Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended SeptemberJune 30, 20202021

OR

For the transition period from                     to                     

Commission file number 001-32954

CLEVELAND BIOLABS,CYTOCOM, INC.

(Exact name of registrant as specified in its charter)

(716) 849-6810(888) 613-8802

(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.

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:

As of October 20, 2020,August 9, 2021, there were 13,336,44015,478,945 shares outstanding of the registrant’s common stock, par value $0.005 per share.

TABLE OF CONTENTS

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."

1. Description of Business

On July 27, 2021 Cytocom, Inc., formerly known as Cleveland BioLabs, Inc. ("(the "CBLICompany" or the "CompanyCytocom") is, High Street Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of the Company ("Merger Sub"), and Cytocom Inc., a Delaware corporation ("Old Cytocom"), completed their previously announced merger transaction. The merger transaction was completed pursuant to an Agreement and Plan of Merger (the “Merger Agreement”), dated as of October 16, 2020, pursuant to which Merger Sub merged with and into Old Cytocom, with Old Cytocom continuing as a wholly owned subsidiary of the Company and the surviving corporation of the merger (the "Merger"). In connection with the closing of the Merger, Old Cytocom was renamed “Cytocom Subsidiary Inc.” and the Company was renamed “Cytocom, Inc.” 

Prior to the closing of the Merger and at all times during the period covered by this report, the Company was 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, as of immediately prior to the closing of the Merger, is entolimod, an immune-stimulatory agent, which we are developing as a medical radiation countermeasure and other indications in radiation oncology.

CBLIThe Company was incorporated in Delaware in June 2003 and is headquartered in Buffalo, New York. CBLI conductsFort Collins, Colorado. The Company has conducted 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; was dissolved in November 2020; 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, referencesor the context otherwise requires, the terms "Cytocom," the "Company," "we," "us," and "our" refer to Cytocom, Inc., known as "Cleveland BioLabs, Inc." prior to the "Company," "we," "us,"Merger, BioLab 612, Panacela and, "our" referprior to Cleveland BioLabs,the closing of the Merger, Merger Sub, and after the Merger, Cytocom Subsidiary 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% share of the losses of GPI through SeptemberJune 30, 20202021 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,the Company, BioLab 612, Panacela and Panacela.Merger Sub. All significant intercompany balances and transactions have been eliminated in consolidation.

The consolidated condensed balance sheet as of December 31, 20192020, 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-Q10-Q and Article 8 of Regulation S-XS-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-K10-K for the year ended December 31, 20192020, as filed with the SEC (the "20192020 Form 10-K10-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 SeptemberJune 30, 20202021, along with its results of operations for the three and ninesix month periods ended SeptemberJune 30, 2020 2021 and 20192020 and cash flows for the ninesix-month periods ended SeptemberJune 30, 2020 2021 and 20192020. Interim results are not necessarily indicative of results that may be expected for any other interim period or for an entire year.

At SeptemberJune 30, 20202021, we had cash and cash equivalents and short-term investments of $3.0$13.8 million in the aggregate. Management believes this capital will be sufficient to support operations beyond one year from this filing. 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, obtaining additional government research funding, or entering into other strategic transactions. 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 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.

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.

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 $0.3 million in certificates of deposit owned by Panacela that have maturity dates falling beyond three months and less than one year. 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 ninesix months ended SeptemberJune 30, 2020 2021 and 20192020.

Our current Department of Defense ("DoD") revenues come from development contracts that expire in 2020. Revenues from Incuron LLC, a company in which the Company previously owned an equity interest ("Incuron"), comes from a service agreement.

Accounts receivable consist of amounts due under reimbursement contracts with these customers. The Company extends unsecured credit to the above 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 arising from transactions and other events and circumstances from non-owner sources. The following table presents the changes in accumulated other comprehensive loss for the ninesix months ended SeptemberJune 30, 20202021.

3. Fair Value of Financial Instruments

The Company measureshas measured and records warrantrecorded short-term investments and certain warrants as 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-tierthree-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value, includes:

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: 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 financialThere were 0 assets and liabilities measured at fair value on a recurring basis.as of June 30, 2021.  As of December 31, 2020, the following items were measured at fair value: 

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:

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:

As of SeptemberJune 30, 20202021 and December 31, 20192020, the Company had no0 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, 2020, 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 0.29 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.

4. Stockholders’ Equity

During June 2020, On February 19, 2021, the Company raised $2.8 million in net proceeds fromentered into a Securities Purchase Agreement (the "Purchase Agreement") for the issuancesale of 1,515,8782,000,000 shares (the "Shares") of common stock at a purchase price of $7.00 per share, in a registered direct offering. The closing of the sale of the Shares under the Purchase Agreement occurred on February 23, 2021. The gross proceeds to the Company from the transaction were $14 million, before deducting the placement agent’s fees and 871,630 stock warrants.other estimated offering expenses. Under the Company’s engagement letter with H.C. Wainwright & Co., LLC ("Wainwright"), pursuant to which Wainwright agreed to serve as exclusive placement agent for the issuance and sale of the Shares, the Company also issued to designees of Wainwright warrants to purchase up to 150,000 shares of Common Stock (the "Placement Agent Warrants"). Subject to certain ownership limitations, the Placement Agent Warrants are immediately exercisable at a price of $8.75 per share of Common Stock, subject to customary adjustments as provided under the terms of the Placement Agent Warrants. The stock warrants were recorded as a equity instrument and valued at $1.0 million atWarrants are exercisable for five years from the datecommencement of issuance utilizingsales of the following Black-Scholes assumptions.

Issuance costs amounted to $391,581. shares being offered.

The Company has granted options to purchase shares of common stock. The following is a summary of option award activity during the ninesix months ended SeptemberJune 30, 20202021:

The following is a summary of outstanding stock options as of SeptemberJune 30, 20202021:

For the ninesix months ended SeptemberJune 30, 2020 2021 and 20192020, the Company granted no0 stock options. As of September 30, 2020 and 2019, the total fair value of options vested was $0.

As of SeptemberJune 30, 20202021, there was no0 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 $2.03 to $20.40.$8.75. The warrants expire between one and seven years from the date of grant, and are subject to the terms applicable in each agreement.  These terms include for certain warrants the right to receive cash settlement upon the occurrence of a fundamental transaction.  The Merger meets the definition of a fundamental transaction per the terms of these warrant agreements.  

The following table summarizes the outstanding warrant activity in our outstanding warrants since December 31, 2019during the six months ended June 30, 2021:

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 ("Curaxin") intravenous administration study. Additionally, the Company’s Chief Scientific Officer, or CSO, Dr. Andrei Gudkov, is the Senior Vice President of Research Technology and Innovation at RPCI. The Company incurred $0 and $1,197,$0 and $9,367$0 and $67,318$1,197 in research and development expense to RPCI for the three and ninesix months ended SeptemberJune 30, 20202021 and 2019,2020, respectively. 

The Cleveland Clinic

CBLIThe Company has entered into an exclusive license agreement with The Cleveland Clinic pursuant to which CBLIthe Company was granted an exclusive license to The Cleveland Clinic’s research base underlying ourentolimod's therapeutic platform and certain product candidates licensed to Panacela. CBLIThe Company has the primary responsibility to fund all newly developed patents. However, The Cleveland Clinic retains ownership of those patents covered by the agreement. CBLIThe Company 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, CBLIthe Company sublicensed the intellectual property underlying entolimod's composition that CBLIthe Company licenses from The Cleveland Clinic to GPI. There were no milestone or royalty payments paid to The Cleveland Clinic during the three and ninesix months ended SeptemberJune 30, 20202021 and 20192020.  The Company incurred $0 and $0, and $0 and $30,710 in0 research and development expense to The Cleveland Clinic during the three and ninesix months ended SeptemberJune 30, 2020 2021 and 2019, respectively.2020.

Buffalo BioLabs and Incuron

Our CSO,Global Head of Research and Development, 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 $0 and $0, and $129 and $129 in0 research and development expense to BBL for the three and ninesix months ended SeptemberJune 30, 20202021 and 2019, respectively.2020. The Company also recognized $0 and $0, and $0 and $20,808 from BBL as0 sublease and other income from BBL for the three and ninesix months ended SeptemberJune 30, 20202021 and SeptemberJune 30, 2019, respectively.2020. Pursuant to our real estate sublease and equipment lease with BBL, the Company had gross accounts receivables of $6,285$0 and $219,108,$6,285, and net accounts receivables of $0 and $16,957$6,285 from BBL at SeptemberJune 30, 2020 2021 and 20192020, 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 $0 and $49,357,$0 and $26,928$8,347 and $295,958$49,357 for the three and ninesix months ended SeptemberJune 30, 20202021 and 2019,2020, respectively. In addition, the Company recognized $0 and $0, and $0 and $2,268 from Incuron for0 sublease and other income from Incuron for the three and ninesix months ended SeptemberJune 30, 20202021 and 2019,2020, respectively. Pursuant to these agreements, the Company had gross accounts receivablereceivables of $130,000 and $32,512$139,357, and net accounts receivables of $0 and $139,357 from Incuron at SeptemberJune 30, 2020 2021 and 20192020, respectively.

Genome Protection

GPI incurred $13,440 and $40,320,$26,880 and $54,700$13,440 and $149,550$26,880 in consultant expenses with members of the Company's Board of Directors and management team during the three and ninesix months ended SeptemberJune 30, 20202021 and 2019,2020, respectively. The Company also recognized $0 and $0, and $1,178 and $4,209 in sublease and other income from GPI during the three and nine months ended September 30, 2020 and 2019, respectively.

7. Subsequent Events

Closing of the Merger with Cytocom Inc.

On October 16, 2020, July 27, 2021, the Company, High Street Acquisition Corp. ("Merger Sub"), a Delaware corporation and a wholly owned subsidiary ofOld Cytocom completed the Company, and Cytocom, Inc., a Delaware corporation ("Cytocom"), entered into an Agreement and Plan ofMerger. The Merger (the "was completed pursuant to the Merger Agreement,"), pursuant to which among other matters, and subject to the satisfaction or waiver of the conditions set forth in the Merger Agreement, Merger Sub will mergemerged with and into Old Cytocom, with Old Cytocom continuing as a wholly owned subsidiary of the Company and the surviving corporation of the merger (the "Merger"). Subject toMerger. In connection with the terms and conditionsclosing of the Merger, Agreement, atOld Cytocom was renamed “Cytocom Subsidiary Inc.” and the effective timeCompany was renamed “Cytocom, Inc.”

Merger Consideration. Upon completion of the Merger, each outstanding share of Old Cytocom common stock, each outstanding share of Old Cytocom preferred stock that was not, by its terms, converted into shares of Old Cytocom common stock immediately prior to the effective time of the merger,Merger (the "Effective Time"), and each vested restricted stock unit of Old Cytocom will be(excluding, in each case, dissenting shares and shares held in treasury) automatically converted into the right to receive a number of shares of the Company’sCompany common stock determined by the application of an exchange ratio formula set forth in the Merger Agreement. 

Exchange Ratio. The exchange formula provides thatratio was calculated based on the total number of outstanding shares of the Company’sCompany common stock and Old Cytocom common stock, each on a fully diluted basis, and the respective valuations of the Company and Old Cytocom, as of immediately prior to the Effective Time. As of the effective date of the Merger Agreement, the valuation of the Company was assumed to be $39 million and the valuation of Old Cytocom was assumed to be $61 million. For purposes of calculating the exchange ratio, the respective valuations of Old Cytocom and the Company at the Effective Time were increased or decreased, as applicable, based on the amount of each company’s net cash at closing, inclusive of certain short- and long-term liabilities. From these imputed valuation amounts, the number of shares to be issued as merger consideration for the Cytocom’s capital stockto Old Cytocom security holders will upon issuance, be equal to approximately 61%a percentage of the outstanding sharesfully diluted common stock of the combined company’s common stock. company determined by dividing the adjusted Old Cytocom valuation by the adjusted combined company valuation.

Accordingly, underbased on the foregoing exchange ratio, formulathe parties determined that 18,492,452 shares of Company common stock will be issued in the Merger, Agreement, as of immediately after the Merger,resulting in the former Old Cytocom stockholders are expectedsecurityholders owning, or holding rights to ownacquire, approximately 61%54% of the outstanding sharescommon stock of the combined company’s common stockcompany, on a fully diluted basis, and stockholderslegacy, pre-Merger Company securityholders owning, or holding rights to acquire, approximately 46% of the Company as of immediately prior to the Merger are expected to own approximately 39% of the outstanding sharescommon stock of the combined company’s common stockcompany, on a fully diluted basis. Certain adjustments to this ratio will be madebasis, in respecteach case as of each party’s net cashimmediately following the Effective Time. In addition, at the timeEffective Time, each unvested Old Cytocom restricted stock unit was converted into a number of restricted stock units of the closing of the Merger,Company, as determined in accordance with the Merger Agreement. Each unvestedexchange ratio formula described above. The terms (including, without limitation, the vesting terms) of each such substitute restricted stock unit are substantially equivalent to those of the Old Cytocom restricted stock unit award will be converted intobeing replaced.

Financing Arrangements

As a restricted stock unit award of the Company. Immediately following the effective timeresult of the Merger, the board of directors of the Company will consist of seven members, three of whom will be designated by the Company and four of whom will be designated by Cytocom. In addition, upon the closing of the Merger, Cytocom’s Chief Executive Officer, Michael Handley, will serve as Chief Executive Officer of the combined company. The closing of the Merger is subjectbecame party to the satisfaction or waiver of certain conditions including, among other things, (i) the required approvals by the Company’s stockholders, (ii) the accuracy of the respective representations and warranties of each party, subject to certain materiality qualifications, (iii) compliance by the parties with their respective covenants, (iv) the absence of any law or order preventing the Merger and related transactions, (v) the shares of the Company’s common stock to be issued in the Merger being approved for listing (subject to official notice of issuance) on Nasdaq as of the closing and (vi) a registration statement on Form S-4 having become effective in accordance with the provisions of the Securities Act of 1933, as amended, and not being subject to any stop order or proceeding (or threatened proceeding by the SEC) seeking a stop order with respect to such registration statement that has not been withdrawn.following material definitive agreements:

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 the expected ownership in the combined company of the former Cytocom securityholders and securityholders of the Company as of immediately prior to the Merger and governance of the combined company, are forward-looking statements.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, 2019.2020. Factors that may cause such differences include, but are not limited to, the risk that the proposed merger may not be completed in a timely manner or at all, which may adversely affect the Company’s business and the price of Company’s common stock; the failure of either party to satisfy any of the conditions to the consummation of the proposed merger, including the approval of Company’s stockholders; uncertainties as to the timing of the consummation of the proposed merger; the occurrence of any event, change or other circumstance that could give rise to the termination of the merger agreement; the effect of the announcement or pendency of the proposed merger on the Company’s business relationships, operating results and business generally; risks that the proposed merger disrupts current plans and operations and the potential difficulties in employee retention as a result of the proposed merger; risks related to diverting management’s attention from the Company’s ongoing business operations; the outcome of any legal proceedings that have been or may be instituted against the Company related to the merger agreement or the proposed merger;Merger; unexpected costs, charges or expenses resulting from the proposed merger;Merger; 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 controlsignificant influence over our company by our majoritylargest individual stockholder; the impact of the novel coronavirus ("COVID-19") pandemic on our business, operations and clinical development; 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, 2019.2020.

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, 2019.2020.

OVERVIEW

We are an innovativea clinical-stage biopharmaceutical company developing multiple product candidates to address unmet medical needs. Prior to the closing of the Merger, we focused exclusively on developing novel approaches to activate the immune system and address serious medical needs.system. 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 in this field is entolimod, an immune-stimulatory agent, which we are developing as a radiation countermeasure and other indications in radiation oncology. 

Following the closing of the Merger, as a result of the integration of Cytocom’s business, we are also now developing novel immunotherapies targeting autoimmune, inflammatory, infectious diseases and cancers based on a proprietary, multi receptor platform, or the AIMS platform, designed to rebalance the body’s immune system and restore homeostasis. These therapies are designed to elicit directly within patients a robust and durable response of antigen-specific killer T cells and antibodies, thereby activating essential immune defenses against autoimmune, inflammatory, infectious diseases, and cancers. We conductbelieve that our technologies can meaningfully leverage the human immune system for prophylactic and therapeutic purposes by eliciting killer T-cell response levels not achieved by other published immunotherapy approaches. Our immunomodulatory technology restores the balance between the cellular (Th1) and the humoral (Th2) immune systems. Immune balance is regulated through T-helper cells that produce cytokines. The Th1 lymphocytes help fight pathogens within cells like cancer and viruses through interferon-gamma and macrophages. The Th2 lymphocytes target external pathogens like cytotoxic parasites, allergens, toxins through the activation of B-cells and antibody production to effect to dendritic cells, which are natural activators of killer T cells, also known as cytotoxic T -cells, or CD8+ T cells. Furthermore, the Cytocom technology antagonizes the toll-like receptors to inhibit proinflammatory cytokines.

Prior to the closing of the Merger, we conducted business in the U.S. directly and in Russia through two subsidiaries, one of which is wholly owned, BioLab 612 (which the Company has decided to dissolve)was dissolved in November 2020), and one of which is owned in collaboration with a financial partner, Panacela. As of the closing of the Merger, we also now conduct business through Old Cytocom and its subsidiaries, ImQuest Life Sciences Inc, ImQuest BioSciences Inc., ImQuest Pharmaceuticals, Inc., and Lubrinovation Inc. 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 ("Everon").

Recent Developments

Closing of the Merger with Cytocom, Inc.

As previously disclosed, on October 16, 2020,On July 27, 2021, the Company, High Street Acquisition Corp., a Delaware corporationMerger Sub, and a wholly owned subsidiary ofOld Cytocom completed the Company ("Merger. The Merger Sub"), and Cytocom, Inc., a Delaware corporation ("Cytocom"), entered into an Agreement and Plan of Merger (the "was completed pursuant to the Merger Agreement,"), pursuant to which, among other matters, and subject to the satisfaction or waiver of the conditions set forth in the Merger Agreement, Merger Sub will mergemerged with and into Old Cytocom, with Old Cytocom continuing as a wholly owned subsidiary of the Company and the surviving corporation of the merger (the "Merger"). Subject toMerger. In connection with the terms and conditionsclosing of the Merger Agreement, atMerger. Old Cytocom was renamed "Cytocom Subsidiary Inc." and the effective timeCompany was renamed "Cytocom, Inc."

Upon completion of the Merger, each outstanding share of Old Cytocom common stock, each outstanding share of Old Cytocom preferred stock that was not, by its terms, converted into shares of Old Cytocom common stock immediately prior to the effective time of the merger,Effective Time, and each vested restricted stock unit of Old Cytocom will be(excluding, in each case, dissenting shares and shares held in treasury) automatically converted into the right to receive a number of shares of the Company’sCompany common stock determined by the application of an exchange ratio formula set forth in the Merger Agreement. 

The exchange formula provides thatratio was calculated based on the total number of outstanding shares of the Company’sCompany common stock and Old Cytocom common stock, each on a fully diluted basis, and the respective valuations of the Company and Old Cytocom, as of immediately prior to the Effective Time. As of the effective date of the Merger Agreement, the valuation of the Company was assumed to be $39 million and the valuation of Old Cytocom was assumed to be $61 million. For purposes of calculating the exchange ratio, the respective valuations of Old Cytocom and the Company at the Effective Time were increased or decreased, as applicable, based on the amount of each company’s net cash at closing, inclusive of certain short- and long-term liabilities. From these imputed valuation amounts, the number of shares to be issued as merger consideration for the Cytocom’s capital stockto Old Cytocom securityholders will upon issuance, be equal to approximately 61%a percentage of the outstanding sharesfully diluted common stock of the combined company’s common stock. company determined by dividing the adjusted Old Cytocom valuation by the adjusted combined company valuation.

Accordingly, underbased on the foregoing exchange ratio, formulathe parties determined that 18,492,452 shares of Company common stock will be issued in the Merger, Agreement, as of immediately after the Merger,resulting in the former Old Cytocom stockholders are expectedsecurityholders owning, or holding rights to ownacquire, approximately 61%54% of the outstanding sharescommon stock of the combined company’s common stockcompany, on a fully diluted basis, and stockholderslegacy, pre-Merger Company securityholders owning, or holding rights to acquire, approximately 46% of the Company as of immediately prior to the Merger are expected to own approximately 39% of the outstanding sharescommon stock of the combined company’s common stockcompany, on a fully diluted basis. Certain adjustments to this ratio will be madebasis, in respecteach case as of each party’s net cashimmediately following the Effective Time.

In addition, at the timeEffective Time, each unvested Old Cytocom restricted stock unit was converted into a number of restricted stock units of the closing of the Merger,Company, as determined in accordance with the Merger Agreement. Each unvestedexchange ratio formula described above. The terms (including, without limitation, the vesting terms) of each such substitute restricted stock unit are substantially equivalent to those of the Old Cytocom restricted stock unit award will be converted intobeing replaced.

Financing Arrangements

As a restricted stock unit award of the Company. Immediately following the effective timeresult of the Merger, the board of directors of the Company will consist of seven members, three of whom will be designated by the Company and four of whom will be designated by Cytocom. In addition, upon the closing of the Merger, Cytocom’s Chief Executive Officer, Michael Handley, will serve as Chief Executive Officer of the combined company. The closing of the Merger is subjectbecame party to the satisfaction or waiver of certain conditions including, among other things, (i) the required approvals by the Company’s stockholders, (ii) the accuracy of the respective representations and warranties of each party, subject to certain materiality qualifications, (iii) compliance by the parties with their respective covenants, (iv) the absence of any law or order preventing the Merger and related transactions, (v) the shares of the Company’s common stock to be issued in the Merger being approved for listing (subject to official notice of issuance) on Nasdaq as of the closing and (vi) a registration statement on Form S-4 having become effective in accordance with the provisions of the Securities Act of 1933, as amended, and not being subject to any stop order or proceeding (or threatened proceeding by the SEC) seeking a stop order with respect to such registration statement that has not been withdrawn.following material definitive agreements:

NASDAQ Listing Status

As previously disclosed, on August 21, 2020,Certain of these arrangements are discussed in greater deal under the Company received a letter from The Nasdaq Stock Market informing the Company that the Company had regained compliance with Nasdaq Listing Rule 5550(b), which requires that the Company maintain a minimum stockholders’ equity of at least $2.5 million (theheading "Rule"). As a result, the Nasdaq Hearings Panel (the "Panel") determined to continue the listing of the Company’s securities on The Nasdaq Stock Market. However, due to the marginal nature of compliance in the projections provided to the Panel – Liquidity and the staff of the Nasdaq Stock Market (the “Staff”) on August 17, 2020, the Staff has recommended, and the Panel has determined to impose, a Panel Monitor until February 10, 2021. The Company is under certain notification obligations during this time period, including the obligation to notify the Panel Monitor if it fails to comply with the Rule or any other applicable listing requirement. Additionally, if at any time during this time period the Company fails to satisfy any continued listing standard, the Panel will promptly conduct a hearing with respect to the deficiency, and the Company’s securities may be immediately delisted from The Nasdaq Stock Market.Capital Resources."

COVID-19 Pandemic

The COVID-19 pandemic has continued to affect multiplemost countries around the world, including the United States, where a national emergency was declared, and several European and Asian countries.declared. The continued spread of COVID-19 in the United States and worldwide, as well as the government-ordered shutdown and shelter-in-place orders imposed to counter the pandemic, have led to severe disruptions to the global economy.economy, especially for the year ended December 31, 2020. In this connection, on March 20, 2020, the Governor of New York announced that 100% of the workforce of all businesses, excluding essential services, must stay home. During the effectiveness of this order , we implemented a work-from-home policy for all employees based in our Buffalo, New York headquarters.  Under new applicable state orders, our offices may be occupied at 50% of their normal capacity if other safety precautions are taken, however, generally very few of our employees have returned to the office. We are continuing to monitor the situation and will take such further action  as may be required by federal, state or local authorities, or that we determine are in the best interests of our employees.  COVID-19 and the governmental responses to it may cause us to experience disruptions that could severely impact our business, operations, preclinical studies and clinical trials. The global outbreak of COVID-19 continues to rapidly evolve and has begun to have indeterminable adverse effects on general commercial activity and the world economy. The extent to which COVID-19 may impact our business, research and development efforts, preclinical studies, clinical trials, prospects for regulatory approval of our drug candidates, and operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the effectiveness of vaccination efforts, ultimate geographic spread of the disease, the duration of the outbreak, the impact of any new variants of the virus, the extent and duration of travel restrictions and social distancing in the United States and other countries, business closures or business disruptions and the effectiveness of actions taken in the United States and other countries to contain and treat the disease. In addition, a recession or market correction resulting from the spread of COVID-19 could materially affect our business prospects and the value of our common stock.  Furthermore, if we or any of the third parties with whom we engage were to experience renewed shutdowns or other business disruptions, our ability to conduct our business in the manner and on the timelines presently planned could be materially and negatively impacted, which could have a material adverse effect on our business, financial condition and results of operations.

Registered Direct Offering

As previously disclosed, on February 19, 2021, the Company entered into a Securities Purchase Agreement (the "Purchase Agreement") with several healthcare-focused and institutional investors for the sale by the Company of 2,000,000 shares (the "Shares") of the Company’s common stock at a purchase price of $7.00 per share in a registered direct offering. The closing of the sale of the Shares under the Purchase Agreement occurred on February 23, 2021. The gross proceeds to the Company from the transaction were $14 million, before deducting the placement agent’s fees and other estimated offering expenses. The Shares were offered and sold by the Company under a prospectus supplement and accompanying prospectus filed with the SEC pursuant to an effective shelf registration statement on Form S-3, which was filed with the SEC on May 21, 2020 and subsequently declared effective on May 29, 2020 (File No. 333-238578). Under the Company’s engagement letter (the "Engagement Letter") with H.C. Wainwright & Co., LLC ("Wainwright"), pursuant to which Wainwright agreed to serve as exclusive placement agent for the issuance and sale of the Shares, the Company agreed to pay Wainwright an aggregate fee equal to 7.25% of the gross proceeds received by the Company from the sale of the securities in the transaction as well as a management fee equal to 1.0% of the gross proceeds received by the Company from the sale of the securities in the transactions. Pursuant to the Engagement Letter, the Company also issued to designees of Wainwright warrants to purchase up to 7.5% of the aggregate number of shares of Common Stock sold in the transactions, or warrants to purchase up to 150,000 shares of Common Stock (the "Placement Agent Warrants"). Subject to certain ownership limitations, the Placement Agent Warrants are immediately exercisable at an exercise price of $8.75 per share of Common Stock, subject to customary adjustments as provided under the terms of the Placement Agent Warrants. The Warrants are exercisable for five years from the commencement of sales of the shares being offered.

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 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. Additionally, we expect that as a result of the Merger, our business, financial condition, results of operations and cash flows will be materially different in future periods than in the past. Accordingly, our past results are not likely to be indicative of our future performance.

Revenue

Our revenue originateshas historically originated from grants and contracts from both United States ("U.S.") federal government sources and service contracts with Incuron. U.S. federal grants and contracts arehave been provided to advance research and development of entolimod, our lead product candidate, prior to the Merger, which we believe is of interest for potential sale to the DoD, or the Biomedical Advanced Research and Development Authority of the U.S. Department of Health and Human Services ("BARDA"). We providealso have provided 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.

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, 2019. Other than as set forth below, our2020. 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, 2019.2020.

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 U.S. Treasury Notes or certificates of deposit. As of September 30, 2020, we held approximately $0.3 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, 2020, we held approximately $0.01 million in accrued expenses related to warrants to purchase common stock, which we classified as Level 3.