Statera Biopharma, Inc. - Quarter Report: 2019 September (Form 10-Q)

cbli20190930_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2019

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

For the transition period from to

Commission file number 001-32954

CLEVELAND BIOLABS, INC.

(Exact name of registrant 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)	(Zip Code)

(716) 849-6810

(Registrant’s telephone number, including area code)

N/A

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

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

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

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
Emerging Growth Company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common stock, par value $0.005		CBLI		NASDAQ Capital Market

As of October 31, 2019, there were 11,298,239 shares outstanding of the registrant’s common stock, par value $0.005 per share.

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TABLE OF CONTENTS

		PAGE
PART I – FINANCIAL INFORMATION
ITEM 1.	Consolidated Condensed Financial Statements
	Consolidated Condensed Balance Sheets	3
	Consolidated Condensed Statements of Operations	4
	Consolidated Condensed Statements of Comprehensive Loss	5
	Consolidated Condensed Statement of Stockholders’ Equity	6
	Consolidated Condensed Statements of Cash Flows	7
	Notes to Consolidated Condensed Financial Statements	8
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	20
ITEM 4.	Controls and Procedures	20

PART II – OTHER INFORMATION
ITEM 1.	Legal Proceedings	21
ITEM 1A.	Risk Factors	21
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	21
ITEM 3.	Defaults Upon Senior Securities	21
ITEM 4.	Mine Safety Disclosures	21
ITEM 5.	Other Information	21
ITEM 6.	Exhibits	22
Signatures		23

In this Quarterly Report on Form 10-Q, unless otherwise stated or the context otherwise requires, the terms "Cleveland BioLabs," the "Company," "CBLI," "we," "us" and "our" refer to Cleveland BioLabs, Inc. and its consolidated subsidiaries, BioLab 612, LLC and Panacela Labs, Inc. Our common stock, par value $0.005 per share, is referred to as "common stock."

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CLEVELAND BIOLABS, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED BALANCE SHEETS

	September 30, 2019			December 31, 2018
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	1,487,388		$	3,617,234
Short-term investments		426,915			503,810
Accounts receivable		210,805			251,846
Other current assets		67,552			103,397
Total current assets		2,192,660			4,476,287
Equipment, net		17,445			27,747
Other long-term assets		18,667			30,373
Total assets	$	2,228,772		$	4,534,407
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	99,529		$	139,120
Accrued expenses		441,692			694,164
Accrued warrant liability		24,461			78,637
Total current liabilities		565,682			911,921
Non-current liabilities		—			8,459
Total liabilities		565,682			920,380
Stockholders’ equity:
Preferred stock, $.005 par value; 1,000,000 shares authorized as of September 30, 2019 and December 31, 2018; 0 shares issued and outstanding as of September 30, 2019 and December 31, 2018		—			—
Common stock, $.005 par value; 25,000,000 shares authorized as of September 30, 2019 and December 31, 2018; 11,298,239 shares issued and outstanding as of September 30, 2019 and December 31, 2018		56,487			56,487
Additional paid-in capital		163,161,523			163,161,523
Accumulated other comprehensive loss		(582,904	)		(611,370	)
Accumulated deficit		(165,998,275	)		(164,058,585	)
Total Cleveland BioLabs, Inc. stockholders’ deficit		(3,363,169	)		(1,451,945	)
Noncontrolling interest in stockholders’ equity		5,026,259			5,065,972
Total stockholders’ equity		1,663,090			3,614,027
Total liabilities and stockholders’ equity	$	2,228,772		$	4,534,407

See Notes to Consolidated Financial Statements

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CLEVELAND BIOLABS, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

(UNAUDITED)

	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
	2019			2018			2019			2018
Revenues:
Grants and contracts	$	269,635		$	283,307		$	744,521		$	902,474
Operating expenses:
Research and development		262,410			839,413			1,375,409			3,084,790
General and administrative		525,621			711,660			1,449,281			1,989,596
Total operating expenses		788,031			1,551,073			2,824,690			5,074,386
Loss from operations		(518,396	)		(1,267,766	)		(2,080,169	)		(4,171,912	)
Other income (expense):
Interest and other income		14,246			16,191			32,528			109,591
Foreign exchange gain (loss)		251			1,772			(808	)		2,868
Change in value of warrant liability		36,532			121,442			54,176			800,055
Total other income		51,029			139,405			85,896			912,514
Net loss		(467,367	)		(1,128,361	)		(1,994,273	)		(3,259,398	)
Net loss attributable to noncontrolling interests		17,448			23,917			54,583			79,307
Net loss attributable to Cleveland BioLabs, Inc.	$	(449,919	)	$	(1,104,444	)	$	(1,939,690	)	$	(3,180,091	)
Net loss attributable to common stockholders per share of common stock, basic and diluted	$	(0.04	)	$	(0.10	)	$	(0.17	)	$	(0.28	)
Weighted average number of shares used in calculating net loss per share, basic and diluted		11,298,239			11,298,239			11,298,239			11,292,365

See Notes to Consolidated Financial Statements

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CLEVELAND BIOLABS, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE LOSS

(UNAUDITED)

	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
	2019			2018			2019			2018
Net loss including noncontrolling interests	$	(467,367	)	$	(1,128,361	)	$	(1,994,273	)	$	(3,259,398	)
Other comprehensive loss:
Unrealized gain (loss) on short-term investments		—			(137	)		—			1,841
Foreign currency translation adjustment		(11,994	)		(34,788	)		43,336			(109,640	)
Comprehensive loss including noncontrolling interests		(479,361	)		(1,163,286	)		(1,950,937	)		(3,367,197	)
Comprehensive loss attributable to noncontrolling interests		21,281			35,039			39,713			114,664
Comprehensive loss attributable to Cleveland BioLabs, Inc.	$	(458,080	)	$	(1,128,247	)	$	(1,911,224	)	$	(3,252,533	)

See Notes to Consolidated Financial Statements

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CLEVELAND BIOLABS, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS’ EQUITY

(UNAUDITED)

									Additional
	Common Stock				Treasury Stock				Paid-In
	Shares		Amount		Shares		Amount		Capital
Balance at December 31, 2017		11,279,834	$	56,395		—	$	—	$	163,106,400
Exercise of warrants		18,405		92		—		—		55,123
Net loss		—		—		—		—		—
Unrealized loss on short-term investments		—		—		—		—		—
Foreign currency translation		—		—		—		—		—
Balance at March 31, 2018		11,298,239	$	56,487		—	$	—	$	163,161,523
Net loss		—		—		—		—		—
Unrealized loss on short-term investments		—		—		—		—		—
Foreign currency translation		—		—		—		—		—
Balance at June 30, 2018		11,298,239	$	56,487		—	$	—	$	163,161,523
Net loss		—		—		—		—		—
Unrealized loss on short-term investments		—		—		—		—		—
Foreign currency translation		—		—		—		—		—
Balance at September 30, 2018		11,298,239	$	56,487		—	$	—	$	163,161,523

Balance at December 31, 2018		11,298,239	$	56,487		—	$	—	$	163,161,523
Net loss		—		—		—		—		—
Foreign currency translation		—		—		—		—		—
Balance at March 31, 2019		11,298,239	$	56,487		—	$	—	$	163,161,523
Net loss		—		—		—		—		—
Foreign currency translation		—		—		—		—		—
Balance at June 30, 2019		11,298,239	$	56,487		—	$	—	$	163,161,523
Net loss		—		—		—		—		—
Foreign currency translation		—		—		—		—		—
Balance at September 30, 2019		11,298,239	$	56,487		—	$	—	$	163,161,523

	Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Noncontrolling Interests			Total
Balance at December 31, 2017	$	(516,457	)	$	(160,446,612	)	$	5,208,644		$	7,408,370
Exercise of warrants		—			—			—			55,215
Net loss		—			(1,224,610	)		(33,842	)		(1,258,452	)
Unrealized gain on short-term investments		1,477			—			—			1,477
Foreign currency translation		4,681			—			2,192			6,873
Balance at March 31, 2018	$	(510,299	)	$	(161,671,222	)	$	5,176,994		$	6,213,483
Net loss		—			(851,037	)		(21,548	)		(872,585	)
Unrealized gain on short-term investments		501			—			—			501
Foreign currency translation		(55,298	)		—			(26,427	)		(81,725	)
Balance at June 30, 2018	$	(565,096	)	$	(162,522,259	)	$	5,129,019		$	5,259,674
Net loss		—			(1,104,444	)		(23,917	)		(1,128,361	)
Unrealized loss on short-term investments		(137	)		—			—			(137	)
Foreign currency translation		(23,666	)		—			(11,122	)		(34,788	)
Balance at September 30, 2018	$	(588,899	)	$	(163,626,703	)	$	5,093,980		$	4,096,388

Balance at December 31, 2018	$	(611,370	)	$	(164,058,585	)	$	5,065,972		$	3,614,027
Net loss		—			(872,943	)		(20,369	)		(893,312	)
Foreign currency translation		26,759			—			13,991			40,750
Balance at March 31, 2019	$	(584,611	)	$	(164,931,528	)	$	5,059,594		$	2,761,465
Net loss		—			(616,828	)		(16,766	)		(633,594	)
Foreign currency translation		9,868			—			4,712			14,580
Balance at June 30, 2019	$	(574,743	)	$	(165,548,356	)	$	5,047,540		$	2,142,451
Net loss		—			(449,919	)		(17,448	)		(467,367	)
Foreign currency translation		(8,161	)		—			(3,833	)		(11,994	)
Balance at September 30, 2019	$	(582,904	)	$	(165,998,275	)	$	5,026,259		$	1,663,090

See Notes to Consolidated Financial Statements

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CLEVELAND BIOLABS, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	For the Nine Months Ended September 30,
	2019			2018
Cash flows from operating activities:
Net loss	$	(1,994,273	)	$	(3,259,398	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		10,303			14,084
Non-cash investment income		—			(30,312	)
Gain on equipment disposal		(43,300	)		(35,274	)
Change in value of warrant liability		(54,176	)		(800,055	)
Changes in operating assets and liabilities:
Accounts receivable and other current assets		77,152			482,860
Other long-term assets		11,858			(3,386	)
Accounts payable and accrued expenses		(306,499	)		190,405
Net cash used in operating activities		(2,298,935	)		(3,441,076	)
Cash flows from investing activities:
Purchase of short-term investments		(806,713	)		(6,795,170	)
Sale of short-term investments		921,957			10,341,526
Purchase of equipment		—			(21,376	)
Proceeds from sale of equipment		43,300			35,770
Net cash provided by investing activities		158,544			3,560,750
Cash flows from financing activities:
Exercise of warrants		—			55,215
Net cash provided by financing activities		—			55,215
Effect of exchange rate change on cash and equivalents		10,545			(26,698	)
Increase (decrease) in cash and cash equivalents		(2,129,846	)		148,191
Cash and cash equivalents at beginning of period		3,617,234			4,230,548
Cash and cash equivalents at end of period	$	1,487,388		$	4,378,739

See Notes to Consolidated Financial Statements

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CLEVELAND BIOLABS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

1. Description of Business

Cleveland BioLabs, Inc. ("CBLI" or the "Company") is an innovative biopharmaceutical company developing novel approaches to activate the immune system and address serious medical needs. Our proprietary platform of Toll-like immune receptor ("TLR") activators has applications in radiation protection and oncology. We combine our proven scientific expertise and our depth of knowledge about our products’ mechanisms of action into a passion for developing drugs to save lives. Our most advanced product candidate is entolimod, an immune-stimulatory agent, which we are developing as a medical radiation countermeasure and other indications in radiation oncology.

CBLI was incorporated in Delaware in June 2003 and is headquartered in Buffalo, New York. CBLI conducts business in the United States ("U.S.") directly and in the Russian Federation ("Russia") through two subsidiaries: one wholly-owned subsidiary, BioLab 612, LLC ("BioLab 612"), which began operations in 2012 and which the Company at a September 2019 Board meeting decided to dissolve; and Panacela Labs, Inc. ("Panacela"), which was formed by us and Joint Stock Company "RUSNANO" ("RUSNANO"), our financial partner in the venture, in 2011. Unless otherwise noted, references to the "Company," "we," "us," and "our" refer to Cleveland BioLabs, Inc. together with its subsidiaries.

In addition, the Company has an investment in Genome Protection, Inc. ("GPI") that is recorded under the equity method of accounting in the accompanying financial statements. The Company has not recorded its 50% shares of the losses of GPI through September 30, 2019 as the impact would have reduced the Company's equity method investment in GPI below zero, and there are no requirements to fund the Company's share of these losses or contribute additional capital as of the date of these statements.

2. Summary of Significant Accounting Policies

Basis of Presentation and Consolidation

The accompanying unaudited consolidated condensed financial statements include the accounts of CBLI, BioLab 612, and Panacela. All significant intercompany balances and transactions have been eliminated in consolidation.

The consolidated condensed balance sheet as of December 31, 2018, which has been derived from audited financial statements, and the unaudited interim consolidated condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP") for interim consolidated financial information and in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X of the Securities and Exchange Commission ("SEC"). Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. These consolidated condensed financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, as filed with the SEC (the "2018 Form 10-K").

In the opinion of the Company’s management, any adjustments contained in the accompanying unaudited consolidated financial statements are of a normal recurring nature, and are necessary to fairly present the financial position of the Company as of September 30, 2019, along with its results of operations for the three and nine month periods ended September 30, 2019 and 2018 and cash flows for the nine month periods ended September 30, 2019 and 2018. Interim results are not necessarily indicative of results that may be expected for any other interim period or for an entire year.

At September 30, 2019, we had cash, cash equivalents and short-term investments of $1.9 million in the aggregate. Management believes this capital will be sufficient to support operations into September 2020. To ensure continuing operations beyond that point, management is evaluating all opportunities, including seeking additional capital through debt or equity financing, the sale or license of drug candidates, the sale of certain of our tangible and/or intangible assets, the sale of interests in our subsidiaries or joint ventures, or obtaining additional government research funding. Management believes that sufficient sources of financing will be available to support operations into the future, however there can be no assurances at this time. These matters raise substantial doubt about the Company’s ability to continue as a going concern. These financial statements have been prepared under the assumption that the Company will continue as a going concern and do not include any adjustments that might result from the outcome of this uncertainty.

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Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board ("FASB") or other standard-setting bodies that are adopted by us as of the specified effective date. Unless otherwise discussed, we believe that the impact of recently issued standards that are not yet effective will not have a material impact on our financial position or results of operations upon adoption.

In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)" ("ASU 2016-02"). ASU 2016-02 requires organizations that lease assets with lease terms of more than 12 months to recognize assets and liabilities for the rights and obligations created by those leases on their balance sheets. The ASU will also require new qualitative and quantitative disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. ASU 2016-02 is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. The Company adopted this guidance during 2019 with no material impact to the financial statements.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Short-Term Investments

The Company’s short-term investments are classified as held to maturity and are recorded at amortized cost. Short-term investments consisted of $0.4 million in certificates of deposit with maturity dates beyond three months and less than one year and are owned by Panacela. These investments are classified as held to maturity given the intent and ability to hold the investments to maturity. Realized gains and losses, and interest and dividends on short-term investments are recorded in our Consolidated Statement of Operations as Interest and Other Income. The cost of securities sold is based on the specific identification method.

Significant Customers and Accounts Receivable

The following table presents our revenue by customer, on a proportional basis, for the three and nine months ended September 30, 2019 and 2018.

	Three Months Ended									Nine Months Ended
	September 30,									September 30,
Customer	2019			2018			Variance			2019			2018			Variance
Department of Defense		90.0	%		43.7	%		46.3	%		60.2	%		50.0	%		-10.2	%
Incuron		10.0	%		56.3	%		(46.3	)%		39.8	%		50.0	%		-10.2	%
Total		100.0	%		100.0	%		0.0	%		100.0	%		100.0	%		0.0	%

Our current Department of Defense ("DoD") revenues come from development contracts that expire in 2019 and 2020, although each contract may be extended. Our Incuron revenues come from a service agreement that is renegotiated annually.

Accounts receivable consist of amounts due under reimbursement contracts with these customers. The Company extends unsecured credit to customers under normal trade agreements, which generally require payment within 30 days.

Other Comprehensive Income (Loss)

The Company applies the Accounting Standards Codification ("Codification") on comprehensive income (loss) that requires disclosure of all components of comprehensive income (loss) on an annual and interim basis. Other comprehensive income (loss) 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. The following table presents the changes in accumulated other comprehensive loss for the nine months ended September 30, 2019.

	Gains and losses on foreign exchange translations
Beginning balance	$	(611,370	)
Other comprehensive income (loss) before reclassifications		28,466
Amounts reclassified from accumulated other comprehensive loss		—
Ending balance	$	(582,904	)

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Accounting for Stock-Based Compensation

The Cleveland Biolabs, Inc. Equity Incentive Plan, adopted in 2018 (the "Plan"), authorizes CBLI to grant (i) options to purchase common stock, (ii) restricted or unrestricted stock units, and (iii) stock appreciation rights, so long as the exercise or grant price of each are at least equal to the fair market value of the stock on the date of grant. As of September 30, 2019, an aggregate of 597,557 shares of common stock were authorized for issuance under the Plan, of which a total of 461,268 shares of common stock remained available for future awards. In addition, a total of 136,289 shares of common stock reserved for issuance were subject to currently outstanding stock options granted under The Cleveland BioLabs, Inc. Equity Incentive Plan, as in effect prior to the 2018 amendment and restatement. A single participant cannot be awarded more than 100,000 shares annually. Awards granted under the Plan have a contractual life of no more than 10 years. The terms and conditions of equity awards (such as price, vesting schedule, term, and number of shares) under the Plan are specified in an award document, and approved by the Company’s board of directors or its management delegates.

The 2013 Employee Stock Purchase Plan (the "ESPP") provides a means by which eligible employees of the Company and certain designated related corporations may be given an opportunity to purchase shares of common stock. As of September 30, 2019, there are 625,000 shares of common stock reserved for purchase under the ESPP. The number of shares reserved for purchase under the ESPP increases on January 1 of each calendar year by the lesser of: (i) 10% of the total number of shares of common stock outstanding on December 31st of the preceding year, or (ii) 100,000 shares of common stock. The ESPP allows employees to use up to 15% of their compensation to purchase shares of common stock at an amount equal to 85% of the fair market value of the Company’s common stock on the offering date or the purchase date, whichever is less.

The Company utilizes the Black-Scholes valuation model for estimating the fair value of all stock options granted where the vesting period is based on length of service or performance, while a Monte Carlo simulation model is used for estimating the fair value of stock options with market-based vesting conditions. No options were granted during the nine months ended September 30, 2019 and September 30, 2018.

Income Taxes

No income tax expense was recorded for the three and nine months ended September 30, 2019 and 2018 as the Company does not expect to have taxable income for 2019 and did not have taxable income in 2018. A full valuation allowance has been recorded against the Company’s deferred tax asset.

At December 31, 2018, the Company had U.S. federal net operating loss carryforwards of approximately $144.0 million, of which $139.7 million begins to expire if not utilized by 2023, and approximately $4.2 million of tax credit carryforwards which begin to expire if not utilized by 2024. The Company also has state net operating loss carryforwards of approximately $89.8 million, which begin to expire if not utilized by 2027 and state tax credit carryforwards of approximately $0.3 million, which begin to expire if not utilized by 2022. The purchase of 6,459,948 shares of common stock by David Davidovich on July 9, 2015 resulted in Mr. Davidovich owning 60.2% of the Company at that time. We therefore believe it highly likely that this transaction will be viewed by the U.S. Internal Revenue Service as a change of ownership as defined by Section 382 of the Internal Revenue Code. Consequently, our ability to utilize approximately $124.8 million of U.S. federal net operating loss carryforwards, $3.65 million of U.S. Internal tax credit carryforwards, approximately $73.4 million of state net operating loss carryforwards, and $0.3 million of state tax credit carryforwards, all of which occurred prior to July 9, 2015, are limited. As such, a significant portion of these carryforwards will likely expire before they can be utilized, even if the Company is able to generate taxable income that, except for this transaction, would have been sufficient to fully utilize these carryforwards.

Earnings (Loss) per Share

Basic net loss per share of common stock excludes dilution for potential common stock issuances and is computed by dividing net loss by the weighted average number of shares outstanding for the period. Diluted net loss per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. Diluted net loss per share is identical to basic net loss per share as potentially dilutive securities have been excluded from the calculation of diluted net loss per common share because the inclusion of such securities would be antidilutive.

The Company has excluded the following securities from the calculation of diluted net loss per share because all such securities were antidilutive for the periods presented. Additionally, there were no dilutive securities outstanding as of September 30, 2019.

	As of September 30,
Common Equivalent Securities	2019		2018
Warrants		327,253		528,054
Options		136,289		172,528
Total		463,542		700,582

Contingencies

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 was not a party to any pending material litigation that was estimable and had a probability of loss.

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3. Fair Value of Financial Instruments

The Company measures and records warrant liabilities at fair value in the accompanying financial statements. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability, an exit price, in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value, includes:

•

Level 1 – Observable inputs for identical assets or liabilities such as quoted prices in active markets;

•

Level 2 – Inputs other than quoted prices in active markets that are either directly or indirectly observable; and

•

Level 3 – Unobservable inputs in which little or no market data exists, which are therefore developed by the Company using estimates and assumptions that reflect those that a market participant would use.

Cash equivalents include United States Treasury Notes with original maturities of three months or less at time of purchase and money market funds. Short-term investments primarily include certificates of deposit at commercial banking institutions, with maturities of three months or more at time of purchase.

The valuation methodologies used to measure the fair value of the Company’s assets and instruments classified in stockholders’ equity are described as follows: U.S. Treasury Notes and money market funds included in cash equivalents and short-term investments are valued at the closing price reported by an actively traded exchange and are included as Level 1 measurements in the table below. Certificates of deposit are carried at amortized cost, which approximates fair value and are included within short-term investments as a Level 2 measurement in the table below.

The following tables represent the Company’s fair value hierarchy for its financial assets and liabilities measured at fair value on a recurring basis.

	As of September 30, 2019
	Level 1		Level 2		Level 3		Total
Assets:
Cash and cash equivalents	$	—	$	—	$	—	$	—
Short-term investments		—		426,915		—		426,915
Total assets	$	—	$	426,915	$	—	$	426,915
Liabilities:
Accrued warrant liability	$	—	$	—	$	24,461	$	24,461

	As of December 31, 2018
	Level 1		Level 2		Level 3		Total
Assets:
Cash and cash equivalents	$	1,130	$	—	$	—	$	1,130
Short-term investments		—		503,810		—		503,810
Total assets	$	1,130	$	503,810	$	—	$	504,940
Liabilities:
Accrued warrant liability	$	—	$	—	$	78,637	$	78,637

The Company uses the Black-Scholes model to measure the accrued warrant liability. The following are the assumptions used to measure the accrued warrant liability which were determined in a manner consistent with grants of options to purchase common stock:

	September 30, 2019	December 31, 2018
Stock Price	$1.01	$1.01
Exercise Price	$3.64 - $20.40	$3.64 - $24.40
Term in years	1.29 – 1.85	0.04-2.60
Volatility	78.36%-85.90%	88.07%-108.18%
Annual rate of quarterly dividends	—%	—%
Discount rate- bond equivalent yield	1.65% - 1.71%	0.12% - 2.48%

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The following table sets forth a summary of changes in the fair value of the Company’s Level 3 fair value measurements for the periods indicated:

	Three Months Ended			Three Months Ended
	September 30, 2019			September 30, 2018
	Accrued Warrant Liability			Accrued Warrant Liability
Beginning Balance	$	60,993		$	362,842
Total (gains) or losses, realized and unrealized, included in earnings (1)		(36,532	)		(121,442	)
Issuances		—			—
Settlements		—			—
Ending Balance	$	24,461		$	241,400

	Nine Months Ended			Nine Months Ended
	September 30, 2019			September 30, 2018
	Accrued Warrant Liability			Accrued Warrant Liability
Beginning Balance	$	78,637		$	1,041,455
Total (gains) or losses, realized and unrealized, included in earnings (1)		(54,176	)		(800,055	)
Issuances		—			—
Settlements		—			—
Ending Balance	$	24,461		$	241,400

(1)	Unrealized gains or losses related to the accrued warrant liability were included as change in value of accrued warrant liability. There were no realized gains or losses for the three and nine months ended September 30, 2019 and 2018.

As of September 30, 2019 and December 31, 2018, the Company had no assets or liabilities that were measured at fair value on a nonrecurring basis.

The Company considers the accrued warrant liability to be Level 3 because some of the inputs into the measurements are neither directly nor indirectly observable. The accrued warrant liability uses management’s estimate for the expected term. As of September 30, 2019, the Black-Scholes pricing model was used as the valuation technique for the accrued warrant liability and used the unobservable input for the expected term of 1.29 – 1.85 years.

Management believes the value of the accrued warrant liability is more sensitive to a change in the Company’s stock price at the end of the respective reporting period as opposed to a change in the unobservable input described above.

The carrying amounts of the Company’s short-term financial instruments, which include cash and cash equivalents, accounts receivable and accounts payable, approximate their fair values due to their short maturities.

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4. Stockholders’ Equity

The Company has granted options to purchase shares of common stock. The following is a summary of option award activity during the nine months ended September 30, 2019:

	Total Stock Options Outstanding			Weighted Average Exercise Price per Share
December 31, 2018		160,076		$	35.92
Granted		—			—
Vested		—			—
Forfeited, Canceled		(23,787	)		11.85
September 30, 2019		136,289		$	40.12

The following is a summary of outstanding stock options as of September 30, 2019:

	As of September 30, 2019
	Stock Options Outstanding		Vested Stock Options
Quantity		136,289		136,289
Weighted Average Exercise Price	$	40.12	$	40.12
Weighted Average Remaining Contractual Term (in Years)		3.7		3.7
Intrinsic Value	$	—	$	—

For the nine months ended September 30, 2019 and 2018, the Company granted no stock options. As of September 30, 2019 and 2018, the total fair value of options vested was $0.

As of September 30, 2019, there was no total compensation cost not yet recognized related to unvested stock options.

5. Warrants

In connection with previous sales of the Company’s common stock and the issuance of debt instruments, warrants were issued which presently have exercise prices ranging from $3.64 to $20.40. The warrants expire between one and seven years from the date of grant, and are subject to the terms applicable in each agreement.

The following table summarizes the activity in our outstanding warrants since December 31, 2018:

	Number of Warrants			Weighted Average Exercise Price
December 31, 2018		528,054		$	10.90
Granted		—			—
Exercised		—			—
Forfeited, Canceled		(200,801	)		14.18
September 30, 2019		327,253		$	8.89

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6. Significant Alliances and Related Parties

Roswell Park Cancer Institute

The Company has entered into several agreements with Roswell Park Cancer Institute ("RPCI"), including: various sponsored research agreements, an exclusive license agreement and clinical trial agreements for the conduct of the Phase 1 entolimod oncology study and the Phase 1 Curaxin CBL0137 intravenous administration study. Additionally, the Company’s Chief Scientific Officer, or CSO, Dr. Andrei Gudkov, is the Senior Vice President of Basic Research at RPCI. The Company incurred $9,367 and $67,318 in research and development expense to RPCI for the three and nine months ended September 30, 2019, respectively, and $138,817 and $187,262 in research and development expense to RPCI for the three and nine months ended September 30, 2018, respectively. The Company had $7,925 and $0 included in accounts payable owed to RPCI at September 30, 2019 and 2018, respectively. In addition, the Company had $0 and $214,429 in accrued expenses payable to RPCI at September 30, 2019 and 2018, respectively.

The Cleveland Clinic

CBLI has entered into an exclusive license agreement with The Cleveland Clinic pursuant to which CBLI was granted an exclusive license to The Cleveland Clinic’s research base underlying our therapeutic platform and certain product candidates licensed to Panacela. CBLI has the primary responsibility to fund all newly developed patents. However, The Cleveland Clinic retains ownership of those patents covered by the agreement. CBLI also agreed to use commercially diligent efforts to bring one or more products to market as soon as practical, consistent with sound and reasonable business practices and judgments. On August 6, 2018, CBLI sublicensed the intellectual property underlying entolimod's composition that CBLI licenses from The Cleveland Clinic to GPI. There were no milestone or royalty payments paid to The Cleveland Clinic during the nine months ended September 30, 2019 or 2018.

The Company incurred $30,710 and $0 in research and development expense to The Cleveland Clinic during the nine months ended September 30, 2019 and 2018, respectively.

Buffalo BioLabs and Incuron

Our CSO, Dr. Andrei Gudkov, has business relationships with Buffalo BioLabs, LLC ("BBL"), where Dr. Gudkov was a founder and currently serves as its uncompensated Principal Scientific Advisor. The Company recognized $129 and $129 in research and development expense to BBL for the three and nine months ended September 30, 2019, respectively, and $122,929 and $454,937 in research and development expense to BBL for the three and nine months ended September 30, 2018, respectively. In addition, the Company had $0 and $53,000 in accrued expenses payable to BBL at September 30, 2019 and 2018, respectively. The Company also recognized $0 and $20,808 and $11,553 and $34,659 from BBL as sublease and other income for the three and nine months ended September 30, 2019 and September 30, 2018, respectively. Pursuant to our real estate sublease and equipment lease with BBL, the Company had gross accounts receivables of $219,108 and $206,747, and net accounts receivables of $16,957 and $4,596 from BBL at September 30, 2019 and 2018, respectively.

Dr. Gudkov is also an uncompensated member of the board of directors for Incuron. Pursuant to master service and development agreements we have with Incuron, the Company performs various research, business development, clinical advisory, and management services for Incuron. The Company recognized revenue of $26,928 and $295,958 for the three and nine months ended September 30, 2019, respectively, and recognized revenue of $199,324 and $291,445 for the three and nine months ended September 30, 2018, respectively. In addition, we also recognized $0 and $2,268 from Incuron for sublease and other income for the three and nine months ended September 30, 2019, respectively, and $1,134 and $4,044 from Incuron for sublease and other income for the three and nine months ended September 30, 2018, respectively. Pursuant to these agreements, the Company had gross accounts receivable of $32,512 and $13,457 from Incuron at September 30, 2019 and 2018, respectively.

Genome Protection

GPI incurred $54,700 and $149,550 in consultant expenses with members of the Company's Board of Directors and management team during the three and nine months ended September 30, 2019, respectively, of which $0 remained in GPI accounts payable and accrued expenses as of September 30, 2019. GPI incurred $39,083 and $39,083 in consultant expenses with members of the Company's Board of Directors and management team during the three and nine months ended September 30, 2018, respectively, of which $20,853 remained in GPI accounts payable and accrued expenses as of September 30, 2018. The Company also recognized $1,178 and $4,209 in sublease and other income from GPI during the three and nine months ended September 30, 2019, respectively. The Company also recognized $675 and $675 in sublease and other income from GPI during the three and nine months ended September 30, 2018, respectively.

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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 quarterly report on Form 10-Q contain forward-looking statements that involve risks and uncertainties. All statements other than statements of current or historical fact contained in this quarterly report, including statements regarding our future financial position, business strategy, new products, budgets, liquidity, cash flows, projected costs, regulatory approvals, or the impact of any laws or regulations applicable to us, and plans and objectives of management for future operations, are forward-looking statements. The words "anticipate," "believe," "continue," "should," "estimate," "expect," "intend," "may," "plan," "project," "will," and similar expressions, as they relate to us, are intended to identify forward-looking statements. We have based these forward-looking statements on our current expectations about future events. While we believe these expectations are reasonable, such forward-looking statements are inherently subject to risks and uncertainties, many of which are beyond our control. Our actual future results may differ materially from those discussed here for various reasons. We discuss many of these risks in Item 1A under the heading "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2018. Factors that may cause such differences include, but are not limited to, our need for additional financing to meet our business objectives; our history of operating losses; our ability to successfully develop, obtain regulatory approval for, and commercialize our products in a timely manner; our plans to research, develop and commercialize our product candidates; our ability to attract collaborators with development, regulatory and commercialization expertise; our plans and expectations with respect to future clinical trials and commercial scale-up activities; our reliance on third-party manufacturers of our product candidates; the size and growth potential of the markets for our product candidates, and our ability to serve those markets; the rate and degree of market acceptance of our product candidates; regulatory requirements and developments in the United States, the European Union and foreign countries; the performance of our third-party suppliers and manufacturers; the success of competing therapies that are or may become available; our ability to attract and retain key scientific or management personnel; our reliance on government funding for a significant portion of our operating costs and expenses; government contracting processes and requirements; the exercise of control over our company are by our majority stockholder; the geopolitical relationship between the United States and the Russian Federation as well as general business, legal, financial and other conditions within the Russian Federation; our ability to obtain and maintain intellectual property protection for our product candidates; our potential vulnerability to cybersecurity breaches; and other factors discussed below and in our other SEC filings, including our Annual Report on Form 10-K for the year ended December 31, 2018.

Given these uncertainties, you should not place undue reliance on these forward-looking statements. The forward-looking statements included in this quarterly report are made only as of the date hereof. We do not undertake any obligation to update any such statements or to publicly announce the results of any revisions to any of such statements to reflect future events or developments. 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 with our historical consolidated financial statements and the related notes thereto in our Annual Report on Form 10-K for the year ended December 31, 2018.

OVERVIEW

We are an innovative biopharmaceutical company developing novel approaches to activate the immune system and address serious medical needs. Our proprietary platform of Toll-like immune receptor activators has applications in mitigation of radiation injury and radiation oncology. We combine our proven scientific expertise and our depth of knowledge about our products’ mechanisms of action into a passion for developing drugs to save lives. Our most advanced product candidate is entolimod, an immune-stimulatory agent, which we are developing as a radiation countermeasure and other indications in radiation oncology. We conduct business in the U.S. directly and in Russia through two subsidiaries, one of which is wholly-owned, BioLab 612, and one of which is owned in collaboration with a financial partner, Panacela. In addition, we conduct business with a former subsidiary, Incuron, which will pay us a 2% royalty on future commercialization, licensing, or sale of certain technology we sold to Incuron. We also partner in a joint venture, GPI, with Everon Biosciences, Inc.

Financial Overview

Our discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). The preparation of these financial statements requires us to make estimates and judgments that affect our reported amounts of assets, liabilities, revenues, and expenses.

On an ongoing basis, we evaluate our estimates and judgments, including those related to accrued expenses, income taxes, stock-based compensation, investments, and in-process research and development. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the reported amounts of revenues and expenses that are not readily apparent from other sources. Actual results may differ from these estimates.

Our revenue, operating results, and profitability have varied, and we expect that they will continue to vary on a quarterly basis, primarily due to the timing of work completed under new and existing grants, development contracts, and collaborative relationships.

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Revenue

Our revenue originates from grants and contracts from both United States ("U.S.") federal government sources and Russian Federation ("Russia") government sources and service contracts with Incuron. U.S. federal grants and contracts are provided to advance research and development of entolimod, our lead product candidate, which we believe is of interest for potential sale to the U.S. Department of Defense ("DoD,") or the Biomedical Advanced Research and Development Authority of the U.S. Department of Health and Human Services ("BARDA"). Russian government contracts are provided to advance research and development of our oncology product candidates that may eventually be licensed for sale in Russia. We provide various research, management, business development, and clinical advisory services to Incuron.

Research and Development Expenses

Research and development ("R&D") costs are expensed as incurred. Advance payments are deferred and expensed as performance occurs. R&D costs include the cost of our personnel (which consists of salaries and incentive and stock-based compensation), out-of-pocket pre-clinical and clinical trial costs usually associated with contract research organizations, drug product manufacturing and formulation, and a pro-rata share of facilities expense and other overhead items.

General and Administrative Expenses

General and administrative ("G&A") functions include executive management, finance and administration, government affairs and regulations, corporate development, human resources, and legal and compliance. The specific costs include the cost of our personnel consisting of salaries, incentive and stock-based compensation, out-of-pocket costs usually associated with attorneys (both corporate and intellectual property), bankers, accountants, and other advisors and a pro-rata share of facilities expense and other overhead items.

Other Income and Expenses

Other recurring income and expenses primarily consists of interest income on our investments, changes in the market value of our derivative financial instruments, and foreign currency transaction gains or losses.

Recent Developments

As previously disclosed, in recent fiscal quarters, our research and development activity related to our development of entolimod as a treatment for acute radiation syndrome has declined as we were first awaiting the results of the bioequivalence study we undertook in response to the request of the Food and Drug Administration (the "FDA"), which study compared the historical drug formulation used in prior preclinical and clinical studies with the to-be-marketed drug product lots. Thereafter, we were awaiting the FDA’s confirmation that it agreed with our findings on bioequivalence, without which agreement the FDA had indicated it would not move forward to consider our pre-Emergency Use Authorization ("pre-EUA") application.

Since our submission of the bioequivalence study results, we have not received what we believe is a complete and fully satisfactory response from the FDA. Accordingly, we have been in ongoing discussions with the FDA, but our management has not been pleased with the pace or results of these discussions. We are therefore actively seeking ways to accelerate the FDA’s review and/or elevate within the management hierarchy of the FDA its consideration of our pre-EUA application.

Critical Accounting Policies and Significant Estimates

Our critical accounting policies and significant estimates are detailed in our Annual Report on Form 10-K for the year ended December 31, 2018. Other than as set forth below, our critical accounting policies and significant estimates have not changed substantially from those previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018.

Fair Value of Financial Instruments

We use the held-to-maturity accounting method to determine the fair value of certain cash equivalents and short-term investments in United States Treasury Notes or certificates of deposit. As of September 30, 2019, we held approximately $0.4 million in certificates of deposit which we classified as Level 2.

We use the Black-Scholes model to determine the fair value of certain common stock warrants on a recurring basis, and classify such warrants as Level 3 in the fair value hierarchy. The Black-Scholes model utilizes inputs consisting of: (i) the closing price of our common stock; (ii) the expected remaining life; (iii) the expected volatility using a weighted average of historical volatilities of CBLI common stock and a group of comparable companies; and (iv) the risk-free market rate.

As of September 30, 2019, we held approximately $0.02 million in accrued expenses related to warrants to purchase common stock, which we classified as Level 3.

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Three Months Ended September 30, 2019 Compared to Three Months Ended September 30, 2018

Revenue

Revenue decreased from approximately $0.28 million for the three months ended September 30, 2018 to approximately $0.27 million for the three months ended September 30, 2019, representing a decrease of approximately $0.01 million, or 4.8%. This decrease is primarily due to decreases in revenues from our service contract with Incuron, offset in part by an increase in revenues from our JWMRP contract with the DoD for continued preclinical development of entolimod. Differences in our revenue sources, by program, between the years are set forth in the following table.

		Three Months Ended September 30,
Funding Source	Program	2019		2018		Variance
DoD	JWMRP Contract (1)	$	236,405	$	122,759	$	113,646
DoD	PRMRP Contract (2)		6,302		1,017		5,285
Incuron	Service contract		26,928		159,531		(132,603	)
		$	269,635	$	283,307	$	(13,672	)

(1)

The Congressionally Directed Medical Research Programs (CDMRP) Joint Warfighter Medical Research Program (JWMRP) contract was awarded on September 1, 2015.

(2)

The CDMRP Peer Reviewed Medical Research Program (PRMRP) grant was awarded effective as of September 30, 2015.

We anticipate our revenue over the next year will continue to be derived primarily from government grants and contracts. We anticipate that DoD revenue will increase in the next quarter, and continue to increase in the first quarter of 2020 as additional DoD-supported studies are expected to be initiated, provided that the FDA accepts the conclusions of our biocomparability study and that the DoD agrees with the proposed study protocol within the next fiscal quarter. We also plan to submit proposals for government grants and contracts to various funding sources, but there can be no assurance that we will receive future funding awards. The following table sets forth information regarding our currently active grants and contracts:

						As of September 30, 2019
Funding Source	Program	Total Award Value		Funded Award Value		Cumulative Revenue		Funded Backlog		Unfunded Backlog
DoD	JWMRP Contract	$	9,226,455	$	9,226,455	$	3,692,486	$	5,533,969	$	—
DoD	PRMRP Contract		6,573,992		6,573,992		86,537		6,487,455		—
		$	15,800,447	$	15,800,447	$	3,779,023	$	12,021,424	$	—

Research and Development Expenses

R&D expenses decreased from $0.84 million for the three months ended September 30, 2018 to $0.26 million for the three months ended September 30, 2019, representing a decrease of $0.58 million, or 68.7%. Variances in individual development programs are noted in the table below. The net decrease is primarily attributable to a $0.26 million decrease in R&D expenses related to the oncology applications of the entolimod family of compounds, a $0.18 million decrease in R&D spending for biodefense applications of entolimod, and a $0.14 decrease in R&D spending on curaxins. The remaining variances are not significant.

	Three Months Ended September 30,
	2019			2018		Variance
Entolimod for Biodefense Applications	$	231,082		$	408,358	$	(177,276	)
CBLB612		(554	)		12		(566	)
Entolimod for Oncology Indications		(729	)		259,465		(260,194	)
		229,799			667,835		(438,036	)
Curaxins		25,269			158,237		(132,968	)
Panacela product candidates		7,342			13,341		(5,999	)
Total research & development expenses	$	262,410		$	839,413	$	(577,003	)

General and Administrative Expenses

G&A expenses decreased from $0.7 million for the three months ended September 30, 2018 to $0.5 million for the three months ended September 30, 2019, representing a decrease of $0.2 million, or 26.1%. This decrease consisted primarily of a $0.1 million decrease in CBLI's legal and professional fees related to the GPI investment in 2018, and a $0.04 million decrease in CBLI's property taxes.

Other Income and Expenses

Other income decreased from $0.14 million of other income for the three months ended September 30, 2018 to $0.05 million of other income for the three months ended September 30, 2019, representing a decrease of $0.09 million, or 63.4%. This decrease was primarily related to a decrease in the non-cash gain related to the change in valuation of our warrant liability as a result of stock price changes as well as warrant expirations.

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Nine Months Ended September 30, 2019 Compared to Nine Months Ended September 30, 2018

Revenue

Revenue decreased from approximately $0.9 million for the nine months ended September 30, 2018 to approximately $0.7 million for the nine months ended September 30, 2019, representing a decrease of approximately $0.2 million, or 17.5%. This decrease was principally due to the decrease in activity under our service contract with Incuron. Differences in our revenue sources, by program, between the years are set forth in the following table:

		Nine Months Ended September 30,
Funding Source	Program	2019		2018		Variance
DoD	JWMRP Contract (1)	$	439,464	$	449,403	$	(9,939	)
DoD	PRMRP Contract (2)		9,099		2,095		7,004
Incuron	Service contract		295,958		450,976		(155,018	)
		$	744,521	$	902,474	$	(157,953	)

(1)

The Congressionally Directed Medical Research Programs (CDMRP) Joint Warfighter Medical Research Program (JWMRP) contract was awarded on September 1, 2015.

(2)

The CDMRP Peer Reviewed Medical Research Program (PRMRP) grant was awarded effective as of September 30, 2015.

Research and Development Expenses

R&D expenses decreased from approximately $3.1 million for the nine months ended September 30, 2018 to approximately $1.4 million for the nine months ended September 30, 2019, representing a decrease of approximately $1.7 million, or 55.4%. Variances in individual development programs are noted in the table below. The net decrease is primarily attributable to a $0.7 million reduction in R&D spending for biodefense applications of entolimod, and a $0.9 million decrease in R&D expenses related to the oncology applications of the entolimod family of compounds. The R&D expense reductions for biodefense applications of entolimod resulted from our reduced preclinical development activity due to our previously disclosed vendor delays in the analytical analyses required to complete the biocomparability study and the FDA having not yet agreed with the Company's conclusions regarding the biocomparability study, which has prevented further development progress from occurring. We anticipate that R&D expenses for biodefense applications will rise as activity resumes under the DoD contract, provided that the FDA accepts the conclusions of our biocomparability study and that the DoD agrees with the proposed study protocol in the next fiscal quarter. The remaining variances are not significant.

	Nine Months Ended September 30,
	2019		2018		Variance
Entolimod for Biodefense Applications	$	1,033,006	$	1,731,932	$	(698,926	)
CBLB612		5,886		593		5,293
Entolimod for Oncology Indications		7,745		894,019		(886,274	)
		1,046,637		2,626,544		(1,579,907	)
Curaxins		306,086		373,698		(67,612	)
Panacela product candidates		22,686		84,548		(61,862	)
Total research & development expenses	$	1,375,409	$	3,084,790	$	(1,709,381	)

General and Administrative Expenses

G&A expenses decreased from $2.0 million for the nine months ended September 30, 2018 to $1.5 million for the nine months ended September 30, 2019, representing a decrease of $0.5 million, or 27.2%. This decrease consisted primarily of a $0.24 million decrease in CBLI's property tax expense due to a reimbursement of prior year payments, a $0.15 million decrease in CBLI's legal and professional fees relating to the GPI investment in 2018, and a $0.05 million decrease in travel expense.

Other Income and Expenses

Other income decreased from $0.9 million of other income for the nine months ended September 30, 2018 to $0.1 million of other income for the nine months ended September 30, 2019, representing an income decrease of $0.8 million, or 90.6%. This income decrease was primarily related to the valuation of our warrant liability.

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Liquidity and Capital Resources

We have incurred net losses of approximately $166 million from our inception through September 30, 2019. Historically, we have not generated, and do not expect to generate in the immediate future, revenue from sales of product candidates. Since our founding in 2003, we have funded our operations through a variety of means:

• From inception through September 30, 2019, we have raised $144.7 million of net equity capital, including amounts received from the exercise of options and warrants. We have also received $7.3 million in net proceeds from the issuance of long-term debt instruments;

• DoD and BARDA have funded grants and contracts totaling $60.4 million for the development of entolimod for its biodefense indication;

• The Russian Federation has funded a series of our contracts totaling $17.3 million, based on the exchange rates in effect on the date of funding. These contracts included a requirement for us to contribute matching funds, which we have satisfied;

• We have been awarded $4.0 million in grants and contracts not described above, all of which have been recognized at September 30, 2019;

• Incuron was formed to develop and commercialize the Curaxins product line, including its lead oncology drug candidate CBL0137. In 2015, we sold our ownership interest in Incuron for approximately $4.0 million and retain a 2% royalty interest in the CBL0137 technology; and

• Panacela was formed to develop and commercialize preclinical compounds, which were transferred to Panacela through assignment and lease agreements. RUSNANO contributed $9.0 million to Panacela and CBLI contributed $3.0 million plus intellectual property to Panacela. As of the date of this filing, CBLI owns 67.57% of Panacela.

We have incurred cumulative net losses and expect to incur additional losses related to our R&D activities. We do not have commercial products and have limited capital resources. At September 30, 2019, we had cash, cash equivalents and short-term investments of $1.9 million, which represents a decrease of $2.2 million or 53.5% since the end of our last fiscal year. This decrease was caused primarily by our net loss of $2.0 million during the nine months ended September 30, 2019. We expect our cash, cash equivalents, and short-term investments, along with the active government contracts described above, to fund our projected operating requirements and allow us to fund our operating plan, in each case, into September 2020. However, until we are able to commercialize our product candidates at a level that covers our cash expenses, we will need to raise substantial additional capital, which we may be unable to raise in sufficient amounts, when needed and at acceptable terms. Our plans with regard to these matters may include seeking additional capital through debt or equity financing, the sale or license of drug candidates, the sale of certain of our tangible and/or intangible assets, the sale of interests in our subsidiaries or joint ventures, or obtaining additional government research funding. There can be no assurance that we will be able to obtain future financing on acceptable terms, or that we can obtain additional government financing for our operations. If we are unable to raise adequate capital and/or achieve profitable operations, future operations might need to be scaled back or discontinued. The financial statements do not include any adjustments relating to the recoverability of the carrying amount of recorded assets and liabilities that might result from the outcome of these uncertainties.

Cash Flows:

The following table provides information regarding our cash flows for the nine months ended September 30, 2019 and 2018:

	*For the Nine Months Ended September 30,*
	2019			2018			Variance
Cash flows used in operating activities	$	(2,298,935	)	$	(3,441,076	)	$	1,142,141
Cash flows provided by investing activities		158,544			3,560,750			(3,402,206	)
Cash flows provided by financing activities		—			55,215			(55,215	)
Effect of exchange rate change on cash and equivalents		10,545			(26,698	)		37,243
Increase (decrease) in cash and cash equivalents		(2,129,846	)		148,191			(2,278,037	)
Cash and cash equivalents at beginning of period		3,617,234			4,230,548			(613,314	)
Cash and cash equivalents at end of period	$	1,487,388		$	4,378,739		$	(2,891,351	)

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Operating Activities

Net cash used in operating activities decreased by $1.1 million to $2.3 million for the nine months ended September 30, 2019 from $3.4 million for the nine months ended September 30, 2018. Net cash used in operating activities for the period ending September 30, 2019 consisted of a reported net loss of $2.0 million, which was decreased further for $0.1 million of net non-cash operating activities, and a $0.2 million net decrease due to changes in operating assets and liabilities. The $0.1 million of net non-cash operating activities consisted primarily of changes in the valuation of our warrant liability and a gain on disposal of equipment. The $0.2 million of changes in operating assets and liabilities consisted primarily of a $0.3 million decrease in accounts payable and accrued expenses, offset by a $0.1 million increase in accounts receivable and other current assets.

Net cash used in operating activities for the nine months ended September 30, 2018 of $3.4 million consisted of a reported net loss of $3.3 million, which was decreased further by $0.8 million of net non-cash operating activities, and offset by a $0.7 million net increase due to changes in operating assets and liabilities. The $0.8 million of net non-cash operating activities was due primarily to changes in the valuation of our warrant liability. The $0.7 million of changes in operating assets and liabilities consisted primarily of a $0.5 million decrease in accounts receivable and other current assets, and a $0.2 million increase in accounts payable and accrued expenses.

Investing Activities

Net cash provided by investing activities decreased by $3.4 million to $0.2 million for the nine months ended September 30, 2019 from $3.6 million for the nine months ended September 30, 2018. The net cash provided by investing activities for the nine months ended September 30, 2019 consisted primarily of $0.1 million of net sales of short-term investments and $0.04 million of proceeds from the sale of equipment. Net cash provided by investing activities for the nine months ended September 30, 2018 consisted primarily of $3.6 million of net sales of short-term investments.

Financing Activities

Net cash provided by financing activities decreased by $0.06 million to $0.00 million for the nine months ended September 30, 2019 from $0.06 million for the nine months ended September 30, 2018 due to a cash payment from the exercise of warrants during the nine months ended September 30, 2018.

Impact of Exchange Rate Fluctuations

Our reported financial results are affected by changes in foreign currency exchange rates between the U.S. dollar and the Russian ruble. Between January 1, 2019 and September 30, 2019, this rate fluctuated by 7.3%. For calendar 2018, this rate fluctuated by 20.6%. Translation gains or losses result primarily from the impact of exchange rate fluctuations on the reported U.S. dollar equivalent of ruble-denominated cash and cash equivalents, and short-term investments. Variances in the exchange rate for these items have not been realized; as such the resulting gains or losses are recorded as other comprehensive income or loss in the equity section of the balance sheet.

NASDAQ Compliance

As previously disclosed, on August 19, 2019, we received a written notice from the Listing Qualifications staff of the Nasdaq Stock Market LLC ("NASDAQ") indicating that the Company was not in compliance with Nasdaq Listing Rule 5550(b)(1) (the "Rule") as the Company’s stockholders’ equity, as reported on the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2019, was below $2.5 million, which is the minimum stockholders’ equity required for compliance with the Rule. We subsequently submitted a plan to NASDAQ explaining how we intend to regain compliance with the Rule. On October 18, 2019, NASDAQ notified us that it had determined to grant us an extension until February 17, 2020 to regain compliance. Under the terms of the extension, we must on or before February 17, 2020 complete one or more of the initiatives outlined in our plan and evidence compliance with the Rule. If we fail to evidence compliance upon filing our periodic report for the year ending December 31, 2019 with the SEC and NASDAQ, we may be subject to delisting.

The extension notification with respect to the minimum stockholders’ equity requirement has no immediate effect on the Company’s listing on The Nasdaq Capital Market. Although we will use all reasonable efforts to achieve compliance with the Rule, there can be no assurance that we will be able to regain compliance and maintain our listing on the NASDAQ Capital Market. If we do not regain compliance within the requisite time period, or if we fail to satisfy another NASDAQ requirement for continued listing, NASDAQ could provide notice that our securities will become subject to delisting.

Off-Balance Sheet Arrangements

We have not entered into any off-balance sheet arrangements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not required for smaller reporting company filers.

Item 4. Controls and Procedures

Effectiveness of Disclosure

Our management, with the participation of our Chief Executive Officer (performing the functions of the Company's principal executive officer and principal financial officer), evaluated the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, as of September 30, 2019. 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, 2019, our Chief Executive Officer (performing the functions of the Company's principal executive officer and principal financial officer) concluded that, as of such date, our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is (1) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and (2) accumulated and communicated to our management, including our Chief Executive Officer (performing the functions of the Company's principal executive officer and principal financial officer), as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15(d)-15(f) under the Exchange Act) during the fiscal quarter ended September 30, 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II – Other Information

Item 1. Legal Proceedings

In the ordinary course of business, we may periodically become subject to legal proceedings and claims arising in connection with ongoing business activities. The results of litigation and claims cannot be predicted with certainty, and unfavorable resolutions are possible and could materially affect our results of operations, cash flows, or financial position. In addition, regardless of the outcome, litigation could have an adverse impact on us because of defense costs, diversion of management resources, and other factors.

While the outcome of these proceedings and claims cannot be predicted with certainty, there are no matters, as of September 30, 2019, that, in the opinion of management, might have a material adverse effect on our financial position, results of operations or cash flows, or that are required to be disclosed under the rules of the SEC.

Item 1A. Risk Factors

Not required for smaller reporting company filers.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None.

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Item 6. Exhibits

(a)

The following exhibits are included as part of this report:

Exhibit Number		Description of Document

3.1		Restated Certificate of Incorporation filed with the Secretary of State of Delaware on March 18, 2010 (Incorporated by reference to Exhibit 3.1 to Form 10-K for the year ended December 31, 2009, filed on March 22, 2010).

3.2		Certificate of Amendment to the Restated Certificate of Incorporation, filed with the Secretary of State of Delaware on June 20, 2013 (Incorporated by reference to Exhibit 3.1 to Form 10-Q for the period ended June 30, 2013, filed on August 9, 2013).

3.3		Certificate of Amendment of Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to Form 8-K filed on January 27, 2015).

3.4		Certificate of Amendment to Restated Certificate of Incorporation, filed with the Secretary of State of Delaware on April 20, 2016 (incorporated by reference to Exhibit 3.4 to Form 10-Q for the period ended March 31, 2016, filed May 16, 2016.

3.5		Certificate of Amendment to Restated Certificate of Incorporation, filed with the Secretary of State of Delaware on April 21, 2017 (incorporated by reference to Exhibit 3.5 to Form 10-Q for the period ended March 31, 2017, filed May 15, 2017.

3.6		Certificate of Designation of Preferences, Rights and Limitations of Series A Convertible Preferred Stock (incorporated by reference to Exhibit 3.1 to Form 8-K filed on February 9, 2015).

3.7		Certificate of Amendment of Certificate of Designation of Preferences, Rights and Limitations of Series A Convertible Preferred Stock (incorporated by reference to Exhibit 3.2 to Form 8-K filed on February 9, 2015).

3.8		Second Amended and Restated By-Laws (Incorporated by reference to Exhibit 3.1 to Form 8-K filed on December 5, 2007).

3.9		Amendment to Second Amended and Restated By-Laws of Cleveland BioLabs, Inc. (Incorporated by reference to Exhibit 3.1 to Form 8-K filed on May 18, 2015).

31.1*		Rule 13a-14(a)/15d-14(a) Certification of Yakov Kogan.

32.1*		Certification pursuant to 18 U.S.C. Section 1350.

101.1		The following information from CBLI’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, formatted in Extensible Business Reporting Language (XBRL): (i) Consolidated Condensed Balance Sheets as of September 30, 2019 and December 31, 2018; (ii) Consolidated Condensed Statements of Operations for the Three and Nine Months Ended September 30, 2019 and 2018; (iii) Consolidated Condensed Statements of Comprehensive Loss for the Three and Nine Months Ended September 30, 2019 and 2018; (iv) Consolidated Condensed Statement of Stockholders’ Equity for the Nine Months Ended September 30, 2019 and 2018; (v) Consolidated Condensed Statements of Cash Flows for the Nine Months Ended September 30, 2019 and 2018; and (vi) Notes to Consolidated Condensed Financial Statements.

*		Filed herewith.

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Signatures

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

	CLEVELAND BIOLABS, INC.

Dated: November 14, 2019	By:	/s/ YAKOV KOGAN
		Yakov N. Kogan
		Chief Executive Officer
		(Principal Executive and Principal Financial Officer)