(Mark
One)
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For
the quarterly period ended June 30, 2009
OR
|
||
¨
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)
|
Large accelerated filer
¨
|
Accelerated filer ¨
|
Non-accelerated filer
¨
|
Smaller reporting company
x
|
TABLE
OF CONTENTS
|
||
PAGE
|
||
PART
I - FINANCIAL INFORMATION
|
||
ITEM
1:
|
Financial
Statements
|
|
Balance
Sheets as of June 30, 2009 and December 31, 2008
|
3
|
|
Statements
of Operations For Three and Six Months Ended June 30, 2009 and
2008
|
5
|
|
Statements
of Cash Flows For Six Months Ended June 30, 2009 and 2008
|
6
|
|
Statement
of Stockholders' Equity from January 1, 2008 to December 31, 2008 and to
June 30, 2009
|
8
|
|
Notes
to Financial Statements
|
11
|
|
ITEM
2:
|
Management's
Discussion and Analysis of Financial Condition and Results of
Operations
|
23
|
ITEM
3:
|
Quantitative
and Qualitative Disclosures About Market Risk
|
43
|
ITEM
4:
|
Controls
and Procedures
|
43
|
PART
II - OTHER INFORMATION
|
||
ITEM
1:
|
Legal
Proceedings
|
44
|
ITEM
2:
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
44
|
ITEM
3:
|
Defaults
Upon Senior Securities
|
44
|
ITEM
4:
|
Submission
of Matters to a Vote of Securities Holders
|
44
|
ITEM
5:
|
Other
Information
|
45
|
ITEM
6:
|
Exhibits
|
45
|
Signatures
|
46
|
June 30
|
||||||||
2009
|
December 31
|
|||||||
(unaudited)
|
2008
|
|||||||
ASSETS
|
||||||||
CURRENT
ASSETS
|
||||||||
Cash
and equivalents
|
$ | 1,307,724 | $ | 299,849 | ||||
Short-term
investments
|
- | 1,000,000 | ||||||
Accounts
receivable:
|
||||||||
Trade
|
3,035,798 | 1,043,821 | ||||||
Interest
|
- | 9,488 | ||||||
Other
prepaid expenses
|
187,346 | 510,707 | ||||||
Total
current assets
|
4,530,868 | 2,863,865 | ||||||
EQUIPMENT
|
||||||||
Computer
equipment
|
314,058 | 309,323 | ||||||
Lab
equipment
|
1,124,277 | 1,102,465 | ||||||
Furniture
|
333,980 | 312,134 | ||||||
1,772,315 | 1,723,922 | |||||||
Less
accumulated depreciation
|
818,384 | 637,840 | ||||||
953,931 | 1,086,082 | |||||||
OTHER
ASSETS
|
||||||||
Intellectual
property
|
781,964 | 733,051 | ||||||
Deposits
|
23,482 | 23,482 | ||||||
805,446 | 756,533 | |||||||
TOTAL
ASSETS
|
$ | 6,290,245 | $ | 4,706,480 |
June 30
|
||||||||
2009
|
December 31
|
|||||||
(unaudited)
|
2008
|
|||||||
LIABILITIES AND STOCKHOLDERS' EQUITY
|
||||||||
CURRENT
LIABILITIES
|
||||||||
Accounts
payable
|
$ | 958,067 | $ | 1,101,961 | ||||
Deferred
revenue
|
2,336,974 | 2,365,312 | ||||||
Dividends
payable
|
199,945 | 321,293 | ||||||
Accrued
expenses
|
165,913 | 379,653 | ||||||
Accrued
warrant liability
|
8,470,532 | - | ||||||
Total
current liabilities
|
12,131,431 | 4,168,219 | ||||||
STOCKHOLDERS'
EQUITY
|
||||||||
Preferred
stock, $.005 par value
|
||||||||
Authorized
- 10,000,000 shares at June 30, 2009
|
||||||||
and
December 31, 2008
|
||||||||
Series
B convertible preferred stock,
|
||||||||
Issued
and outstanding 1,967,116 and 3,160,974
|
||||||||
shares
at June 30, 2009 and December 31, 2008, respectively
|
9,836 | 15,805 | ||||||
Series
D convertible preferred stock,
|
||||||||
Issued
and outstanding 542.84 and 0
|
||||||||
shares
at June 30, 2009 and December 31, 2008, respectively
|
3 | - | ||||||
Common
stock, $.005 par value
|
||||||||
Authorized
- 80,000,000 and 40,000,000 shares at June 30, 2009
|
||||||||
and
December 31, 2008, respectively
|
||||||||
Issued
and outstanding 15,753,057 and 13,775,805
|
||||||||
shares
at June 30, 2009 and December 31, 2008, respectively
|
78,765 | 68,879 | ||||||
Additional
paid-in capital
|
60,243,493 | 56,699,750 | ||||||
Accumulated
deficit
|
(66,173,283 | ) | (56,246,173 | ) | ||||
Total
stockholders' equity (deficit)
|
(5,841,186 | ) | 538,261 | |||||
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
$ | 6,290,245 | $ | 4,706,480 |
Three Months Ended
|
Six Months Ended
|
|||||||||||||||
June 30
|
June 30
|
June 30
|
June 30
|
|||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
(unaudited)
|
(unaudited)
|
(unaudited)
|
(unaudited)
|
|||||||||||||
REVENUES
|
||||||||||||||||
Grant
and contract
|
$ | 4,184,978 | $ | 674,376 | $ | 6,494,709 | $ | 1,230,700 | ||||||||
Service
|
- | - | - | 120,000 | ||||||||||||
4,184,978 | 674,376 | 6,494,709 | 1,350,700 | |||||||||||||
OPERATING
EXPENSES
|
||||||||||||||||
Research
and development
|
4,772,100 | 2,682,703 | 7,274,982 | 6,234,089 | ||||||||||||
Selling,
general and administrative
|
1,837,136 | 1,992,536 | 2,959,026 | 3,185,650 | ||||||||||||
Total
operating expenses
|
6,609,236 | 4,675,239 | 10,234,008 | 9,419,739 | ||||||||||||
LOSS
FROM OPERATIONS
|
(2,424,258 | ) | (4,000,863 | ) | (3,739,299 | ) | (8,069,039 | ) | ||||||||
OTHER
INCOME
|
||||||||||||||||
Interest
income
|
11,949 | 50,016 | 17,257 | 195,143 | ||||||||||||
Buffalo
relocation reimbursement
|
- | 220,000 | - | 220,000 | ||||||||||||
Sublease
revenue
|
4,505 | 2,657 | 9,011 | 5,313 | ||||||||||||
Gain
on disposal of fixed assets
|
- | - | - | 1,394 | ||||||||||||
Gain
on investment
|
- | - | - | 3,292 | ||||||||||||
Total
other income
|
16,454 | 272,673 | 26,268 | 425,142 | ||||||||||||
OTHER
EXPENSE
|
||||||||||||||||
Warrant
issuance costs
|
- | - | 266,970 | - | ||||||||||||
Corporate
relocation
|
- | 79,361 | - | 133,705 | ||||||||||||
Interest
expense
|
- | - | 1,960 | - | ||||||||||||
Change
in value of warrant liability
|
4,068,926 | - | 5,453,699 | - | ||||||||||||
Total
other expense
|
4,068,926 | 79,361 | 5,722,629 | 133,705 | ||||||||||||
NET
LOSS
|
$ | (6,476,730 | ) | $ | (3,807,551 | ) | $ | (9,435,660 | ) | $ | (7,777,602 | ) | ||||
DIVIDENDS
ON CONVERTIBLE PREFERRED STOCK
|
(222,472 | ) | (264,160 | ) | (491,451 | ) | (580,446 | ) | ||||||||
NET
LOSS AVAILABLE TO COMMON SHAREHOLDERS
|
$ | (6,699,202 | ) | $ | (4,071,711 | ) | $ | (9,927,111 | ) | $ | (8,358,048 | ) | ||||
NET
LOSS AVAILABLE TO COMMON SHAREHOLDERS PER SHARE OF COMMON STOCK - BASIC
AND DILUTED
|
$ | (0.45 | ) | $ | (0.30 | ) | $ | (0.69 | ) | $ | (0.63 | ) | ||||
WEIGHTED
AVERAGE NUMBER OF SHARES USED IN CALCULATING NET LOSS PER SHARE, BASIC AND
DILUTED
|
14,789,062 | 13,491,493 | 14,342,277 | 13,318,744 |
June 30
|
June 30
|
|||||||
2009
|
2008
|
|||||||
(unaudited)
|
(unaudited)
|
|||||||
CASH
FLOWS FROM OPERATING ACTIVITIES
|
||||||||
Net
loss
|
$ | (9,435,660 | ) | $ | (7,777,602 | ) | ||
Adjustments
to reconcile net loss to net cash used by operating
activities:
|
||||||||
Depreciation
|
180,543 | 157,066 | ||||||
Noncash
salaries and consulting expense
|
1,703,564 | 770,931 | ||||||
Loss
on abandoned patents
|
23,984 | - | ||||||
Series
D warrant issuance costs
|
266,970 | - | ||||||
Change
in value of warrant liability
|
5,453,699 | - | ||||||
Changes
in operating assets and liabilities:
|
||||||||
Accounts
receivable - trade
|
(1,991,978 | ) | (749,578 | ) | ||||
Accounts
receivable - interest
|
9,488 | 12,026 | ||||||
Other
prepaid expenses
|
323,361 | 19,403 | ||||||
Deposits
|
- | (881 | ) | |||||
Accounts
payable
|
(143,893 | ) | (122,423 | ) | ||||
Deferred
revenue
|
(28,338 | ) | 845,288 | |||||
Accrued
expenses
|
(213,740 | ) | (147,904 | ) | ||||
Milestone
payments
|
- | 50,000 | ||||||
Total
adjustments
|
5,583,660 | 833,928 | ||||||
Net
cash (used in) provided by operating activities
|
(3,852,000 | ) | (6,943,674 | ) | ||||
CASH
FLOWS FROM INVESTING ACTIVITIES
|
||||||||
Sale
of short-term investments
|
1,000,000 | - | ||||||
Purchase
of equipment
|
(48,393 | ) | (128,236 | ) | ||||
Costs
of patents pending
|
(72,897 | ) | (219,980 | ) | ||||
Net
cash (used in) provided by investing activities
|
878,710 | (348,216 | ) | |||||
CASH
FLOWS FROM FINANCING ACTIVITIES
|
||||||||
Proceeds
from issuance of Series D preferred stock and warrants
|
5,428,307 | - | ||||||
Financing
costs on Series D preferred stock
|
(720,175 | ) | - | |||||
Series
D warrant issuance costs
|
(266,970 | ) | - | |||||
Dividends
|
(612,799 | ) | (671,664 | ) | ||||
Exercise
of stock options
|
152,802 | 3,836 | ||||||
Net
cash (used in) provided by financing activities
|
3,981,165 | (667,828 | ) | |||||
INCREASE
(DECREASE) IN CASH AND EQUIVALENTS
|
1,007,875 | (7,959,718 | ) | |||||
CASH
AND EQUIVALENTS AT BEGINNING OF PERIOD
|
299,849 | 14,212,189 | ||||||
CASH
AND EQUIVALENTS AT END OF PERIOD
|
$ | 1,307,724 | $ | 6,252,471 |
Supplemental
schedule of noncash financing activities:
|
||||||||
Issuance
of stock options to employees, consultants, and independent board
members
|
$ | 1,221,026 | $ | - | ||||
Conversion
of Series B preferred stock to common stock
|
$ | 7,521,305 | $ | 3,492,052 | ||||
Expense
recapture of expense for options expensed in 2007 but issued in
2008
|
$ | - | $ | (1,459,425 | ) | |||
Expense
recapture of expense for options that were nonvested and
forfeited
|
$ | (37,878 | ) | $ | - | |||
Issuance
of shares to consultants and employees
|
$ | 503,842 | $ | 563,200 | ||||
Accrual
of Series B preferred stock dividends
|
$ | 491,451 | $ | 305,251 | ||||
Amortization
of restricted shares issued to employees
|
$ | 16,574 | $ | 93,525 |
Stockholders' Equity
|
||||||||
Common Stock
|
||||||||
Shares
|
Amount
|
|||||||
Balance
at January 1, 2008
|
12,899,241 | $ | 64,496 | |||||
Issuance
of options
|
- | - | ||||||
Partial
recapture of expense for options expensed in 2007 but issued in
2008
|
- | - | ||||||
Issuance
of restricted shares
|
130,000 | 650 | ||||||
Restricted
stock awards
|
- | - | ||||||
Exercise
of options
|
37,271 | 186 | ||||||
Conversion
of Series B Preferred Shares to Common
|
709,293 | 3,547 | ||||||
Dividends
on Series B Preferred shares
|
- | - | ||||||
Net
Loss
|
- | - | ||||||
Balance
at December 31, 2008
|
13,775,805 | $ | 68,879 | |||||
Issuance
of options
|
- | - | ||||||
Issuance
of restricted shares
|
167,540 | 838 | ||||||
Recapture
of expense for nonvested options forfeited
|
- | - | ||||||
Restricted
stock awards
|
- | |||||||
Exercise
of options
|
86,981 | 435 | ||||||
Conversion
of Series B Preferred Shares to Common
|
1,722,731 | 8,614 | ||||||
Dividends
on Series B Preferred shares
|
- | - | ||||||
Issuance
of shares - Series D financing
|
- | - | ||||||
Allocation
of financing proceeds to fair value of Series D warrants
|
- | - | ||||||
Fees
associated with Series D Preferred offering
|
- | - | ||||||
Net
Loss
|
- | - | ||||||
Balance at June 30, 2009 | 15,753,057 | $ | 78,766 |
Stockholders'
Equity
|
||||||||||||||||
Preferred Stock
|
||||||||||||||||
Series
B
|
Amount
|
Series
D
|
Amount
|
|||||||||||||
Balance
at January 1, 2008
|
3,870,267 | $ | 19,351 | - | $ | - | ||||||||||
Issuance
of options
|
- | - | - | - | ||||||||||||
Partial
recapture of expense for options expensed in 2007 but issued in
2008
|
- | - | - | - | ||||||||||||
Issuance
of restricted shares
|
- | - | - | - | ||||||||||||
Restricted
stock awards
|
- | - | - | - | ||||||||||||
Exercise
of options
|
- | - | - | - | ||||||||||||
Conversion
of Series B Preferred Shares to Common
|
(709,293 | ) | (3,547 | ) | - | - | ||||||||||
Dividends
on Series B Preferred shares
|
- | - | - | - | ||||||||||||
Net
Loss
|
- | - | - | - | ||||||||||||
Balance
at December 31, 2008
|
3,160,974 | $ | 15,805 | - | $ | - | ||||||||||
Issuance
of options
|
- | - | - | - | ||||||||||||
Issuance
of restricted shares
|
- | - | - | - | ||||||||||||
Recapture
of expense for nonvested options forfeited
|
- | - | - | - | ||||||||||||
Restricted
stock awards
|
- | - | - | - | ||||||||||||
Exercise
of options
|
- | - | - | - | ||||||||||||
Conversion
of Series B Preferred Shares to Common
|
(1,193,858 | ) | (5,969 | ) | - | - | ||||||||||
Dividends
on Series B Preferred shares
|
- | - | - | - | ||||||||||||
Issuance
of shares - Series D financing
|
- | - | 543 | 3 | ||||||||||||
Allocation
of financing proceeds to fair value of Series D warrants
|
- | - | - | - | ||||||||||||
Fees
associated with Series D Preferred offering
|
- | - | - | - | ||||||||||||
Net
Loss
|
- | - | - | - | ||||||||||||
Balance
at June 30, 2009
|
1,967,116 | $ | 9,836 | 543 | $ | 3 |
Stockholders' Equity
|
||||||||||||||||||||
Additional
|
Other
|
Comprehensive
|
||||||||||||||||||
Paid-in
|
Comprehensive
|
Accumulated
|
Income
|
|||||||||||||||||
Capital
|
Income/(Loss)
|
Deficit
|
Total
|
(Loss)
|
||||||||||||||||
Balance
at January 1, 2008
|
$ | 55,148,608 | $ | - | $ | (41,038,212 | ) | $ | 14,194,244 | |||||||||||
Issuance
of options
|
2,287,803 | - | - | 2,287,803 | ||||||||||||||||
Partial
recapture of expense for options expensed in 2007 but issued in
2008
|
(1,459,425 | ) | - | - | (1,459,425 | ) | ||||||||||||||
Issuance
of restricted shares
|
625,850 | - | - | 626,500 | ||||||||||||||||
Restricted
stock awards
|
72,722 | - | - | 72,722 | ||||||||||||||||
Exercise
of options
|
24,191 | - | - | 24,378 | ||||||||||||||||
Conversion
of Series B Preferred Shares to Common
|
- | - | - | - | ||||||||||||||||
Dividends
on Series B Preferred shares
|
- | - | (1,182,033 | ) | (1,182,033 | ) | ||||||||||||||
Net
Loss
|
- | - | (14,025,927 | ) | (14,025,927 | ) | $ | (14,025,927 | ) | |||||||||||
Balance
at December 31, 2008
|
$ | 56,699,750 | $ | - | $ | (56,246,172 | ) | $ | 538,261 | |||||||||||
Issuance
of options
|
1,221,026 | - | - | 1,221,026 | ||||||||||||||||
Issuance
of restricted shares
|
503,004 | - | - | 503,842 | ||||||||||||||||
Recapture
of expense for nonvested options forfeited
|
(37,878 | ) | - | - | (37,878 | ) | ||||||||||||||
Restricted
stock awards
|
16,574 | - | - | 16,574 | ||||||||||||||||
Exercise
of options
|
152,367 | - | - | 152,802 | ||||||||||||||||
Conversion
of Series B Preferred Shares to Common
|
(2,645 | ) | - | - | - | |||||||||||||||
Dividends
on Series B Preferred shares
|
- | - | (491,451 | ) | (491,451 | ) | ||||||||||||||
Issuance
of shares - Series D financing
|
5,428,304 | - | - | 5,428,307 | ||||||||||||||||
Allocation
of financing proceeds to fair value of Series D warrants
|
(3,016,834 | ) | (3,016,834 | ) | ||||||||||||||||
Fees
associated with Series D Preferred offering
|
(720,175 | ) | - | - | (720,175 | ) | ||||||||||||||
Net
Loss
|
- | - | (9,435,660 | ) | (9,435,660 | ) | $ | (9,435,660 | ) | |||||||||||
Balance
at June 30, 2009
|
$ | 60,243,492 | $ | - | $ | (66,173,283 | ) | $ | (5,841,186 | ) |
A.
|
Basis
of Presentation - The information at June 30, 2009 and June 30, 2008, and
for the three months and six months ended June 30, 2009 and June 30, 2008,
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, 2008,
which were contained in the Company’s Annual Report on Form 10-K 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 and according to terms of government contracts and
grants, 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 June 30, 2009 and December 31,
2008.
|
E.
|
Equipment
- Equipment is stated at cost and depreciated over the estimated useful
lives of the assets (generally five years) using the straight-line method.
Leasehold improvements are depreciated on the straight-line method over
the shorter of the lease term or the estimated useful lives of the assets.
Expenditures for maintenance and repairs are charged to expense as
incurred. Major expenditures for renewals and betterments are capitalized
and depreciated. Depreciation expense was $88,945 and $80,256 for the
three months ended June 30, 2009 and 2008,
respectively. Depreciation expense was $180,543 and $157,066
for the six months ended June 30, 2009 and 2008,
respectively.
|
F.
|
Impairment
of Long-Lived Assets - In accordance with Statements of Financial
Accounting Standards, or SFAS, No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, long-lived assets to be held and used,
including equipment and intangible assets subject to depreciation and
amortization, are reviewed for impairment at least annually and whenever
events or changes in circumstances indicate that the carrying amounts of
the assets or related asset group may not be recoverable. Determination of
recoverability is based on an estimate of discounted future cash flows
resulting from the use of the asset and its eventual disposition. In the
event that such cash flows are not expected to be sufficient to recover
the carrying amount of the asset or asset group, the carrying amount of
the asset is written down to its estimated net realizable
value.
|
G.
|
Intellectual
Property - The Company capitalizes the costs associated with the
preparation, filing, and maintenance of patent applications relating to
intellectual property. 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
20 years or the anticipated useful life of the patent. If the patent
application is not approved, the costs associated the patent application
will be expensed as part of selling, general and administrative expenses
at that time. Capitalized intellectual property is reviewed at least
annually for impairment.
|
H.
|
Line
of Credit - The Company has a working capital line of credit that carries
an interest rate of prime, a borrowing limit of $1,000,000 and a
requirement that draw-downs be fully secured by short term investments and
money market accounts. This credit line expires on September 25, 2009. At
June 30, 2009 and December 31, 2008, there were no outstanding borrowings
under this credit facility.
|
I.
|
Accrued
Warrant Liability – The Company has issued warrants as part of the Series
D Private Placement (as defined in Note 3). The warrants meet the
definition of a derivative instrument in accordance with SFAS 133 as the
warrants are not indexed to the Company’s stock, and consequently, should
be accounted for as a derivative instrument. Therefore, the
warrants are initially recorded as accrued warrant liabilities at their
fair values on the date of issuance. Subsequent changes in the value of
the warrants are shown in the statement of operations as “change in value
of warrant liability.”
|
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.
|
Warrant
|
||||
Value at
|
||||
June 30, 2009
|
||||
Stock
price
|
$ | 4.31 | ||
Exercise
price
|
$ | 1.60 | ||
Term
in years
|
1.75 | |||
Volatility
|
121.92 | % | ||
Annual
rate of quarterly dividends
|
- | |||
Discount
rate- bond equivalent yield
|
0.80 | % | ||
Discount due to
limitations on marketability, liquidity
and other credit factors
|
40.00 | % |
Fair Value
|
Fair Value Measurements at
|
|||||||||||||||
As of
|
June 30, 2009
|
|||||||||||||||
June 30, 2009
|
Using Fair Value Hierarchy
|
|||||||||||||||
Liabilities
|
Level 1
|
Level 2
|
Level 3
|
|||||||||||||
Warrant
liability
|
$ | 8,470,532 | $ | 8,470,532 |
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”, or SAB 104, and
Statement of Financial Accounting Standards No. 116, or SFAS
116. Revenue sources consist of government grants,
government contracts and commercial development
contracts.
|
M.
|
Deferred
Revenue – Deferred revenue results when payment is received in advance of
revenue being earned. The Company makes a determination as to whether the
revenue has been earned by applying a percentage-of-completion analysis to
compute the need to recognize deferred revenue. The percentage of
completion method is based upon (1) the total income projected for the
project at the time of completion and (2) the expenses incurred to date.
The percentage-of-completion can be measured using the proportion of costs
incurred versus the total estimated cost to complete the
contract.
|
N.
|
Research
and Development - Research and development expenses consist primarily of
costs associated with 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.
|
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 was to expire on May
26, 2016 and the aggregate number of shares of stock which could be
delivered under the Plan may 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. On April 29, 2008, the stockholders of the
Company approved an amendment and restatement of the Plan (the “Amended
Plan”). The Amended Plan increases the number of shares available for
issuance by an additional 2,000,000 shares, clarifies other aspects of the
Plan, contains updates that reflect changes and developments in federal
tax laws and expires April 29, 2018. As of June 30, 2009 there
were 2,360,776 stock options and 322,540 shares granted under the Amended
Plan and 21,366 shares forfeited leaving 1,338,050 shares of stock to be
awarded under the Amended 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.
|
2009 YTD
|
2008
|
|||||||
Risk-free
interest rate
|
1.87-2.74 | % | 2.43-3.58 | % | ||||
Expected
dividend yield
|
0 | % | 0 | % | ||||
Expected
life
|
5-6
years
|
5-6
years
|
||||||
Expected
volatility
|
84.13-86.87 | % | 64.25-82.47 | % |
Weighted
|
Weighted
|
||||||||
Average
|
Average
|
||||||||
Exercise
|
Remaining
|
||||||||
Price per
|
Contractual
|
||||||||
Shares
|
Share
|
Term (in Years)
|
|||||||
Outstanding,
December 31, 2008
|
1,948,874 | $ | 6.17 | ||||||
Granted
|
658,055 | $ | 2.54 | ||||||
Exercised
|
86,981 | $ | 1.76 | ||||||
Forfeited,
Canceled
|
3,313 | $ | 4.00 | ||||||
Outstanding,
June 30, 2009
|
2,516,635 | $ | 5.37 |
8.46
|
|||||
Exercisable,
June 30, 2009
|
2,149,435 | $ | 4.98 |
8.41
|
Weighted
|
Weighted
|
||||||||
Average
|
Average
|
||||||||
Exercise
|
Remaining
|
||||||||
Price per
|
Contractual
|
||||||||
Shares
|
Share
|
Term (in Years)
|
|||||||
Outstanding,
December 31, 2007
|
1,011,740 | $ | 7.29 | ||||||
Granted
|
914,924 | $ | 4.93 | ||||||
Exercised
|
11,874 | $ | 1.75 | ||||||
Forfeited,
Canceled
|
- | n/a | |||||||
Outstanding,
June 30, 2008
|
1,914,790 | $ | 6.20 |
8.94
|
|||||
Exercisable,
June 30, 2008
|
1,559,503 | $ | 5.44 |
8.91
|
Q.
|
Net
Loss Per Share - Basic and diluted net loss per share has been computed
using the weighted-average number of shares of common stock outstanding
during the period.
|
Quarter Ended
|
Quarter Ended
|
Six-Months
|
Six-Months
|
|||||||||||||
June 30, 2009
|
June 30, 2008
|
June 30, 2009
|
June 30, 2008
|
|||||||||||||
Net
loss available to common stockholders
|
$ | (6,699,202 | ) | $ | (4,071,711 | ) | $ | (9,927,111 | ) | $ | (8,358,048 | ) | ||||
Net
loss per share, basic and diluted
|
$ | (0.45 | ) | $ | (0.30 | ) | $ | (0.69 | ) | $ | (0.63 | ) | ||||
Weighted-average
shares used in computing net loss per share, basic and
diluted
|
14,789,062 | 13,491,493 | 14,342,277 | 13,318,744 |
R.
|
Concentrations
of Risk - Grant and contract revenue was comprised wholly from grants and
contracts issued by the federal government and accounted for 100.0% and
91.1% of total revenue for the six months ended June 30, 2009 and 2008,
respectively. Although the Company anticipates ongoing federal grant and
contract revenue, there is no guarantee that this revenue stream will
continue in the future.
|
S.
|
Foreign
Currency Exchange Rate Risk - The Company has entered into a manufacturing
agreement to produce one of its drug compounds and into an agreement for
assay development and validation with foreign third parties 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 June 30, 2009, the Company is obligated to
make payments under the agreements of 410,210 Euros. As of June 30, 2009,
the Company has not purchased any forward contracts for Euros and,
therefore, at June 30, 2009, had foreign currency commitments of $590,702
for Euros given prevailing currency exchange spot rates. The Company has
plans to make additional payments on similar agreements of 2,876,945 Euros
or $4,142,801 in foreign currency commitments at prevailing currency
exchange spot rates.
|
Warrants
|
Warrants
|
Warrants
|
||||||||||
Issued on
|
Issued on
|
Issued on
|
||||||||||
February 13, 2009
|
March 20, 2009
|
March 27, 2009
|
||||||||||
Stock
price (prior day close)
|
$ | 2.95 | $ | 1.41 | $ | 2.44 | ||||||
Exercise
price
|
$ | 2.60 | $ | 1.60 | $ | 1.60 | ||||||
Term
in years
|
2.00 | 2.00 | 2.00 | |||||||||
Volatility
|
110.14 | % | 108.87 | % | 111.57 | % | ||||||
Annual
rate of quarterly dividends
|
- | - | - | |||||||||
Discount
rate- bond equivalent yield
|
0.89 | % | 0.87 | % | 0.90 | % | ||||||
Discount
due to limitations on marketability, liquidity
and other credit factors
|
40 | % | 40 | % | 40 | % |
Operating
|
||||||
Leases
|
||||||
2009
|
Remaining
Two Quarters
|
$ | 187,005 | |||
2010
|
343,656 | |||||
2011
|
311,803 | |||||
2012
|
144,375 | |||||
2013
|
- | |||||
$ | 986,839 |
Options
|
Exercise Price Per Share
|
|||||||
Outstanding,
December 31, 2008
|
1,948,874 | $ | 6.17 | |||||
Granted
|
658,055 | $ | 2.54 | |||||
Exercised
|
86,981 | $ | 1.76 | |||||
Forfeited,
Canceled
|
3,313 | $ | 4.00 | |||||
Outstanding,
June 30, 2009
|
2,516,635 | $ | 5.37 |
Weighted Average
|
||||||||
Options
|
Exercise Price Per Share
|
|||||||
Outstanding,
December 31, 2007
|
1,011,740 | $ | 7.29 | |||||
Granted
|
914,924 | $ | 4.93 | |||||
Exercised
|
11,874 | $ | 1.75 | |||||
Forfeited,
Canceled
|
- | n/a | ||||||
Outstanding,
June 30, 2008
|
1,914,790 | $ | 6.20 |
Weighted Average
|
||||||||
Warrants
|
Exercise Price Per Share
|
|||||||
Outstanding,
December 31, 2008
|
3,453,268 | $ | 8.86 | |||||
Granted
|
4,265,122 | $ | 1.60 | |||||
Exercise
Price Adjustment
|
$ | (3.07 | ) | |||||
Exercised
|
- | n/a | ||||||
Forfeited,
Canceled
|
- | n/a | ||||||
Outstanding,
June 30, 2009
|
7,718,390 | $ | 3.59 |
Weighted Average
|
||||||||
Warrants
|
Exercise Price Per Share
|
|||||||
Outstanding,
December 31, 2007
|
3,453,268 | $ | 8.86 | |||||
Granted
|
- | n/a | ||||||
Exercised
|
- | n/a | ||||||
Forfeited,
Canceled
|
- | n/a | ||||||
Outstanding,
June 30, 2008
|
3,453,268 | $ | 8.86 |
|
·
|
Protectans
- modified factors of microbes that protect cells from apoptosis, and
which therefore have a broad spectrum of potential applications including
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 toxicities.
|
|
·
|
Curaxins
- small molecules designed to kill tumor cells by simultaneously targeting
multiple regulators of apoptosis. 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
number and outcome of clinical studies we are planning to conduct; for
example, our research and development expenses may increase
based on the number of late-stage clinical studies that we may be required
to conduct;
|
|
·
|
the
performance of our research and development collaborators; if
any research collaborator fails to commit sufficient resources, our
preclinical or clinical development programs related to this collaboration
could be delayed or terminated;
|
|
·
|
the
ability to maintain and/or obtain licenses; we may have to develop
alternatives to avoid infringing upon the patents of others, potentially
causing increased costs and delays in product
development;
|
|
·
|
the
number of products entering development from late-stage research; there is
no guarantee that internal research efforts will succeed in generating
sufficient data for us to make a positive development decision or that an
external candidate will be available on terms acceptable to us, and some
promising candidates may not yield sufficiently positive pre-clinical
results to meet our stringent development
criteria;
|
|
·
|
the
number of new grants and contracts awarded in the future; if the
availability of research grants and contracts were curtailed, our ability
to fund future research and development and implement
technological improvements would be diminished, which would negatively
impact our ability to fund research and development
efforts;
|
|
·
|
in-licensing
activities, including the timing and amount of related development funding
or milestone payments; for example, we may enter into agreements requiring
us to pay a significant up-front fee for the purchase of in-process
research and development that we may record as research and
development expense; or
|
|
·
|
future
levels of revenue; research and development as a percentage of future
potential revenues can fluctuate with the changes in future levels of
revenue and lower revenues can lead to less spending on research and
development efforts.
|
|
·
|
pre-clinical
or clinical study results that may show the product to be less effective
than desired (e.g., the study failed to meet its primary objectives) or to
have harmful or problematic side
effects;
|
|
·
|
failure
to receive the necessary regulatory approvals or a delay in receiving such
approvals. Among other things, such delays may be caused by slow
enrollment in clinical studies, length of time to achieve study endpoints,
additional time requirements for data analysis or a New Drug
Application/Biologic License Application, preparation, discussions with
the Food and Drug Administration (or FDA), an FDA request for additional
pre-clinical or clinical data or unexpected safety or manufacturing
issues;
|
|
·
|
manufacturing
costs, pricing or reimbursement issues, or other factors that make the
product not economical; and
|
|
·
|
the
proprietary rights of others and their competing products and technologies
that may prevent the product from being
commercialized.
|
|
·
|
Aggressively working towards
the commercialization of Protectan CBLB502. Our most advanced drug
candidate, Protectan CBLB502, offers the potential to protect normal
tissues against exposure to radiation. Because of the potential military
and defense implications of such a drug, the normally lengthy FDA approval
process for these non-medical applications is substantially abbreviated
resulting in a large cost savings to us. We expect to complete development
of Protectan CBLB502 for these non-medical applications by the end of
2010.
|
|
·
|
Leveraging our relationship
with leading research and clinical development institutions. The
Cleveland Clinic, one of the top research medical facilities in the world,
is one of our co-founders. In addition to providing us with drug leads and
technologies, the Cleveland Clinic will share valuable expertise with us
as clinical trials are performed on our drug candidates. In January 2007,
we entered into a strategic research partnership with Roswell Park Cancer
Institute, or RPCI, in Buffalo, New York. This partnership will enhance
the speed and efficiency of our clinical research and provide us with
access to the state-of-the-art clinical development facilities of a
globally recognized cancer research
center.
|
|
·
|
Utilizing governmental
initiatives to target our markets. Our focus on drug candidates
such as Protectan CBLB502, which has applications that have been deemed
useful for military and defense purposes, provides us with a built-in
market for our drug candidates. This enables us to invest less in costly
retail and marketing resources. In an effort to improve our responsiveness
to military and defense needs, we have established a collaborative
relationship with the Armed Forces Radiobiology Research
Institute.
|
|
·
|
Utilizing and developing other
strategic relationships. We have collaborative relationships with
other leading organizations that enhance our drug development and
marketing efforts. For example, one of our founders, with whom we maintain
a strategic partnership, is ChemBridge Corporation. Known for its
medicinal chemistry expertise and synthetic capabilities, ChemBridge
provides valuable resources to our drug development
research.
|
|
·
|
Conducting
pivotal animal efficacy studies with the GMP manufactured drug candidate.
We expect to complete these studies in mid 2010. The studies have an
approximate cost of $2,500,000 and are covered by a government development
contract.
|
|
·
|
Performing
a human safety study in a larger number of volunteers using the dose of
Protectan CBLB502 previously shown to be safe in humans and efficacious in
animals. We estimate completion of this study in late 2010 at an
approximate cost of $5,300,000 based on 500 subjects tested in four
locations. This study is also covered by a government development
contract.
|
|
·
|
Filing
a Biologic License Application, or BLA which we expect to complete in late
2010. At the present time, the costs of the filing cannot
be approximated with any level of
certainty.
|
|
·
|
An
aerosolized atropine drug delivery system to treat lingering effects of
nerve agent intoxication related to muscarinic
stimulation.
|
|
·
|
A
radiological/nuclear therapeutic medical countermeasure to be administered
following exposure to ionizing radiation that will decrease incapacity and
prolong survival by treating the gastrointestinal sub-syndrome of
ARS.
|
|
·
|
Amyl
nitrate as an adjunct to current military cyanide treatment
regimen.
|
|
·
|
Submitting
an amendment to our CBLB502 IND application and receiving
allowance from the FDA. We cannot estimate with any certainty when
the FDA may allow the application. We expect to submit the amendment upon
the receipt of dedicated federal funding. We estimate that the approximate
cost of filing will be less than
$100,000.
|
|
·
|
Performing
a Phase I/II human efficacy study on a small number of cancer patients. We
expect to complete this study two years from the receipt of allowance from
the FDA of the IND amendment at an approximate cost of
$1,500,000.
|
|
·
|
Performing
an additional Phase II efficacy study on a larger number of cancer
patients. At the present time, the costs and the scope of this study
cannot be approximated with any level of
certainty.
|
|
·
|
Performing
a Phase III human clinical study on a large number of cancer patients and
filing a BLA with the FDA. At the present time, the costs and the scope of
these steps cannot be approximated with any level of
certainty.
|
|
·
|
Conducting
pivotal animal safety studies with GMP-manufactured
CBLB612.
|
|
·
|
Submitting
an IND application and receiving approval from the
FDA.
|
|
·
|
Performing
a Phase I dose-escalation human
study.
|
|
·
|
Performing
a Phase II and Phase III human efficacy study using the dose of CBLB612
selected from the previous studies previously shown to be safe in humans
and efficacious in animals.
|
|
·
|
Filing
a New Drug Application.
|
|
·
|
the
conversion price of the Series B Preferred to be reduced from $4.67 to $4.63, causing
the conversion rate of the Series B Preferred into Common Stock to
increase from approximately 1-to-1.49893 to approximately 1-to-1.51188,
and the aggregate number of shares of Common Stock into which the
1,716,233 shares of outstanding Series B Preferred are convertible to
increase from 2,572,513 to
2,594,737;
|
|
·
|
the
exercise price of the Series B Warrants to be reduced from $6.79 to $6.73,
and the aggregate number of shares of Common Stock issuable upon exercise
of the Series B Warrants to increase from 3,609,300 to 3,641,479;
and
|
|
·
|
the
exercise price of the Series C Warrants to be reduced from $7.20 to $7.13,
and the aggregate number of shares of Common Stock issuable upon exercise
of the Series C Warrants to increase from 408,036 to
412,042.
|