
consuming; and
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ongoing
inspections by the FDA and other regulatory authorities for compliance
with rules, regulations and standards, the failure to comply with
which
may subject us to, among other things, product seizures, recalls,
fines,
injunctions, suspensions or revocations of marketing licenses, operating
restrictions and criminal
prosecution.
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As
of the
date of this prospectus, we have 38 employees.
Facilities
Our
corporate headquarters is currently located at 73 High Street, Buffalo, New
York
14203, where we have leased approximately 28,000 square feet of space through
June 30, 2012. We also continue to lease office space at 11000 Cedar Ave.,
Suite 290, Cleveland, Ohio 44106, on a month to month basis. In addition,
we
have leased approximately 1,300 square feet of office space located at 9450
W.
Bryn Mawr Rd., Rosemont, Illinois, 60018 through August 2011.
Litigation
As
of the
date of this prospectus, we are not a party to any litigation or other legal
proceeding.
Independent
Accountants
On
May 25, 2005, we engaged the accounting firm of Meaden & Moore, Ltd. as
our independent accountants. Meaden & Moore replaced our previous
accountants Hausser & Taylor, LLC. Hausser & Taylor, which had audited
our financial statements for the years ending December 31, 2003 and 2004,
had been engaged in late May 2005 to reissue their opinion specifically to
remove the going concern clause as a result of our $6 million Series A
Preferred Stock financing. During the course of that engagement, Hausser &
Taylor notified us that as a result of their having provided assistance to
management in the drafting of notes to the financial statements, they could
not
satisfy the independence requirement of the SEC. Meaden & Moore has
reaudited our financial statements for the years ended December 31, 2003
and 2004. The change in accountants was approved by our board of
directors.
In
connection with our audits for the years ended December 31, 2003 and 2004,
and during the period from the date of its audit of our financial statements
for
the year ended December 31, 2003 through May 25, 2005, there were no
disagreements with Hausser & Taylor on any matter of accounting principles
or practices, financial statement disclosure or auditing scope or procedure,
which disagreements if not resolved to the satisfaction of Hausser & Taylor
would have caused them to make reference to the disagreement in their report
on
our financial statements for those years. During the two most recent fiscal
years, there have been no reportable events, as described in Regulation S-B
Item
304(a)(1)(v) promulgated under the Securities Act.
Private
Placement
On
March
16, 2007, pursuant to a Securities Purchase Agreement of the same date, we
consummated a transaction with various accredited investors in which we agreed
to sell to the investors, in a private placement, Series B Preferred convertible
into an aggregate of approximately 4,288,712 shares of common stock, and Series
B Warrants to purchase approximately 2,144,356 shares of our common stock.
The
aggregate purchase price paid by the investors for the Series B Preferred and
Series B Warrants was approximately $30,000,000. After related fees and
expenses, we received net proceeds of approximately $29,000,000. We intend
to
use the proceeds for general corporate and working capital
purposes.
Sunrise
Securities Corp., or SSC, Reedland Capital Partners, an Institutional Division
of Financial West Group, and Basic Investors, Inc., served as placement agents
for the transaction. In consideration for their services, each agent (or its
designees) received compensation as follows: SSC received Series B Preferred
convertible into an aggregate of 290,298 shares of common stock, Series B
Warrants to purchase an aggregate of 145,149 shares of common stock, and Series
C Warrants, bearing an exercise price of $11.00 per share, to purchase 267,074
shares of common stock; Reedland received Series B Warrants to purchase an
aggregate of 63,543 shares of common stock and cash compensation (in lieu of
Series B Preferred and additional Series B Warrants) of $444,800; Basic
Investors received Series B Warrants to purchase an aggregate of 12,480 shares
of Common Stock and cash compensation (in lieu of Series B Preferred and
additional Series B Warrants) of $87,360.
In
the
aggregate, the Series B Preferred and the Series B Warrants issued in the
transaction are convertible for and exercisable into, as of the date hereof,
approximately 6,944,538 shares of common stock (subject to adjustments in the
event of certain corporate events such as stock splits, or issuances of
securities at a price below the conversion price of the Series B Preferred
or
the exercise price of the Warrants, as the case may be). Nasdaq Marketplace
Rule
4350(i)(1)(D)(ii) requires that, for the sale, issuance or potential issuance
by
us of common stock (or securities convertible into or exercisable for common
stock) equal to 20% or more of the common stock outstanding before the issuance,
for less than the greater of book or market value of the common stock, we must
obtain stockholder approval for the issuance. Accordingly, the conversion of
the
Series B Preferred and the exercise of the Warrants into common stock by their
respective holders was submitted for approval and was approved by our
stockholders at our 2007 annual stockholders meeting.
The
table
below calculates and sets forth the approximate total discount to market
price
of the Series B Preferred sold in the private placement.
DISCOUNT
TO MARKET PRICE OF COMMON STOCK
UPON
CONVERSION OF SERIES B PREFERRED
Market
Price Per Share of Common Stock Underlying Series B
Preferred1
($)
|
|
|
Conversion
Price Per Share of Series B Preferred
($)
|
|
|
Total
Possible Shares of Common Stock Underlying Series B
Preferred
|
|
|
Combined
Market Price of Common Stock Underlying Series B
Preferred
($)
|
|
|
Combined
Conversion Price of Series B Preferred
($)
|
|
|
Total
Possible Discount
to
the Combined Market Price Upon Conversion of Series B
Preferred
($)
|
|
10.l9
|
|
|
7.00
|
|
|
4,579,010
|
|
|
46,660,111.902
|
|
|
30,020,984.003
|
|
|
16,639,127.904
|
|
1
The market price per share of common stock underlying Series B
Preferred is
calculated based on the closing price of our common stock on March
16, 2007, as
quoted on the Nasdaq Capital Market, of $10.19.
2
Calculated as the product of the 4,579,010 total possible shares
of common stock
underlying Series B Preferred and the closing price of our common
stock on March
16, 2007, as quoted on the Nasdaq Capital Market, of $10.19.
3 Calculated
as the product of the 4,288,712 shares of common stock underlying
Series B
Preferred that was purchased in the private placement (excluding
the Series B
Preferred, convertible into 290,298 shares of common stock, that
was issued as
consideration for the services of SSC as placement agent), and
the conversion
price per share of Series B Preferred of $7.00.
4 Calculated
as the difference between the combined market price of common stock
underlying
Series B Preferred and the combined conversion price of Series
B
Preferred.
Notwithstanding
the conversion rights of the Series B
Preferred holders and us, and the exercise rights of the holders of Series
B
Warrants and us, we may not issue any shares of common stock in conversion
of
the Series B Preferred or in exercise of any Series B Warrant if the conversion
or exercise would either (1) cause the applicable holder to beneficially own
a
number of shares of common stock that exceeds 9.99% of the number of shares
of
common stock outstanding after giving effect to the conversion or exercise,
or
(2) cause us to issue a number of shares of common stock that would exceed
the
number of shares of common stock that we can issue under the rules and
regulations of the exchange on which those shares are traded. The holders of
Series C Warrants may exercise at any time after September 16, 2007 until
expiration
In
connection with obtaining stockholder approval of the foregoing issuances,
on
March 16, 2007 we entered into a Voting Agreement with Michael Fonstein, Andrei
Gudkov, Yakov Kogan, the Cleveland Clinic, ChemBridge, Sunrise Equity Partners
L.P., or SEP, and SSC, each of whom agreed to vote in favor of authorizing
the
issuance of the shares of common stock underlying all of the Series B Preferred
and the Warrants. In the aggregate, these parties to the Voting Agreement,
together with holders of the Series B Preferred that were eligible to vote
at
the 2007 annual stockholders meeting, held approximately 63% of all votes
entitled to be cast as of the record date.
SEP,
one
of the investors, together with its affiliates is a holder of more than 10%
of
our outstanding common stock. In the transaction, SEP purchased Series B
Preferred convertible into 600,000 shares of common stock and received Series
B
Warrants to purchase 300,000 shares of common stock. As mentioned above, we
also
issued Series B Preferred convertible into 290,298 shares of common stock,
Series B Warrants to purchase an aggregate of 145,149 shares of Common Stock,
and Series C Warrants to purchase 267,074 shares of common stock to SSC, an
affiliate of SEP, in consideration for its services as lead placement agent.
We
also engaged SSC as our exclusive management agent regarding all exercises
of
the Warrants, for which we will pay SSC a fee equal to 3.5% of the aggregate
exercise price of each Warrant, payable in cash if the exercise is in cash
or in
shares of common stock if the exercise is cashless.
The
table below sets forth the approximate dollar
amount of consideration and the form of consideration paid to any selling
stockholder or affiliate of any selling stockholder in connection with the
private placement.
PAYMENTS
TO SELLING STOCKHOLDERS AND AFFILIATES
Selling
Stockholders
|
|
Value
of Payments in Series B Preferred1
($)
|
|
Cash
Payments
($)
|
|
Warrant
Management Fees
($)
|
|
Totals
($)
|
|
Sunrise
Securities Corp.
|
|
|
531,653.062
|
|
|
-
|
|
|
960,563.943
|
|
|
1,492,217.00
|
|
Amnon
Mandelbaum
|
|
|
741,536.494
|
|
|
-
|
|
|
-
|
|
|
741,536.49
|
|
David
Goodfriend
|
|
|
82,396.345
|
|
|
-
|
|
|
-
|
|
|
82,396.34
|
|
Eric
Abitbol
|
|
|
2,323.326
|
|
|
-
|
|
|
-
|
|
|
2,323.32
|
|
Jeffrey
Meyerson
|
|
|
33,555.677
|
|
|
-
|
|
|
-
|
|
|
33,555.67
|
|
Jewish
Communal Fund--Bone Marrow Testing Fund #3761
|
|
|
81,520.008
|
|
|
-
|
|
|
-
|
|
|
81,520.00
|
|
Nathan
Low
|
|
|
1,191,037.779
|
|
|
-
|
|
|
-
|
|
|
1,191,037.77
|
|
Paul
Scharfer
|
|
|
140,275.5410
|
|
|
-
|
|
|
-
|
|
|
140,275.54
|
|
Peter
Weprin
|
|
|
1,660.9711
|
|
|
-
|
|
|
-
|
|
|
1,660.97
|
|
Robert
Fuchs
|
|
|
1,324.7012
|
|
|
-
|
|
|
-
|
|
|
1,324.70
|
|
Sam
Berger
|
|
|
150,852.7613
|
|
|
-
|
|
|
-
|
|
|
150,852.76
|
|
Reedland
Capital Partners14
|
|
|
-
|
|
|
444,800.00
|
|
|
-
|
|
|
444,800.00
|
|
Basic
Investors, Inc.15
|
|
|
-
|
|
|
87,360.00
|
|
|
-
|
|
|
87,360.00
|
|
Schulte
Roth & Zabel LLP Legal Fees for counsel to Placement
Agent
|
|
|
-
|
|
|
95,000.00
|
|
|
-
|
|
|
95,000.00
|
|
Totals
($)
|
|
|
2,958,136.62
|
|
|
627,160.00
|
|
|
960,563.94
|
|
|
4,545,860.56
|
|
Our
gross
proceeds from the private placement were approximately $30,020,984,
our related
fees and expenses were approximately $1,000,000, and, as calculated
in the table
above, the total possible payments (in cash and equity) to the
selling
stockholders and their affiliates are approximately $4,545,861.
1
The value of the Series B Preferred is calculated based on
the closing price of
our common stock on March 16, 2007, as quoted on the Nasdaq
Capital Market, of
$10.19.
2
In
consideration for its services as placement agent, SSC received
Series B
Preferred convertible into 52,174 shares of common stock.
3
In
consideration for its services as exclusive management agent
regarding all
exercises of Series B Warrants and Series C Warrants, we will
pay SSC a fee
equal to 3.5% of the aggregate exercise price of each Warrant.
This calculation
is based on Series B Warrants to purchase 2,365,528 shares
of our common stock
at an exercise price of $10.36 per share, and Series C Warrants
to purchase
267,074 shares of our common stock at an exercise price of
$11.00 per share. For
purposes of this calculation, it is assumed that all Warrants
are exercised, and
that cash is used for all exercises.
4
As a
designee of SSC, Mr. Mandelbaum received Series B Preferred
convertible into
72,771 shares of common stock.
5
As a
designee of SSC, Mr. Goodfriend received Series B Preferred
convertible into
8,086 shares of common stock.
6
As a
designee of SSC, Mr. Abitbol received Series B Preferred convertible
into 228
shares of common stock.
7
As a
designee of SSC, Mr. Meyerson received Series B Preferred convertible
into 3,293
shares of common stock.
8
As a
designee of SSC, Jewish Communal Fund--Bone Marrow Testing
Fund #3761 received
Series B Preferred convertible into 8,000 shares of common
stock.
9
As a
designee of SSC, Mr. Low received Series B Preferred convertible
into 116,883
shares of common stock.
10
As a
designee of SSC, Mr. Scharfer received Series B Preferred convertible
into
13,766 shares of common stock.
11
As a
designee of SSC, Mr. Weprin received Series B Preferred convertible
into 163
shares of common stock.
12 As
a designee of SSC, Mr. Fuchs received Series B Preferred convertible
into 130
shares of common stock.
13 As
a designee of SSC, Mr. Berger received Series B Preferred convertible
into
14,804 shares of common stock.
14 Reedland
Capital Partners, an Institutional Division of Financial West
Group, served as
one of the placement agents in the transaction and elected
to receive cash
compensation in lieu of Series B Preferred and Series B
Warrants.
15 Basic
Investors, Inc. served as one of the placement agents in the
transaction and
elected to receive cash compensation in lieu of Series B Preferred
and Series B
Warrants.
The
table
below summarizes the proceeds received by us after
subtracting any payments (in
cash or in stock) made or to be made to any selling
stockholder or affiliate of
any selling stockholder in connection with the private
placement. The
table also sets forth, as a percentage of proceeds, the amount of such
payments and the discount to market price of the Series
B Preferred sold in the
private placement.
COMPARISON
OF PROCEEDS TO POTENTIAL INVESTOR PROFIT
Gross
Proceeds
|
|
|
$
30,020,984.00
|
|
Less
Payments Made:
|
|
|
|
|
Placement
Agent Fees in Series B
Preferred
|
|
|
2,958,136.62
|
|
Placement
Agent Fees in Cash
|
|
|
532,160.00
|
|
Schulte
Roth & Zabel LLP Legal Fees
|
|
|
95,000.00
|
|
Less
Payments that may be Made:
|
|
|
|
|
For
Warrant Management Fees
|
|
|
960,563.94
|
|
Net
Proceeds1
|
|
|
25,475,123.44
|
|
|
|
|
|
|
Total
Possible Profit to be Realized from Total Possible
Discount to Market
Price Upon Conversion of Series B Preferred
|
|
|
16,639,127.90
|
|
|
|
|
|
|
Combined
Payments Made and Payments to be Made as a Percentage
of Net
Proceeds
|
|
|
17.84
|
%
|
Total
Possible Profit to be Realized from Total Possible
Discount as a
Percentage of Net Proceeds
|
|
|
65.32
|
%
|
_____________________
1Net
Proceeds does not reflect fees and expenses that we incurred
and paid directly
to our legal counsel, accountants and other service providers
in connection with
the private placement of Series B Preferred and the Series
B Warrants and Series
C
Warrants.
Executive
Officers and Directors
The
following are our executive officers and directors and their respective ages
as
of August 7, 2007.
Name
|
|
Age
|
|
Position
|
|
|
|
|
|
Bernard
L. Kasten
|
|
61
|
|
Director,
Chairman of the Board
|
James
Antal
|
|
56
|
|
Director
|
Paul
DiCorleto
|
|
56
|
|
Director
|
Michael
Fonstein
|
|
47
|
|
Director,
President and Chief Executive Officer
|
Andrei
Gudkov
|
|
50
|
|
Director,
Chief Scientific Officer
|
Yakov
Kogan
|
|
34
|
|
Director,
Executive Vice President of Business Development,
Secretary
|
H.
Daniel Perez
|
|
58
|
|
Director
|
John
A. Marhofer Jr.
|
|
45
|
|
Chief
Financial Officer
|
Bernard
L. Kasten, M.D.
Dr.
Kasten became a member of our board on July 20, 2006 and was appointed Chairman
of the Board on August 30, 2006. From 1995 to 2004, Dr. Kasten served at Quest
Diagnostics Incorporated where he was Chief Laboratory Officer and most recently
Vice President of Medical Affairs of the MedPlus Inc. Subsidiary. Dr.
Kasten served as a director of SIGA Technologies from May 2003 to December
2006, and as SIGA’s Chief Executive Officer from July 2004 through April 2006.
Dr. Kasten currently serves as a director of GeneLink Inc. and SeraCare Life
Sciences Inc. Dr. Kasten is also a director of several privately held companies.
Dr. Kasten is a graduate of the Ohio State University College of Medicine.
His
residency was served at the University of Miami, Florida and he was awarded
fellowships at the National Institutes of Health Clinical Center and NCI,
Bethesda, Maryland. He is a diplomat of the American Board of Pathology with
certification in anatomic and clinical pathology with sub-specialty
certification in Medical Microbiology.
James
J. Antal
Mr.
Antal became a member of our board on July 20, 2006. Mr. Antal served as Chief
Financial Officer of Experian from 1996 to 2001 and as Chief Investment Officer
of Experian from 2001 to 2002. Experian is a leading global provider of consumer
and business credit information, direct marketing information services, and
integrated customer relationship management processes. He also served on the
Board of Directors of First American Real Estate Solutions; an Experian joint
venture with First American Financial Corp. Mr. Antal earned a Bachelor of
Science degree in Business Administration with an Accounting major from The
Ohio
State University in 1973. He became a Certified Public Accountant (Ohio) in
1975. Starting in 2002, Mr. Antal served as an advisor to the board of directors
for Plexus Vaccine, Inc., a biotech company, until it was acquired by SIGA
Technologies in 2004. In December 2004, he joined the SIGA board of directors,
and also currently serves on its audit and corporate governance committees.
From May 2004 to August 2005, he was engaged as the Chief Financial Advisor
to
the Black Mountain Gold Coffee Co. In July 2005, he joined Pathway Data Inc,
a
privately held company engaged in consumer credit notification and identity
theft assistance services, as its part-time Chief Financial
Officer.
Paul
E. DiCorleto, Ph.D.
Dr.
DiCorleto has served as one of our directors since 2004. He is the Chairman
of
the Lerner Research Institute of the Cleveland Clinic and Chairman of the
Department of Molecular Medicine at the Case School of Medicine. Dr. DiCorleto
received his undergraduate training in chemistry at Rensselaer Polytechnic
Institute and his doctorate in biochemistry from Cornell University. Dr.
DiCorleto’s research focuses on the molecular and cellular basis of
atherosclerosis. He has been with the Cleveland Clinic since 1981, having served
previously as Chairman of the Department of Cell Biology, as an Associate Chief
of Staff, and as a member of the Clinic’s Board of Governors and Board of
Trustees. Dr. DiCorleto is currently serving, as the most recent past president,
on the Executive Committee of the North American Vascular Biology Organization,
as chair of the Vascular Biology study section of the national American Heart
Association, and as a member of the Association of American Medical Colleges’
Advisory Panel on Research.
Michael
Fonstein, Ph.D.
Dr.
Fonstein has served as our Chief Executive Officer and President since our
inception in June 2003. He served as Director of the DNA Sequencing Center
at
the University of Chicago from its creation in 1994 to 1998, when he left to
found Integrated Genomics, Inc. located in Chicago, Illinois. He served as
CEO
and President of Integrated Genomics from 1997 to 2003. Dr. Fonstein has won
several business awards, including the Incubator of the Year Award from the
Association of University Related Research Parks. He was also the winner of
a
coveted KPMG Illinois High Tech Award.
Andrei
Gudkov, Ph.D., D. Sci.
Dr.
Gudkov has served as one of our directors and as our Chief Scientific Officer
since our inception in June 2003. Prior to 1990, he worked at The National
Cancer Research Center in Moscow, where he led a broad research program focused
on virology and cancer drug resistance. In 1990, he reestablished his lab at
the
University of Illinois at Chicago where he became a tenured faculty member
in
the Department of Molecular Genetics. His lab concentrated on the development
of
new functional gene discovery methodologies and the identification of new
candidate cancer treatment targets. In 1999, he defined p53 as a major
determinant of cancer treatment side effects and suggested this protein as
a
target for therapeutic suppression. In 2001, Dr. Gudkov moved his laboratory
to
the Lerner Research Institute at the Cleveland Clinic where he became Chairman
of the Department of Molecular Biology and Professor of Biochemistry at Case
Western Reserve University. Dr. Gudkov has agreed to become Senior Vice
President of Research Programming and Development for Roswell Park Cancer
Institute effective April 2007. He will continue in his capacity as a
consultant with CBL.
Yakov
Kogan, Ph.D.
Dr.
Kogan has served as one of our directors and as our Executive Vice President
of
Business Development since our inception in June 2003 and as Secretary since
March 2006. From 2001 to 2004, as Director for Business Development at
Integrated Genomics, he was responsible for commercial sales and expansion
of
the company’s capital base. Prior to his tenure in business development, Dr.
Kogan worked as a Group Leader/Senior Scientist at Integrated Genomics and
ThermoGen, Inc. and as Research Associate at the University of Chicago. Dr.
Kogan holds a Ph.D. degree in Molecular Biology from VNII Genetica, as well
as
an M.S. degree in Biology from Moscow State University.
H.
Daniel Perez, M.D.
Dr.
Perez became a member of our board on July 20, 2006. Dr. Perez is currently
a
Venture Partner at Bay City Capital, LLC, a venture firm located in San
Francisco. From 2001 until 2006, Dr. Perez was the President and CEO of Berlex
Biosciences. He joined Berlex Biosciences in 1993. Berlex Biosciences combined
biotechnology and pharmaceutical discovery and development technologies to
deliver innovative treatments for cardiovascular, cancer and immuno-based
disorders. He earned his undergraduate degree at Mariano Moreno School,
Argentina and graduated from Buenos Aires University Medical School. After
completing an internship and residency in internal medicine at Beth Israel
Medical Center in New York, Dr. Perez was a Fellow in Rheumatology at New York
University-Bellevue Medical Center. He served on the NYU faculty until he was
recruited by the University of California at San Francisco (UCSF) Medical School
to start the Rosalind Russell Arthritis Center at San Francisco General Hospital
under the direction of Dr. Ira Goldstein. Dr. Perez is currently a Professor
of
Medicine at UCSF.
John
(Jack) A. Marhofer, Jr., CMA, CFM
Mr.
Marhofer joined us as Controller and General Manager in February 2005 and was
subsequently appointed to be our Chief Financial Officer in August 2005. He
was
Corporate Controller of Litehouse Products, Inc. from June 2001 to February
2005. Mr. Marhofer earned his Bachelor of Science in Accounting and Marketing
from Miami University in Ohio in 1984, and his Masters in Business
Administration in Finance from Akron University in Ohio in 1997, where he was
named to the National Honor Society of the Financial Management
Association.
Director
Independence
In
accordance with Nasdaq Marketplace Rule 4350(c), and the standard of
independence defined in Nasdaq Marketplace Rule 4200(a)(15), a majority of
CBL’s
Board of Directors are "independent directors.” CBL’s independent directors are
James J. Antal, Paul E. DiCorleto, Bernard L. Kasten, and H. Daniel Perez.
In
making the determination of independence with respect to Dr. DiCorleto, the
Nominating and Corporate Governance Committee of the Board of Directors, which
at the time consisted of Messrs. Antal, Kasten, and Perez, considered Dr.
DiCorleto’s affiliation with the Cleveland Clinic and satisfied itself that this
affiliation does not detract or interfere with Dr. DiCorleto’s ability to
exercise independent judgment in carrying out his responsibilities as director
and serving the best interests of our stockholders. Messrs. Antal, Kasten and
Perez make up our Compensation Committee and Audit Committee. Messrs. DiCorleto,
Kasten and Perez make up our Nominating and Corporate Governance
Committee. As members of CBL’s Audit Committee, Messrs. Antal, Kasten, and
Perez meet the additional independence requirements for audit committee members
under Nasdaq Marketplace Rule 4350(d). Specifically, Messrs. Antal, Kasten,
and
Perez satisfy the criteria for independence set forth in Rule 10a-3(b)(1) under
the Securities Exchange Act of 1934, as amended, or Exchange Act, and have
not
participated in the preparation of the financial statements of the company
or
any current subsidiary of the company at any time during the past three
years.
Audit
Committee
The
audit
committee consists of three directors elected by a majority of the board. The
members of our audit committee comply with the independence requirements of
the
Nasdaq Capital Market and the rules of the SEC under the Exchange Act and
include at least one audit committee financial expert. The current members
of
this committee are Messrs. Antal, Kasten and Perez, with Mr. Antal serving
as
chairperson and as the audit committee financial expert.
The
audit
committee is responsible for the following:
·
|
reviewing
the results of the audit engagement with the independent registered
public
accounting firm;
|
·
|
identifying
irregularities in the management of our business in consultation
with our
independent accountants, and suggesting an appropriate course of
action;
|
|
|
·
|
reviewing
the adequacy, scope, and results of the internal accounting controls
and
procedures;
|
·
|
reviewing
the degree of independence of the auditors, as well as the nature
and
scope of our relationship with our independent registered public
accounting firm; and
|
·
|
reviewing
the auditors’ fees.
|
Compensation
Committee
The
compensation committee consists of three directors elected by a majority of
the
board. The members of our compensation committee comply with the independence
requirements of the Nasdaq Capital Market and the rules of the SEC under the
Exchange Act. The current members of this committee are Messrs. Kasten, Antal
and Perez, with Mr. Kasten serving as chairperson.
The
compensation committee determines the salaries and incentive compensation of
our
officers and will provide recommendations for the incentive compensation of
our
other employees and consultants. When determining the long-term incentive
component of executive compensation, the compensation committee considers our
performance and relative shareholder return, the value of similar incentive
awards to executive officers in comparable positions at comparable companies,
and awards given to our executive officers in past years.
From
time
to time, the compensation committee may utilize the services of independent
consultants to perform analyses and to make recommendations to the committee
relative to executive compensation matters. No compensation consultant has
so
far been retained by us.
Nominating
and Corporate Governance Committee
The
nominating and corporate governance committee consists of three directors
elected by a majority of the board. The members of our nominating and corporate
governance committee comply with the independence requirements of the Nasdaq
Capital Market and the rules of the SEC under the Exchange Act. The current
members of this committee are Messrs. Kasten, DiCorleto and Perez, with Mr.
Kasten serving as chairperson.
The
functions of the nominating and corporate governance include the
following:
·
|
identifying
and recommending to the board of directors individuals qualified
to serve
as directors of the company and on the committees of the
board;
|
·
|
advising
the board with respect to matters of board composition, procedures
and
committees;
|
·
|
developing
and recommending to the board a set of corporate governance principles
applicable to us and overseeing corporate governance matters generally;
and
|
·
|
overseeing
the annual evaluation of the board and our
management.
|
Codes
of Conduct and Ethics
We
have
adopted a code of conduct that applies to our officers, employees and directors,
including our principal executive officers, principal financial officers and
principal accounting officers and a code of ethics applicable to our senior
executives. Copies of each of these codes are available on our website. Among
their provisions, these codes set forth written standards that are designated
to
deter wrongdoing and to promote:
·
|
honest
and ethical conduct, including the ethical handling of actual or
apparent
conflicts of interest between personal and professional
relationships;
|
|
|
·
|
full,
fair, accurate, timely and understandable disclosure in reports and
documents that we file with, or submit to, the SEC and in other public
communications made by us; and
|
|
|
·
|
compliance
with applicable governmental laws, rules and
regulations.
|
We
have
also adopted a whistleblower policy setting forth procedures for the prompt
internal reporting of violations of company policies or law to an appropriate
person or persons identified therein.
The
following table sets forth the amount of compensation during the years ended
December 31, 2006 by our chief executive officer and our two most highly
compensated executive officers (other than our chief executive
officer):
Summary
Compensation Table
Name
and Principal Position
|
|
|
|
|
|
|
|
|
|
|
|
Non-Equity
Incentive
Plan
Compens-
ation
($)
|
|
Non-
Qualified
Deferred Compens
-ation
Earnings
($)
|
|
All
Other
Compensation
($)
|
|
|
|
Michael
Fonstein
Chief
Executive Officer
|
|
|
2006
2005
|
|
|
191,667
155,000
|
|
|
35,375
-
|
|
|
-
-
|
|
|
-
-
|
|
|
-
-
|
|
|
-
-
|
|
|
-
-
|
|
|
227,042
155,000
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yakov
N. Kogan
Executive
Vice President
|
|
|
2006
2005
|
|
|
166,667
143,725
|
|
|
34,500
-
|
|
|
-
-
|
|
|
-
-
|
|
|
-
-
|
|
|
-
-
|
|
|
48,855
-
|
(4)
|
|
250,022
143,725
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John
A. Marhofer, Jr.
Chief
Financial Officer
|
|
|
2006
2005
|
|
|
90,000
64,460
|
|
|
17,750
558
|
|
|
-
-
|
|
|
49,559
18,552
|
|
|
-
-
|
|
|
-
-
|
|
|
-
-
|
|
|
157,309
83,571
|
|
(1)
|
Bonuses
earned in a given year are paid during the current and the next year.
For
example, the bonuses indicated as earned in respect of 2006 were
paid
in September of 2006 and January of
2007.
|
(2)
|
Option
award amounts are calculated using the provisions of Statement of
Financial Accounting Standards (“SFAS”) No. 123R, Share-Based Payment.
Further details can be found in Item 6 under “Critical Accounting Policies
- Stock
Based Compensation
.”
|
(3)
|
Total
compensation figure does not include amounts for commuting from primary
residence in Chicago, Illinois of $9,083 for 2006 and $9,922 for
2005.
|
(4)
|
Represents
tuition reimbursement for masters in business administration
program.
|
CBL
entered into employment agreements dated as of August 1, 2004 with each of
Michael Fonstein, CBL’s Chief Executive Officer, and Yakov N. Kogan, CBL’s
Executive Vice President. For the year ended December 31, 2006, Dr. Fonstein’s
annual base salary was $191,667 and Dr. Kogan’s annual base salary was $166,667.
These agreements have three-year initial terms and are renewed pursuant to
their
terms for successive one-year periods, unless earlier terminated in accordance
with their terms. If either executive is terminated by CBL without cause as
described in the agreements, he would be entitled to severance pay equal to
nine
months of his annual salary. The agreements also contain standard
confidentiality, assignment of inventions, non-competition and non-solicitation
provisions to help protect the value of CBL’s intellectual property. Mr.
Marhofer does not have an employment agreement.
On
April
6, 2007, the Compensation Committee of the Board of Directors of CBL approved
the payment of cash bonuses and the issuance of stock options to Messrs.
Fonstein, Gudkov, Kogan, and Marhofer. The cash bonuses, consisting of $40,000
to each individual, were paid in April 2007. The stock options vested
immediately and provide the right to purchase the Company’s common stock, $0.005
par value per share, at an exercise price of $8.36 per share. Messrs. Fonstein,
Gudkov, and Kogan each received 37,500 options, and Mr. Marhofer received 25,000
options.
Outstanding
Equity Awards at Fiscal Year-End
Below
is
information relating to unexercised options held by John A. Marhofer, Jr.,
our
Chief Financial Officer, as of December 31, 2006. No other named executive
officer held any unexercised options or unvested stock as of such
date.
|
|
Option
Awards
|
|
|
|
|
|
|
|
Number
of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
|
|
Number
of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
|
|
Equity
Incentive
Plan
Awards:
Number
of
Securities
Underlying
Unexercised
Unearned
Options
(#)
|
|
Option
Exercise
Price
($)
|
|
Option
Expiration
Date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John
A. Marhofer, Jr.
|
|
|
5,000 11,592
|
|
|
15,000 11,592
|
|
|
- -
|
|
|
4.50 0.67
|
|
|
2/28/2016 6/30/2015
|
|
The
vesting dates for the option awards in the table above are as
follows:
Options
to acquire 20,000 shares of common stock expiring on 2/28/2016:
Options
to acquire 5,000 shares of common stock immediately vested on grant date of
3/1/2006
Options
to acquire 5,000 shares of common stock vest on 3/1/2007
Options
to acquire 5,000 shares of common stock vest on 3/1/2008
Options
to acquire 5,000 shares of common stock vest on 3/1/2009
Options
to acquire 23,184 shares of common stock expiring on 6/30/2015:
Options
to acquire 5,796 shares of common stock immediately vested on grant date of
7/1/2005
Options
to acquire 5,796 shares of common stock vest on 7/1/2006
Options
to acquire 5,796 shares of common stock vest on 7/1/2007
Options
to acquire 5,796 shares of common stock vest on 7/1/2008
Director
Compensation
Each
of
our directors is elected annually at our annual meeting. For the period from
July 20, 2006 (the effective date of our initial public offering) through
December 31, 2006, we paid each of our independent directors, other than Dr.
DiCorleto, a fee of $12,500 for their services as director. In addition, we
also
granted to each of these three independent directors options to purchase 15,000
shares of Common Stock at our initial public offering price of $6.00 per share.
All of those options vested immediately upon grant and are exercisable for
ten
years. Each of our independent directors is also reimbursed for reasonable
out-of-pocket expenses incurred in attending Board of Directors or Board
committee meetings. The total compensation of our non-employee directors for
the
year ended December 31, 2006 in their capacity as directors is shown in the
table below.
Name
|
|
Fees
Earned or
Paid
in Cash
($)
|
|
Stock
Awards
($)
|
|
Option
Awards
($)
(1)
|
|
Non-Equity
Incentive
Plan Compensation
($)
|
|
Change
in
Pension
Value
and Nonqualified Deferred Compensation Earnings
($)
|
|
All
Other Compensation
($)
|
|
Total
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bernard
L. Kasten Jr.
|
|
|
12,500
|
|
|
-
|
|
|
56,449
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
68,949
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Daniel
Perez
|
|
|
12,500
|
|
|
-
|
|
|
56,449
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
68,949
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James
J. Antal
|
|
|
12,500
|
|
|
-
|
|
|
56,449
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
68,949
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul
E. DiCorleto
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Andrei
V. Gudkov
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
0
|
|
(1)
|
Messrs.
Kasten, Perez, and Antal each held fully vested options to purchase
15,000
shares of common stock outstanding as of December 31, 2006. Award
amounts
are calculated using the provisions of Statement of Financial Accounting
Standards (“SFAS”) No. 123R, Share-Based Payment. Further details can be
found in Item 6 under “Critical Accounting Policies - Stock
Based Compensation
.”
|
Each
of
our directors is elected annually at our annual meeting. Beginning with the
term
starting after our 2007 annual meeting, each of our independent directors will
receive an annual retainer of $50,000 and an award of 35,000 options to purchase
shares of common stock that vest immediately. In addition, the chairperson
of
the Audit Committee will receive an annual fee of $15,000 and the other members
of the Audit Committee will each receive an annual fee of $10,000. The
chairperson of the Compensation Committee will receive an annual fee of $7,500
and the other members of the Compensation Committee will each receive $5,000.
Each member of the Nominating and Corporate Governance Committee, including
the
chairperson, will receive an annual fee of $2,500.
2006
Equity Incentive Plan
The
2006
Equity Incentive Plan provides for the grant of stock options, restricted
stock,
stock appreciation rights or other equity-based awards to our employees,
officers, directors and consultants and was approved by our stockholders
prior
to our initial public offering. Options may be either “incentive stock options”
or non-qualified options under the federal tax laws and will have an exercise
price equal to at least fair market value as of the grant date. A total
of
2,000,000 shares of common stock have been reserved for issuance under
the Plan,
subject to adjustments for certain corporate transactions or events. As
of
August 7, 2007, 1,222,000 shares of common stock remain available for issuance
under the Plan.
Scientific
Advisory Board
We
have
established a Scientific Advisory Board to advise us on our scientific and
research path, with each member representing his respective areas of expertise.
None of the members of our Scientific Advisory Board is involved in the
management of CBL and, other than 208,600 restricted shares of common stock
granted to Dr. George R. Stark on April 26, 2004, none of the members
of our Scientific Advisory Board receives any compensation from us.
·
|
George
R. Stark, Ph.D.
|
Cancer
biology, chemistry, technology development
|
|
|
|
·
|
Inder
Verma, Ph.D.
|
Cancer
biology, technology development
|
|
|
|
·
|
Bruce
Blazar, MD
|
Pre-clinical
aspects of drug development
|
|
|
|
·
|
Ernest
Borden, MD
|
Drug
trials
|
|
|
|
·
|
Preet
M. Chaudhary, M.D.
|
Pre-clinical
aspects of drug development
|
Dr. George
R. Stark, Ph.D.
Dr. Stark, a member of the National Academy of Sciences, Distinguished
Scientist of the Lerner Research Institute and Professor of Genetics at the
Case
Western Reserve University, is an expert in various fields of biochemistry,
signal transduction and cancer biology and has pioneered many key technologies
in the fields of molecular biology and genetics. He became a professor at
Stanford in 1971. In 1983, he moved to the Imperial Cancer Research Fund in
London. In 1992, he became the Chair of the Lerner Research Institute of the
Cleveland Clinic, which he chaired until 2001.
Dr. Inder
Verma, Ph.D.
Dr. Verma is a member of the National Academy of Sciences, Professor of
Salk Institute for Biology Research. He is a member of the board of directors
of
Cell Genesys and a member of the scientific advisory boards of Cenegen and
Zenogen. Dr. Verma is an internationally recognized leader in cancer
biology and inflammation.
Dr. Bruce
R. Blazar
Dr. Blazar has served in various academic positions at the University of
Minnesota since 1978. Presently, he is a Professor in the Division of Pediatric
Bone Marrow Transplantation, Director of the Cytokine Reference Laboratory,
Associate Director of the Division of Pediatric Bone Marrow Transplantation
and
Andersen Chair in Transplantation Immunology. Dr. Blazar has received
numerous professional honors and awards, including the American Cancer Society
Clinical Fellowship Award, the NIH-NCI National Research Service Award and
the
MERIT Award. In addition to his past and present work on numerous editorial
boards, he is a member of the FDA Advisory Committee on Biological Response
Modifiers and the Leukemia and Lymphoma Society Translational Research Grant
Committee. He has multiple active grants supporting a substantial research
effort and has published over 230 manuscripts.
Dr. Ernest
C. Borden
Dr. Borden is a director of the Center for Drug Discovery and Development
of Taussig Cancer Center at the Cleveland Clinic. Dr. Borden uses his
expertise to bring new cancer-fighting drugs from laboratory to clinical
evaluation. His special interests involve the treatment of melanoma and new
cancer therapies including interferons, vaccines and antibodies.
Dr.
Preet M. Chaudhary Dr.
Chaudhary is Professor of Medicine at the University of Pittsburgh Medical
School, Deputy Director of Translational Research of the University of
Pittsburgh Cancer Institute, and Co-Director of the Hematological Malignancies
Program of the University of Pittsburgh. Dr. Chaudhary is an internationally
renowned physician-scientist with research interests in several areas of cancer,
including cancer drug resistance, biology of normal and leukemic hematopoeitic
stem cells, programmed cell death, cellular signaling, molecularly targeted
and
biological therapies for leukemias, lymphomas, multiple myeloma and solid
tumors, and novel strategies to improve the outcome of stem cell
transplantation. Dr. Chaudhary has authored or co-authored numerous scientific
publications and book chapters in some of the top scientific journals and holds
five U.S. patents in the areas of hematopoietic stem cell purification,
multi-drug resistance to cancer chemotherapy and NF-?B signaling. Dr. Chaudhary
has been the recipient of numerous honors, fellowships and awards from national
and international research organizations including the National Institutes
of
Health, Department of Defense, Cancer Research Fund of the Damon-Runyon
Walter-Winchell Foundation, Howard Hughes Medical Institute, Leukemia Research
Foundation, March of Dimes Foundation, Childhood Cancer Foundation and the
Nearburg Family Foundation.
SECURITY
OWNERSHIP OF MANAGEMENT AND PRINCIPAL STOCKHOLDERS
The
following tables set forth information with respect to the beneficial ownership
of Common Stock and Series B Preferred, our two classes of voting stock,
as
of August 7, 2007, by (i) each person or entity known by CBL to own
beneficially more than 5% of the outstanding shares of Common Stock or Series
B
Preferred, (ii) each CBL director, (iii) each CBL executive officer, and
(iv)
all Company executive officers and directors as a group. Beneficial ownership
percentages are each as of August 7, 2007 and are based on
|
· |
12,139,943 shares
of Common Stock outstanding,
and
|
|
· |
4,579,010
shares of Common Stock issuable upon conversion of the Series B Preferred
outstanding.
|
Beneficial
ownership is determined in accordance with Rule 13d-3 under the Exchange Act.
In
computing the number of shares beneficially owned by a person and the percentage
ownership of that person, shares subject to options, warrants or conversion
rights held by that person (excluding Series B Preferred, which is represented
separately in the table below) that are currently exercisable or will become
exercisable within 60 days after August 7, 2007 are deemed outstanding.
These shares are not deemed outstanding for the purpose of computing the
percentage ownership of any other person or entity. Unless otherwise indicated,
to the Company’s knowledge, each person or entity has sole voting power and
dispositive control over the shares shown as owned.
COMMON
STOCK
Name
and Address
|
|
Number
of Shares
of
Registrant
Common
Stock
Beneficially
Owned
|
|
Percentage of
Class
Beneficially
Owned
|
|
|
|
|
|
|
|
Directors
and Executive Officers
|
|
|
|
|
|
Bernard
L. Kasten Jr.
|
|
|
50,000
|
(1)
|
|
*
|
|
Director,
Chairman of the Board
|
|
|
|
|
|
|
|
James
J. Antal
|
|
|
50,000
|
(2)
|
|
*
|
|
Director
|
|
|
|
|
|
|
|
Paul
E. DiCorleto
|
|
|
35,000
|
(3)
|
|
*
|
|
Director
|
|
|
|
|
|
|
|
Michael
Fonstein
|
|
|
1,348,700
|
(4)
|
|
11.08
|
%
|
Director,
CEO & President
|
|
|
|
|
|
|
|
Andrei
V. Gudkov
|
|
|
1,587,100
|
(5)
|
|
13.03
|
%
|
Director,
Chief Scientific Officer
|
|
|
|
|
|
|
|
Yakov
N. Kogan
|
|
|
752,700
|
(6)
|
|
6.18
|
%
|
Director,
Executive Vice President of Business Development,
Secretary
|
|
|
|
|
|
|
|
H.
Daniel Perez
|
|
|
50,000
|
(7)
|
|
*
|
|
Director
|
|
|
|
|
|
|
|
John
A. Marhofer, Jr.
|
|
|
52,388
|
(8)
|
|
*
|
|
Chief
Financial Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All
directors and officers as a group (eight people)
|
|
|
3,925,888
|
|
|
31.43
|
%
|
|
|
|
|
|
|
|
|
5%
Stockholders
|
|
|
|
|
|
|
|
The
Cleveland Clinic Foundation(9)
|
|
|
1,341,000
|
(10)
|
|
11.05
|
%
|
ChemBridge
Corporation(11)
|
|
|
622,224
|
(12)
|
|
5.02
|
%
|
Sunrise
Equity Partners, LP(13)
|
|
|
1,416,962
|
(14)
|
|
11.58
|
%
|
Sunrise
Securities Corp.(15)
|
|
|
1,416,962
|
(16)
|
|
11.58
|
%
|
*
Less
than 1%.
(1)
Includes options to purchase 50,000 shares of common stock, which are currently
exercisable.
(2)
Includes options to purchase 50,000 shares of common stock, which are currently
exercisable.
(3)
Includes options to purchase 35,000 shares of common stock, which are currently
exercisable.
(4)
Includes options to purchase 37,500 shares of common stock, which are currently
exercisable.
(5)
Includes options to purchase 37,500 shares of common stock, which are currently
exercisable.
(6)
Includes options to purchase 37,500 shares of common stock, which are currently
exercisable.
(7)
Includes options to purchase 50,000 shares of common stock, which are currently
exercisable.
(8)
Includes options to purchase 52,388 shares of common stock, which are
currently exercisable.
(9)
9500
Euclid Avenue, Cleveland, Ohio 44195.
(10)
The
Cleveland Clinic Foundation is an Ohio non-profit corporation. The power to
dispose of and vote these shares is controlled by corporate governance
procedures pursuant to the Code of Regulations adopted by The Cleveland Clinic
Foundation. Pursuant to these Regulations, the power to dispose of these shares
is vested with the Board of Trustees and the power to vote these shares is
vested in the (i) Chairman of the Board of Trustees, currently A. Malachi Mixon,
II, (ii) President of the Board of Trustees, currently Delos M. Cosgrove, M.D.,
(iii) Vice President of the Board of Trustees, currently Stephen R. Hardis,
and
(iv) Vice Chairman of the Board of Trustees, which office is currently vacant.
Any vote so exercised by these officers is deemed to have been exercised by
and
on behalf of The Cleveland Clinic Foundation.
(11)
16981 Via Tazon, Suite G, San Diego, California 92127.
(12)
Includes 357,600 shares of common stock and 264,624 shares of common stock
underlying a warrant, which is currently exercisable. Eugene Vaisberg, the
Chairman and CEO of ChemBridge Corporation, is the majority owner of ChemBridge
Corporation and has the power to vote and dispose of securities owned by
ChemBridge Corporation. Accordingly, he may be deemed to beneficially own the
securities owned by ChemBridge Corporation. Mr. Vaisberg disclaims any
beneficial ownership of the securities owned by ChemBridge
Corporation.
(13)
641
Lexington Ave., 25th Floor, New York, New York 10022.
(14)
Includes
1,185,962 shares of common stock owned by Sunrise Equity Partners,
LP, 131,000 shares of common stock owned by Sunrise Securities Corp., and
100,000 shares of common stock underlying a warrant, which is currently
exercisable, owned by Sunrise Securities Corp. Level Counter LLC is the general
partner of Sunrise Equity Partners, LP. The three managing members of Level
Counter LLC are Nathan Low, the sole stockholder of Sunrise Securities Corp.
and
its president, Amnon Mandelbaum, one of the Managing Directors of Investment
Banking at Sunrise Securities Corp., and Marilyn Adler, who is otherwise
unaffiliated with Sunrise Securities Corp., and a unanimous vote of all three
persons is required to dispose of the securities of Sunrise Equity Partners,
LP.
Accordingly, each of such persons may be deemed to have shared beneficial
ownership of the securities owned by Sunrise Equity Partners, LP. Such persons
disclaim such beneficial ownership. As a result of the relationship of Mr.
Low
to Sunrise Securities Corp., Sunrise Equity Partners, LP may be deemed to
beneficially own the securities owned by Sunrise Securities Corp. and/or Sunrise
Securities Corp. may be deemed to beneficially own the securities owned by
Sunrise Equity Partners, LP. Sunrise Equity Partners, LP disclaims any
beneficial ownership of the securities owned by Sunrise Securities Corp. and
Sunrise Securities Corp. disclaims any beneficial ownership of the securities
owned by Sunrise Equity Partners, LP.
(15)
641
Lexington Ave., 25th Floor, New York, New York 10022.
(16)
Includes
1,185,962 shares of common stock owned by Sunrise Equity Partners,
LP, 131,000 shares of common stock owned by Sunrise Securities Corp., and
100,000 shares of common stock underlying a warrant, which is currently
exercisable, owned by Sunrise Securities Corp. Level Counter LLC is the general
partner of Sunrise Equity Partners, LP. The three managing members of Level
Counter LLC are Nathan Low, the sole stockholder of Sunrise Securities Corp.
and
its president, Amnon Mandelbaum, one of the Managing Directors of Investment
Banking at Sunrise Securities Corp., and Marilyn Adler, who is otherwise
unaffiliated with Sunrise Securities Corp., and a unanimous vote of all three
persons is required to dispose of the securities of Sunrise Equity Partners,
LP.
Accordingly, each of such persons may be deemed to have shared beneficial
ownership of the securities owned by Sunrise Equity Partners, LP. Such persons
disclaim such beneficial ownership. As a result of the relationship of Mr.
Low
to Sunrise Securities Corp., Sunrise Equity Partners, LP may be deemed to
beneficially own the securities owned by Sunrise Securities Corp. and/or Sunrise
Securities Corp. may be deemed to beneficially own the securities owned by
Sunrise Equity Partners, LP. Sunrise Equity Partners, LP disclaims any
beneficial ownership of the securities owned by Sunrise Securities Corp. and
Sunrise Securities Corp. disclaims any beneficial ownership of the securities
owned by Sunrise Equity Partners, LP.
SERIES
B PREFERRED
Name
and Address
|
|
Number
of Shares
of
Registrant
Series
B Preferred
Beneficially
Owned
|
|
Percentage of
Class
Beneficially
Owned
|
|
|
|
|
|
|
|
5%
Stockholders
|
|
|
|
|
|
Iroquois
Master Fund Ltd.(1)
|
|
|
250,000
|
|
|
5.46
|
%
|
JMG
Capital Partners, LP(2)
|
|
|
280,000
|
|
|
6.11
|
%
|
Perceptive
Life Sciences Master Fund, Ltd(3)
|
|
|
392,142
|
|
|
8.56
|
%
|
SF
Capital Partners Ltd.(4)
|
|
|
354,000
|
|
|
7.73
|
%
|
Enable
Growth Partners, L.P.(5)
|
|
|
425,000
|
|
|
9.28
|
%
|
Sunrise
Equity Partners, LP(6)
|
|
|
600,000
|
|
|
13.10
|
%
|
(1)
641
Lexington Ave., 26th Floor, New York, New York 10022.
(2)
11601
Wilshire Blvd., Suite 2180, Los Angeles, California 90025.
(3)
499
Park Avenue, 25th Floor, New York, New York 10022.
(4)
c/o
Stark Offshore Management LLC, 3600 South Lake Drive, St. Francis, Wisconsin
53235.
(5)
One
Ferry Building, Suite 255, San Francisco, California 94111.
(6)
641
Lexington Ave., 25th Floor, New York, New York 10022.
The
table
below lists the selling stockholders and other information regarding the
beneficial ownership of the shares of common stock by each of the selling
stockholders and is based in part upon information supplied to us by each
selling stockholder. The column titled “Shares of Common Stock Owned Before the
Offering” lists the number of shares of common stock owned by each selling
stockholder and is based in part upon information supplied to us by each
selling
stockholder as of August 7, 2007, assuming conversion of all Series B
Preferred and exercise of all Warrants held by the selling stockholders on
that
date, without regard to any limitations on conversions or exercise. The column
titled “Shares of Common Stock Being Offered” lists the shares of common stock
being offered pursuant to this prospectus by the selling stockholders (i.e.,
the
shares of common stock underlying their Series B Preferred and Warrants).
The
column titled “Shares of Common Stock Owned Upon Completion of the Offering”
lists the shares of common stock owned by each selling stockholder, assuming
the
shares of common stock underlying the Series B Preferred and the Warrants
have
been sold, and the column titled “Percentage of Common Stock Outstanding Upon
Completion of the Offering” provides the percentage owned by each selling
stockholder of all shares of common stock outstanding, assuming the
same.
In
accordance with the terms of the Registration Rights Agreement, this prospectus
generally covers the resale of at least 130% of the sum of (i) the number of
shares of common stock issuable upon conversion of the Series B Preferred as
of
the trading day immediately preceding the date the registration statement of
which this prospectus is a part was initially filed with the SEC, and (ii)
the
number of shares of common stock issuable upon exercise of the Warrants as
of
the trading day immediately preceding the date the registration statement of
which this prospectus is a part was initially filed with the SEC. Because the
conversion price of the Series B Preferred and the exercise price of the
Warrants may be adjusted, the number of shares that will actually be issued
may
be more or less than the number of shares being offered by this prospectus.
Under
the
terms of the Certificate of Designations, Preferences and Rights of the Series
B
Preferred, filed by us on March 16, 2007 with the Secretary of State of the
State of Delaware, and the Warrants, a selling stockholder may not convert
the
Series B Preferred or exercise the Warrants to the extent such conversion or
exercise would cause such selling stockholder, together with its affiliates,
to
beneficially own a number of shares of common stock that exceeds 9.99% of our
then outstanding shares of common stock following such conversion or exercise,
excluding for purposes of such determination shares of common stock issuable
upon conversion of the Series B Preferred that have not been converted and
upon
exercise of the Warrants that have not been exercised. The entries in the table
below do not reflect this limitation. The selling stockholders may sell all,
some or none of their shares in this offering. See "Plan of
Distribution."
Name
and Address of Selling Stockholder
|
|
Shares
of
Common
Stock
Owned
Before
the
Offering
|
|
Shares
of
Common
Stock
Being
Offered
|
|
Shares
of
Common
Stock
Owned
Upon
Completion
of
the
Offering
|
|
Percentage
of Common Stock Outstanding Upon Completion of the Offering
(1)
|
|
Sunrise
Securities Corp. (2)
641
Lexington Ave., 25th Floor
New
York, New York 10022
|
|
|
357,261
|
|
|
126,261
|
|
|
231,000
|
|
|
1.89
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1625421
Ontario Inc. (3)
532
Spring Gate Blvd.
Thornhill,
Ontario L4J5B7
Canada
|
|
|
15,050
|
|
|
10,050
|
|
|
5,000
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alfred
M. Gollomp (4)
160
Kensington Street
Brooklyn,
New York 11235
|
|
|
3,000
|
|
|
3,000
|
|
|
—
|
|
|
|
|
Andrew
C. Hart (5)
65
West 13th Street Apt. 5C
New
York, New York 10001
|
|
|
30,000
|
|
|
30,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
Pole Capital Master Fund (6)
1
First Canadian Place
PO
Box 150
Toronto,
Ontario M5X1H3
Canada
|
|
|
82,500
|
|
|
82,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CAMHZN
Master LDC (7)
c/o
Centrecourt Asset Management LLC
350
Madison Avenue
New
York, New York 10017
|
|
|
53,571
|
|
|
53,571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CAMOFI
Master LDC (8)
c/o
Centrecourt Asset Management LLC
350
Madison Avenue
New
York, New York 10017
|
|
|
219,237
|
|
|
219,237
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Daniel
J. Arbess (9)
c/o
Xerion Partners
450
Park Ave., 27th Floor
New
York, New York 10022
|
|
|
69,000
|
|
|
69,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EGATNIV,
LLC (10)
150
W. 46th Street, 6th Floor
New
York, New York 10036
|
|
|
12,003
|
|
|
12,003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Elie
Zrihen (11)
34
Ellison Ave.
Toronto,
Ontario M3H2J6
Canada
|
|
|
2,142
|
|
|
2,142
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F
Berdon Co. LP (12)
717
Post Road, Suite 105
Scarsdale,
New York 10583
|
|
|
73,004
|
|
|
63,000
|
|
|
10,004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hudson
Bay Fund L.P. (13)
120
Broadway, 40th Floor
New
York, New York 10271
|
|
|
47,250
|
|
|
47,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hudson
Bay Overseas Fund Ltd. (14)
120
Broadway, 40th Floor
New
York, New York 10271
|
|
|
57,750
|
|
|
57,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Iroquois
Master Fund Ltd. (15)
641
Lexington Ave., 26th Floor
New
York, New York 10022
|
|
|
375,000
|
|
|
375,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
J.S.A.
Investments, LLC (16)
19500
Turnberry Way
Aventura,
Florida 33180
|
|
|
30,000
|
|
|
30,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jesselson
Grandchildren 12/18/80 Trust (17)
450
Park Avenue, Suite 2603
New
York, NY 10022
|
|
|
150,000
|
|
|
150,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
JMG
Capital Partners, LP (18)
11601
Wilshire Blvd., Suite 2180
Los
Angeles, California 90025
|
|
|
420,000
|
|
|
420,000
|
|
|
|
|
|
|
|
Laffin
Ventures Corporation (19)
c/o
Joshua Gerstin, Esq.
1499
West Palmetto Park Road, Suite 412
Boca
Raton, Florida 33486
|
|
|
52,500
|
|
|
52,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Perceptive
Life Sciences Master Fund, Ltd. (20)
499
Park Avenue, 25th Floor
New
York, New York 10022
|
|
|
588,213
|
|
|
588,213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peter
M. Yu (21)
29
E. 64th Street, Apt. 11A
New
York, New York 10021
|
|
|
21,426
|
|
|
21,426
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portside
Growth and Opportunity Fund (22)
666
Third Avenue
New
York, New York 10017
|
|
|
106,500
|
|
|
106,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ron
Weissberg (23)
7
Hamitnahalim Street
Savion
Ganey Yehuda
56905
Israel
|
|
|
45,000
|
|
|
45,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ruth
Low (24)
614
Trenton Drive
Beverly
Hills, California 90210
|
|
|
150,000
|
|
|
150,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sam
Fendic (25)
6
Bond Street
Bolton,
Ontario L7E3J1
Canada
|
|
|
80,355
|
|
|
80,355
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SDS
Capital Group SPC, Ltd. (26)
c/o
SDS Management, LLC
53
Forest Avenue, Suite 201
Old
Greenwich, Connecticut 06870
|
|
|
45,000
|
|
|
45,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SF
Capital Partners Ltd. (27)
c/o
Stark Offshore Management LLC
3600
South Lake Drive
St.
Francis, Wisconsin 53235
|
|
|
531,000
|
|
|
531,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Starwood
Group, L.P. (28)
150
Beams Club Drive
Jupiter,
Florida 33477
|
|
|
106,500
|
|
|
106,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TCMP3
Partners
(29)
7
Century Drive, Suite 201
Parsippany,
New Jersey 07054
|
|
|
303,000
|
|
|
303,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UBS
O'Connor LLC fbo O'Connor Pipes
Corporate
Strategies Master Limited (30)
One
North Wacker Drive
Chicago,
Illinois 60606
|
|
|
150,000
|
|
|
150,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Uri
Rosin (31)
145
Cooper Drive
Great
Neck, New York 11023
|
|
|
45,000
|
|
|
45,000
|
|
|
|
|
|
|
|
Xerion
Partners II Master Fund Limited (32)
450
Park Avenue, 27th Floor
New
York, New York 10022
|
|
|
210,000
|
|
|
210,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aram
Openden (33)
2630
Burridge Circle
Twinsburg,
Ohio 44087
|
|
|
6,000
|
|
|
6,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
Investors, Inc. (34)
510
Broadhollow Road, Suite 306
Melville,
New York 11747
|
|
|
24,480
|
|
|
24,480
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bruce
Carlow (35)
71
Barnom Ave.
Plainview,
New York 11803
|
|
|
6,000
|
|
|
6,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bruce
J. & Sandra K. Nielsen Joint Revoc. Trust (36)
4820
6 Mile Road
Racine,
Wisconsin 53402
|
|
|
6,000
|
|
|
6,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
Ventures International (37)
c/o
Heights Capital Management
101
California Street, Suite 3250
San
Francisco, California 94111
|
|
|
214,287
|
|
|
214,287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David
Steinharter (38)
1985
East 7th Street
Brooklyn,
New York 11223
|
|
|
6,000
|
|
|
6,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
De
Parys Holdings Limited (39)
2
Faggots Close
Radlett,
U.K.
|
|
|
4,500
|
|
|
4,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diane
Schwartz (40)
23
Pheasant Run Lane
Dix
Hills, New York 11746
|
|
|
3,000
|
|
|
3,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Douglas
Belz (41)
22
South Gillette Ave.
Bayport,
New York 11705
|
|
|
12,000
|
|
|
12,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Enable
Growth Partners, L.P. (42)
One
Ferry Building, Suite 255
San
Francisco, CA 94111
|
|
|
637,500
|
|
|
637,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Enable
Opportunity Partners, L.P. (43)
One
Ferry Building, Suite 255
San
Francisco, CA 94111
|
|
|
75,000
|
|
|
75,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eric
Abitbol (44)
201
East 69th Street, Apt. 15E
New
York, New York 10021
|
|
|
8,348
|
|
|
8,066
|
|
|
282
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eric
Jacobs (45)
13594
S.W. 58th Ave
Miami,
Florida 33156
|
|
|
9,000
|
|
|
9,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Frank
Bua (46)
99
Matsunaye Drive
Medford,
New York 11763
|
|
|
3,000
|
|
|
3,000
|
|
|
|
|
|
|
|
Gary
Purcell (47)
3648
Lorrie Drive
Oceanside,
New York 11572
|
|
|
12,000
|
|
|
12,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gemini
Master Fund, Ltd. (48)
12220
El Camino Real, #400
San
Diego, California 92130
|
|
|
53,571
|
|
|
53,571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ira
Openden (49)
1
Laurel Street
Jericho,
New York 11753
|
|
|
6,000
|
|
|
6,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James
& Nancy Pappas (50)
129
Barton Lane
Bayport,
New York 11705
|
|
|
6,000
|
|
|
6,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jerold
Ladin (51)
14
Beverly Lane
Glenview,
Illinois 60025
|
|
|
6,000
|
|
|
6,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
JGB
Capital Offshore, Ltd. (52)
c/o
JGB Management, Inc.
660
Madison Ave., 21st Floor
New
York, New York 10025
|
|
|
13,292
|
|
|
13,392
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
JGB
Capital, LP (53)
c/o
JGB Management, Inc.
660
Madison Ave., 21st Floor
New
York, New York 10025
|
|
|
95,179
|
|
|
40,179
|
|
|
55,000
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kathleen
Belz (54)
23
Neel Court
Sayville,
New York 11782
|
|
|
36,000
|
|
|
36,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lorin
Wells (55)
1345
Seneca Ave
Bronx,
New York 10474
|
|
|
15,000
|
|
|
15,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marc
Rubin (56)
2634
Oakbrook Drive
Weston,
Florida 33332
|
|
|
3,000
|
|
|
3,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marilyn
S. Adler (57)
888
Park Ave., Apt. 8A
New
York, New York 10021
|
|
|
20,822
|
|
|
6,000
|
|
|
14,822
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Melchior
Ancona (58)
330
Crown Ave
Staten
Island, New York 10312
|
|
|
3,000
|
|
|
3,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael
& Irene Alter (59)
143
Shrub Hollow Road
Roslyn,
New York 11576
|
|
|
6,000
|
|
|
6,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nathan
Halequa (60)
6
Grace Avenue
Great
Neck, New York 11021
|
|
|
6,000
|
|
|
6,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peter
Weprin (61)
401
1st Ave., Apt. 22E
New
York, New York 10010
|
|
|
7,905
|
|
|
7,905
|
|
|
|
|
|
|
|
Pierce
Diversified Strategy Master Fund, LLC, Ena (62)
One
Ferry Building, Suite 255
San
Francisco, California 94111
|
|
|
37,500
|
|
|
37,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PR
Diamonds Inc. (63)
580
5th Ave., Suite 1203
New
York, New York 10036
|
|
|
6,000
|
|
|
6,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard
Barber (64)
3405
Howell Street #20
Dallas,
Texas 75204
|
|
|
6,000
|
|
|
6,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard
Settducati (65)
20
Harvard Drive
Hampton
Bays, New York 11946
|
|
|
6,000
|
|
|
6,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
Baffa (66)
116
Alden Drive
Port
Jefferson, New York 11777
|
|
|
3,000
|
|
|
3,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
Fuchs (67)
131
Park Street
Woodmere,
New York 11598
|
|
|
6,323
|
|
|
6,323
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
H. Cohen (68)
2
Hickory Lane
Scarsdale,
New York 10583
|
|
|
196,088
|
|
|
107,142
|
|
|
88,946
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rock
Associates (69)
41
Winged Foot Drive
Larchmont,
New York 10538
|
|
|
10,500
|
|
|
10,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Serafino
Barone (70)
39
Summit Rd
Sparta,
New Jersey 07871
|
|
|
6,000
|
|
|
6,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Serge
Moyal (71)
532
Spring Gate Blvd.
Thornhill,
Ontario L4J5B7
Canada
|
|
|
7,133
|
|
|
4,500
|
|
|
2,633
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steven
Diamond (72)
64
Prescott Street
Lido
Beach, New York 11561
|
|
|
3,000
|
|
|
3,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steven
H. Lehmann (73)
30
Spruce Street
Garden
City, New York 11530
|
|
|
24,000
|
|
|
24,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sunrise
Equity Partners, LP (74)
641
Lexington Ave., 25th Floor
New
York, New York 10022
|
|
|
2,085,962
|
|
|
900,000
|
|
|
1,185,962
|
|
|
9.77
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas
Laundrie (75)
22
Raymond Court
Garden
City, New York 11530
|
|
|
3,000
|
|
|
3,000
|
|
|
|
|
|
|
|
William
Schmidl (76)
4027
Ramsgate
San
Antonio, Texas 78230
|
|
|
30,000
|
|
|
30,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amnon
Mandelbaum (77)
c/o
Sunrise Securities Corp.
641
Lexington Ave., 25th Floor
New
York, New York 10022
|
|
|
526,338
|
|
|
169,190
|
|
|
357,148
|
|
|
2.92
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David
Goodfriend (78)
c/o
Sunrise Securities Corp.
641
Lexington Ave., 25th Floor
New
York, New York 10022
|
|
|
56,369
|
|
|
18,799
|
|
|
37,570
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
West Investment Group, Inc. (79)
4510
E. Thousand Oaks Blvd.
Westlake
Village, CA 91362
|
|
|
1,590
|
|
|
1,590
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeffrey
Meyerson (80)
c/o
Sunrise Securities Corp.
641
Lexington Ave., 25th Floor
New
York, New York 10022
|
|
|
23,821
|
|
|
8,172
|
|
|
15,649
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jewish
Communal Fund-Bone Marrow Testing Fund #3761 (81)
575
Madison Ave., Suite 703
New
York, New York 10022
|
|
|
12,000
|
|
|
12,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lucy
DaRita (82)
c/o
Sunrise Securities Corp.
641
Lexington Ave., 25th Floor
New
York, New York 10022
|
|
|
1,000
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marcia
Kucher (83)
c/o
Sunrise Securities Corp.
641
Lexington Ave., 25th Floor
New
York, New York 10022
|
|
|
7,485
|
|
|
2,000
|
|
|
5,485
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nathan
Low (84)
c/o
Sunrise Securities Corp.
641
Lexington Ave., 25th Floor
New
York, New York 10022
|
|
|
692,857
|
|
|
292,913
|
|
|
399,944
|
|
|
3.26
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul
Scharfer (85)
c/o
Sunrise Securities Corp.
641
Lexington Ave., 25th Floor
New
York, New York 10022
|
|
|
34,158
|
|
|
34,158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
Shacter (86)
c/o
Reedland Capital Partners
30
Sunnyside Avenue
Mill
Valley, California 94941
|
|
|
72,963
|
|
|
49,563
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Samuel
Berger (87)
c/o
Sunrise Securities Corp.
641
Lexington Ave., 25th Floor
New
York, New York 10022
|
|
|
36,785
|
|
|
36,734
|
|
|
51
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas
Griesel (88)
c/o
Reedland Capital Partners
30
Sunnyside Avenue
Mill
Valley, California 94941
|
|
|
18,240
|
|
|
12,390
|
|
|
|
|
|
|
|
*
Less than 1%.
(1)
|
Except
as otherwise required by Rule 13d-3 under the Exchange Act, this
percentage ownership is based on 12,139,943 shares of common stock
outstanding as of August 7,
2007.
|
(2)
|
Sunrise
Securities Corp. served as a placement agent in our private placement
of
Series A Preferred Stock in March 2005, and also served as one
of the
co-managing underwriters in our initial public offering in July
2006.
Level Counter LLC is the general partner of Sunrise Equity Partners,
LP,
an affiliate of Sunrise Securities Corp. The three managing members
of
Level Counter LLC are Nathan Low, the sole stockholder of Sunrise
Securities Corp. and its president, Amnon Mandelbaum, one of the
Managing
Directors of Investment Banking at Sunrise Securities Corp., and
Marilyn
Adler, who is otherwise unaffiliated with Sunrise Securities Corp.,
and a
unanimous vote of all three persons is required to dispose of the
securities of Sunrise Equity Partners, LP. Accordingly, each of
such
persons may be deemed to have shared beneficial ownership of the
securities owned by Sunrise Equity Partners, LP. Such persons disclaim
such beneficial ownership. As a result of the relationship of Mr.
Low to
Sunrise Securities Corp., Sunrise Equity Partners, LP may be deemed
to
beneficially own the securities owned by Sunrise Securities Corp.
and/or
Sunrise Securities Corp. may be deemed to beneficially own the
securities
owned by Sunrise Equity Partners, LP. Sunrise Equity Partners,
LP
disclaims any beneficial ownership of the securities owned by Sunrise
Securities Corp. and Sunrise Securities Corp. disclaims any beneficial
ownership of the securities owned by Sunrise Equity Partners, LP. As
the president and sole stockholder of Sunrise Securities Corp.,
Mr.
Low exercises voting and dispositive control over the shares
accompanying this footnote 2. Shares of common stock owned before
the
offering includes 131,000 shares of common stock, 100,000 shares of
common stock underlying a warrant, which is currently exercisable,
Series
B Preferred convertible into 52,174 shares of common stock, a Series
B
Warrant exercisable for 26,087 shares of common stock, and a Series
C
Warrant exercisable for 48,000 shares of common
stock.
|
(3)
|
Serge
Moyal exercises voting and dispositive control over these
shares.
Shares of common stock owned before the offering includes 5,000
shares of common stock, Series B Preferred convertible into 6,700
shares
of common stock, and a Series B Warrant exercisable for 3,350 shares
of
common stock.
|
(4)
|
Shares
of common stock owned before the offering includes Series B Preferred
convertible into 2,000 shares of common and a Series B Warrant exercisable
for 1,000 shares of common stock.
|
(5)
|
Shares
of common stock owned before the offering includes Series B Preferred
convertible into 20,000 shares of common stock and a Series B Warrant
exercisable for 10,000 shares of common
stock.
|
(6)
|
Paul
Sabourin (Chairman & CIO, Polar Securities Inc.), Robyn Schultz (Vice
President, Polar Securities Inc.), Herman Gill (CFO, Polar Securities
Inc.), Kamran Siddiqui (Trader, Polar Securities Inc.), and John
Paul
Cahill (Trader, Polar Securities Inc.) exercise voting and dispositive
control over these shares, and any one of them can exercise such
control
alone. Shares of common stock owned before the offering includes
Series B Preferred convertible into 55,000 shares of common stock
and a
Series B Warrant exercisable for 27,500 shares of common
stock.
|
(7)
|
Richard
Smithline, Director of CAMHZN Master LDC, exercises voting and dispositive
control over these shares. Shares of common stock owned before the
offering includes Series B Preferred convertible into 35,714 shares
of
common stock and a Series B Warrant exercisable for 17,857 shares
of
common stock.
|
(8)
|
Richard
Smithline, Director of CAMOFI Master LDC, exercises voting and dispositive
control over these shares. Shares of common stock owned before the
offering includes Series B Preferred convertible into 146,158 shares
of common stock and Series B Warrants exercisable for 73,079 shares
of
common stock.
|
(9)
|
Shares
of common stock owned before the offering includes Series B Preferred
convertible into 46,000 shares of common stock and a Series B Warrant
exercisable for 23,000 shares of common stock. Daniel
J. Arbess exercises voting and dispositive control over shares owned
by
Xerion Partners II Master Fund Limited, which shares are not included
here
but rather are set forth separately under Xerion Partners II Master
Fund
Limited and described in the accompanying footnote
32.
|
(10)
|
Seth
Farbman and Shai Stern exercise voting and dispositive control
over these
shares. Shares of common stock owned before the offering includes
Series B Preferred convertible into 8,002 shares of common stock
and a
Series B Warrant exercisable for 4,001 shares of common
stock.
|
(11)
|
Shares
of common stock owned before the offering includes Series B Preferred
convertible into 1,428 shares of common stock and a Series B Warrant
exercisable for 714 shares of common
stock.
|
(12)
|
Frederick
Berdon, Managing Partner of F Berdon Co. LP, exercises voting and
dispositive control over these shares. Shares
of common stock owned before the offering includes 10,004 shares of
common stock, Series B Preferred convertible into 42,000 shares of
common
stock, and a Series B Warrant exercisable for 21,000 shares of common
stock.
|
(13)
|
Sander
Gerber, Yoav Roth and John Doscas share voting and investment
power over
these securities. Each of Sander Gerber, Yoav Roth and John Doscas
disclaims beneficial ownership over the securities held by Hudson
Bay Fund
L.P. The selling stockholder acquired the securities offered
for its own
account in the ordinary course of business, and at the time it
acquired
the securities, it had no agreements, plans or understandings,
directly or
indirectly to distribute the securities. Shares
of common stock owned before the offering includes Series B Preferred
convertible into 31,500 shares of common stock and a Series B
Warrant
exercisable for 15,750 shares of common
stock.
|
(14)
|
Sander
Gerber, Yoav Roth and John Doscas share voting and investment
power over
these securities. Each of Sander Gerber, Yoav Roth and John Doscas
disclaims beneficial ownership over the securities held by Hudson
Bay
Overseas Fund Ltd. The selling stockholder acquired the securities
offered
for its own account in the ordinary course of business, and at
the time it
acquired the securities, it had no agreements, plans or understandings,
directly or indirectly to distribute the securities. Shares
of common stock owned before the offering includes Series B Preferred
convertible into 38,500 shares of common stock and a Series B
Warrant
exercisable for 19,250 shares of common
stock.
|
(15)
|
Joshua
Silverman had voting and investment control over the shares held
by
Iroquois. However, Mr. Silverman does not have and disclaims any
beneficial ownership of those shares. Shares of common stock owned
before
the offering includes Series B Preferred convertible into 250,000
shares
of common stock and a Series B Warrant exercisable for 125,000
shares of
common stock.
|
(16)
|
J.A.
Meyerson exercises voting and dispositive control over these
shares. Shares
of common stock owned before the offering includes Series B Preferred
convertible into 20,000 shares of common stock and a Series B
Warrant
exercisable for 10,000 shares of common
stock.
|
(17)
|
Michael
G. Jesselson, Erica Jesselson, Benjamin J. Jesselson, Lucy Lang,
and
Claire Strauss exercise voting and dispositive control over these
shares. Shares of common stock owned before the offering includes
Series B Preferred convertible into 100,000 shares of common
stock and a
Series B Warrant exercisable for 50,000 shares of common
stock.
|
(18)
|
JMG
Capital Partners, LP (“JMG Partners”) is a California limited partnership.
Its general partner is JMG Capital Management, LLC (the “Manager”), a
Delaware limited liability company and an investment adviser
that has
voting and dispositive power over JMG Partners’ investments, including the
Registrable Securities. The equity interests of the Manager are
owned by
JMG Capital Management, Inc. (“JMG Capital”), a California corporation,
and Asset Alliance Holding Corp., a Delaware corporation. Jonathan
M.
Glaser is the Executive Officer and Director of JMG Capital and
has sole
investment discretion over JMG Partners’ portfolio holdings. Shares
of common stock owned before the offering includes Series B Preferred
convertible into 280,000 shares of common stock and a Series
B Warrant
exercisable for 140,000 shares of common
stock.
|
(19)
|
Mark
Tompkins exercises voting and dispositive control over these shares.Shares
of common stock owned before the offering includes Series B Preferred
convertible into 35,000 shares of common stock and a Series B Warrant
exercisable for 17,500 shares of common
stock.
|
(20)
|
Joseph
Edelman exercises voting and dispositive control over these shares.
Shares of common stock owned before the offering includes Series
B
Preferred convertible into 392,142 shares of common stock and
Series B
Warrants exercisable for 196,071 shares of common
stock.
|
(21)
|
Shares
of common stock owned before the offering includes Series B Preferred
convertible into 14,284 shares of common stock and a Series B Warrant
exercisable for 7,142 shares of common
stock.
|
(22)
|
Ramius
Capital Group, L.L.C. ("Ramius Capital") is the investment adviser
of
Portside Growth and Opportunity Fund ("Portside") and consequently
has
voting control and investment discretion over securities held by
Portside.
Ramius Capital disclaims beneficial ownership of the shares held
by
Portside. Peter A. Cohen, Morgan B. Stark, Thomas W. Strauss and
Jeffrey
M. Solomon are the sole managing members of C4S & Co., L.L.C., the
sole managing member of Ramius Capital. As a result, Messrs. Cohen,
Stark,
Strauss and Solomon may be considered beneficial owners of any shares
deemed to be beneficially owned by Ramius Capital. Messrs. Cohen,
Stark,
Strauss and Solomon disclaim beneficial ownership of these shares.
The
investment advisor to Portside Growth and Opportunity Fund is Ramius
Capital Group, L.L.C. An affiliate of Ramius Capital Group, L.L.C.
is a
NASD member. However, this affiliate will not sell any shares to
be
offered by Portside Growth and Opportunity Fund through the prospectus
and
will receive no compensation whatsoever in connection with sales
of shares
by Portside Growth and Opportunity Fund through the prospectus. Shares
of
common stock owned before the offering includes Series B Preferred
convertible into 71,000 shares of common stock and a Series B Warrant
exercisable for 35,500 shares of common
stock.
|
(23)
|
Shares
of common stock owned before the offering includes Series B Preferred
convertible into 30,000 shares of common stock and a Series B Warrant
exercisable for 15,000 shares of common
stock.
|
(24)
|
Shares
of common stock owned before the offering includes Series B Preferred
convertible into 100,000 shares of common stock and a Series B Warrant
exercisable for 50,000 shares of common
stock.
|
(25)
|
Shares
of common stock owned before the offering includes Series B Preferred
convertible into 53,570 shares of common stock and a Series B Warrant
exercisable for 26,785 shares of common
stock.
|
(26)
|
The
natural person with voting and dispositive power with respect
to these
shares is Steve Derby. Steve Derby is the sole managing member
of SDS
Management, LLC, the investment manager of SDS Capital Group
SPC, Ltd.
Steve Derby and SDS Management, LLC disclaim beneficial ownership
of these
shares, except to the extent of their direct pecuniary interest
therein,
if any. Shares
of common stock owned before the offering includes Series B Preferred
convertible into 30,000 shares of common stock and a Series B
Warrant
exercisable for 15,000 shares of common
stock.
|
(27)
|
Michael
A. Roth and Brian J. Stark have voting and investment control over
securities owned by SF Capital Partners Ltd., but Messrs. Roth
and Stark
disclaim beneficial ownership of such securities. Shares of common
stock
owned before the offering includes Series B Preferred convertible
into
354,000 shares of common stock and a Series B Warrant exercisable
for
177,000 shares of common
stock.
|
(28)
|
Robert
Green exercises voting and dispositive control over these
shares. Shares
of common stock owned before the offering includes Series B Preferred
convertible into 71,000 shares of common stock and a Series B
Warrant
exercisable for 35,500 shares of common
stock.
|
(29)
|
Walter
Schenker and Steven Slawson exercise voting and dispositive control
over
these shares. Shares
of common stock owned before the offering includes Series B Preferred
convertible into 202,000 shares of common stock and Series B
Warrants
exercisable for 101,000 shares of common
stock.
|
(30)
|
The
selling security holder (O’Connor PIPES Corporate Strategies Master
Limited) of this security is a fund which cedes investment control
to UBS
O’Connor LLC (the Investment Manager). The Investment Manager makes
all of
the investment/voting decisions. UBS O’Connor LLC is a wholly owned
subsidiary of UBS AG, which is listed on the New York Stock
Exchange. Shares of common stock owned before the offering includes
Series B Preferred convertible into 100,000 shares of common
stock and a
Series B Warrant exercisable for 50,000 shares of common
stock.
|
|
|
(31)
|
Shares
of common stock owned before the offering includes Series B Preferred
convertible into 30,000 shares of common stock and a Series B Warrant
exercisable for 15,000 shares of common stock.
|
|
|
(32)
|
Daniel
J. Arbess exercises voting and dispositive control over these
shares. Shares of common stock owned before the offering includes
Series B Preferred convertible into 140,000 shares of common stock
and a
Series B Warrant exercisable for 70,000 shares of common
stock.
|
|
|
(33)
|
Shares
of common stock owned before the offering includes Series B Preferred
convertible into 4,000 shares of common stock and a Series B Warrant
exercisable for 2,000 shares of common stock.
|
|
|
(34)
|
The
partners of Basic Investors, Inc., Thomas Laundrie, Richard Belz
and Gary
Purcell, jointly exercise voting and dispositive control over
these
shares. Shares of common stock owned before the offering
includes Series B Preferred convertible into 8,000 shares of
common stock
and Series B Warrants exercisable for 16,480 shares of common
stock.
|
(35)
|
Shares
of common stock owned before the offering includes Series B Preferred
convertible into 4,000 shares of common stock and a Series B Warrant
exercisable for 2,000 shares of common stock.
|
|
|
(36)
|
Shares
of common stock owned before the offering includes Series B Preferred
convertible into 4,000 shares of common stock and a Series B Warrant
exercisable for 2,000 shares of common stock.
|
|
|
(37)
|
Heights
Capital Management, Inc., the authorized agent of Capital Ventures
International ("CVI"), has discretionary authority to vote and
dispose of
the shares held by CVI and may be deemed to be the beneficial owner
of
these shares. Martin Kobinger, in his capacity as Investment Manager
of
Heights Capital Management, Inc., may also be deemed to have investment
discretion and voting power over the shares held by CVI. Mr. Kobinger
disclaims any such beneficial ownership of the shares. Shares of
common stock owned before the offering includes Series B Preferred
convertible into 142,858 shares of common stock and a Series B
Warrant
exercisable for 71,429 shares of common
stock.
|
(38)
|
Shares
of common stock owned before the offering includes Series B Preferred
convertible into 4,000 shares of common stock and a Series B Warrant
exercisable for 2,000 shares of common
stock.
|
(39)
|
Joseph
Dennis Toff exercises voting and dispositive control over these
shares. Shares of common stock owned before the offering includes
Series B Preferred convertible into 3,000 shares of common stock
and a
Series B Warrant exercisable for 1,500 shares of common
stock.
|
|
|
(40)
|
Shares
of common stock owned before the offering includes Series B Preferred
convertible into 2,000 shares of common stock and a Series B Warrant
exercisable for 1,000 shares of common stock.
|
|
|
(41)
|
Shares
of common stock owned before the offering includes Series B Preferred
convertible into 8,000 shares of common stock and a Series B Warrant
exercisable for 4,000 shares of common stock.
|
|
|
(42)
|
Mitch
Levine, Managing Partner, exercises voting and dispositive control
over
these shares. Shares
of common stock owned before the offering includes Series B Preferred
convertible into 425,000 shares of common stock and a Series
B Warrant
exercisable for 212,500 shares of common stock.
|
|
|
(43)
|
Mitch
Levine, Managing Partner, exercises voting and dispositive control
over
these shares. Shares of common stock owned before the offering
includes Series B Preferred convertible into 50,000 shares of
common stock
and a Series B Warrant exercisable for 25,000 shares of common
stock.
|
|
|
(44)
|
Shares
of common stock owned before the offering includes 282 shares of
common
stock underlying a warrant, which is exercisable on or after July
26, 2007
and before July 25, 2011, Series B Preferred convertible into 5,228
shares
of common stock, Series B Warrants exercisable for 2,614 shares
of common
stock, and a Series C Warrant exercisable for 224 shares of common
stock.
|
|
|
(45)
|
Shares
of common stock owned before the offering includes Series B Preferred
convertible into 6,000 shares of common stock and a Series B Warrant
exercisable for 3,000 shares of common stock.
|
|
|
(46)
|
Shares
of common stock owned before the offering includes Series B Preferred
convertible into 2,000 shares of common stock and a Series B Warrant
exercisable for 1,000 shares of common stock.
|
|
|
(47)
|
Shares
of common stock owned before the offering includes Series B Preferred
convertible into 8,000 shares of common stock and a Series B Warrant
exercisable for 4,000 shares of common
stock.
|
(48)
|
Gemini
Strategies, LLC is the investment manager of Gemini Master Fund,
Ltd., and
Steven Winters is the sole managing member of Gemini Strategies,
LLC. Each
of Gemini Strategies, LLC and Steven Winters expressly disclaims
any
equitable or beneficial ownership of such securities. Shares of
common stock owned before the offering includes Series B Preferred
convertible into 35,714 shares of common stock and a Series B Warrant
exercisable for 17,857 shares of common stock.
|
|
|
(49)
|
Shares
of common stock owned before the offering includes Series B Preferred
convertible into 4,000 shares of common stock and a Series B Warrant
exercisable for 2,000 shares of common stock.
|
|
|
(50)
|
Shares
of common stock owned before the offering includes Series B Preferred
convertible into 4,000 shares of common stock and a Series B Warrant
exercisable for 2,000 shares of common stock.
|
|
|
(51)
|
Shares
of common stock owned before the offering includes Series B Preferred
convertible into 4,000 shares of common stock and a Series B Warrant
exercisable for 2,000 shares of common stock.
|
|
|
(52)
|
The
general partner of JGB Capital Offshore, Ltd. is JGB Management Inc.
JGB
Management Inc. has voting control and investment discretion over
securities held by JGB Capital Offshore, Ltd. The President of JGB
Management Inc. is Brett Cohen. Brett Cohen disclaims beneficial
ownership
of the securities held by JGB Capital Offshore, Ltd. Shares of common
stock owned before the offering includes Series B Preferred convertible
into 8,928 shares of common stock and a Series B Warrant exercisable
for
4,464 shares of common stock.
|
(53)
|
The
general partner of JGB Capital L.P. is JGB Management Inc. JGB
Management
Inc. has voting control and investment discretion over securities
held by
JGB Capital L.P. The President of JGB Management Inc. is Brett
Cohen.
Brett Cohen disclaims beneficial ownership of the securities held
by JGB
Capital L.P. Shares of common stock owned before the offering includes
55,000 shares of common stock underlying a warrant that is currently
exercisable, Series B Preferred convertible into 26,786 shares
of common
stock, and a Series B Warrant exercisable for 13,393 shares of
common
stock.
|
|
|
(54)
|
Shares
of common stock owned before the offering includes Series B Preferred
convertible into 24,000 shares of common stock and a Series B Warrant
exercisable for 12,000 shares of common stock.
|
|
|
(55)
|
Shares
of common stock owned before the offering includes Series B Preferred
convertible into 10,000 shares of common stock and a Series B Warrant
exercisable for 5,000 shares of common
stock.
|
(56)
|
Shares
of common stock owned before the offering includes Series B Preferred
convertible into 2,000 shares of common stock and a Series B Warrant
exercisable for 1,000 shares of common
stock.
|
(57)
|
Shares
of common stock owned before the offering includes 14,822 shares
of common
stock, Series B Preferred convertible into 4,000 shares of
common stock,
and a Series B Warrant exercisable for 2,000 shares of common
stock. Does
not include shares owned by Sunrise Equity Partners, LP, which
shares are
set forth in footnote 74, and over which Marilyn S. Adler does
not
exercise sole voting or dispositive control. Also does not
include shares
owned by Sunrise Securities Corp., which shares are set forth in
footnote 2. Sunrise Securities Corp. disclaims any beneficial
ownership of the securities owned by Sunrise Equity Partners,
LP, and
Sunrise Equity Partners, LP disclaims any beneficial ownership
of the
securities owned by Sunrise Securities Corp.
|
|
|
(58)
|
Shares
of common stock owned before the offering includes Series B Preferred
convertible into 2,000 shares of common stock and a Series B
Warrant
exercisable for 1,000 shares of common stock.
|
|
|
(59)
|
Shares
of common stock owned before the offering includes Series B Preferred
convertible into 4,000 shares of common stock and a Series B
Warrant
exercisable for 2,000 shares of common stock.
|
|
|
(60)
|
Shares
of common stock owned before the offering includes Series B Preferred
convertible into 4,000 shares of common stock and a Series B
Warrant
exercisable for 2,000 shares of common stock.
|
|
|
(61)
|
Shares
of common stock owned before the offering includes Series B Preferred
convertible into 5,163 shares of common stock, Series B Warrants
exercisable for 2,582 shares of common stock, and a Series C
Warrant
exercisable for 160 shares of common stock.
|
|
|
(62)
|
Mitch
Levine, Managing Partner, exercises voting and dispositive
control over
these shares. Shares of common stock owned before the offering
includes Series B Preferred convertible into 25,000 shares
of common
stock, and a Series B Warrant exercisable for 12,500 shares
of common
stock.
|
|
|
(63)
|
Pincus
Reisz exercises voting and dispositive control over these shares.
Shares
of common stock owned before the offering includes Series B
Preferred
convertible into 4,000 shares of common stock and a Series
B Warrant
exercisable for 2,000 shares of common stock.
|
|
|
(64)
|
Shares
of common stock owned before the offering includes Series B Preferred
convertible into 4,000 shares of common stock and a Series B
Warrant
exercisable for 2,000 shares of common stock.
|
|
|
(65)
|
Shares
of common stock owned before the offering includes Series B Preferred
convertible into 4,000 shares of common stock and a Series B Warrant
exercisable for 2,000 shares of common
stock.
|
(66)
|
Shares
of common stock owned before the offering includes Series B Preferred
convertible into 2,000 shares of common stock and a Series B Warrant
exercisable for 1,000 shares of common stock.
|
|
|
(67)
|
Shares
of common stock owned before the offering includes Series B Preferred
convertible into 4,130 shares of common stock, Series B Warrants
exercisable for 2,065 shares of common stock, and a Series C Warrant
exercisable for 128 shares of common stock.
|
|
|
(68)
|
Shares
of common stock owned before the offering includes 88,946 shares
of common
stock, Series B Preferred convertible into 71,428 shares of common
stock,
and a Series B Warrant exercisable for 35,714 shares of common
stock.
|
|
|
(69)
|
Stuart
Schapiro exercises voting and dispositive control over these
shares.
Shares of common stock owned before the offering includes Series
B
Preferred convertible into 7,000 shares of common stock and a
Series B
Warrant exercisable for 3,500 shares of common
stock.
|
|
|
(70)
|
Shares
of common stock owned before the offering includes Series B Preferred
convertible into 4,000 shares of common stock and a Series B Warrant
exercisable for 2,000 shares of common
stock.
|
(71)
|
Shares
of common stock owned before the offering includes 1,608 shares of
common stock, 1,025 shares of common stock underlying a warrant,
which is
exercisable on or after July 26, 2007 and before July 25, 2011, Series
B
Preferred convertible into 3,000 shares of common stock, and a Series
B
Warrant exercisable for 1,500 shares of common stock. Serge Moyal
exercises voting and dispositive control over shares owned by 1625421
Ontario Inc., which shares are not included here but rather are set
forth
separately under 1625421 Ontario Inc. and described in the accompanying
footnote 3.
|
|
|
(72)
|
Shares
of common stock owned before the offering includes Series B Preferred
convertible into 2,000 shares of common stock and a Series B Warrant
exercisable for 1,000 shares of common stock.
|
|
|
(73)
|
Shares
of common stock owned before the offering includes Series B Preferred
convertible into 16,000 shares of common stock and a Series B Warrant
exercisable for 8,000 shares of common
stock.
|
(74)
|
Sunrise
Equity Partners, LP, an affiliate of Sunrise Securities Corp.,
was a buyer
in our private placement of Series A Preferred Stock in March 2005.
Level
Counter LLC is the general partner of Sunrise Equity Partners,
LP. The
three managing members of Level Counter LLC are Nathan Low, the
sole
stockholder of Sunrise Securities Corp. and its president, Amnon
Mandelbaum, one of the Managing Directors of Investment Banking
at Sunrise
Securities Corp., and Marilyn Adler, who is otherwise unaffiliated
with
Sunrise Securities Corp., and a unanimous vote of all three persons
is
required to dispose of the securities of Sunrise Equity Partners,
LP.
Accordingly, each of such persons may be deemed to have shared
beneficial
ownership of the securities owned by Sunrise Equity Partners, LP.
Such
persons disclaim such beneficial ownership. As a result of the
relationship of Mr. Low to Sunrise Securities Corp., Sunrise Equity
Partners, LP may be deemed to beneficially own the securities owned
by
Sunrise Securities Corp., and/or Sunrise Securities Corp. may be
deemed to
beneficially own the securities owned by Sunrise Equity Partners,
LP.
Sunrise Equity Partners, LP disclaims any beneficial ownership
of the
securities owned by Sunrise Securities Corp., and Sunrise Securities
Corp.
disclaims any beneficial ownership of the securities owned by Sunrise
Equity Partners, LP. Shares of common stock owned before the offering
includes 1,185,962 shares of common stock, Series B Preferred convertible
into 600,000 shares of common stock, and a Series B Warrant exercisable
for 300,000 shares of common
stock.
|
(75)
|
Shares
of common stock owned before the offering includes Series B Preferred
convertible into 2,000 shares of common stock and a Series B Warrant
exercisable for 1,000 shares of common stock.
|
|
|
(76)
|
Shares
of common stock owned before the offering includes Series B Preferred
convertible into 20,000 shares of common stock and a Series B Warrant
exercisable for 10,000 shares of common stock.
|
|
|
(77)
|
Shares
of common stock owned before the offering includes 240,102 shares
of
common stock, 70,146 shares of common stock underlying a warrant,
which is
currently exercisable, 12,516 shares of common stock underlying
a second
warrant, which is currently exercisable, and 26,679 shares of
common stock
underlying a third warrant, which is exercisable on or after
July 26, 2007
and before July 25, 2011. Shares of common stock owned before
the offering
also includes Series B Preferred convertible into 72,771 shares
of common
stock, a Series B Warrant exercisable for 36,385 shares of common
stock,
and a Series C Warrant exercisable for 60,034 shares of common
stock.
Amnon Mandelbaum exercises voting and dispositive control over
shares
owned by Amnon Mandelbaum IRA NFS as Custodian. Therefore, shares
of
common stock owned before the offering also includes 7,705 shares
of
common stock. Does not include shares owned by Sunrise Equity
Partners,
LP, which shares are set forth in footnote 74, and over which
Amnon
Mandelbaum does not exercise sole voting or dispositive control.
Also does
not include shares owned by Sunrise Securities Corp., which
shares are set forth in footnote 2. Sunrise Securities Corp.
disclaims any beneficial ownership of the securities owned by
Sunrise
Equity Partners, LP, and Sunrise Equity Partners, LP disclaims
any
beneficial ownership of the securities owned by Sunrise Securities
Corp.
|
|
|
(78)
|
Shares
of common stock owned before the offering includes 25,025 shares
of common
stock, 7,792 shares of common stock underlying a warrant, which
is
currently exercisable, 1,788 shares of common stock underlying
a second
warrant, which is currently exercisable, and 2,965 shares of common
stock
underlying a third warrant, which is exercisable on or after July
26, 2007
and before July 25, 2011. Shares of common stock owned before the
offering
also includes Series B Preferred convertible into 8,086 shares
of common
stock, a Series B Warrant exercisable for 4,043 shares of common
stock,
and a Series C Warrant exercisable for 6,670 shares of common
stock.
|
|
|
(79)
|
Gene
C. Valentine exercises voting and dispositive control over these
shares.
Shares of common stock owned before the offering consists of
a Series B
Warrant exercisable for 1,590 shares of common
stock.
|
|
|
(80)
|
Shares
of common stock owned before the offering includes 15,000 shares
of common
stock, 649 shares of common stock underlying a warrant, which is
exercisable on or after July 26, 2007 and before July 25, 2011,
Series B
Preferred convertible into 3,293 shares of common stock, a Series
B
Warrant exercisable for 1,647 shares of common stock, and a Series
C
Warrant exercisable for 3,232 shares of common stock.
|
|
|
(81)
|
Saul
Wadowski (Vice President/Controller), Susan F. Dickman (Executive
Vice
President), and Jose J. Virella (Senior Vice President of Finance
and
Administration) exercise voting and dispositive control over
these shares,
and any one of them can exercise such control alone. Shares of
common stock owned before the offering includes Series B Preferred
convertible into 8,000 shares of common stock and a Series B
Warrant
exercisable for 4,000 shares of common stock.
|
|
|
(82)
|
Shares
of common stock owned before the offering consists of a Series
C Warrant
exercisable for 1,000 shares of common
stock.
|
(83)
|
Shares
of common stock owned before the offering includes 5,000 shares of
common stock and 485 shares of common stock underlying a warrant,
which is
exercisable on or after July 26, 2007 and before July 25, 2011.
Shares of
common stock owned before the offering also includes a Series C
Warrant
exercisable for 2,000 shares of common
stock.
|
(84)
|
Shares
of common stock owned before the offering includes 120,002 shares
of
common stock, 72,311 shares of common stock underlying a warrant,
which is
currently exercisable, 11,324 shares of common stock underlying
a second
warrant, which is currently exercisable, and 48,064 shares of common
stock
underlying a third warrant, which is exercisable on or after July
26, 2007
and before July 25, 2011. Shares of common stock owned before the
offering
also includes Series B Preferred convertible into 116,883 shares
of common
stock, a Series B Warrant exercisable for 58,441 shares of common
stock,
and Series C Warrants exercisable for 117,589 shares of common
stock.
Nathan Low exercises voting and dispositive control over shares
owned by
Bear Stearns as Custodian for Nathan A. Low Roth IRA. Therefore,
shares of
common stock owned before the offering also includes 148,243 shares
of
common stock. Nathan Low is the president and sole stockholder
of Sunrise
Securities Corp. and also exercises voting and dispositive control
over
shares owned by Sunrise Securities Corp., which shares are not
included
here but rather are set forth separately under Sunrise Securities
Corp.
and described in the accompanying footnote 2. Also does not include
shares
owned by Sunrise Equity Partners, LP, which shares are set forth
in
footnote 74, and over which Nathan Low does not exercise sole voting
or
dispositive control. Sunrise Securities Corp. disclaims any beneficial
ownership of the securities owned by Sunrise Equity Partners, LP,
and
Sunrise Equity Partners, LP disclaims any beneficial ownership
of the
securities owned by Sunrise Securities Corp.
|
|
|
(85)
|
Shares
of common stock owned before the offering includes Series B Preferred
convertible into 13,766 shares of common stock, a Series B Warrant
exercisable for 6,883 shares of common stock, and a Series C Warrant
exercisable for 13,509 shares of common stock.
|
|
|
(86)
|
Shares
of common stock owned before the offering consists of 23,400 shares
of
common stock, and a Series B Warrant exercisable for 49,563 shares
of
common stock.
|
|
|
(87)
|
Shares
of common stock owned before the offering includes 51 shares of common
stock underlying a warrant, which is exercisable on or after July
26, 2007
and before July 25, 2011, Series B Preferred convertible into 14,804
shares of common stock, a Series B Warrant exercisable for 7,402
shares of
common stock, and a Series C Warrant exercisable for 14,528 shares
of
common stock.
|
|
|
(88)
|
Shares
of common stock owned before the offering consists of 5,850 shares
of
common stock, and a Series B Warrant exercisable for 12,390 shares
of
common stock.
|
PRIOR
SECURITIES TRANSACTIONS BETWEEN THE COMPANY
AND
THE
SELLING STOCKHOLDERS
We
previously engaged SSC, the lead placement agent for our March 16, 2007
private
placement, as a placement agent in our March 2005 private placement of
3,000,000
shares of our Series A Preferred Stock. SSC as well as other participants
in
that transaction are also selling stockholders or affiliates of selling
stockholders. The table below sets forth information regarding the number
of
shares issued to selling stockholders and their affiliates in the Series
A
Preferred transaction as well as a comparison of shares issued to selling
stockholders and their affiliates in the Series A Preferred transaction
to the
number of shares outstanding prior to the transaction held by stockholders
other
than the selling stockholders or their affiliates or affiliates of the
Company.
SERIES
A
PARTICIPATING CONVERTIBLE PREFERRED STOCK
Date
of Transaction
|
|
|
Shares
Out-standing Prior to the Trans-action
|
|
|
Shares
Out-standing Prior to Trans-action
Held
by Persons other than Selling Stock-holders, Affiliates of
the Company,
and Affiliates of Selling Stock-holders
|
|
|
Shares
Issued or Issuable to Selling Stock-holders or Affiliates of
Selling
Stock-holders in Connection with the Trans-action
|
|
|
Shares
Issued or Issuable to Selling Stock-holders or Affiliates of
Selling
Stock-holders in Connection with the Transaction as a Percentage
of Shares
Outstanding Prior to Transaction and Held by Persons other
than Selling
Stockholders, Affiliates of the Company, and Affiliates of
Selling
Stockholders
|
|
|
Market
Price per Share
Prior
to the Trans-action
|
|
|
Current
Market Price per Share
|
|
March
15, 2005
|
|
|
5,960,0001
|
|
|
1,043,0002
|
|
|
2,122,5003
|
|
|
203.50
%
|
|
|
$2.004
|
|
|
$10.235
|
|
_____________________
1
There
were 5,960,000 shares of common stock outstanding prior to consummation
of the
sale of Series A Preferred.
2
Excludes
4,917,000 shares held by executive officers of the Company and greater
than 10%
stockholders. At the time of the transaction, no shares were held
by selling
stockholders or affiliates of selling stockholders.
3
Shares
issued in the transaction were Series A Preferred, all of which converted
into
common stock automatically on a one-to-one basis upon the Company’s initial
public offering.
4
The
purchase price of the Series A Preferred was $2.00 per share.
5
Based on
the closing price of our common stock on August 7,
2007,
as quoted on the Nasdaq Capital Market.
SSC
also
served as underwriter in our initial public offering in July 2006. In
connection with that transaction, we issued warrants to purchase
shares of our
common stock to SSC's designees, some of which are selling stockholders or
affiliates of selling stockholders. The table below sets forth information
regarding the number of warrants issued to selling stockholders
and their
affiliates in the initial public offering as well as a comparison
of warrants
issued to selling stockholders and their affiliates in the initial
public
offering to the number of shares outstanding prior to the transaction
held by
stockholders other than the selling stockholders or their affiliates
and
affiliates of the Company.
WARRANTS
TO PURCHASE COMMON STOCK
ISSUED
TO
UNDERWRITERS OR THEIR DESIGNEES
IN
CONNECTION WITH OUR
INITIAL
PUBLIC OFFERING OF COMMON STOCK
Date
of Transaction
|
|
|
Shares
Out-standing Prior to the Trans-action
|
|
|
Shares
Out-standing Prior to Trans-action and Held by Persons
other than Selling
Stock-holders, Affiliates of the Company, and Affiliates
of Selling
Stock-holders
|
|
|
Shares
Issued or Issuable to Selling Stock-holders or Affiliates
of Selling
Stock-holders in Connection with the Trans-action
|
|
|
Shares
Issued or Issuable to Selling Stock-holders or Affiliates
of Selling
Stock-holders in Connection with the Transaction as a
Percentage of Shares
Outstanding Prior to Transaction and Held by Persons
other than Selling
Stockholders, Affiliates of the Company, and Affiliates
of Selling
Stockholders
|
|
|
Market
Price per Share
Prior
to the Trans-action
|
|
|
Current
Market Price per Share
|
|
July
26, 2006
|
|
|
11,825,7641
|
|
|
3,961,4822
|
|
|
86,6503
|
|
|
2.19%
|
|
|
$6.004
|
|
|
$10.235
|
|
____________________
1
Shares
outstanding prior to the transaction includes, among other
shares, (i) 1,700,000
shares of common stock issued in our initial public offering,
(ii) 253,384
shares of common stock issued as dividends on the Series A
Preferred, (iii)
69,355 shares of common stock issued as penalty shares on the
Series A
Preferred, (iv) 3,351,219 shares of Series A Preferred that
converted into
shares of common stock on a one-for-one basis upon our initial
public offering,
and (v) notes that converted into 124,206 shares of common
stock upon our
initial public offering. Does not include warrants to purchase
594,424 shares of
common stock and options to purchase 438,490 shares of common
stock, which were
not exercised as of the date of the transaction.
2
Calculated as the 11,825,764 shares of common stock outstanding prior to
the transaction less the following shares of common stock outstanding
prior to
the transaction: (i) 4,917,000 shares held by executive officers
of the Company
and greater than 10% stockholders; (ii) 296,489 shares held
by JGB Capital, LP;
(iii) 148,243 shares held by CAMOFI Master LDC; (iv) 6,244
shares held by Marcia
Kucher, (v) 88,946 shares held by Robert H. Cohen; (vi) 14,822
shares held by
Bear Stearns Securities Corp. Custodian for Stuart Schapiro
IRA; (vii) 1,185,962
shares held by Sunrise Equity Partners, LP; (viii) 14,822 shares
held by Marilyn
S. Adler; (ix) 88,946 shares held by F Berdon Co. LP; (x) 148,243
shares held by
Bear Stearns as Custodian for Nathan A. Low Roth IRA; (xi)
240,102 shares held
by Amnon Mandelbaum; (xii) 7,705 shares held by Amnon Mandelbaum
IRA NFS as
Custodian; (xiii) 25,025 shares held by David Goodfriend; (xiv)
41,505 shares
held by IRA Bear Stearns as Custodian 1625421 Ontario, Inc.;
(xv) 1,603 shares
held by Serge Moyal; (xvi) 120,002 shares held by Nathan Low;
(xvii) 131,000
shares held by Sunrise Securities Corp.; (xviii) 1,192 shares
held by Sunrise
Foundation Trust; (xix) 59,296 shares held by Helen Goodfriend;
(xx) 21,551
shares held by John L. Gallagher; (xxi) 118,265 shares held
by Derek L.
Caldwell; (xxii) 123,719 shares held by Richard B. Stone; and
(xxiii) 63,600 shares held by David Filer. In addition, consistent
with
footnote 1, warrants to purchase common stock and options to
purchase common
stock are not reflected in this column. Of the outstanding
warrants to purchase
594,424 shares of common stock, 264,624 were held by persons
other than selling
stockholders, affiliates of selling stockholders, and affiliates
of the Company.
Of the outstanding options to purchase 438,490 shares of common
stock, 392,806
were held by persons other than selling stockholders, affiliates
of selling
stockholders, and affiliates of the Company.
3
Represents warrants sold to Sunrise Securities Corp. in connection
with the
initial public offering.
4
The
warrants sold to Sunrise Securities Corp. in connection with
the initial public
offering had an exercise price of $8.70 per share.
5
Based on
the closing price of our common stock on August 7,
2007,
as quoted on the Nasdaq Capital Market.
The
table
below sets forth the number of shares outstanding prior to the
March 16, 2007
private placement and that were held by persons other than the
selling
stockholders and their affiliates and affiliates of the Company
as well as
information regarding shares registered for resale by the selling
stockholders
or their affiliates in prior registration statements of the
Company.
COMPARISON
OF REGISTERED SHARES TO OUTSTANDING SHARES
Shares
Outstanding Prior to Series B Transaction Held by Persons
other than
Selling Stockholders, Affiliates of the Company, and
Affiliates of Selling
Stockholders
|
Shares
Registered for Resale by
Selling
Stockholders or Affiliates of Selling Stockholders in
Prior Registration
Statements
|
Shares
Registered for Resale by
Selling
Stockholders or Affiliates of Selling Stockholders that
Continue to be
Held by Selling Stockholders of Affiliates of Selling
Stockholders
|
Shares
Sold in Registered Resale Transactions by Selling Stockholders
or
Affiliates of Selling Stockholders
|
Shares
Registered for Resale on Behalf of Selling Stockholders
or Affiliates of
Selling Stockholders in Series B Transaction
|
4,821,6121
|
3,158,6112
|
2,320,4933
|
838,1184
|
9,375,0955
|
___________________
1Calculated
as the 11,889,099 shares of common stock outstanding prior
to the transaction
less the following shares of common stock outstanding prior
to the transaction:
(i) 6,233,962 shares held by executive officers of the Company
and greater than
10% stockholders; (ii) 5,000 shares held by Marcia Kucher;
(iii) 88,946 shares
held by Robert H. Cohen; (iv) 14,822 shares held by Marilyn
S. Adler; (v)
148,243 shares held by Bear Stearns as Custodian for Nathan
A. Low Roth IRA;
(vi) 240,102 shares held by Amnon Mandelbaum; (vii) 7,705 shares
held by Amnon
Mandelbaum IRA NFS as Custodian; (viii) 25,025 shares held
by David Goodfriend;
(ix) 5,000 shares held by 1625421 Ontario, Inc.; (x) 1,608
shares held by Serge
Moyal; (xi) 120,002 shares held by Nathan Low; (xii) 1,192
shares held by
Sunrise Foundation Trust; (xiii) 59,296 shares held by Helen
Goodfriend; (xiv)
106,580 shares held by David Filer; and (xv) 10,004 shares
held by F Berdon Co.
LP. Warrants to purchase common stock and options to purchase
common stock are
not reflected in this column. Of the outstanding warrants to
purchase 824,166
shares of common stock, 397,974 were held by persons other
than selling
stockholders, affiliates of selling stockholders, and affiliates
of the Company.
Of the outstanding options to purchase 513,990 shares of common
stock, 423,306
were held by persons other than selling stockholders, affiliates
of selling
stockholders, and affiliates of the Company.
2
Includes
shares of common stock underlying warrants.
3
Includes
shares of common stock underlying warrants.
4
Includes shares of common stock that
originally were underlying warrants.
5 Represents
130% of the aggregate of the following: (i) 4,579,010 shares
of common stock
issuable upon conversion of Series B Preferred at an initial
conversion price of
$7.00 per share, (ii) 2,365,528 shares of common stock issuable
upon exercise of
the Series B Warrants at an initial exercise price of $10.36
per share, and
(iii) 267,074 shares of common stock issuable upon exercise
of the Series C
Warrants at an initial exercise price of $11.00 per share.
As
of
July 20, 2006, the effective date of our initial public offering, the Audit
Committee has been required to conduct appropriate reviews of all transactions
with related persons for potential conflict of interest situations on an ongoing
basis. All such transactions must be approved by our Audit
Committee.
The
Cleveland Clinic Foundation
We
have a
unique opportunity to accelerate our development by utilizing intellectual
property, drug leads, new research technologies, technical know-how and original
scientific concepts derived from 25 years of research achievements relevant
to
cancer by Dr. Gudkov and his team, originally at the Cleveland Clinic.
Pursuant to an Exclusive License Agreement we entered into with the Cleveland
Clinic effective as of July 1, 2004, the Cleveland Clinic granted to us an
exclusive license to the Cleveland Clinic’s research base underlying our
therapeutic platform (the CBLC100, CBLB100 and CBLB500 series). In consideration
for obtaining this exclusive license, we agreed to:
·
|
issue
to the Cleveland Clinic 1,341,000 shares of common stock of CBL;
|
·
|
make
certain milestone payments (ranging from $50,000 to $4,000,000, depending
on the type of drug and the stage of such drug’s development) to the
Cleveland Clinic;
|
·
|
make
royalty payments (calculated as a percentage of the net sales of
the drugs
ranging from 1-2%) to the Cleveland Clinic; and
|
·
|
make
sublicense royalty payments (calculated as a percentage of the royalties
received from the sublicenses ranging from 5-35%) to the Cleveland
Clinic.
|
The
milestone payments for products limited to biodefense uses are as follows:
(i)
for any IND application, $50,000; (ii) for the successful completion of Phase
I
studies, $100,000; (iii) for any NDA application or product license application,
$350,000; and (iv) for regulatory approval permitting commercial sales,
$1,000,000. The milestone payments for other product applications are: (i)
for
any IND application, $50,000; (ii) for Phase II clinical trials, $250,000;
(iii)
for Phase III clinical trials, $700,000; (iv) for any NDA application or product
license application, $150,000; and (v) for regulatory approval permitting
commercial sales, $4,000,000; in each case, such amounts are credited against
any future royalty and sublicense royalty payments.
Under
this license agreement, we may exclusively license additional technologies
discovered by Dr. Gudkov in this field by providing the Cleveland Clinic
with notice within 60 days after receiving an invention disclosure report from
the Cleveland Clinic relating to any such additional technologies. We believe
that this relationship will prove valuable, not only for the purposes of
developing the discoveries of Dr. Gudkov and his colleagues, but also as a
source of additional new technologies. We also expect that the Cleveland Clinic
will play a critical role in validating therapeutic concepts and in conducting
trials. The Cleveland Clinic may terminate the license upon a material breach
by
us as specified in the agreement, however, we may avoid such termination if
within 90 days of receipt of such termination notice, we cure the
breach.
In
August 2004, we entered into a cooperative research and development
agreement, or CRADA, with (i) the Uniformed Services University of the Health
Sciences which includes the Armed Forces Radiobiology Research Institute, (ii)
the Henry M. Jackson Foundation for the Advancement of Military Medicine, Inc.,
and (iii) the Cleveland Clinic to evaluate one of our radioprotective drug
candidates and its effects on intracellular and extracellular signaling
pathways. As a collaborator under this agreement, we are able to use the
laboratories of the Armed Forces Radiobiology Research Institute to evaluate
Protectan CBLB502 and its effects on intracellular and extracellular signaling
pathways in order to improve countermeasures to lethal doses of radiation.
Under
the terms of the agreement, all parties are financially responsible for their
own expenses related to the agreement. The agreement has a five year term,
but
may be unilaterally terminated by any party upon 30 days prior written notice
with or without cause.
Pursuant
to our existing license agreement with the Cleveland Clinic, we have paid
$50,000 in milestone payments, and we had also accrued as of August 7, 2007,
$250,000 in milestone payments, which is payable on or before August 31,
2007.
We have subcontracted with the Cleveland Clinic for grants in the approximate
amount of $220,000, and the Cleveland Clinic provides lab services and personnel
to CBL in the approximate amount of $725,000.
ChemBridge
Corporation
Another
vital component of our drug development capabilities is our strategic
partnership with ChemBridge, an established leader in combinatorial chemistry
and in manufacturing diverse chemical libraries.
On
April 27, 2004, we entered into a library access agreement with ChemBridge
which, in exchange for 357,600 shares of our common stock and warrants to
purchase 264,624 shares of our common stock pursuant to a separate restricted
stock agreement, provides us with continual access to a chemical library of
180,000 compounds (100,000 “historical” and 80,000 combinatorial). Under the
library access agreement, we have also agreed to collaborate with ChemBridge
in
the future on two optimization projects, wherein ChemBridge will have the
responsibility of providing the chemistry compounds for the project and we
will
have the responsibility of providing the pharmacological/biological compounds.
Upon providing ChemBridge with our data after at least two positive repeat
screening assays, which have been confirmed in at least one additional
functional assay, ChemBridge will have the option to select such compound as
one
of the two optimization projects. ChemBridge will retain a fifty percent
ownership interest in two lead compounds selected by ChemBridge and all
derivative compounds thereof. The parties will jointly manage the development
and commercialization of any compounds arising from an optimization project.
The
parties are discussing the possibility of entering into an additional project
arising from the optimization project. There can be no assurance the parties
will agree to proceed with such project on favorable terms or at all. The
library access agreement does not have a specified term or any termination
provisions.
On
or
around May 31, 2006, we entered into a Collaboration Agreement with one of
our
stockholders, ChemBridge Corporation, whereby the parties agreed to collaborate
on efforts to research and develop pharmaceutical compounds targeting RCC and
other cancers. The financial commitment from each party depends on the success
of each step of the project.
Dr. Gudkov’s
group has a strong working relationship with ChemBridge. This relationship
has
already resulted in the isolation of bioactive small molecules with clinical
potential that helped to establish either new therapeutic concepts (p53
inhibitors) or identify molecules for important indications acting through
previously unknown mechanisms (novel class of PGP modulators). Both lines of
study have resulted in high visibility publications and are slated for further
exploration by us.
Sunrise
Securities Corp.
Upon
the
consummation of our initial public offering, we sold to SSC and Roth Capital
Partners, LLC or their respective designees (including officers) at an aggregate
purchase price of $100, warrants to purchase up to 170,000 shares of common
stock. Each warrant represents the right to purchase one share of common stock
for a period of four years commencing on the first anniversary of the effective
date of our initial public offering. The exercise price of the warrants is
$8.70. The warrants are noncallable and have a cashless exercise option. No
holder of these warrants will possess any rights as a stockholder unless the
warrant is exercised.
SSC
served as lead placement agent for our March 16, 2007 private placement. SEP,
one of the investors, together with its affiliates is a holder of more than
10%
of our outstanding common stock. In the transactions, SEP purchased Series
B
Preferred convertible into 600,000 shares of common stock and received Series
B
Warrants to purchase 300,000 shares of common stock. We also issued Series
B
Preferred convertible into 290,298 shares of common stock, Series B Warrants
to
purchase an aggregate of 145,149 shares of Common Stock, and Series C Warrants
to purchase 267,074 shares of common stock to SSC, an affiliate of SEP, in
consideration for its services as lead placement agent. We also engaged SSC
as
our exclusive management agent regarding all exercises of the Warrants, for
which we will pay SSC a fee equal to 3.5% of the aggregate exercise price of
each Warrant, payable in cash if the exercise is in cash or in shares of common
stock if the exercise is cashless.
Selling
Stockholders
We
are or
have been parties to consulting agreements with two of the selling
stockholders. Basic Investors, one of the placement agents in our Series
B
Private Placement, entered into a consulting agreement with us in October
2006,
whereby Basic Investors provides us with financial public relations
and other
financial consulting services. The agreement is terminable by us at
any time. In
consideration for the services rendered, we issued to Basic Investors
on April
9, 2007, 15,000 shares of common stock and options to purchase 15,000
shares of
common stock at an exercise price of $8.36 per share (the closing price
of our
common stock on the day before issuance), all under our equity incentive
plan.
We
also
entered into a consulting agreement with JGB Capital, LP pursuant to
which JGB
Capital provided us with financial advisory services in connection with
capital raising activities. The
agreement expired in May 2007 and is no longer in effect.
Under
the agreement, we issued to JGB Capital in consideration for their
services
warrants to purchase 55,000 shares of our common stock at an exercise
price of
$9.19 per share, the closing price of our common stock on the day the
agreement
was entered into on February 27, 2007.
Finally,
Jeffrey Meyerson, one of the selling stockholders, provides us from
time to time
with consulting and advisory services in connection with capital raising
and
formation. In exchange, we have issued to Mr. Meyerson a stock award
of 15,000
shares under our equity incentive plan.
Founders
On
June 5, 2003, in connection with our formation, we issued an aggregate of
3,993,200 shares of common stock to our five founders in consideration of their
knowledge, experience, expertise and services rendered in lieu of a salary
in
the formation and initial operations of the Company. The founders did not make
any cash investments in the Company upon our formation. The stock issuances
were
as follows:
Name
|
|
Number
of
Shares
|
|
Dr. Andrei
Gudkov
|
|
1,579,400
|
|
Dr. Michael
Fonstein
|
|
1,311,200
|
|
Dr. Yakov
Kogan
|
|
715,200
|
|
Dr. Elena
Feinstein
|
|
268,200
|
|
Dr. Veronika
Vonstein
|
|
119,200
|
|
In
August 2004, Dr. Veronika Vonstein sold all 119,200 of her shares back
to us effectively terminating her relationship with us to pursue outside
opportunities. In August 2004, Dr. Andrei Gudkov sold 29,800 shares
back to us to maintain the proper percentage ownership as decided by the
founders as a group.
A
summary
of the material terms of any employment and consulting agreements among the
founders may be found in the section of this prospectus titled
“Management”.
The
following summary describes the material terms of our common stock. It
summarizes material provisions of our certificate of incorporation and by-laws.
You may obtain copies of these organizational documents by contacting us, as
described under “Prospectus Summary — Our Information.”
Common
Stock
Our
Certificate of Incorporation authorizes us to issue 40,000,000 shares of
common
stock, par value $.005 per share. On February 28, 2005, we completed a
596-for-1 stock split of our common stock in anticipation of the Series A
Preferred Stock private placement in order to avoid issuance of fractional
shares. As of August 7, 2007, 12,139,943 shares of common stock were issued
and
outstanding with 957,490 shares of common stock reserved for issuance upon
exercise of options and 3,456,768 shares of common stock reserved for issuance
upon exercise of warrants.
Voting
Holders
of our common stock are entitled to one vote per share. All actions submitted
to
a vote of stockholders will be voted on by holders of our common
stock.
Conversion
The
common stock has no conversion rights.
Dividends
Holders
of common stock are entitled to receive cash dividends equally on a per share
basis, as if and when the dividends are declared by the board of directors
from
legally available funds.
Liquidation
After
satisfaction of the liquidation preferences of all securities ranking senior
to
the common stock, the holders of common stock will share with each other on
an
equal basis in any net assets available for distribution to holders of shares
of
capital stock upon liquidation.
Other
Terms
The
rights, preferences and privileges of holders of common stock will be subject
to, and may be adversely affected by, the rights of the holders of shares of
any
series of preferred stock which we may designate and issue in the
future.
Common
Stockholders Agreement
We
have
entered into a common stockholders agreement with all of our common stockholders
who acquired their shares prior to March 1, 2005. Under the common
stockholders agreement, as long as the Cleveland Clinic owns at least 3% of
the
company on a fully diluted basis, the Cleveland Clinic will be entitled to
have
one representative elected to our board of directors.
Registration
Rights
We
and
all of our stockholders prior to our initial public offering entered into a
Series A Rights Agreement, pursuant to which we agreed to file a registration
statement with the SEC, which was to include the Registrable Securities (as
defined in the Series A Rights Agreement) that were not already registered
in
connection with our initial public offering by the 30th
day
following the closing of our initial public offering, which occurred on July
26,
2006. We have also agreed to grant certain registration rights to Sunrise
Securities Corp. and Roth Capital Partners, LLC and their designees. Pursuant
to
the underwriting agreement for our initial public offering, such entities and
their designees were issued warrants and are entitled to certain demand and
“piggyback” registration rights to register the resale of the shares of common
stock underlying such warrants. A registration statement relating to these
common shares, including those underlying the warrants, was declared effective
on September 21, 2006, and a post-effective amendment to the same registration
statement was declared effective on April 23, 2007.
Lock
Up of Certain Shares
We,
each
member of our board, each of our executive officers and holders of our common
stock prior to March 1, 2005, or the founding holders, have agreed to sign
lock-up agreements under which they agree they will not offer, sell, contract
to
sell, pledge or otherwise dispose of any shares of our capital stock, which
amounts to 5,988,157 shares and 365,684 shares issuable upon exercise of
options, for a period of 24 months after July 20, 2006, the effective date
of
our initial public offering. Each of our founders and executive officers
together with two of our stockholders, The Cleveland Clinic Foundation and
ChemBridge Corporation, have likewise agreed not to sell, pledge, hypothecate,
assign or otherwise transfer or dispose of any shares of our capital stock
for
the same 24 month period (or upon our common stock becoming a “Covered Security”
under the National Securities Markets Improvement Act of 1996), provided that
this restriction shall terminate in the event of a merger, sale or other “change
of control” transaction that is approved by a majority of the stockholders other
than our directors, executive officers and such stockholders.
Restricted
Securities
As
of
August 7, 2007, 12,139,943 shares of common stock were issued and
outstanding. Of
these
shares, 1,700,000 shares sold in our initial public offering and 4,453,601
shares registered pursuant to our Series A Rights Agreement are freely tradable
without restrictions or further registration under the Securities Act, unless
those shares are purchased by affiliates as that term is defined in Rule
144
under the Securities Act.
The
remaining 5,986,342 shares of common stock held by stockholders as of August
7,
2007, and the 4,579,010 shares of Series B Preferred that are subject to
the
registration statement of which this prospectus forms a part, are currently
restricted securities as that term is defined in Rule 144 under the Securities
Act.
Common
Stockholders
As
of
August 7, 2007, we had 51 holders of record of our common
stock.
Listing
of Stock
Our
common stock is quoted on the Nasdaq Capital Market and the Boston Stock
Exchange under the trading symbol “CBLI”.
Transfer
Agent and Registrar
The
transfer agent and registrar for the common stock is Continental Stock Transfer
& Trust Company.
Directors’
Limitation of Liability
Our
certificate of incorporation and by-laws include provisions to indemnify the
directors and officers to the fullest extent permitted by the Delaware General
Corporation Law, including circumstances under which indemnification is
otherwise discretionary. We believe that these provisions are necessary to
attract and retain qualified persons as directors and officers.
We
expect
to enter into an indemnification agreement with each of our directors, which
provides that we will indemnify our directors and advance expenses to our
directors to the extent permitted by the laws of the State of Delaware. We
have
also obtained directors and officers liability insurance in amounts commensurate
with those of similarly situated companies.
Insofar
as indemnification for liability arising under the Securities Act may be
permitted to our directors, officers and controlling persons as stated in the
foregoing provisions or otherwise, we have been advised that, in the opinion
of
the SEC, this indemnification is against public policy as expressed in the
Act
and is, therefore, unenforceable.
We
may,
by resolution of our board of directors but subject to limitations prescribed
by
law, designate up to an aggregate of 10,000,000 shares of preferred stock.
The
preferred stock may be issued in one or more series. With respect to any series,
our board of directors may determine the designation and the number of shares,
preferences, limitations and special rights, including dividend rights,
conversion rights, voting rights, redemption rights and liquidation preferences,
which rights may adversely affect the rights of our common stockholders. Because
of the rights that may be granted, the issuance of the preferred stock may
delay, defer or prevent a change of control.
On
March
16, 2007, we entered into a securities purchase agreement with various
accredited investors pursuant to which we agreed to sell to the investors,
in a
private placement, Series B Preferred convertible into an aggregate of 4,288,712
shares of common stock at the current conversion rate. In connection with
this
sale, we also issued to SSC, in consideration for SSC’s services as placement
agent in the transaction, Series B Preferred convertible into an aggregate
of
290,298 shares of common stock at the current conversion rate. Based on the
closing price of our common stock on March 16, 2007 of $10.19, the Series
B
Preferred sold to investors and issued to SSC had a market value of
approximately $46,660,112. The following summary describes the material
terms of our Series B Preferred. It summarizes material provisions of the
Certificate of Designations, Preferences and Rights of Series B Convertible
Preferred Stock of Cleveland BioLabs, Inc., filed by us on March 16, 2007
with
the Secretary of State of the State of Delaware, which is attached as an
exhibit
to the registration statement of which this prospectus forms a
part.
Dividends
The
holders of Series B Preferred are entitled to an annual cash dividend of 5%
of
the outstanding Series B Preferred amount payable in semi-annual installments.
Upon the occurrence of a Triggering Event (defined below), the dividend rate
will increase to 10% per annum until the Triggering Event is cured.
Conversion
Shares
of
the Series B Preferred are convertible at the holder's election into shares
of
common stock at the conversion rate, which is the quotient of (1) the conversion
amount, divided by (2) the conversion price; provided, however, that Series
B
Preferred convertible into approximately 2,203,010 shares of common stock issued
in the private placement are not convertible until stockholder approval is
obtained. The Series B Preferred have a conversion amount equal to $7.00 per
share and an initial conversion price of $7.00 per share, which initially yields
a conversion rate of one share of Series B Preferred for one share of common
stock, but is subject to anti-dilution provisions as discussed
below.
The
Series B Preferred are convertible at the Company's election into shares of
common stock at the conversion rate at any time after the six month anniversary
of the effectiveness of a registration statement filed pursuant to the
Registration Rights Agreement if, among other things, the closing sale price
of
the Company's common stock exceeds $20.00 per share for 30 consecutive trading
days and the average daily trading volume of the Company’s common stock during
that 30-trading day period exceeds 100,000 shares.
Maturity
The
Series B Preferred mature on September 16, 2009; upon maturity, the Company
may,
by giving each holder proper written notice, elect either to redeem any
outstanding Series B Preferred (plus accrued dividends) in cash or, if the
“Equity Conditions” have been satisfied or waived, convert any outstanding
Series B Preferred into shares of common stock at the existing conversion rate.
The
Equity Conditions are satisfied if:
|
·
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during
the preceding three-month period
|
|
·
|
the
registration statement required to be filed pursuant to the registration
rights agreement has been effective and available for resale of the
securities registered thereunder, and the Company has no knowledge
of any
fact that would cause the registration statement not to be effective
or
available, or
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·
|
all
shares of common stock issuable upon conversion of the Series B Preferred
or exercise of the Warrants are available for resale without restriction
or registration under applicable state and federal securities laws,
and
the Company has no knowledge of any facts that would cause such shares
not
to be so available;
|
|
·
|
during
the preceding three-month period, the common stock is designated
for
trading on the Nasdaq Capital Market or such other eligible market
and has
not been subject to suspensions from trading (other than suspensions
of
two days or less due to business announcements by the Company) or
to
proceedings for delisting;
|
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·
|
during
the preceding three-month period, the Company shall have converted
Series
B Preferred into shares of common stock or exercised Warrants for
shares
of common stock in a timely manner as required by the terms of those
securities;
|
|
·
|
any
issuances of shares of common stock can be made without violating
the
rules and regulations of the market on which the Company’s common stock is
listed, and without violating provisions of the Certificate of
Designations limiting issuances of common stock equal to or greater
than
20% of the Company’s outstanding listed securities prior to the private
placement without stockholder
approval;
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|
·
|
during
the preceding three-month period, the Company has not publicly announced
a
fundamental transaction that has not been abandoned, terminated or
consummated and there has not been a “Triggering Event” (as defined
below);
|
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·
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the
Company shall not have breached any representation, warranty or covenant
set forth in the private placement transaction documents, other than
any
breach that would not have a material adverse effect or if the breach
is
cured within 20 days after notice of the breach;
and
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·
|
if
the relevant date of determination is after June 20, 2007, approval
of the
stockholders (as contemplated herein) has been
obtained.
|
Redemption
Any
holder of the Series B Preferred may require the Company to redeem all or a
portion of its Series B Preferred shares if the Company (each, a “Triggering
Event”):
|
·
|
fails
to convert Series B Preferred within 10 business days of the request
for
conversion or provides written notice to a Series B Preferred holder,
including through a public announcement, of its refusal to comply
with a
request for conversion;
|
|
·
|
fails
to pay any Series B Preferred holder any amounts payable in connection
with the private placement within 10 business days of the due date
for
payment (e.g., cash damages for failure to convert within three business
days of a request for conversion);
|
|
·
|
is,
or one of its significant subsidiaries (as defined by SEC rules and
regulations) is, subject to entry of a decree or order for relief
or
judgment pursuant to bankruptcy, insolvency, reorganization or similar
proceeding or appointing a custodian, receiver, liquidator or similar
official;
|
|
·
|
declares
or files for bankruptcy, insolvency, reorganization or similar proceeding
or seeks appointment of a custodian, receiver, liquidator or similar
official or one of its significant subsidiaries declares or files
for
bankruptcy, insolvency, reorganization or similar proceeding or seeks
appointment of a custodian, receiver, liquidator or similar
official;
|
|
·
|
incurs
a final judgment against it or any of its subsidiaries in excess
of
$250,000, which is not bonded, discharged or stayed pending appeal
within
90 days after entry (provided that any judgment that is covered by
insurance or indemnity from a creditworthy party will not be included
in
calculating the $250,000 amount if the Company notifies the holders
of
that coverage and the proceeds of the insurance or indemnity will
be
received within 30 days of the judgment); or
|
|
·
|
breaches
any representation, warranty or covenant in any of the documents
entered
into in connection with the private placement contemplated by the
Purchase
Agreement unless the breach or the event or condition giving rise
to the
breach would not have a material adverse effect or the breach is
cured
within 20 days after notice of the breach is given to the Company
by the
holder.
|
A
holder
who elects redemption in this situation is entitled to receive the greater
of
(a) up to 110% of the stated amount of the shares to be redeemed plus accrued
dividends and (b) (i) the closing sale price of the common stock on (x) the
day
before the event giving rise to the redemption right, (y) the day after the
event giving rise to the redemption or (z) the day the holder gives notice
of
redemption (whichever of the three is greatest) multiplied by (ii) the
conversion rate at the time of such notice.
A
holder
of the Series B Preferred may also require the Company to redeem all or a
portion of its shares if the Company enters into a change of control
transaction, such as a merger or a sale of substantially all of the Company’s
assets. A holder who elects redemption in this situation is entitled to receive
the greater of (a) up to 110% of the stated amount of the shares to be redeemed
plus accrued dividends and (b) (i) the quotient of (x) the closing sale price
of
the common stock on (A) the day before announcement of the proposed change
of
control, (B) the day after announcement of the proposed change of control or
(C)
the day immediately prior to consummation of the change of control (whichever
of
the three is greatest) divided by (y) the conversion price, multiplied by (ii)
the stated amount to be converted.
Voting
Rights
Subject
to the rules and regulations of the Nasdaq Capital Market and the limitations
set forth below, each holder of Series B Preferred is entitled to the number
of
votes that the holder would have if it converted its Series B Preferred into
shares of common stock.
Limitations
on Beneficial Ownership
Notwithstanding
the conversion rights of the Series B Preferred holders and us, we may not
issue
any shares of common stock in conversion of the Series B Preferred if the
conversion would either (1) cause the applicable holder to beneficially own
a
number of shares of common stock that exceeds 9.99% of the number of shares
of
common stock outstanding after giving effect to the conversion or exercise
or
(2) cause us to issue a number of shares of common stock that would exceed
the
number of shares of our common stock that we could issue under the rules and
regulations of the exchange on which those shares are traded.
Purchase
Rights
If
at any
time while the Series B Preferred are outstanding, we issue to our holders
of
common stock securities, rights to purchase securities or property on a pro
rata
basis, the holders of our Series B Preferred will be entitled to acquire
securities, rights or property as if such Series B Preferred holder had held
the
number of shares of common stock upon conversion of the Series B Preferred.
Series
B Stockholders
As
of August 7, 2007, we had 80 holders of record of our
Series B Preferred.
PLAN
OF DISTRIBUTION
We
are
registering the shares of common stock issuable upon conversion of the Series
B
Preferred and upon exercise of the Warrants to permit the resale of these shares
of common stock by the holders of the Series B Preferred and Warrants from
time
to time after the date of this prospectus. We will not receive any of the
proceeds from the sale by the selling stockholders of the shares of common
stock. We will bear all fees and expenses incident to our obligation to register
the shares of common stock.
The
selling stockholders may sell all or a portion of the shares of common stock
beneficially owned by them and offered hereby from time to time directly or
through one or more underwriters, broker-dealers or agents. If the shares of
common stock are sold through underwriters or broker-dealers, the selling
stockholders will be responsible for underwriting discounts or commissions
or
agent's commissions. The shares of common stock may be sold in one or more
transactions at fixed prices, at prevailing market prices at the time of the
sale, at varying prices determined at the time of sale, or at negotiated prices.
These sales may be effected in transactions, which may involve crosses or block
transactions,
|
· |
on
any national securities exchange or quotation service on which the
securities may be listed or quoted at the time of
sale;
|
|
· |
in
the over-the-counter market;
|
|
· |
in
transactions otherwise than on these exchanges or systems or in the
over-the-counter market;
|
|
· |
through
the writing of options, whether such options are listed on an options
exchange or otherwise;
|
|
· |
ordinary
brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
|
|
· |
block
trades in which the broker-dealer will attempt to sell the shares
as agent
but may position and resell a portion of the block as principal to
facilitate the transaction;
|
|
· |
purchases
by a broker-dealer as principal and resale by the broker-dealer for
its
account;
|
|
· |
an
exchange distribution in accordance with the rules of the applicable
exchange;
|
|
· |
privately
negotiated transactions;
|
|
· |
sales
pursuant to Rule 144;
|
|
· |
broker-dealers
may agree with the selling securityholders to sell a specified number
of
such shares at a stipulated price per
share;
|
|
· |
a
combination of any such methods of sale;
and
|
|
· |
any
other method permitted pursuant to applicable
law.
|
If
the
selling stockholders effect such transactions by selling shares of common stock
to or through underwriters, broker-dealers or agents, such underwriters,
broker-dealers or agents may receive commissions in the form of discounts,
concessions or commissions from the selling stockholders or commissions from
purchasers of the shares of common stock for whom they may act as agent or
to
whom they may sell as principal (which discounts, concessions or commissions
as
to particular underwriters, broker-dealers or agents may be in excess of those
customary in the types of transactions involved). In connection with sales
of
the shares of common stock or otherwise, the selling stockholders may enter
into
hedging transactions with broker-dealers, which may in turn engage in short
sales of the shares of common stock in the course of hedging in positions they
assume. The selling stockholders may also sell shares of common stock short
and
deliver shares of common stock covered by this prospectus to close out short
positions created after the effective date of the registration statement of
which this prospectus is a part and to return borrowed shares in connection
with
such short sales. The selling stockholders may also loan or pledge shares of
common stock to broker-dealers that in turn may sell such shares.
The
selling stockholders may pledge or grant a security interest in some or all
of
the convertible preferred shares or warrants or shares of common stock owned
by
them and, if they default in the performance of their secured obligations,
the
pledgees or secured parties may offer and sell the shares of common stock from
time to time pursuant to this prospectus or any supplement to this prospectus
under Rule 424(b)(3) or other applicable provision of the Securities Act
amending, if necessary, the list of selling stockholders to include the pledgee,
transferee or other successors in interest as selling stockholders under this
prospectus. The selling stockholders also may transfer and donate the shares
of
common stock in other circumstances in which case the transferees, donees,
pledgees or other successors in interest will be the selling beneficial owners
for purposes of this prospectus.
The
selling stockholders and any broker-dealer participating in the distribution
of
the shares of common stock may be deemed to be "underwriters" within the meaning
of the Securities Act, and any commission paid, or any discounts or concessions
allowed to, any such broker-dealer may be deemed to be underwriting commissions
or discounts under the Securities Act. At the time a particular offering of
the
shares of common stock is made, a prospectus supplement, if required, will
be
distributed which will set forth the aggregate amount of shares of common stock
being offered and the terms of the offering, including the name or names of
any
broker-dealers or agents, any discounts, commissions and other terms
constituting compensation from the selling stockholders and any discounts,
commissions or concessions allowed or reallowed or paid to
broker-dealers.
Under
the
securities laws of some states, the shares of common stock may be sold in such
states only through registered or licensed brokers or dealers. In addition,
in
some states the shares of common stock may not be sold unless such shares have
been registered or qualified for sale in such state or an exemption from
registration or qualification is available and is complied with.
There
can
be no assurance that any selling stockholder will sell any or all of the shares
of common stock registered pursuant to the registration statement, of which
this
prospectus forms a part.
The
selling stockholders and any other person participating in such distribution
will be subject to applicable provisions of the Exchange Act, including, without
limitation, Regulation M of the Exchange Act, which may limit the timing of
purchases and sales of any of the shares of common stock by the selling
stockholders and any other participating person. Regulation M may also restrict
the ability of any person engaged in the distribution of the shares of common
stock to engage in market-making activities with respect to the shares of common
stock. All of the foregoing may affect the marketability of the shares of common
stock and the ability of any person or entity to engage in market-making
activities with respect to the shares of common stock.
We
will
pay all expenses of the registration of the shares of common stock pursuant
to
the registration rights agreement, estimated to be
$[ ] in total, including, without limitation,
Securities and Exchange Commission filing fees and expenses of compliance with
state securities or "blue sky" laws; provided, however, that a selling
stockholder will pay all underwriting discounts and selling commissions, if
any.
We will indemnify the selling stockholders against certain liabilities,
including certain liabilities under the Securities Act, in accordance with
the
registration rights agreements, or the selling stockholders will be entitled
to
contribution with respect thereto. We will be indemnified by the selling
stockholders against civil liabilities, including liabilities under the
Securities Act, that may arise from any written information furnished to us
by
the selling stockholder specifically for use in this prospectus, in accordance
with the related registration rights agreement, or we will be entitled to
contribution.
Once
sold
under the registration statement of which this prospectus forms a part, the
shares of common stock will be freely tradable in the hands of persons other
than our affiliates.
The
validity of the common stock offered by this prospectus will be passed upon
for
us by Katten Muchin Rosenman LLP, Chicago, Illinois.
The
financial statements appearing in this prospectus and registration statement
have been audited by Meaden & Moore, Ltd., independent registered
accountants, to the extent and for the periods indicated in their report
appearing elsewhere herein, and are included in reliance upon such report and
upon the authority of such firms as experts in accounting and
auditing.
We
file
annual, quarterly and special reports, proxy statements and other information
with the SEC. You are able to inspect and copy these reports, proxy statements
and other information without charge at the Public Reference Room maintained
by
the SEC at 450 Fifth Street, N.W., Washington, DC 20549, and copies of all
or
any part of these materials may be obtained from the SEC upon payment of the
prescribed fee. Information regarding the operation of the Public Reference
Room
may be obtained by calling the SEC at 1-800-SEC-0330. The SEC maintains a web
site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the SEC. The
address of the site is http://www.sec.gov.
We
have
filed with the SEC a registration statement on Form SB-2 under the Securities
Act for the shares of common stock being offered by the selling stockholders.
This prospectus does not contain all of the information in the registration
statement and the exhibits and schedules that were filed with the registration
statement. For further information with respect to us and our common stock,
we
refer you to the registration statement and the exhibits that were filed with
the registration statement. Statements contained in this prospectus about the
contents or any contract or any other document that is filed as an exhibit
to
the registration statement are not necessarily complete, and we refer you to
the
full text of the contract or other document filed as an exhibit to the
registration statement. Anyone may obtain the registration statement and its
exhibits and schedules from the SEC.
INDEX
|
|
|
Page
|
|
|
|
|
|
|
Report
of Independent Registered Public Accounting Firm
|
|
|
F-2
|
|
|
|
|
|
|
Financial
Statements:
|
|
|
|
|
|
|
|
|
|
Balance
Sheets as of December 31, 2006 and 2005 (audited)
|
|
|
F-3
|
|
|
|
|
|
|
Statement
of Operations for Years Ended December 31, 2006, 2005, and 2004
(audited)
|
|
|
F-5
|
|
|
|
|
|
|
Statements
of Stockholders' Equity and Comprehensive Loss for Period from January
1,
2004 to December 31, 2006 (audited)
|
|
|
F-6
|
|
|
|
|
|
|
Statement
of Cash Flows for Years Ended December 31, 2006, 2005, and 2004
(audited)
|
|
|
F-9
|
|
|
|
|
|
|
Notes
to Financial Statements (audited)
|
|
|
F-11
|
|
|
|
|
|
|
Balance
Sheets as of March 31, 2007 (unaudited) and December 31, 2006
(audited)
|
|
|
F-23
|
|
|
|
|
|
|
Statement
of Operations for Three Months Ended March 31, 2007 and 2006
(unaudited)
|
|
|
F-25
|
|
|
|
|
|
|
Statement
of Stockholders’ Equity and Comprehensive Loss for Period from January 1,
2006 to December 31, 2006 and to March 31, 2007 (unadited)
|
|
|
F-26
|
|
|
|
|
|
|
Statement
of Cash Flows for Three Months Ended March 31, 2007 and 2006
(unaudited)
|
|
|
F-29
|
|
|
|
|
|
|
Notes
to Unaudited Financial Statements
|
|
|
F-30
|
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board
of
Directors and Stockholders of
Cleveland
BioLabs, Inc.
We
have
audited the accompanying balance sheets of CLEVELAND BIOLABS, INC. as of
December 31, 2006 and 2005, and the related statements of operations,
stockholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 2006. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an
opinion on these financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures
in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In
our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Cleveland BioLabs, Inc. as of
December 31, 2006 and 2005, and the results of its operations and its cash
flows
for each of the years in the three-year period ended December 31, 2006 in
conformity with accounting principles generally accepted in the United States
of
America.
MEADEN
& MOORE, LTD.
Certified
Public Accountants
Cleveland,
Ohio
March
5,
2007
CLEVELAND
BIOLABS, INC.
BALANCE
SHEETS
December
31, 2006 and 2005
|
|
|
2006
|
|
|
2005
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
ASSETS
|
|
|
|
|
|
|
|
Cash
and equivalents
|
|
$
|
3,061,993
|
|
$
|
1,206,462
|
|
Short-term
investments
|
|
|
1,995,836
|
|
|
2,382,190
|
|
Accounts
receivable:
|
|
|
|
|
|
|
|
Trade
|
|
|
159,750
|
|
|
-
|
|
Interest
|
|
|
42,479
|
|
|
37,035
|
|
Notes
Receivable - Orbit Brands
|
|
|
50,171
|
|
|
-
|
|
Prepaid
expenses - IPO
|
|
|
-
|
|
|
210,987
|
|
Other
prepaid expenses
|
|
|
434,675
|
|
|
12,249
|
|
Deferred
compensation
|
|
|
-
|
|
|
5,134
|
|
Total
current assets
|
|
|
5,744,904
|
|
|
3,854,057
|
|
|
|
|
|
|
|
|
|
EQUIPMENT
|
|
|
|
|
|
|
|
Computer
equipment
|
|
|
132,572
|
|
|
91,788
|
|
Lab
equipment
|
|
|
347,944
|
|
|
225,997
|
|
Furniture
|
|
|
65,087
|
|
|
40,158
|
|
|
|
|
545,603
|
|
|
357,943
|
|
Less
accumulated depreciation
|
|
|
142,011
|
|
|
47,080
|
|
|
|
|
403,592
|
|
|
310,863
|
|
|
|
|
|
|
|
|
|
OTHER
ASSETS
|
|
|
|
|
|
|
|
Deferred
compensation
|
|
|
-
|
|
|
752
|
|
Intellectual
Property
|
|
|
252,978
|
|
|
76,357
|
|
Deposits
|
|
|
15,055
|
|
|
11,304
|
|
|
|
|
268,033
|
|
|
88,413
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$
|
6,416,529
|
|
$
|
4,253,333
|
|
CLEVELAND
BIOLABS, INC.
BALANCE
SHEETS
December
31, 2006 and 2005
|
|
2006
|
|
2005
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
|
|
Accounts
payable:
|
|
|
|
|
|
|
|
Trade
|
|
$
|
644,806
|
|
$
|
264,783
|
|
Deferred
revenue
|
|
|
-
|
|
|
100,293
|
|
Accrued
expenses
|
|
|
128,569
|
|
|
28,579
|
|
Total
current liabilities
|
|
|
773,375
|
|
|
393,655
|
|
|
|
|
|
|
|
|
|
LONG-TERM
LIABILITIES
|
|
|
|
|
|
|
|
Convertible
notes payable
|
|
|
-
|
|
|
303,074
|
|
Milestone
payables
|
|
|
50,000
|
|
|
-
|
|
Total
long-term liabilities
|
|
|
50,000
|
|
|
303,074
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS'
EQUITY
|
|
|
|
|
|
|
|
Series
A convertible preferred stock, $.005 par value
|
|
|
|
|
|
|
|
Authorized
- 10,000,000 and 4,000,000 shares at December 31, 2006 and December
31,
2005, respectively
|
|
|
-
|
|
|
15,256
|
|
Issued
and outstanding 0 and 3,051,219 shares at December 31, 2006 and December
31, 2005, respectively
|
|
|
|
|
|
|
|
Additional
paid-in capital
|
|
|
-
|
|
|
4,932,885
|
|
Unissued
shares - preferred stock
|
|
|
-
|
|
|
360,000
|
|
Common
stock, $.005 par value
|
|
|
|
|
|
|
|
Authorized
- 40,000,000 and 12,000,000 shares at December 31, 2006 and December
31,
2005, respectively
|
|
|
|
|
|
|
|
Issued
and outstanding 11,826,389 and 6,396,801 shares at December 31, 2006
and
December 31, 2005, respectively
|
|
|
59,132
|
|
|
31,984
|
|
Additional
paid-in capital
|
|
|
18,314,097
|
|
|
3,338,020
|
|
Unissued
shares - common stock
|
|
|
-
|
|
|
81,125
|
|
Accumulated
other comprehensive income (loss)
|
|
|
(4,165
|
)
|
|
(17,810
|
)
|
Accumulated
deficit
|
|
|
(12,775,910
|
)
|
|
(5,184,856
|
)
|
Total
stockholders' equity
|
|
|
5,593,154
|
|
|
3,556,604
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
$
|
6,416,529
|
|
$
|
4,253,333
|
|
CLEVELAND
BIOLABS, INC.
STATEMENT
OF OPERATIONS
Years
Ended December 31, 2006, 2005 and 2004
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
REVENUES
|
|
|
|
|
|
|
|
|
|
|
Grant
|
|
$
|
1,503,214
|
|
$
|
999,556
|
|
$
|
531,341
|
|
Service
|
|
|
205,000
|
|
|
139,275
|
|
|
105,000
|
|
|
|
|
1,708,214
|
|
|
1,138,831
|
|
|
636,341
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
Research
and Development
|
|
|
6,989,804
|
|
|
2,640,240
|
|
|
2,892,967
|
|
General
and administrative
|
|
|
2,136,511
|
|
|
986,424
|
|
|
262,817
|
|
Total
operating expenses
|
|
|
9,126,315
|
|
|
3,626,664
|
|
|
3,155,784
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS
FROM OPERATIONS
|
|
|
(7,418,101
|
)
|
|
(2,487,833
|
)
|
|
(2,519,443
|
)
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
|
|
Interest
Income
|
|
|
206,655
|
|
|
119,371
|
|
|
320
|
|
Interest
Expense
|
|
|
(11,198
|
)
|
|
(17,993
|
)
|
|
(4,019
|
)
|
Total
other income (expense), net
|
|
|
195,457
|
|
|
101,378
|
|
|
(3,699
|
)
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS
|
|
$
|
(7,222,644
|
)
|
$
|
(2,386,455
|
)
|
$
|
(2,523,142
|
)
|
|
|
|
|
|
|
|
|
|
|
|
DIVIDENDS
ON CONVERTIBLE PREFERRED STOCK
|
|
|
(214,928
|
)
|
|
(291,914
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS AVAILABLE TO COMMON SHAREHOLDERS
|
|
$
|
(7,437,572
|
)
|
$
|
(2,678,369
|
)
|
$
|
(2,523,142
|
)
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS AVAILABLE TO COMMON SHAREHOLDERS
|
|
|
|
|
|
|
|
|
|
|
PER
SHARE OF COMMON STOCK - BASIC AND
|
|
|
|
|
|
|
|
|
|
|
DILUTED
|
|
$
|
(0.84
|
)
|
$
|
(0.43
|
)
|
$
|
(0.55
|
)
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED
AVERAGE NUMBER OF SHARES USED
|
|
|
|
|
|
|
|
|
|
|
IN
CALCULATING NET LOSS PER SHARE, BASIC AND
|
|
|
|
|
|
|
|
|
|
|
DILUTED
|
|
|
8,906,266
|
|
|
6,250,447
|
|
|
4,615,571
|
|
CLEVELAND
BIOLABS, INC.
STATEMENTS
OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE LOSS
Period
From January 1, 2004 to December 31, 2006
|
|
Stockholders'
Equity
|
|
|
Common
Stock
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paid-in
|
|
|
Penalty
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at January 1, 2004
|
|
|
3,993,200
|
|
$
|
19,966
|
|
$
|
5,034
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of shares
|
|
|
1,966,800
|
|
|
9,834
|
|
|
2,250,920
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2004
|
|
|
5,960,000
|
|
|
29,800
|
|
|
2,255,954
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of shares - Series A financing
|
|
|
308,000
|
|
|
1,540
|
|
|
588,122
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of shares - stock dividend
|
|
|
69,201
|
|
|
346
|
|
|
138,056
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of options (383,840 options issued, 324,240
outstanding)
|
|
|
-
|
|
|
-
|
|
|
318,111
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of options (59,600 options exercised)
|
|
|
59,600
|
|
|
298
|
|
|
118,902
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrue
unissued shares
|
|
|
-
|
|
|
-
|
|
|
(81,125
|
)
|
|
81,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gains (losses) on short term investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
holding gains (losses) arising during period
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Comprehensive
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2005
|
|
|
6,396,801.00
|
|
|
31,984
|
|
|
3,338,020
|
|
|
81,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of shares - previously accrued penalty shares
|
|
|
54,060
|
|
|
270
|
|
|
80,855
|
|
|
(81,125
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of shares - stock dividend
|
|
|
184,183
|
|
|
922
|
|
|
367,445
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issue
penalty shares
|
|
|
15,295
|
|
|
76
|
|
|
(76
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of shares - initial public offering
|
|
|
1,700,000
|
|
|
8,500
|
|
|
10,191,500
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees
associated with initial public offering
|
|
|
-
|
|
|
-
|
|
|
(1,890,444
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of preferred stock to common stock
|
|
|
3,351,219
|
|
|
16,756
|
|
|
5,291,385
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of notes payable to common stock
|
|
|
124,206
|
|
|
621
|
|
|
312,382
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of options
|
|
|
-
|
|
|
-
|
|
|
506,078
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of options
|
|
|
625
|
|
|
3
|
|
|
2,810
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of warrants
|
|
|
-
|
|
|
-
|
|
|
114,032
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from sales of warrants
|
|
|
-
|
|
|
-
|
|
|
110
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gains (losses) on short term investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes
in unrealized holding gains (losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
arising
during period
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Less
reclassification adjustment for (gains) losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
included
in net loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Comprehensive
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2006
|
|
|
11,826,389
|
|
$
|
59,132
|
|
$
|
18,314,097
|
|
$
|
-
|
|
CLEVELAND
BIOLABS, INC.
STATEMENTS
OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE LOSS
Period
From January 1, 2004 to December 31, 2006
|
|
Stockholders'
Equity
|
|
|
Preferred
Stock
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paid-in
|
|
|
Penalty
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at January 1, 2004
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of shares
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2004
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of shares - Series A financing
|
|
|
3,051,219
|
|
|
15,256
|
|
|
5,292,885
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of shares - stock dividend
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of options (383,840 options issued, 324,240
outstanding)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of options (59,600 options exercised)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrue
unissued shares
|
|
|
|
|
|
|
|
|
(360,000
|
)
|
|
360,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gains (losses) on short term investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
holding gains (losses) arising during period
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Comprehensive
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2005
|
|
|
3,051,219
|
|
|
15,256
|
|
|
4,932,885
|
|
|
360,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of shares - previously accrued penalty shares
|
|
|
240,000
|
|
|
1,200
|
|
|
358,800
|
|
|
(360,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of shares - stock dividend
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issue
penalty shares
|
|
|
60,000
|
|
|
300
|
|
|
(300
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of shares - initial public offering
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees
associated with initial public offering
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of preferred stock to common stock
|
|
|
(3,351,219
|
)
|
|
(16,756
|
)
|
|
(5,291,385
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of notes payable to common stock
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of options
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of options
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of warrants
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from sales of warrants
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gains (losses) on short term investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes
in unrealized holding gains (losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
arising
during period
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Less
reclassification adjustment for (gains) losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
included
in net loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Comprehensive
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2006
|
|
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
CLEVELAND
BIOLABS, INC.
STATEMENTS
OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE LOSS
Period
From January 1, 2004 to December 31, 2006
|
|
|
Stockholders'
Equity
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
Comprehensive
|
|
|
|
|
Comprehensive
|
|
|
Accumulated
|
|
|
|
|
|
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at January 1, 2004
|
|
$
|
-
|
|
$
|
(136,826
|
)
|
$
|
(111,826
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of shares
|
|
|
-
|
|
|
-
|
|
|
2,260,754
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
(2,523,142
|
)
|
|
(2,523,142
|
)
|
$
|
(2,523,142
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2004
|
|
|
-
|
|
|
(2,659,968
|
)
|
|
(374,214
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of shares - Series A financing
|
|
|
-
|
|
|
-
|
|
|
5,897,803
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of shares - stock dividend
|
|
|
-
|
|
|
(138,433
|
)
|
|
(31
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of options (383,840 options issued, 324,240
outstanding)
|
|
|
-
|
|
|
-
|
|
|
318,111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of options (59,600 options exercised)
|
|
|
-
|
|
|
-
|
|
|
119,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrue
unissued shares
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
(2,386,455
|
)
|
|
(2,386,455
|
)
|
|
(2,386,455
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gains (losses) on short term investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
holding gains (losses) arising during period
|
|
|
(17,810
|
)
|
|
-
|
|
|
(17,810
|
)
|
$
|
(17,810
|
)
|
Comprehensive
loss
|
|
|
|
|
|
|
|
|
|
|
$
|
(2,404,265
|
)
|
Balance
at December 31, 2005
|
|
|
(17,810
|
)
|
|
(5,184,856
|
)
|
|
3,556,604
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of shares - previously accrued penalty shares
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of shares - stock dividend
|
|
|
-
|
|
|
(368,410
|
)
|
|
(43
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issue
penalty shares
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of shares - initial public offering
|
|
|
-
|
|
|
-
|
|
|
10,200,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees
associated with initial public offering
|
|
|
-
|
|
|
-
|
|
|
(1,890,444
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of preferred stock to common stock
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of notes payable to common stock
|
|
|
-
|
|
|
-
|
|
|
313,003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of options
|
|
|
-
|
|
|
-
|
|
|
506,078
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of options
|
|
|
-
|
|
|
-
|
|
|
2,813
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of warrants
|
|
|
-
|
|
|
-
|
|
|
114,032
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from sales of warrants
|
|
|
-
|
|
|
-
|
|
|
110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
(7,222,644
|
)
|
|
(7,222,644
|
)
|
|
(7,222,644
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gains (losses) on short term investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes
in unrealized holding gains (losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
arising
during period
|
|
|
6,678
|
|
|
-
|
|
|
6,678
|
|
$
|
6,678
|
|
Less
reclassification adjustment for (gains) losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
included
in net loss
|
|
|
6,967
|
|
|
-
|
|
|
6,967
|
|
$
|
6,967
|
|
Comprehensive
loss
|
|
|
|
|
|
|
|
|
|
|
$
|
(7,208,999
|
)
|
Balance
at December 31, 2006
|
|
$
|
(4,165
|
)
|
$
|
(12,775,910
|
)
|
$
|
5,593,154
|
|
|
|
|
CLEVELAND
BIOLABS, INC.
STATEMENTS
OF CASH FLOWS
Year
Ended
December 31, 2006, 2005 and 2004
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(7,222,644
|
)
|
$
|
(2,386,455
|
)
|
$
|
(2,523,142
|
)
|
Adjustments
to reconcile net loss to net cash
|
|
|
|
|
|
|
|
|
|
|
used
by operating activities:
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
94,931
|
|
|
44,762
|
|
|
2,299
|
|
Noncash
interest expense
|
|
|
9,929
|
|
|
17,993
|
|
|
4,019
|
|
Noncash
salaries and consulting expense
|
|
|
620,119
|
|
|
437,311
|
|
|
-
|
|
Deferred
compensation
|
|
|
5,886
|
|
|
9,141
|
|
|
10,449
|
|
Research
and development
|
|
|
-
|
|
|
-
|
|
|
2,256,067
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable - trade
|
|
|
(159,750
|
)
|
|
225,013
|
|
|
(225,013
|
)
|
Accounts
receivable - interest
|
|
|
(5,616
|
)
|
|
(37,035
|
)
|
|
-
|
|
Other
prepaid expenses
|
|
|
(422,427
|
)
|
|
(12,249
|
)
|
|
-
|
|
Deposits
|
|
|
(3,750
|
)
|
|
(3,734
|
)
|
|
(7,570
|
)
|
Accounts
payable
|
|
|
380,023
|
|
|
10,869
|
|
|
169,980
|
|
Deferred
revenue
|
|
|
(100,293
|
)
|
|
100,293
|
|
|
-
|
|
Accrued
expenses
|
|
|
99,990
|
|
|
(136,421
|
)
|
|
105,000
|
|
Milestone
payments
|
|
|
50,000
|
|
|
-
|
|
|
-
|
|
Total
adjustments
|
|
|
569,042
|
|
|
655,942
|
|
|
2,315,231
|
|
Net
cash (used) provided by operating
|
|
|
|
|
|
|
|
|
|
|
activities
|
|
|
(6,653,602
|
)
|
|
(1,730,513
|
)
|
|
(207,911
|
)
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
Sale/(purchase)
of short-term investments
|
|
|
400,000
|
|
|
(2,400,000
|
)
|
|
-
|
|
Issuance
of notes receivable
|
|
|
(50,000
|
)
|
|
-
|
|
|
-
|
|
Purchase
of equipment
|
|
|
(187,660
|
)
|
|
(328,756
|
)
|
|
(27,991
|
)
|
Costs
of patents pending
|
|
|
(176,621
|
)
|
|
(76,357
|
)
|
|
-
|
|
Net
cash provided by investing activities
|
|
|
(14,281
|
)
|
|
(2,805,113
|
)
|
|
(27,991
|
)
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
Issuance
of preferred stock
|
|
|
-
|
|
|
6,000,000
|
|
|
-
|
|
Financing
costs
|
|
|
(1,679,456
|
)
|
|
(402,622
|
)
|
|
(13,000
|
)
|
Dividends
|
|
|
(43
|
)
|
|
(31
|
)
|
|
-
|
|
Issuance
of common stock
|
|
|
10,200,000
|
|
|
-
|
|
|
17
|
|
Exercise
of stock options
|
|
|
2,813
|
|
|
-
|
|
|
-
|
|
Issuance
of warrants
|
|
|
100
|
|
|
-
|
|
|
-
|
|
Proceeds
from convertible notes payable
|
|
|
-
|
|
|
50,000
|
|
|
333,500
|
|
Net
cash provided by financing activities
|
|
|
8,523,414
|
|
|
5,647,347
|
|
|
320,517
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCREASE IN CASH AND EQUIVALENTS
|
|
|
1,855,531
|
|
|
1,111,721
|
|
|
84,615
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
AND EQUIVALENTS AT BEGINNING OF YEAR
|
|
|
1,206,462
|
|
|
94,741
|
|
|
10,126
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
AND EQUIVALENTS AT END OF YEAR
|
|
$
|
3,061,993
|
|
$
|
1,206,462
|
|
$
|
94,741
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
Supplemental
disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
Cash
paid during the period for interest
|
|
$
|
1,269
|
|
$
|
-
|
|
$
|
-
|
|
Cash
paid during the year for income taxes
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
Supplemental
schedule of noncash financing activities:
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued as financing fees on issuance of preferred
shares
|
|
$
|
-
|
|
$
|
589,662
|
|
$
|
-
|
|
Conversion
of notes payable and accrued interest to preferred stock
|
|
$
|
-
|
|
$
|
102,438
|
|
$
|
-
|
|
Issuance
of stock options to employees, consultants, and independent board
members
|
|
$
|
506,078
|
|
$
|
318,511
|
|
$
|
-
|
|
Issuance
of warrants to consultant
|
|
$
|
114,042
|
|
$
|
-
|
|
$
|
-
|
|
Exercise
of stock options into 59,600 common shares by consultant
|
|
$
|
-
|
|
$
|
119,200
|
|
$
|
-
|
|
Issuance
of common stock dividend to preferred shareholders
|
|
$
|
368,367
|
|
$
|
138,402
|
|
$
|
-
|
|
Unissued
shares to preferred shareholders for penalty per agreement
|
|
$
|
-
|
|
$
|
441,125
|
|
$
|
-
|
|
Conversion
of notes payable and accrued interest to common stock
|
|
$
|
313,003
|
|
$
|
-
|
|
$
|
-
|
|
Conversion
of preferred stock to common stock
|
|
$
|
5,308,141
|
|
$
|
-
|
|
$
|
-
|
|
CLEVELAND
BIOLABS, INC.
NOTES
TO FINANCIAL STATEMENTS
Note
1. Organization
Cleveland
BioLabs, Inc. (“CBL” or the “Company”) is engaged in the discovery, development
and commercialization of products for cancer treatment and protection of normal
tissues from radiation and toxins. The Company was incorporated under the laws
of the State of Delaware on June 5, 2003 and is headquartered in Cleveland,
Ohio. The Company’s initial technological development efforts are intended to be
used as powerful antidotes with a broad spectrum of applications including
protection from cancer treatment side effects, radiation and hypoxia. A recent
discovery found that one of its compounds increases the number of progenitor
(originator) stem cells in mouse bone marrow. To date, the Company has not
developed any commercial products, but in 2006 and 2005 the Company developed
and produced biological compounds under a single commercial development
contract.
Note
2. Summary of Significant Accounting Policies
A.
|
Cash
and Equivalents - The Company considers highly liquid debt instruments
with original maturities of three months or less to be cash equivalents.
In addition, the Company maintains cash and equivalents at financial
institutions, which may exceed federally insured amounts at times
and
which may, at times, significantly exceed balance sheet amounts due
to
outstanding checks.
|
B.
|
Marketable
Securities and Short Term Investments - The Company considers investments
with a maturity date of more than three months to maturity to be
short-term investments and has classified these securities as
available-for-sale. Such investments are carried at fair value, with
unrealized gains and losses included as accumulated other comprehensive
income (loss) in stockholders’ equity. The cost of available-for-sale
securities sold is determined based on the specific identification
method.
|
C.
|
Accounts
Receivable - The Company extends unsecured credit to customers under
normal trade agreements, which generally require payment within 30
days.
Management estimates an allowance for doubtful accounts which is
based
upon management’s review of delinquent accounts and an assessment of the
Company’s historical evidence of collections. There is no allowance for
doubtful accounts as of December 31, 2006, and
2005.
|
D.
|
Notes
Receivable - On December 7, 2006 the Company entered into an agreement
with the Orbit Brands Corporation (Borrower) and its subsidiaries
whereby
the Company would lend up to $150,000 each on two promissory notes
to the
Borrower at a rate of 5% per annum with a maturity date of one year.
The
proceeds of the loans shall be used by the Borrower solely to cover
expenses associated with converting the notes into common stock and
preparing the lending motions for the bankruptcy case involving the
Borrower. The loans are convertible into common stock of the Borrower
and
its subsidiaries. The Company is under no obligation to fund or loan
any
additional amount to the Borrower, although in the event the Company
terminates, ceases or withholds its funding, any amounts funded prior
thereto shall be forfeited, unless such termination is due to a breach
by
Borrower. As of December 31, 2006 the balance outstanding was $50,000
plus
accrued interest of $171.
|
E.
|
Equipment
- Equipment is stated at cost and depreciated over the estimated
useful
lives of the assets (generally five years) using the straight-line
method.
Leasehold improvements are depreciated on the straight-line method
over
the shorter of the lease term or the estimated useful lives of the
assets.
Expenditures for maintenance and repairs are charged to expense as
incurred. Major expenditures for renewals and betterments are capitalized
and depreciated. Depreciation expense was $94,931, $44,762, and $2,299
for
the years ended December 31, 2006, 2005, and 2004
respectively.
|
F.
|
Impairment
of Long-Lived Assets - In accordance with Statements of Financial
Accounting Standards, or SFAS, No. 144, Accounting for the Impairment
or
Disposal of Long-Lived Assets, long-lived assets to be held and used,
including equipment and intangible assets subject to depreciation
and
amortization, are reviewed for impairment whenever events or changes
in
circumstances indicate that the carrying amounts of the assets or
related
asset group may not be recoverable. Determination of recoverability
is
based on an estimate of discounted future cash flows resulting from
the
use of the asset and its eventual disposition. In the event that
such cash
flows are not expected to be sufficient to recover the carrying amount
of
the asset or asset group, the carrying amount of the asset is written
down
to its estimated net realizable
value.
|
G.
|
Deferred
Compensation - The Company realized deferred compensation upon the
valuation of restricted stock granted to the founding stockholders.
This
deferred compensation was expensed over the three-year vesting period
from
the grant of the stock. Capitalized Deferred Compensation was $0
and
$5,887 at December 31, 2006, and 2005, respectively. The Company
expensed
$5,887, $9,140, and $9,164 in compensation expense in 2006, 2005
and 2004,
respectively.
|
H.
|
Intellectual
Property - The Company capitalizes the costs associated with the
preparation, filing, and maintenance of certain intellectual property
rights. Capitalized intellectual property is reviewed annually for
impairment.
|
|
A
portion of this intellectual property is owned by the Cleveland Clinic
Foundation (“CCF”) and granted to the Company through an exclusive
licensing agreement as further discussed in Note 3. As part of the
licensing agreement, CBL agrees to bear the costs associated with
the
preparation, filing and maintenance of patent applications relating
to
this intellectual property. If the patent application is approved,
the
costs paid by the Company are amortized on a straight-line basis
over the
shorter of seventeen years or the anticipated useful life of the
patent.
If the patent application is not approved, the costs associated with
the
preparation and filing of the patent application by the Company on
behalf
of CCF will be expensed as part of selling, general and administrative
expenses. Gross capitalized patents pending costs are $222,789 and
$67,991
on behalf of CCF for 13 patent applications as of December 31, 2006
and
2005, respectively. All of the 13 CCF patent applications are still
pending approval.
|
|
|
|
The
Company also has submitted two patent applications as a result of
intellectual property exclusively developed and owned by the Company.
If
the patent applications are approved, costs paid by the Company associated
with the preparation, filing, and maintenance of the patents will
be
amortized on a straight-line basis over the shorter of seventeen
years or
the anticipated useful life of the patent. If the patent applications
are
not approved, the costs associated with the preparation and filing
of the
patent application will be expensed as part of selling, general and
administrative expenses at that time. Gross capitalized patents pending
costs were $30,189 and $8,366 for two patent applications as of December
31, 2006 and 2005, respectively. The patent applications are still
pending
approval.
|
|
|
I.
|
Lines
of Credit - The Company has a working capital line of credit that
is fully
secured by short-term investments. This fully-secured working capital
line
of credit carries an interest rate of prime minus 1%, a borrowing
limit of
$500,000, and expires on July 1, 2007. At December 31, 2006, there
were no
outstanding borrowings under this credit facility
|
|
|
|
The
Company also has an additional line of credit for use as a margin
account
in forward exchange rate transactions as a hedge against foreign
exchange
rate risk. This line of credit is fully secured by short term investments,
carries an interest rate of prime minus 1%, has a borrowing limit
of
$500,000, and expires on October 25, 2007. At December 31, 2006,
there
were no outstanding borrowings under this credit
facility.
|
J.
|
Fair
Value of Financial Instruments - Financial instruments, including
cash and
equivalents, accounts receivable, notes receivable, accounts payable
and
accrued liabilities, are carried at net realizable value. The carrying
amounts of the convertible notes payable approximate their respective
fair
values as they bear terms that are comparable to those available
under
current market conditions.
|
K.
|
Stock
Split - As a result of a 596 for 1 stock split of the Company’s issued and
outstanding shares of common stock, which became effective on February
28,
2005, the 10,000 issued and outstanding shares converted into 5,960,000
shares of common stock. Per SAB Topic 4C, all share and per share
stock
amounts have been retroactively adjusted to reflect the stock
split.
|
L.
|
Use
of Estimates - The preparation of financial statements in conformity
with
accounting principles generally accepted in the U.S. 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. The Company bases
its
estimates on historical experience and on various other assumptions
that
the Company believes to be reasonable under these circumstances.
Actual
results could differ from those
estimates.
|
M.
|
Revenue
Recognition - The Company recognizes revenue in accordance with Staff
Accounting Bulletin No. 104, “Revenue Recognition.” Revenue sources
consist of government grants, government contracts and commercial
development contracts.
|
|
|
|
Revenues
from federal government grants and contracts are for research and
development purposes and are recognized in accordance with the terms
of
the award and the government agency. Grant revenue is recognized
in one of
two different ways depending on the grant. Cost reimbursement grants
require us to submit proof of costs incurred that are invoiced by
us to
the government agency, which then pays the invoice. In this case,
grant
revenue is recognized at the time of submitting the invoice to the
government agency.
|
|
|
|
Fixed
cost grants require no proof of costs and are paid as a request for
payment is submitted for expenses. The grant revenue under these
fixed
costs grants is recognized using a percentage-of-completion method,
which
uses assumptions and estimates. These assumptions and estimates are
developed in coordination with the principal investigator performing
the
work under the government fixed-cost grants to determine key milestones,
expenses incurred, and deliverables to perform a percentage-of-completion
analysis to ensure that revenue is appropriately recognized. Critical
estimates involved in this process include total costs incurred and
anticipated to be incurred during the remaining life of the grant.
Government contract revenue is recognized periodically upon delivery
of an
invoice for allowable R&D expenses according to the terms of the
contract. The Company has recognized grant revenue from the following
agencies: the U.S. Army (DARPA), National Aeronautics and Space
Administration (NASA), the National Institutes of Health (NIH) and
the
Department of Health and Human Services (HHS). Commercial development
revenues are recognized when the service or development is
delivered.
|
N.
|
Deferred
Revenue - Deferred Revenue results when payment is received in advance
of
revenue being earned. When cash is received, the Company makes a
determination as to whether the revenue has been earned by applying
a
percentage-of-completion analysis to compute the need to recognize
deferred revenue. The percentage of completion method is based upon
(1)
the total income projected for the project at the time of completion
and
(2) the expenses incurred to date. The percentage-of-completion can
be
measured using the proportion of costs incurred versus the total
estimated
cost to complete the contract.
|
O.
|
Research
and Development - Research and development expenses consist primarily
of
costs associated with the clinical trials of drug candidates, compensation
and other expenses for research and development, personnel, supplies
and
development materials, costs for consultants and related contract
research
and facility costs. Expenditures relating to research and development
are
expensed as incurred.
|
P.
|
Employee
Benefit Plan - The Company maintains a 401(k) retirement savings
plan that
is available to all full-time employees who have reached age 21.
The plan
is intended to qualify under Section 401(k) of the Internal Revenue
Code
of 1986, as amended. The plan provides that each participant may
contribute up to a statutory limit of their pre-tax compensation,
which
was $15,000 for employees under age 50 and $20,000 for employees
50 and
older in calendar year 2006. Employee contributions are held in the
employees’ name and invested by the plan trustee. The plan currently
provides for the Company to make matching contributions, subject
to
established limits. The Company made matching contributions of $48,858,
$0, and $0 for 2006, 2005, and 2004,
respectively.
|
Q.
|
2006
Equity Incentive Plan - On May 26, 2006, the Company’s Board of Directors
adopted the 2006 Equity Incentive Plan (“Plan”) to attract and retain
persons eligible to participate in the Plan, motivate Participants
to
achieve long-term Company goals, and further align Participants’ interests
with those of the Company’s other stockholders. The Plan expires on May
26, 2016 and allows up to 2,000,000 shares of stock to be awarded.
For the
year ended December 31, 2006, 45,000 options were granted to independent
board members. On February 14, 2007, these 2,000,000 shares were
registered with the SEC by filing a Form S-8 registration
statement.
|
R.
|
Stock-Based
Compensation - The FASB issued SFAS No. 123(R) (revised December
2004),
Share Based Payment, which is a revision of SFAS No. 123 Accounting
for
Stock-Based Compensation. SFAS 123(R) requires all share-based payments
to
employees, including grants of employee stock options, to be recognized
in
the statement of operations based on their fair values. The Company
values
employee stock based compensation under the provisions of SFAS 123(R)
and
related interpretations.
|
|
The
fair value of each stock option granted is estimated on the grant
date
using the Black-Scholes option valuation model. The assumptions used
to
calculate the fair value of options granted are evaluated and revised,
as
necessary, to reflect the Company’s experience. The Company uses a
risk-free rate based on published rates from the St. Louis Federal
Reserve
at the time of the option grant, assumes a forfeiture rate of zero,
assumes an expected dividend yield rate of zero based on the Company’s
intent not to issue a dividend in the foreseeable future, uses an
expected
life based on the Company’s best judgment using facts and circumstances
based on its limited experience, and computes an expected volatility
based
on similar high-growth, publicly-traded, biotechnology companies.
The
Company does not include the use of its own stock in the volatility
calculation at this time because of the brief history of the stock
as a
publicly traded security on a listed exchange. Compensation expense
is
recognized using the straight-line amortization method for all stock-based
awards.
|
|
The
fair value of warrants issued to a key consultant in exchange for
services
is estimated using the Black-Scholes option valuation model with
the same
assumptions.
|
|
|
|
On
March 1, 2006, the Company granted 116,750 options pursuant to stock
award
agreements to certain employees and key consultants. On July 20,
2006, the
Company granted 45,000 fully-vested, stock options to independent
board
members pursuant to stock award agreements. On November 16, 2006,
the
Company granted 50,000 warrants to a key consultant. The assumptions
used
to value these option and warrant grants using the Black-Scholes
option
valuation model are as follows:
|
|
|
March 1, 2006
|
|
July
20, 2006
|
|
November
16, 2006
|
|
Risk-free
interest rate
|
|
|
|
|
|
4.66
|
%
|
|
|
|
|
5.04
|
%
|
|
|
|
|
4.80
|
%
|
Expected
dividend yield
|
|
|
|
|
|
0
|
%
|
|
|
|
|
0
|
%
|
|
|
|
|
0
|
%
|
Expected
life
|
|
|
|
|
|
5
years
|
|
|
|
|
|
5
years
|
|
|
|
|
|
2.5
Years
|
|
Expected
volatility
|
|
|
|
|
|
75.11
|
%
|
|
|
|
|
71.43
|
%
|
|
|
|
|
68.26
|
%
|
|
The
Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options that have no vesting restrictions and are
fully transferable. In addition, the Black-Scholes valuations model
requires the input of highly subjective assumptions including the
expected
stock price volatility. Because the Company’s employee stock options and
warrants have characteristics significantly different from those
of traded
derivative securities, and because changes in subjective input
assumptions
can materially affect the fair value estimate, in management’s opinion,
the existing models do not necessarily provide a reliable single
measure
of the fair value of the Company’s options and
warrants.
|
The
Company recognized a total of $506,078, $318,511, and $0 in expense for options
and $114,032, $0 and $0 in expense for warrants for the year-ended December
31,
2006, 2005, and 2004, respectively.
The
weighted average, estimated fair values of stock options granted during the
year-ended December 31, 2006 and 2005 were $3.14 and $1.65,
respectively.
The
following tables summarize the stock option activity for the years ended
December 31, 2006 and 2005.
|
|
|
Options
|
|
|
Weighted
Average
Exercise
Price
per
Share
|
|
|
Weighted
Average
Remaining
Contractual
Term
(in
Years)
|
|
Outstanding,
December 31, 2005
|
|
|
324,240
|
|
$
|
0.82
|
|
|
|
|
Granted,
March 1, 2006
|
|
|
116,750
|
|
|
4.50
|
|
|
|
|
Granted,
July 20, 2006
|
|
|
45,000
|
|
|
6.00
|
|
|
|
|
Exercised
|
|
|
625
|
|
|
4.50
|
|
|
|
|
Forfeited,
Canceled
|
|
|
1,875
|
|
|
4.50
|
|
|
|
|
Outstanding,
December 31, 2006
|
|
|
483,490
|
|
$
|
2.17
|
|
|
8.77
|
|
Exercisable,
December 31, 2006
|
|
|
243,183
|
|
$
|
2.27
|
|
|
8.78
|
|
|
|
|
Options
|
|
|
Weighted
Average
Exercise
Price
per
Share
|
|
|
Weighted
Average
Remaining
Contractual
Term
(in
Years)
|
|
Outstanding,
December 31, 2004
|
|
|
-
|
|
$
|
-
|
|
|
|
|
Granted,
March 1, 2005
|
|
|
10,000
|
|
|
3.00
|
|
|
|
|
Granted,
July 1, 2005
|
|
|
353,840
|
|
|
0.55
|
|
|
|
|
Granted,
December 1, 2005
|
|
|
20,000
|
|
|
2.00
|
|
|
|
|
Exercised,
September 30, 2005
|
|
|
59,600
|
|
|
-
|
|
|
|
|
Forfeited,
Canceled
|
|
|
-
|
|
|
-
|
|
|
|
|
Outstanding,
December 31, 2005
|
|
|
324,240
|
|
$
|
0.82
|
|
|
9.52
|
|
Exercisable,
December 31, 2005
|
|
|
83,560
|
|
$
|
0.88
|
|
|
9.50
|
|
S.
|
Income
Taxes - The Company utilizes Statement of Financial Accounting Standards
No. 109, “Accounting for Income Taxes,” which requires an asset and
liability approach to financial accounting and reporting for income
taxes.
The difference between the financial statement and tax basis of assets
and
liabilities is determined annually. Deferred income tax assets and
liabilities are computed for those temporary differences that have
future
tax consequences using the current enacted tax laws and rates that
apply
to the periods in which they are expected to affect taxable income.
Valuation allowances are established, if necessary, to reduce the
deferred
tax asset to the amount that will, more likely than not, be realized.
Income tax expense is the current tax payable or refundable for the
year
plus or minus the net change in the deferred tax assets and
liabilities.
|
T.
|
Net
Loss Per Share - Basic and diluted net loss per share has been computed
using the weighted-average number of shares of common stock outstanding
during the period.
|
The
following table presents the calculation of basic and diluted net loss per
share:
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
Net
loss available to common stockholders
|
|
$
|
(7,437,572
|
)
|
$
|
(2,678,369
|
)
|
$
|
(2,523,142
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per share, basic and diluted
|
|
$
|
(0.84
|
)
|
$
|
(0.43
|
)
|
$
|
(0.55
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
shares used in computing net loss per share, basic and
diluted
|
|
|
8,906,266
|
|
|
6,250,447
|
|
|
4,615,571
|
|
|
The
Company has included $214,928 and $291,914 in the numerator to account
for
cumulative dividends for Series A preferred stock that were recognized
for
2006 and 2005, respectively. As of December 31, 2006 all of these
dividends have been paid.
|
|
|
|
The
Company has excluded all outstanding warrants and options from the
calculation of diluted net loss per share because all such securities
are
antidilutive for all applicable periods presented.
|
|
|
|
The
total number of shares excluded from the calculations of diluted
net loss
per share, prior to application of the treasury stock method for
warrants,
was 814,424. 594,424 and 294,424 for the years ended December 31,
2006,
2005 and 2004, respectively. Such securities, had they been dilutive,
would have been included in the computation of diluted earnings per
share.
|
|
|
|
The
total number of shares excluded from the calculations of diluted
net loss
per share, prior to the application of the treasury stock method
for
options
,
was 483,490, 324,240 and 0 for the years ended December 31, 2006,
2005 and
2004, respectively. Such securities, had they been dilutive, would
have
been included in the computation of diluted earnings per
share.
|
|
|
U.
|
Concentrations
of Risk - Grant revenue was comprised wholly from grants issued by
the
federal government and accounted for 88.0%, 88.9% and 83.5% of total
revenue for the years ended December 31, 2006, 2005 and 2004,
respectively. Although the company anticipates ongoing federal grant
revenue, there is no guarantee that this revenue stream will continue
in
the future.
|
|
|
|
Financial
instruments that potentially subject us to a significant concentration
of
credit risk consist primarily of cash and cash equivalents and securities
available-for-sale. The Company maintains deposits in federally insured
institutions in excess of federally insured limits. The Company does
not
believe it is exposed to significant credit risk due to the financial
position of the depository institutions in which those deposits are
held.
Additionally, the Company has established guidelines regarding
diversification of its investment portfolio and maturities of investments,
which are designed to meet safety and
liquidity.
|
V.
|
Foreign
Currency Exchange Rate Risk - The Company has entered into a manufacturing
agreement with a foreign third party to produce one of its drug compounds
and is required to make payments in the foreign currency. As a result,
the
Company’s financial results could be affected by changes in foreign
currency exchange rates. Currently, the Company’s exposure primarily
exists with the Euro Dollar. As of December 31, 2006, the Company
is
obligated to make payments under the agreement of 1,295,385 Euros.
The
Company has established means to purchase forward contracts to hedge
against this risk. As of December 31, 2006, no hedging transactions
have
been consummated.
|
W.
|
Comprehensive
Income/(Loss) - The Company applies Statement of Financial Accounting
Standards (SFAS) No. 130, “Reporting Comprehensive Income.” SFAS No. 130
requires disclosure of all components of comprehensive income on
an annual
and interim basis. Comprehensive income is defined as the change
in equity
of a business enterprise during a period from transactions and other
events and circumstances from non-owner
sources.
|
X.
|
Segment
Reporting - As of December 31, 2006 the Company has determined that
it
operates in only one segment. Accordingly, no segment disclosures
have
been included in the notes to the consolidated financial
statements.
|
Y.
|
Effect
of New Accounting Standards - In May 2005, the FASB issued SFAS No.
154,
“Accounting Changes and Error Correction - a Replacement of APB Opinion
No. 20 and FASB Statement No. 3” (“SFAS 154”). SFAS 154 changes the
requirements for the accounting for and the reporting of a change
in
accounting principle. SFAS 154 requires that a voluntary change in
accounting principle be applied retroactively with all prior period
financial statements presented under the new accounting principle.
SFAS
154 is effective for accounting changes and corrections of errors
in
fiscal years beginning after December 15, 2005. The Company has determined
that the adoption of the requirements required under SFAS 154 will
not
have a material impact on the financial statements of the
Company.
|
|
|
|
On
July 15, 2006 the FASB issued FIN48, Accounting
for Uncertainty in Income Taxes - An Interpretation of FASB Statement
No.
109
.
The Company does not expect that the adoption of the recognition
and
measurement requirements required under FIN48 will have a material
impact
on the financial statements of the
Company.
|
Note
3. Significant Alliances and Related Parties
The
Cleveland Clinic Foundation
Effective
July 2004, the Company entered into a strategic alliance with CCF. Under the
agreement, the Company received an exclusive license to use CCF licensed patents
and CCF technology for the benefit of the Company for research and drug
development. The Company has primary responsibility to fund all newly developed
patents; however, CCF retains patent ownership on those contained in the
agreement. The Company also has the responsibility to secure applicable
regulatory approvals. In partial consideration of this agreement, in December
2004, the Company issued 1,341,000 shares of its common stock to CCF and
recognized $2,250,000 as non-cash research and development expense in exchange
for the stock. The calculation of this expense was based in part on an estimate
of the Company’s value based on discussions in 2004 with potential investors, in
which the Company was estimated to have a value of approximately $12,500,000.
This valuation was reflected in an agreement between the Company and an
investment bank dated September 30, 2004. This agreement set forth the terms
on
which the investment bank was to raise equity capital for the Company. In light
of the preliminary and subjective nature of that estimate, the Company
discounted that estimate to arrive at a valuation of $10,000,000.
CCF
will
receive milestone payments for each product developed with CCF technology as
development passes through major developmental stages. In addition, the Company
will pay CCF royalties and sublicense royalties as a percentage of net sales
of
all commercial products developed with CCF technology. No milestone payments,
royalties or sublicense royalties have been paid through the year ended December
31, 2006, although the Company has accrued $50,000 in milestone payments as
a
long term liability.
The
Company recognized $0, $0 and $105,000 in service revenues for the years ended
December 31, 2006, 2005 and 2004, respectively, from CCF related to a
high-throughput screening engagement. The Company also incurred $1,142,290,
$475,934 and $51,129 in subcontract expense to CCF related to technology grants
for the years ended December 31, 2006, 2005 and 2004, respectively. The balance
remaining is $7,309 in accounts payable at December 31, 2006.
The
Company also rented office and laboratory space from an entity related to CCF
on
a month to month basis through May of 2005. Rent to this entity related to
CCF
was $0, $11,121 and $32,400 in 2006, 2005 and 2004, respectively.
ChemBridge
Corporation
In
April
2004, ChemBridge Corporation acquired 357,600 shares of the Company’s common
stock valued at $6,081 (subject to antidilution provisions for future equity
issues) and holds warrants to purchase an additional 264,624 shares of the
Company’s common stock for $1.13 per share. The warrants expire in April 2010.
Under the agreement, ChemBridge has agreed to provide chemical technology and
expertise for the benefit of the Company for research and drug
development.
In
April
2004, the Company entered into a chemical libraries license agreement with
ChemBridge. Under the terms of the agreement, the Company has a non-exclusive
worldwide license to use certain chemical compound libraries for drug research
conducted on its own or in collaboration with others. In return, ChemBridge
will
receive royalty payments on any revenue received by the Company for all
contracts, excluding CCF, in which the libraries are used. No revenues or
royalties have been paid through the year ended December 31, 2006.
The
Company has also agreed to collaborate with ChemBridge on two optimization
projects, wherein ChemBridge will have the responsibility of providing the
chemistry compounds of the project and the Company will have the responsibility
of providing the biological expertise. ChemBridge will retain a 50% ownership
interest in two selected “confirmed hits” that make up the optimization
projects.
The
parties will jointly manage the development and commercialization of any
compounds arising from an optimization project. No “confirmed hits” have been
selected during the year ended December 31, 2006.
In
addition, the Company paid ChemBridge $29,910, $3,913, and $395 for the purchase
of chemical compounds in the normal course of business in 2006, 2005 and 2004,
respectively.
University
of New South Wales
In
June
2003, the Company entered into a three year collaborative research agreement
with the University of New South Wales (UNSW) to utilize functional genomic
technologies in an attempt to identify genes in childhood neuroblastoma as
potential candidates for the future development of molecular-targeted gene
therapy. Under this agreement, the Company will make monetary and in-kind
contributions with the collaborative partner in connection with the project
under terms of the agreement. In return, the Company co-owns resulting
intellectual property and has a right to use this intellectual property royalty
free for internal purposes. The collaborative parties agree to negotiate a
license arrangement for commercial projects resulting from co-owned intellectual
property. No collaborative intellectual property has been developed during
the
term of this agreement. The agreement expired in June 2006 and was not
renewed.
UNWS
and
two related parties to UNSW advanced funds of $109,000 and $174,500 during
the
year ended December 31, 2004 to the Company in exchange for convertible
promissory notes, which mature on October 18, 2007 and November 23, 2007,
respectively. These balances remained on the balance sheet as of December 31,
2005 as long-term notes payable. On July 20, 2006, the effective date of the
initial public offering, the outstanding notes payable and accrued interest
were
converted into 124,206 shares of common stock. During the year ended December
31, 2005 a party related to UNSW advanced $50,000 in exchange for a convertible
promissory note, which was subsequently converted into Series A Preferred Stock
and eventually converted into common stock at the effective date of the initial
public offering. In addition, the Company paid UNSW $0, $25,011 and $30,303
for
subcontracted research during the years ended December 31, 2006, 2005 and 2004,
respectively.
In
August
2004, the Company entered into a five-year cooperative research and development
agreement (CRADA) with the Uniformed Service University of the Health Sciences,
which includes the Armed Forces Radiobiology Research Institute, the Henry
M.
Jackson Foundation for the Advancement of Military Medicine, Inc., and CCF,
to
evaluate the companies’ radioprotective drug candidates and their effects on
intracellular and extracellular signaling pathways. Under the terms of the
agreement, all parties are financially responsible for their own expenses
related to the agreement. The agreement may be unilaterally terminated by any
party upon 30 days prior written notice.
Sunrise
Securities Corp.
The
Company engaged Sunrise Securities Corp. to act as the investment banker for
the
private placement that took place in March 2005 and as a lead underwriter for
the initial public offering in 2006. Sunrise Securities Corp. and parties
related to Sunrise Securities Corp. are owners of both common stock and warrants
of the Company as a result of the private placement and the initial public
offering. The Company paid Sunrise Securities Corp. $75,000 as an initial
retainer for underwriting work associated with the initial public offering
and
$945,000 from the proceeds of the initial public offering.
Subcontractors
Three
company stockholders received payments for subcontract/consulting services
performed on certain grant awards and internal research and development. Two
of
these stockholders were subsequently hired by the Company during 2005 and the
other continues to receive payments. Total subcontract expense made to the
related parties amounted to $104,168, $100,250 and $77,250 for the years ended
December 31, 2006, 2005 and 2004, respectively.
Consultants
One
company stockholder received payment for consulting services performed related
to business development. Total consultant expense made to this related party
amounted to $77,300, $49,000 and $0 for the years ended December 31, 2006,
2005,
and 2004, respectfully.
Note
4. Stock Transactions
In
June
2003, the Company was incorporated in the State of Delaware and the founders
entered into restricted stock agreements as the Company commenced business
operations.
As
of
December 31, 2006 all of the restricted stock was fully vested. The founders,
their positions and number of shares purchased appear below. The total initial
value assigned to these shares was $25,000 because at the time, without the
involvement of ChemBridge or CCF, the probability of becoming a going concern
was deemed to be remote.
Name
|
|
Position
|
|
Number
of
Shares
|
Dr.
Andrei Gudkov
|
|
Chief
Scientific Officer
|
|
1,579,400
|
Dr.
Michael Fonstein
|
|
Chief
Executive Officer, President, Chairman of the Board
|
|
1,311,200
|
Dr.
Yakov Kogan
|
|
Executive
Vice President of Business Development, Secretary
|
|
715,200
|
Dr.
Elena Feinstein
|
|
Executive
Vice President of Research and Development
|
|
268,200
|
Dr.
Veronika Vonstein
|
|
General
Manager
|
|
119,200
|
In
April
2004, Dr. George Stark entered into a restricted stock agreement for 208,600
shares of common stock, which fully vested at the time of issuance. As the
transaction pre-dated ChemBridge’s investment, the Company believed that its
value remained at $25,000, and the value assigned to these shares was $1,287.
He
continues to serve the Company as the Chairman of the Scientific Advisory
Board.
In
August
2004, after ChemBridge acquired its shares, the Company entered into restricted
stock agreements with Dr. Vadim Krivokrysenko, Dr. Katerina Gurova and Dr.
Michael Chernov for 50,660, 107,280, and 50,660 shares of common stock
respectively. With ChemBridge’s investment, the Company deemed the probability
of becoming a going concern to have increased slightly and the Company was
valued at a total of $75,000. The value assigned to these shares was $3,387.
These stockholders continue to provide the Company with molecular and cancer
biology expertise and management of laboratory operations and drug discovery
projects.
In
August
2004, Dr. Veronika Vonstein sold all 119,200 of her shares back to the Company,
effectively terminating her relationship with the Company, to pursue outside
opportunities. In August 2004, Dr. Andrei Gudkov sold 29,800 shares back to
the
Company to maintain an appropriate percentage ownership, as determined by the
founders as a group.
In
September 2004, the Company issued 29,800 warrants to Sunrise Securities Corp.
and its designees at an exercise price of $2.00 per share, which expire in
March
2010. The warrants were issued to retain Sunrise Securities Corp. as an
investment banker.
In
March
2005, the Company issued 3,000,000 shares of Series A Participating Convertible
Preferred Stock (Series A) for $6 million in gross proceeds. These shares were
convertible into common stock on a one-for-one basis and earn a dividend of
6%
payable biannually on February 1 and August 1 in cash or common stock. In
conjunction with the issuance of the Series A shares, $50,000 of convertible
notes held at December 31, 2004 and a $50,000 note issued February 3, 2005,
including accrued interest, were converted into 51,219 shares of Series A
preferred stock. The Company also issued 308,000 shares of common stock and
300,000 warrants to purchase 300,000 shares of common stock with an exercise
price of $2.00 per share to Sunrise Securities Corp., the private placement
agent, and its designees as partial consideration for their services rendered.
295,850 of these warrants expire on March 15, 2010 and 4,150 expire on March
28,
2010 resulting from two closing dates.
In
March
2005, the Company issued 10,000 stock options under a non-qualified stock option
agreement to a consultant who works for the company on an ongoing basis. These
options allow for the purchase of common stock at a price of $3.00 per share.
These options have a thirteen month vesting schedule and expire on March 1,
2015. The value of the options is being recognized as consulting expense over
the vesting period based on the Black-Scholes option pricing model.
In
July
2005, the Company issued 294,240 stock options to various employees of the
Company under non-qualified stock option agreements. These options allow for
the
purchase of 190,000 shares of common stock at a price of $.66 and 104,240 shares
of common stock at a price of $0.67 per share, respectively. These options
have
a three-year vesting schedule and expire on June 30, 2015. The value of the
options is being recognized as compensation expense over the vesting period
based on the Black-Scholes option pricing model.
In
July
2005, the company issued fully vested options to purchase 59,600 shares of
common stock under a non-qualified stock option agreement to an outside
consultant who works for the company on an ongoing basis. These stock options
were exercised at a price of $2.00 per share and the company recorded $119,200
in consulting fees as a result of the issuance of these stock
options.
On
August
1, 2005, the Company paid a stock dividend of 69,201 shares of common stock
to
holders of record of the outstanding Series A preferred stock.
In
December 2005, the Company issued 20,000 stock options under a non-qualified
stock option agreement to a consultant who works for the company on an ongoing
basis. These options allow for the purchase of common stock at a price of $2.00
per share with a two-year vesting schedule and expire on November 30,
2015.
As
a
condition of the issuance of the Series A preferred stock in March 2005, all
holders of Series A preferred stock received an additional 2% of all preferred
stock, common stock and warrants that each Series A preferred stockholder owns
for each 30 day period that a delay occurs in a required transaction. These
penalty shares are not subject to compounding or prorating based on the number
of days of delay. They are earned at the end of each 30-day penalty period.
For
the first quarter of 2006, one penalty period occurred in which 60,000 shares
of
Series A preferred stock were earned at $120,000. In addition, 13,515 shares
of
common stock were earned at $27,030. The penalty shares were issued in January
2006.
Pursuant
to an Amendment to the Series A Rights Agreement, dated as of February 17,
2006,
the Company’s obligation to issue penalty shares was suspended for a period of
70 days, subject to a one-time 45-day extension, while the Company’s
registration statement was being reviewed by the SEC.
On
February 1, 2006, the Company paid a common stock dividend of 91,776 shares
to
holders of the Series A preferred stock to satisfy the dividend requirement
of
the preferred stock issuance.
On
March
1, 2006, the Company issued 116,750 stock options to various employees and
consultants of the Company under non-qualified stock option agreements. These
options allow for the purchase of 116,750 shares of common stock at a price
of
$4.50. These options have a three-year vesting schedule and expire on February
29, 2016.
On
June
21, 2006, after the expiration of the 115-day extension and an additional 30-day
period, the Company incurred one additional penalty period in which 60,000
shares of Series A preferred stock were earned at $120,000 and 15,295 shares
of
common stock were earned at $30,590. The Company has not incurred any further
obligation to issue penalty shares since these issuances.
See
Note
8 for further details on stock option agreements.
On
July
20, 2006, the Company sold 1,700,000 shares of common stock in its initial
public offering at $6.00 per share. The net proceeds to the Company from this
offering were approximately $8,300,000. Beginning July 21, 2006, the Company’s
shares were quoted on the Nasdaq Capital Market and listed on the Boston Stock
Exchange under the symbols “CBLI” and “CFB” respectively. In connection with its
initial public offering, the Company sold warrants to purchase 170,000 shares
of
common stock to the underwriters and their designees at a cost of $100.00.
The
warrants have an exercise price of $8.70 per share.
On
July
20, 2006, the effective date of the Company’s initial public offering, the
Company issued 92,407 shares of common stock as accumulated dividends to the
Series A preferred stockholders. On the same date, all of the Company’s Series A
Preferred shares automatically converted on a one-for-one basis into 3,351,219
shares of common stock and notes of the Company in the principal amount of
$283,500 plus accrued interest of $29,503 automatically converted into 124,206
shares of common stock. In connection with their appointment to the Board,
the
Company issued to each of the Company’s three new independent directors, options
to purchase 15,000 shares of common stock with an exercise price of $6.00 per
share.
On
September 21, 2006, the SEC declared effective a registration statement of
the
Company registering up to 4,453,601 shares of common stock for resale from
time
to time by the selling stockholders named in the prospectus contained in the
registration statement. The Company will not receive any proceeds from the
sale
of the underlying shares of common stock, although to the extent the selling
stockholders exercise warrants for the underlying shares of common stock, the
Company will receive the exercise price of those warrants. The registration
statement was filed to satisfy registration rights that the Company had
previously granted.
On
November 16, 2006 the Company issued 50,000 warrants to an outside consultant.
These warrants are immediately exercisable into common shares of the Company
and
have an exercise price of $6.00 per share and an expiration date of November
16,
2011.
|
|
2006
|
|
2005
|
|
2004
|
|
Unsecured
note to a research collaborator of the Company, bearing interest
at 6% per
annum, principal and interest due October 2007. Mandatory conversion
into
common stock upon an initial public offering of the Company at the
fixed
conversion price of $2.52 per share. Optional conversion into common
stock
or a new debt agreement depending on whether the Company raises additional
capital through additional equity or debt. Upon the option conversion,
the
conversion amount will be converted into common stock at the new
issue
price per share or into a new debt instrument with a principal amount
equal to the conversion amount.
|
|
|
—
|
|
$
|
109,000
|
|
$
|
109,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Unsecured
note to stockholder, bearing interest at 5% per annum, principal
and
interest due May 2007. This note was converted into preferred stock
in
March 2005.
|
|
|
—
|
|
|
—
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Two
unsecured notes to a research collaborator of the Company, bearing
interest at 6% per annum, principal and interest due November 2007.
Mandatory conversion into common stock upon an initial public offering
of
the Company at the fixed conversion price of $2.52 per share. Optional
conversion into common stock or a new debt agreement depending on
whether
the Company raises additional capital through additional equity or
debt.
Upon the optional conversion, the conversion amount will be converted
into
common stock at the new issue price per share or into a new debt
instrument with a principal amount equal to the conversion
amount.
|
|
|
—
|
|
|
174,500
|
|
|
174,500
|
|
|
|
|
|
|
$
|
283,500
|
|
$
|
333,500
|
|
Current
portion
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
283,500
|
|
|
333,500
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
accrued interest
|
|
|
—
|
|
|
19,574
|
|
|
4,019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
$
|
303,074
|
|
$
|
337,519
|
|
All
the
aforementioned convertible notes were converted into common stock on July 20,
2006 at the completion of the initial public offering.
The
Company accounts for income taxes under SFAS No. 109, “Accounting for Income
Taxes.” Significant components of the Company’s net deferred tax assets are
shown below. A valuation allowance of $4,898,000, $2,022,000 and $1,063,000
has
been recognized at December 31, 2006, 2005 and 2004, respectively, to offset
all
deferred tax assets, as realization of such asset is uncertain. The increase
in
the valuation allowance of $2,876,000 between 2005 and 2006 results from
additional losses.
|
|
2006
|
|
2005
|
|
2004
|
|
Deferred
tax asset
|
|
|
|
|
|
|
|
Net
operating loss carryforwards
|
|
$
|
4,586,000
|
|
$
|
1,897,000
|
|
$
|
1,003,000
|
|
Deferred
compensation
|
|
|
345,000
|
|
|
135,000
|
|
|
66,000
|
|
Loss
on short term investments
|
|
|
2,000
|
|
|
7,000
|
|
|
—
|
|
Depreciation
|
|
|
(35,000)
|
)
|
|
(17,000)
|
)
|
|
(6,000)
|
)
|
Total
|
|
|
4,898,000
|
|
|
2,022,000
|
|
|
1,063,000
|
|
Valuation
allowance
|
|
$
|
(4,898,000)
|
)
|
$
|
(2,022,000)
|
)
|
$
|
(1,063,000)
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
deferred tax asset
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
As
of
December 31, 2006, the Company has Federal net operating loss carryforwards
of
approximately $11,480,000. The Federal net operating loss carryforwards will
begin to expire in 2023 unless utilized. Net operating loss carryforwards and
available credits are subject to review and possible adjustment by the Internal
Revenue Service and may be limited in the event of certain changes in the
ownership interest of significant stockholders.
Note
7. Other Balance Sheet Details
Available-For-Sale
Cash Equivalents and Marketable Securities
Available-for-sale
Marketable Securities consist of the following:
|
|
Cost
|
|
Accrued
Interest
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair
Value
|
|
December
31, 2006 - Current Marketable Securities
|
|
$
|
2,000,000
|
|
$
|
42,479
|
|
$
|
-
|
|
$
|
4,165
|
|
$
|
2,038,314
|
|
Available-for
sale marketable securities consist of certificates of deposits with various
commercial banks throughout the country. The unrealized gains and losses on
these securities were primarily caused by recent changes in market interest
rates. Because the Company has the ability and intent to hold these securities
until a recovery of fair value, which may be at maturity, the Company does
not
consider these securities to be other than temporarily impaired as of December
31, 2006.
The
Company considers investments with a maturity date of more than three months
from the date of purchase to be short-term investments and has classified these
securities as available-for-sale. Such investments are carried at fair value,
with unrealized gains and losses included as accumulated other comprehensive
income (loss) in stockholders’ equity. The cost of available-for-sale securities
sold is determined based on the specific identification method.
As
a
result of changes in market interest rates on investment, the Company recognized
unrealized gains/(losses) of $13,645, ($17,810), and $0 for the years ending
December 31, 2006, 2005, and 2004, respectively. In 2006, the Company recaptured
$6,967 of the previously recorded other comprehensive loss due to the maturity
of the short term investments and recaptured $6,678 due to market value
fluctuations of the outstanding short term investments. The Company purchased
short-term investments and incurred unrealized losses of $17,810. These
gains/(losses) were charged directly against Stockholders’ Equity as Other
Comprehensive Income/(Loss) in the periods incurred. The Company intends on
holding these securities to maturity and views these unrealized losses as
temporary in nature.
Equipment
consists of the following:
|
|
2006
|
|
2005
|
|
Laboratory
Equipment
|
|
$
|
347,944
|
|
$
|
225,997
|
|
Computer
Equipment
|
|
|
132,572
|
|
|
91,788
|
|
Furniture
|
|
|
65,087
|
|
|
40,158
|
|
|
|
|
545,603
|
|
|
357,943
|
|
Less
accumulated depreciation
|
|
|
(142,011
|
)
|
|
(47,080
|
)
|
|
|
$
|
403,592
|
|
$
|
310,863
|
|
Note
8. Commitments and Contingencies
The
Company has entered into various agreements with third parties and certain
related parties in connection with the research and development activities
of
its existing product candidates as well as discovery efforts on potential new
product candidates. These agreements include costs for research and development
and license agreements that represent the Company’s fixed obligations payable to
sponsor research and minimum royalty payments for licensed patents. These
amounts do not include any additional amounts that the Company may be required
to pay under its license agreements upon the achievement of scientific,
regulatory and commercial milestones that may become payable depending on the
progress of scientific development and regulatory approvals, including
milestones such as the submission of an investigational new drug application
to
the FDA, similar submissions to foreign regulatory authorities and the first
commercial sale of the Company’s products in various countries. These agreements
include costs related to manufacturing, clinical trials and preclinical studies
performed by third parties.
The
Company is also party to three agreements that require it to make milestone
payments, royalties on net sales of the Company’s products and payments on
sublicense income received by the Company. As of December 31, 2006, no milestone
payments have been made, although $50,000 has been accrued under one of these
agreements.
From
time
to time, the Company may have certain contingent liabilities that arise in
the
ordinary course of business. The Company accrues for liabilities when it is
probable that future expenditures will be made and such expenditures can be
reasonably estimated. For all periods presented, the Company is not a party
to
any pending material litigation or other material legal
proceedings.
The
Company currently has operating lease commitments in place for facilities in
Cleveland, Ohio and Chicago, Illinois as well as office equipment. The Company
recognizes rent expense on a straight-line basis over the term of the related
operating leases. The operating lease expenses recognized were $160,742,
$112,967 and $18,900 in 2006, 2005 and 2004, respectively.
Annual
future minimum lease payments under present lease commitments are as follows.
These future minimum payments have not been adjusted to reflect an inflation
adjustment included in the lease for the Cleveland facilities based on the
Gross
Domestic Product Price Deflator.
|
|
Operating
Leases
|
|
2007
|
|
$
|
63,460
|
|
2008
|
|
|
4,949
|
|
2009
|
|
|
1,935
|
|
|
|
$
|
70,344
|
|
The
Company has entered into stock option agreements with key employees, board
members and consultants with exercise prices ranging from $0.00 to $6.00. These
awards were approved by the Board of Directors. Option grants beginning in
2005
vest ratably over periods ranging from zero to three years. The options expire
ten years from the date of grant, subject to the terms applicable in the
agreement. A list of the total stock options awarded and exercised appears
below:
|
|
|
Number of
Options
|
|
|
Weighted Average
Exercise
Price
|
|
Outstanding
at December 31, 2004
|
|
|
—
|
|
|
N/A
|
|
Granted
|
|
|
383,840
|
|
$
|
0.69
|
|
Exercised
|
|
|
59,600
|
|
$
|
—
|
|
Forfeited
|
|
|
—
|
|
|
N/A
|
|
Outstanding
at December 31, 2005
|
|
|
324,240
|
|
$
|
0.82
|
|
Granted
|
|
|
161,750
|
|
$
|
4.92
|
|
Exercised
|
|
|
625
|
|
$
|
4.50
|
|
Forfeited
|
|
|
1,875
|
|
$
|
4.50
|
|
Outstanding
at December 31, 2006
|
|
|
483,490
|
|
$
|
2.17
|
|
The
number of options and weighted average exercise price of options fully vested
and exercisable for the years ending December 31, 2006, 2005 and 2004 were
243,183, 83,560 and 0 options at $2.27, $0.88 and $0 respectively. A table
showing the number of options outstanding and exercisable (fully vested) at
December 31, 2006 appears below:
|
|
Outstanding
|
|
Exercisable
|
|
Exercise
Price
|
|
Number
of
Options
|
|
Weighted
Average
Years
to
Expiration
|
|
Number
of
Options
|
|
$
0.66
|
|
|
190,000
|
|
|
8.5
|
|
|
95,000
|
|
0.67
|
|
|
104,240
|
|
|
8.5
|
|
|
52,120
|
|
2.00
|
|
|
20,000
|
|
|
8.92
|
|
|
12,500
|
|
3.00
|
|
|
10,000
|
|
|
8.17
|
|
|
10,000
|
|
4.50
|
|
|
114,250
|
|
|
9.17
|
|
|
28,563
|
|
6.00
|
|
|
45,000
|
|
|
9.56
|
|
|
45,000
|
|
Total
|
|
|
483,490
|
|
|
8.77
|
|
|
243,183
|
|
The
Company has entered into warrant agreements with strategic partners and
consultants with exercise prices ranging from $1.13 to $8.70. These awards
were
approved by the Board of Directors. The warrants expire between five and six
years from the date of grant, subject to the terms applicable in the agreement.
A list of the total warrants awarded and exercised appears below.
|
|
Number of
Warrants
|
|
Weighted Average
Exercise
Price
|
|
Outstanding
at December 31, 2004
|
|
|
294,424
|
|
$
|
1.22
|
|
Granted
|
|
|
300,000
|
|
$
|
2.00
|
|
Exercised
|
|
|
—
|
|
|
N/A
|
|
Forfeited
|
|
|
—
|
|
|
N/A
|
|
Outstanding
at December 31, 2005
|
|
|
594,424
|
|
$
|
1.61
|
|
Granted
|
|
|
220,000
|
|
$
|
8.09
|
|
Exercised
|
|
|
—
|
|
|
N/A
|
|
Forfeited
|
|
|
—
|
|
|
N/A
|
|
Outstanding
at December 31, 2006
|
|
|
814,424
|
|
$
|
3.36
|
|
The
Company has entered into employment agreements with three key executives who,
if
terminated by the Company without cause as described in these agreements, would
be entitled to severance pay.
While
no
legal actions are currently pending, the Company may be party to certain claims
brought against it arising from certain contractual matters. It is not possible
to state the ultimate liability, if any, in these matters. In management’s
opinion, the ultimate resolution of any such claim will not have a material
adverse effect on the financial position of the Company.
Note
9. Subsequent Events
On
January 12, 2007 the Company entered into a Sponsored Research Agreement with
the Roswell Park Cancer Institute in Buffalo, New York whereby a portion of
the
research and development activities of the Company will be relocated to Buffalo,
New York. The Roswell Park Cancer Institute has awarded the Company $3,000,000
in research grant funding, $2,000,000 to be paid on April 1, 2007 and $1,000,000
to be paid on April 1, 2008.
CLEVELAND
BIOLABS, INC.
BALANCE
SHEETS
March
31,
2007 (unaudited) and December 31, 2006
|
|
March
31
|
|
December
31
|
|
|
|
2007
|
|
2006
|
|
ASSETS
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
CURRENT
ASSETS
|
|
|
|
|
|
Cash
and equivalents
|
|
$
|
11,968,017
|
|
$
|
3,061,993
|
|
Short-term
investments
|
|
|
18,699,965
|
|
|
1,995,836
|
|
Accounts
receivable:
|
|
|
|
|
|
|
|
Trade
|
|
|
214,048
|
|
|
159,750
|
|
Interest
|
|
|
53,255
|
|
|
42,479
|
|
Notes
Receivable - Orbit Brands
|
|
|
300,000
|
|
|
50,171
|
|
Other
prepaid expenses
|
|
|
512,969
|
|
|
434,675
|
|
Total
current assets
|
|
|
31,748,254
|
|
|
5,744,904
|
|
|
|
|
|
|
|
|
|
EQUIPMENT
|
|
|
|
|
|
|
|
Computer
equipment
|
|
|
143,426
|
|
|
132,572
|
|
Lab
equipment
|
|
|
348,730
|
|
|
347,944
|
|
Furniture
|
|
|
65,087
|
|
|
65,087
|
|
|
|
|
557,243
|
|
|
545,603
|
|
Less
accumulated depreciation
|
|
|
169,677
|
|
|
142,011
|
|
|
|
|
387,566
|
|
|
403,592
|
|
|
|
|
|
|
|
|
|
OTHER
ASSETS
|
|
|
|
|
|
|
|
Intellectual
Property
|
|
|
346,170
|
|
|
252,978
|
|
Deposits
|
|
|
15,055
|
|
|
15,055
|
|
|
|
|
361,225
|
|
|
268,033
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$
|
32,497,045
|
|
$
|
6,416,529
|
|
CLEVELAND
BIOLABS, INC.
BALANCE
SHEETS
March
31,
2007 (unaudited) and December 31, 2006
|
|
March
31
|
|
December
31
|
|
|
|
2007
|
|
2006
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
Accounts
payable:
|
|
|
|
|
|
Trade
|
|
$
|
1,111,836
|
|
$
|
644,806
|
|
Accrued
expenses
|
|
|
227,435
|
|
|
128,569
|
|
Total
current liabilities
|
|
|
1,339,271
|
|
|
773,375
|
|
|
|
|
|
|
|
|
|
LONG-TERM
LIABILITIES
|
|
|
|
|
|
|
|
Milestone
payables
|
|
|
300,000
|
|
|
50,000
|
|
Total
long-term liabilities
|
|
|
300,000
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS'
EQUITY
|
|
|
|
|
|
|
|
Series
B convertible preferred stock, $.005 par value
|
|
|
|
|
|
|
|
Authorized
- 10,000,000 shares at March 31, 2007
|
|
|
|
|
|
|
|
and
December 31, 2006
|
|
|
22,895
|
|
|
-
|
|
Issued
and outstanding 4,579,010 and 0
|
|
|
|
|
|
|
|
shares
at March 31, 2007 and December 31, 2006, respectively
|
|
|
|
|
|
|
|
Additional
paid-in capital
|
|
|
28,849,983
|
|
|
-
|
|
Common
stock, $.005 par value
|
|
|
|
|
|
|
|
Authorized
- 40,000,000 shares at March 31, 2007
|
|
|
|
|
|
|
|
and
December 31, 2006
|
|
|
|
|
|
|
|
Issued
and outstanding 11,889,099 and 11,826,389
|
|
|
|
|
|
|
|
shares
at March 31, 2007 and December 31, 2006, respectively
|
|
|
59,446
|
|
|
59,132
|
|
Additional
paid-in capital
|
|
|
18,807,493
|
|
|
18,314,097
|
|
Accumulated
other comprehensive income (loss)
|
|
|
-
|
|
|
(4,165
|
)
|
Accumulated
deficit
|
|
|
(16,882,043
|
)
|
|
(12,775,910
|
)
|
Total
stockholders' equity
|
|
|
30,857,774
|
|
|
5,593,154
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
$
|
32,497,045
|
|
$
|
6,416,529
|
|
CLEVELAND
BIOLABS, INC.
STATEMENT
OF OPERATIONS
Three
Months Ending March 31, 2007 and 2006 (unaudited)
|
|
March
31
|
|
March
31
|
|
|
|
2007
|
|
2006
|
|
REVENUES
|
|
(unaudited)
|
|
(unaudited)
|
|
Grant
|
|
$
|
271,445
|
|
$
|
453,424
|
|
Service
|
|
|
50,000
|
|
|
125,000
|
|
|
|
|
321,445
|
|
|
578,424
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES
|
|
|
|
|
|
|
|
Research
and Development
|
|
|
3,528,600
|
|
|
1,502,364
|
|
General
and administrative
|
|
|
994,319
|
|
|
352,898
|
|
Total
operating expenses
|
|
|
4,522,919
|
|
|
1,855,262
|
|
|
|
|
|
|
|
|
|
LOSS
FROM OPERATIONS
|
|
|
(4,201,474
|
)
|
|
(1,276,838
|
)
|
|
|
|
|
|
|
|
|
OTHER
INCOME (EXPENSE)
|
|
|
|
|
|
|
|
Interest
Income
|
|
|
96,429
|
|
|
29,139
|
|
Interest
Expense
|
|
|
(1,088
|
)
|
|
(4,446
|
)
|
Total
other income (expense), net
|
|
|
95,341
|
|
|
24,693
|
|
|
|
|
|
|
|
|
|
NET
LOSS
|
|
$
|
(4,106,133
|
)
|
$
|
(1,252,145
|
)
|
|
|
|
|
|
|
|
|
DIVIDENDS
ON CONVERTIBLE PREFERRED STOCK
|
|
|
-
|
|
|
(59,185
|
)
|
|
|
|
|
|
|
|
|
NET
LOSS AVAILABLE TO COMMON SHAREHOLDERS
|
|
$
|
(4,106,133
|
)
|
$
|
(1,311,330
|
)
|
|
|
|
|
|
|
|
|
NET
LOSS AVAILABLE TO COMMON SHAREHOLDERS
|
|
|
|
|
|
|
|
PER
SHARE OF COMMON STOCK - BASIC AND
|
|
|
|
|
|
|
|
DILUTED
|
|
$
|
(0.35
|
)
|
$
|
(0.20
|
)
|
|
|
|
|
|
|
|
|
WEIGHTED
AVERAGE NUMBER OF SHARES USED
|
|
|
|
|
|
|
|
IN
CALCULATING NET LOSS PER SHARE, BASIC AND
|
|
|
|
|
|
|
|
DILUTED
|
|
|
11,854,027
|
|
|
6,495,408
|
|
CLEVELAND
BIOLABS, INC.
STATEMENTS
OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE LOSS
Period
From January 1, 2006 to December 31, 2006 and to March 31, 2007
(unaudited)
|
|
Stockholders'
Equity
|
|
|
|
Common
Stock
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
Paid-in
|
|
Penalty
|
|
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Shares
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at January 1, 2006
|
|
|
6,396,801.00
|
|
|
31,984
|
|
|
3,338,020 |
|
|
81,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of shares - previously accrued penalty shares
|
|
|
54,060
|
|
|
270
|
|
|
80,855 |
|
|
(81,125
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of shares - stock dividend
|
|
|
184,183
|
|
|
922
|
|
|
367,445 |
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of penalty shares
|
|
|
15,295
|
|
|
76
|
|
|
(76 |
) |
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of shares - initial public offering
|
|
|
1,700,000
|
|
|
8,500
|
|
|
10,191,500 |
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees
associated with initital public offering
|
|
|
-
|
|
|
-
|
|
|
(1,890,444 |
) |
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of preferred stock to common stock
|
|
|
3,351,219
|
|
|
16,756
|
|
|
5,291,385 |
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of notes payable to common stock
|
|
|
124,206
|
|
|
621
|
|
|
312,382 |
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of options
|
|
|
-
|
|
|
-
|
|
|
506,078 |
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of options
|
|
|
625
|
|
|
3
|
|
|
2,810 |
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of warrants
|
|
|
-
|
|
|
-
|
|
|
114,032 |
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from sales of warrants
|
|
|
-
|
|
|
-
|
|
|
110 |
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
- |
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gains (losses) on short term investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes
in unrealized holding gains (losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
arising
during period
|
|
|
-
|
|
|
-
|
|
|
- |
|
|
-
|
|
Less
reclassification adjustment for (gains) losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
included
in net loss
|
|
|
-
|
|
|
-
|
|
|
- |
|
|
-
|
|
Comprehensive
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2006
|
|
|
11,826,389
|
|
$
|
59,132
|
|
$
|
18,314,097
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of options
|
|
|
-
|
|
|
-
|
|
|
375,301 |
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of Series B Preferred Shares
|
|
|
-
|
|
|
-
|
|
|
- |
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees
associated with Series B Preferred offering
|
|
|
-
|
|
|
-
|
|
|
- |
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of options
|
|
|
18,505
|
|
|
93
|
|
|
29,907 |
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of warrants
|
|
|
44,205
|
|
|
221
|
|
|
88,188 |
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
|
-
|
|
|
-
|
|
|
- |
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gains (losses) on short term investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes
in unrealized holding gains (losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
arising
during period
|
|
|
-
|
|
|
-
|
|
|
- |
|
|
-
|
|
Less
reclassification adjustment for (gains) losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
included
in net loss
|
|
|
-
|
|
|
-
|
|
|
- |
|
|
-
|
|
Comprehensive
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at March 31, 2007
|
|
|
11,889,099
|
|
$
|
59,446
|
|
$
|
18,807,493
|
|
$
|
-
|
|
CLEVELAND
BIOLABS, INC.
STATEMENTS
OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE LOSS
Period
From January 1, 2006 to December 31, 2006 and to March 31, 2007
(unaudited)
|
|
Stockholders'
Equity
|
|
|
|
Preferred
Stock
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
Paid-in
|
|
Penalty
|
|
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Shares
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at January 1, 2006
|
|
|
3,051,219
|
|
|
15,256
|
|
|
4,932,885
|
|
|
360,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of shares - previously accrued penalty shares
|
|
|
240,000
|
|
|
1,200
|
|
|
358,800
|
|
|
(360,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of shares - stock dividend
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of penalty shares
|
|
|
60,000
|
|
|
300
|
|
|
(300
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of shares - initial public offering
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees
associated with initital public offering
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of preferred stock to common stock
|
|
|
(3,351,219
|
)
|
|
(16,756
|
)
|
|
(5,291,385
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of notes payable to common stock
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of options
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of options
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of warrants
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from sales of warrants
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gains (losses) on short term investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes
in unrealized holding gains (losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
arising
during period
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Less
reclassification adjustment for (gains) losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
included
in net loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Comprehensive
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2006
|
|
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of options
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of Series B Preferred Shares
|
|
|
4,288,712
|
|
|
21,444
|
|
|
29,999,540
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees
associated with Series B Preferred offering
|
|
|
290,298
|
|
|
1,451
|
|
|
(1,149,557
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of options
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of warrants
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gains (losses) on short term investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes
in unrealized holding gains (losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
arising
during period
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Less
reclassification adjustment for (gains) losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
included
in net loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Comprehensive
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at March 31, 2007
|
|
|
4,579,010
|
|
$
|
22,895
|
|
$
|
28,849,983
|
|
$
|
-
|
|
CLEVELAND
BIOLABS, INC.
STATEMENTS
OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE LOSS
Period
From January 1, 2006 to December 31, 2006 and to March 31, 2007
(unaudited)
|
|
Stockholders'
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Comprehensive
Income/(Loss)
|
|
Accumulated
Deficit
|
|
Total
|
|
Comprehensive
Income
(Loss)
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at January 1, 2006
|
|
|
(17,810
|
)
|
|
(5,184,856
|
)
|
|
3,556,604
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of shares - previously accrued penalty shares
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of shares - stock dividend
|
|
|
-
|
|
|
(368,410
|
)
|
|
(43
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of penalty shares
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of shares - initial public offering
|
|
|
-
|
|
|
-
|
|
|
10,200,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees
associated with initital public offering
|
|
|
-
|
|
|
-
|
|
|
(1,890,444
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of preferred stock to common stock
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of notes payable to common stock
|
|
|
-
|
|
|
-
|
|
|
313,003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of options
|
|
|
-
|
|
|
-
|
|
|
506,078
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of options
|
|
|
-
|
|
|
-
|
|
|
2,813
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of warrants
|
|
|
-
|
|
|
-
|
|
|
114,032
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from sales of warrants
|
|
|
-
|
|
|
-
|
|
|
110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
(7,222,644
|
)
|
|
(7,222,644
|
)
|
|
(7,222,644
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gains (losses) on short term investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes
in unrealized holding gains (losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
arising
during period
|
|
|
6,678
|
|
|
-
|
|
|
6,678
|
|
$
|
6,678
|
|
Less
reclassification adjustment for (gains) losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
included
in net loss
|
|
|
6,967
|
|
|
-
|
|
|
6,967
|
|
$
|
6,967
|
|
Comprehensive
loss
|
|
|
|
|
|
|
|
|
|
|
$
|
(7,208,999
|
)
|
Balance
at December 31, 2006
|
|
$
|
(4,165
|
)
|
$
|
(12,775,910
|
)
|
$
|
5,593,154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of options
|
|
|
-
|
|
|
-
|
|
|
375,301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of Series B Preferred Shares
|
|
|
-
|
|
|
-
|
|
|
30,020,984
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees
associated with Series B Preferred offering
|
|
|
-
|
|
|
-
|
|
|
(1,148,106
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of options
|
|
|
-
|
|
|
-
|
|
|
30,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of warrants
|
|
|
-
|
|
|
-
|
|
|
88,409
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
|
-
|
|
|
(4,106,133
|
)
|
|
(4,106,133
|
)
|
|
(4,106,133
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gains (losses) on short term investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes
in unrealized holding gains (losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
arising
during period
|
|
|
-
|
|
|
-
|
|
|
-
|
|
$
|
-
|
|
Less
reclassification adjustment for (gains) losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
included
in net loss
|
|
|
4,165
|
|
|
-
|
|
|
4,165
|
|
$
|
4,165
|
|
Comprehensive
loss
|
|
|
|
|
|
|
|
|
|
|
$
|
(4,101,968
|
)
|
Balance
at March 31, 2007
|
|
$
|
-
|
|
$
|
(16,882,043
|
)
|
$
|
30,857,774
|
|
|
|
|
CLEVELAND
BIOLABS, INC.
|
|
|
|
|
|
STATEMENTS
OF CASH FLOWS
|
|
|
|
|
|
For
the Three Months Ended March 31, 2007 and 2006
(unaudited)
|
|
|
March
31
|
|
March
31
|
|
|
|
2007
|
|
2006
|
|
|
|
(unaudited)
|
|
(unaudited)
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
Net
loss
|
|
$
|
(4,106,133
|
)
|
$
|
(1,252,145
|
)
|
Adjustments
to reconcile net loss to net cash
|
|
|
|
|
|
|
|
used
by operating activities:
|
|
|
|
|
|
|
|
Depreciation
|
|
|
27,666
|
|
|
20,241
|
|
Noncash
interest expense
|
|
|
-
|
|
|
4,446
|
|
Noncash
salaries and consulting expense
|
|
|
375,301
|
|
|
233,031
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
Accounts
receivable - trade
|
|
|
(54,298
|
)
|
|
(119,935
|
)
|
Accounts
receivable - interest
|
|
|
(10,605
|
)
|
|
3,894
|
|
Other
prepaid expenses
|
|
|
(78,293
|
)
|
|
(3,380
|
)
|
Deposits
|
|
|
-
|
|
|
(2,271
|
)
|
Accounts
payable
|
|
|
467,030
|
|
|
259,485
|
|
Deferred
revenue
|
|
|
-
|
|
|
(100,293
|
)
|
Accrued
expenses
|
|
|
98,866
|
|
|
16,293
|
|
Milestone
payments
|
|
|
250,000
|
|
|
-
|
|
Total
adjustments
|
|
|
1,075,667
|
|
|
311,511
|
|
Net
cash (used in) provided by operating
|
|
|
|
|
|
|
|
activities
|
|
|
(3,030,466
|
)
|
|
(940,634
|
)
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
Sale/(purchase)
of short-term investments
|
|
|
(16,699,965
|
)
|
|
800,000
|
|
Issuance
of notes receivable
|
|
|
(250,000
|
)
|
|
-
|
|
Purchase
of equipment
|
|
|
(11,640
|
)
|
|
(87,243
|
)
|
Costs
of patents pending
|
|
|
(93,193
|
)
|
|
(9,946
|
)
|
Net
cash (used in) provided by investing activities
|
|
|
(17,054,798
|
)
|
|
702,811
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
Issuance
of preferred stock
|
|
|
30,020,984
|
|
|
-
|
|
Financing
costs
|
|
|
(1,148,106
|
)
|
|
(164,777
|
)
|
Dividends
|
|
|
-
|
|
|
(23
|
)
|
Issuance
of common stock
|
|
|
118,410
|
|
|
-
|
|
Net
cash (used in) provided by financing activities
|
|
|
28,991,288
|
|
|
(164,800
|
)
|
|
|
|
|
|
|
|
|
INCREASE
(DECREASE) IN CASH AND EQUIVALENTS
|
|
|
8,906,024
|
|
|
(402,622
|
)
|
|
|
|
|
|
|
|
|
CASH
AND EQUIVALENTS AT BEGINNING OF
|
|
|
3,061,993
|
|
|
1,206,462
|
|
PERIOD
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
AND EQUIVALENTS AT END OF PERIOD
|
|
$
|
11,968,017
|
|
$
|
803,840
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures of cash flow information:
|
|
|
|
|
|
|
|
Cash
paid during the period for interest
|
|
$
|
-
|
|
$
|
-
|
|
Cash
paid during the year for income taxes
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
Supplemental
schedule of noncash financing activities:
|
|
|
|
|
|
|
|
Issuance
of stock options to employees, consultants, and independent board
members
|
|
$
|
375,301
|
|
$
|
233,032
|
|
Issuance
of common stock dividend to preferred shareholders
|
|
$
|
-
|
|
$
|
183,552
|
|
CLEVELAND
BIOLABS, INC.
NOTES
TO FINANCIAL STATEMENTS
Note
1. Organization
Cleveland
BioLabs, Inc. (“CBL” or the “Company”) is engaged in the discovery, development
and commercialization of products for cancer treatment and protection of normal
tissues from radiation and toxins. The Company was incorporated under the laws
of the State of Delaware on June 5, 2003 and is headquartered in Cleveland,
Ohio. The Company's initial technological development efforts are intended
to be
used as powerful antidotes with a broad spectrum of applications including
protection from cancer treatment side effects, radiation and hypoxia. A recent
discovery found that one of its compounds increases the number of progenitor
(originator) stem cells in mouse bone marrow. To date, the Company has not
developed any commercial products. The Company has developed and produced
biological compounds under a single commercial development
contract.
Note
2. Summary of Significant Accounting Policies
A.
|
Basis
of Presentation - The information at March 31, 2007 and March 31,
2006,
and for the three-month periods ended March 31, 2007 and March 31,
2006,
is unaudited. In the opinion of management, these financial statements
include all adjustments, consisting of normal recurring adjustments,
necessary for a fair presentation of the results for the interim
periods
presented. Interim results are not necessarily indicative of results
for a
full year. These financial statements should be read in conjunction
with
CBL’s audited financial statements for the year ended December 31, 2006,
which were contained in the Company’s Annual Report on Form 10-KSB filed
with the U.S. Securities and Exchange Commission.
|
B.
|
Cash
and Equivalents - The Company considers highly liquid investments
with a
maturity date of three months or less to be cash equivalents. In
addition,
the Company maintains cash and equivalents at financial institutions,
which may exceed federally insured amounts at times and which may,
at
times, significantly exceed balance sheet amounts due to outstanding
checks.
|
C.
|
Marketable
Securities and Short Term Investments - The Company considers investments
with a maturity date of more than three months to maturity to be
short-term investments and has classified these securities as
available-for-sale. Such investments are carried at fair value, with
unrealized gains and losses included as accumulated other comprehensive
income (loss) in stockholders' equity. The cost of available-for-sale
securities sold is determined based on the specific identification
method.
|
D.
|
Accounts
Receivable - The Company extends unsecured credit to customers under
normal trade agreements, which generally require payment within 30
days.
Management estimates an allowance for doubtful accounts which is
based
upon management's review of delinquent accounts and an assessment
of the
Company's historical evidence of collections. There is no allowance
for
doubtful accounts as of March 31, 2007 and December 31,
2006.
|
E.
|
Notes
Receivable - On December 7, 2006 the Company entered into an agreement
with the Orbit Brands Corporation (Borrower) and its subsidiaries
whereby
the Company would lend up to $150,000 each on two promissory notes
to the
Borrower at a rate of 5% per annum with a maturity date of one year.
The
proceeds of the loans shall be used by the Borrower solely to cover
expenses associated with converting the notes into common stock and
preparing the lending motions for the bankruptcy case involving the
Borrower. The loans are convertible into common stock of the Borrower
and
its subsidiaries. As of March 31, 2007 the balance outstanding was
$300,000 plus accrued interest of
$2,363.
|
F.
|
Equipment
- Equipment is stated at cost and depreciated over the estimated
useful
lives of the assets (generally five years) using the straight-line
method.
Leasehold improvements are depreciated on the straight-line method
over
the shorter of the lease term or the estimated useful lives of the
assets.
Expenditures for maintenance and repairs are charged to expense as
incurred. Major expenditures for renewals and betterments are capitalized
and depreciated. Depreciation expense was $27,666, and $20,241 for
the
quarters ended March 31, 2007 and 2006
respectively.
|
G.
|
Impairment
of Long-Lived Assets - In accordance with Statements of Financial
Accounting Standards, or SFAS, No. 144, Accounting for the Impairment
or
Disposal of Long-Lived Assets, long-lived assets to be held and used,
including equipment and intangible assets subject to depreciation
and
amortization, are reviewed for impairment whenever events or changes
in
circumstances indicate that the carrying amounts of the assets or
related
asset group may not be recoverable. Determination of recoverability
is
based on an estimate of discounted future cash flows resulting from
the
use of the asset and its eventual disposition. In the event that
such cash
flows are not expected to be sufficient to recover the carrying amount
of
the asset or asset group, the carrying amount of the asset is written
down
to its estimated net realizable
value.
|
H.
|
Intellectual
Property - The Company capitalizes the costs associated with the
preparation, filing, and maintenance of certain intellectual property
rights. Capitalized intellectual property is reviewed annually for
impairment.
|
|
|
|
A
portion of this intellectual property is owned by the Cleveland Clinic
Foundation (“CCF”) and granted to the Company through an exclusive
licensing agreement. As part of the licensing agreement, CBL agrees
to
bear the costs associated with the preparation, filing and maintenance
of
patent applications relating to this intellectual property. If the
patent
application is approved, the costs paid by the Company are amortized
on a
straight-line basis over the shorter of 17 years or the anticipated
useful
life of the patent. If the patent application is not approved, the
costs
associated with the preparation and filing of the patent application
by
the Company on behalf of CCF will be expensed as part of selling,
general
and administrative expenses. Gross capitalized patents pending costs
are
$306,302 and $222,789 on behalf of CCF for 13 patent applications
as of
March 31, 2007 and December 31, 2006, respectively. All of the 13
CCF
patent applications are still pending approval.
|
|
|
|
The
Company also has submitted three patent applications as a result
of
intellectual property exclusively developed and owned by the Company.
If
the patent applications are approved, costs paid by the Company associated
with the preparation, filing, and maintenance of the patents will
be
amortized on a straight-line basis over the shorter of 17 years or
the
anticipated useful life of the patent. If the patent application
is not
approved, the costs associated with the preparation and filing of
the
patent application will be expensed as part of selling, general and
administrative expenses at that time. Gross capitalized patents pending
costs were $39,869 and $30,189 on behalf of the Company for three
patent
applications as of March 31, 2007 and December 31, 2006, respectively.
The
patent applications are still pending
approval.
|
I.
|
Lines
of Credit - The Company has a working capital line of credit that
is fully
secured by short-term investments. This fully-secured working capital
line
of credit carries an interest rate of prime minus 1%, a borrowing
limit of
$500,000, and expires on July 1, 2007. At March 31, 2007, there were
no
outstanding borrowings under this credit facility.
|
|
|
J.
|
Fair
Value of Financial Instruments - Financial instruments, including
cash and
equivalents, accounts receivable, notes receivable, accounts payable
and
accrued liabilities, are carried at net realizable value. The carrying
amounts of the convertible notes payable approximate their respective
fair
values as they bear terms that are comparable to those available
under
current market conditions.
|
K.
|
Use
of Estimates - The preparation of financial statements in conformity
with
accounting principles generally accepted in the U.S. 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. The Company bases
its
estimates on historical experience and on various other assumptions
that
the Company believes to be reasonable under these circumstances.
Actual
results could differ from those
estimates.
|
L.
|
Revenue
Recognition - The Company recognizes revenue in accordance with Staff
Accounting Bulletin No. 104, “Revenue Recognition.” Revenue sources
consist of government grants, government contracts and commercial
development contracts.
|
|
|
|
Revenues
from federal government grants and contracts are for research and
development purposes and are recognized in accordance with the terms
of
the award and the government agency. Grant revenue is recognized
in one of
two different ways depending on the grant. Cost reimbursement grants
require us to submit proof of costs incurred that are invoiced by
us to
the government agency, which then pays the invoice. In this case,
grant
revenue is recognized at the time of submitting the invoice to the
government agency.
|
|
|
|
Fixed
cost grants require no proof of costs and are paid as a request for
payment is submitted for expenses. The grant revenue under these
fixed
costs grants is recognized using a percentage-of-completion method,
which
uses assumptions and estimates. These assumptions and estimates are
developed in coordination with the principal investigator performing
the
work under the government fixed-cost grants to determine key milestones,
expenses incurred, and deliverables to perform a percentage-of-completion
analysis to ensure that revenue is appropriately recognized. Critical
estimates involved in this process include total costs incurred and
anticipated to be incurred during the remaining life of the grant.
Government contract revenue is recognized periodically upon delivery
of an
invoice for allowable R&D expenses according to the terms of the
contract. The Company has recognized grant revenue from the following
agencies: the U.S. Army (DARPA), National Aeronautics and Space
Administration (NASA), the National Institutes of Health (NIH) and
the
Department of Health and Human Services (HHS). Commercial development
revenues are recognized when the service or development is
delivered.
|
M.
|
Deferred
Revenue - Deferred Revenue results when payment is received in advance
of
revenue being earned. When cash is received, the Company makes a
determination as to whether the revenue has been earned by applying
a
percentage-of-completion analysis to compute the need to recognize
deferred revenue. The percentage of completion method is based upon
(1)
the total income projected for the project at the time of completion
and
(2) the expenses incurred to date. The percentage-of-completion can
be
measured using the proportion of costs incurred versus the total
estimated
cost to complete the contract.
|
N.
|
Research
and Development - Research and development expenses consist primarily
of
costs associated with the clinical trials of drug candidates, compensation
and other expenses for research and development, personnel, supplies
and
development materials, costs for consultants and related contract
research
and facility costs. Expenditures relating to research and development
are
expensed as incurred.
|
O.
|
2006
Equity Incentive Plan - On May 26, 2006, the Company's Board of Directors
adopted the 2006 Equity Incentive Plan (“Plan”) to attract and retain
persons eligible to participate in the Plan, motivate participants
to
achieve long-term Company goals, and further align participants'
interests
with those of the Company's other stockholders. The Plan expires
on May
26, 2016 and provides for up to 2,000,000 shares of stock to be awarded.
For the year ended December 31, 2006, 45,000 options were granted
to
independent board members. On February 14, 2007, these 2,000,000
shares
were registered with the SEC by filing a Form S-8 registration statement.
For the quarter ended March 31, 2007, there were 119,500 options
granted
under this Equity Incentive Plan, and as of March 31, 2007 there
were
164,500 stock options granted under this Equity Incentive Plan in
total.
|
P.
|
Stock-Based
Compensation - The FASB issued SFAS No. 123(R) (revised December
2004),
Share Based Payment, which is a revision of SFAS No. 123 Accounting
for
Stock-Based Compensation. SFAS 123(R) requires all share-based payments
to
employees, including grants of employee stock options, to be recognized
in
the statement of operations based on their fair values. The Company
values
employee stock based compensation under the provisions of SFAS 123(R)
and
related interpretations.
|
|
|
|
The
fair value of each stock option granted is estimated on the grant
date
using the Black-Scholes option valuation model. The assumptions used
to
calculate the fair value of options granted are evaluated and revised,
as
necessary, to reflect the Company's experience. The Company uses
a
risk-free rate based on published rates from the St. Louis Federal
Reserve
at the time of the option grant, assumes a forfeiture rate of zero,
assumes an expected dividend yield rate of zero based on the Company's
intent not to issue a dividend in the foreseeable future, uses an
expected
life based on safe harbor method, and computes an expected volatility
based on similar high-growth, publicly-traded, biotechnology companies.
The Company does not include the use of its own stock in the volatility
calculation at this time because of the brief history of the stock
as a
publicly traded security on a listed exchange. Compensation expense
is
recognized using the straight-line amortization method for all stock-based
awards.
|
|
|
|
During
the quarter ended March 31, 2007, the Company granted 119,500 stock
options pursuant to stock award agreements to certain employees and
key
consultants. The Company has adopted the safe harbor method for projecting
the expected life of the options. The assumptions used to value these
option and warrant grants using the Black-Scholes option valuation
model
are as follows:
|
|
|
Quarter
Ended March
31, 2007
|
Risk-free
interest rate
|
|
4.50
- 4.72%
|
Expected
dividend yield
|
|
0%
|
Expected
life
|
|
5
-
6 years
|
Expected
volatility
|
|
72.07
- 76.29%
|
|
The
Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options that have no vesting restrictions
and are
fully transferable. In addition, the Black-Scholes valuations model
requires the input of highly subjective assumptions including the
expected
stock price volatility. Because the Company's employee stock options
and
warrants have characteristics significantly different from those
of traded
derivative securities, and because changes in subjective input
assumptions
can materially affect the fair value estimate, in management's
opinion,
the existing models do not necessarily provide a reliable single
measure
of the fair value of the Company's options and
warrants.
|
|
The
Company recognized a total of $375,301 in expense related to
options for
the quarter-ended March 31, 2007.
|
|
|
|
The
weighted average, estimated grant date fair values of stock options
granted during the quarter-ended March 31, 2007 was $9.09.
|
|
|
|
The
following tables summarize the stock option activity for the
quarters
ended March 31, 2007 and March 31, 2006,
respectively.
|
|
|
Shares
|
|
Weighted
Average
Exercise
Price
per
Share
|
|
Weighted
Average
Remaining
Contractual
Term
(in
Years)
|
|
Outstanding,
December 31, 2006
|
|
|
483,490
|
|
$
|
2.17
|
|
|
|
|
Granted,
February 14, 2007
|
|
|
99,500
|
|
|
9.14
|
|
|
|
|
Granted,
March 19, 2007
|
|
|
20,000
|
|
|
8.82
|
|
|
|
|
Exercised
|
|
|
20,000
|
|
|
2.50
|
|
|
|
|
Forfeited,
Canceled
|
|
|
0
|
|
|
n/a
|
|
|
|
|
Outstanding,
March 31, 2007
|
|
|
582,990
|
|
$
|
3.58
|
|
|
8.81
|
|
Exercisable,
March 31, 2007
|
|
|
301,120
|
|
$
|
3.57
|
|
|
8.81
|
|
|
|
Shares
|
|
Weighted
Average
Exercise
Price
per
Share
|
|
Weighted
Average
Remaining
Contractual
Term
(in
Years)
|
|
Outstanding,
December 31, 2005
|
|
|
324,240
|
|
$
|
.82
|
|
|
|
|
Granted,
March 1, 2006
|
|
|
116,750
|
|
|
4.50
|
|
|
|
|
Exercised
|
|
|
0
|
|
|
n/a
|
|
|
|
|
Forfeited,
Canceled
|
|
|
0
|
|
|
n/a
|
|
|
|
|
Outstanding,
March 31, 2006
|
|
|
440,990
|
|
$
|
1.79
|
|
|
9.44
|
|
Exercisable,
March 31, 2006
|
|
|
117,747
|
|
$
|
1.87
|
|
|
9.40
|
|
Q.
|
Net
Loss Per Share - Basic and diluted net loss per share has been computed
using the weighted-average number of shares of common stock outstanding
during the period.
|
|
|
|
The
following table presents the calculation of basic and diluted net
loss per
share for the quarters ended:
|
|
|
March
31, 2007
|
|
March
31, 2006
|
|
|
|
|
|
|
|
Net
loss available to common stockholders
|
|
$
|
(4,106,133
|
)
|
$
|
(1,311,330
|
)
|
|
|
|
|
|
|
|
|
Net
loss per share, basic and diluted
|
|
$
|
(.35
|
)
|
$
|
(.20
|
)
|
|
|
|
|
|
|
|
|
Weighted-average
shares used in computing net loss per share, basic and
diluted
|
|
|
11,854,027
|
|
|
6,495,408
|
|
|
The
Company has excluded all outstanding warrants and options from the
calculation of diluted net loss per share because all such securities
are
antidilutive for all applicable periods presented.
|
|
|
|
The
total number of shares excluded from the calculations of diluted
net loss
per share, prior to application of the treasury stock method for
warrants,
was 3,402,821 and 594,424 for the quarters ended March 31, 2007 and
2006,
respectively. Such securities, had they been dilutive, would have
been
included in the computation of diluted earnings per
share.
|
|
|
|
The
total number of shares excluded from the calculations of diluted
net loss
per share, prior to the application of the treasury stock method
for
options,
was 582,990 and 440,990 for the quarters ended March 31, 2007 and
2006,
respectively. Such securities, had they been dilutive, would have
been
included in the computation of diluted earnings per
share.
|
|
|
R.
|
Concentrations
of Risk - Grant revenue was comprised wholly from grants and contracts
issued by the federal government and accounted for 84.4% and 78.4%
of
total revenue for the quarters ended March 31, 2007 and 2006,
respectively. Although the Company anticipates ongoing federal grant
revenue, there is no guarantee that this revenue stream will continue
in
the future.
|
|
|
|
Financial
instruments that potentially subject us to a significant concentration
of
credit risk consist primarily of cash and cash equivalents and securities
available-for-sale. The Company maintains deposits in federally insured
institutions in excess of federally insured limits. The Company does
not
believe it is exposed to significant credit risk due to the financial
position of the depository institutions in which those deposits are
held.
Additionally, the Company has established guidelines regarding
diversification of its investment portfolio and maturities of investments,
which are designed to meet safety and
liquidity.
|
S.
|
Foreign
Currency Exchange Rate Risk - The Company has entered into a manufacturing
agreement with a foreign third party to produce one of its drug compounds
and is required to make payments in the foreign currency. As a result,
the
Company's financial results could be affected by changes in foreign
currency exchange rates. Currently, the Company's exposure primarily
exists with the Euro Dollar. As of March 31, 2007, the Company is
obligated to make payments under the agreement of 1,020,000 Euros.
The
Company has established means to purchase forward contracts to hedge
against this risk. As of March 31, 2007, no hedging transactions
have been
consummated.
|
T.
|
Comprehensive
Income/(Loss) - The Company applies Statement of Financial Accounting
Standards (SFAS) No. 130, “Reporting Comprehensive Income.” SFAS No. 130
requires disclosure of all components of comprehensive income on
an annual
and interim basis. Comprehensive income is defined as the change
in equity
of a business enterprise during a period from transactions and other
events and circumstances from non-owner sources.
|
Note
3. Stock Transactions
On
February 1, 2006, the Company paid a common stock dividend of 91,776 shares
to
holders of the Series A preferred stock to satisfy the dividend requirement
of
the preferred stock issuance.
On
March
1, 2006, the Company issued 116,750 stock options to various employees and
consultants of the Company under non-qualified stock option agreements. These
options allow for the purchase of 116,750 shares of common stock at a price
of
$4.50. These options have a three-year vesting schedule and expire on February
29, 2016. See Note 8 for further details on stock option
agreements.
On
June
21, 2006, after the expiration of the 115-day extension and an additional 30-day
period, the Company incurred one additional penalty period in which 60,000
shares of Series A preferred stock were earned at $120,000 and 15,295 shares
of
common stock were earned at $30,590. The Company has not incurred any further
obligation to issue penalty shares since these issuances.
On
July
20, 2006, the Company sold 1,700,000 shares of common stock in its initial
public offering at $6.00 per share. The net proceeds to the Company from this
offering were approximately $8,300,000. Beginning July 21, 2006, the Company's
shares were quoted on the NASDAQ Capital Market and listed on the Boston Stock
Exchange under the symbols “CBLI” and “CFB” respectively. In connection with its
initial public offering, the Company sold warrants to purchase 170,000 shares
of
common stock to the underwriters and their designees at a cost of $100.00.
The
warrants have an exercise price of $8.70 per share.
On
July
20, 2006, the effective date of the Company's initial public offering, the
Company issued 92,407 shares of common stock as accumulated dividends to the
Series A preferred stockholders. On the same date, all of the Company's Series
A
Preferred shares automatically converted on a one-for-one basis into 3,351,219
shares of common stock and notes of the Company in the principal amount of
$283,500 plus accrued interest of $29,503 automatically converted into 124,206
shares of common stock. In connection with their appointment to the Board,
the
Company issued to each of the Company's three new independent directors, options
to purchase 15,000 shares of common stock with an exercise price of $6.00 per
share.
On
September 21, 2006, the SEC declared effective a registration statement of
the
Company registering up to 4,453,601 shares of common stock for resale from
time
to time by the selling stockholders named in the prospectus contained in the
registration statement. The Company will not receive any proceeds from the
sale
of the underlying shares of common stock, although to the extent the selling
stockholders exercise warrants for the underlying shares of common stock, the
Company will receive the exercise price of those warrants. The registration
statement was filed to satisfy registration rights that the Company had
previously granted.
On
November 16, 2006 the Company issued 50,000 warrants to an outside consultant.
These warrants are immediately exercisable into common shares of the Company
and
have an exercise price of $6.00 per share and an expiration date of November
16,
2011.
On
February 14, 2007, the Company issued 99,500 stock options to various employees
and consultants of the Company under non-qualified stock option agreements.
These options allow for the purchase of 99,500 shares of common stock at a
price
of $9.14. These options have various vesting schedules from immediate vesting
to
three years and expire on February 14, 2017.
On
March
16, 2007, the Company entered into a Securities Purchase Agreement with various
accredited investors (the “Buyers”), pursuant to which the Company agreed to
sell to the Buyers Series B Convertible Preferred Stock (“Series B Preferred”)
convertible, upon stockholder approval, into an aggregate of 4,288,712 shares
of
common stock and Series B Warrants that are exercisable, upon stockholder
approval, for an aggregate of 2,144,356 shares of common stock. The Series
B
Preferred have an initial conversion price of $7.00 per share, and in the event
of a conversion at such conversion price, one share of Series B Preferred would
convert into one share of common stock. The Series B Warrants have an exercise
price of $10.36 per share, the closing bid price on the day prior to the private
placement. To the extent, however, that the conversion price of the Series
B
Preferred or the exercise price of the Series B Warrants is reduced as a result
of certain anti-dilution protections, the number of shares of common stock
into
which the Series B Preferred are convertible and for which the Series B Warrants
are exercisable may increase.
The
Company also issued to the placement agents in the private placement (the
“Agents”), as compensation for their services, Series B Preferred, Series B
Warrants, and Series C Warrants. The Agents collectively received Series B
Preferred that are convertible, upon stockholder approval, into an aggregate
of
290,298 shares of common stock, Series B Warrants that are exercisable, upon
stockholder approval, for an aggregate of 221,172 shares of the Company’s common
stock, and Series C Warrants that are exercisable, upon stockholder approval,
for 267,074 shares of the Company’s common stock. The Series C Warrants have an
exercise price of $11.00 per share, and are also subject to anti-dilution
protections that could increase the number of shares of common stock for which
they are exercisable.
In
total,
upon stockholder approval, the securities issued in the private placement will
be convertible into, or exercisable for, up to approximately 7,211,612 shares
of
common stock, which amount is subject to adjustment in the event of certain
corporate events such as stock splits or issuances of securities at a price
below the conversion price of the Series B Preferred or exercise price of the
Warrants, as the case may be.
On
March
19, 2007, the Company issued 20,000 stock options to members of the Scientific
Advisory Board of the Company under non-qualified stock option agreements.
These
options are immediately exercisable and allow for the purchase of 20,000 shares
of common stock at a price of $8.82. These options expire on March 19,
2017.
Note
4. Commitments and Contingencies
The
Company has entered into various agreements with third parties and certain
related parties in connection with the research and development activities
of
its existing product candidates as well as discovery efforts on potential new
product candidates. These agreements include costs for research and development
and license agreements that represent the Company's fixed obligations payable
to
sponsor research and minimum royalty payments for licensed patents. These
amounts do not include any additional amounts that the Company may be required
to pay under its license agreements upon the achievement of scientific,
regulatory and commercial milestones that may become payable depending on the
progress of scientific development and regulatory approvals, including
milestones such as the submission of an investigational new drug application
to
the FDA, similar submissions to foreign regulatory authorities and the first
commercial sale of the Company's products in various countries. These agreements
include costs related to manufacturing, clinical trials and preclinical studies
performed by third parties.
The
Company is also party to three agreements that require it to make milestone
payments, royalties on net sales of the Company's products and payments on
sublicense income received by the Company. As of March 31, 2007, no milestone
payments have been made, although $300,000 has been accrued under one of these
agreements.
From
time
to time, the Company may have certain contingent liabilities that arise in
the
ordinary course of business. The Company accrues for liabilities when it is
probable that future expenditures will be made and such expenditures can be
reasonably estimated. For all periods presented, the Company is not a party
to
any pending material litigation or other material legal
proceedings.
The
Company currently has operating lease commitments in place for facilities in
Cleveland, Ohio and Chicago, Illinois as well as office equipment. The Company
recognizes rent expense on a straight-line basis over the term of the related
operating leases. The operating lease expenses recognized were $43,598, and
$42,941 for the quarters ended March 31, 2007 and 2006,
respectively.
Annual
future minimum lease payments under present lease commitments are as follows.
These future minimum payments have not been adjusted to reflect an inflation
adjustment included in the lease for the Cleveland facilities based on the
Gross
Domestic Product Price Deflator.
|
|
Operating
Leases
|
|
2007
(from April 1, 2007 through December 31, 2007)
|
|
$
|
22,360
|
|
2008
|
|
|
4,949
|
|
2009
|
|
|
1,935
|
|
|
|
$
|
29,244
|
|
The
Company has entered into stock option agreements with key employees, board
members and consultants with exercise prices ranging from $0.00 to $9.14. These
awards were approved by our Board of Directors. Option grants beginning in
2005
vest ratably over periods ranging from zero to three years. The options expire
ten years from the date of grant, subject to the terms applicable in the
agreement.
The
following tables summarize the stock option activity for the three months ended
March 31, 2007 and 2006:
|
|
Number of
Options
|
|
Weighted Average
Exercise
Price
|
|
Outstanding
at December 31, 2006
|
|
|
483,490
|
|
$
|
2.17
|
|
Granted
|
|
|
119,500
|
|
$
|
9.09
|
|
Exercised
|
|
|
20,000
|
|
$
|
2.50
|
|
Forfeited
|
|
|
0
|
|
|
n/a
|
|
Outstanding
at March 31, 2007
|
|
|
582,990
|
|
$
|
3.58
|
|
|
|
Number of
Options
|
|
Weighted Average
Exercise
Price
|
|
Outstanding
at December 31, 2005
|
|
|
324,240
|
|
$
|
.82
|
|
Granted
|
|
|
116,750
|
|
$
|
4.50
|
|
Exercised
|
|
|
0
|
|
|
n/a
|
|
Forfeited
|
|
|
0
|
|
|
n/a
|
|
Outstanding
at March 31, 2006
|
|
|
440,990
|
|
$
|
1.87
|
|
The
Company has entered into warrant agreements with strategic partners, consultants
and investors with exercise prices ranging from $1.13 to $11.00. These awards
were approved by the Board of Directors. The warrants expire between five and
six years from the date of grant, subject to the terms applicable in the
agreement. A list of the total warrants awarded and exercised appears
below.
|
|
Number of
Warrants
|
|
Weighted Average
Exercise
Price
|
|
Outstanding
at December 31, 2006
|
|
|
814,424
|
|
$
|
3.36
|
|
Granted
|
|
|
2,632,602
|
|
$
|
10.42
|
|
Exercised
|
|
|
44,205
|
|
$
|
2.00
|
|
Forfeited
|
|
|
—
|
|
|
N/A
|
|
Outstanding
at March 31, 2007
|
|
|
3,402,821
|
|
$
|
8.84
|
|
|
|
Number of
Warrants
|
|
Weighted Average
Exercise
Price
|
|
Outstanding
at December 31, 2005
|
|
|
594,424
|
|
|
1.61
|
|
Granted
|
|
|
—
|
|
$
|
N/A
|
|
Exercised
|
|
|
—
|
|
|
N/A
|
|
Forfeited
|
|
|
—
|
|
|
N/A
|
|
Outstanding
at March 31, 2006
|
|
|
594,424
|
|
$
|
1.61
|
|
The
Company has entered into employment agreements with three key executives who,
if
terminated by the Company without cause as described in these agreements, would
be entitled to severance pay.
While
no
legal actions are currently pending, the Company may be party to certain claims
brought against it arising from certain contractual matters. It is not possible
to state the ultimate liability, if any, in these matters. In management's
opinion, the ultimate resolution of any such claim will not have a material
adverse effect on the financial position of the Company.
Note
5. Subsequent Events
No
material subsequent events have occurred since the balance sheet date of March
31, 2007.
9,375,095
Shares
CLEVELAND
BIOLABS, INC.
Common
Stock, $0.005 Par Value
PART
II
INFORMATION
NOT REQUIRED IN PROSPECTUS
OTHER
EXPENSES OF ISSUANCE AND DISTRIBUTION
The
following table sets forth the costs and expenses. All amounts are estimates
except the SEC registration fee.
|
|
$
|
2,692
|
|
Printing
and engraving expenses
|
|
$
|
|
|
Legal
fees and expenses
|
|
$
|
|
|
Accounting
fees and expenses
|
|
$
|
|
|
Miscellaneous
expense
|
|
$
|
|
|
Total
|
|
$
|
|
|
INDEMNIFICATION
Section
102 of the General Corporation Law of the State of Delaware (the “DGCL”) allows
a corporation to eliminate the personal liability of directors to a corporation
or its stockholders for monetary damages for a breach of a fiduciary duty as
a
director, except where the director breached his duty of loyalty, failed to
act
in good faith, engaged in intentional misconduct or knowingly violated a law,
authorized the payment of a dividend or approved a stock repurchase or
redemption in violation of Delaware corporate law or obtained an improper
personal benefit. As permitted by Section 102(b)(7) of the DGCL, CBL’s
Certificate of Incorporation contains a provision eliminating the personal
liability of a director to CBL or its stockholders to the fullest extent
permitted by the DGCL .
Section
145 of the DGCL empowers a Delaware corporation to indemnify any person who
was
or is a party or is threatened to be made a party to any threatened, pending
or
completed action, suit or proceeding, whether civil, criminal, administrative
or
investigative (other than an action by or in the right of such corporation)
by
reason of the fact that such person is or was a director, officer, employee
or
agent of such corporation, or is or was serving at the request of such
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise. The indemnity may include
expenses (including attorneys’ fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding, provided that such person acted in good faith
and in a manner such person reasonably believed to be in or not opposed to
the
best interests of the corporation and, with respect to any criminal action
or
proceeding, had no reasonable cause to believe such person’s conduct was
unlawful. A Delaware corporation may indemnify directors, officers, employees
and other agents of such corporation in an action by or in the right of a
corporation under the same conditions against expenses (including attorneys’
fees) actually and reasonably incurred by the person in connection with the
defense and settlement of such action or suit, except that no indemnification
is
permitted without judicial approval if the person to be indemnified has been
adjudged to be liable to the corporation. Where a present or former director
or
officer of the corporation is successful on the merits or otherwise in the
defense of any action, suit or proceeding referred to above or in defense of
any
claim, issue or matter therein, the corporation must indemnify such person
against the expenses (including attorneys’ fees) which he or she actually and
reasonably incurred in connection therewith. CBL’s Certificate of Incorporation
contains provisions that provide for indemnification of officers and directors
and each person who is or was serving at the request of CBL as a director,
officer, trustee, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise to the full extent permitted by the
DGCL.
Section
174 of the DGCL provides, among other things, that a director who willfully
or
negligently approves of an unlawful payment of dividends or an unlawful stock
purchase or redemption, may be held liable for such actions. A director who
was
either absent when the unlawful actions were approved or dissented at the time,
may avoid liability by causing his or her dissent to such actions to be entered
into the books containing the minutes of the meetings of the board of directors
at the time such action occurred or immediately after such absent director
receives notice of the unlawful acts.
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers and controlling persons, we have been advised
that in the opinion of the SEC such indemnification is against public policy
as
expressed in the Securities Act, and is, therefore, unenforceable.
CBL
maintains, at its expense, a policy of insurance which insures its directors
and
officers, subject to exclusions and deductions as are usual in these kinds
of
insurance policies, against specified liabilities which may be incurred in
those
capacities.
RECENT
SALES OF UNREGISTERED SECURITIES
During
the past three years, we have issued unregistered securities to the persons,
as
described below. None of these transactions involved any underwriters,
underwriting discounts or commissions, except as specified below, or any public
offering, and we believe that each transaction was exempt from the registration
requirements of the Securities Act by virtue of Section 4(2) thereof and/or
Regulation D. All recipients had adequate access to information about
us.
On
September 30 2004, we issued 29,800 warrants to Sunrise Securities Corp. and
its
designees at an exercise price of $2.00 per share, which expire in March 2010.
The warrants were issued to retain Sunrise Securities Corp. as an investment
banker.
We
issued
on March 15, 2005 and March 28, 2005, pursuant to the closing of the
Series A Preferred Stock financing, 3,000,000 shares of our Series A Preferred
Stock to 29 different purchasers at a price of $2.00 per share, raising a total
of $6 million, on March 15, 2005 and March 28, 2005, we also
issued 308,000 shares of common stock to nine individuals and entities related
to Sunrise Securities Corp. and warrants to purchase 300,000 shares of common
stock to 10 individuals and entities related to Sunrise Securities Corp. both
for consideration for services rendered by Sunrise Securities Corp. as placement
agent in the Series A Preferred Stock financing.
From
March 2005 to March 2006, we issued to 26 employees and third party
consultants options to purchase 500,590 shares of common stock with exercise
prices ranging from $0 to $4.50 per share.
We
also
issued in March 2005, pursuant to the conversion of $102,438 principal
amount of outstanding promissory notes, 51,219 shares of Series A Preferred
Stock to two investors.
On
August 1, 2005, payment of the first part of the accrued dividends on the
Series A Preferred Stock were made in the form of 69,201 shares of common stock
to 31 holders of the Series A Preferred Stock. On February 1, 2006, we
issued 91,776 shares of common stock as accrued dividends on the Series A
Preferred Stock to the same preferred stockholders. On July 20, 2006, we issued
92,407 shares of common stock as accrued dividends on the Series A
Preferred Stock.
On
September 30, 2005, we issued 59,600 shares of common stock to an outside
consultant upon the exercise of a fully vested stock option.
On
January 27, 2006, we issued 240,000 shares of Series A Preferred Stock to
29 holders of the Series A Preferred Stock and 54,060 shares of common stock
to
33 holders of our common and preferred stock in connection with certain
provisions of the Series A Rights Agreement dated as of March 15,
2005.
On
June
21, 2006, we issued 60,000 shares of Series A Preferred Stock to 29 holders
of
the Series A Preferred Stock and 15,295 shares of common stock to 33 holders
of
our common and preferred stock in connection with certain provisions of the
Series A Rights Agreement dated as of March 15, 2005, as amended February 17,
2006.
On
July
20, 2006, the effective date of our initial public offering, we issued 124,206
shares of common stock to three convertible note holders upon the automatic
conversion of notes in the principal amount of $283,500 plus accrued
interest.
On
July
20, 2006, we issued warrants to purchase 170,000 shares of common stock to
Sunrise Securities Corp., Roth Capital Partners, LLC and/or their designees
at a
cost of $100.00. The warrants have an exercise price of $8.70 per
share.
On
July
20, 2006, we issued options to purchase an aggregate of 45,000 shares of common
stock with an exercise price of $6.00 per share to our three new independent
directors.
On
July
27, 2006, we issued 625 shares of common stock to an employee upon the exercise
of a stock option, which was partially vested.
On
November 16, 2006, we issued 50,000 warrants to an outside consultant in
connection with assistance in capital raising activities that led to our March
2007 private placement. These warrants are immediately exercisable into common
shares of the Company and have an exercise price of $6.00 per share and an
expiration date of November 16, 2011.
On
February 26, 2007, we issued 55,000 warrants to an outside consultant in
connection with capital raising activities. These warrants are immediately
exercisable into common shares of the Company and have an exercise price of
$9.19 per share and an expiration date of February 26, 2012.
On
March
16, 2007, the Company entered into a Securities Purchase Agreement with various
Buyers, pursuant to which the Company agreed to sell to the Buyers Series B
Preferred convertible into an aggregate of 4,288,712 shares of common stock
and
Series B Warrants that are exercisable for an aggregate of 2,144,356 shares
of
common stock. The aggregate purchase price paid by the Buyers for the Series
B
Preferred and Series B Warrants was approximately $30,000,000. After related
fees and expenses, the Company received net proceeds of approximately
$29,000,000. The Company intends to use the proceeds for general corporate
and
working capital purposes.
The
Series B Preferred have an initial conversion price of $7.00 per share, and
in
the event of a conversion at such conversion price, one share of Series B
Preferred would convert into one share of common stock. The Series B Warrants
have an exercise price of $10.36 per share, the closing bid price on the day
prior to the private placement. To the extent, however, that the conversion
price of the Series B Preferred or the exercise price of the Series B Warrants
is reduced as a result of certain anti-dilution protections, the number of
shares of common stock into which the Series B Preferred are convertible and
for
which the Series B Warrants are exercisable may increase.
The
Company also issued to the Agents in the private placement, as compensation
for
their services, Series B Preferred, Series B Warrants, and Series C Warrants.
The Agents collectively received Series B Preferred that are convertible, upon
stockholder approval, into an aggregate of 290,298 shares of common stock,
Series B Warrants that are exercisable, upon stockholder approval, for an
aggregate of 221,172 shares of the Company’s common stock, and Series C Warrants
that are exercisable, upon stockholder approval, for 267,074 shares of the
Company’s common stock. The Series C Warrants have an exercise price of $11.00
per share, and are also subject to anti-dilution protections that could increase
the number of shares of common stock for which they are
exercisable.
EXHIBITS
Exhibit
No.
|
|
Description
|
|
|
|
3.1
|
|
Certificate
of Incorporation filed with the Secretary of State of Delaware on
June 5,
2003***
|
|
|
3.2
|
|
Certificate
of Amendment of Certificate of Incorporation filed with the Secretary
of
State of Delaware on February 25, 2005***
|
|
|
|
3.3
|
|
Certificate
of Designation of Series A Participating Convertible
Preferred Stock filed with the Secretary of State of Delaware on March
8,
2005*** |
|
|
3.4
|
|
Second
Certificate of Amendment of Certificate of Incorporation filed with
Secretary of State of Delaware on June 30, 2006***
|
|
|
3.5
|
|
Certificate
of Designations, Preferences and Rights of Series B Convertible Preferred
Stock, dated March 16, 2007******
|
|
|
3.6
|
|
Amended
and Restated By-Laws***
|
|
|
4.1
|
|
Form
of Specimen Common Stock Certificate*
|
|
|
4.2
|
|
Form
of Warrants issues to designees of Sunrise Securities Corp., dated
March
2005*
|
|
|
4.3
|
|
Form
of Warrants issued to underwriters***
|
|
|
4.4
|
|
Warrant
to Purchase Common Stock issued to ChemBridge Corporation, dated
April 27,
2004*
|
|
|
4.5
|
|
Form
of Series B Warrant******
|
|
|
|
4.6
|
|
Form
of Series C Warrant******
|
|
|
|
5.1
|
|
Opinion
of Katten Muchin Rosenman LLPÆ
|
|
|
|
10.1
|
|
Restricted
Stock Agreement between Cleveland BioLabs, Inc. and Michael Fonstein,
dated as of July 5, 2003*
|
|
|
10.2
|
|
Restricted
Stock Agreement between Cleveland BioLabs, Inc. and Yakov Kogan,
dated as
of July 5, 2003*
|
|
|
10.3
|
|
Restricted
Stock Agreement between Cleveland BioLabs, Inc. and Andrei Gudkov,
dated
as of July 5, 2003*
|
|
|
10.4
|
|
Library
Access Agreement by and between ChemBridge Corporation and Cleveland
BioLabs, Inc., effective as of April 27, 2004*
|
|
|
10.5
|
|
Restricted
Stock and Investor Rights Agreement between Cleveland BioLabs, Inc.
and
ChemBridge Corporation, dated as of April 27, 2004*
|
|
|
10.6
|
|
Common
Stockholders Agreement by and among Cleveland BioLabs, Inc. and the
stockholders named therein, dated as of July 1, 2004*
|
|
|
10.7
|
|
Exclusive
License Agreement by and between The Cleveland Clinic Foundation
and
Cleveland BioLabs, Inc., effective as of July 1, 2004*
|
|
|
10.8
|
|
Employment
Agreement by and between Cleveland BioLabs, Inc. and Dr. Michael
Fonstein,
dated August 1, 2004*
|
|
|
10.9
|
|
Employment
Agreement by and between Cleveland BioLabs, Inc. and Dr. Yakov Kogan,
dated August 1, 2004*
|
10.10
|
|
Consulting
Agreement between Cleveland BioLabs, Inc. and Dr. Andrei Gudkov,
dated
August 1, 2004*
|
|
|
10.11
|
|
Cooperative
Research and Development Agreement by and between the Uniformed
Services
University of the Health Sciences, the Henry M. Jackson Foundation
for the
Advancement of Military Medicine, Inc., the Cleveland Clinic Foundation,
and Cleveland BioLabs, Inc., dated as of August 1,
2004**
|
|
|
10.12
|
|
Form
of Stock Purchase Agreement between Cleveland BioLabs, Inc. and
the
Purchasers party thereto, dated as of March 15, 2005*
|
|
|
10.13
|
|
Form
of Series A Rights Agreement by and among Cleveland BioLabs, Inc.
and the
parties thereto, dated as of March 15, 2005*
|
|
|
10.14
|
|
Employment
Agreement by and between Cleveland BioLabs, Inc. and Dr. Farrel
Fort,
dated June 1, 2005*
|
|
|
10.15
|
|
Amendment
to Employment Agreement by and between Cleveland BioLabs, Inc.
and Dr.
Farrel Fort, dated September 30, 2005*
|
|
|
10.16
|
|
Amendment
to Consulting Agreement between Cleveland BioLabs, Inc. and Dr.
Andrei
Gudkov, dated as of January 23, 2006*
|
|
|
10.17
|
|
Amendment
to Restricted Stock Agreement between Cleveland BioLabs, Inc. and
Michael
Fonstein, dated as of January 23, 2006*
|
|
|
10.18
|
|
Amendment
to Restricted Stock Agreement between Cleveland BioLabs, Inc. and
Yakov
Kogan, dated as of January 23, 2006*
|
|
|
10.19
|
|
Amendment
to Restricted Stock Agreement between Cleveland BioLabs, Inc. and
Andrei
Gudkov, dated as of January 23, 2006*
|
|
|
10.20
|
|
Amendment
to Common Stockholders Agreement by and among Cleveland BioLabs,
Inc. and
the parties thereto, dated as of January 26, 2006*
|
|
|
10.21
|
|
Form
of Amendment to Series A Rights Agreement by and among Cleveland
BioLabs,
Inc. and the parties thereto, dated as of February 17,
2006*
|
|
|
10.22
|
|
Cleveland
BioLabs, Inc. 2006 Equity Incentive Plan***
|
|
|
10.23
|
|
Process
Development and Manufacturing Agreement between Cleveland BioLabs,
Inc.
and SynCo Bio Partners B.V., effective as of August 31,
2006****
|
|
|
10.24
|
|
Sponsored
Research Agreement between Cleveland BioLabs, Inc. and Roswell
Park Cancer
Institute Corporation, effective as of January 12,
2007*****
|
|
|
10.25
|
|
Securities
Purchase Agreement, dated March 16, 2007******
|
|
|
|
10.26
|
|
Registration
Rights Agreement, dated March 16, 2007******
|
|
|
|
10.27
|
|
Voting
Agreement, dated March 16, 2007******
|
|
|
|
10.28
|
|
Consulting
agreement between Cleveland BioLabs, Inc. and Basic Investors, Inc.,
dated
as of October 10, 2006, as amended April 9, 2007 |
|
|
|
16.1
|
|
Letter
on change in certifying accountant*
|
|
|
23.1
|
|
Consent
of Meaden & Moore, Ltd.
|
|
|
23.2
|
|
Consent
of Katten Muchin Rosenman LLP (included in Exhibit 5.1)Æ
|
24.1
|
|
Power
of Attorney (previously filed)
|
*
|
Incorporated
by reference to Amendment No. 1 to Registration Statement on
Form SB-2 as
filed on April 25, 2006 (File No. 333-131918).
|
|
|
**
|
Incorporated
by reference to Amendment No. 2 to Registration Statement on
Form SB-2 as
filed on May 31, 2006 (File No. 333-131918).
|
|
|
***
|
Incorporated
by reference to Amendment No. 3 to Registration Statement on
Form SB-2 as
filed on July 10, 2006 (File No. 333-131918).
|
|
|
****
|
Incorporated
by reference to Form 8-K as filed on October 25, 2006.
|
|
|
*****
|
Incorporated
by reference to Form 8-K as filed on January 12, 2007.
|
|
|
******
|
Incorporated
by reference to Form 8-K as filed on March 19, 2007.
|
|
|
Æ |
To be
filed by
amendment. |
UNDERTAKINGS
The
undersigned registrant hereby undertakes that it will:
(1)
File,
during any period in which it offers or sells securities, a post-effective
amendment to this registration statement to:
(i)
Include any prospectus required by section 10(a)(3) of the Securities
Act;
(ii)
Reflect in the prospectus any facts or events which, individually or together,
represent a fundamental change in the information in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the “Calculation of Registration Fee”
table in the effective registration statement; and
(iii)
Include any additional or changed material information on the plan of
distribution.
(2)
For
determining any liability under the Securities Act of 1933, treat each
post-effective amendment as a new registration statement to the securities
offered in the U.S., and the offering of the securities at that time as the
initial bona fide offering of those securities.
(3)
File
a post-effective amendment to remove from registration any of the securities
that remain unsold at the end of the offering.
Insofar
as indemnification by the undersigned small business issuer for liabilities
arising under the Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the small business issuer pursuant to the foregoing
provisions, or otherwise, the small business issuer has been advised that in
the
opinion of the SEC such indemnification is against public policy as expressed
in
the Securities Act of 1933, and is, therefore, unenforceable. In the event
that
a claim for indemnification against such liabilities (other than the payment
by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
SIGNATURES
In
accordance with the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of
the
requirements for filing on Form SB-2, and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Buffalo, Erie Country, State of New York, on the 10th day of
August,
2007.
|
CLEVELAND
BIOLABS, INC.
|
|
|
|
By:
|
/s/
Michael Fonstein
|
|
|
Michael
Fonstein
Chief
Executive Officer and President
|
Pursuant
to the requirements of the Securities Act of 1933, as amended, this Registration
Statement has been signed by the following persons in the capacities and on
the
dates indicated below.
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/
Michael Fonstein
|
|
Chief
Executive Officer, President and Director
|
|
August
10, 2007
|
Michael
Fonstein
|
|
(Principal
Executive Officer)
|
|
|
|
|
|
|
|
/s/
John A. Marhofer, Jr.
|
|
Chief
Financial Officer
|
|
|
John
A. Marhofer, Jr.
|
|
(Principal
Financial and Accounting Officer)
|
|
|
|
|
|
|
|
*
|
|
Director
|
|
|
James
Antal
|
|
|
|
|
|
|
|
|
|
*
|
|
Director
|
|
|
Paul
DiCorleto
|
|
|
|
|
|
|
|
|
|
*
|
|
Chief
Scientific Officer and Director
|
|
|
Andrei
Gudkov
|
|
|
|
|
|
|
|
|
|
*
|
|
Director,
Chairman of the Board
|
|
|
Bernard
L. Kasten
|
|
|
|
|
|
|
|
|
|
*
|
|
Executive
Vice President of Business Development,
|
|
|
Yakov
Kogan
|
|
Secretary
and
Director |
|
|
|
|
|
|
|
*
|
|
Director
|
|
|
H.
Daniel Perez
|
|
|
|
|
*By:
/s/ John A. Marhofer, Jr.
|
|
John
A. Marhofer, Jr.
Attorney-in-fact
|
|
EXHIBIT
INDEX
Exhibit
No.
|
|
Description
|
|
|
|
3.1
|
|
Certificate
of Incorporation filed with the Secretary of State of Delaware on
June 5,
2003***
|
|
|
3.2
|
|
Certificate
of Amendment of Certificate of Incorporation filed with the Secretary
of
State of Delaware on February 25, 2005***
|
|
|
|
3.3
|
|
Certificate
of Designation of Series A Participating Convertible
Preferred Stock filed with the Secretary of State of Delaware on March
8,
2005*** |
|
|
3.4
|
|
Second
Certificate of Amendment of Certificate of Incorporation filed with
Secretary of State of Delaware on June 30, 2006***
|
|
|
3.5
|
|
Certificate
of Designations, Preferences and Rights of Series B Convertible Preferred
Stock, dated March 16, 2007******
|
|
|
3.6
|
|
Amended
and Restated By-Laws***
|
|
|
4.1
|
|
Form
of Specimen Common Stock Certificate*
|
|
|
4.2
|
|
Form
of Warrants issues to designees of Sunrise Securities Corp., dated
March
2005*
|
|
|
4.3
|
|
Form
of Warrants issued to underwriters***
|
|
|
4.4
|
|
Warrant
to Purchase Common Stock issued to ChemBridge Corporation, dated
April 27,
2004*
|
|
|
4.5
|
|
Form
of Series B Warrant******
|
|
|
|
4.6
|
|
Form
of Series C Warrant******
|
|
|
|
5.1
|
|
Opinion
of Katten Muchin Rosenman LLPÆ
|
|
|
|
10.1
|
|
Restricted
Stock Agreement between Cleveland BioLabs, Inc. and Michael Fonstein,
dated as of July 5, 2003*
|
|
|
10.2
|
|
Restricted
Stock Agreement between Cleveland BioLabs, Inc. and Yakov Kogan,
dated as
of July 5, 2003*
|
|
|
10.3
|
|
Restricted
Stock Agreement between Cleveland BioLabs, Inc. and Andrei Gudkov,
dated
as of July 5, 2003*
|
|
|
10.4
|
|
Library
Access Agreement by and between ChemBridge Corporation and Cleveland
BioLabs, Inc., effective as of April 27, 2004*
|
|
|
10.5
|
|
Restricted
Stock and Investor Rights Agreement between Cleveland BioLabs, Inc.
and
ChemBridge Corporation, dated as of April 27, 2004*
|
|
|
10.6
|
|
Common
Stockholders Agreement by and among Cleveland BioLabs, Inc. and the
stockholders named therein, dated as of July 1, 2004*
|
|
|
10.7
|
|
Exclusive
License Agreement by and between The Cleveland Clinic Foundation
and
Cleveland BioLabs, Inc., effective as of July 1, 2004*
|
|
|
10.8
|
|
Employment
Agreement by and between Cleveland BioLabs, Inc. and Dr. Michael
Fonstein,
dated August 1, 2004*
|
|
|
10.9
|
|
Employment
Agreement by and between Cleveland BioLabs, Inc. and Dr. Yakov Kogan,
dated August 1, 2004*
|
|
|
10.10
|
|
Consulting
Agreement between Cleveland BioLabs, Inc. and Dr. Andrei Gudkov,
dated
August 1, 2004*
|
|
|
10.11
|
|
Cooperative
Research and Development Agreement by and between the Uniformed
Services
University of the Health Sciences, the Henry M. Jackson Foundation
for the
Advancement of Military Medicine, Inc., the Cleveland Clinic Foundation,
and Cleveland BioLabs, Inc., dated as of August 1,
2004**
|
|
|
10.12
|
|
Form
of Stock Purchase Agreement between Cleveland BioLabs, Inc. and
the
Purchasers party thereto, dated as of March 15, 2005*
|
|
|
10.13
|
|
Form
of Series A Rights Agreement by and among Cleveland BioLabs, Inc.
and the
parties thereto, dated as of March 15, 2005*
|
|
|
10.14
|
|
Employment
Agreement by and between Cleveland BioLabs, Inc. and Dr. Farrel
Fort,
dated June 1, 2005*
|
|
|
10.15
|
|
Amendment
to Employment Agreement by and between Cleveland BioLabs, Inc.
and Dr.
Farrel Fort, dated September 30, 2005*
|
|
|
10.16
|
|
Amendment
to Consulting Agreement between Cleveland BioLabs, Inc. and Dr.
Andrei
Gudkov, dated as of January 23, 2006*
|
|
|
10.17
|
|
Amendment
to Restricted Stock Agreement between Cleveland BioLabs, Inc. and
Michael
Fonstein, dated as of January 23, 2006*
|
|
|
10.18
|
|
Amendment
to Restricted Stock Agreement between Cleveland BioLabs, Inc. and
Yakov
Kogan, dated as of January 23, 2006*
|
|
|
10.19
|
|
Amendment
to Restricted Stock Agreement between Cleveland BioLabs, Inc. and
Andrei
Gudkov, dated as of January 23, 2006*
|
|
|
10.20
|
|
Amendment
to Common Stockholders Agreement by and among Cleveland BioLabs,
Inc. and
the parties thereto, dated as of January 26, 2006*
|
|
|
10.21
|
|
Form
of Amendment to Series A Rights Agreement by and among Cleveland
BioLabs,
Inc. and the parties thereto, dated as of February 17,
2006*
|
|
|
10.22
|
|
Cleveland
BioLabs, Inc. 2006 Equity Incentive Plan***
|
|
|
10.23
|
|
Process
Development and Manufacturing Agreement between Cleveland BioLabs,
Inc.
and SynCo Bio Partners B.V., effective as of August 31,
2006****
|
|
|
10.24
|
|
Sponsored
Research Agreement between Cleveland BioLabs, Inc. and Roswell
Park Cancer
Institute Corporation, effective as of January 12,
2007*****
|
|
|
10.25
|
|
Securities
Purchase Agreement, dated March 16, 2007******
|
|
|
|
10.26
|
|
Registration
Rights Agreement, dated March 16, 2007******
|
|
|
|
10.27
|
|
Voting
Agreement, dated March 16, 2007******
|
|
|
|
10.28
|
|
Consulting
Agreement between Cleveland BioLabs, Inc. and Basic Investors, Inc.,
dated
as of October 10, 2006, as amended April 9, 2007 |
|
|
|
16.1
|
|
Letter
on change in certifying accountant*
|
|
|
23.1
|
|
Consent
of Meaden & Moore, Ltd.
|
|
|
23.2
|
|
Consent
of Katten Muchin Rosenman LLP (included in Exhibit 5.1)Æ
|
24.1
|
|
Power
of Attorney (previously filed)
|
*
|
Incorporated
by reference to Amendment No. 1 to Registration Statement
on Form SB-2 as
filed on April 25, 2006 (File No. 333-131918).
|
|
|
**
|
Incorporated
by reference to Amendment No. 2 to Registration Statement
on Form SB-2 as
filed on May 31, 2006 (File No. 333-131918).
|
|
|
***
|
Incorporated
by reference to Amendment No. 3 to Registration Statement
on Form SB-2 as
filed on July 10, 2006 (File No. 333-131918).
|
|
|
****
|
Incorporated
by reference to Form 8-K as filed on October 25, 2006.
|
|
|
*****
|
Incorporated
by reference to Form 8-K as filed on January 12, 2007.
|
|
|
******
|
Incorporated
by reference to Form 8-K as filed on March 19, 2007.
|
|
|
Æ |
To
be filed by
amendment. |