Summary of Significant Accounting Policies

Basis of Presentation and Consolidation

The accompanying consolidated financial statements include the accounts of CBLI, BioLab

612,

and Panacela. All significant intercompany balances and transactions have been eliminated in consolidation. These financial statements have been prepared on the accrual basis in accordance with accounting principles generally accepted in the United States ("

GAAP

").

December 31,

2019

, we had cash, cash equivalents, and short-term investments of

$1.6

million. Of that total,

$0.5

million was restricted for the use of our consolidated joint venture, Panacela, leaving

$1.1

million available for general use, which management believes

may

not

be sufficient to support operations into

June 2020.

To ensure continuing operations, management is evaluating all opportunities to secure additional financing, including investments from non-controlling interests, the sale or license of our drug candidates, the issuance of equity, and securing additional revenues from the U.S. or Russian governments. Management believes that sufficient sources of financing

may

not

be available to support operations into the future. These matters raise substantial doubt about the Company’s ability to continue as a going concern. These financial statements have been prepared under the assumption that the Company will continue as a going concern and do

not

include any adjustments that might result from the outcome of this uncertainty.

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.

Cash and Cash Equivalents

Of the

$1.1

million

and

$3.6

million of cash and cash equivalents at

December

31,

2019

and

December

31,

2018

, respectively,

$1.1

million

and

$3.6

million, respectively, consisted of highly liquid investments with maturities of

days or less when purchased. These investments consist of investments in money market funds with commercial banks and financial institutions. As of

December

31,

2019

$0.15

million of the Company’s cash and cash equivalents were held in Russian banks, of which

$0.12

million was denominated in rubles with the remaining

$0.03

million denominated in U.S. dollars.

Short-Term Investments

The Company’s short-term investments are classified as and held to maturity and recorded at amortized cost. Short-term investments consist of

$0.5

million in certificates of deposit with maturity dates beyond

three

months and less than

one

year and are owned by Panacela. These investments are classified as held to maturity given the intent and ability to hold the investments to maturity. Realized gains and losses, and interest and dividends on short-term investments are recorded in our Consolidated Statement of Operations as Interest and Other Income. The cost of securities sold is based on the specific identification method.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to a significant concentration of credit risk primarily consist of cash and cash equivalents and short-term investments. The Company maintains cash balances with financial institutions in excess of insured limits.

As of

December

31,

2019

, the Company held

14%

of its cash and cash equivalents in accounts located outside of the United States.

As of

February

2020,

the Dollar:Russian Ruble exchange rate increased to

63.6852,

resulting in a decrease of

$0.005

million to the Company’s cash and cash equivalents as compared to

December

31,

2019

Significant Customers and Accounts Receivable

The following table presents our revenue by customer, on a proportional basis, for the periods indicated:

	Years ended December 31,
	2019			2018			Variance
U.S. Department of Defense		57.2	%		46.3	%		10.9	%
Incuron, Inc		42.8	%		53.7	%		(10.9	)%
		100.0	%		100.0	%		—	%

Although the Company anticipates ongoing contract and grant revenue from these customers, there is

guarantee that these revenue streams will continue in the future.

The Company extends unsecured credit to its government customers under normal trade agreements and contracted terms, which generally require payment within

days. Accounts receivable consist of amounts due under contracts and grants from these customers, along with amounts receivable under subleases at our Buffalo, New York office facility. There were allowances for doubtful accounts of

$0.0

million and

$0.2

million at

December

31,

2019

and

December

31,

2018

, respectively, pertaining to accounts receivable from our subleases.

Equipment

Equipment is stated at cost, net of accumulated depreciation. Upon retirement or sale, the cost of assets disposed of and the related accumulated depreciation are removed from the accounts and any resulting gain or loss is credited or charged to operations. Repair and maintenance costs are expensed as incurred.

Equipment is depreciated using the straight-line method over the estimated useful lives of the respective assets as follows:

Asset Category	Estimated Useful Life (in Years)
Laboratory equipment		5
Furniture and fixtures		5
Computer equipment		3

Impairment of Long-Lived Assets

Long-lived assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amounts of the assets or related asset group

may

not

be recoverable. Determination of recoverability is based on an estimate of discounted future cash flows resulting from the use of the asset. 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.

Intellectual Property

Costs related to filing and pursuing patent applications are recognized as general and administrative expenses as incurred, since the recoverability of such expenditures is uncertain. Upon marketability approval by the FDA, or a respective foreign regulatory governing body, such costs will be capitalized and depreciated over the expected life of the related patent.

Accrued Warrant Liability

Certain warrants are accounted for as derivative instruments in accordance with the Financial Accounting Standards Board Accounting Standards Codification (the "

Codification

") on derivatives and hedging as the warrant holders, under certain change of control situations, could require settlement in cash. As such, the warrants were initially recorded as liabilities based on their fair values on the date of issuance. Subsequent changes in the value of the warrants are recorded in the Statements of Operations as "Change in value of warrant liability."

The Company’s remaining outstanding warrants were treated as equity upon issuance and continue to be treated as equity since they did

not

contain any mandatory redemption features or other provisions that would require a different classification of these warrant instruments outside of permanent equity.

Foreign Currency Translation

The Russian ruble is the functional currency of our foreign subsidiaries, which are all located in the Russian Federation. Assets and liabilities of these companies are translated into U.S. dollars at the period-end exchange rate. Income and expense items are translated at the average exchange rates during the period. The net effect of this translation is recorded in the consolidated financial statements as accumulated other comprehensive income (loss).

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. Comprehensive income (loss) is defined as the change in equity of a business enterprise during a period from transactions and other events and circumtances from non-owner sources. The following table presents the changes in accumulated other comprehensive loss for the year ended

December

31,

2019

	Gains and losses on foreign exchange translations
Beginning balance	$	(611,370	)
Other comprehensive income (loss) before reclassifications		43,340
Ending balance	$	(568,030	)

Revenue Recognition

The Company generates grant and contract revenue from

two

different types of contractual arrangements: cost reimbursable grants and contracts, and fixed-price grants and contracts. Costs consist primarily of internal labor charges, subcontractors and materials, as well as an allocation of fringe benefits, overhead and general and administrative expenses, based on the terms of the contract. Under cost reimbursable grants and contracts, revenue is recognized during the period that the associated research and development costs are incurred. Under fixed-price grants and contracts, revenue is recognized using the percentage-of-completion method. The assumptions and estimates used in determination of the percentage-of-completion are developed in coordination with the principal investigator performing the work.

Research and Development

Research and development ("

R&D

") costs are expensed as incurred. R&D costs primarily consist of salaries, fringe benefits, and stock-based compensation for our clinical and scientific personnel along with a ratable share of our facility expenses. Other R&D expenses include fees paid to research-oriented consultants and outside service providers, and the costs of materials used in clinical trials and other research activities.

Accounting for Stock-Based Compensation

The Cleveland BioLabs, Inc. Equity Incentive Plan, adopted in

2018

(the

"Plan"

), authorizes CBLI to grant (i) options to purchase common stock, (ii) restricted or unrestricted stock units, and (iii) stock appreciation rights, so long as the exercise or grant price of each are at least equal to the fair market value of the stock on the date of grant. As of

December

31,

2019

, an aggregate of

597,557

shares of common stock were authorized for issuance under the Plan, of which a total of approximately

461,452

shares of common stock remained available for future awards. In addition, a total of

136,105

shares of common stock reserved for issuance were subject to currently outstanding stock options granted under the Plan, as in effect prior to the

2018

amendment and restatement. A single participant cannot be awarded more than

100,000

shares annually. Awards granted under the Plan have a contractual life of

more than

years. The terms and conditions of equity awards (such as price, vesting schedule, term and number of shares) under the Plan are specified in an award document, and approved by the Company's board of directors or its management delegates.

The

2013

Employee Stock Purchase Plan (

"ESPP"

) provides a means by which eligible employees of the Company and certain designated related corporations

may

be given an opportunity to purchase shares of common stock. As of

December

31,

2019

, there were

525,000

shares of common stock reserved for purchase under the ESPP. The number of shares reserved for purchase under the ESPP increases on

January

of each calendar year by the lesser of (i)

10%

of the total number of shares of common stock outstanding on

December

31st

of the preceding year, or (ii)

100,000

shares of common stock. The ESPP allows employees to use up to

15%

of their compensation to purchase shares of common stock at an amount equal to

85%

of the fair market value of the Company's common stock on the offering date or the purchase date, whichever is less.

The Company utilizes the Black-Scholes valuation model for estimating the fair value of all stock options granted where the vesting period is based on length of service or performance, while a Monte Carlo simulation model is used for estimating the fair value of stock options with market-based vesting conditions.

options were granted during the years ended

December

31,

2019

and

2018

Income taxes

income tax expense was recorded for the years ended

December

31,

2019

and

2018

as the Company did

not

have taxable income for any of the years presented. A full valuation allowance has been recorded against the Company’s net deferred tax asset.

Earnings (Loss) per Share

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

The Company has excluded the following securities from the calculation of diluted net loss per share because all such securities were antidilutive for the periods presented:

	As of December 31,
Common Equivalent Securities	2019		2018
Warrants		327,253		528,054
Options		136,105		160,076
Total		463,358		688,130

Recently Issued 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.

February 2016,

the FASB issued ASU

2016

02,

"Leases (Topic

842

)" ("

ASU

2016

02"

). ASU

2016

will require organizations that lease assets with lease terms of more than

months to recognize assets and liabilities for the rights and obligations created by those leases on their balance sheets. The ASU will also require new qualitative and quantitative disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. ASU

2016

is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after

December 15, 2018,

with early adoption permitted. The Company adopted this guidance during

2019

with

material impact to the financial statements.