Summary of Significant Accounting Policies

Basis of Presentation and Consolidation

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

612,

and Panacela. All significant intercompany balances and transactions have been eliminated in consolidation.

The consolidated condensed balance sheet as of

December 31, 2019

, 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

-Q and Article

of Regulation S-

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

-K for the year ended

December 31, 2019

, as filed with the SEC (the "

2019

Form

-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

March 31, 2020

, along with its results of operations for the

three

-month periods ended

March 31, 2020

and

2019

and cash flows for the

three

-month periods ended

March 31, 2020

and

2019

. Interim results are

not

necessarily indicative of results that

may

be expected for any other interim period or for an entire year.

March 31, 2020

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

$1.4

million in the aggregate. Management believes this capital will be sufficient to support operations into

August 2020.

To ensure continuing operations beyond that point, management is evaluating all opportunities, including seeking additional capital through debt or equity financing, the sale or license of drug candidates, the sale of certain of our tangible and/or intangible assets, the sale of interests in our subsidiaries or joint ventures, 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

assurances at this time. These matters raise substantial doubt about the Company’s ability to continue as a going concern. These financial statements have been prepared under the assumption that the Company will continue as a going concern and do

not

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

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.

February 2016,

the FASB issued Accounting Standards Update ("

ASU

2016

02,

"Leases (Topic

842

)" ("

ASU

2016

"). ASU

2016

requires 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, 2019.

The Company adopted this guidance during

2020

with

material impact to the financial statements.

Use of Estimates

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

Short-Term Investments

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

$0.4

million in certificates of deposit with maturity dates beyond

three

months and less than

one

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

Significant Customers and Accounts Receivable

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

three

months ended

March 31, 2020

and

2019

	Three Months Ended
	March 31,
Customer	2020			2019			Variance
Department of Defense		73.7	%		32.3	%		41.4	%
Incuron		26.3	%		67.7	%		(41.4	)%
Total		100.0	%		100.0	%		0.0	%

Our current Department of Defense ("

DoD

") revenues come from development contracts that expire in

2020,

although certain contracts

may

be extended. Revenues from Incuron LLC, a company in which the Company used to have an equity interest ("

Incuron

"), come from a service agreement that has historically been renegotiated annually.

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

days.

Other Comprehensive Income (Loss)

The Company applies the Accounting Standards Codification ("

Codification

") on comprehensive income (loss) that requires disclosure of all components of comprehensive income (loss) on an annual and interim basis. Other comprehensive income (loss) is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. The following table presents the changes in accumulated other comprehensive loss for the

three

months ended

March 31, 2020

	Gains and losses on foreign exchange translations
Beginning balance	$	(568,030	)
Other comprehensive income (loss) before reclassifications		(74,477	)
Amounts reclassified from accumulated other comprehensive loss		—
Ending balance	$	(642,507	)

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

March 31, 2020

, an aggregate of

597,557

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

501,160

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

96,397

shares of common stock reserved for issuance were subject to currently outstanding stock options granted under The Cleveland BioLabs, Inc. Equity Incentive Plan, as in effect prior to the

2018

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

100,000

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

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 (the "

ESPP

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

may

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

March 31, 2020

, there are

725,000

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

three

months ended

March 31, 2020

and

March 31, 2019

Income Taxes

income tax expense was recorded for the

three

months ended

March 31, 2020

and

2019

as the Company does

not

expect to have taxable income for

2020

and did

not

have taxable income in

2019

. A full valuation allowance has been recorded against the Company’s net deferred tax asset.

March 31, 2020,

the Company had U.S. federal net operating loss carryforwards of approximately

$146.7

million, of which

$139.7

million begins to expire if

not

utilized by

2023,

and

$7.0

million, which has

expiration, and approximately

$4.2

million of tax credit carryforwards, which begin to expire if

not

utilized by

2024.

The Company also has state net operating loss carryforwards of approximately

$92.6

million, which begin to expire if

not

utilized by

2027,

and state tax credit carryforwards of approximately

$0.3

million,

which begin to expire if

not

utilized by

2022.

The purchase of

6,459,948

shares of common stock by David Davidovich on

July 9, 2015

resulted in Mr. Davidovich owning

60.2%

of the Company at that time. We therefore believe it highly likely that this transaction will be viewed by the U.S. Internal Revenue Service as a change of ownership as defined by Section

382

of the Internal Revenue Code. Consequently, our ability to utilize approximately

$124.8

million of U.S. federal net operating loss carryforwards,

$3.65

million of U.S. tax credit carryforwards, approximately

$73.4

million of state net operating loss carryforwards, and

$0.3

million of state tax credit carryforwards, all of which occurred prior to

July 9, 2015,

are limited. As such, a significant portion of these carryforwards will likely expire before they can be utilized, even if the Company is able to generate taxable income that, except for this transaction, would have been sufficient to fully utilize these carryforwards.

Earnings (Loss) per Share

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

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

dilutive securities outstanding as of

March 31, 2020

	As of March 31,
Common Equivalent Securities	2020		2019
Warrants		222,253		482,763
Options		96,397		160,076
Total		318,650		642,839

Contingencies

From time to time, the Company

may

have certain contingent liabilities that arise in the ordinary course of business. The Company accrues for liabilities when it is probable that future expenditures will be made and such expenditures can be reasonably estimated. The Company recorded a revenue loss contingency of

$544,000

in the

fourth

quarter of

2019

related to deposits paid to a supplier in support of our JWMRP contract which the Company will be responsible for repaying if an agreement is

not

reached with the supplier to return the payment. This item is presented in the liabilities section of the Company's Balance Sheet in Accrued Expenses. In addition, the Company is in the midst of discussions with the Department of Defense regarding cost overruns experienced on certain governmental contracts. The Company has received reimbursement from the Department of Defense for these overruns, and anticipates that the overruns will be eligible for application against cost underspending on other tasks under the government contract. However, given that these discussions remain on-going and have

not

been resolved as of the date of our required filing of our Form

-Q, there remains uncertainty as to the ultimate resolution of this matter. Should this matter ultimately be resolved unfavorably to the Company, there is exposure to refund revenues previously received and recorded in the amount of

$472,310,

plus the potential for penalties and interest.