SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Form
10-QSB
(Mark
one)
x
|
Quarterly
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
|
For
the Quarterly Period Ended September 30, 2007
or
¨
|
Transition
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
1934
|
For
the transition period from
to
.
Commission
File Number 001-12465
CLEVELAND
BIOLABS, INC.
(Exact
name of small business issuer as specified in its
charter)
|
|
|
DELAWARE
|
|
20-0077155
|
(State
or other jurisdiction of incorporation or
organization)
|
|
(I.R.S.
Employer Identification
No.)
|
73
High Street
BUFFALO,
NEW YORK 14203
(Address
of principal executive offices and zip code)
(716) 849-6810
(Issuer's
telephone number)
Check
whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements
for the past 90 days.
YES x NO ¨
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
YES ¨ NO
x
As
of September 30, 2007 there were 12,182,748 shares of registrant's common stock,
$0.005 par value
Transitional
Small Business Disclosure Format (Check One): YES ¨ NO
x
CLEVELAND
BIOLABS INC
10-QSB
11/14/2007
TABLE
OF CONTENTS
|
|
|
|
PAGE
|
PART
I - FINANCIAL INFORMATION
|
|
|
|
|
|
|
|
ITEM
1:
|
Financial
Statements
|
|
|
|
|
|
|
|
|
Balance
Sheets as of September 30, 2007 and December 31, 2006
|
|
3-4
|
|
|
|
|
|
|
Statements
of Operations For Three and Nine Months Ended September 30, 2007
and
2006
|
|
5
|
|
|
|
|
|
|
Statement
of Stockholders' Equity January 1, 2006 to December 31, 2006 and
to
September
30, 2007
|
|
6
|
|
|
|
|
|
|
Statements
of Cash Flows For Nine Months Ended September 30, 2007 and 2006 |
|
9
|
|
|
|
|
|
|
Notes
to Financial Statements
|
|
10
|
|
|
|
|
|
ITEM
2:
|
Management's
Discussion and Analysis of Financial Condition and Results of
Operations
|
|
20
|
|
|
|
|
|
ITEM
3:
|
Controls
and Procedures
|
|
33
|
|
|
|
|
|
PART
II - OTHER INFORMATION
|
|
|
|
|
|
|
|
ITEM
1:
|
Legal
Proceedings
|
|
34
|
|
|
|
|
|
ITEM
2:
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
|
34
|
|
|
|
|
|
ITEM
3:
|
Defaults
Upon Senior Securities
|
|
34
|
|
|
|
|
|
ITEM
4:
|
Submission
of Matters to a Vote of Securities Holders
|
|
34
|
|
|
|
|
|
ITEM
5:
|
Other
Information
|
|
34
|
|
|
|
|
|
ITEM
6:
|
Exhibits
|
|
34
|
|
|
|
|
|
Signatures
|
|
|
35
|
In
this
report, “Cleveland BioLabs,” “CBLI,” “we,” “us” and “our” refer to Cleveland
BioLabs, Inc. “common stock” refers to Cleveland BioLabs, Inc.’s common stock,
par value $0.005 per share.
CLEVELAND
BIOLABS, INC.
|
|
|
|
|
|
|
|
BALANCE
SHEETS
|
|
|
|
|
|
|
|
September
30, 2007 (unaudited) and December 31, 2006
|
|
|
|
|
|
|
|
|
|
September
30
|
|
December
31
|
|
|
|
2007
|
|
2006
|
|
ASSETS
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
CURRENT
ASSETS
|
|
|
|
|
|
Cash
and equivalents
|
|
$
|
20,278,556
|
|
$
|
3,061,993
|
|
Short-term
investments
|
|
|
1,003,869
|
|
|
1,995,836
|
|
Accounts
receivable:
|
|
|
|
|
|
|
|
Trade
|
|
|
644,539
|
|
|
159,750
|
|
Interest
|
|
|
44,179
|
|
|
42,479
|
|
Notes
receivable - Orbit Brands
|
|
|
-
|
|
|
50,171
|
|
Prepaid
expenses
|
|
|
266,769
|
|
|
434,675
|
|
Total
current assets
|
|
|
22,237,912
|
|
|
5,744,904
|
|
|
|
|
|
|
|
|
|
EQUIPMENT
|
|
|
|
|
|
|
|
Computer
equipment
|
|
|
250,527
|
|
|
132,572
|
|
Lab
equipment
|
|
|
886,731
|
|
|
347,944
|
|
Furniture
|
|
|
91,885
|
|
|
65,087
|
|
|
|
|
1,229,143
|
|
|
545,603
|
|
Less
accumulated depreciation
|
|
|
252,990
|
|
|
142,011
|
|
Construction
in progress
|
|
|
147,889
|
|
|
-
|
|
|
|
|
1,124,042
|
|
|
403,592
|
|
|
|
|
|
|
|
|
|
OTHER
ASSETS
|
|
|
|
|
|
|
|
Intellectual
property
|
|
|
406,395
|
|
|
252,978
|
|
Deposits
|
|
|
27,447
|
|
|
15,055
|
|
|
|
|
433,842
|
|
|
268,033
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$
|
23,795,796
|
|
$
|
6,416,529
|
|
CLEVELAND
BIOLABS, INC.
|
|
|
|
|
|
|
|
BALANCE
SHEETS
|
|
|
|
|
|
|
|
September
30, 2007 (unaudited) and December 31, 2006
|
|
|
|
|
|
|
|
|
|
September
30
|
|
December
31
|
|
|
|
2007
|
|
2006
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
Accounts
payable
|
|
$
|
965,369
|
|
$
|
644,806
|
|
Deferred
revenue
|
|
|
1,846,763
|
|
|
-
|
|
Accrued
expenses
|
|
|
397,991
|
|
|
128,569
|
|
Total
current liabilities
|
|
|
3,210,123
|
|
|
773,375
|
|
|
|
|
|
|
|
|
|
LONG-TERM
LIABILITIES
|
|
|
|
|
|
|
|
Milestone
payable (long-term)
|
|
|
-
|
|
|
50,000
|
|
Total
long-term liabilities
|
|
|
-
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS'
EQUITY
|
|
|
|
|
|
|
|
Series
B convertible preferred stock, $.005 par value
|
|
|
|
|
|
|
|
Authorized
- 10,000,000 shares at September 30, 2007
|
|
|
|
|
|
|
|
and
December 31, 2006
|
|
|
|
|
|
|
|
Issued
and outstanding 4,579,010 and 0
|
|
|
|
|
|
|
|
shares
at September 30, 2007 and December 31, 2006, respectively
|
|
|
22,895
|
|
|
-
|
|
Additional
paid-in capital
|
|
|
28,845,232
|
|
|
-
|
|
Common
stock, $.005 par value
|
|
|
|
|
|
|
|
Authorized
- 40,000,000 shares at September 30, 2007
|
|
|
|
|
|
|
|
and
December 31, 2006
|
|
|
|
|
|
|
|
Issued
and outstanding 12,182,748 and 11,826,389
|
|
|
|
|
|
|
|
shares
at September 30, 2007 and December 31, 2006, respectively
|
|
|
60,914
|
|
|
59,132
|
|
Additional
paid-in capital
|
|
|
22,949,868
|
|
|
18,314,097
|
|
Accumulated
other comprehensive income (loss)
|
|
|
-
|
|
|
(4,165
|
)
|
Accumulated
deficit
|
|
|
(31,293,236
|
)
|
|
(12,775,910
|
)
|
Total
stockholders' equity
|
|
|
20,585,673
|
|
|
5,593,154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
$
|
23,795,796
|
|
$
|
6,416,529
|
|
CLEVELAND
BIOLABS, INC.
|
|
|
|
|
|
|
|
|
|
|
|
STATEMENT
OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months and Nine Months Ending September 30, 2007 and 2006
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended
|
|
Nine
Months Ended
|
|
|
|
September
30
|
|
September
30
|
|
September
30
|
|
September
30
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
|
|
(unaudited)
|
|
(unaudited)
|
|
(unaudited)
|
|
(unaudited)
|
|
REVENUES
|
|
|
|
|
|
|
|
|
|
Grant
|
|
$
|
540,544
|
|
$
|
263,368
|
|
$
|
1,327,996
|
|
$
|
1,271,787
|
|
Service
|
|
|
120,000
|
|
|
60,000
|
|
|
290,000
|
|
|
205,000
|
|
|
|
|
660,544
|
|
|
323,368
|
|
|
1,617,996
|
|
|
1,476,787
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
4,105,480
|
|
|
1,281,055
|
|
|
11,663,054
|
|
|
4,341,535
|
|
Selling,
general and administrative
|
|
|
1,442,669
|
|
|
708,776
|
|
|
6,968,565
|
|
|
1,367,457
|
|
Total
operating expenses
|
|
|
5,548,149
|
|
|
1,989,831
|
|
|
18,631,619
|
|
|
5,708,992
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS
FROM OPERATIONS
|
|
|
(4,887,605
|
)
|
|
(1,666,463
|
)
|
|
(17,013,623
|
)
|
|
(4,232,205
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
305,568
|
|
|
81,189
|
|
|
761,648
|
|
|
125,719
|
|
Sublease
revenue
|
|
|
1,771
|
|
|
-
|
|
|
1,771
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
EXPENSE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
-
|
|
|
2,257
|
|
|
1,087
|
|
|
11,198
|
|
Corporate
relocation
|
|
|
901,964
|
|
|
|
|
|
1,152,643
|
|
|
|
|
Loss
on investment
|
|
|
305,479
|
|
|
-
|
|
|
305,479
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS
|
|
|
(5,787,709
|
)
|
|
(1,587,531
|
)
|
|
(17,709,413
|
)
|
|
(4,117,684
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DIVIDENDS
ON CONVERTIBLE PREFERRED STOCK
|
|
|
(807,913
|
)
|
|
(22,035
|
)
|
|
(807,913
|
)
|
|
(215,933
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS AVAILABLE TO COMMON STOCKHOLDERS
|
|
$
|
(6,595,622
|
)
|
$
|
(1,609,566
|
)
|
$
|
(18,517,326
|
)
|
$
|
(4,333,617
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS AVAILABLE TO COMMON STOCKHOLDERS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PER
SHARE OF COMMON STOCK - BASIC AND
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DILUTED
|
|
$
|
(0.54
|
)
|
$
|
(0.15
|
)
|
$
|
(1.54
|
)
|
$
|
(0.55
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED
AVERAGE NUMBER OF SHARES USED
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IN
CALCULATING NET LOSS PER SHARE,
BASIC
AND DILUTED
|
|
|
12,148,718
|
|
|
10,681,032
|
|
|
12,010,177
|
|
|
7,922,195
|
|
CLEVELAND
BIOLABS, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STATEMENTS
OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE LOSS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period
From January 1, 2006 to December 31, 2006 and to
|
|
|
|
|
|
|
|
|
|
September
30, 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
|
|
|
-
|
|
|
-
|
|
|
2,745,287
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of Series B Preferred Shares
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees
associated with Series B Preferred offering
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of restricted shares
|
|
|
190,000
|
|
|
950
|
|
|
1,699,500
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of options
|
|
|
118,296
|
|
|
591
|
|
|
100,709
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of warrants
|
|
|
48,063
|
|
|
240
|
|
|
90,275
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
on Series B Preferred Shares
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 September 30, 2007
|
|
|
12,182,748
|
|
$
|
60,914
|
|
$
|
22,949,868
|
|
$
|
-
|
|
CLEVELAND
BIOLABS, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STATEMENTS
OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE LOSS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period
From January 1, 2006 to December 31, 2006 and to
|
|
|
|
|
|
|
|
|
|
September
30, 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
|
|
|
(1,154,308
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of restricted shares
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of options
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of warrants
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
on Series B Preferred Shares
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 September 30, 2007
|
|
|
4,579,010
|
|
$
|
22,895
|
|
$
|
28,845,232
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STATEMENTS
OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE LOSS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period
From January 1, 2006 to December 31, 2006 and to
|
|
|
|
|
|
|
|
|
|
September
30, 2007 (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
Comprehensive
|
|
|
|
Comprehensive
|
|
Accumulated
|
|
|
|
Income
|
|
|
|
Income/(Loss)
|
|
Deficit
|
|
Total
|
|
(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
|
|
|
-
|
|
|
-
|
|
|
2,745,287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of Series B Preferred Shares
|
|
|
-
|
|
|
-
|
|
|
30,020,984
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees
associated with Series B Preferred offering
|
|
|
-
|
|
|
-
|
|
|
(1,152,857
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of restricted shares
|
|
|
-
|
|
|
-
|
|
|
1,700,450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of options
|
|
|
-
|
|
|
-
|
|
|
101,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of warrants
|
|
|
-
|
|
|
-
|
|
|
90,515
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
on Series B Preferred Shares
|
|
|
-
|
|
|
(807,913
|
)
|
|
(807,913
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
|
-
|
|
|
(17,709,413
|
)
|
|
(17,709,413
|
)
|
|
(17,709,413
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
$
|
(17,705,248
|
)
|
Balance
at September 30, 2007
|
|
$
|
-
|
|
$
|
(31,293,236
|
)
|
$
|
20,585,673
|
|
|
|
|
|
|
|
|
|
|
|
|
STATEMENTS
OF CASH FLOWS
|
|
|
|
|
|
|
|
For
the Nine Months Ended September 30, 2007 and 2006
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September
30
|
|
September
30
|
|
|
|
2007
|
|
2006
|
|
|
|
(unaudited)
|
|
(unaudited)
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
Net
loss
|
|
$
|
(17,709,413
|
)
|
$
|
(4,117,684
|
)
|
Adjustments
to reconcile net loss to net cash
|
|
|
|
|
|
|
|
used
by operating activities:
|
|
|
|
|
|
|
|
Depreciation
|
|
|
110,979
|
|
|
68,204
|
|
Noncash
interest expense
|
|
|
-
|
|
|
9,929
|
|
Noncash
salaries and consulting expense
|
|
|
4,445,737
|
|
|
439,684
|
|
Deferred
compensation
|
|
|
-
|
|
|
4,852
|
|
Loss
on investments
|
|
|
305,479
|
|
|
-
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
Accounts
receivable - trade
|
|
|
(484,789
|
)
|
|
(76,644
|
)
|
Accounts
receivable - interest
|
|
|
(7,008
|
)
|
|
(5,170
|
)
|
Prepaid
expenses
|
|
|
167,907
|
|
|
(132,729
|
)
|
Deposits
|
|
|
(12,392
|
)
|
|
(3,055
|
)
|
Accounts
payable
|
|
|
320,563
|
|
|
308,797
|
|
Deferred
revenue
|
|
|
1,846,763
|
|
|
(100,293
|
)
|
Accrued
expenses
|
|
|
269,424
|
|
|
15,596
|
|
Milestone
payments
|
|
|
(50,000
|
)
|
|
50,000
|
|
Total
adjustments
|
|
|
6,912,663
|
|
|
579,172
|
|
Net
cash (used by) provided by operating
|
|
|
|
|
|
|
|
activities
|
|
|
(10,796,750
|
)
|
|
(3,538,512
|
)
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
Sale/(purchase)
of short-term investments
|
|
|
996,131
|
|
|
(500,000
|
)
|
Issuance
of notes receivable
|
|
|
(250,000
|
)
|
|
-
|
|
Purchase
of equipment
|
|
|
(831,430
|
)
|
|
(143,693
|
)
|
Costs
of patents pending
|
|
|
(153,417
|
)
|
|
(106,059
|
)
|
Net
cash (used in) provided by investing activities
|
|
|
(238,716
|
)
|
|
(749,752
|
)
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
Issuance
of preferred stock
|
|
|
30,020,984
|
|
|
-
|
|
Financing
costs
|
|
|
(1,152,857
|
)
|
|
(1,679,456
|
)
|
Dividends
|
|
|
(807,913
|
)
|
|
(43
|
)
|
Issuance
of common stock
|
|
|
-
|
|
|
10,200,000
|
|
Exercise
of stock options
|
|
|
101,300
|
|
|
2,813
|
|
Exercise
of warrants
|
|
|
90,515
|
|
|
-
|
|
Issuance
of warrants
|
|
|
-
|
|
|
100
|
|
Net
cash (used in) provided by financing activities
|
|
|
28,252,029
|
|
|
8,523,413
|
|
|
|
|
|
|
|
|
|
INCREASE
(DECREASE) IN CASH AND EQUIVALENTS
|
|
|
17,216,563
|
|
|
4,235,149
|
|
|
|
|
|
|
|
|
|
CASH
AND EQUIVALENTS AT BEGINNING OF
|
|
|
3,061,993
|
|
|
1,206,462
|
|
PERIOD
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
AND EQUIVALENTS AT END OF PERIOD
|
|
$
|
20,278,556
|
|
$
|
5,441,611
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures of cash flow information:
|
|
|
|
|
|
|
|
Cash
paid during the period for interest
|
|
$
|
1,087
|
|
$
|
1,269
|
|
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
|
|
$
|
2,745,287
|
|
$
|
439,684
|
|
Issuance
of shares to consultants
|
|
$
|
1,700,450
|
|
$
|
-
|
|
Issuance
of common stock dividend to preferred shareholders
|
|
$
|
-
|
|
$
|
368,366
|
|
Conversion
of notes payable and accrued interest to common stock
|
|
$
|
-
|
|
$
|
313,003
|
|
Conversion
of preferred stock to common stock
|
|
$
|
-
|
|
$
|
5,308,142
|
|
CLEVELAND
BIOLABS, INC.
NOTES
TO FINANCIAL STATEMENTS
Note
1. Organization
Cleveland
BioLabs, Inc. (“CBLI” 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 Buffalo, New
York. 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 September 30, 2007 and September
30,
2006, and for the quarter and nine-month periods ended September
30, 2007
and September 30, 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 CBLI’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 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 September 30, 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 were to 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 were convertible into common stock of the Borrower
and
its subsidiaries. At September 30, 2007, the Company wrote off the
balance
outstanding of $300,000 plus accrued interest of $5,479 due to the
fact
that the Securities and Exchange Commission has initiated proceedings
to
permanently suspend trading in the shares of Borrower and to revoke
its
registration under the Securities Exchange Act of 1934. In addition,
Borrower does not appear to have sufficient funds to emerge from
its
bankruptcy proceedings.
|
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 $49,298, and $24,514 for
the
quarters ended September 30, 2007 and 2006, respectively. Depreciation
expense was $110,979 and $68,206 for the nine months ended September
30,
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, CBLI 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, filing and maintenance 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 were $366,918 and $222,789 on behalf of CCF for 12
patent
applications as of September 30, 2007 and December 31, 2006, respectively.
All of the 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, filing and
maintenance of the patent application will be expensed as part of
selling,
general and administrative expenses at that time. Gross capitalized
patents pending costs were $39,478 and $30,189 on behalf of the Company
for three patent applications as of September 30, 2007 and December
31,
2006, respectively. The patent applications are still pending
approval.
|
|
|
I.
|
Line
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 $1,000,000, and expires on
September 25, 2008.
At September 30, 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 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). The Company has also begun recognizing revenue
from a
sponsored research agreement with Roswell Park Cancer Institute.
This
agreement was funded by the State of New York as part of the incentive
for
the Company to relocate its corporate headquarters and research
facilities
to Buffalo, New York. 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.
The
Company received $2,000,000 in funds from the Roswell Park Cancer
Institute during the second quarter of 2007 and is recognizing
this
revenue over the terms and conditions of the sponsored research
agreement.
For the quarter ended September 30, 2007, the Company recognized
$153,238
of this revenue resulting in a balance of deferred revenue of $1,846,763
at September 30, 2007. At September 30, 2006, the Company had no
deferred
revenue.
|
N.
|
Research
and Development - Research and development expenses consist primarily
of
costs associated with salaries
and related expenses for personnel, costs of materials used in
R&D,
costs of facilities and costs incurred in connection with third-party
collaboration efforts.
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 the
aggregate number of shares of stock which may be delivered under
the Plan
shall not exceed 2,000,000 shares.
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
September
30, 2007, there were 18,000 options and 15,000 shares granted under
the
Plan, and as of September 30, 2007 there were 588,000 stock options
and
190,000 shares granted under the Plan totaling 778,000 equity instruments
awarded under the Plan.
|
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.
The Black Scholes model is used for standard stock options, but if
market
conditions are present within the stock options, the Company utilizes
Monte Carlo simulation to value the stock options. 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 published by 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 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. The Company recognizes the fair value
of
share-based compensation in net income on a straight-line basis over
the
requisite service period.
|
|
|
|
During
the quarter ended September 30, 2007, the Company granted 18,000
additional stock options pursuant to a stock award agreement. The
Company
recognized a total of $395,129 in expense related to options for
the three
months ended September 30, 2007, and $2,745,287 for the nine months
ended
September 30, 2007.
The
weighted average, estimated grant date fair values of stock options
granted during the quarter ended September 30, 2007 was $4.95. The
weighted average, estimated grant date fair values of stock options
granted during the nine months ended September 30, 2007 was
$5.90.
The
following tables summarize the stock option activity for the nine
months
ended September 30, 2007 and September 30, 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
|
|
|
543,000
|
|
$
|
9.82
|
|
|
|
|
Exercised
|
|
|
124,000
|
|
$
|
1.35
|
|
|
|
|
Forfeited,
Canceled
|
|
|
0
|
|
|
n/a
|
|
|
|
|
Outstanding,
September 30, 2007
|
|
|
902,490
|
|
$
|
6.89
|
|
|
8.77
|
|
Exercisable,
September 30, 2007
|
|
|
599,930
|
|
$
|
6.58
|
|
|
8.78
|
|
|
|
Shares
|
|
Weighted
Average
Exercise
Price
per
Share
|
|
Weighted
Average
Remaining
Contractual
Term
(in
Years)
|
|
Outstanding,
December 31, 2005
|
|
|
324,240
|
|
$
|
.82
|
|
|
|
|
Granted
|
|
|
161,750
|
|
$
|
4.92
|
|
|
|
|
Exercised
|
|
|
625
|
|
$
|
4.50
|
|
|
|
|
Forfeited,
Canceled
|
|
|
1,875
|
|
$
|
4.50
|
|
|
|
|
Outstanding,
September 30, 2006
|
|
|
483,490
|
|
$
|
2.17
|
|
|
9.02
|
|
Exercisable,
September 30, 2006
|
|
|
239,433
|
|
$
|
2.27
|
|
|
9.03
|
|
|
In
addition, the Company recognized $1,700,450 in expense for shares
issued
under the Plan to various consultants during the nine months ended
September 30, 2007. During the quarter ended September 30, 2007 the
Company recognized $159,150 in compensation expense for shares issued
to a
key consultant under the Plan. For the quarter and nine months ended
September 30, 2006 there was no compensation expense recognized for
share
issuance.
|
Q.
|
Other
Expense - The Company recognizes those expenses that cannot be traced
directly to operations as Other Expense in accordance with FASB
guidelines. The Company recognized Other Expense for the following
items:
For
the quarter ended September 30, 2007, the Company recognized $901,964
in
Other Expense due to the relocation of the corporate headquarters
and
research facilities to Buffalo, New York. For the nine months ended
September 30, 2007 the Company recognized $1,152,643 in Other Expense
due
to this relocation.
The
Company recognized $305,479 in Other Expense for the quarter and
nine
months ended September 30, 2007 for the loss on the investment in
Notes
Receivable from the Orbit Brands Corporation as described in Note
E above.
For
the quarters ended September 30, 2007 and 2006, the Company recognized
$0
and $2,257 in Other Expense due to interest charges, respectively.
For the
nine months ended September 30, 2007 and 2006, the Company recognized
$1,087 and $11,198 in Other Expense due to interest charges, respectively.
|
R.
|
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 and nine months ended September 30, 2007 and
2006:
|
|
|
Quarter
Ended
|
|
Quarter
Ended
|
|
Nine-Months
Ended
|
|
Nine-Months
Ended
|
|
|
|
Sept.
30, 2007
|
|
Sept.
30, 2006
|
|
Sept.
30, 2007
|
|
Sept.
30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss available to common shareholders
|
|
$
|
(6,595,622
|
)
|
$
|
(1,609,565
|
)
|
$
|
(18,517,326
|
)
|
$
|
(4,333,617
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per share, basic and diluted
|
|
$
|
(.54
|
)
|
$
|
(.15
|
)
|
$
|
(1.54
|
)
|
$
|
(.55
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
shares used in computing
|
|
|
12,148,718
|
|
|
10,681,032
|
|
|
12,010,177
|
|
|
7,922,195
|
|
|
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 3,453,268 and 764,424 for the quarters and nine months ended
September
30, 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 902,490 and 483,490 for the quarters and nine months ended September
30, 2007 and 2006, respectively. Such securities, had they been dilutive,
would have been included in the computation of diluted earnings per
share.
|
|
|
S.
|
Concentrations
of Risk - Grant revenue was comprised wholly from grants and contracts
issued by the federal government and accounted for 81.8% and 81.4%
of
total revenue for the quarter ended September 30, 2007 and 2006,
respectively. Grant revenue accounted for 82.1% and 86.1% for the
nine
months ended September 30, 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.
|
T.
|
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. As of September 30, 2007, the Company is obligated
to make payments under the agreement of 537,017 Euros. The Company
has
established means to purchase forward contracts to hedge against
this
risk. As of September 30, 2007, the Company has commitments for 197,847
Euros of hedging transactions.
|
U.
|
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 4 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. On
August
28, 2007, trading of the Company’s common stock moved from the Nasdaq Capital
Market to the Nasdaq Global Market. In September 2007, the Company ceased its
listing on the Boston Stock Exchange. 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
February 26, 2007, the Company issued 55,000 warrants at an exercise price
of
$9.19 per share, to a placement agent as incentive for work on the upcoming
private placement offering.
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 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 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 into an aggregate of 290,298 shares of common
stock, Series B Warrants that are exercisable for an aggregate of 221,172
shares
of the Company’s common stock, and Series C Warrants that are exercisable 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,
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
September 13, 2007, the Company paid $807,913 to the Series B Preferred
stockholders for the semiannual dividend.
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.
On
April 6, 2007, the Company issued 152,500 stock options to officers and
consultants under non-qualified stock option agreements. These options are
immediately exercisable and allow for the purchase of 152,500 shares of common
stock at a price of $8.36. These options expire on April 6, 2017.
On
April 9, 2007, the Company issued 145,000 shares of common stock to various
outside consultants under the Plan.
On
June
12, 2007, the Company issued a total of 140,000 stock options to four
independent members of the Board of Directors of the Company under non-qualified
stock option agreements. These options are immediately exercisable and allow
for
the purchase of 140,000 shares of common stock at a price of $9.40. These
options expire on June 12, 2017.
On
June
15, 2007, the Company issued 110,000 stock options to various key employees
and
consultants under non-qualified stock option agreements. These options have
various vesting schedules including immediate vesting, up to three year vesting,
and vesting upon the Company stock price matching or exceeding certain levels.
These options allow for the purchase of 110,000 shares of common stock at
a
price ranging from $9.93 to $17.00. These options expire on June 15, 2017.
On
June
21, 2007, the Company issued 3,000 stock options to a consultant under a
non-qualified stock option agreement. These options vest over a six month
period
and allow for the purchase of 3,000 shares of common stock at a price of
$10.84.
These options expire on June 21, 2017.
On
June
27, 2007, the Company issued 30,000 shares of common stock to various outside
consultants under the Plan.
On
July
18, 2007, the Company issued 15,000 shares of common stock to an outside
consultant under the Plan. On that date, the Company also issued 18,000 stock
options to another consultant under a non-qualified stock option agreement.
These options are immediately exercisable and allow for the purchase of 18,000
shares of common stock at a price of $10.61. These options expire on December
31, 2012.
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 September 30, 2007, $300,000
in
milestone payments have been made 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
Buffalo, New York 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 $79,054, and
$42,715 for the quarters ended September 30, 2007 and 2006, respectively, and
the operating lease expenses recognized were $166,986 and $117,824 for the
nine
months ended September 30, 2007 and 2006, respectively.
Annual
future minimum lease payments under present lease commitments are as follows.
|
|
Operating
Leases
|
|
2007
(from October 1, 2007 through December 31, 2007)
|
|
$
|
83,120
|
|
2008
|
|
|
332,995
|
|
2009
|
|
|
347,214
|
|
2010
|
|
|
339,155
|
|
2011
|
|
|
307,300
|
|
2012
|
|
|
144,000
|
|
Total
|
|
$
|
1,636,904
|
|
The
Company has entered into stock option agreements with key employees, board
members and consultants with exercise prices ranging from $0.00 to $17.00.
These
awards were approved by the Company’s Board of Directors. 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 nine months ended
September 30, 2007 and 2006:
|
|
Number of
Options
|
|
Weighted Average
Exercise
Price
|
|
Outstanding
at December 31, 2006
|
|
|
483,490
|
|
$
|
2.17
|
|
Granted
|
|
|
543,000
|
|
$
|
9.82
|
|
Exercised
|
|
|
124,000
|
|
$
|
1.35
|
|
Forfeited
|
|
|
0
|
|
|
n/a
|
|
Outstanding
at September 30, 2007
|
|
|
902,490
|
|
$
|
6.89
|
|
|
|
Number of
Options
|
|
Weighted Average
Exercise
Price
|
|
Outstanding
at December 31, 2005
|
|
|
324,240
|
|
$
|
.82
|
|
Granted
|
|
|
161,750
|
|
$
|
4.92
|
|
Exercised
|
|
|
625
|
|
$
|
4.50
|
|
Forfeited
|
|
|
1,875
|
|
$
|
4.50
|
|
Outstanding
at September 31, 2006
|
|
|
483,490
|
|
$
|
2.17
|
|
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 Company’s 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
|
|
|
2,687,602
|
|
$
|
10.40
|
|
Exercised
|
|
|
48,758
|
|
$
|
2.00
|
|
Forfeited
|
|
|
--
|
|
|
N/A
|
|
Outstanding
at September 30, 2007
|
|
|
3,453,268
|
|
$
|
8.86
|
|
|
|
Number of
Warrants
|
|
Weighted Average
Exercise
Price
|
|
Outstanding
at December 31, 2005
|
|
|
594,424
|
|
$
|
1.61
|
|
Granted
|
|
|
170,000
|
|
$
|
8.70
|
|
Exercised
|
|
|
--
|
|
|
N/A
|
|
Forfeited
|
|
|
--
|
|
|
N/A
|
|
Outstanding
at September 30, 2006
|
|
|
764,424
|
|
$
|
3.19
|
|
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.
The
Company is not currently a party to any pending legal actions. From time
to time
in the ordinary course of business, the Company may be subject to claims
brought
against it. It is not possible to state the ultimate liability, if any, in
these
matters.
Note
5. Subsequent Events
No
material subsequent events have occurred since the balance sheet date of
September 30, 2007.
Item
2: Management's Discussion and Analysis of Financial 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 factors 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.
Biodefense
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
other radioprotectant known to us, is the ability to effectively protect not
only the hematopoietic system, but also the gastrointestinal, or GI, 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 GI tract may make Protectan
CBLB502 uniquely useful as a radioprotective antidote. Protectan CBLB502 was
shown to be safe at its therapeutic doses in rodents and non-human primates.
In
addition, Protectan CBLB502 has proved to be a stable compound for storage
purposes. It can be stored at temperatures close to freezing, room temperature
or extreme heat. 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.
As
in the
protection regimen, a single-dose injection of Protectan CBLB502 given one
hour
after exposure (the mitigation regimen) to a lethal whole-body gamma irradiation
increased the survival of rhesus monkeys from 20% in the control group to 70%
in
the treated group. Radiomitigation by Protectan CBLB502 was accompanied with
less severe thrombocytopenia and neutropenia as well as reduced GI damage.
We
have
responded to the Request for Proposal (RFP) issued in March 2007, by The
Department of Defense (DoD) for the Advanced Development of Medical Radiation
Countermeasures (MRC) to treat gastrointestinal effects of acute radiation
syndrome (ARS) using CBLB502. The
objective of the RFP is to develop a post-exposure Medical Radiation
Countermeasure through approval/licensure with the U.S. Food and Drug
Administration (FDA) and procure quantities sufficient to achieve Initial
Operational Capability (IOC). A range of 50,000 to 500,000 doses was specified.
The RFP award would provide funding for development of the countermeasure
through FDA approval, leading to purchase. We
are
anticipating the contract decision from the Department of Defense this
year.
Also
in
March 2007, we received a $1.3 million contract from the Defense Threat
Reduction Agency (DTRA) of the Department of Defense (DoD) to fund "development
leading to the acquisition" of Protectan CBLB502, in collaboration with the
Armed Forces Radiobiology Research Institute (AFRRI), which has also received
significant independent funding for work on Protectan CBLB502.
We
have
submitted responses to two Requests for Information (RFI) from the Department
of
Health and Human Services (HHS) and National Institute of Allergy and Infectious
Diseases (NIAID) addressing medical countermeasures for neutropenia (low levels
of neutrophils, a type of white blood cell) and thrombocytopenia (low platelet
count) arising from Acute Radiation Syndrome (ARS).
The
RFI
from HHS noted the agency's intention to pursue initial acquisition of 100,000
treatment courses of a medical countermeasure for neutropenia arising as a
consequence of ARS. The RFI further stated that there would be options for
up to
an additional 100,000 treatment courses to meet the HHS requirement of at least
200,000 treatment courses. We expect the RFP to be issued by HHS in the fourth
quarter of 2007 with proposals due 60-90 days after the RFP is
issued.
The
RFI
from NIAID requested the identification of therapeutics likely to be effective
in preventing or reducing the development of thrombocytopenia, when administered
after acute exposure to radiation. The NIAID RFI was distributed on behalf
of
the National Institutes of Health (NIH) and indicated that data obtained from
this RFI would be used by the NIH in making recommendations and decisions
regarding research and development of radiation countermeasures to meet the
nation's biodefense needs. On September 27, 2007, NIAID announced a new grant
initiative focused on the development of medical countermeasures to enhance
platelet regeneration and thereby, increase survival after radiation exposure.
The Company plans to submit the proposal in response to this solicitation by
January 9, 2008.
Anticancer
Applications
In
addition to its 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 the 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 a placebo drug. While
protecting mice from lethal irradiation, Protectan CBLB502 had no effect on
the
radiosensitivity of tumor cells.
The
use of Protectan CBLB502 to ameliorate the side effects of radiation treatment
and anticancer drugs will be subject to the full FDA approval
process.
Manufacturing
Together
with our manufacturing partner, SynCo Bio Partners, we have completed the
technology transfer and the production of the first cGMP batch of Protectan
CBLB502 on schedule. The yields from the process and the purity of the final
product exceeded our expectations. We currently have drug substance
corresponding to over 100,000 projected human doses, or potentially many
more,
depending on the final therapeutic dose to be used, which will be determined
in
the coming months through our Phase I safety trial. The process we developed
gives us the ability to manufacture up to five million estimated doses within
a
year without any additional scale-up; and, if necessary, scale-up could be
implemented relatively easily.
Protectan
CBLB612
Our
Protectans 600 series are modified factors of Mycoplasmas. Much of our initial
research in this area has been focused on 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 potential
breakthrough in the rapidly emerging arena of stem cell
research.
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.
We also found that the number of these stem cells in peripheral blood was
increased ten-fold within four days of administration. A study of the effects
of
Protectan CBLB612 on nonhuman primates regarding the proliferation and
mobilization to peripheral blood of pluripotent hematopoietic stem cells in
a
primate model (Rhesus macaques) was recently completed. CBLB612 was found to
be
highly efficacious in stimulating proliferation and mobilization of
hematopoietic stem cells into peripheral blood in these primates. A single
injection of CBLB612 in Rhesus macaques resulted in a 20- fold increase of
hematopoietic progenitor cells in blood. 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 important discovery creates a new and innovative
business opportunity for us to address a broad spectrum of human diseases,
some
of which currently lack effective treatment.
In
a
study of the efficacy of Protectan CBLB612, blood from healthy mice treated
by
Protectan CBLB612 was transplanted into mice that received a lethal dose
of
radiation that killed hematopoietic (bone marrow/blood production) stem cells.
A
small amount of blood from the CBLB612 treated mice successfully rescued
the
mice with radiation-induced bone marrow stem cell deficiency. 100% of the
deficient mice transplanted with blood from CBLB612 treated mice survived
past the 90 day mark, while 85% of the untreated deficient mice died within
the
first three weeks of the experiment. The 90 day mark is considered to be
the
critical point in defining the presence of long-term, adult bone marrow stem
cells, which are capable of completely restoring lost or injured bone marrow
function. The rescuing effect of the peripheral blood of the treated mice
was
equivalent to that of conventional bone marrow transplantation. This transplant
study in particular, has advanced our research into clinical applications
and
suggests multiple potential uses within the field of regenerative
medicine.
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.
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.
Our research 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. However, we have discovered new mechanisms of action for quinacrine
in the area of apoptosis. Through assay testing performed at Dr. Andrei Gudkov's
laboratories at the Cleveland Clinic beginning in 2002 and continued at our
research labs in Buffalo, NY 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.
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 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, to produce
sufficient quantities of Curaxin CBLC102 according to the process previously
used for the production of this drug when it was in common use. On May 26,
2006,
we filed our IND application with the FDA to begin clinical trials in patients
with hormone refractory 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. On June 5, 2007, we filed an amendment to
the IND
to include protocols for RCC Phase II clinical trials which are planned to
start
in November 2007.
Our
Phase
II efficacy study for Curaxin CBLC102 in advanced, hormone-refractory (androgen
independent) prostate cancer has progressed to the next phase. The Phase
II
study will involve a total of 31 patients with advanced, hormone refractory
prostate cancer. Primary endpoints for the study are reduction in PSA levels,
reduction in tumor size, and disease-free survival. The duration of the study
is
two years; however certain preliminary data may be available earlier. The
study
is being conducted at the University of Chicago, the Cleveland Clinic, the
University Hospitals of Cleveland, and the University of
Pittsburgh.
We
have
applied for a patent covering the use of Curaxin CBLC102 as an anticancer
agent
based on a newly-discovered mechanism of action.
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.
Roswell
Park Cancer Institute
In
January 2007, we entered into a strategic research partnership with Roswell
Park
Cancer Institute (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 have established a major research/clinical
facility at the RPCI campus in Buffalo, New York, which is the foundation
for
several of our advanced research and clinical trials. Dr. Andrei Gudkov,
our
Chief Scientific Officer, agreed to become Senior Vice President of Research
Programming and Development for RPCI effective May 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.
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. On August 28, 2007, trading of
our stock moved from the Nasdaq Capital Market to the Nasdaq Global Market.
In
September 2007, we ceased our listing on the Boston Stock Exchange. 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 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 is using 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. Based on the closing
price of our stock on March 16, 2007 of $10.19, the Series B Preferred sold
to
investors and issued to certain of the Agents had a market value of $46,660,112.
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 into
an
aggregate of 290,298 shares of common stock, Series B Warrants that are
exercisable for an aggregate of 221,172 shares of the Company’s common stock,
and Series C Warrants that are exercisable 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, 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 expenses
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
September 30, 2007, $50,000 has been paid for milestone payments relating to
the
filing of an IND with the FDA for Curaxin CBLC102 and $250,000 has been paid
as
a result of commencing Phase II clinical trials for Curaxin CBLC102. 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
December 31, 2006, 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 $153,417 relating to these costs incurred for the nine months ended
September 30, 2007, totaling $406,395.
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.
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 accepted
valuation techniques such as the Black Scholes Option Valuation model or Monte
Carlo Simulation depending on the terms and conditions present within the
specific option being valued. 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 September 30, 2007, the Company granted 18,000 options
pursuant to stock award agreements to a key consultant.
We
recognized a total of $395,129 and $72,489 in expense for options for the
quarter ended September 30, 2007, and 2006 respectively. The
weighted average, estimated grant date fair values of stock options granted
during the quarters ended September 30, 2007 and 2006 were $4.95 and $3.76,
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 quarter
and
nine months ended September 30, 2007 and September 30, 2006, and the year 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 and in our Annual Report on Form 10-KSB for the year ended December
31,
2006.
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Nine
Months
|
|
|
Nine
Months
|
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Year
Ended
|
|
|
Year
Ended
|
|
|
|
|
September
30,
|
|
|
September
30,
|
|
|
September
30,
|
|
|
September
30,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
|
2005
|
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
660,544
|
|
$
|
323,368
|
|
$ |
1,617,996
|
|
$ |
1,476,787
|
|
$
|
1,708,214
|
|
$
|
1,138,831
|
|
Operating
expenses
|
|
|
5,548,149
|
|
|
1,989,831
|
|
|
18,631,619
|
|
|
5,708,992
|
|
|
9,126,315
|
|
|
3,626,664
|
|
Other
expense (income)
|
|
|
1,205,672
|
|
|
-
|
|
|
1,456,351
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Net
interest expense (income)
|
|
|
(305,568
|
)
|
|
(78,933
|
)
|
|
(760,561
|
)
|
|
(114,521
|
)
|
|
(195,457
|
)
|
|
(101,378
|
)
|
Net
income (loss)
|
|
$
|
(5,787,709
|
)
|
$
|
(1,587,530
|
)
|
$
|
(17,709,413
|
)
|
$
|
(4,117,684
|
)
|
$
|
(7,222,644
|
)
|
$
|
(2,386,455
|
)
|
Nine
Months Ended September 30, 2007 Compared to Nine Months Ended September 30,
2006
Revenue
Revenue
increased from $1,476,787 for the nine months ended September 30, 2006 to
$1,617,996 for the nine months ended September 30, 2007 representing an increase
of $141,209 or 9.6% resulting primarily from an increase in revenue from various
grants including the Collaborative Research Agreement with the Roswell Park
Cancer Institute, the DTRA contract, and the NCI contract. As
the
term of the BioShield grant ended, the proceeds from the BioShield grant were
$0
for the nine months ended September 30, 2007 as compared to $1,100,293 for
the
nine months ended September 30, 2006.
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
(thru
September
30)
|
|
Revenue
2006
(thru
September
30)
|
|
Revenue
2006
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
(unaudited)
|
|
|
|
NIH
|
|
|
BioShield
program (NIAID)
|
|
$
|
1,500,000
|
|
|
07/2005-01/2007
|
|
|
|
|
$
|
1,100,293
|
|
$
|
1,100,293
|
|
NIH
|
|
|
Phase
I NIH SBIR program
|
|
$
|
100,000
|
|
|
08/2005-01/2006
|
|
|
|
|
$
|
33,334
|
|
$
|
33,334
|
|
NASA
|
|
|
Phase
I NASA STTR program
|
|
$
|
100,000
|
|
|
01/2006-01/2007
|
|
$
|
33,196
|
|
$
|
33,197
|
|
$
|
66,393
|
|
NIH
|
|
|
Phase
II NIH SBIR program
|
|
$
|
750,000
|
|
|
07/2006-06/2008
|
|
$
|
280,461
|
|
$
|
88,320
|
|
$
|
212,713
|
|
NIH
|
|
|
NCI
Contract
|
|
$
|
750,000
|
|
|
09/2006-08/2008
|
|
$
|
394,780
|
|
$
|
16,643
|
|
$
|
90,481
|
|
DoD
|
|
|
DTRA
Contract
|
|
$
|
1,300,000
|
|
|
03/2007-02/2009
|
|
$
|
466,322
|
|
|
|
|
|
|
|
NY
State
|
|
|
RPCI
Research Agreement
|
$
|
$
|
3,000,000
|
|
|
03/2007-02/2012
|
|
$
|
153,238
|
|
|
|
|
|
|
|
Totals
|
|
|
|
|
|
|
|
|
|
|
$
|
1,327,997
|
|
$
|
1271,787
|
|
$
|
1,503,214
|
|
We
anticipate our revenue over the next year to be derived mainly from government
grants and contracts. 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 may receive additional
revenue from licensing fees.
Operating
Expenses
Operating
expenses have historically consisted of costs relating to R&D and general
and administrative expenses. R&D expenses have consisted mainly of
supporting our R&D teams, process development, sponsored research at the
Roswell Park Cancer Institute and 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 anticipate 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 $5,708,992 for the nine months ended September 30,
2006
to $18,631,619 for the nine months ended September 30, 2007, an increase of
$12,922,627 or 226.4%. The Company recognized a total of $4,445,737 of noncash
compensation for stock based compensation for the nine months ended September
30, 2007 compared to $410,044 for the nine months ended September 30, 2006.
If
these noncash stock based compensation expenses were excluded, operating
expenses would have increased from $5,298,948 for the nine months ended
September 30, 2006 to $14,185,882 for the nine months ended September 30, 2007.
This represents an increase in operating expenses of $8,886,934 or 167.7%.
Research
and development costs increased from $4,341,535 for the nine months ended
September 30, 2006 to $11,663,054 for the nine months ended September 30,
2007.
This represents an increase of $7,321,519 or 168.6%. The higher research
and
development expenses were incurred as a result of increasing the number of
research and development personnel, commencing clinical trials for CBLC102
and
completing the cGMP manufacturing of CBLB502. The Company recognized a total
of
$199,609 of noncash compensation for R&D stock based compensation for the
nine months ended September 30, 2006 compared to $711,296 for the six months
ended September 30, 2007 in R&D stock based compensation. Without the
noncash stock based compensation, the R&D expenses increased from $4,141,926
for the nine months ended September 30, 2006 to $10,951,758 for the nine
months
ended September 30, 2007; an increase of $6,809,832 or 164.4%.
Selling,
general and administrative costs increased from $1,367,457 for the nine months
ended September 30, 2006 to $6,968,565 for the nine months ended September
30,
2007. This represents an increase of $5,601,108 or 409.6%. The company
recognized a total of $43,617 of noncash compensation for selling, general
and
administrative stock based compensation for the nine months ended September
30,
2006 compared to $3,754,273 for the nine months ended September 30, 2007.
Without the noncash stock based compensation, the selling, general and
administrative expenses increased from $1,323,840 for the nine months ended
September 30, 2006 to $3,214,292 for the nine months ended September 30, 2007;
an increase of $1,890,452 or 142.8%. The higher general and administrative
expenses were incurred as a result of operating as a public company 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 September
30, 2007, we had an accumulated deficit of $31,293,236. Our principal sources
of
liquidity have been cash provided by sales of our securities and government
grants, contracts and agreements. Our principal uses of cash have been R&D
and working capital. We expect our future sources of liquidity to be primarily
government grants, equity financing, 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 $10,796,750 for the nine months ended
September 30, 2007, compared to $3,538,512 used in operating activities for
the
nine months ended September 30, 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 year ended December 31, 2005. For all
periods, the increase in cash used was primarily attributable to increased
R&D activities and creating, maintaining and improving the infrastructure
necessary to support these R&D activities.
Net
cash used in investing activities was $238,716 for the nine months ended
September 30, 2007, compared to net cash used in investing activities of
$749,752 for the nine months ended September 30, 2006. The
decrease in cash used in investing activities resulted primarily from the
liquidation of short term investments of $996,131 as compared to a purchase
of a
short term investment of $500,000 that was made during the nine
months ended September 30, 2006.
This
was partially offset due to the increase in cash used for the issuance of the
Notes Receivable, and increase in cash used to purchase equipment related to
the
company relocation. Net
cash used in investing activities was $14,281 for the year ended December 31,
2006 and $2,805,113 used for the year ended December 31, 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 $28,252,029 for the nine months
ended September 30, 2007, compared to net cash provided by financing activities
of $8,523,413 for the nine months ended September 30, 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 offering.
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 year ended December 31, 2005. The increase in cash provided by financing
activities was attributed to the proceeds from the issuance of common stock
from
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 September 30, 2007, we have paid $50,000 for the milestone payment relating
to the filing of the IND application for Curaxin CBLC102 and paid $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 was paid on August
21,
2007 as per the terms of the agreement.
Our
agreement with the 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.
Although
we believe that existing cash resources will be sufficient to finance our
currently planned operations for the near-term (9-21 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 changes
in
foreign currency exchange rates. We have entered into a manufacturing agreement
with a foreign third party to produce one of our 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, our financial results could be affected by changes in foreign currency
exchange rates. Currently, our exposure primarily exists with the Euro. As
of
September 30, 2007, we are obligated to make payments under the agreement of
539,017 Euros. We have established means to purchase forward contracts to hedge
against this risk. As of September 30, 2007, hedging transactions totaling
197,847 Euros are in place
Off-Balance
Sheet Arrangements
We
have not entered into any off-balance sheet arrangements.
Item
3: Controls and Procedures
Effectiveness
of Disclosure
Our
management, with the participation of our chief executive officer and chief
financial officer, evaluated the effectiveness of our disclosure controls and
procedures as of September 30, 2007 as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended, (the “Exchange
Act”). Our management recognizes that any controls and procedures, no matter how
well designed and operated, can provide only reasonable assurance of achieving
their objectives and management necessarily applies its judgment in evaluating
the cost-benefit relationship of possible controls and procedures. Based on
the
evaluation of our disclosure controls and procedures as of September 30, 2007,
our chief executive officer and chief financial officer concluded that, as
of
such date, our disclosure controls and procedures were effective to assure
that
information required to be declared by us in reports that we file or submit
under the Exchange Act is (1) recorded, processed, summarized, and reported
within the periods specified in the SEC's rules and forms and (2) accumulated
and communicated to our management, including our chief executive officer and
chief financial officer, as appropriate, to allow timely decisions regarding
required disclosure.
Changes
in Internal Control over Financial Reporting
No
change in our internal control over financial reporting (as defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the
fiscal quarter ended September 30, 2007 that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.
PART
II Other Information
As
of September 30, 2007, we are not a party to any litigation or other legal
proceeding.
None
None
None
Item
5. Other Information
None
Item
6. Exhibits
(a)
The following exhibits are included as part of this report:
Exhibit
Number
|
|
Description
of Document
|
|
|
|
31.1
|
|
Certification
of Michael Fonstein, Chief Executive Officer, pursuant to Section
302 of
the Sarbanes Oxley Act of 2002.
|
|
|
|
31.2
|
|
Certification
of John A. Marhofer, Jr., Chief Financial Officer, pursuant to Section
302
of the Sarbanes Oxley Act of 2002.
|
|
|
|
32.1
|
|
Certification
Pursuant To 18 U.S.C. Section 1350
|
Signatures
In
accordance with the requirements of the Securities Exchange Act of 1934, the
Registrant has caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
|
|
|
|
CLEVELAND
BIOLABS, INC.
|
|
|
|
Dated:
November 14, 2007
|
By:
|
/s/ MICHAEL
FONSTEIN
|
|
Michael
Fonstein
Chief
Executive Officer
(Principal
Executive Officer)
|
|
CLEVELAND
BIOLABS, INC.
|
|
|
|
Dated:
November 14, 2007
|
By:
|
/s/ JOHN
A. MARHOFER, JR.
|
|
John
A. Marhofer, Jr.
Chief
Financial Officer
(Principal
Financial Officer)
|